Core Crown tax revenue was about $500 million below forecast in the five months ending 30 November, reinforcing the need for ongoing spending restraint and responsible fiscal management, Finance Minister Bill English says.

“The Government is committed to reducing its deficits over the next two years and returning to surplus in 2014/15,” he says. “This won’t be easy, particularly with ongoing debt problems in Europe reducing forecasts for global growth.

“However, returning to surplus and repaying debt are among the most important things the Government can do to ensure New Zealand can withstand future shocks and build a more competitive economy based on exports and new jobs.”

The Government’s operating deficit before gains and losses was $4.48 billion in the five months to 30 November. This was $252 million larger than forecast in the pre-election update in November – reflecting lower than forecast tax revenue, which was partly offset by lower than forecast core Crown expenses.

Costs from the latest Canterbury earthquake on 23 December will be included in the Crown accounts when the Earthquake Commission has measured the financial impact.

Mr English says the Budget Policy Statement, to be issued on 16 February, will confirm the Government remains on track to post a budget surplus in 2014/15.

“Not surprisingly, given the more subdued global economic outlook, that surplus now looks like being smaller than the $1.5 billion forecast in the pre-election update – at somewhere between $300 million and $500 million.

“As the Prime Minister said yesterday, returning to surplus is important to our plan to limit debt and take pressure off interest rates and the exchange rate,” Mr English says.

The Government has announced a series of hui to consult with Maori on legislative changes it considers are necessary for the float of minority shareholdings in four State Owned Enterprises to New Zealanders.

Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall will lead the February consultation process with iwi around the country, which will be facilitated by Sir Wira Gardiner.

The Government is also seeking written submissions through a consultation document on its proposal to remove Genesis Energy, Meridian Energy, Mighty River Power and Solid Energy from the SOE Act and put them under new legislation that ensures the Government retains at least 51 per cent ownership and other individual shareholdings are limited to 10 per cent, Mr English said.

"We promised to talk with iwi when we originally announced plans to partially sell the four energy companies and Air New Zealand last year,” Mr English said. “We want to understand Maori views before we take final decisions.”

Mr Ryall said the consultation will not cover specific investment opportunities, but iwi investment on a commercial basis will be welcomed.

"The Government has promised all New Zealand investors they will be at the front of the queue for shares."

Mr English said the five partial share floats will free up billions of dollars for investment in schools, hospitals and public infrastructure – and help ensure New Zealand avoids the kind of debt crisis faced by Europe.

The consultation document, together with information on how to make written submissions, will be available from 1 February 2012 at: www.treasury.govt.nz/mixed-ownership-consultation

The deadline for receipt of submissions is 5pm on 22 February 2012.

The schedule for hui is:

22 December. Finance Minister Bill English looks back over developments in 2011 - particularly events in Christchurch - and talks a bit about the agenda for 2012. He says that New Zealand's is a "fundamentally resilient economy" regardless of what happens elsewhere in the world.

MERRY CHRISTMAS
Click here to watch my latest briefing on YouTube

As we head into the summer break, it feels like it's been another long year - and a hard one for many families and businesses, particularly in Canterbury.
While it's been tough, it's been heartening to see the resilience New Zealanders have shown in the face of big challenges. People have pulled together and they've rolled up their sleeves and got on with the job at hand.

On a brighter note, the All Blacks won the World Cup and the economy has continued to improve, despite ongoing global uncertainty. Looking around the corner, there is more work to do to get the economy growing faster and the Government is firmly focused on that task. You'll see more of that next year, but in the meantime, I'd like to wish all the readers of this newsletter a Merry Christmas and a Happy New Year.

THE ECONOMY CONTINUES TO GROW

It was pleasing to see the economy posted solid growth of 0.8 per cent in the September quarter on the back of an increase in manufacturing output and a boost to tourism and spending from the Rugby World Cup. The result took GDP growth to 1.9 per cent in the past year. For more information read my media statement.

Despite the challenges of volatile global markets and a high Kiwi dollar the outlook for New Zealand's exports remains positive and rebuilding in Canterbury will contribute to growth as it picks up next year.

NEW GOVERNMENT KICKS INTO GEAR AFTER THE ELECTION

The Government has kicked back into gear, with support agreements signed with ACT, United Future and the Maori Party within two weeks of the election. Ministers have been sworn in, Cabinet has met and taken decisions on a number of issues - including the two outlined below around AMI and the mixed ownership model - and the Government has outlined its programme for the next three years in the speech from the throne. Ministers will be busy in the New Year working on that programme and implementing the Government's post-election action plan.

