The economy grew by less than expected in the December quarter, but annual growth of 1.8 per cent still leaves New Zealand reasonably well placed compared to many other countries, Finance Minister Bill English says.

“The economy has now grown in 10 of the past 11 quarters, since emerging from the recession which started in New Zealand in early 2008,” Mr English says.

“The December quarter was challenging, as the economy continued to rebalance, with households saving a bit more and being careful with their spending. In addition, conditions were tough around the world, particularly in Europe.

“Quarterly numbers do move around a bit – the September quarter result was higher than expected, while December was lower than expected. We’re focused on the longer-term by pressing on with the Government’s programme to make the economy more competitive and productive.”

The data today included signs that the economy is benefiting from an increase in net exports and investment, which will help New Zealand over the long-term.
“Compared to a lot of other countries, we’re in pretty good shape,” Mr English says. “The New Zealand economy will continue to expand in 2012 and we have a number of opportunities that will provide impetus for solid growth over the next three years.

“The rebuilding of Christchurch will help drive domestic activity and our two largest trading partners, Australia and China, are forecast to maintain relatively high growth rates. In addition, our terms of trade will remain elevated on the back of demand for our major export commodities from emerging markets.”

The 10 results set by the Prime Minister for the public sector over the next three to five years focus on some of the biggest challenges facing New Zealand, Finance Minister Bill English and State Services Minister Jonathan Coleman say.

The results will cover five themes:

• Reducing long-term welfare dependency.
• Supporting vulnerable children.
• Boosting skills and employment.
• Reducing crime.
• Improving government interaction with New Zealanders.

"In setting these results, the Prime Minister has acknowledged they are difficult and incredibly challenging issues," Mr English says. "They’re the kind of issues governments all around the world are grappling with.

"Achieving these results will stretch our public agencies. We appreciate we’re setting our sights high, but we’re determined to focus on the issues that are important to New Zealanders and get on top of them.

The challenges will be particularly acute in improving how government interacts with New Zealanders through a one-stop online shop for New Zealanders and businesses, Mr English says.

Dr Coleman says a sharper focus on delivering results is a major theme of the Better Public Services Advisory Group report issued today. The Advisory Group of senior people from business, NGOs, and government was set up in May last year.

"The report sets a clear direction for change," Dr Coleman says. "It looks at how the public sector can provide value for money and be innovative in delivering high quality services.

"I believe it provides thoughtful and pragmatic recommendations about how we can achieve those goals – the Government is already progressing some of them and is considering others."

The Advisory Group recommends the public sector be organised to deliver the results that matter most to New Zealanders.

"It also backs a drive for more contestability in providing services, where agencies consider whether it would be better to outsource to non-government agencies or the private sector," Dr Coleman says.

The Advisory Group will be retained to ensure the next stages of the Better Public Services programme produce real and demonstrable change on the ground – and within the desired timeframes.

The Government's new approach will see public sector leaders given more flexibility to operate in different ways. This will require some changes to the State Services Act and Public Finance Act to allow this to happen.

The Better Public Services Advisory Group report is available at: www.dpmc.govt.nz/sites/all/files/bps/bps-report-nov11.pdf

The Government will focus on six key areas over the next three years to help companies grow and to build a more productive and competitive economy, Finance Minister Bill English and Economic Development Minister Steven Joyce say.

Building a more competitive economy is one of four main priorities the Prime Minister has outlined for the Government in this term.

"Sustainable economic growth which creates permanent worthwhile jobs is best achieved by building a competitive economy that allows business to trade successfully with the rest of the world," the Ministers say.

"The Government has put together a business growth plan that will ensure ministers and departments are focused on the six important inputs businesses need to access to be internationally competitive."

The six key areas in the business growth agenda are:

• Capital markets
• Innovation and ideas
• Skilled and safe workplaces
• Natural resources
• Infrastructure (including electricity, broadband, transport); and
• Export markets

Ministers English and Joyce will co-ordinate informal groups of ministers in each of these policy areas to drive the growth plan forward and deliver on the Government’s 120-point action plan announced before the election. New polices will be added to each of these areas over the next three years.

