The Government's careful management of its expenses will be even more critical in the coming year as it looks to live within its constrained budget, Finance Minister Bill English says.

This ongoing commitment to responsible cost management is particularly important with company tax revenue coming in $108 million below Budget forecasts for the 10 months to 30 April.

"Budget forecasts last month pointed to the economy picking up over the next year, which is encouraging for job seekers and businesses looking for opportunities to get ahead.

"But those forecasts also showed that the Government's finances will not return to surplus until 2015/16. That is based on the Government continuing to live within its $1.1 billion annual allowance for extra operating spending and weeding out lower priority spending for high-priority frontline public services.

"I want us to return to surplus as quickly as possible, because as long as we remain in deficit, Crown debt will continue to increase and leave us vulnerable in what remain volatile global financial markets," Mr English says.

"The Budget took steps to help us return to surplus more quickly through responsible management of the Government's finances and a comprehensive tax package that will lead to faster growth in the productive parts of the economy."

The Crown's operating deficit before gains and losses was $5.2 billion in the 10 months to 30 April - $636 million better than forecast in the Budget.

Core Crown expenses were $416 million below forecast at $52.3 billion. This was the result of a number of factors, much of them due to timing, including lower costs for social assistance benefits and lower staff expenses. Core Crown revenue was about $67 million above forecasts at $46.3 billion.

CLICK HERE TO WATCH MY VIDEO ON THE BUDGET

Last week I delivered my second Budget. Whereas the focus of Budget 2009 was dealing with the immediate effects of the global recession, Budget 2010 is about positioning New Zealand for faster, sustainable economic growth.

Only through lifting long-run economic growth can we create jobs, raise incomes, close the gap with our trading partners and improve the living standards of New Zealand families.  

Budget 2010 delivers on that score by:

• Reforming the tax system to put the right incentives into the economy and rebalance it towards savings, investment and exports.
• Investing in New Zealand's future through a significant boost to scientific innovation and substantial new spending on infrastructure.
• Continuing to get debt and deficits under control.
• Investing record sums in priority public services such as health and education.

You can read my main Budget media statement as well as view all Budget ministerial statements on the Beehive website. You can view the Budget documents themselves on the Treasury website.

REFORMING THE TAX SYSTEM

The over-riding aim of Budget 2010 is to lift growth by rebalancing the economy towards savings, investment and exports - and away from borrowing, property speculation and excessive government spending. The reason we have gone for a once-in-a-generation reform of the tax system is that tax is one of the few levers we can pull which has a pervasive effect throughout the economy.

The tax package delivers on four objectives:

• It rewards effort and helps families get ahead.
• It helps us attract and retain skilled people in New Zealand.
• It encourages savings and productive investment - and discourages excessive borrowing, consumption and property speculation.
• And it makes the tax system fairer, strengthens the rules around property investment and gives Inland Revenue extra resources to enforce the current law.

At all taxable income levels, the across-the-board personal income tax cuts more than offset the rise in GST. This is fair and leaves the vast majority of New Zealanders better off. You can read more about the tax package and calculate your own tax cut at www.taxguide.govt.nz

THE GROWTH DIVIDEND

These tax reforms along with other growth-focused Budget measures, such as substantial investments in research, science and technology and infrastructure, contribute to stronger growth than previously forecast.

The Treasury is now forecasting real GDP growth of 3.2 per cent in the year to March 2011 - a significant improvement on the 1.8 per cent forecast in the Budget last year. The projections now show fairly steady growth at about 3 per cent over the next four years. This includes expected extra growth from the Budget tax package, which Treasury conservatively forecasts to add about 1 per cent to the size of the economy by 2017.

CONTINUING TO GET DEBT AND DEFICITS UNDER CONTROL 

The Budget shows an improved fiscal outlook over the forecast period, with both Crown debt and Budget deficits better than forecast in Budget 2009. We now expect the deficit to peak at just over 4 per cent of GDP next year, before returning to surplus in 2016 - three years sooner than forecast in the Budget last year.

