Finance Minister Bill English leaves for Europe and the United Kingdom next week, where he will meet government officials and business leaders, including senior staff at the Organisation for Economic Cooperation and Development in Paris.

“The visit will provide me with a direct insight into Europe’s economic challenges and their expected impact on New Zealand over the next few years,” Mr English says.

“I am also keen to talk to senior officials about using technology and innovation in delivering better public services.

“And a focus of my visit will be sharing ideas about public sector reform and financial markets.”

In Paris on 20 and 21 June, Mr English will meet senior OECD officials, where the global and European economic outlook and the economic benefits of infrastructure investment will be on the agenda. He will also be looking for fresh insights into policy issues affecting New Zealand.

Mr English visits The Netherlands on 24 June, meeting with the Dutch Central Bank and the Dutch Tax Agency.

Later that week, he will travel to London, meeting business and investment market leaders, along with senior UK government officials in the areas of information technology and shared public services, as well as the London School of Economics.

Mr English leaves New Zealand on Tuesday 18 June and returns on Sunday 30 June.

A website reader asked: As you are minister of finance and manage each year's budgets, what do you think on the issue of child poverty? How financially important is it, or is it financially important at all?

Bill English responds: The Government believes the most enduring solutions to helping vulnerable children happen when communities and the Government work together.

For its part, the Government invests a significant amount each year to help low income families and particularly the children of these families. We believe one of the most effective ways of doing this is helping more New Zealanders out of welfare and into work.

Over the last two Budgets, we have invested more than $485 million to provide beneficiaries with more intensive support through training and education, childcare and preparing for job interviews. The latest Budget also provided $100 million over three years to insulate the homes of low-income households - particularly those with children or elderly occupants.

In addition, we have provided more than $21 million over the next four years for rheumatic fever prevention; an extra $1.5 million for Budgeting Services for low income families; a whiteware procurement programme so beneficiaries can buy new appliances through Social Development Ministry repayable grants; a commitment to look at a pilot programme to provide low and no interest loans for low-income borrowers; and a warrant of fitness programme for Housing New Zealand properties.

Link to Budget announcement: http://www.beehive.govt.nz/release/budget-boosts-support-low-income-families

In addition, last month the Prime Minister announced Government funding to expand Fonterra and Sanitarium’s KickStart Breakfast programme, and a grant to KidsCan to boost a variety of the charity’s initiatives.

Link to Prime Minister's announcement: http://www.beehive.govt.nz/release/funding-boosts-help-vulnerable-children-pm

The Organisation for Economic Co-operation and Development has confirmed New Zealand’s macroeconomic policies strike the right balance between supporting the recovery and ensuring sustainable medium-term growth, Finance Minister Bill English says.

In its Economic Survey of New Zealand for 2013, the OECD also notes the economy is gaining momentum, with post-earthquake reconstruction in Canterbury, and business investment and household spending gathering pace.

“The OECD confirms the Government’s economic plan is on the right track,” Mr English says. “In particular, it notes our work in improving productivity to support long-term growth, it confirms the banking system is in good shape and well supervised, and it supports our focus on getting back to surplus and reducing debt.

“It concludes that reducing government debt will establish a favourable starting position for confronting longer-term cost pressures from an ageing population. It will also tend to raise national saving rates and reduce New Zealand’s external vulnerabilities.

“This is a welcome endorsement of the Government’s economic programme from the OECD, coming just a few weeks after the International Monetary Fund also confirmed we have struck an appropriate balance with our programme.”

Mr English agrees with the OECD’s assessment that New Zealand’s high private debt levels, large external imbalances and an over-valued exchange rate are among the main risks to growth.

“That’s why the Government is taking a number of steps, such as through the Business Growth Agenda and the internationally-focused growth package in the Budget, to help businesses and exporters become more competitive and to sell more to the world.

“While the OECD’s modelling predicts relatively small growth impacts from achieving some of the specific Business Growth targets, taken as a package evidence suggests they could make a material difference to productivity and incomes,” Mr English says.

The OECD notes that New Zealand policymakers are increasingly attuned to social equity and welfare issues.

