News release

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31 October 2011
National to balance the books sooner, repay debt

National is on track to get the Government’s books back to surplus by 2014/15 and start repaying debt when most other countries are still running deficits and borrowing more, National Party Leader John Key and Finance Spokesman Bill English said today.

This is in stark contrast to Labour, whose gimmicks and growing list of expensive promises will create a black hole of more than $16 billion in the government’s accounts over the next four years alone – costing thousands of jobs and pushing up interest rates for families and businesses.

“National has a straightforward and comprehensive plan to build a more competitive economy,” Mr Key said today in launching National’s finance policy in Wellington.

“First, we’re balancing the books sooner by getting back to surplus in three years.
That’s important because it means less debt and lower interest rates for households and businesses.

“The Savings Working Group said getting back to surplus is the most important thing we can do to increase genuine national savings and reduce New Zealand’s longstanding reliance on foreign debt.

“Second, we’re creating incentives for people to work hard, save and get ahead, through changes to tax and welfare.

“And third, we’re building better roads, broadband and other infrastructure so businesses can grow.

“Through these actions, we’re creating a more competitive economy and backing Kiwis’ ability to get out there and take on the world.”

Mr English confirmed National will keep a tight rein on spending over the next three years to achieve budget surplus, as part of its wider programme of responsible and balanced economic management.

“We will need to work hard and remain focused to get back to surplus,” Mr English said. “National will stick to its annual operating allowances of no more than $800 million in 2012/13 and 2013/14, and $1.2 billion in 2014/15.

“This new spending will go to health, education and a few carefully-targeted initiatives.

“There will be no new capital allowances until Budget 2017. Instead, the estimated $5-$7 billion proceeds from the mixed ownership model will be invested in National’s new Future Investment Fund for priority new assets like modern schools, hospital redevelopments and transport projects.

“We will make these investments without having to borrow from foreign lenders,” Mr English said. “That’s important when the assets we are managing on behalf of taxpayers are forecast to increase by $22 billion to $267 billion over the next four years.

Mr Key and Mr English said National will continue with its clear plan to build a more competitive economy that sells more to the rest of the world, creates new jobs and provides higher incomes for New Zealanders.

“By contrast, it’s the same old Labour wanting to take New Zealand backwards with more borrowing, more spending, more taxes and more costs on businesses,” they said.

“These kinds of policies have failed under Labour’s watch in the past and they would fail again – at the cost of jobs and living standards for New Zealanders.

“The answer to a debt problem is not to run up more debt,” Mr Key and Mr English said.

http://www.national.org.nz/files/2011/Finance_policy.pdf
Speech

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31 October 2011
Speech to Business New Zealand

I want to start by acknowledging the good work Business New Zealand does on behalf of businesses and employers throughout New Zealand.

I know a lot of Ministers meet with you regularly to discuss things in their portfolios, from Education and Skills to Science to Transport.

Thank you for inviting me this morning to kick off a full day of discussions on business and the economy, as we head into this year’s election – an election where the stakes for New Zealand are high.

In the end, this election is going to come down to two things.

First, it’s about who can provide strong, stable leadership in difficult and uncertain times.

And second, this election is about who has the most credibility when it comes to the economy.

National has a straightforward and comprehensive plan to build a more competitive economy.

We’re balancing the books sooner by getting back to surplus in three years.

That means less debt and lower interest rates for households and businesses.

We’re creating incentives for people to work hard, save and get ahead, through changes to tax and welfare.

And we’re building better roads, broadband and other infrastructure so businesses can grow.

Through these actions, we’re creating a more competitive economy and backing Kiwis’ ability to get out there and take on the world.

That means a more export-focused economy with more jobs for our kids.

And it means we can have better frontline services in health and education, stay strong on crime, and get on with the job of rebuilding Christchurch.

That’s our plan, and I can promise you this election is about the delivery of that plan.

In this respect you know exactly what you’re getting from National.

We have set out our stall over three years and in each of Bill English’s three Budgets.

Putting that plan in place has not been easy, with everything that has happened over the past three years.

But Bill has done a great job in tough times. I can’t think of any other Minister of Finance who has had to cope with so much in their first three years – and he has done a great job.

When the PREFU came out last week, I reflected on the 2008 PREFU, three years ago, which was headlined in The Press the next day as “Treasury books ‘sea of red ink’”.

