Finance Minister Steven Joyce has today released the full Government response to the Productivity Commission’s report on More Effective Social Services.

“The Government is well-aligned with the Productivity Commission’s recommended direction,” says Mr Joyce. “We have made a number of changes to our methods of investing in and evaluating social services since the Commission’s report was released.”

“These include implementing the social investment approach, establishing a Minister Responsible for Social Investment and setting up the new Ministry for Vulnerable Children, Oranga Tamariki.”

The Commission delivered its report in September 2015. It provided 89 findings and 61 recommendations, including:

empowering the client by increasing the amount of choice that clients have about what, who, when, where and how they access services improving service delivery to those with complex needs and who have low capacity to co-ordinate and access services improving commissioning and contracting processes operating the investment approach at a cross-programme and cross-agency level creating a system that learns, innovates, and uses data improving monitoring of performance at both the programme and system level.

“The full response released today provides a good stocktake of where we are up to and what is yet to be done,” says Mr Joyce. “This Government is very focused on improving the lives of New Zealanders through the development and application of the social investment approach.”

The Government response can be found at http://www.treasury.govt.nz/statesector/nzpcsocser/

The Government accounts for the first nine months of the 2016/17 financial year showed a surplus of $1.5 billion, compared to a forecast surplus of $147 million at the Half Year Update, Finance Minister Steven Joyce says.

“Growing tax revenues coupled with lower than expected expenditure has resulted in the higher outturn,” Mr Joyce says.

“Tax revenue growth has softened a little in the last month, but over the nine months tax revenue is still up 7.3 per cent compared to the same period last year.”

Net debt is currently at 23.8 per cent of GDP.

“It is clear New Zealand is now one of the few developed countries currently running a fiscal surplus, and that’s a real tribute to the hard work done by all Kiwis over the last three years. These accounts show that if you have a strong economic plan and stick to it, you can achieve real progress,” Mr Joyce says.

“This will be the last set of Government accounts prior to the Budget later this month. Treasury will update our fiscal situation and the fiscal forecasts on May 25th.”

On Thursday 25 May, Finance Minister Steven Joyce will deliver the National-led Government’s ninth Budget.

Budget 2017 will invest in the infrastructure and public services needed for a growing country while delivering surpluses and paying down debt. 

Building and sustaining a strong economy remains the Government’s most important goal.

In the lead up to Budget 2017, we’ve already announced a $321 million Social Investment Package to help our most vulnerable to improve their circumstances, and an $11 billion boost for new capital infrastructure.

We’re a busy and energised Government with a plan. If we stick to that plan we can deliver sustained success.  

Pre-Budget announcements

8 May 2017 • Budget 2017: $27m for marae and Māori housing Hon Te Ururoa Flavell, Minister for Māori Development The special significance of marae to Māori and communities is being acknowledged in this year’s Budget with $10 million over four years allocated to help repair and restore whare and revitalise the paepae, building resilience of those charged with maintaining the protocols of marae, says Māori Development Minister Te Ururoa Flavell.

7 May 2017 • Budget 2017: $60 million more for Pharmac Hon Jonathan Coleman, Minister of Health Budget 2017 invests an extra $60 million over four years to enable Pharmac to provide more New Zealanders with access to new medicines, Health Minister Jonathan Coleman says.

3 May 2017 • Pre-Budget Speech Rt Hon Bill English, Prime Minister New Zealand has an enviable international reputation. We are known for our lifestyle, safe and friendly communities and a clean and green environment. And we have one of the best-performing economies in the developed world, underpinned by the Government’s wide-ranging and sensible economic plan. A growing economy and strong government accounts give us choices we didn’t have just a few years ago.

3 May 2017 • Smarter public investment and services to improve lives Rt Hon Bill English, Prime Minister Prime Minister Bill English has announced challenging new targets for the public service to ensure it continues to improve the lives of New Zealanders, as well as $321 million in funding for social investment initiatives to help our most vulnerable.

3 May 2017 • Budget 2017: $321m Social Investment package Hon Amy Adams, Minister Responsible for Social Investment Budget 2017 will include a $321 million Social Investment Package with 14 initiatives designed to help our most vulnerable to improve their circumstances, Social Investment Minister Amy Adams says.

