GEARING UP FOR 2010


CLICK HERE TO WATCH MY LATEST VIDEO BRIEFING

I hope you all had a good Christmas break. Summer holidays are a chance to spend time with family and reflect on our busy lives. We also get a chance to think about the year ahead and what we want to achieve. I had a great break down south with my family and looking ahead, I'm excited to be back.

As Prime Minister John Key has said - this is the year the Government will start delivering on the faster growth agenda we want. Last year our focus was on jobs, as we weathered the worst global recession since the 1930s. While unemployment is still expected to rise in the first part of this year, our focus has paid off with the jobless rate tracking well below forecasts.

While we were focused on jobs we also set out a comprehensive programme to lift New Zealanders' living standards in the longer term. We set a variety of taskforces the job of investigating specific policy options. Most of these have now come back with findings and over the coming weeks and months the Government will choose the best and most practical options to lift growth.

Outlining a concrete programme to lift growth is the best way to boost consumer confidence and give businesses the confidence to invest and hire more workers. You can read some more about this in an opinion piece I provided to the New Zealand Herald early this month.

TAX WORKING GROUP

Last week I received the report of the Tax Working Group. The report, which identifies problems with our tax system, has generated a lot of discussion and you can expect that to continue over the coming months as the Government considers which options it adopts in the May Budget.

In summary, the report says our tax system is too heavily weighted towards taxes on wage earners and companies. It says these taxes are the most damaging to growth. On the other hand it says tax on consumption is low by international standards and there is a large gap when it comes to investment property. The report suggests changes to the tax mix to create a better tax system.

The working group has made a strong case for change and suggested some practical options. Our focus as we pick through the report will be on options that will boost economic growth. You can read more about the Government's approach to the report in my press release.

BETTER, SMARTER PUBLIC SERVICES

Last week I took a tour of around some Wellington Work and Income sites with Welfare Minister Paula Bennett. These included a call centre and Community Link centre in Lower Hutt and a service centre in Porirua. Jobs has been a major focus for this Government and it was great to see the improvements Work and Income has been making to their frontline services so they can better match up job seekers with jobs.

These include:

• Better use of technology in their call centres so they can handle the far higher volume of job seekers in the last year.


• Bringing together the various government and non-government agencies in a community under one roof in the case of Community Link.


• General process improvements that have cut waiting times for job seekers and meant a high proportion of job seekers are going straight into new jobs within weeks of losing their old one.

It was heartening to see this kind of innovation and improved efficiency getting good results for both taxpayers and job seekers.

THINGS TO LOOK OUT FOR

• On February 4 Statistics NZ will release the Household Labour Force Survey for the December quarter. This is expected to show a rise in the unemployment rate from the current 6.5 percent.


• On February 9 Prime Minister John Key will outline the Government's programme for 2010 in his speech to the opening of Parliament.


• Later in the month I'll also deliver a speech focusing on the economy in 2010.


• Also keep an eye out for the first National Infrastructure Plan, which will be released in coming weeks. You can find out some more about it here.

Regards,

Hon Bill English
Finance Minister

I welcome your comments - please feel free to share your thoughts and reactions using the comments option.

MERRY CHRISTMAS

As we head into the summer break, it feels like it's been a long year - and a hard one for many families and businesses. Looking around the corner, there is more work to be done to get our economy really growing again, but I'm pleased some of the gloom is lifting and New Zealanders can go into the New Year more confident about their jobs and incomes. With those slightly better tidings I'd like to wish all the readers of this newsletter a Merry Christmas and a Happy New Year.

ECONOMIC OUTLOOK

This week Treasury opened their books for the Half Year Economic and Fiscal Update, which shows how the Government and country are doing economically.

The updated forecasts showed a better economic outlook than Budget 2009. The recession was not as deep as originally feared and growth is expected to be slightly stronger over the next four years.

Supporting jobs has been the Government's focus for most of the year and from my perspective the most heartening news in the update was that 64,000 fewer jobs are now forecast to be lost from the economy than predicted in the Budget. You can read my press statement here.

