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Budget 2010 Home Page Budget Speech - Budget 2010

Budget Speech

Mr Speaker,

I move that the Appropriation (2010/11 Estimates) Bill be now read a second time.

On election day 2008, New Zealanders voted for a more prosperous, ambitious New Zealand, where Kiwis have opportunities to get ahead.

The National-led Government came into office with the New Zealand economy well into recession and with the world's financial system experiencing its worst crisis since the Great Depression.

By necessity, last year's Budget was focused on getting New Zealand through the global crisis. Budget 2009 maintained the nation's credit rating, preserved income support entitlements and fulfilled commitments from the 2008 election.

To help sustain economic activity and support jobs, the Government absorbed much of the shock of the recession on its own balance sheet, thereby significantly increasing its borrowing.

The worst of the global crisis has for now passed and the economy has begun to grow again. In fact, New Zealand has weathered the economic storm better than many other developed economies.

Government policy struck the right balance between blunting the sharp edges of recession and maintaining control of public finances.

But we have work to do. That's why Budget 2010 is about building the recovery, creating jobs and helping Kiwi families get ahead.

Creating and passing through this House a budget each year is at the heart of stable government. I want to especially thank the Government's support parties, ACT, the Māori Party and United Future, for their contributions.

I am pleased to tell the House that this Budget will fund improved services to the public, will produce a lower track for future debt, and will deliver a tax package that will be good for the economy and good for families.

Mr Speaker,

I now turn to four main objectives of this Budget.

The first is lifting the long-term performance of the economy.

The second is reform of the tax system, to make it fairer, more sustainable and more supporting of economic growth.

The third is better delivery of public services, to make them better for users of those services and better for taxpayers.

The fourth is to maintain firm control of the Government's finances, so we can return to budget surpluses and pull back our rising debt.

Mr Speaker,

Growth matters. It is the only way that we can lift incomes, create permanent jobs and build the kind of country we aspire to be.

Lifting the long term performance of the economy will require considered and consistent change over the next decade because the challenges are significant.

It is convenient to blame sluggish growth on the global recession, but that is not the sole cause.

Our economy entered recession well before the financial crisis began in late 2008.

Growth in the three years prior was below one per cent per annum. This was less than half our trading partner average, and less than one-third of Australia's growth rate.

From mid-decade on, growth had been fuelled by a mix of rising household debt and ballooning Government expenditure, which grew 50 per cent in the five years to 2009.

By contrast, output from exporters and import competing industries had been in decline since 2005.

These include sectors such as agriculture, horticulture, mining and resources, forestry, fishing, food manufacturing and tourism, all areas where New Zealand should be benefiting from its natural advantages.

Too many New Zealanders have discovered that growth driven by debt, Government spending and property speculation does not create permanent, worthwhile jobs.

The consequences of this decline in our earning capacity are now clear: too few jobs created, a balance of payments deficit over 8 per cent of GDP until its recent decline, and negative productivity growth between 2000 and 2009.

The economy has spent more than it earned and borrowed to make up the difference.

New Zealand's largest single vulnerability is now its large and growing net external liabilities. New Zealand owes the world $168 billion, or around 90 per cent of GDP.

Private sector debt to foreign lenders has grown steadily over the last decade and our vulnerability will be increased by growth in government debt to foreign lenders over the next five years.

The dangers of too much debt are well illustrated by a number of European nations who are currently undergoing painful changes, involving increasing taxes, cutting public services, or both.

The Government is committed to policies that will reduce our vulnerabilities by tilting our economy away from debt and consumption toward savings, investment and exports.

Mr Speaker,

These policies underpin the updated Treasury forecasts showing steady growth of around 3 per cent over each of the next four years.

The forecasts also show that this growth will raise real incomes of the average household by about $7,000 over the next four years, and create 170,000 jobs.

Unemployment has already fallen to 6 per cent. We share with both ACT and the Māori Party a common desire to help New Zealanders move off welfare and get ahead under their own steam.

Global developments highlight the opportunity for New Zealand to stand out. We will emerge from recession with sound finances, quality public services and low and stable tax rates.

We will naturally appeal as a place people want to live and do business.

Mr Speaker,

The Government's growth strategy has identified six key drivers of stronger economic performance - a better regulatory environment for business; skills and education; quality infrastructure; science, innovation and trade; improved public sector performance; and tax reform.

These jointly form a programme to address economic imbalances and lift growth.

The Government is making progress in all six areas.

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