Budget Speech (Continued)
Another important leg of our growth plan is to improve access for New Zealand exporters to world markets.
China has recently and rapidly become our second largest trading partner.
Given the increasing importance to New Zealand of trade with Asia and the Pacific Rim, we have also recently signed Free Trade Agreements with Hong Kong and Malaysia, and are negotiating with Korea and India.
Our Agreement with the 10 countries of ASEAN recently came into force.
We are working with the Trans-Pacific Partnership regional grouping, including the United States, to open further markets and opportunities for New Zealand exporters.
To ensure that these and related initiatives continue to benefit the economy, we have established the Productivity Commission. This will be a standing body with high level expertise, operating independently with a wide brief to undertake inquiries into productivity-related matters. It will be in place by April 2011.
The Government also intends to release a discussion document on ways to ensure that all new and existing regulation is subject to proper scrutiny. This will help avoid proliferation of red tape.
For both of these initiatives the Government is grateful for the leadership shown by the Hon Rodney Hide and the ACT Party.
I now turn to how the Government can ensure better delivery of services to the public.
A more efficient public sector will deliver better quality services, while reducing fiscal and tax pressures on the rest of the economy.
The Government determined that rather than spread new spending resources thinly, it would focus on those few high priority areas that really mattered.
Three quarters of the new spending allowance has been allocated to improving health and education services, and to lifting science and innovation. Most of the other votes received either small or no increases. Many will see no additional funding for several years.
The Government is working with public sector chief executives to deliver higher quality services more efficiently, as every other organisation in the community has had to do over the past two years, and I thank them for their efforts. We will continue to scrutinise every dollar of public spending.
As we committed a year ago, Budget 2010 lives within a new operating spending allowance of $1.1 billion per year. In addition, a further $1.8 billion has been made available between now and 2014 by redirecting resources into higher priority areas, including within health and education spending.
Core Crown expenditure also increases due to rising benefit and superannuation costs, increased finance costs and expenditure on the emissions trading scheme.
In total, core Crown expenditure is forecast to increase by $5.9 billion, to over $70 billion, in 2010/11.
The largest share of new spending has been dedicated to improving core Government services.
In total, Health has been allocated an additional $2.1 billion over the next four years, including an extra $512 million in 2010/11 to cater for ongoing demographic and price pressures.
This includes $93 million for disability support and $60 million to boost elective surgery over the next four years.
The Government's commitment to education remains strong. This Government wants all young New Zealanders to reach their potential and be given the opportunity to succeed.
The Budget provides an extra $1.6 billion for education over four years.
This will fund a 4 per cent increase in operating expenditure for schools. It also includes $349 million for school property, $92 million to raise participation in Early Childhood Education for families in areas currently under-represented, and $48 million to extend the Youth Guarantee.
Social services are also a priority. Building on the success of the Government's Community Response Fund, the Budget provides $91 million over the next four years for Non-Government Organisations to deliver extra services.
Justice receives $147 million in new operating expenditure, as well as significant capital expenditure. This will fund a lift in prison capacity, legal aid restructuring and increase Family and Youth Court professional services.
Our commitment to Whānau Ora is matched by funding of $134 million over four years. The first wave of 20 Whānau Ora providers will be selected through an Expressions of Interest process that begins next month.
The Budget provides almost $20 million for two new Whare Oranga Ake reintegration units.
I particularly thank the Hon Dr Pita Sharples and the Hon Tariana Turia as the Ministers responsible, together with the rest of the Māori Party.
The Government retains an on-going commitment to growing the supply of affordable housing for New Zealanders and their families. $20 million has been provided to extend Housing New Zealand's Housing Innovation Fund for another year.
The Government is determined to improve management of government owned assets. Too often Government assets have been poorly managed and liabilities poorly monitored.
As at 30 June 2009, the Crown balance sheet showed $217 billion of assets and $118 billion of liabilities.
The Crown has wide range of holdings, and is by far the largest asset owner in the country.
It holds around $100 billion of what could be termed social assets, including roads, national parks, state housing, schools and hospitals.
It holds around $70 billion of financial assets, comprising a wide range of local and overseas investments, all of which produce commercial returns.
And it holds over $50 billion worth of commercial assets, comprising mainly SOEs and KiwiRail.
These assets have been funded by New Zealanders paying taxes and fees over decades.
The Budget forecasts show that over the next four years the value of Government owned assets is expected to increase by some $32 billion. This represents growth in taxpayer wealth.
This level of investment demands a high standard of stewardship by Government.
Since taking office the Government has been working hard to understand the capital demands of its operations, and to allocate capital to where it can best be used.
We have produced the first National Infrastructure Plan, tightened commercial disciplines on SOEs and started to introduce better disciplines on procurement processes.
New capital spending decisions in this Budget reflect this increased emphasis on managing the public's resources to promote growth.
We continue to invest in our $7.5 billion infrastructure programme over the next four years.
The Budget funds major investment in the rail network.
The Government has committed in principle to investing $750 million over the next three years, as its contribution to KiwiRail's $4.6 billion turnaround plan.
This is in addition to $500 million over four years to purchase electric commuter trains.
Another major investment is the Government's ongoing investment in ultra-fast broadband infrastructure through Crown Fibre Holdings.
Budget 2010 allocates a further $200 million of capital funding, in addition to the $248 million allocated last year, as part of a total expected investment of $1.5 billion.
This funding will enable Crown Fibre Holdings to start making substantial contract commitments with the private sector to start rolling out the new fibre network.
A further $48 million has been allocated for ultra-fast broadband in schools.
Funding has been set aside for a new prison, potentially delivered via a Public Private Partnership.
I now turn to the Government's fourth objective, that of maintaining firm control of the government's finances, so we can return the budget to surplus and reduce our rising debt.
The fiscal outlook has improved from last year, due to the economy returning to growth and the positive impact of Budget 2009 decisions.
The projected operating deficit for the next financial year is $8.6 billion or 4.2 per cent of GDP.
It is projected to improve steadily in each subsequent year, and to reach surplus in 2015/16, three years ahead of last year's projection.
As a result of this improved outlook the debt projections have also become more favourable.
Net core Crown debt is now projected to peak at 27 per cent of GDP in 2014/15 and then decline steadily. This is both a lower and earlier peak than was projected in last year's Budget. It contrasts strongly with the outlook of ever rising debt which the Government was presented with in late 2008.
By 2024, net core Crown debt is projected to be back to 14 per cent of GDP, or about the level before the crisis struck.
However, it will require at least a further decade of disciplined fiscal management to deal with the effects of the global financial crisis and the huge lift in Government spending during the boom years leading up to that crisis.
Financing new and maturing debt will require the Government to borrow around $240 million every week over the next three years. Debt is projected to reach $68 billion by 2014/15.
This substantial rise in debt will mean that interest costs more than double.
Our long term fiscal objective remains to ensure that net debt is brought back to no more than 20 per cent of GDP by the mid 2020s. The current projections show this being achieved by 2022.
If possible it would be preferable to return to this low level of debt earlier.
The improvement in the debt outlook gives the Government some flexibility to absorb part of any future shocks, as it did in the last recession.
Our intention is that any favourable surprises will be used for deficit reduction and debt consolidation.
When the books are balanced and debt has stopped rising the Government will have more choices about where to invest, spend or reduce taxes.