News and Updates from Bill English

Core Crown tax revenue was about $500 million below forecast in the five months ending 30 November, reinforcing the need for ongoing spending restraint and responsible fiscal management, Finance Minister Bill English says.

“The Government is committed to reducing its deficits over the next two years and returning to surplus in 2014/15,” he says. “This won’t be easy, particularly with ongoing debt problems in Europe reducing forecasts for global growth.

“However, returning to surplus and repaying debt are among the most important things the Government can do to ensure New Zealand can withstand future shocks and build a more competitive economy based on exports and new jobs.”

The Government’s operating deficit before gains and losses was $4.48 billion in the five months to 30 November. This was $252 million larger than forecast in the pre-election update in November – reflecting lower than forecast tax revenue, which was partly offset by lower than forecast core Crown expenses.

Costs from the latest Canterbury earthquake on 23 December will be included in the Crown accounts when the Earthquake Commission has measured the financial impact.

Mr English says the Budget Policy Statement, to be issued on 16 February, will confirm the Government remains on track to post a budget surplus in 2014/15.

“Not surprisingly, given the more subdued global economic outlook, that surplus now looks like being smaller than the $1.5 billion forecast in the pre-election update – at somewhere between $300 million and $500 million.

“As the Prime Minister said yesterday, returning to surplus is important to our plan to limit debt and take pressure off interest rates and the exchange rate,” Mr English says.

The Government has announced a series of hui to consult with Maori on legislative changes it considers are necessary for the float of minority shareholdings in four State Owned Enterprises to New Zealanders.

Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall will lead the February consultation process with iwi around the country, which will be facilitated by Sir Wira Gardiner.

The Government is also seeking written submissions through a consultation document on its proposal to remove Genesis Energy, Meridian Energy, Mighty River Power and Solid Energy from the SOE Act and put them under new legislation that ensures the Government retains at least 51 per cent ownership and other individual shareholdings are limited to 10 per cent, Mr English said.

"We promised to talk with iwi when we originally announced plans to partially sell the four energy companies and Air New Zealand last year,” Mr English said. “We want to understand Maori views before we take final decisions.”

Mr Ryall said the consultation will not cover specific investment opportunities, but iwi investment on a commercial basis will be welcomed.

"The Government has promised all New Zealand investors they will be at the front of the queue for shares."

Mr English said the five partial share floats will free up billions of dollars for investment in schools, hospitals and public infrastructure – and help ensure New Zealand avoids the kind of debt crisis faced by Europe.

The consultation document, together with information on how to make written submissions, will be available from 1 February 2012 at: www.treasury.govt.nz/mixed-ownership-consultation

The deadline for receipt of submissions is 5pm on 22 February 2012.

The schedule for hui is:

22 December. Finance Minister Bill English looks back over developments in 2011 - particularly events in Christchurch - and talks a bit about the agenda for 2012. He says that New Zealand's is a "fundamentally resilient economy" regardless of what happens elsewhere in the world.

In this final edition of Focus on Finance for 2011, I talk about the major events of the year - and what's coming up for the new Government in 2012.

MERRY CHRISTMAS
Click here to watch my latest briefing on YouTube

As we head into the summer break, it feels like it's been another long year - and a hard one for many families and businesses, particularly in Canterbury.
While it's been tough, it's been heartening to see the resilience New Zealanders have shown in the face of big challenges. People have pulled together and they've rolled up their sleeves and got on with the job at hand.

On a brighter note, the All Blacks won the World Cup and the economy has continued to improve, despite ongoing global uncertainty. Looking around the corner, there is more work to do to get the economy growing faster and the Government is firmly focused on that task. You'll see more of that next year, but in the meantime, I'd like to wish all the readers of this newsletter a Merry Christmas and a Happy New Year.

THE ECONOMY CONTINUES TO GROW

It was pleasing to see the economy posted solid growth of 0.8 per cent in the September quarter on the back of an increase in manufacturing output and a boost to tourism and spending from the Rugby World Cup. The result took GDP growth to 1.9 per cent in the past year. For more information read my media statement.

