In this issue of Focus on Finance, I talk about our economic agenda for 2011, with particular emphasis on savings and the upcoming Budget.

HAPPY NEW YEAR

Firstly I'd like to wish everyone a happy New Year. 2010 was extremely busy and I hope you had the opportunity get away for a bit of a break and spend some time with loved ones. While it was nice to have a holiday, the 2011 political year has started with a bang. We're getting on with implementing our economic programme and the pace is unlikely to let up between now and the election.

LIFTING OUR NATIONAL SAVINGS

Click here to watch my latest briefing


This week I received the report of the Government's Savings Working Group. Increasing national savings and reducing our reliance on foreign debt are critical if we want to build a faster growing economy. As we have seen in Europe, high foreign debt can lead to a credit ratings downgrade and higher interest costs for everyone. On the other hand, building national savings can reduce pressure on interest rates and the dollar - helping exporters - while providing businesses with the investment funds they need to grow.

The Budget 2010 tax package took steps in this direction, but there is more work to do. We have an open mind as to what might be required to lift national savings and we'll take our time to consider the group's report. Any policy decisions are likely to be included in the Budget. You can read more about this in my media statement.

LIFTING GOVERNMENT SAVINGS

To lift national savings, households, businesses and the Government all need to play their part. On the Government side, the Prime Minister has already signalled we intend to lift the Government's savings this year by spending less and borrowing less. We will be looking to get back to a meaningful operating surplus by 2014/15 - a year earlier than previously planned.

In addition, we are considering reducing borrowing further by raising money for some new capital investments. One option is introducing a mixed ownership model to four state-owned enterprises and reducing the Government's shareholding in Air New Zealand (while still maintaining a majority stake on behalf of all New Zealanders). You can read more about this in the Prime Minister's speech and media statement. However the Government will proceed with a mixed-ownership model for these companies only if they meet the following tests:

• The Government would have to maintain a majority controlling stake by owning more than 50 per cent of the company.
• New Zealand investors would have to be at the front of the queue for shareholdings, and the Government would need to be confident of widespread and substantial New Zealand share ownership.
• The companies involved would have to present good opportunities for investors.
• The capital freed up would have to be used on behalf of taxpayers to fund new public assets and thereby reduce the pressure on the Government to borrow.
• The Government would have to be satisfied that industry-specific regulations adequately protected New Zealand consumers.

NO ELECTION-YEAR LOLLY SCRAMBLE

As I've said before - the Government's challenging fiscal position means there can be no election-year lolly scramble. Any party that promises extra spending must be able clearly explain to the public where the money is going to come from, otherwise it's reasonable to assume it will have to come from extra borrowing. I note Labour has announced plans to spend another $1.3 billion on a new tax-free zone without detailing how it will pay for it. This kind of loose spending would risk a credit ratings downgrade as well as put upward pressure on interest rates and the dollar. The Government, by contrast, is committed to sensible financial management. You can read more about this in my media statement.

THINGS TO LOOK OUT FOR

• 3 February: Statistics NZ will release the latest unemployment figures as part of the Household Labour Force Survey.
• 9 February: Finance and Expenditure Select Committee hearing on the Budget Policy Statement and Half Year Economic and Fiscal Update.
• 17 February: Speech to a joint Auckland Chamber of Commerce and Massey University luncheon.
• 23 February: Speech to the Institute of Public Administration New Zealand.

Regards,

Bill English
Finance Minister