It says welfare reforms are attempting to reduce long-run benefit dependency by emphasising education and training for at-risk youth, placing more conditions on beneficiaries and requiring stronger accountability from public and private providers.

“I’m pleased with the OECD’s positive assessment of the main elements of the youth package within our welfare reforms, and other recent changes to increase educational achievement and reduce youth unemployment.

“We will carefully monitor progress to ensure we further improve the participation of young people in education and training.”

Mr English says the Government does not agree with the OECD about the need for a comprehensive capital gains tax applying to all assets, including the family home.

“Two comprehensive, expert reviews of New Zealand’s tax system – the 2001 Tax Review and the 2009 Tax Working Group – did not recommend a widespread capital gains tax of the sort the OECD recommends.

“The Government significantly tightened the tax rules around property investment in Budget 2010, which is expected to raise an additional $3 billion in tax revenue over four years.

A stronger economy is underpinning tax revenue and, combined with responsible control over spending, kept the OBEGAL deficit below $4 billion in the 10 months to 30 April, Finance Minister Bill English says.

The $3.99 billion deficit is $664 million smaller than in the latest forecasts finalised before the Budget.

“A number of indicators confirm that New Zealanders can look to the future with some well-earned confidence and optimism,” Mr English says. “The economy is growing more strongly, new jobs are being created, unemployment is coming down and business and consumer confidence have picked up.

“The Government is supporting these positive trends with a common-sense economic programme focused on giving businesses the confidence to invest, grow and create new jobs. The plan is working and the benefits are starting to show through in the Government’s finances, as we remain on track to surplus in 2014/15.”

In particular, in the 10 months to 30 April, core Crown tax revenue was $3.1 billion higher than in the corresponding period the previous year. This was due mainly to increases in source deductions and other individuals’ tax, and we are also seeing benefits from the Government’s tax package in 2010 broadening the tax base.

At the same time, the Government is keeping control of its spending, with core Crown spending slightly below forecast at $57.8 billion. Net core Crown debt at $60 billion – or 28.7 per cent of GDP – was $441 million below forecast as at 30 April.

“It’s important that we cap and then start reducing this debt by sticking to sound fiscal and economic management,” Mr English says. “That will allow us to meet our second fiscal target of reducing net debt to no more than 20 per cent of GDP by 2020.”

Finance Minister Bill English and Revenue Minister Peter Dunne have welcomed the Australian Government’s announcement today that it has completed legislative steps to allow New Zealanders to transfer their retirement savings between complying Australian superannuation schemes and KiwiSaver.

The new arrangements take effect from 1 July, 2013.

“Australia’s announcement is a direct result of the strong commitment between the New Zealand and Australian Governments to remove an obstacle to the free movement of labour between our two countries,” Mr English says.

“Trans-Tasman portability of retirement savings will make it easier for people to take advantage of employment opportunities in both countries and take their retirement savings with them.

“The announcement today is good news for many people who have worked on both sides of the Tasman. It makes it easier for them to consolidate their retirement savings in their country of residence. “
After negotiations were started by the previous government, Mr English signed an agreement with Australian Treasurer Wayne Swan in July 2009, which paved the way for the new super portability scheme. Legislation allowing this to happen was passed by New Zealand’s Parliament in September 2010.

Australia’s Tax Office has estimated that there is about A$17.7 billion (NZ$21 billion) in “lost accounts” in the Australian superannuation system.

“We expect that some of this money belongs to New Zealanders who have returned home and these new rules will allow these funds to be brought back to New Zealand,” Mr Dunne says.

“Under current rules, employers of Kiwis who work in Australia must contribute to an Australian complying superannuation fund, which locks in their savings until retirement age.

“From 1 July this year, returning New Zealanders will be able to transfer funds in their Australian superannuation schemes into participating KiwiSaver schemes and vice versa.

“Retirement savings between the two countries will be exempt from entry and exit taxes and KiwiSaver members moving from New Zealand to Australia will be able to retain any member tax credits if they transfer to an Australian scheme,” Mr Dunne says.

While KiwiSaver members will not be able to withdraw money transferred from Australia to help them buy their first home, they may use interest earned on those savings for this purpose.

Retirement savings transferred from Australia into a New Zealand KiwiSaver scheme can be withdrawn when members reach the age of 60 if they meet the definition of being retired as set out under the Australian Scheme rules.

