The Budget - key points

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Budget 2011 - key points

1. TAX & EXPENDITURE
KiwiSaver
As indicated to the public prior to the public, the Government has introduced the following changes to KiwiSaver:

• From July 2011, the Member Tax Credit will be halved from around $20 a week to $10 a week.

• From 1 April 2012, the tax free status of employer contributions to KiwiSaver and other complying superannuation funds will end. All employer contributions will be subject to Employer Superannuation Contribution Tax (ESCT) paid at the employee’s marginal tax rate.

• The minimum employee contribution rate will rise from 2% to 3% from 1 April 2013.

• The compulsory employer contribution rate will rise from 2% to 3% from 1 April 2013.

Overall, the changes to KiwiSaver are expected to generate savings for the Government of $2.5 billion over four years.

Working for Families (WFF)
The following changes have been announced by the Government:

• A slightly lower abatement threshold of $35,000, compared with the current $36,827.

• A slightly higher abatement rate of 25c in the dollar, compared to the current 20 cents in the dollar, and

• An alignment between the Family Tax Credit (FTC) payments for children aged 16 years and over and the FTC payments for those aged 13-15.

Overall, the changes to WFF will reduce its total cost from $2.8 billion in 2011/12 to $2.6 billion in 2014/15.

Student Loans
The following changes have been announced by the Government:

• Restricting student loan eligibility for those with an overdue student loan repayment obligation of $500 or more who are in default for more than one year.

• Restricting borrowing for people aged 55 and over to tuition fees only.

• Removing the entitlement for part-time full year students to borrow for course-related costs.

• Suspending inflation adjustments to the student loan repayment threshold until 1 April 2015.

• Shortening the repayment holiday for overseas based borrowers from three years to one year, and requiring borrowers to apply for the repayment holiday and provide a New Zealand based contact person before they go overseas.

Overall, the changes are expected to result in operating savings of $277 million over five years, and capital savings totaling $170 million.


2. EDUCATION & INDUSTRY TRAINING
Schools and early childhood education will receive an extra $1.4 billion in operating and capital funding out to 2014/15, with total education spending rising to $12.2 billion in 2011/12. This includes:

• $66.5 million to increase the number of Trades Academies and Service Academies, to keep 16 and 17 year olds engaged in education and training as part of the wider Youth Guarantee.

• $51.5 million for the school network upgrade project – part of the ultra-fast broadband support for schools.

• In the tertiary education space, up to 750 additional places in high performing private training establishments, $17.5 million for English courses for refugees and migrants, reallocating youth training funding for additional Youth Guarantee places, and a 2% increase in funding for all degree and post-graduate courses.

• In the social development space, there will be an increase of $55.2 million over four years to support young people into jobs and $15 million more for other employment assistance programmes.


3. INFRASTRUCTURE/NATURAL RESOURCES
Extending the Mixed Ownership Model

The Government will extend the mixed ownership model to four state-owned energy companies and reduce its majority shareholding in Air New Zealand. This would happen in a 3-5 year programme starting in 2012, with the Government retaining a majority stake in all 5 companies and kiwi investors being first in line to purchase. It is estimated that the new model will free up $5-7 billion and it says the money raised will go towards improving New Zealand's infrastructure.

Infrastructure is a big focus in this year's budget, with an extra $1.6 billion of infrastructure spending going to broadband, rail and schools.

The spending, which includes over $500 million of reprioritised capital, follows about $3 billion of new spending in infrastructure and other major capital investments in budget 2009 and 2010.

In addition to budget initiatives, the government is also spending about $12.2 billion over the next 10 years in New Zealand's state highway network and $3.8 billion through Transpower until mid 2015 to upgrade the national grid

Water and Irrigation
The Government announced pre-Budget an Irrigation Acceleration Fund of $35 million to support the development of irrigation infrastructure proposals while the Government will also consider in a future Budget investing up to $400 million of equity in water infrastructure schemes.


4. OTHER
Christchurch Earthquake Recovery

The Government is establishing a Canterbury Earthquake Recovery Fund to account for its share of the estimated recovery costs.

The fund will initially be $5.5 billion, which will cover central government’s costs.
Government contributions to NZ Superannuation Fund to resume in 2016/17

The Government proposes to resume contributions to the NZ Superannuation Fund in 2016/17, two years earlier than expected.
Regulatory Reform
The Government has highlighted its support for both the Regulatory Standards Bill and the Spending Cap (Peoples Veto) Bill, insofar giving it careful consideration after submissions have been received.