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Government’s economic strategy outlined

January 8, 2018

At the ANZ Business Breakfast Speech on 1 December 2017, the Finance Minister, the Hon Grant Robertson, outlined the goals and some of the key policy initiatives in the Government’s economic strategy. A brief summary of these is as follows:

Budget responsibility rules

  • A sustainable operating surplus will be delivered each year unless there is a significant disaster or major economic shock or crisis.
  • Government spending as a proportion of the economy will not rise above the historical average of 30% of GDP.
  • Net core Crown debt will be reduced to 20% of GDP within five years of taking office.
  • Inflation will be carefully managed within the target band but the objectives of the Reserve Bank Act will be expanded to provide monetary policy support to the Government’s goal of improving the wellbeing of New Zealanders, including focusing on maximising employment.
  • Terms of reference for a Tax Working Group have been established to investigate possible changes which would make the tax system fairer and more balanced.

Living standards framework

  • Treasury has been asked to further develop and accelerate the world-leading work they have been doing on the Living Standards Framework. This focuses on measuring success in developing four capitals — financial, physical, human and social.
  • Legislation will be introduced to set measures of child poverty and a requirement to set reduction targets against them. This will include amending the Public Finance Act to ensure this work is part of the Budget process.

Delivering the economic strategy

  • The first-year fees-free policy will come into force on 1 January 2018. This is for all quality post-school training. The one-third of school leavers who go to University will benefit from this policy but so will the other two-thirds who will go to Polytechnics, other training programmes, apprenticeships and industry training. The policy is also for those who have not studied or trained before but are in work now.
  • Critical for lifting productivity is increased investment in research, development and innovations. The first step in this is the introduction of an R and D Tax Credit. Beyond that, the Government will move to work smarter, adding value to change the mix of New Zealand’s exports and using and creating new technologies.
  • Work is underway to develop a Zero Carbon Act and an Independent Climate Commission. Through the $100m Green Investment Fund, the Government aims to stimulate $1 billion of new investment in low carbon industries by 2020.
  • The $1 billion Regional Development (Provincial Growth) Fund agreed with New Zealand First as part of the coalition agreement will (among other things) invest in regional rail, support the planting of a billion trees over the next 10 years, investigate the future of the upper North Island Ports, and investment in other large-scale capital projects.
  • There is also a strong commitment to forestry with the development of a NZ Forest Service to be located in regional New Zealand and the regionalisation of some other government services.
  • The necessary investment will be made in New Zealand’s health and education assets to ensure that we do not have hospitals that make people sick or schools where students cannot learn.
  • A slightly slower debt repayment track will allow the Government to make investments such as the capital injection to kick off KiwiBuild.
  • A new directive has been issued to the Overseas Investment Office and legislative changes will follow, to be introduced as part of the 100-Day Plan.
  • Where there are genuine skill gaps that need to be filled to drive sustainable economic growth, the Government will continue to support entry of people with those skills.
  • Progress has been made with the Comprehensive and Progressive Trans-Pacific Partnership and the Government will continue to pursue this style of high-quality, progressive free trade agreement with the European Union, UK and other nations.
  • As the end of major Treaty settlements is nearing, it is timely to reset the dial on how the Crown and Maori work together and how to focus on maximising the strength of Iwi.

Next steps: Half-Year Economic and Fiscal Update and 100-day plan

  • The Parental Leave and Employment Protection Amendment Bill increasing parental leave to 22 weeks from 1 July 2018 with a further increase to 26 weeks from 1 July 2020, and the Health Homes Guarantee Bill that will significantly increase minimum standards for rental housing, received their third reading on 29 November 2017.
  • A minimum wage of $16.50 an hour from 1 April 2018 will be introduced and lifted to $20 an hour with effect in April 2021.
  • Contributions to the New Zealand Super Fund will commence within the 100 days.
  • Student allowances and the living costs component of the student loan scheme will both increase by $50 per week from 1 January 2018.
  • The Families Package is an ambitious programme to give low and middle-income workers a much-needed boost in incomes and address inequality and child poverty. This will be paid for by repealing the previous Government’s tax cuts. This package will deliver increased targeted assistance to families through Working for Families changes, greater support for children in early years of life through Best Start, support for increased cost of living for seniors and those on low incomes through Winter Energy Payment and support to deal with soaring cost of rents through the Accommodation Supplement.

The Minister stated that the Budget Policy Statement will outline the Government’s priorities for Budget 2018 and show the level of operating and capital allowances for the next four Budgets. These allowances provide the expenditure necessary to deliver the Government’s policy plans, including the coalition and confidence and supply agreements. He also stated that the Half Year Economic and Fiscal Update on 14 December 2017 will include Treasury’s latest forecasts for the economy.

Source: www.beehive.govt.nz

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