The Government is taking steps to swiftly repay investors, reduce the cost to taxpayers and ensure minimal disruption to the wider economy following the receivership of South Canterbury Finance, Finance Minister Bill English says.

"It's sad to see a longstanding New Zealand institution in this position. The Government, like everyone else involved, hoped South Canterbury would be able to work its way through its difficulties, but unfortunately we were advised today that it has been put in receivership," Mr English says.

"As a result of the receivership, the Government is moving swiftly to repay the money owed to South Canterbury depositors under the Crown Retail Deposit Guarantee. We are also taking other steps to reduce the cost to taxpayers and minimise disruption to the wider economy.

Steps the Government has taken include:

• The Crown has nominated the Trustee as the eligible creditor under the terms of the guarantee and will pay the Trustee $1.6 billion in full today. This will ensure depositors and stockholders are paid promptly without the need to apply to anyone.
• The Crown will today make a loan to the receiver of $175 million, which allows it to repay all of South Canterbury Finance's prior ranking debts. Once this transaction is completed it will put the Crown in a position of control, as the first-ranked creditor in the receivership, so we can ensure an orderly and well-managed receivership process.

"Ensuring all depositors in South Canterbury Finance get their deposits back as quickly as possible will ensure a minimum of disruption to the economy.

"While this will incur an upfront cost, it will ultimately reduce the cost to taxpayers by about $100 million by ensuring the Crown is not liable for interest payments after the date of settlement.

"Furthermore, being in control of the receivership process takes the pressure off the receiver to quickly sell any assets.

"This ensures the Crown can get the best deal for taxpayers. Businesses that owe money, or are owned by South Canterbury, can continue to operate and there will be a minimum of disruption to both the local and national economy.

"The up front cost to the Crown of repaying South Canterbury's depositors is about $1.6 billion, but we would expect to recover the bulk of that as the receiver sells the assets over time.

"The final expected net cost to the Crown is already provided for in the Crown Accounts within the overall provision of about $900 million for all companies covered by the scheme," Mr English says.

The enactment of the Insurance (Prudential Supervision) Bill provides increased certainty for New Zealand insurance policy holders, Finance Minister Bill English says.

The Bill, passed last week, makes the Reserve Bank of New Zealand the prudential regulator of all insurance providers that carry out insurance business in New Zealand. It is the first time the New Zealand industry has been subject to legislated prudential regulation.

"The Bill's main purpose is to promote the maintenance of a sound and efficient insurance sector. Policyholders will benefit from greater certainty their insurer has sufficient financial strength to ensure it can pay claims when they are made," Mr English says.

"In addition, it is a clear signal to the rest of the world that New Zealand is aligning itself with established trends in overseas insurance regulation.

"The strong consultative and collaborative approach followed in developing this legislation has ensured the Act does not impose excessive or unnecessary compliance costs on providers and is generally accepted by the industry," Mr English says.

The implementation phase of the new Act will include a transitional period of up to three years to enable insurers to bring themselves into compliance with the new requirements.

Finance Minister Bill English will visit Hong Kong and Singapore next week, to meet business, investment and government leaders and update them on New Zealand's economic programme to achieve faster growth and jobs.

"Asia and New Zealand have developed strong trade and business links in recent years, and we are building on that through a series of free trade agreements and other initiatives," Mr English says.

"The Government is keen to continue open dialogue with business and government leaders in this part of the world - there is considerable interest in New Zealand's economic programme.

"In particular, we will update them on economic and fiscal developments since I visited last year. We will also share ideas about building a strong and sustainable recovery from the worst global recession in many decades."

Mr English will meet senior Government figures and speak to the New Zealand Chamber of Commerce in Hong Kong on 31 August. The following day, he will meet Hong Kong Monetary Authority chief executive Norman Chan.

In Singapore on  2 September, Mr English will meet Foreign Minister George Yeo, speak to the New Zealand Chamber of Commerce and visit the Singaporean Agency for Science, Technology and Research.

The next day he will meet Singapore Prime Minister Lee Hsien Loong and Finance Minister Tharman Shanmugaratnam, and Mr English will speak at The Economist Asia-Pacific regional economic forum.

New Zealand's economic recovery is being led by the export side of the economy which has experienced a significant turnaround from the low point of the recession, Finance Minister Bill English says.

"The recovery will be patchy at times. We are seeing this reflected in stable rather than growing results for domestic industries like housing and retail, and indicators such as business confidence and the share market," Mr English said in a speech to the Farmers Mutual Group Farming Leaders Forum today.

"However the outlook for the tradeables sector - exports and import competing industries - is strong. This is particularly so for primary industries which have increased their output and enjoyed good price rises since the middle of last year.

"Higher export prices drove a 5.9 per cent jump in the terms of trade in the March 2010 quarter. This is the largest quarterly rise since 1976.

"In addition, the seasonally adjusted trade balance for the June 2010 quarter was a surplus of $389 million. This follows a seasonally adjusted surplus in the March quarter - the first since December 2001.

"While commodity prices slipped back slightly in June and July - as measured by the ANZ World Commodity Price Index - prices remain 47 per cent higher than a year ago and near the record highs they hit March this year.

"So while parts of the domestic side of the economy have been fairly flat - due to the uncertain global environment and the need for businesses and households to pay down large stocks of debt - our tradeables sector is leading New Zealand's recovery.

"This is starting the process of rebalancing our economy towards exports and growth and away from unsustainable borrowing, government spending and consumption.

"However, turning around the imbalances that built up over the past decade will require a relentless, long-term focus and commitment. The only way we can permanently lift New Zealand's economic growth is through considered and consistent reform and change, year after year.                              

"Budget 2010 took several steps in that direction - including across the board personal tax cuts from 1 October, which will encourage hard-working New Zealanders to earn and save more.

"In the past 18 months, we have been extremely busy rolling out policies. In recent days we have tasked the Savings Working Group with the job of taking a close look at how to improve New Zealand's national savings record and we will announce more policies in coming months," Mr English says

Central and local government must work together to ensure smarter infrastructure decisions and investment, Minister for Infrastructure Bill English says.

Mr English and other Government Ministers met last night with Local Government New Zealand (LGNZ) representatives to discuss infrastructure issues.

"This Government has increased infrastructure investment - we currently spend about $6 billion a year on the purchase and maintenance of our critical infrastructure and hold about $110 billion in physical assets," Mr English says.

"However at a time when our finances are constrained, it is vital we get the most out of this investment. That means projects must be properly selected and must provide a justifiable return on taxpayers' funds.

"The Government is determined to improve the management of its assets - both the current stock and how decisions are made about future investment.

"Local government holds about $84 billion in assets and I'm pleased LGNZ shares the view that New Zealand could be smarter in its approach to  investment and how the various parts of government decide which projects should proceed.

"A vital step in achieving smarter infrastructure investment in the future will be greater central and local government collaboration. This is one of the areas that will be developed further in the next National Infrastructure Plan.

"Greater collaboration and co-ordination will help ensure the right projects are built when they are needed and that taxpayers and ratepayers get the best possible return on limited funds. I welcome the mayors' and LGNZ's constructive approach to this issue," Mr English says.

During discussions Ministers and mayors agreed to work towards:

• Developing an integrated planning framework to provide greater certainty about investment and decision-making, get better information about infrastructure priorities and likely future demand, and improve strategic alignment between central and local government.
• Identifying opportunities to remove unnecessary regulatory barriers.
• Further developing and sharing asset management skills and practice.
• Ensuring local government has the tools it needs to manage emerging infrastructure pressures.

The mayors of Wellington, Hastings, New Plymouth, South Wairarapa and Ashburton attended the meeting as well as the chair of Northland Regional Council. LGNZ's statement can be read at www.lgnz.co.nz.

New Zealanders' real after tax average earnings have increased faster than those in Australia since 2008, Finance Minister Bill English said today.

"That's because Australia has had significantly higher inflation than New Zealand over this period, and tax cuts across the Tasman have been relatively modest compared to those in New Zealand," he told Parliament.

"As a result, the wage gap between the two countries has actually narrowed slightly.

"We are not getting too excited about that, because we are such a long way behind Australia to begin with. But it's a good start."

The figures use data on average weekly ordinary time earnings (per FTE) from Statistics New Zealand's Quarterly Employment Survey - the official series which is also used to calculate the wage floor for New Zealand Superannuation.

The figures have been adjusted to account for income tax and inflation - giving a true picture of changes in New Zealanders' spending power.

Since September 2008, real after-tax wages in New Zealand have increased by 8.7 per cent. Using a comparable series, Australia's real after-tax wages have increased by 4.8 per cent in the same period.

"By comparison, New Zealand wage growth significantly lagged Australia's in the nine years to September 2008. Over that entire period, New Zealand's real after tax wage growth was a paltry 3 per cent, compared with 19 per cent growth in Australia.

"Put another way, when Labour was in office, real after tax wages in Australia increased over six times faster than wages in New Zealand. No wonder the wage gap blew out under Labour's watch."

An independent Savings Working Group announced today by the Government has a wide brief to consider how New Zealand can improve its national savings, Finance Minister Bill English says.

"Improving the level of national savings is the next step in the Government's programme for tilting the economy towards savings and exports.

"We have deliberately set wide terms of reference for the Working Group. The only exclusions are New Zealand Superannuation, which this Government will not change, and broad taxation of capital gains or land, which we have previously said we will not introduce.

"Otherwise, we are not ruling anything in or out," Mr English says.

The Savings Working Group will not focus solely on options for retirement savings: it will canvass a range of options for improving New Zealand's overall savings performance, including government savings.

"The Government has an open mind about what might be required and we don't want to prejudge the outcome," Mr English says. "We also hope this exercise stimulates constructive public debate and discussion along the way.

"Increasing our national savings and investment levels is a critical issue for New Zealand, because of our heavy reliance on foreign capital. This has produced high and rising debt to the rest of the world, which cannot continue."

New Zealand's challenges around savings and investment are stark, Mr English says. They include:

• Running a current account deficit every year since 1973, implying that investment in New Zealand has continuously exceeded national savings. The difference has been funded mostly by borrowing offshore.

• Net debt to the world - across government, households and business - jumping from about $100 billion in 2000 to almost $180 billion currently, and forecast to be almost $250 billion by 2014.

"So we have a big task to turn around this economy and rebalance it towards savings and growth," Mr English says.

The Savings Working Group, which will develop a practical menu of options for ministers by January 2011, will consider all areas of importance to national savings. This will include:

Fiscal policy: The role of Government savings as part of the national savings picture, including long-term savings/debt targets and any offset between government and private savings.

Taxation: The impact of the tax system, particularly taxation of income from savings and investment, on the level and composition of national savings and investment decisions. This will include:

• The case for moving to a dual income tax system, where labour and income from savings and investment might be taxed at separate rates.

• Indexation/part-indexation of the tax system so that real, rather than nominal, income from savings and investment is taxed.

KiwiSaver: The role of KiwiSaver in improving national savings, such as:

• Improving the operation and outcomes of KiwiSaver - including options where KiwiSaver is either voluntary or compulsory.

• The fairness and effectiveness of current KiwiSaver subsidies.

