Hon Peter Dunne

Minister of Revenue

‘Budget 2013: Delivering progress and optimism’

Address to NZICA Post-Budget Breakfast

Intercontinental Hotel, Wellington

Friday, 17 May 2013

Good morning.

There has been a lot of talk since Budget 2013 was handed down yesterday about the new initiative where seriously defaulting student loan borrowers will be stopped at the border.

Good. I am not unhappy with that because this is fundamentally an issue of fairness.

New Zealand-based borrowers take an average of three to five years to repay their loans; overseas-based borrowers closer to 15 years.

Quite a number of those overseas take the view that once they have left New Zealand, they have left their debt behind.

Well, it is about fairness – and I can tell you that young New Zealanders here at home and paying of their loans get that.

Border stops will not be for small amounts where you a month or two behind. They will be used to chase up real, deep and long term defaulters.

In the end the viability of the Student Loans scheme relies on repayments being made so we can provide for the next generation of students coming through.

· Taking a broader view of Budget 2013, what we can see is a fundamental change in the way government spending is viewed, and I think it is a view that goes right through government and society.

· A couple of things are going on now: we do not just look at the total spend anymore and judge it on that basis. We live in a world now where there is a real emphasis on the quality of the spend.

· What we have experience is a fundamental shift in attitude that has been brought about by two things – the GFC and Christchurch earthquakes.

· If ever there was a money tree, it is not there now.

· Christchurch, in particular, brought home to us all that there was now no rule book. The line ‘because we have always done it that way’ did not work any more.

· More than ever ‘how much is the spend?’ has been replaced by ‘what is the spend going to achieve?’

· Budget 2013 is indeed about ‘Building Momentum’. And there are two other key realities that underpin this Budget:

o Rebalancing the economy; and

o Returning to surplus

· New Zealand is on the right track with forecasts of economic growth, more jobs, rising wages, and a return to surplus by 2014/15.

· Our economy grew 3 per cent last year, which is almost the same as Australia, and higher than almost every other developed country.

· Wages have been increasing, cost of living increases have been modest, and interest rates are at 50-year lows.

· There are 50,000 more jobs in the economy today than there were two years ago

· Unemployment remains too high but the Government remains committed to attracting new investment to bring us new jobs.

· This Budget with its track to surplus in 2014/15 compares more than favourably with Australia’s track to deficits That is coming about through one thing – tight, disciplined financial management that leaves New Zealand still the envy of many other economies.

· The Government’s main priorities for this term are:

o Responsibly managing its finances.

o Building a more productive and competitive economy.

o Delivering better public services.

· The Government is on track to meet its two key fiscal targets – to get back to surplus by 2014/15 and to bring net core Crown debt back down to no higher than 20 per cent of GDP by 2020.

· Forecasts show an operating surplus before gains and losses of $75 million in 2014/15, yet we are achieving this while still spending $5.1 billion on new initiatives in the current year and over the next four years.

· These initiatives will be funded in part by reprioritising existing spending. A surplus is forecast because tax revenue is picking up and the Government is continuing to restrict growth in expenses.

· Net core Crown debt is forecast to peak at 28.7 per cent of GDP in 2014/15, before falling. Longer-term projections show it dropping to 17.6 per cent of GDP by 2020/21 – compared with Budget 2009 showing that, without policy changes, net debt would exceed 60 per cent of GDP by the early 2020s.

· However, when expressed in dollar terms, net core Crown debt is still rising by around $130 million a week and is expected to peak at $70 billion in 2016/17.

· The Government is firmly focused on capping, then reducing this.

Budget 2013 confirms decisions to help achieve that:

The operating allowance is $900 million in Budget 2013, compared with $800 million signalled previously, and will be $1 billion in Budget 2014, compared with $1.2 billion signalled previously. From 2015 onwards, operating allowances will grow by 2 per cent per Budget.
The Government intends to delay contributions to the New Zealand Superannuation Fund until net core Crown debt is no higher than 20 per cent of GDP. Contributions are now expected to resume in 2020/21.

