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Budget Policy Statement 2010

Executive Summary

New Zealand is on the road to recovery. The worst of the global economic and financial crisis now looks to have passed. The new Government’s first year was devoted to weathering the recession, helping New Zealanders keep their jobs and assisting them to find new ones.

The Government's emphasis is now shifting towards getting the economy growing again and ensuring that this growth is higher and more sustainable than New Zealand has seen in recent years. Growth matters because it creates jobs, increases incomes and improves the living standards of New Zealand families.

The updated Treasury forecasts show that both growth and New Zealand's fiscal outlook are better than previously expected. This is for two reasons: the global economy has stabilised and government initiatives of the past year to fight the recession have borne fruit.

However, this does not mean that all the problems of the recession have passed. The risks that growth could weaken again remain. Unemployment is forecast to peak sooner and lower than predicted previously but will remain at elevated levels throughout 2010, even as the economy improves. The year ahead will still be difficult for many New Zealanders.

The fiscal position also remains challenging. Budget 2009 stopped the growth of low-value government spending and provided a credible programme to contain debt levels. Even so, the forecast operating deficit for 2010/11 is $6.7 billion and the Government's accounts are not expected to return to surplus until 2016. This is despite the projections assuming both long term restraint in spending and an upwards creep in average tax rates caused by increasing numbers of taxpayers entering the top tax brackets. There is little room for slippage.

We have implemented a significant programme to get through the recession in better shape than most other developed countries and we are now building on that programme to ensure New Zealand achieves a step-change in its economic performance.

This includes:

  • investment in productive infrastructure
  • removing red tape and improving regulation
  • supporting business innovation and trade
  • improving education and lifting skills
  • lifting productivity and improving services in the public sector, and
  • strengthening the tax system.

Many of these areas have been reviewed by a range of independent taskforces, which are now reporting back. Their recommendations will be carefully considered.

Budget 2010 will set out the next steps in the Government's growth strategy while continuing the emphasis on sound public finances heralded in Budget 2009.

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