Full document: b08execsumm.pdf

Budget 2008 Minister's Statement

Minister’s Statement

A strong future is the main focus of this Government

The Government’s economic goal is to deliver sustainable and balanced economic development that results in more jobs, lower unemployment, higher real incomes and a more equal distribution of wealth. In our eight previous Budgets, we have looked through economic cycles and made decisions to enhance both the long-term prosperity of New Zealanders and to promote stability in our economy.

Budget 2008 is delivered at a challenging time for the world economy

In 2008, New Zealand’s economy has begun to feel the effects of a challenging global environment. Global increases in commodity prices have seen the cost of food and petrol increase significantly here at home. Internationally, there are fears that these increases could impoverish tens of millions of people in developing countries.

The continued fallout from the subprime mortgage crisis in the United States and the resulting global credit crunch have led to higher mortgage rates and a weakening of the housing market domestically, squeezing the budgets of existing homeowners and reducing household spending and investment growth. The weakness of the United States Dollar has been an important driver of a very strong New Zealand Dollar, making life difficult for some exporters. Adding to this, farmers are battling drought in a number of regions and GDP growth will slow as a result.

While these challenges are not of New Zealand’s making, they are affecting New Zealanders today. And while the New Zealand Government cannot single-handedly bring down food and petrol prices or end the credit crunch, we have a responsibility to manage our way through these difficulties while protecting families from the harsh edges of any downturn.

The New Zealand economy and fiscal position are strong and well placed to deal with these challenges

These challenges are significant, but the New Zealand economy faces them from a position of remarkable – if not unprecedented – strength.

We have enjoyed the longest period of economic expansion since the end of World War II.

Since 1999 our growth has been stronger than that of our key trading partners, including Australia, the United States, the United Kingdom and the Euro area. Unemployment has remained below 4% for nearly four years. Gross debt has been reduced to less than
20% of GDP, which is this Government’s long-term target.

Household incomes are up 25 per cent in real terms since 2000 as a result of strong employment growth and high wage growth.

Fairness and strength underpin Budget 2008

The combined effect of this strength on the one hand, and significant challenge on the other, means that there are conflicting and divergent pressures on the economy, and the workers and businesses that drive its success.

Families will know that they are wealthier in real terms than they were eight years ago, but they will be rightly concerned that it has become harder lately to make ends meet. Businesses will know that they are in a much more secure position than they were at the turn of the century, but they have reason to feel uneasy with unfolding global market developments.

Budget 2008 then is delivered at a time of some challenge and of considerable uncertainty. But it is also delivered from a position of strength, by a Government that has managed the public purse responsibly and that did not squander resources in times of greater optimism. It is delivered by a Government that can deliver relief for workers coping with rising living costs without driving the public accounts deep into debt or slashing public services. It is delivered by a Government that does not intend to mislead New Zealanders by suggesting that one-off changes to tax on essential items can relieve long-term living cost pressures.

And it is delivered by a Government whose focus continues to be on delivering fairness for all New Zealanders and planning for the strong, sustainable future we all deserve.

Personal tax cuts are a centrepiece of Budget 2008

From 2004, increased fiscal headroom meant the Government was able to deliver growth dividends to New Zealanders (Working for Families, interest free student loans, KiwiSaver, etc). But we continued our cautious fiscal stance both as a buffer against possible future economic shocks and because, with the domestic economy running close to capacity, too great a spending stimulus could also have placed undue pressure on monetary conditions.

The Government is already delivering tax cuts that by 2012 will amount to over $4.6 billion a year (excluding Working for Families indexation) – to businesses, savers, and particularly, to families with children. The Government has been clear that tax relief in these areas and a major reinvestment in public services and infrastructure were its priorities in office.

But after eight Budgets of substantial investments and substantial tax relief, the Government’s responsible fiscal management means that personal tax cuts can be the next step in the Government’s programme.

These tax cuts will be a dividend for the workers who have driven New Zealand’s longest post-war economic expansion and will hopefully offer some relief to households as they cope with stretched budgets. They represent a fair deal for New Zealanders.

The tax cuts will see a new low rate of 12.5% for workers on modest incomes and a lifting of tax thresholds for workers on middle and higher incomes. All workers will benefit from these tax cuts. They are not only the Government’s next steps in delivering tax relief, but are also our next steps in making our economy fairer as we work to make it stronger.

The tax cut programme is also central to this Government’s responsible economic management. We recognise that relief is important, but we know that putting further pressure on interest rates in the form of irresponsibly large tax cuts will only lead to even tighter household budgets. The tax package in this Budget has been designed not to exacerbate inflationary pressures, is consistent with the Government’s long-term debt target and will not be funded by cutting back on public services and support.

Tax cuts are delivered alongside other important initiatives

In addition to a significant tax package, we have also continued to invest in initiatives within the Government’s three broad themes – Economic Transformation, Families – Young and Old and National Identity. This is a Government that has a plan for the future of our economy and society, and we are serious about the challenges we face.

We are focused on making investments that will create a continually stronger economy and deliver greater prosperity for New Zealanders into the future.

In previous Budgets, we have focused on the drivers of productivity such as investment, innovation and skills through initiatives such as KiwiSaver, Business Tax Reform, R&D tax credits and tertiary reforms.

In Budget 2008, these steps are significantly advanced with major new investments in innovation, skills, infrastructure and international connections. This includes the largest ever public investment in a competitive, faster broadband network, a major investment in improving the literacy and numeracy skills of New Zealand’s workforce, and the
$700 million New Zealand Fast Forward Fund to make our pastoral and food industries the most innovative and sustainable in the world.

Our historic reinvestments in services and support for New Zealanders continue this year as well: $446 million will be invested for social service NGOs through the new sustainable funding path; an extra $750 million per annum for the health sector; bolstering the justice sector with extra police and capacity in courts and prisons; and major investments in education for extra, better-paid teachers and more resources for schools.

In National Identity we will roll out major investments for our Defence Force and celebrate arts and culture and protect our unique investments in Radio New Zealand, Te Papa and the Historic Places Trust.

Full document: b08execsumm.pdf

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