Hon Bill English
Minister of Finance

24 May 2012

Competitive economy, surplus at heart of Budget

Budget 2012 invests in building an innovative and productive economy that sells more to the world, supports more jobs, and delivers better public services while getting back to fiscal surplus, Finance Minister Bill English says.

“It takes the next steps in the Government’s plan to build sustainable long-term growth based on more exports, higher savings, and more effective investment,” he says.

“Budget 2012 invests significantly in health, education, science and innovation, and welfare, while bringing down long-term costs of public services and delivering better results for New Zealanders.

“And the Budget continues the Government’s focus on addressing the imbalances built up in the economy during the 2000s.

“It does those things while keeping the Government on track to surplus in 2014/15, when New Zealand will be one of the very few developed countries not running deficits and increasing public debt.

“Good fiscal management is important because it helps us pursue the Government’s other economic priorities,” Mr English says.

The Government’s main priorities

During the next three years, the Government’s main priorities are:

• Responsibly managing the Government’s finances.
• Building a more productive and competitive economy.
• Delivering better public services within tight financial constraints.
• Rebuilding Christchurch.

“Budget 2012 focuses on implementing that plan,” Mr English says.

Responsibly managing the Government’s finances

The Budget shows the Government remains on track to surplus, with $4.4 billion of new operating spending over the next four years matched by a combination of savings and revenue initiatives.

“So the Government is making significant new investment in priority areas, while at the same time keeping a tight rein on growth in spending and public debt,” Mr English says.

Budget forecasts show an operating deficit before gains and losses of $8.4 billion in 2011/12, which compares with the $12.1 billion deficit forecast in the Budget Policy Statement in February. This reflects lower-than-expected government spending and a delay in some expenses, such as earthquake costs.

The forecast deficit falls to $7.9 billion in 2012/13 and $2 billion in 2013/14, before a $197 million surplus in 2014/15.

The forecasts also show Budget decisions will keep net core Crown debt below 30 per cent of gross domestic product. It is forecast to peak at 28.7 per cent of GDP in 2013/14.

The Government is proposing changes to the fiscal responsibility provisions of the Public Finance Act, including seeking parliamentary support to legislate for a limit on increased spending based on inflation and population growth.

Budget forecasts also show economic growth picking up from 2 per cent this calendar year to more than 3 per cent in 2014 and 2015.

The Treasury expects a further 154,000 New Zealanders to gain work over the next four years, on top of the 60,000 increase in employment over the past two years.

Building a more productive and competitive economy

Budget 2012 invests heavily in infrastructure, innovation, and skills – ingredients in creating a more productive and competitive economy that support more jobs and higher incomes.

“New jobs are created and incomes grow only when businesses have the confidence to invest, to take risks to employ more people, and to pay higher wages,” Mr English says. “The Budget supports those businesses with more investment in innovation and science.”

The Government’s annual spending on science and innovation will increase by $385 million over the next four years, taking total science and innovation spending across government to more than $1.3 billion by 2015/16.

Budget 2012 further invests in improving transitions for young New Zealanders from school into work or training, by providing an additional 3,000 free Youth Guarantee places at a cost of $37.7 million over four years.

The Government is establishing the new Future Investment Fund to invest the expected $5 billion to $7 billion proceeds from selling minority shares in five SOEs, into modern schools and hospitals, innovation, and transport.

Budget 2012 confirms the allocation of the fund’s first $558.8 million, including:

• The first $33.8 million of $1 billion ring-fenced for modernising and transforming New Zealand schools as part of the Government’s 21st Century Schools programme.
• A further $250 million towards the KiwiRail Turnaround Plan.
• $88.1 million for the health sector, most of which will go towards hospital redevelopments.
• $76.1 million for the creation of the Advanced Technology Institute.

Delivering better public services within tight financial constraints

The Government is creating a more innovative and efficient public sector to deliver better results to meet the modern demands of New Zealanders.

“Two months ago, the Prime Minister set 10 challenging and specific results for the public service to achieve over the next three to five years,” Mr English says.

“They include difficult issues like reducing crime, reducing long-term welfare dependency, and reducing educational under-achievement. At the same time, they will require a sharp focus on costs.”

In addition to the previously announced target of having 85 per cent of 18-year-olds achieving NCEA Level 2 or equivalent qualification in five years, the Budget today confirms two more measurable targets for the next three to five years:

• Reducing prisoner reoffending by 25 per cent by 2017. Reaching this target would mean 18,500 fewer victims of crime every year.
• Increasing the rate of participation in early childhood education to 98 per cent by 2016 from 94.7 per cent currently.

The Government is embarking on an ambitious welfare reform programme, which focuses on supporting New Zealanders into work.

In the first phase of welfare reform, Budget 2012 invests $287.5 million on education and training. This includes $148.8 million over four years for youth services, including wrap-around support.

Despite tight financial constraints, investing in better frontline health services remains a priority for the Government.

Over the next four years, the Government is committing almost $1.5 billion extra to health. District Health Boards will receive $1.11 billion of additional funding.

Education will focus on increasing student achievement. Over the next four years, the Government will commit $511.9 million towards new early childhood and schooling initiatives, in addition to setting aside further funding in tagged contingencies. In tertiary education, the Government will continue to better target student assistance to where it is most needed and ensure better value for taxpayers.

Rebuilding Christchurch

Budget 2012 continues the Government’s commitment to rebuilding Christchurch.

“The total cost of the damage is estimated at more than $20 billion, so it is without doubt the largest – and most complex – economic project we’ve seen in this country,” Mr English says. “The Government is providing considerable resources for the Canterbury rebuild.

“We set aside $5.5 billion in Budget 2011 for the Canterbury Earthquake Recovery Fund and we established the Canterbury Earthquake Recovery Authority. More than $3.46 billion of the Recovery Fund will have been spent by June 2013 and the rest will be spent by 2015/16.”

The Government is developing a blueprint for central Christchurch to take forward the draft central city plan. It has also assisted with supplying land for housing by using special earthquake recovery powers to allow re-zoning of residential subdivisions.

“Finalising the remaining residential land zoning decisions and settling outstanding insurance claims are therefore priorities,” Mr English says.

ENDS

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