That is quite a turnaround and as a result the Crown debt forecasts have also improved. Net debt is now expected to peak at 27 per cent of GDP in 2014/15 - falling to 14 per cent by 2023/24 - reducing our vulnerability to volatile sovereign debt markets. A big part of the improvement is the Government remaining within its $1.1 billion allocation for new operating spending. We've managed this by shifting another $1.8 billion of low priority spending into higher priority public services in areas like health and education

GETTING OUT AND ABOUT

In the last week I've been getting out and about to explain the Budget, hear what people think and answer their questions. There has been an overwhelmingly positive response with large audiences throughout New Zealand. So far I have spoken in Wellington, Lower Hutt, Porirua, Christchurch, Oamaru, Hamilton, Rotorua, Tauranga, Gisborne. Over the next week I'll be speaking in Auckland, Kerikeri, Dunedin, Christchurch and Queenstown.

THINGS TO LOOK OUT FOR

• 10 June: RBNZ's next Monetary Policy Statement, including the Official Cash Rate announcement.
• 23 June: March quarter balance of payments (includes current account and net international investment position).
• 24 June: March quarter GDP.

Regards,
Bill English, Finance Minister

Follow me on Twitter: http://twitter.com/honbillenglish
Click here to join me on Facebook

Across the board tax cuts and a package of other tax changes will strengthen economic growth and help families get ahead here in New Zealand, Finance Minister Bill English and Revenue Minister Peter Dunne say.

• From 1 October 2010, personal taxes will be cut, GST will rise to 15percent and NZ Superannuation, Working for Families and benefit payments will increase - lifting incomes, keeping skilled Kiwis in NewZealand and helping families get ahead.


• From 1 October 2010, the tax rates for most PIEs and bank interest will fall. The tax rate for other savings vehicles will fall to 28 per cent from 1April 2011 - encouraging savings.


• From 1 April 2011, tighter rules around the taxation of investment property will take effect - making the tax system fairer.


• From the 2011/12 income year, the company tax rate will fall to 28percent - encouraging productive investment and lifting competitiveness.

"This is the most significant tax reform package in New Zealand for nearly 25 years. For ordinary New Zealanders, it will reward effort, encourage savings and help families get ahead," Mr English says.

"The vast majority of people will be better off under the package. For example, a person on the average annual wage of about $50,000 with an average rent or mortgage will be more than $15 a week better off. A typical family with two children and average household income of $76,000 will be about $25 a week better off.

"At all taxable income levels, the personal income tax cuts will more than offset the rise in GST - and low, middle and high income groups broadly receive the same proportionate increase in disposable income.

"As well as improving incentives to work, the package tilts the economy towards savings, investment and exports and away from the unsustainable borrowing, consumption and over-investment in housing of the past decade.

"These tax changes are broadly fiscally neutral and will make New Zealand more competitive globally at a time when many other countries are increasing taxes to tackle rising debt from the global recession.

"That will help attract and retain skilled New Zealanders who might otherwise look for better opportunities overseas," Mr English says.

Mr Dunne says the changes deliver on promises of a fairer tax regime.

"New Zealand families will benefit from 1 October from tax cuts and they will benefit more over time from the lift in growth and jobs this package will create," he says.

"Aligning the top tax rate with the trust rate at 33 per cent ensures that wage earners in the top tax bracket - like many high-school teachers, nurses and police - no longer pay a higher tax rate than wealthy individuals who can structure their tax affairs and effectively select the tax rate they want.

"In addition, the package closes loopholes in Working for Families and makes the tax treatment of property more equitable," Mr Dunne says.

1 October 2010 changes include:

• Across the board personal tax cuts worth $14.3 billion over four years.      
  

Income	Current Rates	New rates
$0 - $14,000	12.5%	10.5%
$14,001 - $48,000	21.0%	17.5%
$48,001 - $70,000	33.0%	30.0%
Over $70,000	38.0%	33.0%

• Increasing the rate of GST from 12.5 per cent to 15 per cent.


• Tax cuts on NZ Super and a 2.02 per cent increase in payments to recipients of NZ Super, main working-age benefits and Working for Families - reflecting Statistics New Zealand's calculation of the effect on prices of the rise in GST - worth $2.2 billion over four years.


