Budget to show $10,500 rise in average full-time income over six years to 2018 English

Tuesday 15th April 2014

This year's Budget will forecast wage increases through to 2018 amounting to a $10,500 a year increase in average full time earnings over six years to $62,200 a year, says Finance Minister Bill English in a speech urging voters not to "put all of this at risk" by changing the government.

"The average full-time wage has increased from $51,700 a year to $54,700 - an increase of $3,000," English told a business audience in Wellington ahead of the May 15 annual Budget. "In the Budget next month, Treasury will forecast annual GDP (economic) growth of between 2 percent and 4 percent a year out to 2018.

"Based on that growth, Treasury's preliminary Budget forecasts show the average wage will rise further to around $62,200 a year in four years' time. This would mean an increase of another $7,500 by 2018.

"If you take that six-year period as a whole, the average wage will have gone up by $10,500, or around 20 percent, compared to inflation of just over 12 per cent over the same period."

The Treasury also forecasts an additional 170,000 jobs by 2018 and a falling unemployment rate.

However, that would be placed at risk by a change of government that promised backward-looking industry policies and higher government spending, which would drive up interest rates, said English.

"This year is likely to see a political debate between a determined government and complacent opposition parties who already believe today's good times are permanent," he told the Wellington Chamber of Commerce audience of around 300.

"While some increase in interest rates is an inevitable consequence of a growing economy, we need to do everything we can to ensure they don't rise too sharply in the next few years," said English.

"A lower interest rate cycle will mean less pressure on households with debt, more investment in productive businesses and less pressure on the exchange rate for our exporters.

"It is in that context that we will present the Budget next month."

With political debate swirling about the impact of foreign investors on New Zealand house prices, English laid much of the blame for rising property prices at the feet of local governments and their planning departments.

"It is now difficult to build some types of affordable housing in our least affordable cities," he said, citing planning rules in Auckland dictating a minimum apartment size of 40 square metres and that balconies be at least eight square metres. These rules added around $80 a week to the rent on such dwellings, he said.

"A range of other rules set minimum subdivision size, ceiling heights, bedroom size and even the width of your front door. All of these push up the cost of housing," said English. "Local body planners and councillors are not aware of the wider social and economic effects of their complex rules and processes."

Three main consequences were: pressure on house prices and interest rates by making houses more expensive; housing costs consuming more of a household's income, leading to pressure for government assistance, such as the $2 billion annual cost of the accommodation supplement already paid to 40 percent of households; and increasing inequality.

English said the government would limit new spending in the Budget to $1 billion a year.

"We don't need large lumps of new spending to get better results for our communities. The Budget will be about thoughtful targeted spending, not a spend-up."

BusinessDesk.co.nz

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