The Government will close New Zealand's wholesale funding guarantee on 30 April 2010, Finance Minister Bill English announced today.

"The wholesale funding facility was set up in November 2008 when the liquidity crisis had hit global markets," he told the New Zealand Australia Investment Forum in Auckland today.

"It helped our banks access funding during that crisis, but international market conditions have improved - and continue to improve in 2010. New Zealand banks are now raising funds without using the guarantee, which was always envisaged as a temporary measure for extraordinary times."

Mr English's announcement follows confirmation last month that the Australian wholesale funding guarantee will end on 31 March. Other countries have also ended their guarantee schemes or are in the process of doing so.

The wholesale guarantee facility is separate from the retail deposit guarantee scheme. No changes are planned for the retail deposit scheme beyond those announced last year, which take effect from 13 October 2010.

Since the wholesale guarantee was set up, 24 guarantee certificates have been issued, covering $10.3 billion of borrowing by banks. The scheme has made no payouts and the Government will receive almost $290 million in fees.

"Banks in New Zealand are now successfully raising funds in the wholesale market without using the wholesale guarantee and we don't expect there will be any further use of the facility between now and the end of April."

The Treasury and Reserve Bank have consulted with the major New Zealand banks - along with some international investment banks - in recent weeks.

"In general, the feedback was that they were all looking to raise non-guaranteed funds and have no plans to further use the New Zealand wholesale guarantee," Mr English said.

The Budget will continue to focus on managing the Government's finances in a disciplined and responsible way, Finance Minister Bill English says.

"It's essential, as we come out of the recession, that the Government shows leadership in managing its finances and getting back to surplus as soon as possible," he said after the release today of the Crown accounts for the seven months to 31 January.

"Surpluses give us choices. With another six years of forecast Budget deficits and net Crown debt forecast to treble to $65 billion by 2014, we won't have those choices for some time.

"Most government agencies will receive no new money in the Budget on 20 May. So they will need to reprioritise existing spending to ensure they are delivering better services to the public and value for money for taxpayers.

"The Government will operate within the $1.1 billion allowance for new spending it set out in the Budget last year. This is not a one-off exercise - and will need to continue for years to come if we are to get the Government's books back into good shape and bring borrowing under control."

The Crown accounts issued today show core Crown revenue was $102 million higher than forecast at $32.4 billion in the seven months to 31 January, while core Crown expenses were $678 million below forecast at $36.2 billion. Net debt was close to forecast at $22.8 billion.

The operating deficit before gains and losses was $883 million better than forecasts at $3.4 billion. Gains in the Crown's investment portfolios and an actuarial gain on the valuation of the ACC insurance liability left the operating deficit at $630 million - or $1.4 billion better than forecast.

"Some of these gains may well be reversed in coming months. And in the context of the much bigger fiscal challenges we face over the next few years, they are really just incremental improvements," Mr English says.

The National Infrastructure Plan, issued today, shows the large scale of the Government's infrastructure programme and highlights some future issues that may require action, Infrastructure Minister Bill English says.

"This Government has increased investment in critical infrastructure including our roads, national grid and broadband," Mr English says.

"This programme is directly supporting thousands of jobs and contributing to a stronger economy, which over time will mean better wages and higher living standards for New Zealand families."

The first National Infrastructure Plan, put together by Treasury's National Infrastructure Unit, shows the Government is spending over $6 billion a year on physical assets and holds about $110 billion of such assets.

The plan, which has a 20-year horizon, is part of a range of work aimed at improving the Government's planning, decision-making and management of infrastructure in order to maximise economic benefits.

"The first National Infrastructure Plan is an important step towards better infrastructure management. Even a small improvement in this area could reap gains worth billions - making our infrastructure dollars go further and ensuring a better return for taxpayers."

The plan provides a snapshot of public and private infrastructure, planned investment and the Government's priorities.

"It gives infrastructure providers greater certainty about the Government's plans and ensures that planners and stakeholders have a clear sense of what is happening across a range of sectors," Mr English says.

It identifies bottlenecks in the roading and electricity sectors, but finds they are being addressed by increased investment.

It also identifies some future gaps and issues that might require action, including an additional Auckland Harbour crossing, the need for better alignment between central and local government planning and more investment in the most commercially viable parts of the rail network.

"The Government has already started planning work for an additional harbour crossing. We have also begun investing in key parts of the rail network and you can expect further announcements in this area throughout the year.

"The plan also says there are gaps in knowledge about the country's infrastructure needs 10-20 years out. Identifying these gaps will be a major focus of the next National Infrastructure Plan," Mr English says.

