Budget speech in full

Mr Speaker, I move that the Appropriation (2000-2001 Estimates) Bill be now read a second time. It is with a sense of honour and privilege that I present today the Labour-Alliance Coalition's first budget.

The Budget 2000 does not try to do everything at once. But it does mark out a new direction. It points the way to rebuilding a fair and sustainable social and economic order.

For too long, New Zealanders have voted for one set of policies and got another. This Government will continue to honour its election commitments and thus restore faith in the political process.

For too long, New Zealand governments have ignored the growing gap between rich and poor. This Government is committed to closing the gaps.

For too long, governments have neglected provincial New Zealand. This Government will invest in the regions.

This Budget is about a new start for a new century.

All New Zealanders depend on a thriving economy. It delivers the incomes needed for personal development and fulfilment, and for active participation in society. Within the economy, markets are vital channels through which individuals make choices about employment, production, saving and consumption. The liberating power of the market mechanism must be recognised.

It is important, though, to see economic life as more than materialistic consumption; an economic system as more than a set of markets. It is in this wider context that the Budget 2000 has been constructed.

The Budget moves us, as a society, a step closer to the destination we set for ourselves through the six goals laid out in the March Policy Statement.

These are to:

* Develop an innovative economy which creates jobs and provides opportunities for all New Zealanders.

* Foster education and skills.

* Close the gaps that now divide our society.

* Restore trust in government and to promote a strong public service.

* Treasure and nurture our environment.

* Celebrate our identity as a people who defend freedom and fairness, enjoy arts, music, movement and sport, value our cultural heritage and who are committed to the Treaty of Waitangi.

These are the values that drive this Government. They will continue to create the context for our decision-making. They are the framework within which I will present the Budget announcements.

A generation ago, the 1972 Royal Commission on Social Policy defined the task of public policy as enabling all citizens to feel they belong to, and can actively participate in, society. That definition is just as relevant today as then.

We cannot, as individuals, as families and as communities, celebrate our identity if we are locked out of participation and made outsiders in our own land.

This means that the Government has to recognise that there are rights of citizenship that exist alongside rights to own and trade property. Honouring rights of citizenship is a fundamental obligation of governments. In meeting that obligation governments provide basic entitlements, and do not merely step in when markets fail.

We have the advantage of a strong economic outlook. Growth is forecast to average around 3 per cent per annum over the next three years on the back of a robust world economy and a competitive exchange rate. Unemployment is expected to reduce to just above 5 per cent by March 2002. I would like it to fall further and remain low.

There is more life in the provinces. Tourism is expanding. Exports are increasing steadily and the export base is widening. We have seen a welcome resurgence in agriculture and the prospects for primary exporters continue to look good.

This should assist in bringing the external deficit closer to sustainable levels. It is now running at around 8 per cent of gross domestic product. We should see it shrink back to about 5 per cent of GDP over the next two years.

On the fiscal front, the Government is looking ahead to substantial and rising surpluses. This year's surplus is forecast at $763 million. The 2000-01 figure is expected to rise to $1.01 billion. This is in line with the Budget Policy Statement forecast of $1 billion. Projections for the following two years show the same pattern of continuing improvement at a little over $2 billion and $2.7 billion respectively.

Those surpluses represent increased national savings. We will not spend them. We have promised that we will be a fiscally conservative Government and we will hold to that promise. The $5.9 billion spending cap we have imposed on ourselves remains in place, even though it will demand great discipline over the next two budgets.

The Budget consolidates initiatives taken since the election, complements them with new initiatives, and creates a platform from which the country can build a sense of identity, integrity, prosperity and purpose.

The foundations are access to education, to affordable housing, to health services, to a job and to an income in retirement that is consistent with peace of mind, dignity, and a capacity to participate actively in society.

Developing an innovative economy


* Economic development

In the modern age, all economies face a mix of opportunity, stress and challenge ...

Everywhere, governments are reassessing how they can best assist the private sector to manage the risks in the new economic environment, and prosper from the opportunities it presents.

A lot of money is, and always has been, spent in creating and maintaining a framework in which economies operate, change and grow. Government programmes cover a broad spectrum from developing skills, providing infrastructural supports and maintaining stable financial and market systems, to more specific supports like provision of business information and trade assistance.

The challenge now is to coordinate those efforts, continuously monitor them to improve their effectiveness, and to provide resources to upgrade the level and scope of the economic development effort.

As one part of the wider policy framework, we promised that we would increase investment in industry assistance by $100 million a year before the end of our first term in office.