KiwiSaver savings transferred to Australian schemes can be withdrawn when members reach 65, in accordance with the KiwiSaver rules.

Participation in the super portability scheme will be voluntary for members in deciding to transfer their funds, and for KiwiSaver providers in deciding whether to accept their funds from Australia.

More information is available on Inland Revenue’s tax policy website: www.taxpolicy.ird.govt.nz

Budget 2013 confirms New Zealand is on the right track, with forecasts of economic growth, more jobs, rising wages, and a return to surplus by 2014/15, Finance Minister Bill English says.

“New Zealanders can look to the future with well-earned confidence and optimism,” he says. “The New Zealand economy grew 3 per cent last year, which is almost the same as Australia, and higher than almost every other developed country.

“Wages have been increasing, cost of living increases have been modest, and interest rates are at 50-year lows.

“There are 50,000 more jobs in the economy than two years ago, although unemployment does remain too high and attracting new investment that creates jobs is a particular focus for the Government.

“The fiscal outlook has improved markedly as a result of the Government’s sound management and we are on track to surplus in 2014/15.

“These are real achievements that are benefitting New Zealanders and their families. Budget 2013 is about building momentum in this programme.”

The Government’s main priorities for this term are:

• Responsibly managing its finances.
• Building a more productive and competitive economy.
• Delivering better public services.
• Supporting the rebuilding of Christchurch.

Responsibly managing the Government’s finances

The Budget confirms the Government is on track to meet its two key fiscal targets – to get back to surplus by 2014/15 and to bring net core Crown debt back down to no higher than 20 per cent of GDP by 2020.

Forecasts show an operating surplus before gains and losses of $75 million in 2014/15. The Government is achieving this while still spending $5.1 billion on new initiatives in the current year and over the next four years in Budget 2013 – funded in part by reprioritising existing spending.  A surplus is forecast because tax revenue is picking up and the Government is continuing to restrict growth in expenses.

“The Government’s return to surplus is not dependent on the Mighty River Power share sale,” Mr English says. “The share offer programme effectively swaps one type of asset for another – electricity company shares for cash – so its primary effect is on the mix of assets and debt that the Government owns, rather than on the operating balance.”

Net core Crown debt is forecast to peak at 28.7 per cent of GDP in 2014/15, before falling. Longer-term projections show net debt dropping to 17.6 per cent of GDP by 2020/21 – compared with Budget 2009 showing that, without policy changes, net debt would exceed 60 per cent of GDP by the early 2020s.

“So this is a remarkable turnaround in the books,” Mr English says.

However, when expressed in dollar terms, net core Crown debt is still rising by around $130 million a week and is expected to peak at $70 billion in 2016/17.

“As households around New Zealand know, carrying substantial debt is neither comfortable nor financially prudent. So the Government is firmly focused on capping, then reducing this debt.”

Budget 2013 confirms decisions to help achieve that:

• The operating allowance is $900 million in Budget 2013, compared with $800 million signalled previously, and will be $1 billion in Budget 2014, compared with $1.2 billion signalled previously. From 2015 onwards, operating allowances will grow by 2 per cent per Budget.
• The Government intends to delay contributions to the New Zealand Superannuation Fund until net core Crown debt is no higher than 20 per cent of GDP. Contributions are now expected to resume in 2020/21.

Building a more productive and competitive economy

A feature of Budget 2013 is a $100 million-a-year internationally-focused growth package, providing extra research and development assistance to businesses, additional funding for tourism, and more resources for marketing New Zealand to international students.

“This growth package acknowledges New Zealand’s need to pay its way in the world through increased trade and investment, which in turn creates jobs and opportunities for New Zealanders,” Mr English says.

Within the package, science and innovation funding is increased by $50 million a year. This takes the Government’s annual investment in research and development to $1.36 billion in 2013/14, which is the highest ever.