The full report is available at: http://www.infrastructure.govt.nz/plan/mar2010

National Infrastructure Plan - key findings

• The plan finds that New Zealand's infrastructure is generally sound.
• It confirms that there are bottlenecks in roading and electricity, but these are being addressed by increased investment and changes to regulation.
• While these bottlenecks exist, there are no obvious looming crises in the near term (five years), but there are some gaps in knowledge about the country's infrastructure needs 10-20 years out.
• Identifying these gaps will be a major focus of the next report.
• It notes the Government holds about $110 billion in physical assets and is spending about $6 billion a year on expansion or maintenance of these assets.
• The plan sets out the Government's five key infrastructure priorities - broadband, electricity transmission, regulatory reform, roads of national significance and Rugby World Cup 2011.
• An additional three emerging priorities are: reviewing the electricity market, agricultural irrigation and getting better procurement and management of the Government's physical assets.
• It finds there is currently a large amount of planning across a range of sectors, but it is variable. Sectors covered include transport, energy, telecommunications, water, education, health and corrections.
• It identifies some long-term issues that may require action, including:
• o An additional Auckland Harbour crossing in the next 10-20 years.
• o Better alignment between central and local government in the future to ensure priorities match up. The report says this is happening in Auckland, but there may need to be greater alignment in other regions.
• o A need to replace some of the rail fleet to boost revenue growth on some routes. There is also likely to be increased demand for further investment in the Auckland and Wellington metro rail systems.

Key investments

• State Highways: $10.7 billion over the next 10 years.
• National grid: $3.3 billion over the next five years.
• Urban broadband: $1.5 billion over the next 10 years.
• New schools and buildings: $2.7 billion allocated over next five years.
• Total Budget capital spending: $7.5 billion over five years.

The Government's finances showed some incremental improvement in the six months to December 31, due to a number of factors - including some one-off gains, Finance Minister Bill English says.

However, the longer-term challenge of getting the Government's books in shape remains as substantial as ever.

"As I've been saying for more than a year now, the combination of responsible fiscal and economic management over the next few years is the only way we can get on top of this challenge.

"We've made it clear that the Budget on May 20 will provide most government agencies with no new money, because we're already borrowing $240 million a week and we simply don't have it available.

"At the same time, we need to increase our economic growth, so families can get ahead. It's simply unacceptable that the economy grew by a meagre 0.9 per cent a year in the three years to 2008, when the rest of the world was virtually booming."

The financial statements issued today show the operating deficit before gains and losses, at $3.7 billion in the six months to December 31, was $800 million better than forecast.

This reflected a combination of slightly higher tax revenue and lower expenses.

The accounts included $300 million in extra revenue from Inland Revenue's settlement with banks late last year over their structured finance transactions. Some $1.4 billion had already been recognised in the accounts, and the extra $300 million reflects the net balance of this settlement.

Labour's legacy of economic mismanagement was even more damaging to New Zealand families than previously reported, after revisions to official statistics issued late last year, Finance Minister Bill English says.

"The revisions show that in the three years to September 2008 spanning Labour's third term - and before the impact of the global financial crisis - the economy actually grew by less than 1 per cent a year.

"This compares to already mediocre 1.5 per cent average annual growth over this period reported before the data revisions by Statistics New Zealand.

"In fact, New Zealand's total economic output is now barely above the level of four years earlier.

"They were the best of times internationally and we should have done much better than sub-1 per cent annual growth. Yet in Labour's last term, our economy grew by less than half the growth rate of the Western world and less than one-third the rate of Australia.

"This was a remarkable under achievement and hurt hard-working Kiwi families looking to get ahead and find higher-paying jobs."

During Labour's tenure, Government spending increased recklessly, interest rates were persistently high, exporters were struggling and the tax system was clearly not working, Mr English said.

"The result was a decline in New Zealand's export industries and a near record balance of payments deficit.

"That's why this Government has laid out a comprehensive plan to lift economic performance by shifting the economy away from borrowing and consumption, towards savings and exports."

Housing Minister Phil Heatley and Finance Minister Bill English have today announced the line-up of the government's seven-member Housing Shareholders' Advisory Group.

Company director and global business consultancy senior partner Alan Jackson will chair the group.

Other members include investment banker Andrew Body, property developer Martin Udale, Salvation Army director Major Campbell Roberts, Auckland City Mission head Diane Robertson, New Zealand Housing Foundation executive director Brian Donnelly and Maori development consultant Paul White.

"A review of this nature is long overdue," Mr English said.

"The government has more than $14 billion invested in social housing; much of it is in a poor state of repair and in the wrong places to meet demand.

"The group will look at how this significant asset can be better utilised."

Mr Heatley noted a huge growth in demand for one and two bedroom houses for older people, and four or more bedroom houses for large families.