AMI SALE GIVES PROVIDES GREATER INSURANCE CERTAINTY

IAG's agreement to purchase AMI Insurance is good news for the Canterbury insurance market and the Government's liability in relation to its back stop support deal for AMI policyholders. As part of the deal, IAG has given an undertaking to continue to offer insurance to AMI's customers, as well as all of its existing customers, on renewal and transfers in Canterbury and throughout New Zealand. We welcome this assurance, which will ensure ongoing insurance cover for 60 per cent of the Canterbury market.

As part of the deal, the Crown will take over ownership of AMI Insurance's Canterbury earthquake related claims. The part of AMI dealing with earthquake claims - along with its reinsurance for those events - will be retained as a new Crown company and will continue to manage AMI's earthquake claims, ensuring continuity for customers. Treasury estimates the Crown's liability will drop from $335 million, in the last published set of full-year Crown accounts, to about $120 million, as a result of the deal. For more information, read my media statement.

EXTENDING THE MIXED OWNERSHIP MODEL

The Government has confirmed the next steps in its mixed ownership programme to offer New Zealanders minority shareholdings in four state-owned energy companies and Air New Zealand. Cabinet has agreed that Mighty River Power should be the first company prepared for an initial public offering (IPO), most likely in the third quarter of 2012, subject to market conditions. The programme is likely to involve a number of IPOs spread over the next three years or so, depending on market conditions and company circumstances.

Mixed ownership is a win-win. It's an opportunity for New Zealanders to invest in something other than housing or finance companies. And it will free up taxpayers' money so the Future Investment Fund can invest in priority new assets like schools, hospitals and irrigation, without having to borrow from overseas lenders. For more information about the Government's decisions read my media statement. For further information, read Treasury's background paper.

THINGS TO LOOK OUT FOR

• 19 January - Statistics New Zealand will release the Consumer Price Index for the December quarter.
• 26 January - The Reserve Bank will issue its latest Official Cash Rate review.

Regards,

Hon Bill English
Finance Minister

www.billenglish.co.nz

The economy posted solid growth in the September quarter, despite considerable global uncertainty, Finance Minister Bill English says.

Statistics New Zealand today confirmed gross domestic product (GDP) grew by 0.8 per cent in the September quarter. The economy has grown in nine out of the past 10 quarters. GDP grew by 1.9 per cent over the last year.

"It’s pleasing to see growth picking up again, after a relatively flat second quarter, on the back of an increase in manufacturing and a boost to tourism and spending from the Rugby World Cup," Mr English says.

"This result was achieved against a backdrop of global uncertainty. Since then the global outlook has worsened as Europe seeks solutions to its sovereign debt problems.

"We face challenges from increasingly volatile global financial markets, reduced demand for our products in some markets and a high Kiwi dollar.

"But, the outlook for New Zealand's exports remains positive and rebuilding in Canterbury will have a positive impact as it picks up next year.

"The rebuild, along with high export prices and interest rates at 40-year lows, gives us confidence the economy will continue to experience moderate growth next year.

"We’re also confident this recovery will be built on a sound platform of higher savings, exports and productive investment, rather than the excessive borrowing, consumption and government spending of much of the past decade.

"Returning to Budget surplus in 2014/15, lifting savings and exports and increasing the competitiveness of the economy will remain the focus of the Government’s programme," Mr English says.

IAG's agreement to purchase AMI Insurance, announced today, will strengthen the Canterbury insurance market and reduce the Crown's liability, Finance Minister Bill English says.

As part of the deal, the Crown will take over ownership of AMI Insurance’s Canterbury earthquake related claims.

"The part of AMI dealing with earthquake claims – along with its reinsurance for those events - will be retained as a new Crown company and will continue to manage AMI's customers' earthquake claims," Mr English says.

"This will ensure those claims are managed effectively and with the minimum of disruption.

"IAG has also agreed that it will continue to offer insurance to AMI’s customers, as well as all of its existing customers, on renewal and transfers in Canterbury and throughout New Zealand. We welcome this assurance, which will ensure ongoing insurance cover for 60 per cent of the Canterbury market.

"For earthquake affected AMI policyholders, this means their existing earthquake claims will be managed by the new Crown company, while the IAG group will manage their ongoing insurance cover. For AMI policyholders around New Zealand, the IAG group will manage their insurance cover."