The Government will produce progress reports in the second half of this year on each of the six areas to give greater visibility to the Government’s actions and progress. The six reports will be rolled out starting from June.

The Economic Development Ministry will also produce a report this year on the GDP contribution of each major industry, discussing the challenges and opportunities they face.

"Throughout the 2000s the competitiveness of the New Zealand economy suffered as new costs were heaped on business and government spending grew out of control," Mr English says.

"Over the past three years we've taken significant steps to make our economy more competitive and having a clear focus on these areas will help drive that forward."

Mr Joyce says the business growth agenda will ensure the Government is focused on what matters to business, and ensures companies can more easily access the advice and support they need.

"Lifting the overall productivity and competitiveness of the economy is critical to business growth, to creating more jobs and higher wages,” Mr Joyce says.

"The reality is that if we want more and better jobs for New Zealanders we need to encourage more businesses to be based here. To do that, the Government is focused on making it easier for businesses to access the six key areas they need to grow.

"Nothing creates sustainable jobs and boosts our standard of living better than business confidence and growth.”

The Government has appointed board members to two new Crown companies - Southern Response Earthquake Services Ltd and Crown Asset Management Ltd – and reappointed Reserve Bank chairman, Arthur Grimes.

Southern Response Earthquake Services Ltd is the renamed residual parts of AMI Insurance that will remain in Government ownership once the sale of AMI Insurance’s non-Christchurch earthquake related business is finalised.

The Government announced Ross Butler as chairman last year. He will be joined on the board by Anne Urlwin (deputy chair), Jenn Bestwick, Bevan Killick, Susan Thodey and David Whyte. The board members will take up their new roles when the sale process is complete. This is expected to be in April.

"All appointees have relevant governance or senior executive level backgrounds that collectively offer the skills required for the establishment board. I am confident the new board will effectively assist the residual company to assess and meet AMI’s Canterbury earthquake-related claims," Mr English says.

Mr English also announced the appointment of six new board members to Crown Asset Management Ltd (CAML), which has been established to consolidate the management and recovery of six finance companies in active receivership, which were covered under the Crown Retail Deposit Guarantee.

The appointees are Gary Traveller (chair), Peter Castle (deputy chair), Debbie Birch, Steven Fyfe, Keiran Horne and Steve Smith.

"As experienced commercial directors and insolvency practitioners with varied backgrounds including banking, law, accounting and finance, the board is well placed to assist the company to provide a better return to the Crown by maximising returns and minimising costs," Mr English says.

Mr English has reappointed Dr Grimes to the board of the Reserve Bank. This will enable him to assist in the appointment of a new Reserve Bank Governor when the current Governor, Alan Bollard, finishes his term in September.

The new Governor is appointed by the Minister of Finance on the recommendation of the Reserve Bank board.

A new public-private partnership (PPP) prison at Wiri, South Auckland, will provide improved facilities, better services and a tighter focus on results, Finance Minister Bill English and Corrections Minister Anne Tolley say.

The Government has chosen a consortium of companies, SecureFuture, to design, finance, build, operate and maintain the new 960-bed facility, which is needed to meet growing demand for prisoner accommodation in Auckland.

Fletcher Construction will build the new prison, it will be operated by Serco and maintained by Spotless Facility Services. Construction will start in the second half of this year, once the 25-year contract has been finalised. The prison is expected to open in 2015.

"This is an important milestone for one of the first major PPP projects in New Zealand," Mr English says. "We are confident the new prison will reduce reoffending, improve public safety and help improve performance across the entire prison system.

"The contract will have strong performance incentives, ensuring we receive a superior service compared to publicly run prisons or we pay a lower price.

"SecureFuture will need to achieve lower recidivism rates than the average for publicly run prisons to receive incentive payments.

"It will also face financial penalties if it fails to meet short-term rehabilitation and reintegration measures including prisoner health and employment targets, and safe, secure and humane custodial standards," Mr English says.

The new prison will be strongly focused on rehabilitation and reducing reoffending.

"This PPP will give us exposure to world-class innovation and expertise,” Mrs Tolley says. "It will provide a modern facility that is safe and secure and well equipped to rehabilitate and reintegrate prisoners.