3 May 2017 • Budget 2017: $68.8m support for vulnerable children Hon Anne Tolley, Minister for Children, and Hon Nikki Kaye, Minister of Education Budget 2017 invests an extra $68.8 million over four years to support vulnerable children and their families, say Minister for Children Anne Tolley and Education Minister Nikki Kaye.

27 April 2017 • Pre-Budget Speech 2017 to the Wellington Chamber of Commerce Hon Steven Joyce, Minister of Finance Budget 2017 is now just under one month away and preparations are continuing. I have four key areas I am thinking about in getting ready for this year’s Budget.

27 April 2017 • Budget funds crucial South Island Transport link Hon Simon Bridges, Minister of Transport Minister of Transport Simon Bridges announced today that Budget 2017 will provide up to $812 million for reinstating State Highway 1 between Picton and Christchurch.

8 February 2017 • 2017 Budget to be presented on 25 May Hon Steven Joyce, Minister of Finance The Government's 2017 Budget will be delivered on Thursday 25 May, and will be centred on providing opportunities for all Kiwis to get ahead, Finance Minister Steven Joyce says.

Finance Minister Steven Joyce has welcomed the International Monetary Fund’s positive assessment of New Zealand’s economy and its financial system, as contained in two reports released this morning.

“The 2017 IMF report on the New Zealand economy endorses New Zealand’s strong economic plan. It notes New Zealand has enjoyed a solid expansion since 2011, and it expects further solid growth in the near to medium term,” Mr Joyce says.

The report is positive about the country’s economic outlook and endorses New Zealand’s macro-economic and fiscal policy settings.

“The IMF notes that the New Zealand economy is more resilient than in the past, specifically referencing our lower current account deficits than in previous periods of expansion. It also notes that New Zealand is benefiting economically from its current growth in population,” Mr Joyce says.

The IMF also released its Financial System Assessment Programme (FSAP) report on New Zealand this morning. 

Mr Joyce welcomed the IMF’s recognition that New Zealand’s financial system is sound and resilient to shocks.

“The IMF assessed New Zealand’s resilience to four key vulnerabilities, the housing market, debt levels in the agricultural sector, the banking system’s dependence on overseas funding, and our ongoing vulnerability to natural disasters.  They found New Zealand has the capacity to withstand any adverse events brought on by those risks.

“We will continue to work to increase resilience, through ongoing regulatory actions by the Reserve Bank and the Government’s work to increase housing supply, reduce public debt and prepare for natural disasters.”

“I’m pleased the IMF has recognised the significant progress that New Zealand has made in developing its regulatory system since the last FSAP in 2003/04, including the introduction of a prudential regime for the insurance sector, the creation of the Financial Markets Authority (FMA) and the introduction of the Financial Markets Conduct Act 2013,” Mr Joyce says.

Mr Joyce said both reports highlight the IMF’s view that the biggest area of policy work for New Zealand to complete is in the prudential policy area.

“The Reserve Bank and other agencies have significant work in progress on a number of matters that the IMF raises, including the proposed Debt to Income lending ratios, the Bank’s current review of bank capital requirements, its review of the Insurance (Prudential Supervision) Act, and MBIE’s review of the Financial Advisors Act.  

“The IMF acknowledges the progress being made on developing a regulatory framework for Financial Market Infrastructure and the extension of the anti-money laundering regime to other sectors.”

The two reports – the New Zealand 2017 Article IV Consultation Report, and the Financial System Assessment Programme Report – are available here.

Finance Minister Steven Joyce today announced the reappointment of Margaret Devlin, Edward Guy, and Carl Hansen to the National Infrastructure Advisory Board (NIAB).

NIAB provides independent expert advice to the National Infrastructure Unit (the Unit) and to the Minister of Finance.

NIAB are the conduit for interaction with the private sector, local government, and others, to promote best practice in the evaluation, planning, funding and delivery of infrastructure, contributing to new policy thinking and undertaking quality review, including for the National Infrastructure Plan.

“These three appointees bring a range of skills and specialist knowledge to provide quality advice on infrastructure project appraisal, capital asset management issues and the development and execution of the infrastructure plan,” Mr Joyce says. “I’m pleased to be able to reappoint them to the Advisory Board.”

The terms for all three appointees are from 1 May 2017 to 30 April 2020.

Biographies

Margaret Devlin has NZ and UK infrastructure industry experience.  She is on the boards of the Metservice, Waikato Regional Airport, WEL Networks, City Care and Watercare Services (CCO) and chairs Harrison Grierson (Australasian engineering company).  Her infrastructure background and specialist knowledge of water issues has proved valuable.