• A cut in the top tax rate for most PIEs from 30 per cent to 28 per cent.

1 April 2011 (or the 2011/12 income year) changes include:

• A cut in the company tax rate from 30 per cent to 28 per cent.


• A cut in the tax rate faced by unit trusts, life insurance policyholders and some other savings vehicles from 30 per cent to 28 per cent.


• Ending landlords' and businesses' ability to claim depreciation on buildings with an estimated useful life of 50 years or more.


• Tightening the rules for loss attributing qualifying companies (LAQCs) and qualifying companies (QCs) so shareholders cannot deduct losses at their marginal tax rate and pay tax on profits at the lower company rate.


• Changes to the thin capitalisation tax rules to limit the scope for foreign multinationals to reduce their New Zealand tax liability.


• Tightening the definition of income for Working for Families eligibility. The new rules will exclude investment and rental losses and end the automatic CPI indexation of the abatement threshold to stop higher-income recipients getting bigger increases than those on lower incomes.


• Increasing IRD audit and compliance activity to improve the integrity of the tax system.

Immediate change:

• Removing the 20 per cent accelerated depreciation loading for new plant and equipment purchased after Budget day.

Budget 2010 focuses squarely on faster growth, helps families get ahead and sets a credible path for getting back to surplus sooner, Finance Minister Bill English says.

It also delivers the biggest reform of the New Zealand tax system in 25 years.

"Across the board personal tax cuts and a package of other tax changes will help boost economic growth, make the tax rules fairer and help hard-working Kiwis get ahead under their own steam," Mr English says.

"This tax package will leave someone on the average wage about $15 a week better off and an average family about $25 a week better off."

Budget 2010 builds on New Zealand's economic recovery and tilts the economy so faster growth and new jobs come from the right places.

"For too long, New Zealand has relied on investment property speculation, rising debt and increases in Government spending we could not afford.

"This Budget takes action that will encourage investment in the productive parts of the economy such as exporting, and it gives the vast bulk of New Zealanders extra cash in their pockets so they have more choices."

The Budget also continues the Government's multi-billion dollar investment in infrastructure such as ultra-fast broadband, roads, rail, schools and prisons, and it makes a substantial investment in research, science and technology.

Despite the tight fiscal environment, the Budget helps families and the most vulnerable by investing billions of dollars more over the next four years in priority social services such as hospitals, schools and law and order.

Helping families get ahead in New Zealand

Budget 2010 grasps a once-in-a-generation opportunity for New Zealand to stand out from other countries by building a stronger, faster-growing economy with low debt and low taxes by world standards, Mr English says.

"We owe it to hard-working Kiwi families to provide them with the financial security, opportunities and higher take-home incomes that allow them to get ahead here in this country - instead of chasing better opportunities overseas. This Budget does those things and sets out a path to build on our recovery."

Turning back debt, getting back to surplus

Budget 2010 takes further steps to get rising debt under control and return the Government to surplus three years sooner than forecast in Budget 2009.

"A year ago, forecasts showed we faced nine years of deficits. This Budget forecasts we will return to surplus in 2016. That's good progress, but we will continue to work hard to get back into surplus more quickly," Mr English says.

"We still expect to borrow an average $240 million a week, every week until 2013, before this amount falls away as we move closer to budget surplus.

"It's important we continue to make considered decisions now so we can grow the economy faster and avoid having to make harsh decisions later."

Tax reform, investing in engines of growth

Those decisions include:


    * From October 1 2010, personal taxes will be cut across the board, GST will rise to 15 per cent and NZ Superannuation, Working for Families and benefit payments will all increase. As promised, the vast bulk of households will be better off from this switch of taxes.

    * From the start of their financial year in 2011, companies will be taxed at a rate of 28 per cent, down from 30 per cent - ensuring New Zealand is competitive internationally.

    * Tax rules will be tightened for investment property to make the system fairer and to encourage productive investment and exports.

    * Budget 2010 strongly supports research, science and technology - a key engine for a faster growing economy. It provides $321 million over four years for new initiatives in this important area.