The agreement is subject to regulatory approval, including from the Commerce Commission.

"In April the Government said it would provide back up financial support for AMI to give policyholders certainty and to ensure an orderly rebuild of Christchurch while AMI sought a market solution to its challenges," Mr English says.

“Now that AMI Insurance has found a new source of long-term capital, the Government will take over ownership of AMI's estimated $1.8 billion of earthquake related claims, consistent with the AMI support deal."

This claims liability of $1.8 billion is offset by about $1.3 billion in reinsurance and further reduced by the $380 million purchase price agreed by IAG.

As a result Treasury estimates that the Crown's liability will drop from $335 million, in the last published set of full-year Crown accounts, to about $120 million.

The Government has appointed Nelson-based company director Ross Butler to chair the new Crown company. Mr Butler has a background in finance and insurance-related companies and is currently chairman of Nelson Marlborough Institute of Technology and deputy chairman of GNS Science.

"The Government has made it clear that helping to rebuild Christchurch is one of its most important priorities. Today's announcements will help meet that goal," Mr English says.

Questions and answers

1. How is the Government involved in this transaction?
The primary transaction is between AMI and IAG. The Government became involved when it agreed to support AMI policy holders to avoid possible significant disruption to rebuilding Christchurch. The support agreement and other relevant documents are available at:
www.treasury.govt.nz/publications/informationreleases/canterburyearthquakes/insurance

2. What will it cost in the long term?
The Government has previously said in its financial statements for the year ended 30 June 2011 that the support arrangement that protects AMI Insurance’s customers would cost taxpayers $335 million.

The final cost to taxpayers is still uncertain, but Treasury's best estimate is the remaining liability will be about $120 million. This is figure is based on AMI's estimated $1.8 billion in earthquake liabilities, reduced by $1.3 billion reinsurance and the $380 million purchase price. When the transactions are paid for, an updated estimate of cost will be disclosed in the monthly Financial Statements of the Government.

3. Will AMI customers still be able to insure their houses after IAG takes over, or will they be insured by the Government?
IAG has also agreed that it will continue to offer insurance to AMI’s customers, as well as all of its existing customers, on renewal and transfers in Canterbury and throughout New Zealand. This undertaking will ensure ongoing insurance cover for 60 per cent of the Canterbury market.

The Government is acquiring only AMI's Canterbury earthquake claims and associated reinsurance. Its purpose will be to settle those claims and it won’t be offering new insurance policies.

4. Who will run the business that the Government is buying? Will it be part of CERA, the Treasury, or some other government department?
The business the Government is acquiring will be a Crown company listed in schedule 4 of the Public Finance Act. It will have its own board of directors and Nelson-based company director Ross Butler has agreed to chair the company.

Mr Butler has experience in finance and insurance-related companies.  He was chief executive of GIO Building Society and GIO Finance in Australia. He managed GIO through its privatisation, and subsequent establishment of banks and insurance companies throughout Australia, Asia and New Zealand. Mr Butler has extensive governance experience across multiple sectors. He is currently chairman of Nelson Marlborough Institute of Technology and deputy chairman of GNS Science.

5. How can the Government be sure that this is the best deal?
The Government’s role in this has been to provide support so that AMI’s customers in Canterbury are properly looked after and the rebuild process can continue.

The AMI Insurance board appointed investment bank Goldman Sachs to help it find more capital. The process of finding a long term investor has led to the offer by IAG. The offer has been recommended by Goldman Sachs and considered and approved by AMI Insurance’s directors.

The Government’s interests have been protected by getting independent advice from investment bank Deutsche Bank and law firm Chapman Tripp, and having Treasury observers at AMI Insurance Board meetings.

6. If someone has an AMI house policy today, and their house is either a substantial repair or a rebuild, who will they be dealing with once the purchase is completed?
The new Crown company, which will be taking over the management and settlement of earthquake claims.

7. Will today's decision slow the process of getting post-quake results for AMI customers?
No, the claims department established by AMI following the earthquakes will transfer to the new Crown company.

The Government has confirmed the next steps in its mixed ownership programme to offer New Zealanders minority shareholdings in four state-owned energy companies and Air New Zealand.

Cabinet has agreed that Mighty River Power should be the first company prepared for an initial public offering (IPO), most likely in the third quarter of 2012, subject to market conditions, Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall said today.

“Cabinet has taken initial decisions to proceed with the mixed ownership programme, as we promised New Zealanders before the election,” they said.