Additional Budget measures to build a more productive and competitive economy include:

• Allowing for ACC levy reductions of around $300 million in 2014/15, increasing to around $1 billion in 2015/16. When combined with the $630 million levy reduction in 2012/13, these changes will amount to around 40 per cent lower ACC levy rates for households and businesses, with the impact varying over the different accounts.
• Confirming a further $1.5 billion to be invested using proceeds from the Government’s share offer programme, including in redeveloping Christchurch’s hospitals, building modern schools and classrooms, and supporting irrigation infrastructure.
• Announcing that Meridian Energy will be the next company to be prepared for a partial share offer, in the second half of 2013.
• Legislation to improve housing affordability, which will deliver flexible regulatory tools to councils under accords between the Government and councils in areas where housing is least affordable.
• A memorandum of understanding with the Reserve Bank Governor confirming a range of measures, if required, to protect the economy from periods of excessive growth in credit and asset prices, reduce reliance on unstable sources of funding, and require banks and other financial institutions to better manage their own risks.
• A number of revenue measures, including a proposal to allow loss-making start-up companies to claim tax losses on research and development.

Delivering better public services within tight financial constraints

Following work by the Ministerial Committee on Poverty, Budget 2013 confirms several important initiatives to support low-income families. They include:

• $100 million over three years for the Warm Up New Zealand: Healthy Homes programme targeting low-income households, particularly those with children or high health needs, for home insulation.
• More than $21 million over the next four years for rheumatic fever prevention.
• An extra $1.5 million for Budgeting Services in 2013/14, in addition to the $8.9 million provided already in 2012/13.
• A whiteware procurement programme to enable beneficiaries to purchase new appliances under warranty using Ministry of Social Development repayable grants.
• Investigating a partnership with NGOs and financial institutions to support the provision of low or no-interest loans for low-income borrowers.
• A trial on Housing New Zealand properties of a Warrant of Fitness programme for rental housing.

“It is widely acknowledged that paid employment is the best way to lift vulnerable families out of poverty,” Mr English says. “The Government will invest a further $188.6 million over four years for the next stage of welfare reforms, to help more New Zealanders into work.

“The Budget includes changes to ensure social housing is provided to those most in need. Over four years, it includes an additional $46.8 million for extra income-related rent subsidies, as part of the Government’s wider support for high-needs tenants, and an extra $26.6 million to extend income-related rent subsidies to non-government community housing providers.

“The focus on providing better frontline healthcare and prevention continues. Over the next four years, we will invest $1.6 billion in new initiatives and to meet cost pressures and population growth.

“And the Government is helping more New Zealanders get the skills they need to build successful careers and fulfil their potential. We are lifting student achievement in all levels of the education system.

“Budget 2013 further supports these measures with over $900 million in the current year and over the next four years for new education initiatives across early childhood, primary and secondary education.”

Supporting the rebuild of Christchurch

The total estimated cost of rebuilding Christchurch has increased to around $40 billion from the previous $30 billion estimate. The Government’s share of the cost is around $15 billion – up from the $13 billion estimated previously.

Considerable progress is being made.

• The Red Zone offer has been accepted by more than 7,000 households, or over 98 per cent of those eligible.
• The infrastructure alliance has completed $700 million worth of work, with over $400 million of projects currently under construction.
• The demolition of nearly 1,000 buildings in the Christchurch CBD is almost finished and over $1 billion of new commercial buildings have received consents in Greater Christchurch.
• And by the end of this month, the Earthquake Commission will have completed 38,000 repairs and paid out more than $5.3 billion in claims.

The Budget confirms an additional $2.1 billion to support the rebuild. Over $900 million of this funding comes from the Future Investment Fund for projects including the Christchurch and Burwood hospitals redevelopment, funding for the justice and emergency services precinct and tertiary education institutions.

Progress in the Government’s programme while on track to surplus

• Provides a suite of measures to build faster economic growth, support more jobs and deliver a more innovative and productive economy.
• Forecasts economic growth to average between 2 and 3 per cent a year over the next four years.
• Includes a $100 million-a-year internationally-focused growth and innovation package to boost investment in science, research and development, and tourism.
• Confirms an additional $1.5 billion of investments from the Future Investment Fund to spend proceeds from the Government’s share offer programme.
• Allows for ACC levy cuts on households and businesses of around $300 million in 2014/15, increasing to around $1 billion in 2015/16.
• Provides significant extra money to help low-income families through a number of targeted initiatives.
• $5.1 billion of new operating spending in the current year and over the next four years for initiatives across areas such as health, education, welfare, and housing.
• Confirms an additional $2.1 billion to help rebuild Christchurch, taking the Government’s total share of the rebuild to around $15 billion.

