Budget’s focus on managing a growing economy

Budget 2014 focuses on managing New Zealand’s growing economy by returning the Government’s books to surplus next year and making important investments in families and public assets, Finance Minister Bill English says.

“The Government has moved from managing our way out of recession to managing a growing economy,” he says. “We’ve made significant progress in recent years that is delivering more jobs and higher incomes.

“Businesses are investing, wages are rising faster than inflation, and our export sector is posting record results despite the headwinds of disruption in international markets.

“The Government is forecast to achieve a surplus of $372 million next year, with increasing surpluses in following years, and to reduce net government debt to below 20 per cent of GDP by 2020.

“Budget 2014 continues the Government’s increased investment in health and education – including tertiary education. In the coming year, we will invest more than $28 billion in these two areas and we are getting better results from that spending every year.

“The Budget contains a $500 million package of extra support for children and families. We’re able to do this because of the hard work done in previous Budgets to get spending under control and get back to surplus.”

The Government’s main priorities for this term are:
· Responsibly managing its finances.
· Building a more productive and competitive economy.
· Delivering better public services.
· Supporting the rebuilding of Christchurch.
Responsibly managing the Government’s finances
The Government remains on track to meet its two fiscal targets – getting back to surplus in 2014/15 and bringing net core Crown debt back down to 20 per cent of GDP by 2020.
Budget forecasts show the operating balance before gains and losses in surplus by $372 million in 2014/15, increasing to $1.3 billion, $2.4 billion and $3.5 billion respectively over the following three years.
Longer-term projections show net debt dropping to 20 per cent of GDP in 2019/20, in line with the Government’s target. This includes the impact of resuming full contributions to the New Zealand Superannuation Fund in 2019/20.
“The Government will stick to its $1 billion a year operating allowance in this Budget. The allowance will increase to $1.5 billion in Budget 2015 and then by 2 per cent a year.
“Treasury advises that lifting the annual allowances to $1.5 billion a year is around the upper limit for increased spending without materially impacting on interest rates.
“This is a moderate increase that will provide the Government with future options around investment in public services and modest tax reductions.
“Allowances of $1.5 billion are modest by historic standards and remain well below those adopted in the mid-2000s. They are built into all the forecasts and projections in the Budget.”
Building a productive and competitive economy
New Zealand’s economy grew by 3.1 per cent in 2013 – the fifth-highest in the OECD.
The Budget forecasts show growth of between 2 per cent and 4 per cent over each of the next four years, with growth forecast to peak at 4 per cent in the year to March 2015.
The stronger economy is supporting more jobs – 84,000 more jobs were created in the past year – and higher incomes. The average wage has increased by $3,000 in the past three years to $54,700. Based on the latest growth forecasts it is expected to increase by a further $7,600 to $62,300 over the next four years.
“A broad-based economic recovery is now well established,” Mr English says. “Through difficult times, New Zealand firms have become resilient and innovative.
“Looking ahead, there are huge opportunities for New Zealand as countries in the Asia-Pacific region develop rapidly and demand more of what we produce.
“The Government is looking to support people and business to take risks, create new products and services, adapt to market pressures and enjoy success.”
The Business Growth Agenda sets out a framework for achieving this across six areas – skilled and safe workplaces, capital markets, export markets, innovation, infrastructure and natural resources.
Budget 2014 includes a number of important initiatives in these areas, including:
· $69 million of operating funding for New Zealand Trade and Enterprise to expand New Zealand’s presence in China, South America and the Middle East.
· $53 million to increase the number of Centres of Research Excellence (CoREs) to 10, including a CoRE that focuses on Māori research.
· $56.8 million over four years to increase investment in contestable science and innovation, taking total Government investment in science and innovation to $1.5 billion by 2015/16.
· Loss-making start-up companies will be able to cash out all or part of their tax losses from R&D expenditure; and all businesses will be allowed tax deductibility for R&D “black hole" expenditure that is currently neither deductible nor able to be depreciated. These two measures will return an estimated $58 million in tax to innovative companies over four years.
The Accident Compensation Corporation’s consistent performance has allowed ACC levies for households and businesses to fall by close to $1 billion since 2011/12. The Budget indicates ACC is on track to further reduce levies by around $480 million in 2015/16, subject to public consultation by ACC.
Depending on the outcome of that consultation, the average levy for a private motor vehicle could fall by around $130 a year from 1 July 2015.
The successful completion of the Government’s share offer programme has provided almost $4.7 billion for the Future Investment Fund, which is being invested in new public assets such as schools and hospitals. Of this total, $1 billion is allocated in Budget 2014, taking the amount allocated to date from the Future Investment Fund to almost $3 billion.
Allocations from the Fund in this Budget include:
· $200 million allocated for health, including $67 million for a new Grey Base Hospital on the West Coast.
· $172 million to continue the upgrade and replacement of school buildings.
· A further $198 million to support Kiwirail’s Turnaround Plan which includes $150 million earmarked for infrastructure.
· $75 million for a Christchurch housing contingency.
· A further $40 million to Crown Irrigation to invest in the design and construction of irrigation schemes to boost agricultural production.
· $30.6 million towards the Hobsonville Land Company housing development.