Despite the challenges of volatile global markets and a high Kiwi dollar the outlook for New Zealand's exports remains positive and rebuilding in Canterbury will contribute to growth as it picks up next year.

NEW GOVERNMENT KICKS INTO GEAR AFTER THE ELECTION

The Government has kicked back into gear, with support agreements signed with ACT, United Future and the Maori Party within two weeks of the election. Ministers have been sworn in, Cabinet has met and taken decisions on a number of issues - including the two outlined below around AMI and the mixed ownership model - and the Government has outlined its programme for the next three years in the speech from the throne. Ministers will be busy in the New Year working on that programme and implementing the Government's post-election action plan.

AMI SALE GIVES PROVIDES GREATER INSURANCE CERTAINTY

IAG's agreement to purchase AMI Insurance is good news for the Canterbury insurance market and the Government's liability in relation to its back stop support deal for AMI policyholders. As part of the deal, IAG has given an undertaking to continue to offer insurance to AMI's customers, as well as all of its existing customers, on renewal and transfers in Canterbury and throughout New Zealand. We welcome this assurance, which will ensure ongoing insurance cover for 60 per cent of the Canterbury market.

As part of the deal, the Crown will take over ownership of AMI Insurance's Canterbury earthquake related claims. The part of AMI dealing with earthquake claims - along with its reinsurance for those events - will be retained as a new Crown company and will continue to manage AMI's earthquake claims, ensuring continuity for customers. Treasury estimates the Crown's liability will drop from $335 million, in the last published set of full-year Crown accounts, to about $120 million, as a result of the deal. For more information, read my media statement.

EXTENDING THE MIXED OWNERSHIP MODEL

The Government has confirmed the next steps in its mixed ownership programme to offer New Zealanders minority shareholdings in four state-owned energy companies and Air New Zealand. Cabinet has agreed that Mighty River Power should be the first company prepared for an initial public offering (IPO), most likely in the third quarter of 2012, subject to market conditions. The programme is likely to involve a number of IPOs spread over the next three years or so, depending on market conditions and company circumstances.

Mixed ownership is a win-win. It's an opportunity for New Zealanders to invest in something other than housing or finance companies. And it will free up taxpayers' money so the Future Investment Fund can invest in priority new assets like schools, hospitals and irrigation, without having to borrow from overseas lenders. For more information about the Government's decisions read my media statement. For further information, read Treasury's background paper.

THINGS TO LOOK OUT FOR

• 19 January - Statistics New Zealand will release the Consumer Price Index for the December quarter.
• 26 January - The Reserve Bank will issue its latest Official Cash Rate review.

Regards,

Hon Bill English
Finance Minister

www.billenglish.co.nz

The economy posted solid growth in the September quarter, despite considerable global uncertainty, Finance Minister Bill English says.

Statistics New Zealand today confirmed gross domestic product (GDP) grew by 0.8 per cent in the September quarter. The economy has grown in nine out of the past 10 quarters. GDP grew by 1.9 per cent over the last year.

"It’s pleasing to see growth picking up again, after a relatively flat second quarter, on the back of an increase in manufacturing and a boost to tourism and spending from the Rugby World Cup," Mr English says.

"This result was achieved against a backdrop of global uncertainty. Since then the global outlook has worsened as Europe seeks solutions to its sovereign debt problems.

"We face challenges from increasingly volatile global financial markets, reduced demand for our products in some markets and a high Kiwi dollar.

"But, the outlook for New Zealand's exports remains positive and rebuilding in Canterbury will have a positive impact as it picks up next year.

"The rebuild, along with high export prices and interest rates at 40-year lows, gives us confidence the economy will continue to experience moderate growth next year.

"We’re also confident this recovery will be built on a sound platform of higher savings, exports and productive investment, rather than the excessive borrowing, consumption and government spending of much of the past decade.

"Returning to Budget surplus in 2014/15, lifting savings and exports and increasing the competitiveness of the economy will remain the focus of the Government’s programme," Mr English says.