Responsible financial management
Mr Speaker,
I want to talk first about responsible financial management, before I go on to talk about the other three, equally-important, priorities of this Government.
Over the past three years, the Government has faced very considerable fiscal challenges.
In 2008, net government debt was $10 billion. Today it stands at $50 billion, and is forecast to reach more than $70 billion before we return to surplus and start paying-down debt.
That build-up in government debt has been the appropriate response to the triple shocks of a domestic recession, the Global Financial Crisis, and the Canterbury earthquakes.
The alternative would have been to dramatically slash spending or dramatically increase taxes, both of which would have brought considerable pain to households and damaged the economy at a time when the recovery was still fragile.
The Government chose to run larger deficits and absorb much of the impact of these shocks on its own balance sheet to protect vulnerable New Zealanders and enable the economy to get back on track.
But, as we made clear at the time, this could not continue indefinitely.
So the Government maintained spending, but slowed its growth significantly.
As an illustration, over its last four Budgets, from 2004 to 2008, the previous Government's final-year spending on new discretionary operating and revenue initiatives totalled around $15 billion.
For this Government, the corresponding figure over four Budgets is about $750 million.
This Government's discipline means New Zealand is on track to return to fiscal surplus in 2014/15, and then to start reducing debt.
The forecast fiscal surplus in 2014/15 is $197 million. This surplus is forecast to grow to $2.1 billion in 2015/16 and $4.4 billion in 2016/17.
Mr Speaker,
These surpluses will allow the Government to rebuild New Zealand's resilience to further shocks, help lift national savings, keep interest rates lower for longer, take pressure off the exchange rate, and reduce future finance costs.
A significant surplus will also give us choices when it comes to public services which we don't have while we're running deficits.
This Budget takes a number of balanced decisions to ensure the Government reaches surplus in 2014/15.
These decisions include running a zero Budget again this year, where $4.4 billion of new operating spending over the four-year forecast period is matched by a combination of savings and revenue initiatives.
The Government is making significant new investment in priority areas, while at the same time keeping a tight rein on growth in spending and public debt.
In terms of savings initiatives, we are continuing to reprioritise existing spending to ensure New Zealanders receive better public services, especially in health, education, welfare, law and order, and science and innovation.
This will allow core Crown expenses to fall progressively from 33.5 per cent of GDP in 2011/12, to 30.2 per cent of GDP in 2015/16.
We are also focusing on improving the effectiveness of spending across the board. Effective public services that get results are good for individuals and their families, and will also generate sustainable long-term savings.
In terms of revenue initiatives, the Budget continues the Government's focus on broadening the tax base, closing tax loopholes, and improving the fairness of the tax system.
This builds on the measures introduced in Budgets 2010 and 2011.
The Inland Revenue Department will receive an extra $78.4 million to further improve its tax auditing and compliance functions. These extra compliance activities are estimated to have a net positive impact on the operating balance of $345.4 million over the four years to 2015/16.
We are also broadening the tax base by:
Tightening the rules for deducting costs of assets that are used both by their owners and rented out for income, such as holiday homes, boats, and aircraft.
Putting changes to livestock valuation rules into Budget legislation to prevent farmers who change valuation schemes receiving an unintended tax break.
Removing three tax credits that no longer fit the purpose for which they were created.
Together, these changes will save about $410 million over the next four years, and I thank the Honourable Peter Dunne for his work in this area.
Mr Speaker,
When the Budget is in sufficient surplus, the Government is committed to resuming contributions to the New Zealand Superannuation Fund. On current forecasts, this is expected to happen in 2017/18.
Furthermore, decisions will also need to be made on the rate of debt repayment, to meet the Government's longer-term objective of reducing debt to 20 per cent of GDP by 2020.
Resuming New Zealand Superannuation Fund contributions and repaying debt will require an on-going commitment to responsibly manage surpluses.
Budget 2012 proposes changes to the fiscal responsibility provisions of the Public Finance Act to reinforce fiscal disciplines.
We are proposing additional principles for Part 2 of the Public Finance Act, which ministers will have to take into account when setting fiscal policy. These changes will bring more transparency to government spending decisions and how they affect the wider economy and future generations.
The Government is also consulting other political parties about the possible introduction of a spending limit, as set out in the National-ACT confidence and supply agreement.
I acknowledge the initiative on this issue of the Honourable John Banks.
Mr Speaker,
The new operating allowances for future Budgets remain as they were, at $800 million for Budget 2013, $1.19 billion for Budget 2014, and thereafter rising at 2 per cent each Budget.
This allows the Government to maintain some flexibility to deal with future spending and revenue pressures, while still achieving a surplus in 2014/15.