The Savings Working Group will be chaired by experienced company director and consultant Kerry McDonald. Other Working Group members are:

• Dr Craig Ansley - Capital Markets Research director.
• Dr Andrew Coleman - Motu Economic and Public Policy Research senior fellow.
• Mary Holm - financial columnist, Auckland University senior lecturer.
• Dr John McDermott - Reserve Bank assistant governor.
• Paul Mersi - PricewaterhouseCoopers partner.
• Stephen Toplis - Bank of New Zealand head of research.

The Working Group will be supported by Treasury, which will shortly publish a discussion paper setting out savings and investment issues and trends.

Working Group members will be paid about $70,000 in total. This and all operating costs will be met from within Treasury's existing budget, with staff support from the Reserve Bank, Inland Revenue and Statistics New Zealand.

Working Group website (including Terms of Reference):

www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup

SAVINGS WORKING GROUP - MEDIA Qs AND As

1. Why is the Government using another working group?

The challenge of increasing New Zealand's national savings is important, requiring consideration of a number of issues and potential options. The Government wants this process to be open and transparent - and to encourage constructive public debate. Working Groups have fulfilled this role well in other areas such as taxation, social housing and welfare.

2. What is the Working Group's brief?

The Savings Work Group has been asked to report to the Minister of Finance with advice on options for improved national savings in New Zealand.

The Group's scope will include:

• The role of Government savings as part of New Zealand's overall savings picture, including long-term savings/debt targets.
• The impact of the tax system on the level and composition of national savings and investment decisions.
• The role of KiwiSaver in improving national savings.

3. What problem is the Working Group looking to fix?

Savings and capital formation are essential parts of any economy.  Over the next four years, New Zealand's net debt (private and public sector) is projected to grow to more than our income. New Zealand has produced current account deficits every year since 1973, which implies that national investment has continuously exceeded national savings across both the private public sectors.

4. How do New Zealand savings rates compare with other countries?

There are a number of ways of measuring this - and this is something the Working Group will look at in detail. On at least two measures, our challenges are stark: New Zealand's net debt to the rest of the world has increased to almost $180 billion and the country has run a current account deficit every year since 1973.

5. Is the Government committed to changing savings policies after the Working Group reports back?

The Government will consider the Working Group's advice when it receives its final report. At this stage, we are not ruling anything in or out - apart from confirming that we will not change entitlements to New Zealand Superannuation and that we will not introduce a broad taxation of capital gains or land.

6.  What timeframe is the Government working to - when will the Working Group report back and will there be changes announced in the Budget next year?

The Working Group will hold its first meeting this month. It plans a series of six meetings, before a final working session in December 2010, with interim papers to be made public along the way. The Working Group is scheduled to report to the Minister of Finance in January 2011.

7. Will this lead to compulsory retirement savings?

The issue of compulsory retirement savings is just a small part of New Zealand's overall national savings picture. The Government is focused first and foremost on comprehensively understanding the wide range of savings and investment issues facing New Zealand. At this stage, we are not commenting on specific ideas that might come out of this debate.

8. What will this mean for taxpayer-funded New Zealand Superannuation?

There will be no changes to either the age of entitlement or payment levels of New Zealand Superannuation. The Government has already committed to keeping existing arrangements in place.

9. Could further tax changes be part of any savings package?

We have asked the Working Group to look at the impact of the tax system, particularly the taxation of income from savings and investment on the level and composition of national savings and investment decisions. In particular, the Group will consider the case for moving to a dual income tax system, where labour and savings and investment income might be taxed at different rates. It will also look at indexation or part indexation of the tax system so that real, rather than nominal, savings and investment income is taxed.

10. Will the Working Group exercise influence Government decisions around contributions to the New Zealand Superannuation Fund?

No - this exercise is about increasing national savings. As we've said, borrowing to invest in the Super Fund does not increase national savings - it simply changes the mix of the Crown's balance sheet. Contributions to the Superannuation Fund will resume when budget surpluses permit. 

11. How much will the Working Group cost?

The cost of members' fees will be about $70,000 and there will be additional operating and salary costs of the secretariat supporting the Working Group. All of these costs will be met from within the existing budget baselines of Treasury, with staff contributed from the Reserve Bank, Inland Revenue Department and Statistics New Zealand."

Related document:

Savings working group terms of reference (pdf, 92 Kb)

Real after tax average earnings in New Zealand have increased 8.7 per cent since September 2008 - a significant improvement on the 3 per cent total growth over the previous nine years.

Trends had fluctuated markedly over the past 20 years, Finance Minister Bill English told Parliament today.

The figures use data on average weekly ordinary time earnings (per FTE) from Statistics New Zealand's Quarterly Employment Survey - the official series which is also used to calculate the wage floor for New Zealand Superannuation.

The figures have been adjusted to account for income tax and inflation - giving a true picture of changes in New Zealanders' spending power.

Between 1990 and 1999, real after-tax earnings increased 15.5 per cent.

Between 1999 and 2008, real after-tax earnings increased by a meagre 3 per cent - an average of just 0.3 per cent a year. Within this period, there was virtually no increase between 2005 and 2008, as inflation and creeping income tax wiped out wage and salary increases.

"This is quite staggering, given that it was a time of economic prosperity around the world," Mr English says. "Appearances of a strong New Zealand economy during this time were clearly quite deceptive.

"Growth came from all the wrong places, such as government spending and excessive debt, and hard-working New Zealanders paid the price through anaemic real take home pay increases."

Since September 2008, real after-tax earnings have increased 8.7 per cent, despite the 2008 - 2009 recession, reflecting two rounds of income tax cuts and lower inflation.

"This is a good start, but we have plenty more to do to keep raising New Zealanders' earnings.

"As a next step, across the board personal income tax cuts on 1 October will further increase after-tax earnings - the average household will be about $25 a week better off, and the average wage earner about $15 a week better off - even after the increase in GST," Mr English says.

Real after-tax average earnings

Quarter	Average weekly earnings1 ($)	Average annual earnings ($)	After-tax average earnings ($)	CPI2	Real after-tax average earnings In Sept 08 $	Growth between periods
Sep 1990	507.54	26,392	20,237	723	30,146
Sep 1999	643.16	33,444	26,991	835	34,813	15.5%
Sep 2008	882.39	45,884	35,872	1077	35,872	3.0%
Jun 2010	943.81	49,078	39,832	1100	38,999	8.7%

Sources:

1.	Statistics New Zealand, Quarterly Employment Survey, Average Weekly Ordinary Time Earnings (per FTE). Series reference: QEXQ.SBAZ9A. (Is also in Table 7.01 in QES releases.)
2.	Statistics New Zealand, Consumer Price Index, All Groups. Series reference: CPIQ.SE9A.

The Government has agreed to measures that support New Zealand Post's credit rating and assist Kiwibank's continued growth, Finance Minister Bill English and SOEs Minister Simon Power announced today.

"The Government has agreed to provide an uncalled capital facility to NZ Post to enable Kiwibank's continued growth. This demonstrates the National-led Government's commitment to both NZ Post and Kiwibank," Mr English says.

"The agreement follows the NZ Post board requesting support from shareholding Ministers to enable the company to preserve its credit rating while Kiwibank continues with its current growth-focused business plan.

"We're confident this provision of uncalled capital, on commercial terms, will give NZ Post and Kiwibank the financial certainty they need to pursue their plans," Mr English says.

Mr Power says NZ Post will be able to call on the capital only in certain defined circumstances, such as Kiwibank experiencing a substantial shock event beyond its own resources and beyond the resources of its parent

"Subscribing for uncalled capital in NZ Post is a proactive measure to support both NZ Post and Kiwibank.

"The uncalled capital provides stakeholders with the assurance that the Government is providing the financial support the NZ Post Group requires, while maintaining a prudent approach to injecting new equity into Crown companies.

"It sits alongside other Government measures such as allowing Kiwibank to retain profits and requiring a lower dividend from NZ Post," Mr Power says.

The exact size of the facility will be reviewed over time in line with the needs of NZ Post.

Public sector restraint and innovation will be needed for years to come to improve the quality of frontline services, while also ensuring New Zealand climbs out of deficit and controls its debt, Finance Minister Bill English says.

"Although our economy has now been growing for a year, we are still looking down the barrel of five more years of deficits," Mr English said in a speech to the Australia New Zealand School of Government in Melbourne today.

"Even when we get back to surplus, there will be strong competing demands on Government spending - high Government debt will need to be repaid and, when surpluses permit, we will resume contributions to the NZ Super Fund.

"Therefore we are likely to require surpluses of at least 2 per cent of GDP before we even have the choice of significantly increasing public spending.

"In our first two Budgets, we have reprioritised almost $4 billion of spending over five years - about 1.1 per cent of our total spending - to put back into vital frontline services in areas like health, education and law and order.

"We now face a far more challenging task - finding further savings so we can improve the quality of our public services within tight fiscal constraints. We also need to rebalance our economy away from excessive Government spending and towards savings, exports and sustainable growth.

"We are laying the foundations for a public service that chooses innovation and change. We have left existing structures largely in place and pushed responsibility for managing resources clearly on to public sector chief executives, rather than the Treasury or the Minister of Finance.

"Longer-term effective change is driven by people who know the business, clearly understand the parameters they are working to and have the tools they need to implement change.

"It's not an option for the public sector to wait out these challenges. Hope is not a strategy. And it won't work because the New Zealand public want to see evidence that the public sector is living within its means, as New Zealanders are themselves."

Good afternoon and thank you for the opportunity to join you here today.

Today I want to take a Finance Minister's view of public sector management over the next 10 years.

As governments around the world strive to tackle the fallout from the global recession, good public sector management will be critical.

Many governments are facing a debt burden they are going to struggle with for years to come. This will place them under constant pressure to deliver similar or better public services for less money.

In Australia, the fallout of the global recession has been mild compared to many other countries - indeed it was the only developed country to avoid recession.

At the other end of the spectrum, countries like the UK and Greece are having to undertake some fairly radical austerity measures to balance their books. New Zealand's fiscal outlook lies somewhere between those of Australia and the UK.

Today I want to talk about the steps we are taking in New Zealand to improve the way our public service operates. But first, I want to touch on some of the economic challenges we face.

Our economic challenges

Some commentators have suggested New Zealand's economy was in good shape before the global recession hit in late 2008.

That is incorrect: In fact, our average annual growth was less than 1 per cent in the three years leading up to the global financial crisis in late 2008 and we went into recession several months earlier, before just about every other developed economy.

Our track record going back several years shows sluggish and unbalanced growth driven by excessive debt, consumption and government spending, rather than savings and exports. 

The bottom line is that we need to rebalance our lop-sided economy.

There are two main indicators of our economic under performance.

Firstly, the tradeables sector - the internationally competitive part of our economy comprising exports and import-competing industries - actually shrank in the five years from 2004 to 2009.

Even more alarmingly, there have been no net new jobs created in the manufacturing and agricultural sectors for the best part of a decade.

By contrast the non-tradeables sector - the spending side of the economy - has grown by 15 per cent since 2005.

And over the same period, government spending ballooned by about 50 per cent - twice the rate of revenue and twice the overall rate of economic growth.

                                             

That is unsustainable - no household or business could survive with its spending growth running at twice the rate of its income. And nor can a Government when it is running Budget deficits and surpluses are still several years away.

The second indicator of New Zealand's economic under performance is our net international investment position, which measures New Zealand's total debt to the world, including households, business and the Government.

