BUDGET 2011 – FASTER SURPLUS, PLATFORM FOR GROWTH
Click here to watch the video about Budget 2011 I made with the Prime Minister
Budget 2011 marks the next step in this Government’s programme to tilt the economy towards exports, savings and investment and away from borrowing and consumption. It helps to lift national savings by returning the Government's books to surplus sooner, increasing the level of private savings in KiwiSaver and providing quality investment opportunities for New Zealanders.
It does this while funding the Government's $5.5 billion share of the costs of rebuilding Christchurch, investing more in frontline services in health and education and continuing to protect the most vulnerable. This is a responsible and balanced budget for the times. It ensures New Zealand will build faster growth based on savings and exports, so New Zealanders have the jobs and higher incomes they deserve.
For more information read my main Budget media statement.
BUDGET 2011 – AT A GLANCE
- Returns the budget to surplus in 2014/15 – a year sooner than forecast in December – reducing the need for Government borrowing and lifting national savings.
- Forecast economic growth of 4 per cent in 2012, with 170,000 new jobs being created by 2015.
- Creates the $5.5 billion Canterbury Earthquake Recovery Fund for infrastructure and schools; temporary housing; trades training; welfare and business support; and CBD demolition costs.
- Invests $4 billion in frontline public services in areas such as health, education and supporting young people into jobs.
- Makes changes to KiwiSaver, Working for Families and Student Loans to make the schemes sustainable into the future and reduce the need for Government borrowing.
- Creates investment opportunities for New Zealanders by extending the mixed ownership model to four state-owned energy companies and reducing the Government’s majority stake in Air New Zealand.
REDUCING BORROWING, LIFTING NATIONAL SAVINGS
The Government has supported the economy through the recession, but with growth forecast to reach 4 per cent next year – its highest level since 2004 - and the economy expected to create 170,000 new jobs over the next four years, it is appropriate to speed up the Government’s return to surplus.
Achieving a surplus in 2014/15 – a year earlier than previously forecast - reduces the need for Government borrowing and supports jobs and growth by reducing pressure on interest rates. It will also put the public finances in a stronger position to cope with future shocks.
Budget 2011 changes mean the Government will borrow over $10 billion less over the next four years.
BETTER VALUE FROM PUBLIC SPENDING
Budget 2011 identifies savings of $5.2 billion over five years from existing spending. This includes savings from the back office of the public service and changes to large schemes that put them on a more sustainable and enduring footing.
Almost $4 billion of Budget 2011 savings are redirected to new initiatives –most of it on frontline services in health and education. This leaves a net saving of $1.2 billion over four years. We were previously planning to spend $4.4 billion over that period – so that's $5.6 billion we won't have to borrow over those four years from operating spending alone.
We also intend to extend the Mixed Ownership Model to the four State-owned energy companies and reduce our shareholding in Air New Zealand – while retaining a majority stake. This is expected to free up over $5 billion.
Together that's over $10 billion we won't need to borrow over the next four years. These savings combined with forecast economic growth, mean net debt will remain below 30 per cent of GDP – a significant achievement in the current circumstances.
MAKING LARGE PROGRAMMES MORE SUSTAINABLE
Changes aimed at making KiwiSaver, Working for Families and student loans more sustainable will take place after the election – giving voters a clear opportunity to choose whether they support the Government's approach.
Changes to KiwiSaver reduce the amount the Government is borrowing to pay in subsidies and encourage a higher level of real savings through slightly higher member and employer contributions. The changes will maintain strong inflows into KiwiSaver, with total funds projected to rise from around $8 billion currently, to almost $60 billion in 10 years.
This is expected to result in a modest improvement in the rate of national savings and reduce New Zealand’s net international liabilities – the amount the country owes to foreign lenders – by an estimated two per cent of GDP over the next decade.
Changes to Working for Families will better target the scheme to low income earners, saving $448 million over four years – about 4 per cent of the scheme's current annual cost of $2.8 billion. The changes will take place in four steps – over about eight years – minimising the impact on affected families. Student loans remain interest free but a number of changes restrict eligibility, encourage greater personal responsibility and put tighter obligations on borrowers.
IMPROVING FRONTLINE SERVICES
Budget 2011 provides record funding for health – an extra $2.2 billion over the next four years, including an additional $585 million next year.
In education, the Government has allocated an extra $1.4 billion for schools and early childhood education over the next four years. Education and Tertiary Education spending will rise to a record $12.2 billion next year - a massive total in difficult economic times.
Budget 2011 also provides another $1.6 billion of infrastructure funding with the lion's share invested in schools, ultra-fast broadband and rail. This investment sits alongside the over $1 billion a year we put into improving the State Highway network and the $3.8 billion we are spending over five years to upgrade the national grid.
BOOSTING SAVINGS AND INVESTMENT
Extending the mixed ownership model is expected to free up $5 billion to $7 billion, which will fund much of the Government's capital investment in social assets like schools and hospitals over the next few years, as well as reduce Government borrowing.
As we have said, we will ensure Kiwi investors are at the front of the queue to buy a stake in these companies. Extending the mixed ownership model will also broaden the pool of investments available to New Zealanders, contribute to deeper capital markets and bring sharper commercial disciplines, more transparency and greater external oversight for the companies involved.
In addition, Budget 2011 creates an Earthquake Kiwi Bond, establishes a new local government funding agency and resources government agencies to support New Zealanders in making informed investment decisions.For more information on the Budget visit www.beehive.govt.nz