Economic' />

As New Zealand emerges from recession, the Government's focus has firmly shifted towards significantly lifting our economic performance.

Economic growth matters because it creates jobs, lifts incomes and improves the living standards of families. Only through lifting our economic growth can we close the gap with our trading partners and create new jobs to replace those lost during the recession.

Making changes that help permanently lift our economic performance will be the overriding focus of the 2010 Budget.

Heading into 2010, we have a good platform. Economic growth is stronger than expected and unemployment lower, thanks to a more stable global economy and the Government's success in managing New Zealand through the recession.

New Zealand is on the road to recovery, but we still face risks. Global growth may yet weaken again and there are multiple challenges in our own economy.

Since 2000, the economy has performed below its potential because of growing roadblocks to enterprise and investment. In recent years, growth has been both low and unbalanced, while increases in Government expenditure have been very large.

The tradeable side of the economy - exports and those industries that face international competition - has been in recession for five years, with output now some 10 per cent below 2005 levels.

By contrast, the public sector has grown rapidly, but with poor productivity. That has lowered the economy's overall productivity. Unless we can turn this around and create the right environment for businesses to compete on the world stage, we will not achieve the sustained increase in incomes the Government aspires to.

Before looking forward it is important to reflect on the past year. A year ago, global markets were in freefall and many businesses were fighting to keep their doors open as banks stopped lending. The Treasury forecast unemployment would hit 8 per cent.

Our immediate concern was to ensure that as many people as possible retained their jobs. We struck a balance between maintaining spending and controlling debt and we put in place a rolling maul of initiatives to support families and jobs.

This approach has worked. Revised forecasts suggest unemployment will now peak at about 7 per cent - 17,000 lower than Budget projections - and far lower than the devastating scale witnessed in the United States and Europe.

Protecting New Zealanders from the sharp edges of the recession was an urgent focus for us in 2009. However, while we were fighting the recession, we were busy preparing the economy for recovery.

We have identified six key areas as potential drivers of growth. These are investment in productive infrastructure, removing red tape and improving regulation, supporting business innovation and trade, improving education and lifting skills, lifting productivity and improving services in the public sector, and strengthening the tax system. The 2010 Budget will feature initiatives across these areas.

However, as a Government, we don't have a monopoly on bright ideas. That's why we have also set some of the best minds in the country the task of coming up with ways to lift growth.

Some of these groups have already reported back, such as the Capital Markets Development Taskforce and the 2025 Taskforce. Others such as the National Infrastructure Plan and the report of the Victoria University-led Tax Working Group will be presented to Government and released in coming weeks.

These reports will canvass a range of ideas and options. As a Government we will look through them and pick out the best and most practical ideas. They will form part of the 2010 Budget.

It is also important to note our actions to promote growth so far. We have completed the first stage of Resource Management Act reforms. We have taken decisive action to sort out the electricity sector, and have put red tape under the microscope, undertaking reviews of 14 major pieces of legislation.

Over the next five years, we will spend an unprecedented $7.5 billion upgrading the nations' economic arteries, including our key roading, electricity, and broadband networks.

We have moved to get better value out of Government spending - capping the number of bureaucrats, shifting $2 billion of low-priority spending into frontline services, and ensuring the Crown's $100 billion of assets are better managed.

We have also strengthened New Zealand's trade networks, completing or signing trade deals with Malaysia, Hong Kong and the Gulf Co-operation Council in the Middle East. In addition, we have taken the first steps towards entering free-trade negotiations with the United States.

The crisis of the past year has hit most countries worse than New Zealand. Many will be saddled with permanently higher debt and will be forced to raise taxes.

New Zealand has a unique opportunity to emerge from the recession in a stronger position than these countries. Sound finances and low taxes could be a key point of difference in attracting business investment and skilled people here.

I'm pleased New Zealand has come through a once-in-a-generation world crisis in better shape than most other countries. However, the crisis has left a hole in the Government's books that will take several years to rectify. In addition, it has left many New Zealanders out of work, which has a profound impact on them and their families.

The challenge now is to get the economy growing again at a stronger rate that meets our jobs and income aspirations.

The 2009 Budget got us on the road to recovery. The 2010 Budget will build on that to ensure we significantly lift our economic performance.

Bill English is Minister of Finance.