The economy was in very poor shape, following a debt-fuelled consumption boom and an increase in government spending of 50 per cent in only five years.

Interest rates rose to very high levels, as did the exchange rate, and the internationally-competitive sectors of the economy that are so important to us went backwards every year from 2004 onwards.

Not surprisingly, having lost so much competitiveness, the economy went into recession in early 2008, well before the rest of the world.

The economy was in recession for a year, from March 2008 to March 2009. In that time the economy shrank 3.5 per cent and 33,000 more people became unemployed.

As an incoming government, we not only had to deal with this recession, but also with the worst effects of the global financial crisis.

In late 2008 and into 2009, the banking system around the world, including in New Zealand, was at risk of grinding to a halt.

Ordinary New Zealanders lost billions of dollars of savings in failed finance companies.

And along the way, the people of Canterbury were hit by a series of devastating earthquakes that destroyed whole parts of the city.

I know it’s been a difficult time for New Zealanders.

We’ve had more than our fair share of adversity, and we’ve all been tested.

But difficult times are when sound, stable and responsible government matters more than ever.

Faced with challenges, the National-led Government set about dealing with them in a measured and balanced way.

Our first Budget, in 2009, halted the rapid accumulation of government debt, while supporting the economy through the worst of the recession.

Budget 2010 continued this improvement, while undertaking the largest overhaul of the tax system in 25 years.

We cut personal tax, company tax, and taxes on savings; increased taxes on consumption and property investment; and closed a lot of loopholes and opportunities for tax avoidance.

Budget 2011 laid out a faster return to surplus and even more control of government debt, despite funding the government’s share of Christchurch’s reconstruction.

We took a number of steps to increase genuine national savings, including greater private contributions to KiwiSaver.

Over all three Budgets, the Government took up the challenge to pay down debt by hauling back new Budget spending allowances, reprioritising billions of dollars of spending towards frontline services, and making government more efficient.

The results are already starting to show.

The economy has grown in eight of the past nine quarters since our first Budget was delivered, despite the earthquakes and the lingering impact of the global recession.

Interest rates have fallen to 45-year lows, in part because investors know the Government will continue to be fiscally responsible.

Households this year will have a positive savings rate for the first time in nearly a decade.

Exporters have been getting very good prices for what they produce and our trade with Asia is booming.

The important thing is that ordinary New Zealanders have benefited from this recovery, even though it hasn’t always been easy.

43,000 jobs were created last year.

Wages in the pocket have been rising faster than prices.

And the Government has been able to deliver better public services, with a focus on results.

Hospitals, for example, are performing 27,000 more elective procedures each year.

And crime is down in every region of the country.

We’ve been investing heavily in infrastructure projects like new State Highways, rolling out ultra-fast broadband, and upgrading the rail network.

In fact, over the next five years the Crown is going to acquire a net $22 billion of new assets in total. That is a very substantial investment programme.

Yesterday I announced that we will put the proceeds of the mixed ownership model – which are expected to be between $5 and $7 billion over the next three to five years – into a new Future Investment Fund, which will be used to buy new assets and upgrade our existing assets.

The first priority for that funding will be a $1 billion programme of modernising and transforming New Zealand schools.

Having this Fund reinforces that the mixed ownership model is a win-win for New Zealand.

It means we can invest in new, priority assets – like schools – without having to borrow.

New Zealand savers will have the opportunity to invest in something other than housing or finance companies.

We’ll have a stronger stock market, which will help New Zealand grow faster.

And through it all, the government retains control of the assets by owning at least 51 per cent of each one.

So these are the things you can see right now.

What does the future hold?

Well, looking ahead, it’s very clear what you’ll get with our plan out into the future – it’s in last week’s Pre-Election Update.

The PREFU shows the budget deficit reducing significantly over the next two years, before we run a $1.5 billion surplus in 2014/15.

National is committed to this target because a tight fiscal track helps keep the pressure off interest rates and reduces the amount we have to borrow from overseas lenders.

Once we’re back to running healthy surpluses, we’ll be able to auto-enrol workers who are not members of KiwiSaver, pay down debt and resume contributions to the Super Fund.

The PREFU also shows that we will limit net government debt to under 30 per cent of GDP, which again is low by OECD standards, and is less than half the level projected back in 2008.

The economy is expected to grow at an average of three per cent a year over the next four years, with 170,000 more jobs than at the time of the Budget.

Unemployment will fall steadily to below five per cent.