We are taking a number of steps in this Budget towards building a higher-performing economy:

· There is a $100 million-a-year internationally-focused growth package, providing extra research and development assistance to businesses, additional funding for tourism, and more resources for marketing New Zealand to international students.

· Quite simply more trade and investment will mean more jobs for New Zealanders.

· Within the package, science and innovation funding is increased by $50 million a year, taking our annual investment in research and development to $1.36 billion in 2013/14 – the highest ever.

· Add in our allowing for ACC levy reductions of around $300 million in 2014/15, increasing to around $1 billion in 2015/16.

· Combine this with the $630 million levy reduction made in 2012/13, and it is around 40 per cent lower ACC levy rates for households and businesses.

· This Budget also confirms a further $1.5 billion to be invested using proceeds from the Government’s share offer programme, including in redeveloping Christchurch’s hospitals, building modern schools and classrooms, and supporting irrigation infrastructure.

Meridian Energy will be the next company prepared for a partial share offer later this year.
In another important tool we are bringing in, there will be a memorandum of understanding with the Reserve Bank Governor confirming a range of measures, if required,
to protect the economy from periods of excessive growth in credit and asset prices,
reduce reliance on unstable sources of funding,
and require banks and other financial institutions to better manage their own risks.
Again, in another very important issue for New Zealand families, there will be legislation to improve housing affordability. This will deliver flexible regulatory tools in accords between the Government and councils in areas where housing is most expensive.

Delivering better services in a tight economy

· There is a fiction that constantly runs through the Left’s narrative that governments of the centre-right are heartless.

· No fair assessment bears that out.

· ‘Heartless’ is too often cold for ‘responsible’ – something the Left with their ‘free money’ approach are too often not.

· This Budget has taken on board the work of the Ministerial Committee on Poverty, and as a result, Budget 2013 confirms several important initiatives to support low-income families. They include:

o $100 million over three years for the Warm Up New Zealand: Healthy Homes programme targeting low-income households, particularly those with children or high health needs, for home insulation.

o More than $21 million over the next four years for rheumatic fever prevention.

o An extra $1.5 million for Budgeting Services in 2013/14, in addition to the $8.9 million provided already in 2012/13.

o A whiteware procurement programme to enable beneficiaries to purchase new appliances under warranty using Ministry of Social Development repayable grants.

o Investigating a partnership with NGOs and financial institutions to support the provision of low or no-interest loans for low-income borrowers.

o A trial on Housing New Zealand properties of a Warrant of Fitness programme for rental housing.

· Fundamental to lifting anyone out of poverty is getting them into paid employment.

· Tying people into dependency as beneficiaries is the worst thing one can do to individual and families.

· In this light, the Government will invest a further $188.6 million over four years for the next stage of welfare reforms, to help more New Zealanders into work.

· The Budget includes changes to ensure social housing is provided to those most in need. Over four years, it includes an additional $46.8 million for extra income-related rent subsidies, as part of the Government’s wider support for high-needs tenants, and an extra $26.6 million to extend income-related rent subsidies to non-government community housing providers.

· The focus on providing better frontline healthcare and prevention continues. Over the next four years, we will invest $1.6 billion in new initiatives and to meet cost pressures and population growth.

· And the Government is helping more New Zealanders get the skills they need to build successful careers and fulfil their potential. We are lifting student achievement in all levels of the education system.

· Budget 2013 further supports these measures with over $900 million in the current year and over the next four years for new education initiatives across early childhood, primary and secondary education.”

Supporting the rebuild of Christchurch

· The total estimated cost of rebuilding Christchurch has increased to around $40 billion from the previous $30 billion estimate. The Government’s share of the cost is around $15 billion – up from the $13 billion estimated previously.

