Media release from finance minister Bill English

Budget 2011 will ensure the Government plays its part in improving New Zealand's national savings by controlling spending increases and setting a credible path back to budget surplus, Finance Minister Bill English says.

"The Budget next year will clearly outline the next steps in the Government's programme to lift economic growth, with a particular focus on improving national savings and reducing our reliance on foreign debt," he said in releasing the Budget Policy Statement and Half Year Economic and Fiscal Update.

"It's important the Government plays its part in improving New Zealand's national savings. We will do that by setting a credible path back to fiscal surplus as soon as practical - and no later than 2015/16.

"In each of the past two Budgets, we have identified about $2 billion of spending and redirected it to higher priority frontline services such as health, education and keeping communities safe. We expect to reprioritise a similar amount of spending in Budget 2011."

The Government remained committed to rebuilding a fiscal buffer against future shocks by keeping net debt below 40 per cent of gross domestic product and returning it to below 20 per cent by the early 2020s.

"We will more prudently manage the Crown's $223 billion of assets - the publication today of the first Investment Statement represents just one step in that direction," Mr English says.

Budget 2011 would continue to keep new spending initiatives within a $1.12 billion annual operating allowance and a $1.39 billion capital allowance.

Several important reviews would feed into the Government's economic programme in 2011. They included reports from the Welfare Working Group and the review of spending on policy advice, along with the Government's responses to the Housing Shareholders Advisory Group report.

"But unquestionably New Zealand's most significant economic challenge is increasing national savings and reducing our heavy reliance on borrowing from overseas lenders," Mr English says.

"This unsustainable imbalance is New Zealand's biggest vulnerability and it means we pay higher interest rates and our exporters' returns are squeezed by a higher dollar.

"The Government can certainly play a role in creating an environment that encourages more saving and less borrowing. We have made a start in this area with the tax package in Budget 2010.

"The Savings Working Group is due to report back next month and the Government will consider its recommendations carefully. I would expect any policy responses in this area to be included in Budget 2011.

"With New Zealanders paying down debt and spending a bit less, economic growth is currently slower than we have seen after previous recessions. But we are building a more solid foundation for sustainable growth in the future.

"This is reflected in the Treasury's latest forecasts today. Annual average real GDP is forecast to pick up over the coming year - increasing from 2.2 per cent in the year to March 2011 to 3.4 per cent the following year.

"This more subdued short-term economic growth, combined with some one-off factors such as the $1.5 billion cost of the Canterbury earthquake, is forecast to increase the operating deficit before gains and losses to $11.1 billion, or 5.5 per cent of GDP, in 2010/11," Mr English says.

Summary of Treasury economic and fiscal forecasts

2010
Actual
2011
2012
2013
2014
2015

Economic (March years, %)


Economic growth
-0.4
2.2
3.4
2.9
2.7
2.7

Consumer price inflation
2.0
4.5
2.9
2.6
2.2
2.0

Unemployment rate
6.0
6.1
5.2
4.9
4.6
4.5

Fiscal (June years, % of GDP)

OBEGAL
-3.3
-5.5
-2.8
-1.9
-0.6
0.0

Net debt
14.1
20.8
24.2
26.5
27.8
28.5

Net worth
50.2
42.4
38.3
35.3
34.0
33.6


Budget Policy Statement

Half-Year Fiscal and Economic Update