Budget takes steps to lift savings, investment

Hon Bill English
Minister of Finance

19 May 2011

The Government has confirmed several measures to increase national savings, including mapping a faster path back to budget surplus and providing New Zealanders with a wider range of investment opportunities.

“It’s important that New Zealand, across households, businesses and the Government, increases its level of savings and moves away from relying heavily on foreign debt,” Finance Minister Bill English says. “Budget 2011 takes several steps to help achieve that.

“The Government’s own finances have an important part to play in lifting national savings. And there are other areas where the Government has a role in creating the right environment for New Zealanders to play their part in lifting national savings.

“This was a core message from the Savings Working Group earlier this year.

“Following important and savings-friendly tax changes in Budget 2010 – including across the board personal income tax cuts and a reduction in company tax - this Budget provides New Zealanders with a wider range of investment opportunities and helps give them extra confidence to invest.”

The Savings Working Group also made a number of recommendations, such as reducing distortions in the tax system caused by inflation – for example, by taxing only inflation-adjusted returns on savings.

“The Government will consider these ideas and continue to work on further policy changes to improve national savings,” Mr English says. “We need to be mindful that the issues are complex and should not be rushed.”

In the meantime, Budget 2011 has taken several immediate measures to ensure the Government plays its part in lifting national savings, Mr English says.

“A careful review of the Government’s spending priorities – including changes to KiwiSaver and better targeting of programmes such as Working for Families and student loans - will allow us to return to a healthy surplus in 2014/15, one year earlier than forecast in December.”

Budget initiatives to assist savings through deeper capital markets and increased investor confidence include:

• Changes to KiwiSaver, reducing the cost - and borrowing - to the Government and encouraging individuals to save more of their own money for their retirement. KiwiSaver will continue to build a large pool of local capital, expected to reach $25 billion by 2015 and almost $60 billion in 10 years.
• Extending the mixed ownership model to four state-owned energy companies and reducing the Government’s majority stake in Air New Zealand, which will create new and attractive investment opportunities for New Zealanders.
• The creation of an earthquake Kiwi Bond, which will generate funds to help meet the Government’s share of rebuilding Christchurch.
• Issuing a new inflation-indexed bond.
• The local government funding agency will start operating later this year. It will be a collective local body debt vehicle, providing cheaper funding for local projects as well as more liquid assets for investors.
• The Government will consider creating broadly diversified, sharemarket-listed passive debt and equity vehicles – as suggested by the Savings Working Group. They would offer easy, one-stop access to local capital markets.
• Resourcing government agencies to support New Zealanders in making informed investment decisions – including establishment of the new Financial Markets Authority.

ENDS

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