“The Government has previously set a number of tests – including retaining majority Government control and significant participation by New Zealand investors who will be at the front of the queue for shares. The Treasury confirms these tests can be met.

“The programme is likely to involve a number of IPOs spread over the next three years or so. Their timing will depend on market conditions and company circumstances.

“Ministers’ initial decisions will allow Treasury to proceed with preparing the mixed ownership programme. More detailed decisions about the precise structure and timing of the programme, including the Mighty River IPO, will be made early in 2012.”

This week, Cabinet has:

• Agreed in principle to proceed with the mixed ownership model.
• Agreed that Mighty River Power should be the first company prepared for an IPO, most likely in the third quarter of 2012, subject to market conditions.
• Agreed that decisions about share allocations will be made early next year during the design phase of the IPO.
• Agreed to consult with Maori in early 2012.
• Agreed that legislation will be required to support the mixed ownership programme – including removing the four mixed ownership energy companies – Mighty River Power, Genesis, Meridian and Solid Energy - from the State Owned Enterprises Act.

“Our advice is that Mighty River Power is ready to go to the market.

“We will provide more detailed information on this IPO – including how widespread New Zealand ownership will be achieved - when detailed decisions have been made in early 2012,” Mr English and Mr Ryall said.

“This will include releasing supporting documents when this no longer prejudices the commercial position of the IPO.”

The ministers reiterated the Government has made three clear promises to New Zealanders about mixed ownership companies:

• The Government will retain at least 51 per cent control.
• New Zealanders will be at the front of the queue for shares and ministers expect New Zealand ownership will be around 85-90 per cent.
• No shareholder other than the Government will be able to own more than about 10 per cent.

“The mixed ownership programme involves less than 3 per cent of taxpayers’ total assets of $245 billion, which will grow by another $22 billion over the next four years,” Mr English and Mr Ryall said. “So this is about how we pay for increasing those assets – it’s not about reducing them.

“The alternative is a lot more debt, which would need to be borrowed on nervous global financial markets at a time when many other countries are struggling with too much debt.

“Mixed ownership is a win-win. With about $100 billion sitting in term deposits, along with many billions of dollars more in KiwiSaver funds, other investment funds and iwi investments, New Zealanders are placed strongly to invest in the mixed ownership companies.

“It’s an opportunity for New Zealanders to invest in something other than housing or finance companies. And it will free up taxpayers’ money so the Future Investment Fund can invest in priority new assets like schools, hospitals and irrigation, without having to borrow from overseas lenders.

“It will also improve the efficiency of the mixed ownership companies, while the Government retains majority control.”

Treasury background document available at:
www.comu.govt.nz/publications/information-releases/mixed-ownership-model/

MIXED OWNERSHIP PROGRAMME – Qs AND As

Why is Mighty River Power the first Initial Public Offering?
Mighty River Power is well positioned to take to market. It is also big enough to offer a significant volume of shares to the investing public, while the Government retains a majority stake of at least 51 per cent.

What will happen next?
Cabinet has made several decisions that will kick off the process. It has agreed in principle to implement legislation to allow the mixed ownership programme to proceed, and Treasury has been given the go ahead to start advertising for advisors to run the IPO process. Cabinet has also announced the Government will consult with Maori early in 2012. We will make final decisions on timing and other details regarding the Mighty River Power offer early next year.

What legislation will be needed to implement the programme?
Legislation will ensure the Government retains a minimum holding of 51 per cent in all mixed ownership companies and that no other shareholder will be allowed to hold more than around 10 per cent of each company. The four energy companies, Mighty River Power, Genesis, Meridian and Solid Energy will be removed from the State Owned Enterprises Act, and there will be other amendments to implement the mixed ownership programme.

What restrictions have been placed on foreign investors owning these companies?
The Government will always retain at least 51 per cent of the mixed ownership companies on behalf of all New Zealanders. In addition, no other shareholder will be able to buy more than 10 per cent in all cases. No further decisions have been made at this stage, but ministers expect around 85-90 per cent New Zealand ownership of the mixed ownership companies.

What guarantees can you give that foreign investors won’t buy large stakes in these companies after the IPOs?
Firstly, no shareholder – other than the Government – can hold more than 10 per cent of any mixed ownership company. There will be some foreign ownership of these companies, but all the evidence points to the vast bulk of the shares remaining in New Zealand hands. Experience from previous initial public offerings by the Government - including Contact Energy and Auckland International Airport - suggests that widespread and substantial New Zealand ownership can be achieved and maintained across the SOEs. KiwiSaver funds, other investment funds and iwi are all traditionally longer-term investors.

