21 May 2015

Help for families at heart of responsible Budget

A package of measures aimed at reducing hardship among children in New Zealand’s lowest-income households is at the heart of new spending announced in the Budget today, Finance Minister Bill English says.

The package, costing $790 million over four years, includes increased work obligations for sole parents on a benefit, more childcare support for low-income families, a $25 a week increase in benefit rates for families with children, and an increase in Working for Families payments to low-income families not on a benefit.

These measures are part of Budget 2015 which was delivered today against a backdrop of sustained economic growth, rising wages, more jobs, low inflation and low interest rates.

“In our previous six Budgets, careful management of public spending has gone hand-in-hand with investment in public services,” Mr English says.

“Budget 2015 builds on that. This is the type of Budget that a responsible Government can deliver when it’s following a plan that’s working.”

Budget 2015 outlines the Government’s investment across a wide range of areas including health, education, welfare, housing, innovation, Ultra-Fast Broadband, defence, police and the Canterbury earthquake recovery.

As previously announced, the Budget allows for nearly $500 million of cuts to ACC levies on workers, businesses and motor vehicle owners.

In addition, the Budget includes measures outlined last weekend by the Prime Minister to bolster the tax rules on property investment.

Economic outlook
Budget 2015 forecasts show annual GDP growth of 2.8 per cent on average over the next four years, keeping New Zealand among the faster-growing developed economies.

That growth is working for New Zealanders. By mid-2019, a further 150,000 people are forecast to be in work, and the average wage is expected to rise by $7,000 to $63,000 a year.
Inflation and interest rates are expected to be significantly lower than previously forecast.

Despite a well-performing economy, low inflation is curbing growth in nominal GDP and therefore tax revenue, which is expected to be $4.5 billion lower in total over this year and the next three years compared to Budget 2014 forecasts.

Government finances
“The Government inherited a poor set of accounts in 2008 but now, in our seventh year of careful fiscal management, the Crown’s books are in good shape, showing operating balances growing over time, and debt reducing,” Mr English says.

“As signalled a few weeks ago, the Treasury’s Budget fiscal forecasts anticipate we will reach surplus a bit later than the 2014/15 target we set for ourselves in 2011.”

The actual figures for the year ending 30 June 2015 will not be known until October. Budget 2015 forecasts show a deficit of $684 million for 2014/15, which is $2.2 billion better than the deficit in 2013/14. A surplus of $176 million is expected in 2015/16, rising to $3.6 billion in 2018/19.

“Considering that just four years ago we had a deficit of $18.4 billion, the public can see we’re heading in the right direction but just taking a little longer than we expected to reach our target,” Mr English says.

“Knee-jerk responses are not a hallmark of this Government and we will
maintain spending that is supporting families, driving better public services and helping economic growth. Those matter more than the actual date we reach surplus.”

Net debt is expected to peak at 26.3 per cent of GDP in 2015/16, and fall thereafter.

“I remember in 2009, before our first Budget, Treasury projections showing net debt going past 60 per cent. Now we are on track to meet our goal of reducing net debt to 20 per cent of GDP by 2020. That is another significant improvement in the books.”

Mr English says a careful spending programme will be maintained and operating allowances will be $1 billion for Budget 2015 and Budget 2016, rising to $2.5 billion in 2017. If fiscal and economic conditions at the time permit, this larger allowance will provide options for modest income tax reductions.

Accident Compensation Corporation
As announced previously, the Budget allows for ACC levy cuts of $375 million in 2016 and a further $120 million in 2017.

Final decisions will be made after public consultation, but the intention is to cut levies and therefore reduce annual costs for businesses, workers and motor vehicle owners.

This follows annual levy reductions which have totalled $1.5 billion since 2012.

KiwiSaver
KiwiSaver has attracted 2.5 million members but costs around $850 million a year in subsidies.

To reduce this cost, the Government is removing the $1,000 kick-start for new members, starting today. The kick-start payment has cost taxpayers a total of $2.5 billion since the scheme began. Removing it will save more than $500 million over the next four years for reinvesting in priority public services.

Existing KiwiSaver members are not affected in any way. Both existing members and new members will continue to get the annual subsidy of up to $521, along with matched employer contributions, and these provide strong incentives for people to join the scheme.

Housing
As announced by the Prime Minister, Budget 2015 contains steps to bolster the tax rules on property transactions and strengthen enforcement. These measures will improve compliance with tax rules and are also expected to take some of the heat out of Auckland’s housing market.

The Budget also provides Inland Revenue with a further $74 million for additional enforcement of tax obligations, including $29 million for property tax compliance.
However, our main focus in housing remains on increasing the number of houses being built. The Budget sets aside a $52 million capital contingency for housing development on under-utilised Crown-owned land in Auckland.

Business Growth Agenda
Budget 2015 adds to the Government’s Business Growth Agenda, including an increased investment in tertiary education, research and innovation. Up to $25 million over three years will support the establishment of new privately-led Regional Research Institutes. As announced previously, there is also an $80 million boost over four years for R&D growth grants supporting innovative businesses.

Tuition subsidies for some science subjects will be lifted, and there will be an increase in the number of engineering places.

The Budget provides $37 million over four years to give greater direction and support to councils as they implement the Government’s resource management and freshwater reforms.

