Budget 2012 – Investing In Our Future

24 May 2012

Budget 2012 – Investing In Our Future

Builds a platform for growth, while returning to surplus in 2014/15

• Returns the Budget to surplus in 2014/15, lifting national savings and reducing the need for Government borrowing.

• Forecasts economic growth to average about 3 per cent a year over the next four years, with 154,000 net new jobs being created – adding to the 60,000 net new jobs in the past two years.

• Increases spending on science and innovation to help build a more productive and competitive economy.

• Sets up the Future Investment Fund to spend the proceeds of the Government’s partial share sales on infrastructure, such as modern schools, transport projects, and hospital redevelopments.

• Invests $4.42 billion in new spending initiatives focused on improving frontline public services and getting better results in areas like health, education, law and order, and welfare reform. This spending is paid for by $4.39 billion of savings and new revenue initiatives.

• Continues to invest in the Government’s share of rebuilding Christchurch.

Budget initiatives at a glance

(All figures for four years to 2015/16 unless otherwise stated)

Responsibly managing the Government’s finances

The Budget returns the Government’s books to surplus in 2014/15 despite a $1.2 billion deterioration in the forecasts since the Budget Policy Statement in February. It achieves this by close to zero net new spending.

• Total net new Government spending of just $26.5 million over the next four years, compared with a planned new operating allowance of $800 million a year.

• Spends $4.42 billion on improving frontline services by redirecting savings and new revenue to areas where it gets the best results.

• Finds $3 billion of savings in lower-priority spending and raises almost $1.4 billion in new revenue by increasing tobacco excise tax, greater targeting of tax avoidance, closing tax loopholes, and ending outdated tax credits.

• The forecast OBEGAL deficit falls to $7.9 billion in 2012/13, $2 billion in 2013/14, before a $197 million surplus in 2014/15.

• Reduces the forecast peak in government debt to 28.7 per cent of GDP in 2013/14.

• Confirms new operating spending allowances of $800 million for Budget 2013 and $1.2 billion for Budget 2014.

Building a more competitive economy

Budget 2012 invests heavily in infrastructure, innovation, and skills to help create a more productive and competitive economy that supports more jobs and higher incomes.

• Increases science and innovation funding across government to more than $1.3 billion a year by 2015/16.

• $166 million extra (operating and capital) to develop the new Advanced Technology Institute.

• $60 million extra for National Science Challenges.

• $100 million extra to increase the Performance-Based Research Fund.

• New disclosure rules for KiwiSaver so investors can better compare the performance and fees of KiwiSaver funds.

• A review of KiwiSaver default providers to ensure they are operating in the best interests of investors.

Future Investment Fund

Budget 2012 establishes the Future Investment Fund to invest the $5 billion to $7 billion of proceeds of the Government’s partial share sales of four SOEs and Air New Zealand into modern infrastructure. This includes $558.8 million in Budget 2012.

• $33.8 million to fit out schools for ultra-fast broadband – the first of

$1 billion planned spending on 21st Century Schools.

• $88.1 million for the health sector, most of which will go towards hospital redevelopments.

• $250 million for the third year of KiwiRail’s Turnaround Plan.

Better public services

Budget 2012 focuses spending on areas where it will get better results for New Zealanders. It also sets measurable targets for two more of the 10 areas in which the Government has committed to public targets. The three measurable targets set so far are:

• 85 per cent of 18-year-olds having NCEA Level 2 or equivalent by 2017– up from 68 per cent.

• Reducing prisoner reoffending by 25 per cent by 2017. Reaching this target would mean 18,500 fewer victims of crime every year.

• Increasing the rate of participation in early childhood education to 98 per cent, from 94.7 per cent currently, by 2016.

Health

• Almost $1.5 billion of extra funding for health, pushing total health spending to $14.1 billion in 2012/13.

• $32.4 million for better, faster cancer treatment, including dedicated cancer nurses to support patients through the course of their treatment.

• $16 million to speed up diagnostic tests for patients.

• $48 million for more and faster elective surgery.

• $20.5 million to strengthen maternity services and boost PlunketLine and WellChild services.