Edward Guy has over 20 years’ experience working with Crown, local government, private and jointly-owned infrastructure assets.  His experience includes water supply and wastewater asset management planning, land transport asset management planning, an integrated transport strategy (Queenstown Lakes Local Roads and State Highways) and solid waste asset management and valuation.  Mr Guy brings his asset management and engineering experience, and working knowledge of local government.

Carl Hansen has been Chief Executive of the Electricity Authority since it was established in November 2010.  Previously Mr Hansen worked for M-Co, originally as chief economist and then as CEO.  He has worked for the Law and Economics Consulting Group, and has held a wide range of policy development and operations roles at the Treasury and Reserve Bank.  Mr Hansen brings senior economic expertise to the board. 

Climate Change Minister Paula Bennett and Finance Minister Steven Joyce have asked the Productivity Commission to review how New Zealand can maximise the opportunities and minimise the costs and risks of transitioning to a lower carbon economy.

“This next step in our climate change work programme will enable us to properly assess the economic trade-offs that we’ll need to make to meet our ambitious 2030 Paris Agreement target,” says Mrs Bennett.

“In the long-term – 2030 and beyond – New Zealand will likely need to further reduce its domestic emissions in addition to the use of forestry offsets and international emissions reduction units, although these will continue to remain an important part of the country’s climate change response for meeting our targets.”

“New Zealand’s domestic response to climate change is, and will be in the future, shaped by our position as a small, globally connected and trade-dependent country” says Mr Joyce. “The Productivity Commission is well-placed to dispassionately assess which of the many ways of reducing emissions will make the most economic sense for New Zealand.”

Given that climate change is an economy wide-issue, the Commission will be able to draw considerable expertise from a range of stakeholders including: central and local government, the Climate Change Iwi Leadership Group, relevant industry and NGO groups, scientific and academic bodies and the general public.

The government is already taking action to support meeting the 2030 target of the Paris Agreement, this includes:

Reviewing the New Zealand Emissions Trading Scheme Encouraging the up-take of electric vehicles and other energy efficiency technologies; and Establishing the Global Research Alliance to fund research into emissions mitigation in pasture based livestock systems.

“This complements the work undertaken by the Parliamentary cross-party group GLOBE NZ, as well as the Government’s expert advisory groups on agriculture, forestry and adaptation,” says Mrs Bennett.

“We look forward to the final report and recommendations for how New Zealand should manage a transition to a lower net emissions economy, while still maintaining and improving the incomes and prosperity of New Zealanders,” says Mr Joyce.

The Commission will report back by 30 June 2018.

The Government has set a new medium-term fiscal target of reducing net debt to between 10 and 15 per cent of GDP by 2025, Finance Minister Steven Joyce says.

“We have made great progress in our immediate target of reducing net debt to around 20 per cent of GDP by 2020,” Mr Joyce says. “Net debt is expected to be at 24.3 per cent of GDP by the end of this financial year. Now it’s time to set a new target for net debt out to the middle of the next decade.”

Mr Joyce says that it is appropriate that any new debt target helps provide the capacity to absorb future shocks when they come along.

“We have learnt from the Global Financial Crisis and the Canterbury earthquakes that shocks can come along at any time, and sometimes they come in pairs.

“In taking the decision to support New Zealand’s most vulnerable people through the GFC, and to support Canterbury after the quakes, we had to borrow significant sums of money. All up we borrowed the equivalent of around 20 per cent of our GDP.

“That was the right thing to do. It allowed us to spread the cost of both events and allowed the economy to recover without extra taxes and without slashing entitlements, as was variously recommended by critics on the left and the right.

“But now it is the time to get net debt down – to make sure we have the capacity to absorb and respond to the next challenges New Zealand will face.”

Mr Joyce says there will always be future shocks and the most important protection against those shocks was to run a strong and vibrant economy.

“We are a geologically young country, and we are also a small country in an often turbulent world – so there are plenty of shocks ahead of us.

“With a strong economy and low net debt, we will be able to respond to whatever the future has in store for us. With net debt at around 10-15 per cent of GDP, New Zealand will have the capacity to absorb not just one but a couple of big shocks at once if we need to, as we had to last time.

“That’s what true resilience is all about. And we owe it to our future to take that decision.”