In 2000, our debt to the world was just over $100 billion. It's now approaching $180 billion and, by 2014, it is forecast to be nearly $250 billion.

So our goal is to move resources to the export and earning side of the economy. That means the Government is likely to be losing jobs, rather than creating them in the next five years.

We have begun the task of rebalancing our economy with an array of changes across a wide range of areas.

As well as demanding more accountability from our public sector, another area of change I want to briefly mention is our tax system.

At a time when many countries are being forced to raise taxes, New Zealand has implemented a major package of tax reforms that cut income taxes across board and reduced company tax to 28 per cent.

From 1 October, every New Zealander earning above $55,000 a year will pay less income tax on a dollar-for-dollar basis than someone on the same income in Australia.

To pay for this, we've increased GST to 15 per cent, increased the taxation of investment property and closed a range of tax loopholes to improve fairness.

These changes have helped increase our international competitiveness and address some of the economic imbalances I've outlined.

Implementing these changes without a public outcry was helped by a fairly open policy development process which I'll talk about later in this speech.

 

Our fiscal position

The last two years has seen a dramatic turn around in New Zealand's fiscal position.

Following 15 years of government surpluses, our books plunged deeply into the red last year.

And although our economy has now been growing for a year, we are still looking down the barrel of five more years of deficits.

When we get back to surplus, there will still be strong competing demands on Government spending - high Government debt will need to be repaid and, when surpluses permit, we will resume contributions to the New Zealand Super Fund.

Therefore, we are likely to require surpluses of at least 2 per cent of GDP before we even have the choice of significantly increasing public spending.

That is still many years away and may not occur in the professional lives of a large group of middle to senior civil servants.

Our forecasts include an assumption of $1.1 billion annual increases in discretionary spending, plus other forecast spending increases that fall outside this cap. Taken together, they add up to 4.8 per cent real spending growth over the next four years - an average of just 1.2 per cent a year.

It is hard to directly compare this with the Australian Government's ceiling of a 2 per cent real increase in spending, because the New Zealand Government incorporates many of the Australian federal and state government activities under one roof.

However, it gives you some indication of how much tighter our financial constraints are.

In our first two Budgets, we have reprioritised almost $4 billion of spending over five years - about 1.1 per cent of our total spending - to put back into vital frontline services in areas like health, education and law and order.

However, these are the easy savings because they consist of quick wins from the previous decade of loose Government spending.

We now face a far more challenging task - finding further savings so we can improve the quality of our public services within tight fiscal constraints.

The outlook for the public sector  

So where will we look for new directions and ideas?

To be frank - they will not come from Australia and New Zealand.

In our countries, the prevailing public management literature and approach is conditioned by a decade of generous year-on-year increases in funding.

However, it is impossible to ignore the fact that globally public sector management is entering its next revolution.

That revolution will be driven by the large economic and geopolitical changes that are taking place as many Western governments grapple with the aftershocks of the global recession.

The public sectors in the countries we usually compare ourselves with - the United States, the UK and much of Europe - will spend the next two decades dealing with the consequences of large government deficits and high and fast growing public debt.

As a result of the global financial crisis, changes that may have taken 20 years to occur will happen in five years.

This is a significant shift.

The last decade was characterised by optimism that smart people using the massive resources of government could transform society. That experiment has run out of money and has little that is genuinely transformational to show for it.

The new experiments will have less aspirational goals - sorting out which public services and income support measures really matter and working out how to do it for a lot less money.

I believe we will see radical changes in the scope and cost of public services in the UK, United States and most of Europe They have no choice.

However, at the same time as the global financial crisis has inflicted large debts on some governments, many fast emerging economies in the developing world are travelling in the opposite direction.

These countries, which are generating large surpluses as their economies rapidly expand, are likely to develop stronger consumer and service economies, along with a demand for more public services.

Most of these countries are starting with low levels of income support and minimal government provision of public services. India and Africa are now developing sufficiently consistent economic growth to stimulate demand for public services.

They too will be looking for solutions and creating experiments.

Australia and New Zealand will not be at the cutting edge of either of these revolutions.

Our role may be to sell our frameworks for accountability and transparency to the emerging economies developing their public services, while borrowing some of the cost-crunching innovations that are developed in the UK, United States and Europe.

Public sector reform

In New Zealand, we are laying the foundations for a public service that chooses innovation and change.

I want to first describe how we are thinking about the next five years and discuss some of the factors we believe will drive further change - as well as the core public sector management system change that will be required.

Faced with fast growing deficits, we have chosen what I call the 'responsibility model'.

As an incoming government, we had a choice to make savings across the board and restructure the public service to get efficiencies.

However, we have left existing structures largely in place, and set out clear fiscal constraints for the next four years. We have pushed responsibility for managing resources clearly on to public sector chief executives, rather than the Treasury or the Minister of Finance.

So rather than embarking on wholesale change, we are stress testing the existing devolved model of public sector management.

There are two reasons for this. The 2008 election was fought in the world before the global financial crisis.

Then, in Opposition, we made undertakings to leave existing income support measures in place, and to focus on moving public sector resources from the back office to the frontline.

This positioning effectively ruled out rationing public services or pushing more cost back on to the public. So that is not a debate we are entering into.

Instead, we are focused on getting value for money from the current level of resources. In this context, we also specifically ruled out large scale structural change and we have kept to those undertakings, despite the change in circumstances.

The second reason is that New Zealand's previous experience of fiscal restraint shows that longer-term effective change is driven by people who know the business, clearly understand the parameters they are working to and have the tools they need to implement change.

So chief executives -not the Cabinet or the Treasury - are responsible for delivering better services and policy advice with less money and fewer people.

This model requires ministers and chief executives to clarify the results they want. 

We are using the basic tools of ministerial and chief executive accountability, not inventing new ones. We spend time on the Prime Minister's expectations of ministers, and getting ministers to focus clearly on their expectations of their chief executives.

These expectations are driven off pragmatic political commitments and clearly understood fiscal constraints. This process needs constant reinforcement to maintain focus over time. And it takes time to build momentum.

The culture of caution and risk management in the public sector has been deeply embedded in the last 10 years. So the Government has to keep demonstrating political support for change, and mandating tools chief executives can use without fear of political consequences.

This approach is being reinforced by increased oversight of our largest entities - the 10 departments and entities that make up over 80 per cent of government spending. 

It has required a lot of work to merely slow down the strong growth in spending driven by an expansionary fiscal policy, particularly since 2005.

The challenges of reform

In practice, the challenges are predictable.

The first is that everyone in the public sector hopes the rules will change - in particular that politicians won't stick to self-imposed spending constraints.

Some are still trying to wait it out.

However, it's not an option for the public sector to wait out these challenges. Hope is not a strategy. And it won't work because the New Zealand public wants to see evidence that the public sector is living within its means, as New Zealanders are themselves. 

So the political case for staying the course, for constraint and better value for money, remains strong in New Zealand.

Secondly, in a devolved system, it takes time and effort to get the balance between collective and individual interests among ministers.

This is more of a challenge in a centre right Government, where ministers tend to come from self-employed or business backgrounds.

Ministers have impressive degrees of freedom to do, or not do things. So it is vital to achieve a strong common understanding of our collective purpose, and to turn this understanding into clearly aligned processes of accountability.

And we need to achieve this within the political timetable of a three-year election cycle.

A third challenge is whether our public management system permits the kind of solutions that are now required.

Solutions such as shared services, joint procurement, or joint decision making across a sector have not fitted naturally into our framework.

In the last 20 years, there have been many attempts at joined up or collaborative government. Most, but not all, attempts have failed because the processes of joining up can be very inefficient and large committees collaborating do not make for strong accountability.

So it's a challenge for the public service to develop strong internal governance to run joint processes - in our case without strong central processes to dictate to them.

In our approach, Cabinet has supported a handful of collective processes for the public sector, such as joint procurement and - beginning soon - administrative and support services benchmarking, as well as shared services in the health sector.

We have also set up an internal infrastructure unit to create better capital management and project assessment.

In each of these examples, chief executives have the choice of picking up the tool and using it, or not.

Progress has been slow to start with. But momentum is now picking up as chief executives understand they will need to take action as they see the growing gap over the next four years (our projection period) between rising costs and flat revenue.  

At the same time, voluntary participation in collective initiatives keeps a healthy tension on the proponents to show value for the time and effort.

We are beginning to see more collective activity among these independent chief executives, which shows the public service is developing a sense that it wants to influence its own destiny.

That is because they understand the world has changed and that the only other viable alternative is politicians and the Treasury, armed with public support, going in and finding the savings themselves.

However, the governance of joint back office savings exercises is just a first step.

The next step is to fulfil the theory of our public management system by setting outcomes and structuring accountability and governance around those outcomes.

Currently, governance and accountability are driven by the parliamentary appropriations process. That process accounts for the money, but not the results.

Resolving the tension between parliamentary accountability and effective management for outcomes is one of the biggest challenges for the New Zealand public service. We need far-reaching solutions to make the far-reaching change dictated by fiscal constraint and public expectations.

One example is the criminal justice system. At a time when funding is tight, we have to find ways to foot the bill for tougher sentences for serious criminals, which the public demands. One response is to reduce offending and prosecution and imprisonment rates for less serious offenders.

Over recent years, justice sector agencies have begun to work together to understand better who gets arrested and why, how they move through the police and courts system to prison or otherwise and at what cost.

This has generated at least some initial operational solutions for a more effective and more just system.

But driving these changes further will require something even more difficult than good political management. It will require joint governance and accountability in what is currently a strongly siloed system.

The agencies involved in the justice pipeline have some statutory independence, strong cultures and embedded practises.

The politicians' task is to turn the objective of community safety into some high level outcomes, like reduced prison numbers, or reduced youth offending rates. The public service needs to think about the governance and accountability structure that can drive decisions to achieve these outcomes.

We have any amount of policy analysis and any amount of public support for success. But there is very little accumulated wisdom on what governance and accountability will deliver the desired policy result.

In this sector, as with many others, we simply won't meet the fiscal constraints and public expectations with the current institutional arrangements.

You will hear debate about these issues across a number of sectors in the next few years - long-term welfare, delivery of social services, housing, defence and others.

The evolution of the policy process

The policy-making process itself will be subject to same pressures for change. It will need to be more efficient and better incentivised.

The model of large-standing policy capacity, available just in case the Government needs it, is the product of a time when money was easier.

Since becoming the Government, we have found ourselves using a different model when we needed results.

Instead of relying exclusively on the public service, we've used a mix of officials and people who are experts in their fields - either from the private sector or academia.

That has meant a more open process after a decade of very tight discipline in the public service where officials were not encouraged to think or speak freely, or to take risks.

One example of a more open process is that used in the initial stages of our Budget 2010 tax reforms, which I referred to earlier.

At the start of last year, we decided to take a look at the tax system. Instead of relying exclusively on Treasury and Inland Revenue advice - with the whole process taking place behind closed doors - we took a different approach.

We convened a Tax Working Group comprised of academics, private sector experts and officials, led by Victoria University in Wellington.

We did not prescribe what they could and couldn't look at and we allowed them to publish their work - in real time - as they covered a wide range of topics over several months.

This generated a high degree of media interest and, over several months, the group's ideas were widely discussed and debated by commentators and the public.

This open discussion generated a consensus that there were indeed genuine problems that needed to be fixed.

