Overview
Budget 2011 is the next step in the Government's programme to build a competitive and balanced economy that delivers higher growth, more jobs and higher incomes. It continues the responsible approach we took in the last two Budgets to tilt the economy towards exports, savings and investment and away from borrowing and consumption.
New Zealand's growth rate is accelerating, assisted by stronger external growth, high terms of trade and the substantial spend on Christchurch reconstruction. Businesses and households have been and will continue to save more, which has dampened consumption but provides a sound basis for future growth. Gross Domestic Product (GDP) growth is forecast to reach 4% next year and the economy is forecast to create 170,000 new jobs over the next four years.
This makes it appropriate to wind back the strong fiscal stimulus of recent years. This was the appropriate policy in the aftermath of the global financial crisis. But as growth strengthens, the focus will shift towards lifting national savings and restoring sound public finances.
Budget 2011 identifies operating savings of $5.2 billion over five years and directs $4 billion of these savings to new initiatives, mostly front-line services in health and education. The savings come from a wide range of sources. These include efficiency savings from departmental spending. They also include changes to KiwiSaver, Working for Families (WFF) and student loans, all of which have experienced rapid cost escalation. These programmes emerge financially sustainable and better targeted towards those they are intended to help.
The Treasury forecasts a return to fiscal surplus in 2014/15, one year earlier than previously forecast, with growing surpluses thereafter. Core Crown net debt peaks at less than 30% of GDP and declines steadily beyond 2015. This is achieved despite absorbing the cost of the Canterbury earthquakes.
Budget 2011 continues to make better use of Crown capital. It contains significant infrastructure investment, including in ultra-fast broadband and KiwiRail. In total, the Government expects to accumulate an additional $34.3 billion of assets by 2015. These investments will in part be funded by proceeds from extending the Mixed Ownership Model. The Government will look to raise $5 billion to $7 billion by extending mixed ownership to four State-owned energy companies and reducing its majority shareholding in Air New Zealand, effectively redeploying this capital to higher-priority areas.
