In this issue of Focus on Finance, I discuss the major trends affecting the economy. To subscribe to Focus on Finance, go to http://subscriptions.beehive.govt.nz/

MERRY CHRISTMAS

As we head into the summer break, it feels like it's been another long year - and, although better than last year, a hard one for many families and businesses. Looking around the corner, there is more work to do to get our economy growing faster, but I'm pleased the economy has grown for five consecutive quarters, unemployment is falling and things look set to steadily improve next year. With those slightly better tidings I'd like to wish all the readers of this newsletter a Merry Christmas and a Happy New Year.

BUDGET POLICY STATEMENT


(Click here to watch this policy briefing on YouTube.)

This week I released the Budget Policy Statement, which previews the issues the Government intends to tackle in Budget 2011. A key focus will be improving New Zealand's poor rate of national savings, which would reduce our reliance on foreign debt and take pressure off interest rates and the exchange rate - helping our exporters. You can read my statement on this here.

The Government has a role to play in this by keeping its own debt under control through tight limits on spending increases and ensuring we get back to surplus as soon as practical. The Savings Working Group is due to report back early in the New Year. The Government will consider its recommendations carefully and I would expect any policy responses to be included in Budget 2011.

Several other substantial reviews will also feed into the Government's economic programme in 2011. They include reports from the Welfare Working Group, the review of spending on policy advice and the Government's responses to the Housing Shareholders Advisory Group report.

TREASURY'S UPDATED FORECASTS



Alongside the Budget Policy Statement, Treasury released their updated forecasts for the economy and the Government's books. The half-year update shows growth has been a bit lower than expected in the current year and the Government's deficit is higher. That comes as no surprise - we know that New Zealanders have been spending less and saving more, which alongside one-off events like the Canterbury earthquake has had a negative impact on the Government's books. The good news is that economic growth, unemployment and the Government's deficit are all expected to improve next year and in the following years.

THE GOVERNMENT'S INVESTMENT STATEMENT

This week I also released the Government's first annual Investment Statement. It clearly shows the Government's assets, liabilities and future investment intentions. It forecasts Crown assets to grow by $33 billion over the next five years to $256 billion - about five times the size of the share market. You can read my statement on this here.

At a time when we are borrowing for all new capital investment, we need to get the most out of our existing asset base and ensure new investment goes into areas where it can provide the largest improvements in public services. We believe this level of transparent information allows the public to demand a much greater level of accountability from the Government and will lead to sharpened incentives and significantly better public sector decision-making.

FAIRER TAX RULES

Last week the Government legislated new tax rules that will close loopholes and help ensure everyone pays their fair share of tax. The changes were outlined in Budget 2010, but required more work and consultation before they could be finalised and put into legislation. The changes will:

• Broaden the definition of income for Working for Families, Student Allowance and the Community Services Card to help prevent people structuring their income to inflate their entitlements.
• Close loopholes in the tax treatment of loss attributing qualifying companies (LAQCs) so shareholders can no longer claim losses against their personal income.
• Ensure people can still claim accelerated depreciation on the fit-out of commercial and industrial buildings. They will also be able to claim the depreciation loading on assets where investment decisions were made before 20 May 2010, but not completed until sometime after.   

You can read my full statement here.

Regards,

Bill English
Finance Miister
www.billenglish.co.nz