We have done better than that. Today's budget allocates an additional $112.5 million a year from 2002-03. We will get there in three roughly equal instalments beginning with $34 million in the coming year, rising to just over $73 million in 2001-02 and reaching $112.5 million in the third year.

The money will be spent on a range of services, including a strategic investment service, early stage financing assistance and developing business skills. And not just in the cities, but in the regions also.

We do not want to pick winners. We do not want to regulate, subsidise or compel. We do want to help businesses find new markets and become winners. At times that means getting the regulatory framework right so that short-term opportunism does not damage the wider public commercial good. At times it means ensuring the right financing options are available. At times it means taking a direct leadership role.

Industry New Zealand will work with firms with good growth potential to enable them to fully realise that potential. Specifically it will assist them to develop business plans, build partnerships with other businesses and approach financiers. It will also work with Trade New Zealand to actively market New Zealand as an investment destination.

The funding also allows for the establishment of a nationwide regional development strategy to be administered by Industry New Zealand in partnership with local authorities and other local groups. This will be reinforced by a coordinated central government effort, organised through the Ministry of Economic Development, in areas with particularly acute problems.

The Government will provide financial support to help communities through the process of developing their plans, developing the capacity to implement their plans and implementing them ...

A further increase of just under $3.5 million a year has been allocated to the Ministry of Economic Development specifically for policy advice on economic development.

* The knowledge economy

This Government is committed to assisting the transformation of the economy from our current over-reliance on commodity production to the knowledge intensive industries of the future. The knowledge economy encompasses e-commerce but is bigger than that. It is about adding intelligence, creativity and technological sophistication to our production and export base.

To make this new economy a reality, we need to invest much more in research, science and technology. I am proud to announce today new funding of $30 million for research and development. Together with initiatives already under way, the total research and development vote will increase by over $43 million...

A record $21 million will go toward encouraging more active research and development by the private sector. This is the largest ever increase in Government support for private sector research and development. The support comprises a $9 million increase in funding for Technology New Zealand and a new $12 million grants programme.

The Government decided that grants were a better, safer and fairer option than tax breaks. I expect to see an expansion of the new grants programme in future budgets.

The rest of the package includes a $3 million increase to the New Economy Research Fund and a $2 million increase to the Marsden Fund. Both finance long-term, cutting edge research projects. A further $1.5 million will go toward health research.

To enhance our trade, cultural and other linkages with the important Latin American market, this Budget allocates additional funding for the opening of a new embassy in Brasilia.

* E-commerce

The Internet has the capacity to substantially improve New Zealand's economic performance. But if we are neither quick enough nor smart enough to take these new technologies and make them our own, we risk falling behind the rest of the world.

We will host an electronic commerce summit later this year to get community and industry input into developing an e-commerce strategy that is world-best.

In the public sector, our aim is that all government information and services should be available on the Internet and other technologies as they emerge. Operational funding of around $16 million over four years and capital of over $1 million has been set aside for this purpose.

The Budget also provides Trade New Zealand with an additional $9.5 million over two years to expand their already impressive trade development networks using e-business solutions.

Fostering education and skills


* Education

Spending on education increases by almost $300 million next year from pre-election levels, including $200 million in new initiatives. But our initiatives are not limited to money. We have also ended bulk-funding. The redistribution of the associated funds makes a small contribution to the ideal that opportunity in early life should not be determined by who or how well off the child's parents are.

We have committed an additional $15 million per school year for school operational grants. There will be a capital injection next year of $160 million. This is the largest-ever school property works programme. It will be used to meet roll growth and to upgrade existing schools.

The Government's goal is to ensure that all New Zealanders have the best possible chance to develop their potential, and to equip themselves to meet the demands of a fast-changing world.

A good start is crucial to later success. We are increasing funding to early childhood education by over $10 million a year.

We need also to reduce the number of pupils who leave school without basic literacy and numeracy skills. We will put another $23 million into this area over the next four years.

Successful students need good study habits. We are providing up to $2 million a year for primary schools in poorer socio-economic areas to develop homework centres so that all children have an appropriate environment in which to study.

The low educational attainment rates of Maori and Pacific children must be addressed. Additional funding will be provided to attract more Maori and Pacific people into teaching and to provide more resources for the development of Maori and Pacific peoples' language and culture.

To put further impetus behind the need to raise Maori achievement, a hui taumata of experts and elders will be held in October to develop a path forward.

Modern Apprenticeships is a major new initiative to regain momentum in developing technological skills. Over $5.5 million will go to rebuilding apprenticeship programmes in the next financial year: $42 million over the four year period. An additional $23 million over four years will go to the Industry Training Fund to subsidise trainees' costs.

