News and Updates from Bill English

A new legislative framework for the issuance of covered bonds by New Zealand registered banks will provide greater clarity for investors and depositors, Finance Minister Bill English says.

The Reserve Bank of New Zealand (Covered Bonds) Amendment Bill, introduced to Parliament today, provides for the Reserve Bank to maintain a register of banks’ covered bond programmes and provides greater legal certainty for investors in the unlikely event of a bank defaulting.

Covered bonds are debt securities where the bond holder is an unsecured creditor of the issuing bank, but holds a secured interest in a separate pool of assets called the ‘cover pool’.

“Covered bonds can have significant benefits for registered banks as a long-term source of relatively stable finance. They also allow banks to diversify their funding by providing access to new investors and to a funding market that has been very resilient, even during the global financial crisis,” Mr English says.

“The register will offer greater clarity for investors and depositors as to which assets are set aside for the benefit of covered bond holders.”

The Reserve Bank already imposes a limit on issuance of covered bonds, which balances the benefits of covered bond issuance against the impact on unsecured creditors.

“Providing a legislative framework will give investors greater legal certainty as to the treatment of cover pool assets in the unlikely event that the issuing bank defaults. Such frameworks already exist in most other countries with covered bond markets,” Mr English says.

It is intended the new framework will come into effect this year, with a transition period to enable the registration of existing covered bonds programmes.

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Finance Minister Bill English has welcomed a report from University of Otago researchers, which analyses changes in income and deprivation between 2002 and 2009.

“The report confirms there was substantial income mobility over the period, with many New Zealanders moving in and out of different income bands.

“For example, only a quarter of those whose income was assessed to be in the bottom 10 per cent of incomes in 2002 were still in that position in 2009. That’s comparable to other countries such as Australia and the United Kingdom,” Mr English says.

This relatively high level of income mobility, particularly for lower income groups, confirms the need for careful targeting of government support and incentives.

The report also shows that only a small proportion of New Zealanders spend long periods on low incomes and in deprivation.

“The Government will continue with its programmes to help more New Zealanders to take advantage of opportunities to move into work, education and skills training,” Mr English says.

The research report, by Dr Kristie Carter and Dr Fiona Imlach Gunasekara of the Public Health Department at the University of Otago, examined longitudinal survey data collected in Statistics New Zealand’s annual Survey of Family, Income and Employment (SoFIE).

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The Budget later this month will confirm the path back to surplus in 2014/15, despite lower than forecast tax revenue in the Government financial statements in the nine months to 31 March, Finance Minister Bill English says.

Core Crown tax revenue was $1.6 billion below the Pre-Election Economic and Fiscal Update forecast and overall revenue was lower by $1.8 billion. However this was offset by lower core Crown expenses of about $1.8 billion.

The operating balance before gains and losses was about $800 million below forecast – mostly due to EQC recognising costs from the 23 December earthquake.

“These statements are consistent with preliminary Budget forecasts which show a $1 billion deterioration since the Budget Policy Statement in February,” Mr English says.

“The Government is committed to returning to surplus in 2014/15 and the Budget will confirm that. But we shouldn’t underestimate the challenge – returning to surplus will require tight spending control for the foreseeable future.

“Returning to surplus is important because New Zealand is one of the most indebted countries in the world as measured by our net international investment position.

“We need to start rebuilding a buffer for when the next global crisis comes. Surpluses give us choices we simply don’t have while we’re running deficits.

“But while we’re making some challenging decisions to get back to surplus, we will continue with the same balanced approach we’ve adopted for the previous three Budgets.

“We’re keeping up entitlements to welfare and superannuation and we’ll be investing more in health, education and law and order,” Mr English says.

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Budget 2012 will set out balanced decisions to ensure the Government remains on track to surplus in 2014/15, Finance Minister Bill English confirmed today.

In particular, it will address a $1 billion deterioration in the forecast operating balance before gains and losses in 2014/15 between the Budget Policy Statement in February and preliminary Budget estimates.

“It’s important that we return to surplus because New Zealand is one of the most indebted countries in the world as measured by our net international investment position,” Mr English told the Wellington Employers’ Chamber of Commerce today.

“We need to start rebuilding a buffer for when the next global crisis comes along. Surpluses give us choices we simply don’t have while we’re running deficits.”

Returning to surplus by 2014/15 is a significant challenge, requiring tight control over spending for the foreseeable future, Mr English said.

“The scale of the challenge was again highlighted in preliminary Budget estimates ministers received in recent weeks.

“They revealed a $1 billion deterioration in preliminary forecasts of the operating balance before gains and losses in 2014/15, compared to the Budget Policy Statement in February. In other words, the preliminary Budget estimates showed a $640 million deficit in 2014/15, compared to the $370 million surplus predicted in the BPS.”

This reflected a number of factors, such as the impact of lower global growth on short-term, New Zealand growth forecasts. This in turn flowed into lower government revenue expectations.

In addition, New Zealand Superannuation Fund revenue and State Owned Enterprises profits had been revised downwards, and finance costs and earthquake costs were revised upwards.

“But ministers remain focused on staying on track to surplus in 2014/15 for all the reasons I’ve outlined,” Mr English said. “They are making decisions to achieve that. As a country, we can’t afford to spend money we don’t have.”

These decisions include:
• Running what will be very close to a zero Budget, meaning little new net government spending in this Budget out to 2014/15.
• Continuing to reprioritise existing spending into higher priority areas to ensure better public services.
• Considering the appropriate level of future operating allowances, while ensuring we can deliver better services.
• Continuing with revenue-enhancing measures signalled in Budget 2011such as fairer tax treatment of employee benefits, new rules for mixed-use assets such as holiday homes, and a new approach for livestock valuation.
• Proceeding with $1 billion of public sector savings over the next three years, as announced in Budget 2011 to ensure chief executives had time to plan. Those savings begin on 1 July this year.

The Budget will also propose changes in the Public Finance Act so there are more checks and balances on ministers’ spending decisions and their long-term effects.

This includes a proposed spending limit to restrict spending increases to population growth and inflation, as set out in the National-ACT confidence and supply agreement.

“So you can see that this Government is serious about getting back to surplus by 2014/15,” Mr English said.

“But I want to stress that while we’re making some challenging decisions to get back to surplus, we will continue with the same balanced approach we’ve adopted for the previous three Budgets.

“We’re keeping up entitlements to welfare and superannuation, and continuing with large programmes like Working for Families and interest-free student loans. We will invest more in health and education. We promised New Zealanders we would do that.

“We’re investing money up front to support New Zealanders out of welfare. We’re also remaining strong on law and order and demanding better, more innovative, public services. This Government has a strong track record in these areas.”

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Good afternoon. Thank you to the Wellington Employers’ Chamber of Commerce for inviting me back to speak to you again this year – it’s a pleasure to be here.

Our ministers value opportunities like this to share ideas about how we can meet the challenges we face as a nation - and how we can grasp the many opportunities we have.

So I look forward to your comments and questions at the end of this session.

In exactly four weeks, the National-led Government will deliver its fourth Budget. It will set out the next steps in our economic programme, which you will be familiar with by now.

Over the past three-and-a-half years, we’ve successfully steered New Zealand through the domestic and global recessions we inherited in 2008.

We continue to stand beside the people of Canterbury after the series of devastating earthquakes.

We’re making good progress in putting the economy on a more productive and competitive footing. And we’ve made early progress dealing with the long-term, structural challenges facing many countries around the world. Read full article

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