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Finance Minister Bill English has announced that New Zealand’s government guarantee for wholesale bond issues by banks will end on April 30, following the end of a similar Australian guarantee from March 31.

The guarantee was used by New Zealand’s banks to issue NZ$10.3 billion worth of bonds under 24 guarantee certificates. There have been no payouts and the guarantee fees earned the government NZ$290 million in fees, English said.

The guarantee was set up in November 2008 in the middle of the financial crisis after Australia’s government set up a similar scheme.

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Finance Minister Bill English has said Treasury had advised him in the last couple of days that New Zealand’s net foreign debt was expected to rise within the next 4 years to around NZ$240 billion from around NZ$170 billion currently. (Update 1 includes details from subsequent news conference on debt risks and the leaky building issue)

New Zealand’s net debt, most of which is private rather than public debt, stood at NZ$173 billion or 93.7% of GDP (total NZ$185 billion) at the end of the September quarter of 2009, Statistics NZ data shows. Nominal GDP growth of 5% would generate total GDP of NZ$224 billion within 4 years, which implies New Zealand’s net foreign debt would rise to over 110% of GDP by then, which for most developed countries would be considered unsustainable.

English told the Trans Tasman Business Council this would constrain New Zealand’s ability to grow and consume in coming years.

“A big portion of our growth will be consumed in servicing that debt,” he said.

English later told a news conference that New Zealand needed to lift its economic growth to be able to handle this increase in its net foreign debt. He said the government’s changes to the tax system and other settings for the economy were designed to lift economic growth over the longer term.

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Finance Minister Bill English has unveiled a National Infrastructure Plan that has identified the need for a second Auckland harbour crossing within the next 10 to 20 years. It did not detail immediately what form the crossing would take (either a bridge or tunnel) or how much it would cost.

“The existing Auckland Harbour Bridge is being strengthened to ensure it remains a strong, safe and viable link long into the future. However, building an additional harbour crossing is an important priority as the city grows, and it is a key component of the government’s infrastructure plans for Auckland,” the Plan said.

English said the first National Infrastructure Plan covered a 20 year horizon and had identified NZ$6 billion in government spending a year on physical assets, and that the government held NZ$110 billion worth of infrastructure assets. The plan provided a snapshot of public and private infrastructure, planned investment and the government’s priorities.

“It gives infrastructure providers greater certainty about the Government’s plans and ensures that planners and stakeholders have a clear sense of what is happening across a range of sectors,” English said in a speech to the Trans Tasman Business Council.

I am reporting from this speech and will update with more details through the afternoon below.

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David Chaston presents a Special Report on the half year Crown accounts and why we need some serious innovation in the forthcoming Budget announcement, brought to you in association with BNZ

On May 20, Finance Minister Bill English will present his second Budget to Parliament.

It will be one of the more eagerly awaited policy statements from this government.

This year we have had the
- 2025 Commission,
- the Tax Working Group,
- and the Capital Markets Taskforce.
all appointed by this government to look at some tricky issues, ones that require special leadership to solve.

They have now all reported back but the reaction from the Prime Minister, and his cabinet colleagues has hardly been enthusiastic.

The Finance Minister clearly noted the challenge the country faced at last year’s Budget review, pointing out that unless something significant was changed, we all face a “demoralizing trudge” out of the debt binge we had over the past ten years or so.

Surpluses are not expected to return until 2016 at the earliest – until then we will be adding public debt that grows from 5% of GDP to 35%. And this is on top of 120% of GDP incurred by the private sector, basically for houses and farms.

We shouldn’t be trying to solve our debt problem by borrowing more, or shifting debt from the private sector to the public sector.

Today we got the Crown accounts, the status at December 2009.

At first glance, they look better than expected.

But look a little deeper, and what is keeping things this way are a series of one-off positives. Things like …
- backing off some of the deposit guarantee provisions
- better settlements with the banks over their tax cases
- shifting out Treaty of Waitangi settlements
- and lower interest rates and lower immediate borrowing requirements.

But, few of those things will get repeated.

Tax revenues aren’t holding up well
- taxes on individuals are more than $400 million less than originally budgeted,
- and $250 million less than the Treasury’s own half year fiscal update,
and without the bank tax settlements, corporate taxes collected are notably less as well.

It is only GST that shows any chance of achieving last years Budget estimate on a sustainable basis.

The Tax Working Group declared our tax system ‘broken’. It needs a comprehensive fix, for all the reasons that we have explored on this website.

But it seems unlikely we are going to get a proper fix on May 20, based on the Prime Minister’s recent equivocations.

All that seems likely is a stream of sickly government accounts showing revenues less than expenditure and rising debt levels, all to be paid for by the next generation of taxpayers and voters.

Or, until we get real leadership.

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David Chaston details the key news in 90 seconds at 9am in association with BNZ, including news with news that Bill English has been dampening expectations about the amount of reform there will be in the upcoming budget.

He is now strongly hinting that the government is unlikely to align the personal / trust / and corporate tax rates.

In fact, finding a revenue-neutral set of reforms without making meaningful reductions in government spending is proving too hard, it seems.

There are also reports the Government is intensively polling around these issues, trying to ensure it doesn’t get its supporter base too grumpy.

And, the Government plans to create a ‘Super regulator’ for capital markets that combines the Securities Commission, the Companies Office and the disciplinary section of the NZX. All aimed at rebuilding confidence in stock markets and other securities.

In the US, there are reports overnight that manufacturers there are starting to hire, with both call-backs of laid-off workers, and new hires on the increase, as prospects improve.

However, there was also a report that new jobless claims for unemployment benefits are still rising.

And Wal-Mart, the world’s largest retailer, reported its 4th quarter earnings, and that showed a 1.6% decline in sales of its US stores. It put the decline down to less store traffic, and interestingly to deflation in the price of groceries and electronics – items that make up 40% of its trade.

But it is an enterprise that benefits from deflation – its profits jumped to record levels.

Overnight markets were quiet, with exchange rates pretty much unchanged. However, the Euro continues to take a hammering, and it is now at its lowest level against the NZD in more than a year. The UK Pound is also starting to come under pressure.

Finally, out today are the six month Crown accounts, which will give an early indication of the size of Bill English’s immediate problems.

Bernard Hickey is reporting from Wellington today and will be back on Monday.

Finance Minister Bill English was asked by a couple of questioners at a Massey University Finance conference in Auckland today about his advice to young professionals thinking of leaving New Zealand because of relatively low wages and a lack of opportunities. One queried whether the government was being ambitious enough with its tax reforms.

One asked what his advice would be to a young New Zealander who wanted to work overseas. English replied:

“Just Fly Air New Zealand. Go off and do it. Any Kiwi kid is a globally attractive human resource.”

But English said the government’s role was to reform the economy enough to make it attractive enough for those New Zealanders to come home when it was time to have a family.

Asked what he told his own children at the breakfast table, he said: “I tell them I’m going off to work so that when they’re 30 they can be back here to raise their kids.”

English said the aim was to make New Zealand attractive for those wanting to run and start small businesses, rather than for those working in very global big businesses. “If you want to run a big oil refinery or be an M&A banker then off you go,” he said, adding that those who wanted a more entrepreneurial and innovative place to live and work should be able to return home.

He said there were no magic bullets for reforming the economy.
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