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Budget 2011 Home Page Budget Policy Statement 2011

Executive Summary

This Government focused its first two Budgets on helping lift the economy out of recession, building a solid base for future growth and getting the medium-term fiscal position under control. Budget 2011 will continue our focus on ensuring balanced and sustainable economic growth, while delivering on our commitment to responsible fiscal management.

Budget 2011 will be delivered against a backdrop of a New Zealand economy that is well down the path of recovery - having recorded five successive quarters of growth. Unemployment peaked in late 2009 and is now falling. Core inflation and short-term interest rates remain low. Our key trading partners are also growing, although that growth is uneven.

New Zealand's economic growth is expected to pick up through 2011 - reflecting higher labour income growth and the terms of trade remaining high. Despite this, there is evidence of households and businesses remaining cautious in their spending and investment decisions as they look to pay off debt and strengthen their financial position.

We want to see an economy where the rate of growth is significantly higher, where that growth is sustainable and where the gains are widely distributed. This Government is doing its part in managing the vulnerabilities the economy faces by allowing room for stronger private sector-led growth and by focusing on our plan for growth and jobs. Budget 2011 will continue to focus on six key policy areas: the tax system; public sector performance; education and skills; science innovation and trade; the regulatory environment; and productive infrastructure. Further tilting the economy towards saving and investment, as we did with the Budget 2010 tax package, will be important for higher growth and creating jobs.

The Government remains committed to rebuilding our fiscal buffer against future shocks. Our objective is to ensure that net debt remains under 40% of Gross Domestic Product (GDP), and is brought back to a level no higher than 20% of GDP by the early 2020s. We will achieve this by prudently managing the Crown's balance sheet, with the first Investment Statement being a step in that direction, and by returning the operating balance, before gains and losses, to surplus as soon as practical, and no later than 2015/16.

Budget 2011 will support this plan by delivering on our commitment to restrain new discretionary initiatives within an operating allowance of $1.12 billion per annum and a capital allowance of $1.39 billion. To support that restraint and help manage underlying pressures, Budget 2011 will see further reprioritisation of spending towards higher value priorities.

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