    * An extra $2.1 billion will be spent on frontline health priorities over the next four years - including an extra $512 million in 2010/11.

    * An extra $1.4 billion will be injected into better schooling and early childhood education over four years - including an extra $417 million in 2010/11.

    * Another $1.8 billion will be freed up over the next four years for priority areas such as healthcare, education and law and order. This is in addition to the $2 billion of lower priority spending found in Budget 2009.

    * The Government will live within its $1.1 billion annual operating allowance for new spending in Budget 2010. It will restrict subsequent increases in the allowance to 2 per cent annually.


Budget package boost for economy

The Government's growth-focused economic programme is contributing to a brighter outlook for the economy. In the March 2011 year, growth is forecast at 3.2 per cent, compared with the 2.4 per cent predicted in December.

"We can also clearly see the expected extra growth from the Budget tax package," Mr English says. "The package is conservatively forecast to add about 1 per cent to the size of the economy by 2017.

"Despite the better growth outlook, by 2012 GDP per capita will still be about 5 per cent below Budget 2008 forecasts."

The higher growth outlook does not materially change the immediate fiscal position - and certainly does not alter our medium-term challenge of getting back to surplus and reducing debt, Mr English says.

"We expect to run an operating deficit of $8.6 billion in the coming year, and further deficits are forecast until 2016, when we return to surplus. As a result, net debt is forecast to rise sharply from 14.1 per cent of GDP in the current year to a peak of 27.4 per cent of GDP in 2015, and then falling."

Better public services and social programmes

It is clear to the Government that previous ways of delivering essential frontline public services and social policy programmes can be improved.

"On behalf of taxpayers, we spend tens of billions of dollars a year on public services and social programmes, so we owe it to those taxpayers and users of public services to do the best possible job for them," Mr English says.

"There is considerable scope to remove duplication, improve processes and reallocate resources to deliver better frontline services.

"Budget 2010 continues this process across all the big portfolios of social development, health, education and law and order - where we are spending more money than any previous Government.

"We are calling government agencies to account and changing the way we work with the NGO sector - giving more control of service delivery to communities.

"And we have moved money into priority public services such as hospitals, schools and law and order - investing heavily in them using a combination of new funding and money redirected from lower priority areas. We will continue to do this over the next three or four years."

Finance Minister Bill English talks about Budget 2010 and its underlying priciples.

 

I was in Gore and Queenstown last Friday when much of the electorate was watching river and lake levels. My thoughts were with the farmers, business people and home owners who watched the water rise.

English High Tea

Today I am speaking to the senior assembly at Taieri College and then in Balclutha for constituent appointments. Tomorrow, I am attending two functions, in Gore there is an "English High Tea" where my wife Mary will be speaking and my daughter Maria will be singing. Then in the evening I will be attending the Century Farm awards in Lawrence.

Celebrating Generations on the Land

The Century Farm awards programme aims to capture and preserve rural history, which might otherwise be lost. In submitting narratives of family farm history, copies of related photographs and documents, the award recipients are presented with a bronze plaque for displaying at their farm gate. The collected materials are archived with the Alexander Turnbull Library. One hundred and fifty families are already part of the programme.

More Information:
http://www.centuryfarms.co.nz/

World Ploughing Championships

It was a privilege to open the World Championships last month. This event was enjoyed by thousands of people - local, national, and international.

Congratulations to Scott McKenzie, of Clinton, who won the conventional ploughing title at the NZ Ploughing Championships which were part of the world event. There were a number of competitors from around the electorate at the championships and many were placed.

I would like to acknowledge all those who participated in the national and world championships as either competitors or organisers. The event was a credit to all.

Public Question Time

Sometimes I hear a comment that time in the House is time wasted. Time in the House is about scrutinising the activities of the government of the day. During Parliamentary Question Time over the nine years we were in Opposition I was busy challenging the previous government and now that we are in government I am answering many questions as Minister.

The House has developed several processes by which it holds the government to account. Perhaps the most visible of these is the daily question time. The Opposition and back-bench MPs question ministers on their management of the country's affairs. This can be a very powerful means of extracting information that might bring into question the performance of individual ministers or the government as a whole.