The Government will allocate $11 billion in new capital infrastructure over the next four Budgets in addition to spending already included in agency baselines, Finance Minister Steven Joyce says.

“We are growing faster than we have for a long time and adding more jobs all over the country,” Mr Joyce says. “That’s a great thing, but to keep growing, it’s important we keep investing in the infrastructure that enables that growth.”

Mr Joyce says that the focus will be on the infrastructure that supports growth, with capital investment in Budget 2017 being increased to $4 billion, including $812 million for reinstating State Highway One, north and south of Kaikoura.

“We are investing hugely in new schools, hospitals, housing, roads, and railways. This investment will extend that run-rate significantly, and include new investment in the justice and defence sectors as well.

The capital commitment in Budget 2017 will represent the biggest addition to the Government’s capital stock in decades.

“To put that into context, the net new capital allocated in the last four Budgets was $4.8 billion, of which $4.1 billion was funded through the proceeds of the mixed ownership model programme,” Mr Joyce says. “In Budget 2016 we were forecasting just $3.6 billion in new capital spend between Budget 17 and Budget 20 compared to $11 billion now.”

“The $11 billion is additional spend on top of investments already planned by the Government.

If you add the Government’s budgeted new capital investment together with the investment made through baselines and through the National Land Transport Fund – the total is around $23 billion over the next four years, or an average of nearly $6 billion per year.

“And we want to extend that further, with greater use of public-private partnerships, and joint ventures between central and local government and private investors.”

“Details of how the first tranche of that money will be invested will be laid out in the Budget” Mr Joyce says. “But in anyone’s language, this is a very big capital spend over the next four years.

“As a country we are now growing a bit like South-East Queensland or Sydney, when in the past we were used to growing in fits and starts,” Mr Joyce says. “That’s great because we used to send our kids to South East Queensland and Sydney to work, and now they come back here.

“We just need to invest in the infrastructure required to maintain that growth. Budget 2017 will show we are committed to doing just that.”

Note for editors: Revised capital allowances for Budget 2017 to Budget 2020

Good afternoon.

Thank you John and Peter and the Wellington Chamber of Commerce.

Special guests, Ladies and Gentlemen. It’s a pleasure to be here.

Budget 2017 is now just under one month away and preparations are continuing.

I have four key areas I am thinking about in getting ready for this year’s Budget.

First, delivering better public services for a growing country – providing all New Zealanders with the opportunity to lead successful independent lives.

Second, building the infrastructure we need in growing a modern economy.

Third, we need to keep reducing debt as a percentage of GDP.

And finally, we remain committed to reducing the tax burden and in particular the impact of marginal tax rates on lower and middle income earners, when we have the room to do so. We need to always remember that every dollar the Government spends comes from hard working Kiwi families.

That’s a lot of things to work on. And at the same time we need to make sure that we continue to build a strong economy.  It’s only by having a strong economy that we get to consider these four priorities.

Today I intend to focus on two of these key budget areas, the importance of building infrastructure, and why it is important to reduce debt.

Economic Outlook

The good news in preparing the Budget is that our economy is performing well because of the Government’s strong economic plan. And that is a real tribute to my predecessor in this role, Prime Minister Bill English.

As a result of his economic leadership New Zealand is now one of the strongest performing developed economies since the Global Financial Crisis.

We have had positive growth in every quarter but one over the last six years.

That is a good performance in any one’s books. But it is even stronger when you compare it with our peers across the developed world. Over the last few years, New Zealand has on average grown faster than the US, the UK, Australia, the EU, Japan and Canada. Last year we were the 5th fastest growing economy across the whole of the OECD.

Consistent economic growth translates into jobs and higher incomes for Kiwis. We have one of the highest employment rates in the whole of the OECD, wages have been growing faster than inflation and as of December, for the first time, 2 ½ million people are employed in this country at any one time. 

New Zealand’s Employment Rate stands at 66.9 per cent, while Australia’s is at 60.9 per cent. Furthermore, 74.6 per cent of the New Zealand labour force is in full time employment, compared to 64 per cent for Australia.

The Reserve Bank is forecasting solid economic growth at an average of 3 per cent over the four year period to 2020. If those predictions come to pass, New Zealand will have been growing almost continuously for a decade.

Of course, the next four years haven’t happened yet and predictions are just that – predictions.  What is important is we understand what is driving this growth and that we take the right steps to ensure it continues rather than slipping back to our more traditional also-ran status.

