1. AARON GILMORE (National) Link to this
to the Minister of Finance
What fiscal challenges does the Government face as the economy comes out of recession?
Hon BILL ENGLISH (Minister of Finance) Link to this
One of the main challenges for the Government coming out of the recession will be to continue to provide a high level of public services, particularly to those New Zealanders who are most vulnerable, but to do so at a time when the global recession has had a significant impact on the Government’s books. We have set a target of $1.1 billion new operating allowance for future Budgets. This will be sufficient to maintain public services, particularly for those vulnerable New Zealanders, if the Government is disciplined and we find new ways of providing those services New Zealanders have come to expect.
Quite significant adjustments will be required to operate within the new environment. For instance, the average base salary for the public sector in the last 12 months ended June 2009 rose by 5.3 percent. The Government is open to negotiations of future pay increases, but we have to be buying better ways of working, primarily because of our obligation to provide public services to New Zealanders who are vulnerable and New Zealanders who need those services.
The main impediment is overcoming the legacy of mismanagement and waste left by the previous Government. The current Government is spending days and days trying to untangle organisations with weak governance, poor financial performance, and services that cost more than they should.
John BoscawenWhat are the Minister’s plans to achieve the Government’s concrete goal of closing the income gap with Australia by 2025, given that current Treasury projections show that the New Zealand economy is set to grow by only 2.5 percent a year, well short of the 4 percent required and identified by him at the Finance and Expenditure Committee meeting this morning?
The Government has outlined a plan, which I am sure will unfold to the member’s satisfaction. It involves investment in infrastructure, more productive public services, less red tape, a world-class tax system, improved skills, a focus on literacy and numeracy, and upgrading our innovation and business support system.
Hon Sir Roger Douglas Link to this
Is the Minister dedicated to lower rates of personal taxation; if so, why did he base his forecast in Budget 2009 on “a steady increase in the tax burden on the economy.”, a forecast that by 2022 would see fiscal drag push the average income earner into the top tax bracket?
The member has put his finger on a pretty critical issue as part of our outlook. The forecasts in the Budget that showed public debt coming under control include assumptions that as incomes rise with inflation, someone on the average wage after the year 2020 will end up paying the top tax rate. That is clearly unsatisfactory, and it points out the challenge that New Zealand has to live within our means as we come out of this recession and overcome the impact of the recession on our books. We cannot allow the situation to unfold where someone on the average wage ends up paying the top tax rate.