B.2 & B.3 | 1
Minister’s Statement
Budget 2007 focuses on sustainability ensuring our economy, environment, and social
fabric are set on a course that protects our future generations. This Government is
committed to sustainable action on all those fronts when advancing policies and initiatives
in its Families Young and Old, Economic Transformation, and National Identity objectives.
In the medium term we face particular economic and fiscal sustainability challenges. We
have already acted to mitigate some of these challenges for example, by establishing the
New Zealand Superannuation (NZS) Fund to address some of the future costs of our
ageing population. Budget 2007 is about doing more to meet these challenges, such as
raising our household savings and increasing productivity.
Medium-term challenges – saving and investing
Our household saving rate is low by world standards. There is also an imbalance in our
savings with relatively high housing investment compared with financial assets. This
creates difficulties for us it means our capital markets are too shallow and we must
borrow from overseas to finance investment in our businesses. Foreign lenders demand a
premium, so this borrowing not only increases private debt but also means we are paying a
higher price for the capital we need to grow our economy.
In order to drive economic transformation, New Zealand must clearly distinguish itself in the
global economy as a dynamic and competitive place to do business. We must increase
incentives for investing and innovating in our economy, which will drive the productivity
improvements we need to take a sustainable step up in our living standards.
Short-term imbalances – current account deficit, higher inflation, high exchange rate
The strong growth performance over the first two terms of the Labour-led Government has
come with short-term challenges. Macroeconomic imbalances have emerged in the form of
a large current account deficit, higher inflation, and a very high exchange rat