The Government has already moved to honour its commitment to lower the cost to students of tertiary education. We will write off the interest on student loans while students are studying and have reversed the previous Government's decision to increase the student loan repayment rate. This will significantly increase the subsidy to students through the loans scheme, at a cost of $420 million over four years.

We will move to further reduce the study costs to students by increasing the tertiary tuition subsidy by $110 million over the next four years. And we will provide $12 million over the same period to improve the participation of Maori and other groups currently under-represented at our universities and polytechnics.

* Employment

I am confident that an active industry policy, harnessed to a streamlined and much improved training system, and a vibrant research and development programme, will generate quality jobs.

A job though, at any price, is not the standard that a participatory democracy sets itself. We spend too much time at work, are too much defined by work, and express ourselves socially too much through work, for work to be set aside from social policy.

Yet work is the biggest part of the well-being of most of us. That is why the quality of working life is a vital component of the quality of participation in economic and social life. The Government has moved to improve the quality of working life in three critical ways.

The minimum wage has been increased, employment law is being rebalanced, and the accident prevention, rehabilitation and compensation system is being refocused in its purpose while ensuring costs are carefully controlled.

This Government will not attempt to create a trade-off between jobs and rights ...

Unashamedly, this Government sees fairness at work, and even-handed relationships in the workplace, as a part of its social and economic objectives.

Every individual should have the opportunity to participate in the labour market ... The Government will provide $21 million in additional funding to provide vocational services for people with disabilities.

We know the cost of childcare is an impediment for many parents ... Accordingly, we are raising from 30 to 37 the maximum number of hours a week for childcare and Out of School Care subsidies during school holidays.

We will also invest over $70 million in the next four years on creating new job opportunities in areas of high disadvantage. There will be $21 million for the development of Maori social employment services, with a further $14 million targeted specifically to supporting Maori women into business and training.

The Government is spending $7 million on Pacific peoples' organisational development. This will build the capacity and capability of Pacific organisations so that they can deliver services efficiently, and promote economic and community development.

Closing the gaps


A key task the Government has set for itself is closing the divisive and debilitating gaps that have opened up throughout New Zealand society. There are gaps between the skilled and the unskilled, between employment-rich and employment-poor communities, and between the cities and the provinces.

But the most urgent and visible gaps exist between Maori and Pacific communities and others.

A lot of effort to close the gaps is going through traditional delivery channels: schools, polytechnics, universities, housing agencies and hospitals. A lot is also going through Maori and Pacific controlled and managed organisations.

We need to know whether that effort is achieving the intended results. We are making a significant investment in improving the information base and our monitoring capability. Te Puni Kokiri will receive an extra $12 million over the next four years to monitor the effectiveness of social policy programmes for Maori.

We are also making government departments more accountable for their delivery to Maori and Pacific peoples. From this year, departmental chief executives will be required to disclose in their annual reports what steps they are taking to close the gaps, and will be held accountable for their effectiveness.

And we are building the ability of Maori and Pacific communities to realise their own aspirations. The Budget dedicates $114 million over the next four years to build the capacity of Maori and Pacific peoples to design and deliver their own initiatives.

The needs of Maori landowners are often impeded by issues of multiple ownership. The Maori Land Court will get an additional $8 million over the four-year period to help overcome some of these barriers ...

I have made provision for a fund of $50 million for Closing the Gaps initiatives that are developed between budgets. This will allow us to put in place innovative programmes as soon as they are developed.

Restoring trust and rebuilding public services


To restore trust in the political process, we have introduced legislation to discourage MPs from party hopping. We have also moved quickly to honour key election commitments. This Budget continues that process.

* Housing

The Government is committed to the elimination of poverty. There is a widespread agreement that the housing policies of the previous Government were poorly targeted. They resulted in empty state houses alongside overcrowding. Poor housing is associated with low health status and poor educational achievement, particularly among the young.

From December 1 this year, low-income state tenants will pay no more than 25 per cent of their net income in rent. Around 40,000 households will benefit, by an average of about $40 a week ...

This honours a key election pledge of both Coalition parties. It has not been a low cost option, but the Government is confident that the personal, educational, health, employment and social benefits that will flow from a better housed population will far outweigh the narrow commercial focus that has driven housing policy during the last decade.

* Health

New Zealanders receive excellent health services from dedicated health workers. There is no doubt, though, that no amount of dedication and commitment can provide satisfactory service if the health system is poorly aligned and under-resourced ...

We have committed $412 million more to health in the coming year. Our commitment to a healthy nation is also reflected in the reorganisation of health services to put them more directly under the control of the communities they serve.