It was in this context that the Government was able to put in place a fiscally neutral package of reforms that increased GST and the taxation of property - alongside income tax cuts - without causing a public backlash.

I believe this kind of open policy development will become increasingly popular

The barriers to entry into policy development are dropping quickly, as technology makes access to stores of knowledge virtually costless. A teenager can now access synthesised policy thinking on most issues at no cost.  

Feedback loops can be set up quickly and cheaply and government can feed the process by making its own data and analysis readily and immediately available - all now possible at reasonable cost.  

The public service never experiences the benefits politicians get from being in Opposition. The political process now requires opposition parties to develop a range of detailed policy and implementation plans in order to compete credibly in elections.

The National Party put together over 100 specific undertakings, a multi billion dollar tax cut package, general direction for a three-year term and a detailed first 100-day plan - all with just three policy advisors.

Of course, good public policy is underpinned by a professional public service with its inherent continuity and institutional knowledge - but not at any cost, and not as an excuse for inertia.

Public service management of knowledge is neither as specialised nor as uniquely ethical as is often presumed.

 

I believe a more open policy process - with the potential to engage a wider range of people and institutions and encourage more public discussion - can help address some of these problems.

And, as our experience with the Tax Working Group shows, it can inject a higher level of energy into the policy process, provide a stronger focus on what matters and ultimately get better results.

Conclusion

The last decade has seen an excess of cash and confidence in the public sector. The results of large dollops of both are not impressive - government is bigger, but core social problems remain intractable, and voters are sceptical that their cash has been well used. 

The benign economic conditions of the last decade will not occur again for decades, so we face permanent fiscal constraint.

Ask this question: Has the way we think about public services and public policy changed as rapidly as the world around us? The answer is no, not yet, but larger forces of economics, technology and public demand mean our thinking will have to change.

In New Zealand, we have chosen a path of considered and consistent change over time and engaging the leadership of the public service in the mission of significantly changing the way we do business.

I am confident that if we use the tools available, and draw on a wider range of resource outside the public service, we will succeed in the immediate task of meeting reasonable public expectations with fewer resources.

We also have a larger obligation to the next generation. Fewer of them will be supporting more of us as we leave the workforce.

The cost of inertia and inaction will be a double burden of large public debt and an ageing population. We owe it to them to innovate, to take risks, to push the boundaries and to pay our own way. The clock is ticking.

Thank you.

The Government remains focused squarely on building a sustainable long-term recovery that will be quite different to recoveries traditionally seen in New Zealand, Finance Minister Bill English says.

"This recovery will be patchy at times - due to the uncertain global environment and the need for businesses and households to pay down large stocks of debt.

Continue reading "This recovery will be different, built on exports"

The Government is taking steps to improve how it invests in infrastructure and manages its $220 billion asset base, Finance Minister Bill English says.

"This Government is determined to improve the management of its assets - both the existing stock and the way decisions are made about future investment," Mr English said in a speech to the New Zealand Council for Infrastructure Development Symposium in Auckland today.

Continue reading "New measures to improve asset management "

Good morning and thank you. It is a pleasure to be here.

It's not a coincidence that for the second year in a row you are hearing from two Cabinet Ministers - my colleague Steven Joyce will join you tomorrow afternoon.

This reflects how important infrastructure is to the Government's wider economic programme and New Zealand's longer-term economic prospects. High calibre infrastructure matters because it supports productivity, faster economic growth and jobs.

And as our economy emerges from the deepest global recession since the 1930s, effective investment in infrastructure is supporting tens of thousands of jobs around New Zealand.

Continue reading "Speech to the New Zealand Council for Infrastructure Development"

The Government is carefully considering the Housing Shareholders' Advisory Group report on options for improving the social and affordable housing sector, Finance Minister Bill English and Housing Minister Phil Heatley said today.

"The aim of this review was to identify how we could help those most in need get the assistance they need for as long as they need it," Mr Heatley said.

"The Government has around $15 billion invested in social housing and is committed to retaining state housing. However, a significant number of houses are in a poor state of repair, are of the wrong size and are in the wrong places to meet demand.

"We want to ensure this significant asset is utilised to the best effect. We also want the system to be fairer and to work better for those families most in need," he said.

The independent Group's report identifies a number of challenges to be addressed regarding social and affordable housing in New Zealand. It makes 19 recommendations, which the Group believes will help to ensure New Zealanders have access to social and affordable housing in the future.

Mr Heatley said the Housing Shareholders' Advisory Group had produced a comprehensive report and, in the process, would help to generate constructive debate.

He welcomed the Group's call for the need to diversify the funding of social housing by increasing community sector involvement.

"I note the Advisory Group's concern that many countries are grappling with similar issues but New Zealand has yet to adopt some of the strategies observed offshore to address them," he said.

Mr English said the Group had decided to widen its brief and include housing affordability and social housing's relationship with the wider benefit system.

"As the scope of the report has widened, it needs further consideration and we want to gain a deeper understanding of the issues and to get feedback from the wider sector and officials before making any decisions on the report," he said.

"There are a number of challenges to be addressed and there is no quick fix. We want to ensure we carefully consider the report and consult with the sector before considering any changes to government policy," he said.

"We have asked the Housing Shareholders' Advisory Group to engage with key stakeholders in the wider sector on the implications arising from their recommendations and to report back to the Government later in the year."

Mr English said the Government would only consider making changes to the current system if it meant it was going to work better and deliver the right results for those most in need.

The seven-member Advisory Group was chaired by Dr Alan Jackson, a former senior vice-president in the Auckland office of global consultancy firm, the Boston Consulting Group.

Other members of the Group included Major Campbell Roberts (Salvation Army), Diane Robertson (Auckland City Mission), Brian Donnelly (New Zealand Housing Foundation) and Paul White (iwi, social services and housing), who all have considerable experience working in the social and affordable housing sector. Andrew Body and Martin Udale are experienced in the business, banking, corporate and investment communities.

Mr English and Mr Heatley commended the Group for its work so far and thanked them for the professional job they had done.

"We look forward to hearing back from the Group later in the year on the outcomes of their discussions with the wider sector."

To view a copy of the report, terms of reference, or profiles of the members of the Housing Shareholders' Advisory Group visit: http://www.dbh.govt.nz/vision-for-social-housing-nz

To view questions and answers about the Housing Shareholders' Advisory Group click on the link under 'Related Documents' below.

Related Documents:

Questions & Answers.pdf (pdf, 32 Kb)

In this issue of Focus on Finance I talk about some early signs that our economy is rebalancing, spending on policy advice, ways to better manage the Government's assets - and more. Your comments are welcome.

 

Continue reading "Rebalancing the economy"

In this issue of Plain English I talk about issues of concern to the electorate, meetings on the Budget, a books in homes programme, support for the Lakes District Air Rescue team, meetings with the Balclutha Rotary Club and some young achievers, Youth Parliament - and more. Feel free to comment on the newsletter and share your thoughts.

 

Continue reading "Plain English: August 2010"

Finance Minister Bill English will visit Australia in the next two weeks, where he will speak to business audiences and have discussions with various financial and industry leaders in Sydney and Melbourne.

"Australia is our largest trading partner and our close economic relationship has certainly helped New Zealand as we brought our economy out of recession and took early steps to build the recovery," Mr English says.

"It's important that we maintain our strong links with the business and investment community across the Tasman, because we have many common challenges and opportunities."

Mr English will visit Sydney on 4 August, where he will speak to the International CEO Forum and the Australian Business Economists.

In Melbourne the next day, he will speak to the Infrastructure Partnerships Australia conference, where he will discuss progress with the Government's multi-billion infrastructure programme and the National Infrastructure Plan.

Mr English will return to Melbourne on 12 August to speak at the Australia New Zealand School of Government annual conference.

During both visits to Australia, Mr English will also meet a number of business and infrastructure sector leaders.

It is encouraging to see signs that some of the imbalances handicapping New Zealand's economy for the past five or six years are easing, Finance Minister Bill English says.

However, risks remain and the Government is focused on continuing to roll out its broad-based economic programme to generate faster growth and support more sustainable and higher-paying jobs.

"It's clear that the tradeables side of the economy - exporting and import-competing industries - went into recession in about 2004. Remarkably, there have been no net new jobs in agriculture and manufacturing since 2002.

"By contrast, since 2004, the non-tradeables sector - government and domestic industries - has grown by about 12 per cent. That's simply not sustainable."

The Budget's tax reform package, which left the vast majority of New Zealanders better off, was the next step in the Government's programme for boosting economic growth and helping New Zealand families get ahead.

The programme includes a multi-billion investment in productive infrastructure such as roads and ultra-fast broadband, action to get the Government's finances in order and improve public services, measures to improve skills and education and a drive to cut red tape and regulation.

Mr English identified a number of indicators which suggest New Zealand's economic imbalances are at least stabilising.

"First and foremost, the economy is now growing, as opposed to shrinking as it did in Labour's last term. The Budget also forecast 170,000 new jobs over the next four years and average household incomes to rise by about $7000 in that time.

"Second, the tradeables sector grew 3.4 per cent in the nine months to March 2010, compared with just 1.2 per cent growth in the non-tradeables sector. This is the largest positive gap between the two sectors over a nine-month period since December 2002.

"Finally, New Zealanders are being more careful with their spending. Per capita private sector consumption increased by only 1 per cent in the past year, after consistently increasing by more than 4 per cent, year on year, between 2002 and 2007.

"Reserve Bank figures show household debt is also easing for the first time in more than a decade. After increasing rapidly from 100 per cent of disposable income in early 2000 to a peak of 159 per cent in mid-2008, household debt has eased to 155 per cent of disposable income."

Mr English emphasised that these were only early signs of the economy rebalancing and more work was needed to build this momentum, particularly with New Zealand - households, business and the Government - owing almost $170 billion in debt to the rest of the world.

"This reinforces the Government's commitment to continue with its broad-based programme to ensure growth and jobs come from the right parts of the economy."

The Government is taking the next step towards a public-private partnership for building and maintaining some new school property, Infrastructure Minister Bill English and Education Minister Anne Tolley announced today.

"This Government has made it clear we are open to greater use of private sector expertise where it makes sense - for example in April we signalled our intention to proceed with New Zealand's first PPP prison," Mr English says.

"Initial investigations show that building some new school property through a PPP could also result in a modest saving over traditional methods as well as offer some educational benefits.

"This is consistent with overseas experience which shows appropriate use of PPPs can introduce new design, financing and maintenance techniques that provide better services and value to taxpayers.

"PPPs also expose the public sector to new methods of asset management and procurement - helping them raise their game. That is vital if we are to ensure our children and communities get the modern classrooms and facilities they need within available resources," Mr English says.

Officials will now prepare a stage two business case, which will include a decision on specific schools. A tender process could start early next year, subject to Cabinet approval of the detailed business case.

Mrs Tolley says PPPs have the potential to deliver educational benefits.

"The land would still be owned by the Government, while the board of trustees would remain wholly in charge of the governance and day to day running of the school," Mrs Tolley says.

"The private sector partner would be responsible for financing, building, managing and maintaining the property for a set term. This means the school and its board could focus more on teaching and learning, without the added responsibility of managing the property.

"In addition, the private-sector partner would carry the risk around time-consuming and expensive problems like leaky buildings and be required to sort them out quickly or suffer a financial penalty.

