Budget 2013: Delivering progress and optimism

Budget 2013 confirms New Zealand is on the right track, with forecasts of economic growth, more jobs, rising wages, and a return to surplus by 2014/15, Finance Minister Bill English says.

“New Zealanders can look to the future with well-earned confidence and optimism,” he says. “The New Zealand economy grew 3 per cent last year, which is almost the same as Australia, and higher than almost every other developed country.

“Wages have been increasing, cost of living increases have been modest, and interest rates are at 50-year lows.

“There are 50,000 more jobs in the economy than two years ago, although unemployment does remain too high and attracting new investment that creates jobs is a particular focus for the Government.

“The fiscal outlook has improved markedly as a result of the Government’s sound management and we are on track to surplus in 2014/15.

“These are real achievements that are benefitting New Zealanders and their families. Budget 2013 is about building momentum in this programme.”

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 Budget confirms the Government is on track to meet its two key fiscal targets – to get back to surplus by 2014/15 and to bring net core Crown debt back down to no higher than 20 per cent of GDP by 2020.

Forecasts show an operating surplus before gains and losses of $75 million in 2014/15. The Government is achieving this while still spending $5.1 billion on new initiatives in the current year and over the next four years in Budget 2013 – funded in part by reprioritising existing spending.  A surplus is forecast because tax revenue is picking up and the Government is continuing to restrict growth in expenses.

“The Government’s return to surplus is not dependent on the Mighty River Power share sale,” Mr English says. “The share offer programme effectively swaps one type of asset for another – electricity company shares for cash – so its primary effect is on the mix of assets and debt that the Government owns, rather than on the operating balance.”

Net core Crown debt is forecast to peak at 28.7 per cent of GDP in 2014/15, before falling. Longer-term projections show net debt dropping to 17.6 per cent of GDP by 2020/21 – compared with Budget 2009 showing that, without policy changes, net debt would exceed 60 per cent of GDP by the early 2020s.

“So this is a remarkable turnaround in the books,” Mr English says.

However, when expressed in dollar terms, net core Crown debt is still rising by around $130 million a week and is expected to peak at $70 billion in 2016/17.

“As households around New Zealand know, carrying substantial debt is neither comfortable nor financially prudent. So the Government is firmly focused on capping, then reducing this debt.”

Budget 2013 confirms decisions to help achieve that:

• The operating allowance is $900 million in Budget 2013, compared with $800 million signalled previously, and will be $1 billion in Budget 2014, compared with $1.2 billion signalled previously. From 2015 onwards, operating allowances will grow by 2 per cent per Budget.
• The Government intends to delay contributions to the New Zealand Superannuation Fund until net core Crown debt is no higher than 20 per cent of GDP. Contributions are now expected to resume in 2020/21.

Building a more productive and competitive economy

A feature of Budget 2013 is a $100 million-a-year internationally-focused growth package, providing extra research and development assistance to businesses, additional funding for tourism, and more resources for marketing New Zealand to international students.

“This growth package acknowledges New Zealand’s need to pay its way in the world through increased trade and investment, which in turn creates jobs and opportunities for New Zealanders,” Mr English says.

Within the package, science and innovation funding is increased by $50 million a year. This takes the Government’s annual investment in research and development to $1.36 billion in 2013/14, which is the highest ever.

Additional Budget measures to build a more productive and competitive economy include:

• Allowing for ACC levy reductions of around $300 million in 2014/15, increasing to around $1 billion in 2015/16. When combined with the $630 million levy reduction in 2012/13, these changes will amount to around 40 per cent lower ACC levy rates for households and businesses, with the impact varying over the different accounts.
• Confirming a further $1.5 billion to be invested using proceeds from the Government’s share offer programme, including in redeveloping Christchurch’s hospitals, building modern schools and classrooms, and supporting irrigation infrastructure.
• Announcing that Meridian Energy will be the next company to be prepared for a partial share offer, in the second half of 2013.
• Legislation to improve housing affordability, which will deliver flexible regulatory tools to councils under accords between the Government and councils in areas where housing is least affordable.
• A memorandum of understanding with the Reserve Bank Governor confirming a range of measures, if required, to protect the economy from periods of excessive growth in credit and asset prices, reduce reliance on unstable sources of funding, and require banks and other financial institutions to better manage their own risks.
• A number of revenue measures, including a proposal to allow loss-making start-up companies to claim tax losses on research and development.

Delivering better public services within tight financial constraints

Following work by the Ministerial Committee on Poverty, Budget 2013 confirms several important initiatives to support low-income families. They include:

• $100 million over three years for the Warm Up New Zealand: Healthy Homes programme targeting low-income households, particularly those with children or high health needs, for home insulation.
• More than $21 million over the next four years for rheumatic fever prevention.
• An extra $1.5 million for Budgeting Services in 2013/14, in addition to the $8.9 million provided already in 2012/13.
• A whiteware procurement programme to enable beneficiaries to purchase new appliances under warranty using Ministry of Social Development repayable grants.
• Investigating a partnership with NGOs and financial institutions to support the provision of low or no-interest loans for low-income borrowers.
• A trial on Housing New Zealand properties of a Warrant of Fitness programme for rental housing.

“It is widely acknowledged that paid employment is the best way to lift vulnerable families out of poverty,” Mr English says. “The Government will invest a further $188.6 million over four years for the next stage of welfare reforms, to help more New Zealanders into work.

“The Budget includes changes to ensure social housing is provided to those most in need. Over four years, it includes an additional $46.8 million for extra income-related rent subsidies, as part of the Government’s wider support for high-needs tenants, and an extra $26.6 million to extend income-related rent subsidies to non-government community housing providers.

“The focus on providing better frontline healthcare and prevention continues. Over the next four years, we will invest $1.6 billion in new initiatives and to meet cost pressures and population growth.

“And the Government is helping more New Zealanders get the skills they need to build successful careers and fulfil their potential. We are lifting student achievement in all levels of the education system.

“Budget 2013 further supports these measures with over $900 million in the current year and over the next four years for new education initiatives across early childhood, primary and secondary education.”

Supporting the rebuild of Christchurch

The total estimated cost of rebuilding Christchurch has increased to around $40 billion from the previous $30 billion estimate. The Government’s share of the cost is around $15 billion – up from the $13 billion estimated previously.

Considerable progress is being made.

• The Red Zone offer has been accepted by more than 7,000 households, or over 98 per cent of those eligible.
• The infrastructure alliance has completed $700 million worth of work, with over $400 million of projects currently under construction.
• The demolition of nearly 1,000 buildings in the Christchurch CBD is almost finished and over $1 billion of new commercial buildings have received consents in Greater Christchurch.
• And by the end of this month, the Earthquake Commission will have completed 38,000 repairs and paid out more than $5.3 billion in claims.

The Budget confirms an additional $2.1 billion to support the rebuild. Over $900 million of this funding comes from the Future Investment Fund for projects including the Christchurch and Burwood hospitals redevelopment, funding for the justice and emergency services precinct and tertiary education institutions.