It is reflected also in a major new injection of $257 million over the next four years into mental health. Mental health services have been dangerously underfunded for years, at the cost of considerable pain to people with mental illness and to the general community.

Disability support services receive an extra $40 million over the next four years. Access to home support and personal care services is being improved, as is support to care givers.

And this Budget provides for more elective surgery: $74 million a year more ...

Elective treatments could be seen as luxuries: not essential to the maintenance of life. But for those who need them and cannot afford them, the sentence can be exclusion. Participation must not be the preserve of those who can afford it. Funding elective health treatment is a statement that the Government is interested in social well-being, not just social welfare.

It is crucial that the gaps in health status between Maori and Pakeha are closed. Smoking is estimated to cause 4700 deaths every year. Maori are twice as likely to smoke as non-Maori. We are therefore focusing on Maori with our investment of over $20 million through the next four years for smoking cessation initiatives ...

* Social services

The extension of economic opportunity is not only the basis of economic prosperity, but also of social justice. Meeting the world's demand for innovation and quality requires that every one of us has the opportunity to contribute to New Zealand's economic and social renewal.

This in turn requires strong social institutions, strong families and strong communities that enable people and businesses to grow, adapt and succeed.

The Government has allocated $36 million in the next financial year, increasing to almost $40 million in 2003-04, to the Department of Child, Youth and Family Services to continue improving the quality of its service, particularly for Maori and Pacific clients, and to enhance the role of the community in helping at risk groups.

This includes over $1 million a year of extra funding to not-for-profit organisations providing family violence prevention services, including women's refuge.

* Law and order

A substantial part of this speech has been devoted to removing the barriers to equitable participation in economic and social life ... There must be an acceptance, though, of social obligation.

Where there are rights there are also responsibilities. The Government therefore makes no apology for measures to strengthen the justice system, and to upgrade crime prevention. Sustainable communities are safe communities.

Youth crime and burglary are the stepping-stones to serious criminal careers. The Government is taking both a preventative and treatment approach to each problem. For youth crime this takes the form of youth mentoring projects and resourcing for police to address youth offending. For burglary, the strategy is to prevent repeat burglary victimisation by funding education and security measures while also increasing funding for police to target burglars.

In the past the criminal justice system has tended to focus on the perpetrators of crimes, while ignoring the victims. This Government will remedy that imbalance. We have extended services for victims and established a fund for them to attend court hearings outside their residential area.

We have also identified restorative justice as an alternative means of resolution that addresses the needs of the victim and the problems of the offender ... An extra $6.6 million over four years will be allocated to this purpose.

Nurturing the environment


The Government has announced that we intend to ratify the Kyoto Protocol on Climate Change by mid-2002 and has allocated funding of over $2 million a year for work on measures to ensure that we are able to meet our climate change commitments.

Improving New Zealand's energy efficiency will help us meet these obligations. The Energy Efficiency and Conservation Authority is being established as a crown entity, and is getting a $3 million funding boost.

Many of New Zealand's indigenous species are unique to this country. This uniqueness makes responsibility for their continued existence entirely ours ...

The New Zealand Biodiversity Strategy, released in March this year, sets out the Government's plan to halt the decline in New Zealand's indigenous biodiversity - our native species and the ecosystems that support them.

It sets national goals, over a 20-year timeframe. The Government has made a commitment to provide additional funding of $18 million in the coming year and up to $28 million in the following year towards the achievement of these goals. This amount will then be increased by a further $10 million each year, peaking at $55 million in 2004-05 ...

Implementation of the Biodiversity Strategy has begun already. Priority actions have been identified that will lead to the greatest gains for biodiversity in the first five years.

Building a national identity


Outside of work, New Zealanders express themselves and develop their talents through participation in the arts and music, through movement and sports, and in recreational pursuits ...

The Prime Minister and Minister for Arts, Culture and Heritage has already announced a package of $146 million for the creative industries. We are allocating $16 million to fund three high performance sports centres for the 2004 Olympic Games and another $5 million for the 2003 America's Cup defence.

To encourage emerging young sports talent, we are establishing funding for sports education scholarships. These will assist athletes to juggle tertiary study with the demands of representing New Zealand at an international and elite level.

Revenue

This Government is committed to a robust, broad-based tax system that raises revenue both fairly and efficiently. We also want to ensure that the business and wider community have certainty about the way in which tax issues will be managed ...

To this end we have adopted the following revenue strategy: "To generate the Government's revenue requirements at least possible economic cost, whilst supporting the Government's equity objectives."

This leads to the following tax policy priorities:

* Maintaining revenue flows.

