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Positive wave begins to brighten the economy

The worst times are now behind us and the risks of another global crisis have lessened considerably.

So the Government’s focus has moved from managing our way through a recession, with persistent budget deficits, to managing a growing economy.

Initially, growth in the economy has been driven by low interest rates, high prices for our exports, a catch-up in housing supply and the rebuilding of Christchurch.

But this momentum has now turned into a much broader recovery where consumer and business confidence has lifted, employment is rising and wages on average are increasing faster than the cost of living.

Sustaining growth

Our focus is on sustaining economic growth over the medium term, so the economy does not just burn brightly for a couple of years and then run out of oxygen.

Because when we talk about the economy, about GDP and balance of payments, we are talking about people’s jobs, their wages, and the costs they face in going about their daily lives and raising their families.

Therefore, it’s hugely important to continue the progress we’ve recently been making.

Over the past year, for example, 66,000 more people have got a job.

Average weekly wages have gone up 2.8%, compared to inflation of only 1.6%. The economy as a whole has grown 3.1%, one of the faster growth rates in the developed world.

The forthcoming Budget 2014 (on May 15) will show that this employment growth is forecast to continue and the unemployment rate is expected to fall.

Wages are forecast to continue rising faster than inflation and economic growth is forecast to continue. We are therefore setting out to manage the growing economy with a five-to-10-year view in mind.

Our task is to take the opportunity of a reasonable growth outlook to deepen investment, upgrade skills, intensify and diversify our export base and become more competitive.

Disciplined spending

We have had an on-going commitment to discipline around government spending and that will continue this year, next year and for as long as we lead the Government.

In the last five years of the previous Labour Government, new operating spending each budget averaged $2.7 billion a year. But in the five budgets of our Government, new operating spending has averaged only $250 million a year. That is less than a tenth of the rate of new spending under Labour.

In the last five years of Labour, Government spending in total went up 50%

Finance Minister Bill English often describes that period as a kind of experiment to determine if indiscriminately spending large amounts of money would solve social problems. It turned out to be not so.

In contrast, we have had a different approach, which is to focus on what is really driving social outcomes like crime, welfare dependency and underachievement at school, and address those underlying causes. That approach is delivering real results, without breaking the bank. In fact, over the longer term it saves money.

In prisons, for example, we have focused very strongly on literacy and numeracy, skills training, treatment for drug and alcohol addiction, working prisons and reintegration of ex-prisoners into the community.

That is giving offenders the opportunity to turn their lives around and stay away from crime.

Already this approach has reduced reoffending by 12.6% which is halfway to the target we have set ourselves of a 25% drop. So far, it has meant around 2300 fewer offenders and 9300 fewer victims of crime each year.

In welfare, we have focused on getting people off benefits and into work, because that is the best way to lift people and their families out of poverty.

This has involved an upfront investment in case management and support, but it is expected to have a considerable pay-off as people leave benefit to get established in full-time work.

Addressing these and other issues has not meant big increases in spending.

In fact, we have found that the possibility of more spending can be a distraction from a growing focus in the public sector on solving complex problems rather than throwing money at them.

Government spending has actually been declining as a proportion of the economy, at the same time as we have been achieving these results.

In 2008-2009, government spending came to 34.5% of GDP. In the coming year, it is forecast to be 30.6% before going under 30% and staying there.

John Key is Prime Minister of New Zealand. The above is a small portion of his speech delivered at the North Harbour Club at the North Harbour Stadium on April 2, 2014.

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