• $132.7 million to improve services and access for people with disabilities.

• Increasing tobacco excise tax by 10 per cent a year on 1 January in each of the next four years as part of a wider Government programme to prevent smoking.

• $1.68 million for more public health screening.

Education

• $511.9 million of operating funding for new initiatives in education, pushing total funding for early childhood education and schooling to $9.6 billion in 2012/13.

• $59.8 million to invest in teacher quality to support the professional development of teachers and principals.

• $256.8 million to fund forecast changes in schooling expenditure, which is almost entirely an investment to retain a more skilled and qualified teaching workforce.

• $82.6 million to increase the operations grant, giving schools the flexibility to provide resources based on the needs of their learners.

• $33.8 million capital funding in 2012/13 and $16.8 million operating funding over the next four years for the expansion of the School Network Upgrade Project, to upgrade schools’ internal ICT infrastructure.

• $59.4 million over the next four years, and $391,000 in 2011/12 in operating funding, along with $1.5 million capital funding in 2012/13, for further schooling proposals.

• Targeting cost adjustments for ECE through $47.9 million in new operating funding.

• $19.1 million to improve access to Māori immersion ECE services.

• $33 million in operating funding to accelerate achievement for priority learners.

Tertiary education

• $59 million extra to boost funding for science and engineering tertiary courses.

• $37.7 million more for an additional 3,000 Youth Guarantee places to further improve the transition for young New Zealanders from school into work or training.

• $29.5 million operating spending for Private Training Establishments (PTEs), to create a fairer funding system that rewards competitive innovation across the tertiary sector.

Welfare

• $287.5 million up-front investment in the first phase of the Government’s welfare reforms to support more long-term beneficiaries into work. This includes:

o $80 million for early childhood education childcare and the Guaranteed Childcare Assistance Payment.

o $55.1 million for 155 dedicated Work and Income staff to support job seekers and sole parents into work.

o $1 million for financial assistance to access long-acting reversible contraception.

o $148.8 million for youth services including wrap-around support.

Law and Order

• $65 million in operating spending for new and expanded rehabilitation and reintegration programmes to help meet the Government’s target of reducing reoffending by 25 per cent by 2017.

• A new Justice Sector Fund that will give the justice sector flexibility to invest in areas that deliver better results for New Zealanders. Corrections has reprioritised $87 million towards the Fund.

Housing

• $104 million more for the Social Housing Fund, which supports community housing groups to provide affordable housing where it is most needed.

• $11 million towards insulation for 41,000 more homes as part of the Government’s Warm Up New Zealand: Heat Smart programme. The boost will bring the total homes covered by the scheme to 230,000.

Rebuilding Christchurch

• Of the Government’s $5.5 billion Canterbury Earthquake Recovery Fund (CERF), almost $1.6 billion was spent in 2010/11, and most of the remaining funding is expected to be spent by 2014/15.

• $114.9 million extra funding for the Canterbury Earthquake Recovery Authority (CERA) to oversee the reconstruction of Christchurch.

• $13 million in Social Development funding for NGO-led initiatives to support Cantabrians and assist with the recovery.

• $800,000 for Land Information New Zealand to continue re-surveying the Canterbury region.

• Residential investment is forecast to increase by 29 per cent in the March 2013 year and 41 per cent in the following year.

SUMMARY OF BUDGET ECONOMIC AND FISCAL FORECASTS

June Years201120122013201420152016 ActualForecastForecastForecastForecastForecast$ billionCore Crown revenue57.660.064.269.273.677.9Core Crown expenses70.569.673.772.974.977.3Total Crown OBEGAL-18.4-8.4-7.9-2.00.22.1Total Crown OBEGAL excl quake expense-9.3-7.1-5.9-1.70.42.2Net core Crown debt40.151.961.366.569.870.7March Years201120122013201420152016 ActualForecastForecastForecastForecastForecast % Real production GDP1.21.62.63.43.12.9Unemployment Rate (March quarter s.a.) 6.66.35.75.25.04.7Current account balance (% of GDP)-3.6-4.2-4.6

ENDS