It also provides $13 million over four years for initiatives to improve the productivity of under-utilised Māori land, and $32 million to increase the number of labour inspectors and strengthen enforcement of employment law.

Infrastructure
Budget 2015 again looks to the Future Investment Fund – set up in 2012 to reinvest the $4.7 billion raised from the partial sale of state-owned enterprises – to pay for new public assets without the need to borrow.

New capital spending from the Fund will total $939 million in Budget 2015, including $210 million each for KiwiRail and for the Ultra-Fast Broadband roll-out that is gradually providing world-class internet connectivity to 80 per cent of New Zealanders.

The Fund also allocates up to $100 million to Lincoln University to rebuild its science facilities, $97 million for regional highways, $40 million for urban cycleways and up to $52 million in contingency for a new Waitangi Wharf on the Chatham Islands.

Meeting those commitments and other smaller items will leave around $726 million remaining in the Fund.

Child hardship package
This Government believes that the primary responsibility for the welfare of children lies with their parents. However, we also know that government actions can help children whose home lives are challenging. That is why we are addressing the long-term drivers of hardship, and already the number of children in benefit-dependent households has fallen by 42,000 over the past three years.

Two-thirds of New Zealand children in more severe hardship have a parent on a benefit, with nine out of 10 being sole parents. The best thing we can do for those children is to get their parents into sustainable, full-time work, where that is possible.

So from 1 April next year, most sole parents, and partners of beneficiaries, will be expected to be available for part-time work once their youngest child turns three. In addition, all beneficiaries with part-time work obligations will be expected to find work for 20 hours a week.

At the same time, because we are concerned about children whose family resources have been falling behind other households, from 1 April next year benefit rates for families with children will rise by $25 a week after tax. It will be the first increase in core benefit rates – apart from inflation adjustments – since 1972. Around 110,000 families with 190,000 children will be better off as a result.

Lower-income working families not on a benefit also get a boost from the Budget. Working families earning $36,350 a year or less before tax will get $12.50 extra a week from Working for Families, and some very low-income families will get $24.50 extra.

Working families earning more than $36,350 will get extra from Working for Families, but it will be less than $12.50, with the exact amount dependent on their family income. Some higher-income families will get slightly less from Working for Families.

Around 200,000 working families will benefit from these changes, with about 50,000 of them being families earning $36,350 or less.

Childcare Assistance for low-income families will also be increased, from $4 an hour to $5 an hour for up to 50 hours of childcare a week per child.

The child hardship package has a number of different elements and its exact impact on any given family will depend on individual circumstances. (Detailed fact sheets are available at www.beehive.govt.nz/feature/budget-2015).

Overall, it will have a meaningful impact for recipient families, particularly for those on very low incomes, and reduce the depth of hardship these families and their children experience.

This child hardship package will cost around $240 million in each full year, and $790 million in total over the four-year Budget forecast period.

The Budget also provides an additional $36 million over the next four years to support the Children’s Action Plan for at-risk children, an extra $23 million to bolster the work of Child, Youth and Family, and an extra $8 million to help vulnerable students participate more in education and training.

The Budget also includes measures to encourage liable parents to meet their obligations for child support. Currently, large penalties are discouraging many parents from making payments, so the Budget provides that some or all of the penalty payments may be forgiven in certain circumstances. However, there will be no tolerance for parents who are deliberately avoiding responsibility.

Health and Education
Despite fiscal challenges, increasing spending on health and education has been a priority in each of our seven Budgets.

In Budget 2015 Vote Health gets a total of $1.7 billion in operating funding over four years for new initiatives, and to meet cost pressures and population growth, taking health spending in 2015/16 to $15.9 billion. New initiatives include $98 million to increase elective surgery volumes, as previously announced. There is an additional $76 million for hospices over four years.

Education receives an additional $443 million in operating funding over four years, taking education spending in 2015/16 to $10.8 billion. This includes $75 million for early childhood education and $63 million to continue providing teacher aides to children with special needs. This is in addition to the previously announced capital funding of $244 million for new schools and classrooms.

Security and border protection
Investment in the security of New Zealand and its citizens is being allocated in several ways, including $264 million to allow the Defence Force to meet its domestic and international humanitarian, aid and military commitments.

The Police get $164 million to continue delivering more effective frontline policing and crime prevention.

A new border clearance levy is being introduced from 1 January 2016 to fund passenger-related biosecurity and customs activities at the border. Subject to consultation, the levy is likely to be about $16 for inbound passengers, and around $6 for outbound. It will raise around $100 million a year.

Border protection will be boosted over the same period, including more x-ray machines and detector dogs.

Rebuilding Christchurch
At the time of the Canterbury earthquakes, the Government committed to support the people in the region during the recovery and rebuild. Our contribution to the $40 billion estimated cost of the rebuild is now $16.5 billion. This Budget provides an additional $108 million over the next four years to ensure anchor projects remain on track.

“I am pleased to present this responsible and supportive Budget on behalf of a responsible and supportive Government,” Mr English says.

“The Budget puts money where it is most needed while giving taxpayers value for money and responsibly managing the Government’s books. New Zealand is doing well, and Budget 2015 will help it do even better.”

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