· The numbers are big:

o The Red Zone offer has been accepted by more than 7000 households, or over 98 per cent of those eligible.

o The infrastructure alliance has completed $700 million worth of work, with over $400 million of projects currently under construction.

o The demolition of nearly 1000 buildings in the Christchurch CBD is almost finished and over $1 billion of new commercial buildings have received consents in Greater Christchurch.

o And by the end of this month, the Earthquake Commission will have completed 38,000 repairs and paid out more than $5.3 billion in claims.

· The Budget confirms an additional $2.1 billion to support the rebuild. Over $900 million of this funding comes from the Future Investment Fund for projects including the Christchurch and Burwood hospitals redevelopment, funding for the justice and emergency services precinct and tertiary education institutions.

Changes on the Revenue Front

· On the Revenue front itself the overall strategy for Budget 2013 was that tax proposals should be justifiable on good policy grounds and not simply revenue- raising.

· Therefore, this Budget aims to ensure that tax bases apply more evenly and consistently, meaning:

o A more efficient tax system where investment flows into the productive sector of the economy

o A fairer tax system where the tax burden is shared more evenly.

The Revenue package contains the following key features:

Supporting business and encouraging economic growth

· Consultation announced on a proposal to allow loss making research and development intensive start-up firms to access some of their tax losses early.

· Changes to the tax treatment of six specific types of business “black hole” expenditure, including:

o certain intellectual property rights expenditure

o resource consents expenditure

o certain company administration cost expenditure

· Reviewing the effectiveness of the thin capitalisation rules to improve the ability for New Zealand to tax activities undertaken in New Zealand.

· An issues paper was released earlier this year. It contained some proposed changes to help maintain the policy intent of the thin capitalisation rules, which is to protect New Zealand’s revenue base against an artificial loading of debt into the New Zealand investments of non-resident investors in order to limit their tax exposure.

· Officials are still working through the detail and will engage in on-going consultation. Legislation is to be introduced later this year. It is expected to apply from the 2015/16 tax year.

· This announcement forms part of our on-going effort to ensure that our domestic tax rules are robust with regard to ensuring the correct amount of tax is paid in New Zealand.

Ensuring that everyone pays their fair share

A focus on property compliance, by securing baseline funding for IRD to continue the Budget 2010 Property Compliance initiative beyond 2013/14. The property compliance initiative is expected to have a net gain of $38m for each year that it is funded.

An officials’ issues paper is to be released for public consultation after Budget 13, to clarify the date of when land is acquired with the purpose of sale or disposal.

In addition to these Budget announcements, the Government will also introduce changes to the tax treatment of specified mineral mining, in order to remove the current concessionary treatment and introduce rules that are more consistent with general tax principles, while accommodating some of the more unique aspects of the mineral mining industry.

Public consultation on this occurred in October last year. Proposals have been refined since those outlined in the issues paper, but the general direction remains the same. Changes to be effective from 2014/15 year. Full details to come with the introduction of the tax bill next week.

Student loans

Budget 2013 also contains the following proposed changes to the student loan scheme.

· Putting in place an information-sharing agreement between Inland Revenue and Internal Affairs to collect the contact details of borrowers in default from their passport renewal applications.

· Adjusting the overseas-based borrower repayment thresholds so that borrowers with higher loan balances have a higher repayment obligation.

· Making it an offence for a borrower to knowingly default on an overseas-based borrower repayment obligation so that an arrest warrant can be requested to prevent the most non-compliant borrowers from leaving the country.

· Finally, as I announced earlier this month, Cabinet has approved in principle the case for major change at Inland Revenue and asked Inland Revenue to proceed with more work. Inland Revenue’s transformation programme will be engaging with your organisation more on this in the future.

Child support

o Inland Revenue is also putting in place an information sharing agreement with Internal Affairs to collect the contact details of child support liable parents. However, the contact details will be shared for all liable parents, not just those liable parents in default.

Conclusion

There is reason for optimism and hope. And there is as much reason for continuing with the absolute determination to really drive New Zealand forward.

Ends.

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