ECONOMY CONTINUES RECOVERY

GDP data issued this week shows the economy grew by 0.6 per cent in the March quarter - taking annual real GDP growth to 1.9 per cent. The continuing recovery is good news, as a growing economy is the only way to create new jobs and raise New Zealanders' living standards. However more work is needed to ensure the rebound in jobs and growth is sustainable. You can read my statement here.

The economy still faces serious challenges. While the global outlook has strengthened, it remains fragile, as we can see from the sovereign debt crisis in Europe. This reinforces the need for continuing restraint in government spending and curbing the significant increase in New Zealand's debt to the rest of the world. We also need to continue tilting the economy towards savings, exports and productive industries. Budget 2010 took concrete steps in this direction.

REBALANCING THE ECONOMY

I'm pleased to see that some recent data suggests some of the imbalances that have hampered growth are starting to unwind. Data out this week shows the current account deficit for the year to March 31 has narrowed to $4.5 billion - or 2.4 per cent of GDP, its lowest level in more than 20 years. This compares with deficits that averaged more than 8 percent of GDP between 2005 and 2008. Most forecasts show the deficit widening again as some temporary factors unwind, though not to previous extreme levels.

Other positive early signs are that despite improving consumer confidence, retail spending data for April fell 0.3 per cent and REINZ house sales data for May was flat. This reinforces anecdotal evidence that despite increasing confidence, people are choosing to pay down debt and save rather than spend on housing or consumer goods. This is encouraging, but needs to be sustained for a long period if we are correct or even hold New Zealand's levels of external debt.  

HELPING NEW ZEALANDERS GET AHEAD

There has been a lot of debate in recent weeks about potential increases in the cost of living over the next year as the economy recovers. Some people have suggested the benefits of tax cuts will be outweighed by these and other forecast changes. On that point they are categorically wrong.

Even when the rise in GST, the Emissions Trading Scheme, a small rise in rents and other forecast inflation is taken into account, the benefits of tax cuts increase over time. That is because after-tax incomes are forecast to grow more quickly than price increases in the four years to 2014.

For example a two-child family on the average household income will see their overall benefit from tax changes grow from an initial $25 a week to $41 a week by 2014. The benefit to a typical average wage worker will grow from about $15 a week to about $23 a week over the period, while the benefit to a superannuitant couple on a fixed income will rise from $11 to $15. You can find out how tax changes affect you at www.taxguide.govt.nz.

GETTING OUT AND ABOUT

National list MP Hekia Parata, myself and a few of the attendees at a Porirua Chamber of Commerce post-Budget function.

Since May 20 I've given 26 speeches around the country explaining Budget 2010. It's been great having an opportunity to answer the questions of businesspeople and others and listen to some feedback. The reaction has been overwhelmingly positive. People are supportive of the changes we've put in place and seem to genuinely understand the reasons we are trying to rebalance the economy towards savings, exports and growth.

THINGS TO LOOK OUT FOR

• 1 July: Speech to the New Zealand Herald's annual Mood of the Boardroom breakfast event.
• 1 July: Speech to Auckland Manufacturers and Exporters Association luncheon.
• 16 July: Statistics New Zealand release Consumer Price Index data for the year to March 31.
• 29 July: Reserve Bank Governor Alan Bollard announces the bank's latest Official Cash Rate (OCR) decision.

Regards,

Bill English
Finance Minister