This Government’s recipe for economic growth is pretty clear.

First, is trade. Much has been made of the massive growth of middle-income consumers across Asia. But it has been New Zealand companies, supported by a trade-friendly government that have been converting those opportunities to actual trade, making New Zealand steadily wealthier. And our exports have continued to grow despite the dairy downturn.

Second, our working-age population is growing, and becoming more highly skilled. That means our companies can hire the people they need to keep growing. Our education system is delivering more graduates with the right skills, our immigration system is providing the necessary skilled migrants, and our flexible labour market is encouraging businesses to add more jobs.

Third, New Zealand firms are becoming more innovative. We are building a strong innovation ecosystem of high-tech companies across the health sector, agri-tech, fintech, software as a service, edtech, govtech, and so on. Our programmes encouraging business research and development are achieving real success – Business R&D was $356 million higher last year than it was in 2014.

Fourth, we are actively encouraging more private sector investment in new businesses and in growing existing businesses especially in regional New Zealand. That includes attracting new international investors whose capital can provide more jobs for Kiwis. At the same time we are working hard to balance the economic needs of our regional communities with our all-important goal of improving environmental outcomes.

Finally, we are building the public infrastructure needed to support growth, including roads, rail, broadband, schools, houses and hospitals.  In some parts of New Zealand, including Auckland – you can’t move for road cones at times – which is frustrating – but a strong sign of how we are building for further growth.

The Government’s plan is called the Business Growth Agenda. Blended with sensible, conservative fiscal policy, and successful orthodox monetary policy and you have a recipe for a steadily growing economy that provides more job opportunities and growing incomes.

One of the biggest risks in the New Zealand economy at the moment is the more insular economic policies being pushed overseas, and by our opponents domestically. Many politicians, even those in New Zealand, want to be more protective on trade, slash immigration, reduce foreign investment, institute radical new environmental regulation, centralise wage bargaining, blow up our R&D incentive system or stop much needed roading being built. And increase taxes. That’s the opposite of a recipe for growth – that’s a recipe for stalling growth.

Government’s Books

New Zealand’s stronger economic performance continues to flow through to the Government's books.

For the first eight months of the year, tax revenue was nearly 4 per cent ahead of Budget 2016 predictions and 7.7 per cent ahead of the same period last year. Our surplus in the eight months to February was $1.4 billion. That’s more than $900 million more than was predicted at the Half Year Update.

A growing and more resilient economy allows us to meet some of the pressing needs that the Government is faced with from time to time.

Terranova

The most recent opportunity was the pay equity settlement in the Terranova case. I’ve yet to meet anybody who doesn’t feel that that was a fair settlement for a group of 55,000 hard-working mostly female New Zealanders who have been trapped in an outdated view of the value of their work for a very long time.

One of the distinctive elements of the case of the residential care-givers is that the majority of the sector’s funding comes from Government. It is also one of the positives of this government’s economic stewardship that this year and at this time we have the resources to address this longstanding issue.

The settlement of the Terranova case will cost the Government around $2 billion over five years. We took a decision to put aside funds that will meet 90 per cent of those costs in the fiscal track at the half-yearly update. While the settlement will cost taxpayers in real terms, we have decided to treat it as outside the operating allowance for Budget 2017 – given the unique size of the settlement.

Some unions and other commentators are already talking up the potential for the Terranova settlement to lead to a number of other large settlements across both the public and private sectors.  However the barrier is rightly set high, because a flow-on to other sectors would mean going back to the old relativities that these workers have just won the right to get away from.

The Government is proud to be able to solve a long standing issue and lift the wages for this group of New Zealanders as part of our quest to ensure that everyone benefits of steady economic growth. 

Kaikoura

Another pressing need has been the response to the Kaikoura earthquake.

When the quake happened, the Government immediately moved to provide support to the affected towns, with the earthquake job subsidy, primary sector and tourism support packages, extra housing assistance through MSD, additional health sector support, and grants to help with the restoration of important local infrastructure, including the Kaikoura Harbour.

The biggest challenge created by the earthquake is the reinstatement of State Highway One and the rail line both north and south of Kaikoura. It’s a massive job – but I can report today that the entire project is not expected to cost as much was originally estimated.

The current expected range for re-instating the road and rail corridors is now $1.1 to $1.3 billion dollars, down from the previous estimate of $1.4 to $2 billion.

