Investing in New Zealand’s Future

Finance Minister Bill English delivered the National-led Government’s fourth Budget on 24 May 2012. In his Budget Speech, Mr English said that the Government is on track to post an operating surplus in 2014-2015, when it will start bringing debt down to prudent levels. The Minister sees this is a considerable achievement, given the difficulties New Zealand has faced over the past three years:

• A sharp recession that started in early 2008.
• The Global Financial Crisis, which is still being felt around the world.
• The destructive earthquakes in Canterbury.

First Priority of Government

The first priority of the Government as stated in Budget 2012 is responsibly managing the Government's finances:

• Budget 2012 assists the return to surplus by offsetting new spending with savings and new revenue.
• Returning to surplus will allow the Government to bring forward debt repayment, allow the Government’s balance sheet to start growing in value again and will free up resources for the tradable sector.

Government's other 3 priorities

Mr English stated that good fiscal management will help the Government pursue the Government’s other three priorities:

• Building a more productive and competitive economy:
• Budget 2012 makes significant new investments in research and innovation.
• Budget 2012 establishes the Future Investment Fund, which will invest proceeds from the partial sale of shares in four SOEs and Air NewZealand in new taxpayer assets over the next few Budgets.
• Delivering better public services: The Prime Minister has set 10 challenging results for the public service to achieve over the next three to five years, including reducing crime, reducing long-term welfare dependency and reducing educational underachievement. Budget 2012 announces two more. Progress towards these targets will be reported publicly. They are:
• 85 per cent of 18-year-olds having NCEA Level 2 or equivalent in five years - up from 68 per cent;
• Increasing the rate of participation in early childhood education to 98 per cent in four years - up from 94.7 per cent;
• Reducing prisoner reoffending by 25 per cent in five years. Reaching this target would mean 18,500 fewer victims of crime every year.

The other seven results targets will be released by 30 June.

• The commitment to rebuilding Christchurch and the surrounding areas: Budget 2012 announces new initiatives to support the rebuild of Christchurch funded from the Canterbury Earthquake Recovery Fund (CERF), including:
  • $114.9 million in additional funding for the Canterbury Earthquake Recovery Authority to oversee the reconstruction.
  • $13 million in Vote Social Development for NGO-led initiatives to support Cantabrians and assist with the recovery.

 Economic outlook

The New Zealand economy has grown modestly but steadily, despite significant headwinds, according to Mr English. Since the recession, the economy has expanded in nine out of the past 10 quarters, and growth is forecast to rise to more than three per cent in 2014-2015.

New Zealand’s growth outlook is stronger over the next few years than that forecast for the Euro area, the United Kingdom, Japan, the United States, and Canada, and according to Mr English, has similar to forecast growth in Australia. Households and businesses have started to save and pay down debt, and New Zealand’s household savings rate is positive for the first time in a decade, and is forecast to increase to almost 4 per cent by 2016.

Mr English said that growth in the near term will be driven by a number of factors: the rebuilding of Christchurch; the demand for exports by New Zealand’s two largest trading partners, Australia and China; benefit from trade with other fast-growing economies in the Asia Pacific region; and terms of trade remaining relatively high.

However, global weakness and volatility, particularly in the Euro area and the United Kingdom, meansNew Zealand must focus on the issues it can directly control, including getting back to surplus, reducing government and private sector debt, and improving competitiveness.

Mr English said that New Zealand’s outlook is more positive than most, being “a food-producing economy on the doorstep of a rapidly growing middle class in the Asia-Pacific region.”  He said that providing the Government sticks to its balanced and ongoing economic programme over the coming years, he is “confident we will grasp these opportunities.”

By comparison with the Euro area, the United Kingdom and the United States, New Zealand is going through a moderate adjustment, and is avoiding the substantial cuts to public services and living standards being seen in many other developed countries.

Find Out More

This is an extract from a 23 page special issue Budget 2012 report prepared by our taxation writers for Alert24 taxation subscribers. Compiled as soon as the Budget was released, it was sent the following morning.

The full document contained a complete summary of all announcements including taxation.

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