However reduced business profits and a lower tax take mean the improved outlook does not immediately flow into the Government's accounts. Our fiscal position remains challenging. We face another six years of deficits and the amount we need to borrow in the next four years has only slightly reduced from $250 million a week to $240 million a week.

The best way to improve that position is to lift our economic performance and growth rate. That will be the Government's main focus in 2010.

CAPITAL MARKETS DEVELOPMENT TASKFORCE

The Government is keen to develop New Zealand's capital markets so investors have a better range of options and businesses get the investment they need to help our economy grow. My colleague, Commerce Minister Simon Power, this week released the final report of the Capital Markets Development Taskforce. It includes a range of recommendations including:

• Expanding the range of products available to investors and improving the quality of advice they receive.


• Increasing access to capital for businesses.


• Improvements to securities law.


• Changes to the structure and operations of finance sector regulatory agencies.


• Addressing tax incentives that cause distortions in the local capital market.

The Government will respond to the report next year. The Minister's press release can be read here.

THINGS TO LOOK OUT FOR IN THE NEW YEAR

As well as responding to the Capital Markets Development Taskforce the Government will receive the Tax Working Group report and the first National Infrastructure Plan in the New Year. Both should make interesting reading.

The Tax Working Group report, which we are expecting to receive in January, will look at fiscally neutral ways to improve New Zealand's tax system. The Government will consider the report seriously and signal any changes - if there is a sufficiently compelling case - in Budget 2010.

The Infrastructure Plan will be a stock take of New Zealand's existing infrastructure and planning. Evidence shows that good roads, a reliable electricity grid and faster broadband can improve productivity. The aim of the plan is to identify strategic gaps and start a dialogue with the sector and public about the best way to fill them. It too will be released early in the New Year.

STRONG GOVT SPENDING INCREASES IN LAST FIVE YEARS

On December 15 I'll open the Government's books for the Half-Year Economic and Fiscal Update. This is a chance for the public to get an update on how the Government and the country is doing economically.

(Click here or on the image to watch my latest update.)

One of the things the update will show is the legacy of the previous Government's relentless spending increases. Data compiled by Treasury shows a 45 per cent increase in baseline spending in the past five years. At the same time inflation and the economy grew by only about 15 per cent and revenue by just 10 per cent. That kind of reckless spending growth is clearly unsustainable.

We have already taken steps to rein this in, but these figures show the extent of the spending momentum that built up in the bureaucracy under Labour.

MONETARY POLICY AND THE DOLLAR

Against this backdrop it is rich for Labour to suggest that monetary policy is broken. These large spending increases were a major factor in the peaks in interest rates and the dollar immediately before the global economic slump. In fact Treasury, in a 2006 paper, even warned the previous Government that if it continued to increase spending it would push up interest rates and the currency. It did it anyway.

We believe the large spending increases of recent years provide ample room for savings. If we are to fund new priorities without pushing government debt to unsustainable levels then reprioritising some of the existing spending will be critical. This will be a feature of Budget 2010.

I'm acutely aware of the impact of the high dollar on exporters and that is one of the reasons the Government is reining in spending growth. This will take pressure off interest rates - probably the single most effective thing Government can do to ease the pressure on our dollar.

INFRASTRUCTURE STIMULUS UPDATE

I'm pleased to say the Government's $480 million infrastructure stimulus package announced in February is progressing well. The initiative which fast-tracks a range of housing, roading and school construction projects is part of the Government's rolling maul of initiatives to take the sharp edges off the recession.

As we emerge from the recession we can see that rolling maul is working well. In the past seven weeks a net 1700 people have moved off the unemployment benefit. A good portion of these are due to the Government's Youth Opportunities package, which will now provide about 19,000 job and training placements.

The infrastructure package has also made a contribution. Housing NZ has built 87 new houses and its upgrades of 10,000 houses are well underway, employing on average about 1000 people since February.

Of the five accelerated State Highway projects announced in the package, work on four is underway, while tenders have been received from the fifth. At their peak the projects will collectively support about 600 jobs.