"If a project goes ahead then trustees, teachers and communities can be assured they will be closely involved.

"Assessing the viability of a PPP has also had positive spin-offs for the Ministry of Education, including a stronger focus on price competition and assessing the cost of an asset over its whole life.

"This increased focus on long-term costs and getting the best possible price will reap benefits for taxpayers in the future, whether schools are built by traditional means or through a PPP," Mrs Tolley says.  

School PPP Questions and Answers

What exactly is being announced today?

The Government is announcing its intention to proceed to a 'stage two' business case for a public private partnership (PPP) for new school property. This follows work that began last October investigating the viability of a PPP. That work found that there was a case for proceeding with a PPP.

What is a PPP?

For a schooling PPP, it means the private sector would finance, build and maintain school property over a long-term contract - probably around 25-35 years. The operation of the school would remain the responsibility of the board of trustees. The Government would retain ownership of the land throughout and ownership of the property would revert to the Government at the end of the contract period.

What are the benefits of PPPs?

• Boards of trustees and school leadership would no longer have to worry about maintaining school property, which is the responsibility of the private partner. This allows them to focus fully on students and learning.
• Improved maintenance of school facilities to an agreed standard.
• Greater community use of facilities.
• Better value for money and price certainty for taxpayers through greater price competition and a more accurate and transparent assessment of whole-of-life costs.
• The Crown is no longer exposed to design and construction risks like leaky buildings. These become the responsibility of the private partner who must fix them promptly or face financial penalties.
• It gives officials another procurement choice which means they can better match projects with procurement options.
• It exposes officials to a range of new techniques they can apply to their asset management and procurement across the board.
• The development of PPPs in education and other areas such as corrections, may attract overseas firms to participate in the New Zealand market, bringing new skills and expertise.

What would a PPP mean for students and teachers?

There would be no significant changes for students or teachers.

So what happens next?

Officials will now put together the 'stage two' or detailed business case, which among other things will confirm which schools will form part of a PPP. If the detailed business case stacks up and is approved by Cabinet, a tender process could begin in the first half of next year. If a suitable bidder is found then construction could begin in late 2011 or early 2012. 

What school or schools are you looking at for this?

It is not possible to confirm the schools with certainty until closer to tender due to the need to monitor population data to see which school will suit a PPP timeframe. The first PPP is likely to be small, but for at least two schools, as the project needs to be large enough to attract bidders and ensure value for money for taxpayers.

Could PPPs become the norm for financing and building new schools?

PPPs would not be suitable for all schools and they will only be used when they stack up against traditional procurement methods. If a PPP proceeds it will only be a small portion of the approximately $500 million the Ministry of Education spends each year on school property.

What sort of saving would you expect to make through a PPP?

We would expect a modest saving similar to what has been achieved in Australia. For example, the value for money assessment for the Partnerships Victoria in Schools Project (2009) suggested savings of 2.6 per cent over conventional procurement. However the exact savings will depend on the size of the PPP school package and the bids received from the private sector.

What property problems are school boards currently grappling with?

Boards of trustees and school leadership are currently forced to devote a lot of time to property issues, many of which require specialist expertise. For example, 145 schools to date have been identified as having leaky buildings, with a total cost of repairs of hundreds of millions of dollars.

Under a PPP, the risk related to the cost of repairs will sit with the PPP contractor, giving them a clear incentive to get it right. If problems do arise it will be their responsibility to fix them and any drop in performance will result in deductions to their payments. 

Will this mean parents are shut out of the management of school property?

No. The Ministry is currently looking at options for how the community will be involved during the next stage of the project to ensure the property reflects the culture and identity of the area. Once a PPP school opens the board of trustees would have regular contact with the PPP contractor.

What sort of safeguards would be written into the contract?

The contract will include a series of key performance indicators. If these were not met deductions would be made to payments to the PPP contractor. Ultimately the Crown will retain the right of ‘step in' and terminate the agreement should dispute resolutions fail to remedy underperformance.

Would you expect NZ companies to tender for a PPP?

Yes. Initial market sounding suggests there are a number of New Zealand companies interested in a school property PPP, in addition to overseas companies with New Zealand offices and overseas companies looking to enter the New Zealand market.

The Government remains committed to sound management of its finances and ongoing fiscal discipline, Finance Minister Bill English says.

He was commenting on news today that lower than forecast spending and slightly higher revenue resulted in a better-than-expected $4.74 billion operating deficit before gains and losses in the 11 months to May 31.

Treasury expects revenue to come in close to forecasts for the full financial year ending June 30 and at least part of the lower spending track to be reversed in June.

"The Government has made good progress in keeping spending under control and delivering a faster-growing economy that will help grow our revenue.

"However, in many ways, restraint in the public sector is only just starting. We still have a significant medium-term challenge to get back to surplus as soon as possible. Budget forecasts show that will not happen until 2015/16 - but I would like us to be back into surplus sooner," Mr English says.

"In our first two Budgets, the Government took early steps to bring deficits and government debt under control. We will build on that over the next few years by living within our $1.1 billion annual allowance for extra operating spending and weeding out lower priority spending."

The operating deficit before gains and losses was almost $1.1 billion better than forecast in the 11 months to May 31 - mainly reflecting core Crown revenue coming in $200 million above forecast and expenses $560 million below forecast. In addition, ACC insurance expenses were $130 million lower than expected.

Once gains and losses are taken into account, the operating deficit at $2.16 billion was close to forecast. Net investment gains were $1.1 billion lower than expected on weaker world equity markets.

New Zealand's new 28 per cent company tax rate from next year will make this country more competitive internationally - and particularly with Australia, Finance Minister Bill English says.

He was responding to news today that Australia will restrict planned cuts to its headline company tax rate to 29 per cent from 2013/14, deferring any further reduction until fiscal conditions permit.

"Taken together with other measures in the Budget, the reduction in New Zealand's company tax rate to 28 per cent from the 2011/12 income year will help our competitive position and help provide businesses with the right incentives to invest and export," Mr English says.

"It is significant that from next year New Zealand's company tax rate will be two cents in the dollar below Australia's for two years and then one cent lower. That hasn't happened for many years.

"New Zealand's Budget tax package is unique. We have been able to change the tax mix, including significant income and company tax cuts, at a time when many other countries are increasing taxes to tackle rising debt and snowballing deficits.

"The Government will continue with its programme of policies that tilt the economy away from spending, borrowing and unsustainable increases in government spending, and towards saving, exporting and investment in productive parts of the economy."

Finance Minister Bill English has appointed new members to the boards of the Guardians of New Zealand Superannuation, the Crown Forestry Rental Trust (CFRT) and National Provident Fund (NPF).

Former Bankers Trust chief executive Gavin Walker joins the board of the Guardians, Wellington barrister Guy Royal joins the board of the CFRT and chartered accountant Graeme Mitchell joins the board of the NPF.

"These individuals bring a range of relevant expertise to these boards and I'm confident they will make a strong contribution," Mr English says.

Mr Walker has a lengthy financial market and funds management background both in New Zealand and Australia.

Mr Royal is a Wellington-based barrister and solicitor with over 13 years experience as a commercial lawyer. He is currently a partner and director of Tuia Legal, the legal division of Tuia Group Ltd.

Mr Mitchell is a chartered accountant and was formerly with Deloitte, Wellington where he was an Audit and Assurance Partner for over 28 years.

Mr English also announced the reappointment of Angela Foulkes to the CFRT Board. Ms Foulkes has served on the CFRT Board since April 2001, and has been reappointed for a term of two years.

More than half of all new jobs created in New Zealand since 2004 have been in public administration, health and education, while the number of jobs in major export industries has shrunk, Finance Minister Bill English says.

That is why the Government is focused on tilting the economy towards productive investment, savings and exports, and away from unsustainable government spending, borrowing and housing speculation.

"The composition of new jobs created in recent years is concerning," Mr English told Parliament today. "In short, jobs in export-related industries have shrunk, while most new jobs have been in Government-related sectors.

"More than half the jobs created since 2004 have been in the public administration, health and education sectors. While these sectors are important, they have grown unsustainably. Since 2004, they have grown by more than 20 per cent - or over four times the growth rate of other sectors.

"During this time, employment in agriculture, forestry, fishing and manufacturing has fallen.

"This pattern cannot continue," Mr English says. "We are simply ending up with too many workers in mostly public sector industries and not enough employment in the more productive parts of the economy to support them.

"That is why our overall productivity growth has been negative for a decade and we ended up with large balance of payments deficits."

The Government is focused on creating sustainable jobs through a programme to rebalance the economy. This includes:

• Reprioritising almost $4 billion of spending towards frontline public services in the last two Budgets.
• A multi-billion dollar investment programme in productive infrastructure.
• Significantly increased funding for business science and research
• A comprehensive Budget tax package to help tilt the economy towards productive investment and exports.
• A thorough review of Government regulations affecting businesses.

This programme will continue year after year - and some progress is already being made, Mr English says.

"It was pleasing to see over 20,000 new jobs created in the March quarter. It's also pleasing to see the tradeables side of the economy growing faster than the domestic side for the first time since 2002.

"That will help ensure the 170,000 new jobs forecast in the Budget over the next four years will be worthwhile and sustainable."

 

New Zealand employment growth 2004 - 2010

Sector	Change (number of jobs)	Change (%)
Healthcare and social assistance	45,700	+26
Professional, scientific, technical	33,700	+17
Education and training	27,500	+17
Public administration and safety	25,500	+26
Construction	22,600	+14
Retail trade and accommodation	19,000	+6
Arts, recreation and other services	13,700	+12
Wholesale trade	11,100	+11
Information media and telecommunications	5,100	+14
Not specified	4,100	NA
Rental, hiring and real estate services	3,400	+11
Mining	3,000	+71
Financial and insurance services	2,500	+4
Electricity, gas, water and waste services	1,100	+7
Agriculture, forestry and fishing	600	0
Transport, postal and warehousing	-6,500	-7
Manufacturing	-35,600	-13
TOTAL	176,500	+8.8
Imbalances at a glance
Public administration, health education	98,700	+22.9
All other groups	77,600	+5

In this issue, I talk about the state of the economy's recovery, how changes in tax will help New Zealanders, and getting out and about with the Budget 2010 message. Be sure and watch my video briefing on the economy.
Continue reading "Focus on Finance - The recovering economy"

Four successive quarters of growth is a welcome sign the economy is continuing to recover, but more work is needed to ensure the rebound in jobs and growth is sustainable, Finance Minister Bill English says.

GDP data issued today shows the economy grew by 0.6 per cent in the March quarter, broadly in line with expectations. In addition, growth in the December quarter was revised upward from 0.8 to 0.9 per cent, taking annual real GDP growth to 1.9 per cent.

Quarterly growth was led by a continued rebound in the manufacturing sector.

"The continuing recovery is good news. A growing economy is the only way to create new jobs and raise New Zealanders' living standards," Mr English says.

"The Government has put in place a range of policies to lift sustainable economic growth and they are having an effect, with 170,000 new jobs forecast over the next four years in Budget 2010.

"But the economy still faces serious challenges. We need to continue tilting the economy towards savings, exports and productive industries and away from the rampant growth in government spending and borrowing for housing and consumer spending seen under Labour.