Budget initiatives at a glance
(All figures for four years to 2016/17 unless otherwise stated).
Responsibly managing the Government’s finances
The Budget confirms the Government remains on track to meet its two key fiscal targets – returning to surplus by 2014/15 and bringing net government debt back down to 20 per cent of GDP by 2020.

• Forecasts show an operating surplus before gains and losses of $75 million in 2014/15 – a remarkable turnaround from the record $18.4 billion deficit in 2010/11.
• Net core Crown debt is forecast to peak at 28.7 per cent of GDP in 2014/15, before falling to 17.6 per cent of GDP by 2020/21.
• Core Crown expenses are expected to drop below 31 per cent of GDP by 2014/15, down from 35 per cent of GDP two years ago.

Budget 2013 confirms decisions to ensure that debt is capped and then reduced:

• The operating allowance is $900 million in Budget 2013, compared with $800 million signalled previously, and $1 billion in Budget 2014, compared with $1.2 billion signalled previously. From 2015 onwards, operating allowances will grow by 2 per cent per Budget.
• The Government intends to delay contributions to the New Zealand Superannuation Fund until net core Crown debt is no higher than 20 per cent of GDP. This is expected in 2020/21.

Building a more productive and competitive economy
Budget 2013 continues the Government’s unwavering focus on increasing longer-term growth, productive investment and exports by investing heavily in measures to help businesses become more competitive.

• A $100 million-a-year internationally-focused growth package to provide extra research and development assistance to businesses, additional funding for the tourism sector, and international education marketing.
• Allowing for ACC levy reductions of around $300 million in 2014/15, increasing to around $1 billion in 2015/16. When combined with the $630 million levy reduction in 2012/13, these changes will amount to around 40 per cent lower ACC levy rates for households and businesses.
• Budget 2013 confirms a further $1.5 billion of new capital investment from the Future Investment Fund, which was established to invest proceeds from the Government’s share offer programme. It includes:
• $426 million for the redevelopment of Christchurch and Burwood Hospitals. As announced previously, this will be the single biggest hospital investment in New Zealand’s history.
• $50 million to speed up the School Network Upgrade Project which enhances the technological capability of schools.
• A further $94 million for the fourth year of KiwiRail’s Turnaround Plan.
• $80 million for irrigation projects, as announced previously.
• Meridian Energy will be the next company prepared for a share offer to New Zealanders, in the second half of 2013.
• Legislation will be introduced to improve housing affordability by delivering flexible regulatory tools to councils under accords between the Government and councils in areas where housing is least affordable.

• A memorandum of understanding with the Reserve Bank Governor confirms a range of measures, if required, to protect the economy from periods of excessive growth in credit and asset prices, and to promote financial system stability.
• A number of revenue measures, including a proposal to allow loss-making start-up companies to claim tax losses on research and development.

Better public services
The Ministerial Committee on Poverty has endorsed a number of important initiatives to help low-income families. They include:

• $100 million over three years for the Warm Up New Zealand: Healthy Homes programme targeting low-income households, particularly those with children or high health needs, for home insulation.
• More than $21 million over the next four years for rheumatic fever prevention.
• An extra $1.5 million for Budgeting Services in 2013/14, in addition to the $8.9 million provided already in 2012/13.
• A whiteware procurement programme to enable beneficiaries to purchase new appliances under warranty using Ministry of Social Development repayable grants.
• A commitment to investigate and pilot a partnership with NGOs and financial institutions to support the provision of low or no interest loans for low-income borrowers.
• The trial on Housing New Zealand properties of a Warrant of Fitness programme for rental housing.

Welfare
$188.6 million over four years for the next stage of welfare reform to help more New Zealanders off benefits and into work. This follows a $287.5 million investment in Budget 2012, and includes:

• 354 extra Work and Income staff to provide intensive help and support.
• People receiving the sole parent support or supported living payments, who go off the benefit and don’t have work expectations to retain some of their benefit in the first few weeks.
• Additional funding to allow Work and Income to contract external providers to deliver case management and wrap-around services for particular groups of beneficiaries.
• Further developing the investment approach to welfare.
• Additional funding to provide for an independent workability assessment by experts to establish a client’s work-readiness.