Construction on two of five new schools included in the package is also underway and over half of the $71 million of fast-tracked classroom refurbishment and maintenance work has been completed. The education component of the package is estimated to support about 700 jobs.

As well as these direct jobs, the projects are helping support work for a range of suppliers around the country.

SUPPORTING EXPORTERS

This month I announced an extra $200 million in trade guarantees to increase opportunities for New Zealand exporters. We've made it clear that one of the best ways to ensure New Zealand grows strongly out of the recession is to increase exports and investment.



Ensuring our exporters have the credit flows to maximise the opportunities that flow out of recent trade developments is crucial. In recent weeks New Zealand has signed a free trade agreement with Malaysia, concluded negotiations with Hong Kong and the Gulf Cooperation Council and made progress with the United States.



To read about the three guarantee and bond products that have been extended click here.

NZ COMES THROUGH FINANCIAL CRISIS IN GOOD SHAPE

I'm pleased to see the Reserve Bank's latest Financial Stability Report shows the banking and finance sector is coming through the global financial and economic crisis in relatively good shape. I believe this will be one of New Zealand's competitive advantages as we emerge from recession.

This stability has been helped by Government and Reserve Bank measures such as deposit guarantees, which have kept the financial system sound and operating in an orderly fashion. The report shows bank margins have broadly stabilised at low levels, compared with margins over the past 10 years. It also shows the credit-fuelled boom of recent years is well and truly over with lending growth continuing to slow. This means an increased focus on saving and investing will be needed if we are to grow strongly again.

VISITING THE REGIONS

As Finance Minister listening to the business people who actually make up the economy is crucial to doing a good job. That is why I try to get out and listen to people's ideas and concerns whenever possible. In the past month I spoke to business people and visited firms in Horowhenua, Marlborough, the Bay of Plenty, Taranaki, Christchurch and Timaru.

I welcome feedback on the Government's policies and am keen to hear people's concerns. One way you can do that is by commenting on this newsletter.

Regards,

Bill English

Finance Minister

LOWER UNEMPLOYMENT PEAK EXPECTED

Unemployment data this week is expected to show a lift in the number of jobless. However there are some glimmers of hope on the horizon.

In the Budget in May, Treasury was predicting unemployment to peak at 8 per cent in the second half of next year. There are strong indications now that it will peak lower - possibly around 7 per cent - and sooner than previously thought.

This is due to a combination of factors - better performance by our trading partner economies, a lift in commodity prices and the Government's continuing focus on protecting jobs. While this is encouraging, I'm concerned about the loss of any job, which has a profound effect on workers and their families. That's why it is critical we get a step change that permanently lifts our economic performance. That will be the focus of Budget 2010. [Click here to watch my latest video briefing on this topic.]

THE DOLLAR

The Government is acutely aware of the impact the high dollar is having on our exporters and our recovery. You can read my blog on the subject here.

Clearly, the dollar is stronger than we would expect at this point in the economic cycle - due mainly to the weakness of the US dollar and the Sterling. The best action Government can take to avoid putting added pressure on the dollar is to keep its own house in order and ensure that others have incentives to do the same.

We have a clear plan to control public spending and debt, reducing pressure on both the exchange rate and interest rates. We are also firmly focused on lifting New Zealand's rates of productivity, which have languished in recent years. This will help exporters become more competitive and give them to confidence to invest and create sustainable jobs.

CROWN ACCOUNTS

The annual financial statements are a reminder that, while there are some promising signs that the recession is easing, there remain some significant challenges.

The $10.5 billion deficit to the year to June 30, 2009, was larger than forecast in the Budget in May, as tax receipts fell, spending increased sharply to support the economy through the recession and several Crown investment portfolios - like the Super Fund - sustained significant losses.

Faced with expected deficits of $10-12 billion over the next four years, it means we are going to have to borrow about $250 million a week on average over that period. That is why the Government is focused on keeping a tight rein on spending for the foreseeable future.