Wages will continue to rise.

Interest rates will remain low.

And the government will continue to invest in high-quality public services.

So actually, compared to 2008’s ‘sea of red ink’, the 2011 PREFU is a little ray of sunshine.

It shows that we are on track.

And while that’s pretty good, I actually think we can do better than this.

There are huge opportunities out there for New Zealand.

We’re a food-producing country in a world that is demanding more food.

Our trade is increasingly shifting towards Asia – the most vibrant economic region in the world.

A growing middle class in China, India and across Asia is tuning in to the goods and services New Zealand can supply.

I’m unashamedly positive for New Zealand. I think we’ve got a great future ahead of us.

But we need to get out and seize that future – it won’t come delivered on a plate.

No-one owes New Zealand a living – we have to earn it.

That’s why it’s so important to create a more competitive economy.

An economy where businesses have the confidence to invest, expand, and take on new staff.

And an economy where we sell more of what the world wants to buy.

However, the world comes with challenges, too.

The global environment is full of uncertainties and the Treasury has highlighted the European debt crisis as a major risk to the world economy.

That makes it even more important to have a strong, stable government at the helm.

So that’s what National has to offer this election:
  • strong, stable government
  • sound, proven economic management that builds on our progress over the past three years
  • and a positive vision for New Zealand, where the dividends of growth are seen in jobs, wages and better public services.

The alternative is Labour.

Labour is a party without a plan.

Instead, they have a collection of election gimmicks and slogans, like GST off bananas, all of which come with a hefty price tag.

Together they would create a $16 billion hole in the government’s accounts over the next four years alone – and far more over the longer term – which would have to be funded through borrowing.

And now they’ve suddenly decided to put the Super age up, to try to balance out some of this spending.

But even then, their numbers are a long way from adding up.

Labour is simply borrowing more, spending more, taxing more and imposing more costs on every business in the country

And now they are pushing back everyone’s well-earned retirement.

This is the party that thinks the answer to a global debt crisis is more debt.

It just doesn’t make sense.

But it’s certainly true to form.

When Labour was last in government, they increased their spending by 50 per cent in only five years.

In Opposition, they have opposed every piece of spending restraint we’ve introduced.

And now their election promises consist of – you guessed it – more spending and more borrowing.

And when it comes to loading costs onto business, they’re in a league of their own:

  • A big increase in the minimum wage
  • a KiwiSaver policy that hugely ramps up costs to employers
  • a new capital gains tax on all businesses
  • a more expensive ETS
  • an irrigation tax on farmers
  • a reintroduction of regional fuel taxes
  • and a1970s industrial relations policy.

All of these would add up to big cost increases for the 500,000 businesses in New Zealand.

That’s seven significant extra costs on business.

Businesses, both big and small, have only a handful of ways to meet these sorts of costs – reduce wages, cut jobs, increase prices or simply shut up shop altogether.

Labour is showing a fundamental lack of understanding about how businesses work.

I know, and you know, that the only way people get jobs and wage rises, is when someone is prepared to put money and time into their business, seek out new opportunities and grow.

Through the promises it’s made, Labour is telling those people not to bother.

Well, I am far more optimistic than Mr Goff.

I back New Zealanders to get ahead.

But we have to give them the right environment to operate in, and a platform from which they can compete with the best in the world.

That happens only when we think carefully about things like taxes, and about regulations, and about the overall flexibility of the economy.

And it happens only when we keep debt low, invest in modern infrastructure and encourage savings.

You can’t create jobs or increase wages with the stroke of a pen.

That’s what Labour has completely wrong.

So in terms of economic and fiscal credibility, it’s very simple – Labour doesn’t have any, because they don’t understand what really drives the economy.

That’s vitally important, because when we talk about the economy we really mean our economy.

We’re all a part of it.

Our economy keeps firms in business, people in their jobs, and families in their homes; it pays for medicines and health care, educates our kids, and pays our Super when we’re older.

So, whether a party has economic credibility or not has very real consequences for very real people.

That means New Zealanders have a clear choice this election.

They can choose to go forward with a strong, stable National-led government and build on the past three years.

Or they can stop, and then head backwards with a negative Labour Party that wants to borrow more, spend more, tax more, and put more costs on business.

Personally, I think New Zealanders are aspirational for their future.

That’s why I’m asking them to give their party vote to National on November 26, so we can all have that brighter future we’re working towards.