* Minimising the economic costs of the tax system.

* Tax simplification.

* Maintaining the integrity of the tax system by encouraging voluntary compliance and reducing avoidance.

* Maintaining a direct tax system augmented by broadly based indirect taxes.

We are continuing to strengthen anti-avoidance measures and to simplify tax compliance, particularly for small and medium-sized businesses. Some of the recommendations outlined in the discussion document Less Taxing Tax are in the process of being legislated in the March and May tax bills this year. Other proposals from that document will be developed for legislation in the October bill this year.

Another initiative with the potential to simplify the way taxpayers interact with the Inland Revenue Department is the development of technology-based systems that expand the role of third-party intermediaries in the tax system ...

Other simplification ideas are on the drawing board or are under way, including the rewrite of the Income Tax Act and the post-implementation review of the compliance and penalties regime.

But we are also mindful that the tax system's fairness and efficiency is constantly challenged by changing technology, growing globalisation and its own increasing complexity. We will set up a broad-based and wide-ranging tax review to advise on the principles and structures best suited to sustaining a robust revenue base over the long term.

I am reaffirming the Government's very clear commitment to seeking a popular mandate at the next election for any major recommendations made by the review.

Tax policy will not stand still until the review is completed. This Budget contains two new initiatives designed to maintain the tax base: we will move to prevent the inappropriate use of a trust for income-splitting with a minor; and we will remove the ability of a company to elect the 19.5 per cent resident withholding tax when the 33 per cent rate should apply.

Providing for the ageing population


We have safeguarded the relative living standards of today's superannuitants by restoring the floor for New Zealand Superannuation to 65 per cent of the average ordinary time net wage. We did this because we are committed to providing, from age 65, a universal pension that is capable of supporting a reasonable standard of living.

All the evidence suggests that this is very much what the New Zealand public wants and expects. The political challenge now is to deliver on that aspiration by putting New Zealand Superannuation on to a sustainable long-term footing.

The ratio of those aged 65 and over to those in the working age population is projected to more than double by 2051. This means that spending on New Zealand Superannuation and health are likely to grow faster than GDP.

The problem is not confined to New Zealand. It is not even most acute in New Zealand. But it does demand a response. There are no easy options. There is still time but the window of opportunity will soon blow shut.

We can prepare for this by setting aside an allowance now to smooth out the anticipated costs of supporting the baby-boomers in their retirement.

The Government has not yet finalised details of its policy approach towards prefunding. But the implications at a general level are clear.

In the medium term, prefunding will require the Government to generate cash flows sufficient to meet our debt commitments and to make the necessary payments to the proposed New Zealand Superannuation Fund.

This means the Government must increase structural fiscal surpluses from current estimated levels, which means in turn, forgoing opportunities we would otherwise have had to increase spending or reduce taxes. But while it may appear attractive to increase spending or reduce taxes now, it is not responsible in view of future fiscal pressures.

The risk is in delays. If we do not act soon, and act decisively, a core element in our support structure will become unsustainable. At that point, future governments will have only three equally unpalatable options: large tax hikes, big cuts in the level of New Zealand Superannuation, or tough age, work, income or asset tests to limit eligibility.

Conclusion


Education, housing, health and dignity in retirement are the core challenges of any civilised democracy. These programmes improve the participation of all New Zealanders in the full range of opportunities that a productive economy makes possible. The problem that we face as a society is that for too long participation has been a privilege, not a right.

This Budget begins to redress the balance.

There is something in this Budget for everyone, but because capacity to engage in social life is uneven, improving that capacity will require more to be spent on those who have been excluded.

I have talked about enabling people to participate in a vibrant social democracy. That is a strand that runs through the broader design and particular detail of this Budget. We must acknowledge, though, that participation, to be effective, has to be sustainable.

The Government has set itself conservative fiscal targets and established tight financial disciplines. More work needs to be done to get full value for the public dollar. That aside, the Government is determined to maintain positive operating balances, on average, over the economic cycle.

The money we are spending is money we have raised. We are not raiding the piggy bank or mortgaging the future.

There is one regret. I would dearly have liked to have spent more on many deserving projects that would have contributed to our goals. They will have to wait. I have had to make grudging provision for what I have called the $200 million pile of bones in the cupboard. I refer to a series of unrealistic spending cuts which had been built into budget baselines and which I have had to backfill.

At the start of this speech I indicated that the Budget 2000 was but one step in a longer journey. There is a lot to be done, and patience will need to be the country's watchword.

Patience will be rewarded if the measures we take are integrated and consistent with our overarching objectives. This B