REVIEWING THE TAX SYSTEM

There has been a lot of interest recently in the Tax Working Group. The group - led by Victoria University's Centre for Accounting, Governance and Taxation Research, is looking at potential improvements to the tax system.

The aim is to see if there are changes that can simplify the system, improve fairness and lift economic growth without increasing the overall level of taxation. The group, which is free to look at any aspect of the tax system, will provide the Government with a report in December.

Last month I gave a speech to the Institute of Chartered Accountants in which I made it clear that any proposed changes would have to meet some crucial tests if they were to be seriously considered by the Government. Equity and fairness will be key considerations alongside benefits for the economy and for households.

REGIONAL EXPORTS



As Minister of Finance, I'm a firm supporter of regional development, so I was very pleased last week to see the conclusion of a major log deal between Canterbury and Southland. The log in question was the Ranfurly Shield. Attending the victory parade in Invercargill last week, it was obvious the victory has given Southland a big lift. Hopefully this boost in confidence will help underpin the recovery in the region.

To share your thoughts about this newsletter, click here.

THE ECONOMY MOVES ON TO FIRMER FOOTING

This week I've been encouraged by signs the economy is stabilising. Official statistics show New Zealand outperformed expectations in the June quarter and inched back into growth by the barest of margins, following five quarters of contraction. Data also showed the current account deficit – our trade and investment gap with the rest of the world - shrank further than expected to 5.9 per cent of GDP.

These indicators are better than expected, but it will probably be some time before individuals and families feel better off again. That is because unemployment is forecast to continue rising well into next year as growth remains relatively weak. This means there is still a lot of work to do if we are to create a strong recovery that provides sustainable jobs and growth.

A key part of this is avoiding a recovery based on housing inflation and consumer and Government spending, which wouldn't be sustainable in the long-term. That is why we have set out a comprehensive programme to increase productivity, business investment and exports in a bid to rebalance the economy. Click here on or the image to watch a brief video about this.

IMPROVING PUBLIC SECTOR PRODUCTIVITY

This week I gave a speech outlining some of the ways I think the Government and the public service can deliver better, smarter public services.

The public increasingly want better, more responsive services. Our challenge is to deliver that in an environment where there is little new money. To do that we need good ideas and innovation. In the speech I outline some of the ideas I think can make a practical difference.

The public sector makes up about a third of the economy, so improving productivity is a vital part of sharpening New Zealand's overall economic performance. A quick summary of the speech is available in this press release.

A WORKABLE EMISSIONS TRADING SCHEME THAT PROTECTS JOBS

The Government has unveiled proposals for an amended ETS that is fairer to businesses and householders and will not see an exodus of large companies and jobs to other countries.

Environmentalists have criticised the changes, but the reality is they strike a balance between protecting New Zealand jobs, halving the costs for families and households and doing our fair share on climate change. 

Having an ETS that sends emitting industries out of business – only to be replaced by less efficient producers in countries with looser rules - would result in more emissions, not less, as well as put thousands of New Zealanders out of a job.

GETTING OUT AND ABOUT

This month I was lucky enough to get a taste of Hawke's Bay sunshine - visiting local businesses and speaking to the local Chamber of Commerce. The recession has hit most regions and Hawke's Bay is no exception. However most people I met were showing the resilience needed to survive the current tough environment. That is very encouraging, especially when I think back to the last major recession – in the early 1990s – when many people appeared paralysed and were slow to make the changes needed to cope in the new environment.

A highlight of my trip was a visit to Hastings Boys High School, where the students performed a spirited haka that shook the foundations of their assembly hall. It was also interesting to hear the views and ideas of the school's students during a questions forum.

RETAIL DEPOSIT GUARANTEE - THE NEXT PHASE

This week I outlined the future of the Retail Deposit Guarantee Scheme. The current scheme ends on October 12, 2010. That scheme was put together in the midst of the credit crisis and an election campaign. Its wide coverage and moderate fees gave New Zealand's banking sector certainty in a time of turmoil.