How will you ensure that New Zealanders are at the front of the queue for shares?
The Government will control the allocation of shares and decisions supporting that will be considered early next year.

How confident are you that small New Zealand shareholders will buy shares?
We want small New Zealand investors to buy the vast bulk of the shares and ministers expect that around 85-90 per cent of the mixed ownership shares – including the Government’s controlling stake – will be held by New Zealanders. Many investors lost money in collapsed finance companies and this will be an opportunity to invest in this country's future. Scoping studies show a significant proportion of experienced shareholders are keen to buy.
With about $100 billion sitting in cash deposits, along with many billions of dollars more in KiwiSaver funds, other investment funds and iwi investments, New Zealanders are strongly placed to invest in the mixed ownership companies. Selling shares through IPOs will enable all New Zealanders to apply for shares.

Why are you announcing the next steps before Christmas?
Officials need to appoint advisors and lead managers to start the due diligence process now so they can meet timeframes for the sales programme. The Treasury will be using open, competitive appointment processes which can take some time to complete.

Why are you pressing ahead with the mixed ownership programme when a number of New Zealanders have voiced reservations about it?
The National-led Government has been open and transparent about its proposal to extend the mixed ownership model – used successfully for Air New Zealand for almost a decade – to four state-owned energy companies. We’ve been talking about this issue since January and we said we would put this and other policies to voters at the election, before proceeding if we were re-elected. That’s precisely what we’re now doing.

We believe the mixed ownership programme, which is quite different to the state asset sales of the 1980s and 1990s, will be popular among New Zealand investors, who will be at the front of the queue for shares.

What will you be consulting with Maori about and how long will the process take?
The Government intends to consult with Maori on the mixed ownership model policy early next year - before introducing legislation and the first IPO. It will take place at a series of meetings across the country. Consultation will not cover specific investment opportunities.

Will Maori enjoy any special treatment in the sales process?
The Government has promised New Zealand investors will be at the front of the queue by providing them with priority share allocations. That promise applies to all New Zealand investors – including Maori.

When will New Zealanders be able to buy shares?
The Mighty River Power IPO is most likely to happen in the third quarter of 2012, subject to market conditions. Cabinet will consider that and other details around the structure and timing of the mixed ownership programme in early 2012.

How much do you expect from the Mighty River Power share sale?
We’ve said we expect between $5 billion and $7 billion over three to five years across the whole mixed ownership programme. In terms of Mighty River Power, we want to get a good deal for New Zealand investors – and for New Zealand taxpayers – and that depends on advisors completing work in the New Year, once they are appointed.

Given, the turbulent situation on overseas financial markets, why go ahead with a mixed ownership programme?
The precise timing of individual IPOs will depend on market conditions. More broadly, mixed ownership will help lift New Zealand’s economic performance by increasing the incentive for the SOEs to perform well. It will also reduce the amount of extra debt the Government will need to borrow from foreign lenders to pay for new assets, at a time when global markets are increasingly worried about lending to heavily indebted countries.

Are there examples where mixed ownership already applies?
Yes, there are many examples overseas and several in New Zealand.

• Air New Zealand - the Government owns a majority 74 per cent in Air New Zealand and other investors own the remaining 26 per cent.

• Port of Tauranga - 55 per cent is owned by Environment Bay of Plenty on behalf of the people of the Bay of Plenty, and the rest by other investors. New Zealand investors own more than half of the free-trading shares and their equity is increasing.

• Horizon Energy - 77.3 per cent is owned by the Eastern Bay Energy Trust on behalf of people in the Bay of Plenty, with 13 per cent owned by South Island-based Marlborough Lines and the rest by other investors.

• Vector - 75.1 per cent is owned by the Auckland Energy Consumer Trust on behalf of the company’s electricity customers in Auckland, Manukau and parts of Papakura. The remaining 24.9 per cent is owned by individual shareholders and institutions.

Ongoing spending discipline and higher than expected corporate tax revenue have helped keep the Government's finances on track at a time of heightened global uncertainty, Finance Minister Bill English says.

Government spending, tax revenue and net debt were all slightly lower than expected in the Crown accounts for the four months to 31 October issued today, contributing to a operating deficit before gains and losses of $3.36 billion. The variances - due to timing issues - are expected to reduce in coming months.

