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26 May 2016

Budget 2016: Overview

Budget 2016 is a forward-looking Budget that invests in a growing economy

(All figures for four years to 2019/2020 unless otherwise stated)

Looking ahead to the results of responsible economic management

  • Economic growth is forecast to average 2.8 per cent over the five years to June 2020.
  • By mid-2020, the unemployment rate is expected to drop to 4.6 per cent.
  • Over 200,000 more people are in work now than three years ago. Treasury forecasts another 170,000 will be created by 2020.
  • By mid-2020 the average wage is expected to rise to $63,000 a year - that is $16,000 a year more than when National first came into office.
  • Modest operating balance before gains and losses (OBEGAL) surpluses are expected in 2015/16 and 2016/17, increasing to a forecast $2.5 billion the following year, and $6.7 billion in 2019/20.
  • Core Crown expenses have fallen from almost 34 per cent of GDP in 2008/09 to 29.7 per cent of GDP this year. They are expected to remain under 30 per cent thereafter.
  • Net debt is expected to peak at 25.6 per cent of GDP next year and to fall to 19.3 per cent in 2020/21.
  • Net new operating spending in Budget 2016 is $1.6 billion per year on average.
  • Net new capital spending for investment in infrastructure and other public assets is $1.4 billion. In addition, significant capital spending will be funded from reprioritising capital, taking the total new capital spend in Budget 2016 to $2.6 billion.

Innovative New Zealand package

The $761 million Innovative New Zealand package will encourage entrepreneurship, skills and economic growth. It includes:

  • A $411 million investment in science and innovation, taking the Government's total science and innovation investment to $1.6 billion a year by 2019/20.
  • $257 million in more tertiary education and apprenticeship programmes, particularly in science, engineering and agriculture.
  • Regional economic development support of $94 million to unlock business opportunities and benefit regional communities.

SME-friendly tax package

Further support for businesses - particularly small businesses - is provided through a $187 million SME-friendly tax package.

  • Provisional tax will be reformed, with a new pay-as-you-go option allowing small businesses to pay tax as they earn income from 1 April 2018.
  • Use-of-money interest will be eliminated or reduced for most taxpayers.
  • Contractors will be able to more easily choose a withholding tax rate that suits their needs.
  • The ongoing 1 per cent monthly penalty will be scrapped from 1 April 2017 for new debt - although immediate penalties and interest charges for late payments will continue.

Infrastructure

A $2.1 billion infrastructure package continues the Government's commitment to build a stronger, more productive economy. It includes:

  • Education - $883 million to deliver 480 new classrooms, nine new schools, two school expansions and the relocation and rebuilding of three schools and a Kura. This includes $168 million for the Christchurch schools rebuild programme.
  • Transport - $115 million for the Accelerated Regional Roading Programme for projects in Gisborne, Marlborough and Taranaki, as well as $190 million to support KiwiRail.
  • Tourism - additional funding for tourism infrastructure. This includes $25 million to upgrade the New Zealand Cycle Trail, and $12 million to help communities build smaller-scale infrastructure projects, like restrooms and carparks.
  • Inland Revenue - $857 million for Inland Revenue's new tax administration system, replacing one that is a quarter of a century old.

Housing

The Budget provides extra funding for housing, including:

  • $200 million for at least 750 more places for individuals and families with the most pressing housing needs, as well as meeting the costs of rising rents.
  • $42 million will support 3,000 emergency housing places a year and establish a new emergency housing Special Needs Grant.
  • $36 million to ensure more families live in warmer, drier and healthier homes.
  • A further $100 million is provided to free up surplus Crown land for housing developments in Auckland. In addition, the Government will soon issue a National Policy Statement on Urban Development, to direct councils to allow more housing development.