"Budget 2010 took concrete steps in this direction. This is the only way to ensure sustainable growth - and is vital if we want to raise the competitiveness of our exporters, lift business confidence, increase jobs and incomes and help New Zealanders get ahead.  

"While the global outlook has strengthened in the past year, it remains fragile, as we can see from the sovereign debt crisis in Europe.

"This reinforces the need for continuing restraint in government spending and curbing the significant increase in New Zealand's debt to the rest of the world.

"We capped new operating spending at $1.1 billion in Budget 2010 and will increase the new spending allowance by just 2 per cent a year in future budgets," Mr English says.

The Government is seeking public feedback on proposed changes to simplify the tax system and make it easier for people to manage their tax affairs, Finance Minister Bill English and Revenue Minister Peter Dunne said today.

The discussion document Making Tax Easier and an accompanying online forum include ways of simplifying PAYE and income tax returns for individuals and employers, Mr English says.

"Budget 2010 introduced a major rebalancing of the tax system away from consumption towards saving and investment that will better support New Zealand's long-term economic growth.

"The Government is now looking to reform the way our tax system is administered to make it easier and more certain for taxpayers to manage their tax obligations.

The proposed changes also set out how people could self-manage most of their tax and social assistance entitlements such as Working for Families, using their own secure area on Inland Revenue's website, Mr Dunne says.

"This would be done much like internet banking, making the whole process easier, faster and more certain for taxpayers," he says.

"At the same time, the Government wants to ensure that the tax administration system operates efficiently and delivers value for money.

"The online consultation forum proposes several ways this might be achieved. The main idea is to shift Inland Revenue's current emphasis away from paper-based systems towards greater use of customer-focused online technologies.

"To further simplify and reduce the number of interactions that individuals must have with Inland Revenue, a new approach is being proposed, which for some people would mean PAYE would be treated as a final tax.

"More timely and correct information would mean that tax is deducted at the right tax code each pay-day, so there would be a reduced need for an end-of-year square-up," Mr Dunne says.

"This would give people greater confidence that the amount of tax they pay throughout the year is correct, with no unexpected tax bills arising at the end of the year."

For businesses, including employers and the not-for-profit sector, PAYE tasks such as filing an employer monthly schedule could be managed by software that automatically communicates with Inland Revenue.

"Such a move towards electronic technologies would require all businesses to eventually move to electronic filing, Mr English says. "The Government wants to hear from employers and businesses on these proposals."

Similarly, the Government wants to hear from the software development industry on how strategic partnerships might be developed to create the tools to help employers move to an electronic environment.

The closing date for comment on the proposals is 23 July 2010.

Have your say on the online forum at www.ird.govt.nz/makingtaxeasier or read the full discussion document at www.taxpolicy.ird.govt.nz

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

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

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

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

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

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

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

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

In this issue I discuss some of the most important drivers and outcomes in Budget 2010, with special emphasis on tax reforms, the growth dividend and getting debt under control.

 

Continue reading "Focus on Finance: Budget 2010"

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

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


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


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


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

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

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

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

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

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

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

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

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

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

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

1 October 2010 changes include:

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

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

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


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


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

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

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


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


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


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


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


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


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

Immediate change:

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

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

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

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

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

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

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

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

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

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

Helping families get ahead in New Zealand

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

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

Turning back debt, getting back to surplus

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

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

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

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

Tax reform, investing in engines of growth

Those decisions include:


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

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

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

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

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

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

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

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


Budget package boost for economy

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

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

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

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

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

Better public services and social programmes

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

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

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

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

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

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

In this issue of Plain English I talk about visits to the electorate, Parliamentary Question Time and the upcoming Budget.

 

Continue reading "Plain English No.6"

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Labour has given the first clues about how it would run the economy - and hard-working Kiwis should be worried, Finance Minister Bill English says.

"It's an old-fashioned recipe of borrow and hope, tax and spend. Labour would mortgage our families' futures to pay the bills."

Labour leader Phil Goff has confirmed in recent days that more debt and higher taxes would be the twin pillars of his economic policy.

"We already know Labour supports an emissions trading scheme that lumbers Kiwi families with even higher bills, and it now confirms the only way it can deliver on its billions of dollars of promises is to borrow more from overseas.

"Labour does not seem to recognise that the world has changed. The large budget deficits and ever-increasing debt being promoted by Phil Goff and his finance spokesman are reckless and irresponsible."

The fact is that this Government inherited a situation where Crown debt was forecast to increase sharply and to continue rising indefinitely. The Government has worked hard to turn around that worrying debt track.

Even so, our December forecasts predicted a $10.1 billion cash deficit this year and core Crown debt trebling to $65 billion by 2014. Yet Labour says there is no debt problem and it would continue to borrow and spend.

"The National Government makes no apologies for reprioritising low quality government spending and redirecting it into priority areas such as health, education and law and order.

"The Budget will underline this Government's credentials as a responsible manager of worker and business taxes, with a growth plan and a tax system that better rewards hard work and enterprise. We will also produce a set of government accounts that make much better reading than those we inherited.

"By contrast, Labour will mortgage our families' futures with a borrowing programme that saddles our children with a legacy of deficits and debt."

 

The Budget next month will redirect another $1.8 billion of lower quality government spending between now and 2014 into high priority areas, Finance Minister Bill English said today

This follows Budget 2009 redirecting $2 billion of lower quality spending to higher priority initiatives, he said in a speech to the Wellington Regional Chamber of Commerce.

"That's a significant sum of money we're making available for priority areas such as better healthcare services, better education and keeping New Zealanders safe.

"The Government will continue to weed out low quality spending. We will live within the $1.1 billion annual operating allowance for new spending we have set ourselves, and restrict annual increases in this figure to 2 per cent from 2011/12."

Mr English repeated that most Government agencies would receive no budget increases over the next three or four years, as the Government moved to get back to Budget surplus as soon as possible.

"It's clear from the work we've done so far that there is considerable scope to provide better public services by improving processes, removing duplication and reallocating resources from low quality spending to improve frontline public services.

"It's about doing things better and smarter, after a decade where new funding flowed freely and constraint wasn't required."

"Public service chief executives are coming to terms with this reality. The Government has given them time to prepare their agencies to provide better public services with little or no new money over the next three or four years.

"I want to get the Government back into budget surplus as quickly as possible, because surpluses give us choices.

"For example, surpluses give us choices to invest more in public services; to pay down public debt; to resume contributions to the New Zealand Super Fund - or to do any number of other things.

"As long as we run deficits, we don't have those choices," Mr English said.

Hard working Kiwis will be shocked by confirmation today that Labour would mortgage our future when we are already borrowing an average $240 million a week for the next four years, Finance Minister Bill English says.

"The question for Phil Goff is whether he still has confidence in his finance spokesman, who this morning said Labour would borrow even more money, without regard to already soaring debt and persistent budget deficits.

"On radio this morning, his finance spokesman said: ‘New Zealand's problem cannot be primarily that it has a yawning budget deficit, because it does not'.

"It was plainly ridiculous to then claim that New Zealand doesn't have a debt problem because it's below Japanese levels at 200 per cent of gross domestic product," Mr English says.

"The fact is that Treasury forecasts in December predicted a cash deficit of $10.1 billion in the current year to June 30.

"Labour is in cloud cuckoo land by ignoring our significant debt problem - a problem of Labour's own making. We actually face another six years of Budget deficits, which this Government is working hard to turn around.

"Furthermore, New Zealand's habit of spending more than it earns has accelerated in the past five years.

"Our total external debt - including households, businesses and the Government - has ballooned from $90 billion to about $170 billion since 2000. This is forecast to approach $250 billion by 2014.

"This is clearly New Zealand's single biggest vulnerability.

"No amount of cosmetic surgery can hide the fact that Labour's reckless economic policies are stuck in the past. There is no evidence of fresh thinking - in fact, precisely the opposite is true when their answer is to saddle future generations of New Zealanders with more debt.

"This dangerous policy prescription would drive up interest rates, hurt exporters, cost thousands of jobs and ultimately bankrupt the country."

The Budget next month will focus on getting faster economic growth, sustainable and higher paying jobs and getting the Government's finances back into shape.

"We will live within the $1.1 billion annual operating allowance for new spending we have set ourselves, and restrict annual increases in this figure to 2 per cent from 2011/12," Mr English says.

"And we will find another $1.8 billion of low quality spending between now and 2014 - on top of the $2 billion of lower quality spending identified last year for improving frontline public services.

"This money will be directed into higher priority initiatives such as better healthcare services, better education and keeping New Zealanders safe."

By contrast, even before today's confirmation of its plan to run up more debt, Labour's spending policies amounted to at least $6 billion, all of which would have to be borrowed.

"I issued the following table of Labour's unfunded spending commitments last year - and the list gets longer every time Phil Goff or his finance spokesman open their mouths," Mr English says.

Second and third tranches of Labour's tax cuts	$m 1,600
Full Super Fund contributions	1,565
Reversing KiwiSaver changes	950
Fast Forward Fund	650
Extending benefits to people with spouses in work	300
Funding the "unfunded commitments" in education	250
No job losses in the public sector	250
Reinstating the R&D tax credit	220
Increasing overseas aid	65
Paid parental leave extension	40
Reversing the transfer from health to the insulation fund	25
Other spending	100
Total additional to borrow	$6,015m

Good afternoon and thank you Charles for your warm welcome. It's good to see so many people here today from the Wellington Chamber of Commerce and the wider Wellington business community.

In exactly four weeks today, I will deliver the second Budget for the John Key-led Government.

It will be delivered in a very different global economic and financial environment than we faced when preparing the Budget last year. The world was then gripped by a financial crisis on a scale not seen for many decades and the global banking system was creaking at the seams.

Out of necessity, Budget 2009 focused on dealing with the immediate effects of that crisis.

We had to work hard to get the Government's deteriorating books in order - particularly turning around forecasts of ever-increasing public debt that last year threatened New Zealand's international credit ratings.

Looking back, I believe we struck the right balance.

We helped the most vulnerable by preserving entitlements such as welfare benefits, New Zealand Superannuation and Working for Families. We took steps to help stem job losses and keep young people connected to the world of work.

To do that, the Government absorbed much of the shock of the recession by significantly increasing borrowing.

At the same time, we curtailed low-quality spending and were able to turn around deeply worrying medium-term debt forecasts.

Now that we've come through the recession in reasonable shape, the Budget this year will focus squarely on building higher and sustainable economic growth.

I will talk more about the Budget a little later.

But let me say that growth really does matter. It matters because it's the only way New Zealand can create the jobs, the higher incomes and the better living standards Kiwis deserve.

We also need to show New Zealanders that there are opportunities for their families in this country - so they don't have to move to Sydney or London.

It's good that New Zealand has come out of the recession in better shape than most other countries. The economy here has grown in each of the past three quarters, although the road to recovery will remain bumpy at times.

In New Zealand, the dire immediate threats of the financial crisis have passed. There is no doubt that we have benefited from the relatively strong performances of China and Australia through the recession.

Moreover, New Zealand businesses proved to be resilient and the Reserve Bank here moved swiftly in its monetary policy response.

And finally, we cannot underestimate the enormous advantage we enjoyed by having strong banks and therefore avoiding the hugely expensive taxpayer-funded bank bailouts required in the United States and parts of Europe.

Focus on new jobs and growth

So, despite New Zealand having come through the recession in reasonable shape, our long-term economic challenge remains as acute as it was a year ago.