Both the road and rail corridors will be able to be largely re-instated where they were previously – except for 2.5 kilometres of new alignment north of Kaikoura.

The Kiwirail share of the corridor rebuild is estimated to be up to $400 million, the largest part of which will be covered by insurance. The Government has put aside a capital contingency for the balance of the rail costs.

The rebuild of the state highway is now expected to cost between $800 and $900 million dollars. So today Transport Minister Simon Bridges is announcing the Government will commit $812 million to the State Highway One rebuild as part of the capital budget in Budget 2017.

The New Zealand Transport Agency and Kiwirail both continue to expect their respective parts of this crucial transport corridor to open before the end of this calendar year.

The reinstatement of the transport corridor around Kaikoura is the biggest but by no means the only large cost that will be paid by the Government and taxpayers for the Kaikoura earthquake.

The Government will be assisting the local Kaikoura, Hurunui and Malborough District Councils with the reinstatement of their lifeline utilities. That cost is expected to run to $60 million and will be included in government baselines in Budget 2017. 

We have also made an additional $2 million contribution to the Kaikoura District by forgiving their loan for the new medical centre, and today Minister Brownlee is announcing an extra $1.8 million of new operating funding to the town’s water infrastructure costs as part of Budget 2017.

The costs to EQC of the Kaikoura earthquake sequence are now expected to be $550 million. This will be met from EQC’s current cash position, but EQC will have very few funds available of its own after this event and the Edgecumbe floods. 

The Government of course stands behind EQC, and the organisation carries billions of dollars of reinsurance to cover a major event, but the Kaikoura earthquake hastens the need to finalise decisions in relations to EQC’s future operations. Minister Brownlee and I intend to announce decisions on the EQC review in the next two to three months.

The total cost to government of the Kaikoura earthquakes continues to evolve – but currently is still expected to be in the order of $2 to $3 billion.

Infrastructure for a Growing Country

Yesterday I had my first drive along the 22km Kapiti Expressway.  That is an impressive piece of infrastructure which is reducing journey times and connecting communities on the coast and across the lower North Island.  It’s the first stage of a multi-billion dollar development which includes Transmission Gully and the Otaki expressway.  And nine years ago it wasn’t even on the drawing boards.

Earlier in the day I travelled down the newly widened North-Western motorway in Auckland, and through the widening of SH20 in Mt Roskill, and through the new Kirkbride Road link to Auckland airport.  I’ve also recently visited and travelled over the new motorways and expressways in the Bay of Plenty, Waikato, Christchurch and Dunedin.

This Government is New Zealand’s infrastructure government. Our investment in roads, rail, broadband, schools, electricity transmission and hospitals has been unprecedented. And we are increasing it further.

At the half-year update the Government decided to increase the new capital spend for Budget 2017 from $900 million to $3 billion. We have reviewed that figure again as we prepare for Budget 2017 and our total new capital spend for each year over the forecast period.

Today I can announce that the Government has decided to invest $11 billion in new capital infrastructure over the next four years including $4 Billion in this year’s budget alone.

To put that into context, the net new capital allocated in the last four Budgets was $4.8 billion, of which $4.1 billion was funded through the proceeds of the mixed ownership model programme.

In Budget 2016 we were forecasting just $3.6 billion in new capital spend between Budget 17 and Budget 20 compared to $11 billion now.

The $11 billion is additional spend on top of investments already planned by the Government.

If you add the Government’s budgeted new capital investment together with the investment made through baselines and through the National Land Transport Fund – the total is around $23 billion over the next four years, or an average nearly $6 billion per year.

Details of how the first tranche of that money will be invested will be laid out in the Budget on May 25th.  But in anyone’s language, this is a very big capital spend over the next four years.

And we want to extend that further, with greater use of public-private partnerships, and joint ventures between central and local government, and private investors. 

This is the level of investment we need to make in a country that is growing strongly and one that we want to have grow further, and with it grow more and higher paying jobs, in the years ahead.

National Resilience

Another of the Government’s key fiscal goals is its net debt target. We have set a target of reducing net debt as a proportion of GDP to about 20 per cent by 2020.

And that’s all about resilience.

Resilience has become a bit of a buzzword in this country in recent times. Recent earthquakes and flood events have placed emphasised the importance of resilient buildings, resilient infrastructure, and resilient communities.

