Focus on Finance: Budget 2010

27 May 2010 2 Comments

In this issue I discuss some of the most important drivers and outcomes in Budget 2010, with special emphasis on tax reforms, the growth dividend and getting debt under control.

 

CLICK HERE TO WATCH MY VIDEO ON THE BUDGET

Last week I delivered my second Budget. Whereas the focus of Budget 2009 was dealing with the immediate effects of the global recession, Budget 2010 is about positioning New Zealand for faster, sustainable economic growth.

Only through lifting long-run economic growth can we create jobs, raise incomes, close the gap with our trading partners and improve the living standards of New Zealand families.  

Budget 2010 delivers on that score by:

  • Reforming the tax system to put the right incentives into the economy and rebalance it towards savings, investment and exports.
  • Investing in New Zealand's future through a significant boost to scientific innovation and substantial new spending on infrastructure.
  • Continuing to get debt and deficits under control.
  • Investing record sums in priority public services such as health and education.

You can read my main Budget media statement as well as view all Budget ministerial statements on the Beehive website. You can view the Budget documents themselves on the Treasury website.

REFORMING THE TAX SYSTEM

The over-riding aim of Budget 2010 is to lift growth by rebalancing the economy towards savings, investment and exports - and away from borrowing, property speculation and excessive government spending. The reason we have gone for a once-in-a-generation reform of the tax system is that tax is one of the few levers we can pull which has a pervasive effect throughout the economy.

The tax package delivers on four objectives:

  • It rewards effort and helps families get ahead.
  • It helps us attract and retain skilled people in New Zealand.
  • It encourages savings and productive investment - and discourages excessive borrowing, consumption and property speculation.
  • And it makes the tax system fairer, strengthens the rules around property investment and gives Inland Revenue extra resources to enforce the current law.

At all taxable income levels, the across-the-board personal income tax cuts more than offset the rise in GST. This is fair and leaves the vast majority of New Zealanders better off. You can read more about the tax package and calculate your own tax cut at www.taxguide.govt.nz

THE GROWTH DIVIDEND

These tax reforms along with other growth-focused Budget measures, such as substantial investments in research, science and technology and infrastructure, contribute to stronger growth than previously forecast.

The Treasury is now forecasting real GDP growth of 3.2 per cent in the year to March 2011 - a significant improvement on the 1.8 per cent forecast in the Budget last year. The projections now show fairly steady growth at about 3 per cent over the next four years. This includes expected extra growth from the Budget tax package, which Treasury conservatively forecasts to add about 1 per cent to the size of the economy by 2017.

CONTINUING TO GET DEBT AND DEFICITS UNDER CONTROL 

The Budget shows an improved fiscal outlook over the forecast period, with both Crown debt and Budget deficits better than forecast in Budget 2009. We now expect the deficit to peak at just over 4 per cent of GDP next year, before returning to surplus in 2016 - three years sooner than forecast in the Budget last year.

That is quite a turnaround and as a result the Crown debt forecasts have also improved. Net debt is now expected to peak at 27 per cent of GDP in 2014/15 - falling to 14 per cent by 2023/24 - reducing our vulnerability to volatile sovereign debt markets. A big part of the improvement is the Government remaining within its $1.1 billion allocation for new operating spending. We've managed this by shifting another $1.8 billion of low priority spending into higher priority public services in areas like health and education

GETTING OUT AND ABOUT

In the last week I've been getting out and about to explain the Budget, hear what people think and answer their questions. There has been an overwhelmingly positive response with large audiences throughout New Zealand. So far I have spoken in Wellington, Lower Hutt, Porirua, Christchurch, Oamaru, Hamilton, Rotorua, Tauranga, Gisborne. Over the next week I'll be speaking in Auckland, Kerikeri, Dunedin, Christchurch and Queenstown.

THINGS TO LOOK OUT FOR

  • 10 June: RBNZ's next Monetary Policy Statement, including the Official Cash Rate announcement.
  • 23 June: March quarter balance of payments (includes current account and net international investment position).
  • 24 June: March quarter GDP.

Regards,
Bill English, Finance Minister

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#1 - Mike Minogue 2010-05-27 17:36 -

Hi Bill You are on the right the right track at last but more reform is needed to make things as simple as possible ie: Reduce the Cost of compliance. You need to get rid of tax assessment for businesses based on historical returns and revert to PAYE based on actual transactions paid from the start of commencement. You also need to axe the ETS system this is patently the worst thing you could have introduced I have been a fan of National for many years but this will make me change my vote, next election for absolute sure. You need to encourage the polluters by incentives not penalties. Kind Regards Mike.

#2 - John Chant 2010-05-29 11:58 -

Dear Minister. Like many superannuitants on limited income I am implacably opposed to the introduction of the ETS. Those, like yourself, at the top of the fiscal tree will notice absolutely nothing regarding disposable income from the increase in tax, for that is what it is. We, however, will bear the brunt and our standard of living will suffer...and for what? NZ produces less than 1/2 of 1% of global emissions which is nothing so why penalise the population. It is utter madness to "lead" the way when nobody follows. Surely your government can understand what that shows. After the Kyoto fiasco, the rantings of Al Gore and the collapse of Copenhagen surely we have the common sense to pull our grandstanding heads in and acknowledge that the ETS is a non-starter and we are a global laughing-stock. Whilst you put your hands deeply into our pockets at a time of recovery from recession perhaps you will explain who will be the recipients of the largesse. Remember us older types are your constituency and the next election is not so far off. A week is a long time in politics and much can change swiftly. John Chant.


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