During National's nine years in Opposition I asked on average 5.6 questions each sitting day. Since in Government until March this year I answered 119 questions as Minister, I also answered 83 National questions to other ministers.

For more information on how Parliament works visit:
http://www.parliament.nz

A Budget for the economy and Kiwi families

New Zealand has come out of the global recession in better shape than most countries. The economy is growing but the road to recovery will be bumpy.

Last year, we faced the worst economic downturn in decades. National took steps to support jobs and families, and to create an environment that gives businesses the confidence to keep staff on and create new jobs.

We also worked hard to get spending under control and put the government's books in order. We turned around a 10-year forecast of ballooning public debt that threatened our international credit ratings. Even so, the government is borrowing $240 million every week for the next four years.

This year, our focus has shifted to lifting New Zealand's economic performance.

Budget 2010 on 20 May will have four main goals:

• Lifting the long-term performance of the economy to deliver jobs, higher incomes, and better living standards for Kiwi families.
• Reforming the tax system to make it fairer, more sustainable, and more supportive of economic growth.
• Better delivery of public services to meet New Zealanders' expectations of modern public services, while recognising the ongoing pressures on taxpayers.
• Maintaining firm control of the government's finances so we can return to Budget surpluses and pull back our rising debt.

In last year's Budget we identified $2 billion of lower-priority public spending to move to frontline services over the following four years.

This year we have found another $1.8 billion of lower-priority spending. Over the next four years we will move this to higher-priority services. That's a lot of money we are putting into important areas such as better healthcare, better education, and making our neighbourhoods safer.

We will keep weeding out lower-quality spending. We will also live within the $1.1 billion new spending allowance we set ourselves. From 2011, we will restrict increases in this allowance to 2 per cent a year.

This year's Budget is about doing things better and smarter, after a decade where taxpayers' dollars were spent too freely.

National is determined to lift New Zealand's economic performance. That's the only way we will be able to create real jobs, boost incomes, improve living standards, and provide the world-class public services that Kiwi families need.

Incentives to quit smoking

The Government has increased the excise tax on cigarettes and tobacco. Smoking is the leading cause of preventable death in New Zealand. It is directly linked to almost 5000 deaths each year. University of Otago research shows that when cigarette prices rose steeply between 1995 and 2000, smoking fell.

We are working to reduce smoking, discourage young people from starting to smoke, and improve the health of New Zealanders.

One of the six current health targets is to provide better help for smokers to quit. We fund the Quitline free telephone support service, subsidise nicotine replacement therapy, Aukati kai paipa face-to-face quit support services, and information campaigns to help people quit. Increasing the cost of cigarettes, subsidising treatment and support, and providing good information all contribute to reducing smoking.

More information:
http://www.beehive.govt.nz/release/tobacco+excise+increase+immediately

Rebuilding trust in our financial markets

National is working to restore the confidence of mum and dad investors, while developing capital markets to help businesses grow. On too many occasions in finance company collapses we heard of investors' money falling to the floor through the cracks between regulators.

A new "super regulator" for our financial markets will be up and running early next year.

The Financial Markets Authority will enforce securities, financial reporting, and company law applying to financial services and securities markets. It will also regulate and oversee trustees, auditors, financial advisers, and financial service providers including people who offer investments.

More information:
http://www.beehive.govt.nz/release/government+announces+%e2%80%98superregulator039+financial+markets

Reviewing the impact of alcohol in our lives

The Law Commission's report on alcohol, Alcohol in Our Lives: Curbing the Harm was released recently. It is the first ground-up review of our alcohol laws in 24 years and received almost 3000 submissions.

Reducing alcohol-related harm has been identified as a priority for addressing the drivers of crime. Police report that alcohol is a factor in nearly one third of all recorded crime.

It is extremely unlikely that the Government will move to raise excise tax as part of its alcohol reform agenda. However, legislative changes to alcohol laws are likely. The Government's response is likely to be framed as regulatory in nature, with an emphasis on alcohol availability and licensing.