"Yet we have relatively few houses to meet that demand - instead we have a surplus of three bedroom houses across the country that suit neither demographic."

Today's announcement comes less than a week after the Salvation Army's annual State of the Nation report highlighted a lack of adequate housing, particularly in Auckland.

"The advisory group will make recommendations on the best and fairest way of providing state housing services to those most in need, in the highest priority areas, for as long as they need it," Mr Heatley said.

"As the Prime Minister said in his Statement to Parliament, we have to do a better job of matching state housing support with those people in the greatest need of assistance."

The group will report on the current and likely future demand for subsidised housing, and make recommendations on the future role of Housing New Zealand Corporation in delivering assistance.

They will start work immediately and report to government by 30 April 2010.  For the group's terms of reference visit: www.dbh.govt.nz/news-terms-of-reference-hsag

Housing Shareholders' Advisory Group biographies

• Alan Jackson (chair) is senior vice president in the Sydney office of the Boston Consulting Group. He is also a director of Fletcher Building and a trustee of The Icehouse business growth centre in Auckland. Mr Jackson will contribute experience in change management with expertise in resources, diversified industrials, building products and construction sectors.

• Major Campbell Roberts is the director of the New Zealand, Fiji and Tonga Territory Social Policy and Parliamentary Unit of the Salvation Army. He is also a trustee of the New Zealand Housing Foundation, a director of the Centre for Housing Research Aotearoa New Zealand and the Auckland Housing Trust. Major Roberts is a media spokesperson, writer and speaker who will contribute on issues of poverty and social housing.

• Andrew Body is a director of Crown Fibre Holdings. He has 19 years experience as an investment banker, focussing on mergers and acquisitions. Mr Body will contribute experience in business and network industries.

• Martin Udale is an independent consultant with more than 30 years experience in the New Zealand, UK and Australian property markets, including developing some of the first office parks in Sydney and Brisbane. He was most recently the chief executive of McConnell Property, and has also been director of corporate advisory with CRI, an Australian property development and services group, specialising in partnering with asset owners to create value from underused assets.

• Diane Robertson is head of the Auckland City Mission and is the first non-clergy female City Missioner. She previously had roles on the Committee for Auckland, the Auckland University Community Advisory Board, Springboard Trust, Robin Hood Foundation, Child Poverty Action Group and the New Zealand Institute. Ms Robertson will contribute experience on social and emergency housing issues.

• Brian Donnelly is executive director of the New Zealand Housing Foundation. He is also a director of the Centre for Housing Research Aotearoa New Zealand (CHRANZ), a trustee of the Queenstown Lakes District Community Housing Trust, a member of the Social Entrepreneur Fellowship and chair of the Wilson Home Trust. He will contribute experience in social housing issues, including operating and managing a social housing organisation.

• Paul White is the Principal of Torea Tai Consultants, specialising in consultancy on Maori development, housing and strategic planning. He is also a Member of the State Housing Appeal Authority, the chair of Te Waka Pupuri Putea (an iwi asset holding company) and a council member of FITEC, the forestry industry training organisation. Mr White has previously been chief executive of Ngai Tahu Development Corporation and a member of the Housing New Zealand Board. He will contribute experience in the operation and management of Housing New Zealand, strategic planning and social housing issues.

Finance Minister Bill English today confirmed Budget 2010 will be delivered on May 20 and will set out important policies to lift economic growth and give hard-working New Zealanders incentives to get ahead.

"The Budget will be about taking action to grow the economy over the next five years and beyond," he said after updating the National caucus on the economy and the Government's priorities for 2010.

"It will build on the Government's substantial economic programme last year and give businesses the confidence to invest and create jobs.

"We've come through the recession in better shape than many commentators had predicted. That gives us an opportunity to differentiate ourselves from other countries in areas like tax reform, productive infrastructure investment and better public services.

"All of this is essential if everyday New Zealanders are to enjoy the incomes and living standards that give them opportunities to get ahead."

As it makes decisions for the Budget, the Government will consider several reviews - including the report last month of the Tax Working Group.

"As the Prime Minister has said, we want to create a tax system that strengthens the economy, rewards effort, reduces tax avoidance and keeps talented New Zealanders at home. We also want to tilt the economy towards exports and investment, and away from consumption and borrowing."

The Budget will be delivered against a backdrop of ongoing restraint, given the Government faces another six years of Budget deficits and net Crown debt will more than treble to a forecast $65 billion by 2014.

"It was entirely appropriate that the Government helped New Zealanders through the recession. Now we need to focus on fixing a damaged economy and restoring the Government's books."

Crown accounts for the five months to November 30 were slightly better than forecast, but reinforce the need for responsible fiscal and economic management through 2010, Finance Minister Bill English says.

