STRONG GOVT SPENDING INCREASES IN LAST FIVE YEARS

On December 15 I'll open the Government's books for the Half-Year Economic and Fiscal Update. This is a chance for the public to get an update on how the Government and the country is doing economically.

(Click here or on the image to watch my latest update.)

One of the things the update will show is the legacy of the previous Government's relentless spending increases. Data compiled by Treasury shows a 45 per cent increase in baseline spending in the past five years. At the same time inflation and the economy grew by only about 15 per cent and revenue by just 10 per cent. That kind of reckless spending growth is clearly unsustainable.

We have already taken steps to rein this in, but these figures show the extent of the spending momentum that built up in the bureaucracy under Labour.

MONETARY POLICY AND THE DOLLAR

Against this backdrop it is rich for Labour to suggest that monetary policy is broken. These large spending increases were a major factor in the peaks in interest rates and the dollar immediately before the global economic slump. In fact Treasury, in a 2006 paper, even warned the previous Government that if it continued to increase spending it would push up interest rates and the currency. It did it anyway.

We believe the large spending increases of recent years provide ample room for savings. If we are to fund new priorities without pushing government debt to unsustainable levels then reprioritising some of the existing spending will be critical. This will be a feature of Budget 2010.

I'm acutely aware of the impact of the high dollar on exporters and that is one of the reasons the Government is reining in spending growth. This will take pressure off interest rates - probably the single most effective thing Government can do to ease the pressure on our dollar.

INFRASTRUCTURE STIMULUS UPDATE

I'm pleased to say the Government's $480 million infrastructure stimulus package announced in February is progressing well. The initiative which fast-tracks a range of housing, roading and school construction projects is part of the Government's rolling maul of initiatives to take the sharp edges off the recession.

As we emerge from the recession we can see that rolling maul is working well. In the past seven weeks a net 1700 people have moved off the unemployment benefit. A good portion of these are due to the Government's Youth Opportunities package, which will now provide about 19,000 job and training placements.

The infrastructure package has also made a contribution. Housing NZ has built 87 new houses and its upgrades of 10,000 houses are well underway, employing on average about 1000 people since February.

Of the five accelerated State Highway projects announced in the package, work on four is underway, while tenders have been received from the fifth. At their peak the projects will collectively support about 600 jobs.

Construction on two of five new schools included in the package is also underway and over half of the $71 million of fast-tracked classroom refurbishment and maintenance work has been completed. The education component of the package is estimated to support about 700 jobs.

As well as these direct jobs, the projects are helping support work for a range of suppliers around the country.

SUPPORTING EXPORTERS

This month I announced an extra $200 million in trade guarantees to increase opportunities for New Zealand exporters. We've made it clear that one of the best ways to ensure New Zealand grows strongly out of the recession is to increase exports and investment.

Ensuring our exporters have the credit flows to maximise the opportunities that flow out of recent trade developments is crucial. In recent weeks New Zealand has signed a free trade agreement with Malaysia, concluded negotiations with Hong Kong and the Gulf Cooperation Council and made progress with the United States.

To read about the three guarantee and bond products that have been extended click here.

NZ COMES THROUGH FINANCIAL CRISIS IN GOOD SHAPE

I'm pleased to see the Reserve Bank's latest Financial Stability Report shows the banking and finance sector is coming through the global financial and economic crisis in relatively good shape. I believe this will be one of New Zealand's competitive advantages as we emerge from recession.

This stability has been helped by Government and Reserve Bank measures such as deposit guarantees, which have kept the financial system sound and operating in an orderly fashion. The report shows bank margins have broadly stabilised at low levels, compared with margins over the past 10 years. It also shows the credit-fuelled boom of recent years is well and truly over with lending growth continuing to slow. This means an increased focus on saving and investing will be needed if we are to grow strongly again.

VISITING THE REGIONS

As Finance Minister listening to the business people who actually make up the economy is crucial to doing a good job. That is why I try to get out and listen to people's ideas and concerns whenever possible. In the past month I spoke to business people and visited firms in Horowhenua, Marlborough, the Bay of Plenty, Taranaki, Christchurch and Timaru.

I welcome feedback on the Government's policies and am keen to hear people's concerns. One way you can do that is by commenting on this newsletter.

Regards,

Bill English
Finance Minister