The Government is carefully considering the 153 recommendations in the report, and expects to outline its position on the report in the coming weeks.

More information:
http://www.beehive.govt.nz/release/government+welcomes+law+commission039s+alcohol+report

Making the most of our opportunities

The Rugby World Cup 2011 will be the largest sporting event to be held in New Zealand. Thousands of international visitors will be coming to our country to share the experience. Some of those visitors will be interested in business opportunities.

We have launched the New Zealand 2011 Business Club online platform to match them with New Zealand businesses in the same areas of interest, coming to their regions.

Both New Zealanders and visitors can sign up and indicate the social and business activities of interest during the Rugby World Cup. The National-led Government is also working on a programme to showcase the best of New Zealand industry during the World Cup.

The club is free to join and will provide the basis for developing stronger business connections.

Learn more and sign up at www.nz2011.govt.nz

Regards,

Hon Bill English MP

Gore Office

15 Main Street,
P O Box 266,
Gore 9740
ddi 03 203 3000
gore.eo@parliament.govt.nz

Balclutha Office

68 Clyde Street,
P O Box 103
Balclutha 9240
ddi 03 418 4288
balclutha.eo@parliament.govt.nz

Queenstown Office

1085 Frankton Road,
P O Box 2192,
Queenstown 9349
ddi 03 441 4093
queenstown.eo@parliament.govt.nz

Weaker than expected business profits are reflected in lower tax revenue for the Crown in the nine months to 31 March and will keep tax revenue below forecasts for the rest of the fiscal year.

Without one-off gains from structured finance transaction settlements with the banks, underlying tax revenue was $900 million - or 2.4 per cent - below forecast in the nine months, Finance Minister Bill English says.

"This shows through across company tax, provisional tax payments by individuals and source deductions.

"We now expect this revenue to remain below forecasts throughout the rest of the current fiscal year - and probably into the 2010/11 year.

"Just two weeks out from the Budget, it underscores the brittle fiscal position faced by the Government and how finely balanced the situation is.

"The slightly better economic outlook will take time to feed into the Government's books. It certainly won't bring any dramatic changes to the Budget's fiscal forecasts, compared to the Half-Year Update in December.

"There may be slightly stronger revenue from some areas and slightly lower spending on income support, but nothing that significantly eases our medium-term fiscal pressures - namely several more years of Budget deficits."

The Crown accounts for the nine months to 31 March show that, including $400 million in one-off gains, the operating deficit before gains and losses was $5.3 billion, compared with $5.8 billion forecast in December.

The core Crown cash deficit at $7.9 billion for the nine months was in line with forecasts and net Crown debt was about $200 million higher than forecast at $25.6 billion.

The Australian Government's review of its tax system reinforces the value of New Zealand completing a broad review of its own tax system over the past year, Finance Minister Bill English says.

Australia today confirmed several changes to taxes on infrastructure, companies and superannuation funds.

"It was always on the cards that Australia's Henry Review would recommend a number of changes to its tax system," Mr English says. "It reinforces the value of us going through a similar process here over the past 12 months or so, as part of a broad review of our tax system.

"We'll be doing what is best for New Zealand and the New Zealand economy.

"A balanced package of tax reforms will be part of the Budget on 20 May. As I've said before, it will provide the right incentives for hard-working Kiwis to get ahead under their own steam - and it will make the system fairer, more sustainable and more supporting of economic growth.

"It's important that our tax system generally remains competitive with other countries - particularly Australia, given our close economic and trade ties with our Trans-Tasman neighbours."

"The Government will set out details of its tax package in the Budget later this month and I don't want to pre-empt that process today."

But it's now clear the Australian Labour Government's approach to tax contrasts starkly with the New Zealand Labour Party's reckless twin pillars of higher income taxes and billions of dollars more debt, Mr English says.

"This is very telling. Phil Goff's old-fashioned recipe of borrow and hope, tax and spend, would see New Zealand's debt spiral out of control - mortgaging our families' futures to pay the bills.

"He is not only out of step with the Australian Government, but he clearly does not realise the whole world has changed," Mr English says