That's particularly so with unemployment at more than 7 per cent and predictions that it will fall only slowly as the recovery takes hold. Every new job created and every existing one saved gives one more New Zealander choices and opportunities.

Many New Zealanders have had no wage increases for up to two years.

In the longer-term, sustainable jobs will be created only when people have the confidence to invest in productive businesses so they can expand and take on new staff.

There is still a perception that New Zealand's economy was growing strongly before the global financial crisis. That perception is wrong.

In fact, New Zealand's economy is not much bigger now than it was in 2005 - and it was already in trouble before the global recession.

In the three years before the Lehman collapse in late 2008, the economy grew by less than 1 per cent a year. This was less than half our trading partner average, and less than one-third of Australia's growth rate.

During this time, the growth we did see came from all the wrong places.

Output from exporters and import-competing industries, often termed the tradeables part of the economy, is now about 12 per cent smaller than in 2005.

So we've had five years of severe export recession.

In fact, overall the tradeables sector has not grown at all since 2002 - and in that time Government spending has accelerated and New Zealand's indebtedness to the rest of the world has grown significantly.

New Zealand's habit of spending more than it earns has accelerated in the past five years.

New Zealand's total external debt has ballooned from $130 billion to about $170 billion over this period. This is forecast to approach $250 billion by 2014.

Government debt by global standards is relatively low, but increasing sharply. On the other hand, private sector debt is much higher.

As a country, we must finance that debt on world markets, when other countries are also borrowing heavily and global financial markets remain fragile and far from stable.

For New Zealand, that is a significant vulnerability.

Our other vulnerability is our lop-sided and under-performing economy.

Government spending has ballooned, growing 50% in the five years to 2009, more than twice the nominal economic growth. As the tide of global growth went out, the costs of this have been laid bare.

The property market soared, and is now in a long term correction. It has absorbed too much of New Zealand's productive capital, for too little gain.

This legacy has both an economic and a human cost. The economic cost is obvious. The human cost is everywhere: New Zealanders who have lost their jobs, have decided to live abroad, or families who are struggling.

So we have a clear choice: We can continue to muddle along, handicapped by these imbalances and falling further behind other countries.

Or we can set our sights higher and create the kind of country the Prime Minister spoke of soon after taking office.

Recession costs to the Government

Like the rest of New Zealand, the Government has a vested interest in getting a better performing economy.

The fiscal costs of the recession and the previous Government's big spending increases are evident in the deep red ink flowing through the Crown's own financial statements.

The latest published forecasts in December show the Government borrowing about $240 million every week for the next four years to roll over existing debt and to fund growing deficits. 

Net core Crown debt was forecast to more than treble to $65 billion by 2014. And the Crown's annual interest payments are expected to double to $5.9 billion by 2014 - equal to the combined annual budgets of police and law and order.

And the December forecasts predicted the economy would shrink by 0.4 per cent in the year to March 2010, before growing by 2.4 per cent in 2011 and 3.2 per cent in 2012.

The updated economic and fiscal forecasts for the Budget are still to be finalised.

Having said that, it's clear that the economy is recovering slightly more strongly than the Treasury forecast in December and that growth is predicted to strengthen further in the year ahead.

This reflects a continued recovery in the global economy; rising world demand for commodities improving our terms of trade; and some higher business and consumer confidence.

However, risks remain for New Zealand - and it will be some time before GDP recovers to previous levels.

We are not yet seeing the traditionally strong bounce out of recession - where the exchange rate falls, primary producers in rural areas reap the benefits and enjoy higher incomes, which eventually flows into the cities.

The recovery from the recession of the past two years appears slower and more tentative.

And we still face some economic headwinds: The global recovery remains fragile; our high exchange rate against the US dollar and the pound is hampering exporters; and New Zealand household finances are extended.

So the domestic recovery, although welcome, is quite patchy across different sectors and from region to region.

This slightly better-than-expected economic outlook won't bring any dramatic changes to the fiscal forecasts accompanying the Budget, compared to the December forecasts.

There may be slightly stronger revenue and slightly lower spending on income support, but nothing that significantly eases our medium-term fiscal pressures.

That means several more years of Budget deficits and increasing debt - and certainly no dramatic reduction in the $240 million that we need to borrow each week to roll over existing debt and to fund ongoing deficits.

So it's critical the Government continues to responsibly manage public finances on behalf of taxpayers. We can't take our eye off the ball.

Freeing up low quality spending

The Government will continue to weed out lower quality spending. We will live within the $1.1 billion annual operating allowance for new spending we have set ourselves, and restrict annual increases in this figure to 2 per cent from 2011/12.

In the Budget last year, we identified $2 billion of lower quality spending over the subsequent four years to redirect into higher priority areas.

In this year's Budget, we will find another $1.8 billion of low quality spending between now and 2014 for reprioritising into higher priority initiatives.

That's a significant sum of money we're making available for priority areas such as better healthcare services, better education and keeping New Zealanders safe.

I said in last year's Budget that most Government agencies will receive no budget increases over the next few years. And in this Budget, I will say the same thing again.

Not because they don't deliver worthwhile services, but simply because we cannot allow debt to escalate further.

It's clear from the work we've done so far that there is considerable scope to provide better public services by improving processes, removing duplication and reallocating resources from low quality spending to improve frontline public services.

It's about doing things better and smarter, after a decade where new funding flowed freely and constraint wasn't required.

We shouldn't forget that the money we spend on behalf of taxpayers comes from the weekly PAYE taxes of hard-working New Zealanders.

Public service chief executives are coming to terms with this reality. The Government has given them time to prepare their agencies to provide better public services with little or no new money over the next three or four years.

I want to get the Government back into budget surplus as quickly as possible, because surpluses give us choices.

For example, surpluses give us choices to invest more in public services; to pay down public debt; to resume contributions to the New Zealand Super Fund - or to do any number of other things.

As long as we run deficits, we don't have those choices.

The Government's economic programme

So what is the Government doing to meet these considerable challenges?

We've embarked on a substantial programme to arrest New Zealand's economic under performance of the past decade.

It has included a multi-billion investment in infrastructure such as roads, ultra-fast broadband and electricity transmission.

We're reviewing regulations and cutting red tape, and we're improving education and skills. And, as I've said, we're lifting productivity and improving services in the public sector - with the core Government making up about a quarter of the economy, we want to get our own house in order.

Our starting point is that we need to change the incentives so resources go towards productive investment, savings and exports - and away from the unsustainable consumption, borrowing and government spending increases of the past decade.

Some of the policies we have promoted - for example, government spending restraint or plans for tax reform - have not met with universal support.

However, this Government is prepared to make the difficult calls where they are necessary.

We are taking a balanced and pragmatic approach to lifting economic growth.

It would be futile to launch a one-off package of big-bang reforms that pleases a few commentators, but sparks an overwhelming public backlash.

We've seen this happen in New Zealand before. History shows this approach has been followed by extended periods of economic policy inertia and - most damaging of all - economic underperformance.

Instead, we're embarking on a consistent programme of considered, broad-based reform, year after year. This is what Australia has done over many years.

Goals of Budget 2010

Let me now turn to the Budget.

The Budget next month will set out the next steps in that programme. Budget 2010 will have four main goals:

• Lifting the long-term performance of the economy - to deliver New Zealanders the jobs, increased incomes and better living standards I have already alluded to.

• Reform of the tax system - to make the system fairer, more sustainable and more supporting of economic growth. I'll speak more about tax in a moment.

• Better delivery of public services to meet New Zealanders' expectations of modern public services, while at the same time recognising the ongoing pressures on taxpayers.

• Maintaining firm control of the Government's finances - so we can return to Budget surpluses and pull back our rising debt.

All of these goals are inter-linked. Keeping a tight rein on government spending, for example, helps ease pressure on the exchange rate.

This in turn helps rebalance the economy toward the tradeables sector, lifting long-term growth, creating sustainable jobs and boosting incomes.

Tax reform

I'd now like to spend a little time now talking about taxation. Developing a growth-enhancing tax system is one of our economic policy drivers and it is also a goal for the Budget.

Tax reform has been the subject of considerable public and media debate over the past 12 months, which is a good thing. I don't think I've seen such an open and constructive process around such an important policy area before.

Our decisions about tax changes will be announced in the Budget - and I won't pre-empt them today.

But I can say there is a compelling case to rebalance our tax system to support our goal of tilting the economy towards savings, investment and exports and away from borrowing, consumption and investment housing.

Taxation has a pervasive influence on both the economy at large and on decisions made by individuals.

Remember: we have an economy where we're spending more than we earn. Tax is one way to change people's choices and help turn that around.

So any tax changes need to contribute to a better-performing economy, more jobs and higher incomes for families.

The starting point for the Government is that lower personal taxes across the board are a good thing because they give people incentives to work hard, improve their skills and get ahead here in New Zealand.

We have this opportunity at a time when many other countries will be forced to increase taxes. This is an important competitive advantage for New Zealand.

But this will not be a lolly scramble. We simply cannot afford one.

Our tax package will be broadly cost neutral, with a focus on fairness.

We are committed to protecting the most vulnerable, while improving New Zealand's long-term prospects.

The Prime Minister has said that any tax switch involving cutting personal taxes across the board and raising GST to 15 per cent would leave the vast bulk of New Zealanders better off. That will definitely be the case.

Any increase in GST would be accompanied by immediate compensation for low and middle income earners, beneficiaries, superannuitants and people receiving Working for Families.

Additional regular adjustments for other ongoing inflationary pressures would be provided as usual.

As I mentioned in Parliament yesterday - Statistics New Zealand has independently calculated that increasing GST to 15 per cent would increase the price of goods and services subject to GST by 2.22 per cent.

A product priced at $100 excluding GST currently sells for $112.50. If GST were increased to 15 per cent, that product would sell for $115 - an increase of 2.22 per cent - not the 2.5 per cent some commentators have assumed.

Secondly, Statistics New Zealand has also confirmed that an increase GST to 15 per cent would raise overall consumer inflation, as measured by the basket of goods in the CPI, by 2.02 per cent.

This is because several consumer items, such as housing rentals, mortgage payments and school donations - which together make up about a tenth of the consumers price index - are not subject to GST.

It's also important to remember that actual CPI inflation in nine of the past 10 years has been higher than the inflationary impact of the GST increase the Government is considering. 

In addition, under the tax package being considered, superannuitants and people on lower wages would also receive income tax cuts. As we've said, we are looking at income tax cuts across the board, not just for people on the top marginal rate.

So it will be important on Budget Day to look at the tax package as a whole, rather than individual components in isolation.

Our opportunity to stand out from the crowd

Finally, I would like to end today on a note of optimism.

The global recession has presented New Zealand with an opportunity - probably one that comes along only once in a generation.

We will stand out from other countries if we come out of this challenging period with low debt and low tax rates by world standards. 

We will stand out from the crowd if we deliver a rebalanced economy with growing exports and higher-paying, sustainable jobs.

And we will stand out in the eyes of New Zealanders if we provide the financial security and opportunities for hard-working Kiwis and their families to get ahead here in this country.

If we achieve those things, the John Key-led Government will have done New Zealand a great service.

Thank you.

The Government intends to commission a new prison at Wiri that will be designed, built and operated under a public-private partnership, Infrastructure Minister Bill English and Corrections Minister Judith Collins announced today.