The credit crisis has now largely abated. To reflect that we have made several changes to the scheme that will take effect from October 13, 2010 and run until December 31, 2011. You can read about the changes here .

The new scheme provides for an orderly transition back to relatively normal banking conditions and strikes a balance between the interests of depositors, institutions and taxpayers. For more information you can also click on the above video screenshot - or click here.

THE GOVERNMENT'S INFRASTRUCTURE PLAN

This month I gave a speech outlining our approach to infrastructure. Better roads, more secure electricity supply and faster broadband will help us increase productivity, grow exports and start narrowing the gap with our trading partners.

As well as almost doubling our investment in infrastructure to $7.5 billion over the next five years, we are looking at how to set clearer priorities and get the most out of our money. As part of this we want more innovation. To that end we are looking at how we can make greater use of private sector expertise (link to statement) when there are clear benefits for taxpayers and users.

The private sector is already contracted to build most of our infrastructure. Overseas experience shows that extending this through public-private partnerships can introduce new design, financing and maintenance techniques that provide better services and value to taxpayers.

SINGLE ECONOMIC MARKET WITH AUSTRALIA

Last week Prime Minister John Key and seven members of the Cabinet, including myself, headed across the Tasman to the Australia New Zealand Leadership Forum. The forum is an annual event that aims to foster closer links.

During the trip John Key and Australia's Prime Minister Kevin Rudd announced a lift in investment thresholds to make it easier for businesses in both countries to invest across the Tasman. The announcement followed discussions between Australian Treasurer Wayne Swan and myself on the issue last month. Trans-Tasman travellers will also welcome the leaders' announcement of plans to make border checks on trans-Tasman travel simpler and faster.

These are the latest of a series of initiatives aimed at eventually creating a single economic market with Australia. Closer links could result in big gains for our exporters and key industries like tourism. Watch out for future announcements.

CUTTING RED TAPE

As I said last month, this Government is committed to cutting the red tape that has been holding business back. Last week Regulatory Reform Minister Rodney Hide and I released the first Government Statement on Regulation (link to Beehive PR). It contains two key commitments:

• to introduce new regulation only when the government is satisfied that it is required, reasonable and robust and
  
• to review existing regulation to identify and remove requirements that are unnecessary, ineffective and excessively costly.

As I outlined in last month's newsletter , we are already well advanced on the second commitment with 15 reviews of major pieces of regulatory legislation underway.

GETTING AROUND THE REGIONS

When I get the chance I like to get out and about so I can hear from local businesses and their staff. This often gives me a better sense of how the country is faring than economic forecasts and advice from policy analysts.

During the recent recess I managed to get up to Northland for two days. As well as visiting local businesses I gave speeches and took questions at functions in Paihia, Kerikeri and Whangarei.

A few days earlier I was down in my own electorate for the opening of the new National Bank in Gore. The bank is one of the largest rural lenders in the South Island and the opening was a good chance to mix with members of the Southland farming community.

WHAT TO WATCH FOR

· Next week I'll be visiting Tokyo, New York and Boston to give presentations on New Zealand's economic plan to international lenders.

· The Reserve Bank will deliver its next Monetary Policy Statement on September 10.

· On September 18 I'll be talking to local businesses in Napier.

· In the coming weeks I will also release a draft of the Government's first 20-year-infrastructure plan.

I WANT TO HEAR YOUR VIEWS

I'm keen to hear your views. To comment on anything in this newsletter please click here . Your comments will be read by either myself or my staff and will be publicly available on the www.billenglish.co.nz website. If there are issues of particular interest to readers then I may comment on them in future newsletters. If you are not comfortable commenting in a public manner, you are welcome to email me at b.english@ministers.govt.nz .

To subscribe and receive this newsletter by email, click here.

Welcome to the first instalment of my monthly newsletter. The aim is to inform you - New Zealand businesses and individuals - about the Government's economic plans and get your comments and feedback. Please forward it on to others who might be interested. If you have received this from a friend and want to receive it directly you can subscribe at the bottom of the newsletter. If you received it directly and don't want to continue receiving it, you can also unsubscribe there.

