Health and education likely to eat up NZ$800 mln of new budget spending in Budget 2012, PM Key says; 'NZ's terms of trade set to remain high'

Health and education likely to eat up NZ$800 mln of new budget spending in Budget 2012, PM Key says; 'NZ's terms of trade set to remain high'

The health and education ministries are likely to be the recipients of the NZ$800 million in new Budget spending in the upcoming 2012 Budget, Prime Minister John Key says.

Speaking to media at his post-Cabinet press conference in Wellington today, Key said Thursday's Budget Policy Statement, outlining the broad objectives of the upcoming budget, would outline the government's economic priorities this Parliamentary term.

“Within that plan we set our main priorities for this term which are: Responsibly managing the government’s finances, building a more productive and competitive economy, delivering better public services within tight financial constraints, and of course rebuilding Christchurch," Key said.

“Budget 2012 will be about sticking to that plan," he said.

“The plan also includes such things as welfare reform, and advancing the mixed ownership model to help fund more central infrastructure like 21st Century schools."

Part of the plan was allowing for only NZ$800 million in new core government spending allowances. This comes after a 'zero budget' in 2011, where increased spending for health and education was made up for by cuts to other portfolios.

“You can guess, like I can guess, that the vast bulk of that will be eaten up in health and education. That’s just enough to essentially deliver both population and inflation adjustments," Key said.

"So it’s going to be tight for both of those big spending ministries, let alone anybody else," he said.

"That shows you why the government needs to save money. If we’re going to pay for the general wage rounds that we get, and the other cost pressures, then we’re going to need to find savings in other places."

The government was committed to the NZ$800 million in new spending allowances this year and the year after, and NZ$1.2 billion the year to June 30, 2015.

“It could be lower if we really saw a catastrophic meltdown in Europe, but at the moment that seems to have stabilised a little bit in the last week or so,” Key said.

Terms of trade to stay high

Key reiterated the government was on track for a NZ$300-500 million surplus in the 2014/15 year, something he flagged in his first major speech of the year last month. That is down from a NZ$1.45 billion surplus forecast in Treasury's October 2011 pre-election update.

Despite the lower surplus due to events in Europe, Key said New Zealand's outlook still remained positive.

"Our terms of trade are expected to remain high. Our large trading partners are among the strongest performing economies in the world, and the rebuilding of Christchurch will provide impetus to the economy in coming years," he said.

(Updates with comments on economic plan, video)

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