"There are a number of innovative approaches contained in SecureFuture’s proposal which I am confident will lead to significant improvements across the prison system.

"Even with the prison population forecast to fall - due to the Government’s focus on rehabilitation and cutting crime - there is a demonstrated need for a new prison in Auckland to meet population projections. We also need the flexibility to respond to ageing capacity and other future pressures.

"Some prisons in the network are very old and are coming to the end of their viable life. In future, some of these ageing prison units will need to close, but the department will consult with affected staff and unions before that occurs," Mrs Tolley says.

The exact price of the 25-year contract will not be finalised until negotiations are complete, but the maximum potential price has been capped at $900 million - 10 per cent cheaper than if the prison was procured through conventional means.

This covers design, construction, maintenance and operation over 25 years.

The capital cost of the new prison has already been factored into previous budgets and does not require new budget funding.

The new prison will still operate within the current Corrections framework and all prisoners will remain the responsibility of the chief executive of the Department of Corrections. It will have to comply with all relevant New Zealand legislation and international obligations.

Questions & answers

How much will the new prison cost?
The exact price of the PPP contract will not be finalised until negotiations with SecureFuture are completed, but the maximum potential cost of the 25-year contract is capped at $900 million - 10 per cent below the cost of procuring the prison through conventional means.

What better results are you expecting from the prison?
Proceeding with the prison via a custodial PPP will strongly incentivise improved rehabilitation results and cost efficiencies of at least 10 per cent compared to traditional procurement. It will also provide the opportunity for further service improvements if innovations are rolled out across the wider prison network.

What performance incentives/penalties will SecureFuture face?
The contract will have a combination of incentives and penalties to focus the contractor on achieving the Government's objectives of public safety and reduced re-offending. It is designed to ensure the department will be buying a better service to that provided by the public sector.

If the contractor does not perform at the required level it will face financial penalties and the department will pay less for the service. The contract is also designed to lift public sector performance, with the department having the right to use any successful innovations throughout the rest of the prison system.

What innovations are you expecting?
SecureFuture’s proposal focuses on reducing reoffending. It intends to invest in modern prison facilities suitable for rehabilitation and reintegration activities and will provide additional follow up services outside the prison gate for prisoners to access after they have been released from custody.

What happens if the provider consistently fails to meet its contract targets?
There are a range of interventions available. These range from enhanced reporting and monitoring, through to more direct intervention and ultimately termination.

Why are you building a new prison when prison numbers are projected to fall?
Building a new prison will provide more prison capacity in Auckland, in line with forecast population growth, and will provide new facilities, which are better equipped to rehabilitate prisoners compared with older prisons. The new prison is part of ongoing work to create a network of prisons that gives the modern, fit for purpose facilities we need to hold prisoners securely and work with them to reduce re-offending.

Some prisons in the network are very old and are coming to the end of their viable life. In future, some of these ageing prison units will need to close, but the department will consult with affected staff and unions before that occurs.

What will be the role of Maori in rehabilitation programmes?
The rehabilitation and reintegration of Maori offenders is integral to the operating model for the new prison and the preferred bidder intends to work alongside Maori service providers, other community organisations and government agencies to provide services to assist Maori prisoners.

How will the Government ensure prisoners are well treated?
The chief executive of the Department of Corrections remains accountable for everything that happens in privately operated prisons - placing privately managed prisons clearly within the ambit and oversight of the state. These prisons will operate within the corrections system and the accountability mechanisms set up within the Corrections (Contract Management of Prisons) Act 2009 clearly recognise and facilitate this.

Is the Government considering other PPPs?
The Government has signalled its intention to consider PPPs for other areas of the state sector, for example, in education. However decisions are made on a case by case basis as PPPs are appropriate only for some projects.

A report benchmarking the administrative and support functions of state sector agencies shows they are starting to control their back office costs, but there is room for improvement, Finance Minister Bill English says.

Delivering better public services to New Zealanders is one of the Government's main priorities over the next three years.

"New Zealanders rightly expect a world-class health service, an education system that delivers for every child, a strong and effective justice system and social services that protect our most vulnerable and provide children from all walks of life with the opportunities they need to succeed," Mr English says.

