Budget 2009

Keeps the economy going amid global turmoil

Budget 2009 takes steps to ensure New Zealanders are cushioned from the sharpest edges of the worst global recession since the 1930s.

New core Crown spending of $2.9 billion in Budget 2009 - combined with recent tax cuts - will support the economy.

Budget 2009 directly supports jobs through a $323.3 million home insulation and clean heating campaign, $50 million for a national cycleway network and a multi-billion dollar infrastructure boost.

Safeguards entitlements

•  Budget 2009 locks in National Superannuation at 66 per cent of the average wage.
• Benefits, student support and Working for Families are maintained at current levels.
• Improves public services
• A $3 billion boost for health over four years, focused on frontline services.
• $1.68 billion on education to raise student achievement.
• 600 more police and 246 more probation workers to improve public safety.
• Builds more productive infrastructure
• $290 million for the first tranche of the Government's broadband plan.
• $523 million to build new schools and upgrade existing ones.
• An extra $1 billion over three years for the state highway network

Controls government debt

 The Government is ensuring debt does not skyrocket out of control. We have taken considered choices now to avoid harsher ones later. They include deferring planned tax cuts, suspending automatic contributions to the New Zealand Super Fund and slowing the pace of new government spending.

• Strengthens the economy for the future
• Removes unnecessary regulation so businesses can thrive.
• Invests more to lift the literacy and numeracy of young people.
• Creates a more productive public sector.
• Budget initiatives at a glance
• (All figures four years to 2012/13, unless stated otherwise)
• Home Insulation Programme

Campaign to fit homes built before 2000 with insulation and clean heating devices such as heat pumps and approved wood burners. About 180,000 households eligible for grants of up to $1,800 regardless of income. Community Service Card holders will be eligible for grants of up to $3,000. Starts on July 1 this year - $323.3 million.

Health

• Budget 2009 includes an additional $3 billion investment in health services – including $750 million in 2009/10.
• Improve District Health Boards' services and meet population pressures - $2.1 billion.
• 800 more health professionals to increase elective surgery capacity - $70 million.
• Improving maternity services and meeting increased need - $103.5 million.
• Upgrading health sector infrastructure including a start to the construction of 20 new dedicated elective surgery theatres - $245 million.

Education

• $1.68 billion over the years 2008/09 to 2012/13 to improve facilities and lift educational achievement. Of this, $1 billion is new spending.
• Build new schools and modernising existing ones - $523 million.
• Helping students meet national standards in literacy and numeracy - $36 million.
• Expand 20 Hours Early Childhood Education scheme from 1 July 2010 to five year olds, playcentres and kMhanga reo - $69.7 million.

Justice

• $900 million for justice initiatives aimed at improving public safety.
• 600 more police on the streets by 2011 - $182.5 million.
• 246 more probation officers, 29 frontline managers and 26 psychologists to improve the quality of parole and home detention management - $255.9 million.
• 1,000 extra prison beds though increased double bunking at 5 prisons, plus planning for additional capacity - $385.4 million.

Infrastructure 

• Kick starting the Government's $1.5 billion plan for ultra-fast broadband to the home - $290 million.
• Increased investment from the Land Transport Fund in the state highway network of about $1 billion over the next three years, lifting the total amount spent on state highways to about $1 billion a year.

Treaty of Waitangi 

• Accelerating Treaty settlements by boosting the Office of Treaty Settlement's ability to conduct more negotiations faster - $22.4 million.

Social Development 

• Locking National Superannuation payments in at 66 per cent of the average wage to be paid at age 65 - $18.6 million.
• FreshStart initiatives for young offenders - $81.6 million.

Other key initiatives 

• Boosting affordable housing initiatives - $40 million.
• Creating a series of regional cycle tracks with the long-term aim of creating a national network - $50 million.
• A new Primary Growth Partnership to boost primary sector growth and innovation - $190 million
• Budget figures at a glance
• Over the next three years the economy will lose around $50 billion of output, compared with what was forecast in Budget 2008.
• An operating deficit before gains and losses of $7.7 billion is forecast in 2009/10 and $9.3 billion in 2010/11.
• Government gross debt is expected to peak at 43 per cent of GDP in 2016/17 before falling to 37 per cent in 2022/23, against forecasts of 70 per cent, and climbing, in 2022/23 without policy changes.
• An operating allowance of $1.45 billion per annum from 2009/10 to 2012/13, or $5.8 billion across the four-year Budget forecast period.
• Core Crown expenses increase by $2.9 billion in 2009/10 once a rise in benefit numbers and other forecast changes are taken into account.
• An additional $1.45 billion in capital spending across the forecast period. This amount will be repeated in future budgets, rising to $1.65 billion in 2013/14.
• Unemployment is now forecast to peak at 8.0 per cent in the September quarter of 2010

Budget sets out New Zealand’s road to recovery (main summary)
Budget 2009 will lift economic growth, help New Zealanders through the recession and strengthen the Government's books, Finance Minister Bill English says.