Warm regards,

Bill English, Minister of Finance

THE GOVERNMENT'S ECONOMIC PLAN

This Government is making changes that will lift productivity and create new jobs. Last week I gave a speech to the Trans-Tasman Business Circle outlining those plans.

In brief they include:

• getting our regulatory regime right so business can thrive
• lifting the performance of the public sector
• investing more in productive infrastructure
• promoting greater education and skills
• developing a comprehensive innovation and business assistance package
• undertaking a stocktake of our tax system to ensure it is world class.

A lot has already been done in these areas and over the coming weeks and months you'll hear more about each of the six drivers underpinning our economic programme.

SUPPORTING JOBS

As Minister of Finance I'm firmly focused on supporting jobs during the recession and fostering the conditions and confidence businesses need to create new jobs. Treasury is forecasting that unemployment, which tends to lag other indicators, will keep rising until the middle of next year. We cannot turn back that tide but we are committed to softening the sharpest edges for New Zealanders.

We are doing this through initiatives like the home-insulation campaign. We have also dramatically increased spending on infrastructure like roading and the national grid. This not only provides jobs, but it reduces the bottlenecks that have been choking our economy.

We are also supporting our exporters. Recent initiatives include $150 million in short-term trade insurance guarantees through the Export Credit Office and extending a key trade guarantee for firms who want to do business with US government bodies.

ENCOURAGING INVESTMENT AND CUTTING RED TAPE

Another thing that helps local firms grow and create jobs is greater investment. Because we lack the capital required to fully power up our businesses ourselves we must seek some of that investment from overseas. That is why we've simplified the overseas investment rules.

Despite 98 per cent of all applications in the past eight years gaining approval, they still take 70 days on average to get the green light. We are cutting down the complexity, length of time and cost of these applications. At the same time we are committed to protecting our most sensitive land and assets. We'll announce further changes in coming weeks.

These changes are part of our commitment to cut back the excessive red tape that has been holding business back. Together with Regulatory Review Minister Rodney Hide, the Government has so far launched 15 major regulatory reviews. You can read about changes to the overseas investment rules and get an update on the regulatory reviews here.

SINGLE ECONOMIC MARKET

Steps towards a single economic market with Australia could result in big gains for our exporters and key industries like tourism. That is why I was pleased with the progress made on these issues when I met Australian Treasurer Wayne Swann in Brisbane earlier this month.

We signed a memorandum on superannuation portability, which in the near future will allow tens of thousands of Kiwis who have worked in Australia to bring back their compulsory super contributions and put them in a KiwiSaver account.

We also discussed accelerating harmonisation of regulations and a common investment protocol. You can expect to here more about these moves in coming months. See our joint statement here.

BOND BANK

In the Budget I announced the Government's plan to spend $7.5 billion over the next five years to reduce infrastructure bottlenecks.

However, over the next decade local councils also face a big spike in costs to maintain adequate sewerage, water and roads. We are working with them to investigate setting up a 'bond bank' to ensure they get the best possible deal on the funds they will have to borrow to foot the bill.

We want to find out whether combining councils' borrowing would result in lower interest rates and costs. A joint Government and Local Government New Zealand steering group will receive a feasibility report in about a month. The idea is a Jobs Summit initiative. You can read more about it here.

WHAT TO WATCH OUT FOR

• On 12 August I'll speak at the New Zealand Council for Infrastructure Development's Building Nations symposium.
• On 13 and 14 August I'll be visiting local businesses in Northland.
• On 21 August I'll be attending the Australia New Zealand Leadership Forum in Sydney, alongside Prime Minister John Key.

I WANT TO HEAR YOUR VIEWS

I'm keen to hear your views. To comment on anything in this newsletter please click here. Your comments will be read by either myself or my staff and will be publicly available on the www.billenglish.co.nz website . If there are issues of particular interest to readers then I may comment on them in future newsletters. If you are not comfortable commenting in a public manner, you are welcome to email me at b.english@ministers.govt.nz.