The approximately 1000-bed male prison on land owned by the Department of Corrections at Wiri in South Auckland is subject to consents and the successful completion of an open tender process. It will be the first PPP undertaken by this Government.

Mr English said the Government was open to greater use of private sector expertise if it delivered enhanced services and better value for taxpayers.

"Appropriate use of public-private partnerships can introduce new design, financing, maintenance and operating techniques that provide better services and value to taxpayers," Mr English said.

"International experience suggests that building a new prison at Wiri using a public-private partnership will offer savings of between 10 and 20 percent over conventional methods over the 25 to 35-year life of the proposed contract.

"Those are substantial gains that will leave more money available for other vital infrastructure priorities like schools, hospitals and roads.

"Raising productivity in the public sector - including through better procurement and management of major assets - is an important part of our economic plan.

"This Government has provided a big infrastructure funding boost, but we are committed to spending that money wisely in all areas, including Corrections.

Ms Collins said an additional 2270 prison beds were needed by 2019 to cope with forecast growth in prisoner numbers and the need to replace ageing existing prisons.

"In order to have a world-class corrections system, we need exposure to world-class innovation and expertise," Ms Collins said.

"A custodial PPP is an opportunity to inject new ideas and new innovations into the corrections sector to enhance public safety, improve rehabilitation and lower costs.

"Currently it costs an average of $91,000 to keep a prisoner for a year. I think that we owe it to taxpayers to actively find ways of reducing those costs while improving standards and security across the board."

The proposed prison will operate within the current Corrections framework. All prisoners will remain the responsibility of the Chief Executive of the Department of Corrections.

The prison will have to comply with all relevant New Zealand legislation and international obligations.

Prisoners will still have the right to complain to the Office of the Ombudsmen. The Office of the Auditor-General can at any time, investigate the way Corrections is managing its prison management contract.

The Government is committed to a strong focus on rehabilitation and reintegration of Maori offenders.

"I would expect that the successful private provider will include Maori representation and/or Maori-specific services such as rehabilitative programmes," Ms Collins said.

A range of PPP models were explored by the Government. A custodial PPP, in which the private sector designs, builds, finances, maintains and operates the new prison, was found to deliver the best relative value for money.

Public consultation will begin shortly on resource consents. The tender process will begin before the end of the year and the prison is expected to be operational by the end of 2014.

PPP prison questions and answers

What decision is being announced today?

We are signalling the Government's clear preference for a public private partnership for design, construction and operational management of a new prison. The final decision will be made in about six months. 

Why pursue a PPP arrangement?

It provides the opportunity for cost savings and to enhance our overall service delivery in the prison system. It can do this by bringing together both private and public sector expertise to get the best outcomes possible for the public and for offenders in a way which would not otherwise be possible.

International experience suggests a custodial PPP has the potential to offer savings of between 10 and 20 percent over conventional procurement methods over the 25 to 35-year life of the proposed contract as well as delivering more innovative prison services.

How will savings be achieved - will this be through reducing the number of staff, or what they are paid?

There are potential savings on all aspects of the project; design, build and operation. It is important is that the contract with the new provider will clearly set out the outcomes required. The private provider will suffer financial penalties if the conditions of the contract are not met. This is a strong incentive for ensuring adequate staffing levels of kept.

What is New Zealand's past experience with private prisons?

Under the previous National Government Auckland Central Remand Prison (ACRP) was successfully managed by the private sector until the arrangement was stopped by Labour on ideological grounds. Having the private sector also design and construct the prison is a logical extension of that arrangement.

In 2004, filled to maximum capacity with 360 inmates, ACRP had one suicide and only three serious assaults - a low level of serious incidents for an institution of this type. Only 5.5 per cent of inmates returned positive drug tests, compared with over 20 per cent in the public sector.

Many of the innovations introduced by the private manager at ACRP were adopted by Corrections and continue to be used at prisons throughout the country.

How long will the contract be for?

Typically such contracts are for 25-35 years to make them financially viable for a private sector consortium. If the consortium does not deliver against the requirements of the contract, then it will incur financial penalties. This is a significant incentive to perform.

What will it cost?

The capital and annual operating cost will not be known until after the open tender process and negotiations with the successful consortium.

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 under the oversight of the State. These prisons will operate within the corrections system, not in parallel to it, and the accountability mechanisms set up within the Corrections (Contract Management of Prisons) Act 2009 clearly recognise and facilitate this.

Under the Act, prisoners remain in the legal custody of the Chief Executive of Corrections at all times. This will not change when the prisoner is held in a prison operated under contract by a private sector consortium.                                     

The Chief Executive remains ultimately accountable for the acts or omissions of the consortium. This will drive a rigorous performance management regime. 

Measures will be put in place to make sure standards are being maintained and are actively monitored:

• The consortium must comply with all our laws.
• There will be prison monitors in each prison to act as Corrections' Chief Executive's "eyes and ears" and ensure the consortium is complying with the law and the contract.
• Special monitors can investigate any specific issues or concerns, including the suspicion of corruption or criminal activity in a prison.
• Ombudsmen will continue to investigate complaints made by prisoners and would be notified of any serious incidents in a prison and actively monitor the investigation of these incidents.
• Prison inspectors will continue to ensure the safe, fair and humane treatment of offenders. They would continue to interview prisoners, and resolve complaints as they do now. They would continue to investigate every death in custody, and may investigate other serious incidents.
• The consortium will need to report regularly and in depth to the Chief Executive of Corrections so any issues and trends can be identified early and resolved. Serious incidents (ie escape attempts and prisoner deaths) must also be reported immediately to the Chief Executive. 

Will this be an American type prison?

No. This will be a New Zealand style prison. The prison will be designed, built and run in accordance with New Zealand's legal requirements.

How will the Government ensure the prison is fit for purpose in terms of how it is operated?

Here in New Zealand the legislation sets the standard: a private sector consortium will need to perform as well if not better than existing prisons. There will be measures in place to make sure standards are being maintained and are actively monitored. Work is underway to determine the exact outcomes expected from the consortium and these will be built into the contract.

How will the project be funded?

The final cost and timing of payments for the prison will depend on the commercial negotiations with prospective providers.

Is the Government considering other PPPs?

Yes, the Government has already signalled its intention to consider PPP arrangements for other areas of the State Sector, for example, in education.

How big is the prison?

Present thinking is that the new prison will provide approximately 1000 beds. 

When will the prison be complete?

It is anticipated the prison will be operational by the end of 2014.

What will be the role of Maori?

It is expected that the private provider will include Maori representation and/or Maori will be involved in providing Maori specific services.

How will the Government ensure there is a focus on rehabilitation?

The exact rehabilitative and reintegrative outcomes expected from the consortium will be built into the contract. The consortium will need to perform as well if not better than existing prisons. Active monitoring will ensure standards are being maintained.

When will work start on the prison?

It is anticipated construction work will start in the second half of 2012 following completion of an open tender process and that the prison will become operational by the end of 2014.

Will there be an open tender process?

Yes. An Expression of Interest (EOI) will be issued in the fourth quarter of this year, followed by a request for Proposal (RFP) before the middle of 2011.

Will the tender be open to New Zealand companies?

Yes. In particular there are likely to be opportunities for local companies and organisations to be involved in construction and some services such as rehabilitation programmes. It is likely, for example, the private provider will include Maori representation and/or Maori specific services.

Why are you building a new prison?

An additional 2270 prison beds will be needed by 2019 for forecast growth in prisoner numbers and the need to replace ageing prisons.

Will the public and staff have the chance to express their views?

Public consultation on private sector management of prisons took place when the legislation enabling contract management of prisons was passed in Parliament in 2009. Those with an interest had the opportunity to make submissions to the Law and Order Select Committee when it was considering the draft legislation.

Who is doing the work?

An interdepartmental steering group led by Corrections, and including representatives from Treasury, SSC, DPMC, a Maori adviser, a commercial adviser and an international PPP expert will oversee the work which is carried out by a specialist project team.

Where to from here?

Corrections is currently establishing its steering group and project team, which will prepare for the tender process and related documentation. Over the next week an RFP will be issued seeking commercial/financial advisers to support the project. It is expected that an EOI will be issued in the fourth quarter of this year, followed by an RFP before the middle of 2011.

New Zealand has agreed to lend the International Monetary Fund (IMF) up to US$1 billion (NZ$1.34b) if the world faces another economic crisis like the 2008/09 global meltdown, Finance Minister Bill English says.

"New Zealand's commitment is a part of the US$550 billion expansion of the IMF's financial resources to make the IMF better able to support the international financial system during times of significant crisis," Mr English says.

The commitment will only be called upon if needed and only if the IMF has exhausted all other options.

"This is a clear way of showing that New Zealand is doing its part as a member of the international community. We are doing this to support and protect the global economy that New Zealand depends on to survive.

"This is part of a backstop arrangement. We don't have to provide the funds now but this commitment does create a contingent liability for the Crown, which will appear on the Government's books later this year," Mr English says.

New Zealand is one of about 40 countries contributing to the IMF in this way. The contribution is in line with our economic size and similar to New Zealand's other contingent liabilities to the IMF, which total US$1.4 billion.

Included in those liabilities is US$265 million lent to the IMF as part of a range of measures to help it support countries facing balance of payments problems caused by the global economic crisis.

 

The New Zealand Government has expressed its deepest condolences to Poland and its people on the tragic events of today, Acting Prime Minister Bill English says.

"Our thoughts are with the entire Polish nation on the passing of President Lech Kaczynski and his wife Maria Kaczynska, along with so many senior and deeply respected Polish figures who have devoted their professional lives to their country."

Mr Kaczynski and his wife died today, along with many others, when their plane crashed while landing in western Russia.

"This tragedy will be felt deeply by the people of Poland," Mr English says.

"The New Zealand Government shares its sympathy with the Polish community in New Zealand and around the world as they grieve."

The New Zealand Government has sent a message of condolence to the Polish Government and the people of Poland.

The Government's focus on controlling spending and freeing up money for frontline services is reflected in the Crown's financial statements for the eight months to 28 February, Finance Minister Bill English says.

"Despite underlying tax revenue coming in almost $700 million below forecast, the operating deficit before gains and losses was lower than the forecast $5.1 billion deficit - due ongoing control over spending and some one-off factors.

"The Government has made it clear that the large increases in public spending of the previous five years are unsustainable because of the debt burden they impose on taxpayers.

"In the Budget last year, we freed up $2 billion of low quality spending over the next four years to boost frontline services. Budget 2010 will have a similar focus on weeding out low quality spending.

"We are taking a firm but balanced approach - maintaining existing entitlements to social benefits, New Zealand Superannuation and Working for Families, but keeping within the $1.1 billion annual allowance for extra spending we have set ourselves.

"This will continue for the foreseeable future, as we still face several years of large deficits. We are working hard to get back into surplus and get the Government's debt under control," Mr English says.

In the eight months to 28 February, underlying core Crown tax revenue (excluding structured finance settlements) was $681 million or 2.1 per cent below forecast. This was due mainly to lower than expected business profitability producing shortfalls in provisional and terminal tax.

Core Crown expenses came in $915 million or 2.2 per cent below forecast, reflecting lower spending across a number of departments, the timing of Treaty of Waitangi settlements and deferred funding to transport agencies.