Search

The Budget next week will set a credible path back to budget surplus, after Government financial statements today confirmed a $10.2 billion operating deficit before gains and losses for the nine months to 31 March, Finance Minister Bill English says.

The deficit includes the Earthquake Commission’s $1.5 billion estimated share of costs for the February earthquake in Christchurch. However, it does not include the Government’s support package for AMI policyholders, which was signed after 31 March.

The Government’s Review of Expenditure on Policy Advice identifies several significant issues with the cost, quality and management of policy advice and makes 36 recommendations to address them.

The review, announced last year, will help the Government’s wider programme to control growth in the costs of public sector back office functions and deliver better frontline public services, Finance Minister Bill English says.

However, it does not recommend specific cuts to policy advice spending.

The Government agrees with the OECD that New Zealand should return to budget surplus as soon as possible and the Budget next month will take steps in that direction, Finance Minister Bill English says.

“In its economic survey of New Zealand out today, the OECD points out that achieving faster economic growth requires progress across a broad policy front,” Mr English says.

A report benchmarking the administrative and support functions of state sector agencies shows there is room for further savings that can go towards improving frontline public services, Finance Minister Bill English says.

Treasury today released the results of its benchmarking report, which concludes government agencies could save more than $230 million a year through greater sharing, standardisation and automation of back office processes and systems.

The Government will spend about $8.5 billion over the next few years to help the rebuilding of Christchurch, Finance Minister Bill English said today.

“The earthquakes do not fundamentally change our economic situation or the Government’s programme,” he said in a speech to the Wellington Employers’ Chamber of Commerce. “They simply make the task of returning to surplus a little more difficult.”

Deputy Prime Minister and Finance Minister Bill English leaves for China on Wednesday, where he will attend the annual Bo’ao Forum for Asia and meet senior government and business leaders in Beijing and Shanghai.

The Bo’oa Forum, to be hosted by Chinese President Hu Jintao on the southern Chinese island of Hainan, brings together government, business and academic leaders from across Asia. It aims to promote regional economic integration.

The Government has announced it will provide a back up financial support package for AMI Insurance to give policyholders certainty and to ensure an orderly rebuild of Christchurch in the aftermath of the two earthquakes.

The support package would be called on only as a last resort if AMI’s own reserves have been exhausted – unless the Crown believes it is in the public interest to take control sooner, Finance Minister Bill English said today.

A significant impact from the second Canterbury earthquake and revisions to expected Crown recoveries under the Retail Deposit Guarantee Scheme are reflected in the Government’s accounts for the eight months to February.

“The accounts do not include the full costs of the earthquake,” Finance Minister Bill English says. “But they do include an estimate of the Earthquake Commission’s net cost of $1.5 billion.

The new Productivity Commission's first two inquiries will be into housing affordability and international freight services – two areas that affect New Zealand's international competitiveness, Finance Minister Bill English and Regulatory Reform Minister Rodney Hide say.

The Ministers also announced the appointments of Sally Davenport and Graham Scott as commissioners, working alongside New Zealand Productivity Commission chairman Murray Sherwin.

Ministers will initially refer two topics for inquiry to the Productivity Commission:

Change in the public service will need to pick up momentum to meet the Government's goals of high-quality frontline services with little extra money, Finance Minister Bill English says.

"Getting on top of our fiscal position, and rebalancing the economy, necessarily means the Government being a smaller part of the economy than it is now," Mr English said in a speech to the Institute of Public Administration New Zealand (IPANZ) in Wellington today.

The Government has put in place several tax relief measures to help Christchurch residents and businesses trying to get back on their feet after last month’s earthquake, Finance Minister Bill English and Revenue Minister Peter Dunne announced today.

“With the end of the tax year rapidly approaching, businesses and employers in Christchurch and around New Zealand need some certainty about the tax issues arising from the Canterbury earthquakes,” Mr English said.

Statistics issued today confirm the economy was subdued in the second half of 2010, although there are reasons to be optimistic about the outlook for the coming year, Finance Minister Bill English says.

“Gross domestic product figures for the December quarter largely confirm what other indicators have been telling us.

“They reflect slower domestic growth as New Zealanders increased their savings and paid down debt, as well as the significant impact of the first Canterbury earthquake,” Mr English says.

