Budget 2017 marks a significant milestone for New Zealand.
Over the past several years, the Government has worked hard to put a sound economic plan in place, while dealing with major challenges such as the Global Financial Crisis and Canterbury earthquakes.
It has required keeping spending under control, reducing debt, and encouraging the economy to grow.
Our economic plan is paying dividends, both for the economy and the Government’s finances. The New Zealand economy has grown in all but one quarter of the last six years, and is expected to continue growing by an average of 3.1% over the next five years.
Tax Revenue up
This positive growth flows through to increased tax revenues. After returning the books to surplus in 2015, the operating balance is expected to grow to $2.9 billion over the next year and then continue growing.
We now have the capacity for New Zealanders to share in more of the benefits of this growth. Budget 2017’s focus is on delivering for New Zealanders by investing in four key areas: public services, infrastructure, building resiliency, and lifting families’ incomes.
The Government is allocating $7 billion over four years in Budget 2017 to sustain and expand public services in health, education, law and order and social development, as part of a commitment to deliver better public services.
This recognises that New Zealand population is growing, but it is also a prudent investment in the core services Kiwis rely on in order to live successful independent lives.
Infrastructure is vital to keep our economy growing, and the Government is investing $11 billion in new capital infrastructure over the next four Budgets.
Factoring in spending that has already been included in agency baselines will take the Government’s total infrastructure investment to $32.5 billion over the next four years. That’s a very big investment – 40% more than in the last four years.
The experience of the Global Financial Crisis and the Christchurch earthquakes taught us New Zealand is vulnerable to unexpected shocks, and the Government’s books need to be in good order to help support people through these crises.
The Government has made great progress in controlling borrowing. Net debt is expected to fall to around 20% of GDP by 2020 but it needs to fall further to improve New Zealand’s ability to respond to unexpected shocks. That is why the Government has set a new target to reduce net debt to between 10% and 15% of GDP by 2025.
The final part of Budget 2017 is the Government’s $2 billion per year Family Incomes Package. This will make changes to tax thresholds, Working for Families and the Accommodation Supplement to assist low and middle-income earners with young families struggling with high housing costs. In total 1.3 million families in New Zealand will benefit by an average, $26 per week from April 1 next year.
These measures are expected to reduce the number of children living in families receiving less than half of the median household income by around 50,000.
Other positive effects
The Family Incomes package has flow-on effects too, with 750,000 super-annuitants benefiting from the link between New Zealand Superannuation and after-tax wages. On April 1, the couple rate for New Zealand Superannuation will increase by $13 per week, in addition to the normal annual adjustment.
Budget 2017 will make a meaningful change in the lives of everyday New Zealanders. But it is also important to remember the biggest priority that pays for the other four: having a strong economic plan that delivers a strong economy. It is only through having a strong economy that the Government can ensure the incomes, support and security of New Zealanders. That is why this Government’s primary focus continues to be the economy and sticking to our successful plan.
Steven Joyce is Finance Minister of New Zealand. Read extensive reports and analyses on Budget 2017 in various sections of this Edition.