Health
Over the next four years, $1.6 billion for new health initiatives and to meet cost pressures and population growth. This takes total health spending to $14.7 billion in 2013/14. $1 billion of this extra funding goes to District Health Boards to take account of population changes and inflationary pressures.
Extra health spending over the next four years includes:

• $70 million for aged care and dementia services.
• $35.5 million for diabetes and heart disease.
• $100 million extra to meet population changes and cost pressures in disability support services.
• $48 million for more elective operations such as hip replacements and cataracts.
• $25 million to increase the number of people being screened for diseases, particularly breast cancer.
• More than $21 million to reduce the incidence of rheumatic fever and undertake rheumatic fever vaccine research.
• $18.2 million for a new mothers and babies initiative, with details to be announced shortly.
• $12.8 million for patients with long-term conditions such as diabetes and asthma.
• $7.3 million for 20 additional medical student places.
• $7 million to increase coverage of preventative health tests for four-year olds.
• $4.3 million to improve care and men’s awareness of prostate cancer.

Education
In the current year and over the next four years, around $900 million for education initiatives across early childhood, primary and secondary education. This takes total spending on these sectors to $9.7 billion in 2013/14.
Extra education spending in the current year and over the next four years includes:

• $173 million for early childhood education, including $41 million for equity funding and $39 million for universal subsidies.
• $215 million for schooling, including nearly $80 million for operations grants, $64 million for Positive Behaviour for Learning and $38 million for teaching quality initiatives.
• $92.4 million for Greater Christchurch Education Recovery and Renewal and 21st Century Schools.
• $73.1 million of operating expenditure to support the ongoing maintenance and costs of the school property network.

More than $130 million over four years of new investment and reprioritised funding in tertiary education. It includes:

• $36 million for the expansion of M?ori and Pasifika trades training.
• $27 million to boost funding for science and engineering courses.
• Nearly $29 million to equalise funding rates between Private Training Establishments and Tertiary Education Institutions.
• $32 million to support an increase in the proportion of young people with higher-level qualifications.

Law and order

• Police will reprioritise more than $160 million over several years to give frontline officers access to new technology such as smartphones and tablets, which will improve their performance and productivity.
• The Ministry of Justice will receive $4.4 million from the Justice Sector Fund to expand its restorative justice services.
• The Department of Corrections will invest $10 million over two years from the Justice Sector Fund to increase support for offenders after their release, with the goal of reducing reoffending.

Housing

• $26.6 million to extend the income-related rent subsidy scheme to
  non-government providers.
• Legislation will allow community housing providers to become registered prior to receiving an income related rent subsidy for new, eligible tenants.
• $46.8 million to extend reviewable tenancies to all Housing Corporation tenants who signed up to their existing properties before 1 July 2011.
• Responsibility for assessing entitlement to social housing support will be shifted from Housing New Zealand to the Ministry of Social Development.

Rebuilding Christchurch

• The total estimated cost of the earthquake damage in our second largest city has been increased to $40 billion from the $30 billion of previous estimates.

• Budget 2013 confirms $2.1 billion of additional government funding to the earthquake recovery, including $900 million of new capital from the Future Investment Fund. This will take the Government’s total share of the rebuild to around $15 billion. This extra funding includes:
• An additional $300 million earmarked for the Central City recovery.
• Funding for final land zoning decisions.
• Work of the Canterbury Earthquake Recovery Authority.
• Redevelopment of the Christchurch and Burwood hospitals, a justice and emergency services precinct, and tertiary education institutions.

SUMMARY OF BUDGET ECONOMIC AND FISCAL FORECASTS

1     Real production GDP, annual average percentage change
2     Percent of labour force, March quarter, seasonally adjusted
3     Consumers Price Index (CPI), annual percentage change, 2013 actual
4     % of GDP
5     Total Crown operating balance before gains and losses (OBEGAL)
6     Net core Crown debt excluding the New Zealand Superannuation Fund and advances