The second round of Budget 2010 tax changes will help make businesses more competitive and further rebalance the economy towards savings and exports, Finance Minister Bill English and Revenue Minister Peter Dunne say.

"Cutting the company tax rate will make New Zealand more competitive and increase incentives for businesses to reinvest earnings back into jobs and growth," Mr English says.

The Canterbury earthquakes are likely to slightly delay the return to budget surplus, but it is important the Government gets debt back to pre-earthquake levels to absorb future economic shocks, Finance Minister Bill English says.

“Officials are still working through their updated forecasts as we prepare for the Budget,” Mr English said in a speech to ANZ’s Capital Markets Conference in Wellington today. “But two things are already clear:

A Bill setting up a new local government funding agency is expected to be introduced to Parliament shortly, according to Finance Minister Bill English and Local Government Minister Rodney Hide.

“The agency will lower the overall cost of borrowing for all councils by allowing a co-operative approach to raising finance,” Mr Hide said. “It is estimated the agency could save local authorities collectively around $25 million a year.”

The Government is considering options for maintaining confidence in the financial system when the Retail Deposit Guarantee Scheme expires at the end of this year, Finance Minister Bill English says.

“During the global financial crisis, many countries sought to reassure retail depositors that their savings in financial institutions were safe,” he says. “In New Zealand, we did that through the Retail Deposit Guarantee Scheme.

Government financial statements for the seven months to January 31 are broadly in line with forecast, but this will change significantly in the coming months as the impact of the Christchurch earthquake becomes clear, Finance Minister Bill English says.

While the latest accounts show spending and revenue consistent with forecasts in the Half-Year Update in December, tax revenue was still about 4 per cent behind Budget 2010 forecasts.

The Treasury’s preliminary assessment of the Christchurch earthquake’s economic impact confirms the need for the Government to carefully consider its priorities, Finance Minister Bill English says.

It also points out that economic growth was slower than forecast previously, even before the latest earthquake. This reflects soft domestic demand – as New Zealanders save more - despite exporters benefiting from higher commodity prices.

The Government has reaffirmed its commitment to provide the financial resources necessary to rebuild Christchurch and the Canterbury economy, Finance Minister Bill English says.

“The earthquake has clearly dealt a considerable human and economic blow to Canterbury, and this will have a significant impact on the Government’s finances and the wider New Zealand economy. Its effects will be felt for some years to come.

The Government has welcomed offers of help from New Zealand’s business community to the Christchurch earthquake recovery effort, Finance Minister Bill English says.

“I joined the Prime Minister today in a conference call with the chief executives of Business New Zealand’s major companies group – representing most of New Zealand’s largest businesses.

“The Government is already mounting a huge rescue and recovery effort in Canterbury and we welcome the support and constructive ideas from the business leaders.

Government financial statements for the six months ending December 31, show the cash deficit heading towards a record $15.6 billion in the current financial year, Finance Minister Bill English says.

The statements show revenue and spending broadly in line with forecasts in the Half-Year Update.

“However with the cash deficit already sitting at a record $13.2 billion and set to rise to $15.6 billion by June 30 – adding to New Zealand's already large stock of foreign debt - there is no room for complacency," Mr English says.

The Government’s multi-billion dollar investment in important construction projects has helped prevent unemployment from peaking well above 7 per cent - as it has in many other countries, Finance Minister Bill English says.

“I have no doubt that thousands more New Zealanders would be out of work without the Government’s considerable infrastructure programme,” he said today in a speech hosted by the Auckland Chamber of Commerce and Massey University in Auckland.

A new Investment Protocol under the Closer Economic Relations (CER) trade agreement further strengthens the investment relationship between Australia and New Zealand, Finance Minister Bill English says.

Australian Prime Minister Julia Gillard and New Zealand Prime Minister John Key signed the Investment Protocol in Wellington today.

After tax wages are continuing to rise faster than prices, reflecting the benefits of the income tax cuts last year and ongoing wage rises.

“We do understand that times still remain challenging for many New Zealanders. What really matters for them is whether their wages are rising faster than the cost of living,” Finance Minister Bill English says.

“While we don’t know everyone’s individual circumstances, average after-tax wages have increased 16 per cent and consumer prices have gone up 6 per cent since September 2008.