The Government is taking a number of steps to avoid another doubling of house prices – as happened in the last decade – to mitigate the economic risks and imbalances that would create.

This includes important housing accords with councils, reforming the Resource Management Act to free up more land for housing, and increasing support for first home buyers through expanded Welcome Home Loans and KiwiSaver.
Budget 2014 confirms duties and tariffs will be temporarily removed by 1 July 2014 on many imported building materials. Officials estimate this will reduce construction costs for an average home by around $3,500.

Delivering better public services

“Our top priority for new discretionary spending is supporting children and families, especially young families and those vulnerable children who most need our care and protection,” Mr English says.

The Budget’s $500 million package to support children and families has five parts, and over the next four years will include:
· $172 million to boost the paid parental leave scheme. Paid leave will be extended by four weeks - starting with a two-week extension from 1 April 2015, and another two weeks from 1 April 2016. The eligibility of paid parental leave will also be expanded to include caregivers other than parents (for example, permanent guardians), and to extend payments to people in less-regular work or who recently changed jobs.
· $42 million to increase the parental tax credit from $150 a week to $220 a week, and increase the entitlement from eight weeks to 10 weeks, from 1 April 2015.
· $90 million to provide free GP visits and free prescriptions for children aged under 13, starting on 1 July 2015.
· An additional $156 million to help early childhood centres to remain accessible and affordable, meet demand pressures, and increase participation towards the Government’s 98 per cent target.
· $33 million in 2014/15 to help vulnerable children, including eight new children’s teams around the country to identify and work with at-risk children and their families, to screen people who work with children, and to support children in care.
The Budget commits an extra $1.8 billion for better health services over the next four years, taking total health spending to a record $15.6 billion in 2014/15. This includes an extra $112.1 million for disability support services, $110 million for elective surgery, and $96 million for increased home-based support services.
As announced last week, the duty-free tobacco allowance will fall from 200 cigarettes to 50 cigarettes, in line with the allowance in Australia. This is a further step towards reducing harm from smoking, which causes up to 5,000 premature deaths a year.
“Alongside health, the Government has also invested strongly in education throughout the recovery,” Mr English says. “That investment is showing results. Educational achievement has started to improve after years of poorly-targeted spending under the previous government that failed to deliver better results.”
Budget 2014 builds on those results, with $858 million of new funding over the next four years and the remainder of this year for education in the early childhood, primary and secondary schooling sectors. This takes total spending in these areas to $10.1 billion next year.
This includes $359 million over four years set aside for the Investing in Educational Success programme to strengthen leadership and quality teaching across schools.
The Government is also investing $199 million in new operating funding for tertiary education to strengthen the higher education system, further improve the quality of our universities and help them maintain their international competitiveness.
Continuing its reform of social housing, the Government is investing $30 million to help the community housing sector provide homes for high-need families. The Budget also allocates $64 million of operating and $16 million of capital funding to enable the Ministry of Social Development to assess clients’ needs and allocate tenants to both Housing New Zealand and community housing providers.
Supporting the rebuilding of Christchurch

“From the first earthquake in September 2010, the Government has backed Cantabrians in the initial response, the recovery and now the rebuild,” Mr English says.

Of the estimated $40 billion cost of the rebuild, the Government has now allocated $15.4 billion.

Budget 2014 provides $50 million of extra funding over the next two years for the Canterbury Earthquake Recovery Authority, in addition to $19.5 million funded from existing contingencies established in Budget 2013, and will ensure it can deliver on its priorities.

In addition, the Government is providing $3.5 million to help up to 1,000 beneficiaries from other parts of New Zealand, if they have a full-time job offer in Canterbury and are ready and willing to move there.

Ends

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