It also directly supports jobs over the next four years through a $323.3 million home insulation and clean heating campaign a multi-billion dollar boost to infrastructure investment and $50 million for a new national cycleway network.

"This Budget takes significant steps towards meeting key election commitments like improving frontline services in health, lifting educational achievement and boosting law and order,” Mr English says.

"It fulfils the National Government's commitment to significantly lift infrastructure investment, boost our long-term economic performance and permanently raise New Zealanders’ living standards.

"At the heart of this Budget are steps to future-proof the Government's financial position as it takes a hit from the biggest and most co-ordinated global recession since the 1930s.

"We believe these measures, taken together, will put New Zealand firmly on the road to recovery,” Mr English says.

Budget 2009 ensures that forecasts of skyrocketing debt, due to the big spending policies of the previous government and the recession's pressure on revenue and growth, will not eventuate.

Maintaining entitlements and improving public services

It is entirely appropriate that the Government plays its part in helping New Zealanders through the immediate challenges of the recession by maintaining entitlements and improving public services, Mr English says.

"Over the next four years, we will increase new spending by $5.8 billion to help maintain economic activity and to support jobs. However, over the medium-term, it is essential that we get on top of our debt.

"A growing mountain of debt would act as a handbrake on the economy and could lead to an adverse reaction from foreign investors and credit agencies. That would mean higher borrowing costs for businesses and households.

"Keeping debt down is also essential if we are to maintain public services and preserve entitlements such as New Zealand Superannuation, Working for Families and welfare benefits at their current levels.

"As a result, we have taken considered decisions now to avoid having to make harsher decisions later,” Mr English says.

Budget 2009 decisions

Those decisions include:

• Deferring the second and third tranches of planned tax cuts in 2010 and 2011 to avoid incurring further debt. The Government remains committed to lower personal income taxes and they will be assessed in future Budgets.
• Suspending automatic contributions to the New Zealand Super Fund until the operating balance excluding gains and losses (OBEGAL) returns to surplus. A payment of $250 million will be made in 2009/10 and any future partial contributions will be considered on an annual basis.
• Revising down the annual operating allowance to $1.45 billion for 2009/10, compared with $1.75 billion indicated in the Budget Policy Statement in December. It will be capped at $1.1 billion in 2010/11 and adjusted by 2 per cent in following years.
• Reprioritising $2 billion of the previous Government's planned spending into higher quality initiatives that meet this Government's priorities.

Lower taxes benefit the economy

"We cut taxes on April 1 this year because we believe lower income taxes benefit the economy,” Mr English says. "However the severity of the recession means tax cuts scheduled for 2010 and 2011 are currently unaffordable. Their timing will be reassessed as part of future budgets.

"We are also suspending full payments to the Superannuation Fund. This will not affect people's entitlements to New Zealand Superannuation - it will continue to be paid at a minimum 66 percent of the average wage from age 65.

"In our view it doesn't make sense to borrow large sums to invest in currently uncertain global financial markets while running large deficits. Next year we would have had to borrow $1.5 billion extra if we continued with full payments.

Budget 2009 ensures the Government’s finances are managed prudently and that New Zealand is in the strongest possible position to take advantage of the global recovery.

Treasury estimates showed that without policy changes, gross government debt would rise alarmingly, reaching 48 per cent of GDP by 2013 and 70 per cent of GDP – about $227 billion – by 2023.

"In Budget 2009, we have taken steps to reduce that forecast blow-out and ensure that gross debt as a percentage of GDP peaks at 43 per cent in 2016/17, before starting to fall as a percentage of GDP.”

Even with measures taken in Budget 2009, the OBEGAL deficit is forecast to be $7.7 billion in the year to June 30 2010, increasing to $9.3 billion in 2011, before tracking down.

A balanced response to the recession

"Budget 2009 is a balanced response to the recession,” Mr English says. "It funds public services, maintains entitlements, and meets the increased cost of benefits, while at the same time taking the first steps towards improving productivity and competitiveness in the longer term.

"Our focus over the next year will be rebuilding business confidence, which will further help to preserve and create jobs, and ensuring that young people remain connected with the workforce and improve their skills.

"The Government is confident about New Zealand’s prospects over the next few years. We believe New Zealand has a genuine opportunity to emerge from the recession in a stronger position than most other countries.

"Budget 2009 is the first step to ensuring that happens.”