"To achieve this we need state sector agencies to become truly focused on, and organised around, meeting the priority needs of families and businesses, and doing so within tight budgets.

"One part of delivering better public services is ensuring money is not unnecessarily spent on back office administration, when redirecting it to front line services would yield better results.

"The second annual Administrative and Support Services Benchmarking report is an important tool for chief executives to understand their organisations properly before they make change.

"It shows back office costs have been fairly flat in the last year, but there is ample room for future savings. Over the next year, I’d expect agencies to make more back office savings to free up money for priority front line services.

"In Budget 2011 we announced that from 1 July 2012 agencies will be required to find $980 million of savings over three years to reinvest in frontline services.

"Benchmarking costs will continue to challenge chief executives to lift their game and look at other ways of providing back office support," Mr English says.

The report is available at: www.treasury.govt.nz/statesector/performance/bass/benchmarking.

The Ministerial Committee on Poverty met for the first time last night, with ministers reaffirming their focus on providing opportunity for low income New Zealanders and getting better results from spending on social services.

"The Government's focus in tackling poverty is on providing opportunity – through things like better education and jobs," Deputy Prime Minister and committee chairman Bill English said.

"We also need to ensure we are getting the best results from the hundreds of millions of dollars the Government already spends on social service delivery.

"Over the past few years a lot of new money has gone into the services in education, health, housing and training. We've been working to get better value and results from that money and the committee can help drive that work."

Minister for Whanau Ora and committee deputy chair Tariana Turia said the committee confirmed its membership and approach.

"I am pleased that we have now had the first meeting of the committee. From the initial discussions it is very clear that Ministers want to see the issues related to poverty addressed," Mrs Turia said.

"I am looking forward to working together on this initiative, and ensuring that we produce tangible gains in both the near future and in the longer term."

The committee, which is part of the National-Maori Party support agreement, will build on the work of existing ministerial committees. It will meet quarterly and report back to Government every six months, with its first report due later this year.

Lower than forecast tax revenue in the seven months to 31 January, reinforces the need for the Government to responsibly manage its spending, Finance Minister Bill English says.

Core Crown tax revenue was $946 million below the Pre-Election Economic and Fiscal Update forecast in the latest monthly Financial Statements of the Government. Revenue was $1.4 billion lower overall, but was offset by lower core Crown expenses of about $1.24 billion.

The operating balance before gains and losses was $470 million below forecast – mostly due to EQC recognising expenses from the December 23 earthquake.

"The reduced tax revenue is broadly consistent with the updated economic outlook presented in the Budget Policy Statement last month, but the Treasury has identified some clear downside risks to the tax take for the remainder of the year, including slightly weaker labour market conditions," Mr English says.

"That reinforces the need for the Government to be disciplined and stick to its plan to get back to surplus in 2014/15, so we can start repaying debt.

"Returning to surplus won't be easy, but it is one of 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.

"That is why we have made it one of our four main priorities, alongside building a more productive and competitive economy, delivering better public services and rebuilding Canterbury.

"Limiting our debt to overseas lenders also helps take pressure off interest rates and the exchange rate. In the current uncertain global environment, it's vital we continue to keep a tight lid on spending and debt and put in place policies that make our economy more competitive," Mr English says.

In this edition of Plain English I talk about what's been going on in our electorate over the past few months and our new programme of reforms to the welfare system.I welcome your comments so be sure to click through and tell me what's on your mind.

The Government will deliver Budget 2012 on Thursday, 24 May, Finance Minister Bill English announced today.

“It will focus on implementing the Government’s clear and comprehensive plan to build a more productive and competitive economy,” he says.

Within that plan, the Government has set out its priorities. They are:

• Responsibly managing the Government’s finances.
• Building a more productive and competitive economy.
• Delivering better public services within tight financial constraints.
• Rebuilding Christchurch.

“We’re on track to return to budget surplus in 2014/15,” Mr English says. “This was always going to be a challenge, requiring tight control over spending for the foreseeable future.

“There will be no big surprises from the Government. We have laid out our economic plan and Budget 2012 will focus on implementing that plan.

“That’s important if New Zealand is to grasp its opportunities and withstand the global challenges that will continue to come our way.”