But the most important resilience we need to have is to be a resilient country. A country that has the ability and capacity to respond to the needs of the most vulnerable people and communities in the face of a natural disaster.

We have direct experience over the last eight years of how important this capacity is.

When the Global Financial Crisis hit, the world economy plunged and New Zealand with it. The combination of Labour’s spending, a 50 per cent increase in five years, and the impact of the GFC meant that our new Government was faced with Treasury’s prognosis of a ‘decade of deficits’ with net debt expected to climb to more than 60 per cent of GDP.

We took the decision to protect the support for more vulnerable New Zealanders through the GFC and immediately started to rein in some of the previous Government’s more wild spending plans.

Then New Zealand had the second big shock – the Canterbury earthquakes.

These two major events meant we had to borrow significant sums of money. Firstly to cushion vulnerable New Zealanders from the worst effects of the GFC, and secondly to rebuild Christchurch.

Net debt grew rapidly. We expected it to peak at 30 per cent of GDP. It actually peaked at 26 per cent.

The deficit grew – reaching $18 billion.

The important point is that to manage New Zealand through those two shocks meant borrowing the equivalent of about 20 per cent of our GDP.

That was the right thing to do. It allowed us to spread the cost of both events and allow the economy to recover without extra taxes and without slashing entitlements – which critics on the left and right were calling for at the time.

But now it is the time to get that debt down – to make sure we have the capacity to absorb and respond to the next challenges New Zealand will face.

There will always be future shocks.  We are a geologically young country, and we are also a small country in an often turbulent world – so there are plenty of bumps in the road ahead of us, whether they are natural disasters or from international events.

The Kaikoura earthquake was tough for Kaikoura, for Waiau, and Seddon in particular. But it would have been much tougher for New Zealand if it had been centred a bit further north in Wellington.

It’s important we start to save now for our next rainy day.   The most important protection against future shocks to run a strong and vibrant economy.  Lowering debt levels gives us the capacity to do this.

That’s why the Government has set the target to reduce debt to around 20 per cent of GDP by 2020 – and we are determined to maintain the progress to that target in this budget, both by growing the economy and reducing debt. And 20 per cent is just a staging post. 

In Budget 2017 the Government will set a new medium-term fiscal target of getting net debt to between 10 and 15 per cent of GDP in another five years – by the middle of next decade.

At 10 to 15 per cent, New Zealand will have the capacity to absorb not just one but a couple of big shocks at once if we need to, as we had to last time.

That’s what resilience is all about. And we owe it to our future to take that decision.  And we’ll be able to do it while making the level of capital investment I talked about earlier.

Summary

The Government’s budget is about balancing competing concerns, and that is always the challenge.

Whether in deficit or in surplus there are many alternative uses for the available resources.

The Government has set four priorities for Budget 2017 – boosting public services, building new infrastructure for a growing country, reducing debt, and seeking to lift family incomes.

However the biggest priority is the one that pays for the other four. It is only through having a strong economy that we can tackle the others, and provide for the income and security of New Zealanders.

Building and sustaining a strong economy therefore remains the Government’s most important goal.

It is only through having a strong and prosperous economy, that we can deliver a prosperous and successful New Zealand.

The Crown accounts for the eight months to 28 February posted a $1.4 billion operating surplus before gains and losses, $912 million better than expected at the half yearly update, Finance Minister Steven Joyce says.

“Higher tax revenues and lower than forecast expenditure mean the OBEGAL surplus is better than expected,” Mr Joyce says.

Tax revenues from the last year are 3.8 per cent ahead of Budget 2016 expectations and 7.7 per cent ahead of the same period last year, with all categories of tax growing.

“The Government has collected $3.5 billion more in tax in the first eight months of this year compared to last year,” Mr Joyce says. “That’s one of the dividends the country obtains from a consistently growing economy that is responding to a strong economic plan.”

Core Crown expenses were $395 million below forecast.

The $1.4 billion OBEGAL surplus compares to Treasury’s Budget 2016 forecast of a $568 million surplus for the eight months to February at the start of the fiscal year.

“While, the expenses outturn will continue to move around a little, it is good to see the trend of growing tax revenues continue as we head into Budget 2017, Mr Joyce says.

“It’s also good to see us making progress on our debt target, with net debt currently at 23.5 per cent of GDP,” Mr Joyce says. “Reducing net debt to around 20 per cent of GDP by 2020/21 will improve the resilience of the New Zealand economy to future shocks.”