Environment

  • The Emissions Trading Scheme one-for-two subsidy introduced during the global financial crisis will be phased out. This will positively impact the operating balance by $356 million over the next four years.
  • A $100 million Freshwater Improvement Fund will help clean up New Zealand's rivers, lakes and aquifers over the next decade.
  • An additional $16 million is provided to tackle wilding pines in the highest priority areas.
  • The Battle for Our Birds programme - New Zealand's largest pest control operation - receives $21 million this year to fight an expected pest population boom caused by a heavy beech seeding.

Primary sector

The primary sector receives $70 million to help eliminate bovine tuberculosis.
The Government's goal is to eradicate TB from cattle and deer by 2026, and from infected wildlife in New Zealand by 2055.

Social Investment Package

A $652 million Social Investment package will help the most vulnerable New Zealanders by intervening early and investing in public services tailored to their needs. It includes:

  • $200 million for a system-wide reform of services and support for vulnerable children and young people.
  • $61 million to extend the Youth Service to 19-year old parents, and 18 and 19-year old job-seekers at risk of long-term welfare dependency.
  • $50 million to reduce barriers to employment, including for people with complex health conditions who would otherwise spend significant time on a benefit.
  • $43 million for schools to increase support for around 150,000 students most at risk of educational failure.
  • $40 million for Whānau Ora to support around 2,500 more whānau and families in areas such as managing health and disability issues, improving financial literacy and reducing household debt.
  • $36 million for healthy housing initiatives (as set out in the Housing section above).
  • $20 million to support offenders when they leave prison.

Health

The Government will invest $16.1 billion in health in 2016/17.
Over the next four years, $2.2 billion will be provided for new health initiatives and to meet demand pressures. This includes:

  • $1.6 billion for DHBs to invest in services, meet population growth and deliver better results.
  • $124 million for Pharmac to provide more New Zealanders with access to new medicines.
  • $169 million for disability support services.
  • $96 million to provide more elective surgery.
  • $73 million for primary health care. This includes extra support for the free doctors' visits and prescriptions for under 13s that we announced in Budget 2014.
  • $39 million to start the roll out of a national bowel screening programme.
  • $15 million to support air and road ambulance services.
  • $12 million to increase support for primary care and social services to enable people to access mental health help earlier.
  • $12 million to expand a successful programme which provides intensive alcohol and drug support for pregnant women.
  • Tobacco excise duty will rise by 10 per cent on 1 January each year for the next four years.

Education

The Government will invest $11 billion in early childhood, primary and secondary education in 2016/17. Together, they will receive an extra $1.4 billion over this year and the next four years, including:

  • $397 million to meet growing demand for early childhood education and provide places for a further 14,000 children.
  • $883 million for new school property (as covered in the Infrastructure package).
  • $43 million for schools to target students most at risk of under-achieving, instead of an across-the-board increase in operations grants.
  • $42 million for students with high and special educational needs.
  • Support for around seven new Partnership Schools in 2018 and 2019.

Māori and Pasifika

  • $40 million for Whānau Ora (as covered in the Social Investment package).
  • Almost $10 million for extra Māori and Pasifika Trades Training. This funding, from a Budget 2015 contingency, will increase the number of training places to 3,400 next year – up from 1,200 in 2014.
  • $35 million for Te Reo Māori language initiatives.
  • $6 million for Pacific peoples initiatives, such as helping young Pacific people in Auckland into work, education or training.

Justice

The Justice sector receives $837 million over the next four years, plus $56 million in 2015/16 to prevent crime, rehabilitate offenders and reduce reoffending. This includes:

  • $299 million for Police over the next four years, which includes $49 million from a Budget 2015 contingency, primarily to meet wage increases.
  • $208 million for a number of justice sector initiatives, including addressing family violence and ensuring the justice system better caters for victims of crime.
  • $356 million for Corrections over the next four years to reduce reoffending and meet recent growth in the prison population.
    • This funding includes $12 million to manage offenders returning from overseas and $9 million to continue 24-hour GPS electronic monitoring for the highest risk offenders.