"We face another six years of Budget deficits and we're borrowing an average $240 million a week, every week, for the next four years.

"The best way - in fact, the only way - of getting on top of this significant fiscal challenge is to get the New Zealand economy growing and giving businesses the confidence to invest and create higher-paying jobs.

"The Government has embarked on a significant programme that includes reducing red tape, investing billions of dollars in productive infrastructure, getting better services from the government sector and addressing imbalances and inequities in the tax system.

"Budget 2010 will clearly set out the next steps of that plan, so that the economy grows faster and creates opportunities for families to get ahead."

The Crown's operating deficit before gains and losses for the five months to November 30 was $3.7 billion - or $700 million better than forecast late last year in the Half-Year Economic and Fiscal Update.

The operating deficit including gains and losses at $1.4 billion was $1.1 billion better than forecast, after better-than-expected investment performances by the New Zealand Super Fund, ACC and EQC.

"Monthly variations in the Crown's finances can reflect timing differences that are later reversed - and they need to be seen in the context of net core Crown debt rising from $17 billion in 2009 to a forecast $65 billion in 2014.

"The recession will continue to be felt on the Government's finances for some time. Anything we can do to shorten that process and get the economy growing faster will make a significant difference."

New Zealanders can go into the Christmas break feeling more positive after two quarters of economic growth, but more work is needed to ensure a strong sustainable recovery, Finance Minister Bill English says.

GDP data shows the economy grew 0.2 per cent in the September quarter and June quarter growth was revised upwards from 0.1 to 0.2 per cent. In the September quarter household consumption and mining were stronger than expected and manufacturing and construction down.

For the year to September 2009, the economy contracted 2.2 per cent compared with the year to September 2008.

"While growth is still weak, today's figures are positive news. New Zealanders can go into the Christmas break feeling a bit more confident about the economy and the year ahead," Mr English says.
 
"Two quarters of growth – following five quarters of contraction - reflects a stabilisation in the global economy and the Government's sound economic management.

"The positive data follows Treasury's updated forecasts which show unemployment is likely to peak sooner and at a lower level than previously thought, with 64,000 fewer jobs expected to drop out of the economy.

"However the recovery remains fragile and any further problems abroad could weaken our growth prospects. That is why it is critical we improve the competitiveness of our exporters and address structural imbalances in our economy.

"To climb back up the world income ladder and to replace jobs lost during the recession we need businesses to have the confidence to invest and create jobs. The Government's role is to make that as easy for them as possible.

"We have set out a comprehensive programme to lift our economic performance and we will be developing that further in 2010," Mr English says.

The Government's firm focus in 2010 will be achieving higher economic growth and giving businesses the confidence to invest and create jobs, Finance Minister Bill English says.

Responsible management of the Government's finances will also be essential, with another six years of forecast Budget deficits.

"Growth matters because it creates jobs, increases incomes and improves the living standards of New Zealand families," he said today in issuing the Half-Year Economic and Fiscal Update and 2010 Budget Policy Statement.

Updated Treasury forecasts show that both economic growth and the fiscal outlook are a little better than forecast in the Budget in May.

"This reflects the fact that the global economy has stabilised and the success of significant Government initiatives in the past year to fight the recession.

"However, that does not mean that all of the problems of the recession have passed - risks remain that growth could weaken again," Mr English says.

"Unemployment is forecast to peak sooner and lower than previously predicted - 7 per cent in early 2010 as opposed to 8 per cent in the second half of 2010. However, it is likely to remain at elevated levels throughout 2010, even as the economy improves. So the year ahead will remain difficult for many New Zealanders."

Mr English says the Government's fiscal position also remains challenging.

"Budget 2009 stopped the growth of low-value Government spending and provided a credible programme to contain debt. Even so, the forecast operating deficit for 2010/11 is $6.7 billion and the Government's accounts are not expected to return to surplus until 2016.

"This is despite the forecasts assuming long-term spending restraint and an upwards creep in average tax rates caused by increasing numbers of taxpayers entering the top tax brackets. There is little room for slippage."

The Government has a significant economic programme, which has already helped New Zealand come through the recession in better shape than many other countries.

The economic programme includes:

• Investment in productive infrastructure
• Removing red tape and improving regulation
• Supporting business innovation and trade
• Improving education and lifting skills
• Lifting productivity and improving services in the public sector
• Strengthening the tax system

"We are now building on that programme to ensure New Zealand achieves a step-change in its economic performance," Mr English says.

"Budget 2010 will set out the next steps of the Government's growth strategy while continuing the emphasis on sound public finances."

SUMMARY OF ECONOMIC AND FISCAL FORECASTS