"Balancing the books and returning to surplus is one of the most important things the Government can do to build a stronger and more competitive economy," Mr English says.

"The Government is keeping a tight lid on spending and that will need to continue into the foreseeable future so we can return to surplus as quickly as possible in a highly uncertain global environment.

"We are tracking towards the forecast $10.8 billion deficit for the year to 30 June, 2012 – down from over $18 billion last year. This is forecast to more than halve to $4.4 billion next year, before returning to surplus in 2014/15.

"While the outlook for Europe has deteriorated since the Pre-Election Economic and Fiscal Update, the local economy is continuing to grow, with higher than forecast corporate tax revenue.

"But getting back to surplus won't be easy. In many ways, restraint in the public sector has only just started.

"The Government is committed to meeting this challenge. We've taken steps to control spending and get on top of debt, while putting in place policies that build a more competitive economy and more real jobs.

"We will continue with that plan over the next three years," Mr English says.

Agreement on the broad outlines of the Trans-Pacific Partnership (TPP) is an important step towards a high-quality free-trade deal that will benefit New Zealand exporters, Deputy Prime Minister Bill English and Trade Minister Tim Groser say.

Leaders of the nine countries in the Trans-Pacific Partnership (TPP) today agreed on the broad outlines of the free trade agreement, at a meeting hosted by US President Barack Obama in Honolulu on the fringes of the APEC summit. Mr English represented New Zealand on behalf of Prime Minister John Key.

“New Zealand’s trade with the Asia-Pacific region has been growing rapidly in recent years, with Australia and Asia now taking over 60 per cent of our exports,” Mr English says.

“However, our exporters still face barriers in many markets. Reducing those barriers and increasing access for our exports is one of the most important ways we can sell more of our goods to the rest of the world and build a faster growing economy.

“Today’s announcement is an important milestone. It signals the broad outlines of the agreement – including progressive tariff elimination and an end point of full market access – and a strong political commitment from leaders.

“Following Japan’s decision to seek to join the TPP, this creates a real sense of momentum around negotiations. Our message to our negotiators is that we want to convert that momentum into results,” Mr English says.

Leaders endorsed a report from TPP Trade Ministers setting out details of results of the negotiation to date and the next steps.

“The report from trade ministers - endorsed today - represents a great outcome for New Zealand’s interests,” Mr Groser says.

“The bottom line is that leaders are committed to a high-quality agreement – this negotiation is genuinely about free trade and getting trade rules that work for exporters.

“Today’s statements establish an excellent platform to propel the TPP negotiations towards our goal of a high-quality 21st century trade agreement,” Mr Groser says.

The next step will be more detailed negotiations on each of the areas set out in today’s statements. Negotiators will meet again in early December and have been instructed to schedule further negotiating rounds for 2012.

The three documents released today are attached:

• · A statement by the Leaders of the nine TPP countries.
• · A report on the negotiation from TPP Trade Ministers, which Leaders today endorsed.
• · A background paper with additional detail on key features of TPP and content of main chapters or subject areas.

Related documents:

The Government remains committed to sound management of its finances and returning to surplus in 2014/15 as the economy continues to grow, Finance Minister Bill English says.

Tax revenue, Government spending and net debt were all slightly lower than expected in the Crown accounts for the three months to 30 September issued today, but these variances are expected to reduce over coming months.

The lower than forecast tax revenue contributed to a slightly larger than expected operating deficit before gains and losses of $2.48 billion for the three months.

"While the deficit is tracking towards the forecast $10.8 billion for the year to 30 June, 2012 – down from $18 billion last year – this is still too high for comfort, especially in the face of ongoing global economic uncertainty," Mr English says.

"As the Reserve Bank Governor reiterated this morning, many countries remain under stress due to an overhang of private and public debt. He noted New Zealand households and businesses have been helping to reduce our external liabilities, but this has been partially offset by rising public debt.

"That is why the Government is focused on getting back to surplus and keeping net core Crown debt below 30 per cent of GDP.

"The deficit is forecast to more than halve to $4.4 billion next year and the Government is forecast to return to surplus in 2014/15.

"But getting there won't be easy. In many ways restraint in the public sector has only just started and getting back to surplus will require ongoing spending discipline for many years.

"The Government is committed to meeting this challenge. We've taken steps to control spending and get on top of debt, while putting in place policies that build a more competitive economy and more real jobs," Mr English says.