Fire Service and Civil Defence

  • $303 million to combine urban and rural fire services into one organisation from the middle of next year. This will come from a proposed increase in the fire levy from 2017/18, as well government funding.
  • $6 million for the Ministry of Civil Defence and Emergency Management to ensure New Zealand is well prepared for future natural disasters.

Defence and security

  • $301 million for the New Zealand Defence Force so it can concurrently undertake domestic, regional and international security tasks.
  • $179 million for the New Zealand intelligence community to ensure it can provide essential intelligence and security services and remain effective in a rapidly-evolving environment.
  • $20 million for a new national Computer Emergency Response Team to combat cyber-attacks and cyber-crime.

Christchurch regeneration

Taxpayers' financial commitment to Christchurch regeneration now stands at more than $17 billion - around $700 million more than signalled in the last Budget. Nearly six years after the first earthquake, progress includes:

  • Almost 100,000 cash settlements have been made by EQC and it has resolved more than 60,000 land claims.
  • Around 68,000 homes have been repaired in the Canterbury Home Repair Programme.
  • 97 per cent of the horizontal infrastructure repairs have been completed in the Christchurch CBD.
  • $3.9 billion of public sector projects completed or under construction, with almost $800 million more forecast to begin in the next six months.
  • Three anchor projects have been completed in Christchurch - Hagley Park cricket oval, the bus interchange and the Margaret Mahy family playground.
  • Work is progressing on the Metro Sports Facility and the Convention Centre.

Other initiatives

  • $12 million for the New Zealand Symphony Orchestra, Royal New Zealand Ballet and Te Matatini Kapa Haka Aotearoa.
  • $16 million for High Performance Sport New Zealand to support athletes and further our medal prospects at the Tokyo Olympics in 2020.
  • $4 million for Drug Free Sport New Zealand.
  • $41 million for the SuperGold card scheme to provide certainty for more than 670,000 cardholders across New Zealand.

SUMMARY OF BUDGET ECONOMIC AND FISCAL FORECASTS

June years 2015
Actual
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast

Economic 

           
Real GDP growth
(annual average % change)
3.3 2.6 2.9 3.2 2.8 2.5
Consumers price inflation
(annual % change)
0.4 0.1 1.5 2.0 1.9 2.1
Unemployment rate
(June quarter)
5.9 5.6 5.6 5.1 4.6 4.6
Current account
(% of GDP)
-3.5 -3.5 -4.6 -4.1 -4.3 -4.8

Fiscal ($ billions)

           
Core Crown revenue 72.2 75.3 78.5 82.1 87.0 91.4
Core Crown expenses 72.4 74.4 77.4 79.7 82.0 84.8
Total Crown OBEGAL1 0.4 0.7 0.7 2.5 5.0 6.7
Net core Crown debt 2 60.6 62.3 66.3 68.3 66.3 62.3

1 Operating balance before gains and losses.
2 Net core Crown debt excluding the NZS Fund and advances.

Sources: Statistics New Zealand, the Treasury

NEW BUDGET INITIATIVES

$m 2015/16 2016/17 2017/18 2018/19 2019/20 4-year total Capital
Health 3 568 558 554 538 2,218 -

Education

75 124 118 139 259 641 727

Social Development

3 130 144 135 136 546 12

Social Housing

- 39 71 92 56 258 1

Justice Sector

56 205 250 192 190 837 -

Defence & Intelligence

- 63 133 141 145 482 1

Innovative New Zealand

- 107 180 213 261 761 -

Other Business Growth Agenda

24 163 180 96 121 561 453

Māori Development

- 26 24 24 26 100 -

Core Government Services

60 247 297 278 316 1,138 512

Other

- 41 11 13 13 77 158

Contingency

9 261 186 208 183 838 741

Total spending

230 1,976 2,152 2,086 2,243 8,457 2,603

Revenue and Savings

(45) (139) (344) (580) (853) (1,917) (1,215)

Net package

185 1,837 1,808 1,506 1,390 6,540 1,389
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