It takes time, but you can be assured that Government has been and continues to work towards providing a solid foundation for economic diversification, writes Prime Minister Mark Brown.

Kia Orana,

I thought it was important that I provide a quick overview of our budget this week, so my team and I have put together the key points that we think are important for everyone to understand.

Following on from our 2020 ‘Budget of Blessings’ and the 2021 ‘Revival Budget’, we have decided to call this the Budget of Faith, as keeping the faith is what we need to do as we begin to rebuild our economy after the impacts of the Covid-19 pandemic.

We all know how much damage the pandemic caused to our economy, reducing the nation’s main income stream, our tourism industry, down to virtually zero almost overnight.

And ever since the pandemic first hit, Government has kept the economy going as best we can, supporting hundreds of our Cook Islands businesses and sole traders over the past two years by paying out more than $104 million in wage subsidies and grants.

At the same time, we have also been investing all we can in critical infrastructure to keep our construction and contracting industry alive and kicking. It was through the boosting of this sector with projects like bridges, roads, and airport runway repairs that we kept our economy ticking over. This strategy allowed us to prepare for the time when we would shift from responding to Covid to the recovery of our economy, which is what we are doing now.

And we can already see that all of these things that we have been doing to keep the economy running are working.

Opening our borders in January has seen our economy grow 11.5 per cent this financial year – the first step in our recovery.

Looking ahead, our GDP – the measure by which we gauge the growth of our national economy – is also currently forecast to increase by 14 per cent in 2022-23 and 7 per cent in 2023-24.

This is a very strong growth rate, and this tells us that we are making the right calls and we are making them at the right time.

Now, we have all heard about inflation and its impact overseas in New Zealand and Australia, and in the short term we expect to see prices increasing here by 4 per cent in 2022-23.

This inflation is not something Government can control, as it is coming from outside of our country – it comes with the things that we import but now cost more money.

But despite a significant drop in our national income and having to climb out of our deepest recession in history, the Budget we have put together for the country this year will still manage to provide some assistance to the more vulnerable among us.

Two key measures in this year’s Budget include raising the minimum wage to $8.50 per hour and a $20 monthly increase to the Old-Age Pension, both coming into effect from July 1.

For a minimum-wage worker on 35 hours a week, this means an additional $900 a year, while pensioners aged 60-69 will now receive $520 a month and those aged 70 and over will now receive $720 a month.

These measures come at a cost to Government of course, but I am confident that increasing the support for our pensioners and low-income earners will be affordable as our economy gathers steam – we only have to look to the recent surge in our tourism industry to see that.

You just have to go to the Saturday market or other markets around the island to see how busy we are becoming again. This is a welcome sight and I know that this benefit is being spread to our hotels and resorts all the way down to our street vendors, growers and fishermen.

But we know that we cannot rely on tourism alone to grow our economy over the longer term – and this is where economic diversification comes in.

We know that to support our private sector to invest in new industries, we first need to have the right economic foundations in place.

This means providing better internet connectivity in the Pa Enua, taking more business online, and ensuring our business and investment laws encourage a fruitful environment for all types of businesses.

It takes time, but you can be assured that Government has been and continues to work towards providing a solid foundation for economic diversification.

There is our emerging Seabed Minerals programme for instance, where significant millions will be spent on exploring and gaining knowledge of our deep ocean. And we expect some of that investment to spill over to our domestic economy, as it has already started.

Under normal circumstances, there are a number of rules we need to keep to manage our nation’s finances in a responsible way. But with Covid and the closure of our borders over the past two years, we have had to change these rules.

Currently, our number one rule is that Government cash reserves must be kept at a minimum level of three months of our total expenditure. This means that even if we have space to increase spending, if the cash reserves are at risk, we cannot.

Another important rule change is that we have increased our net debt ratio, or what percentage of GDP we can borrow. We have lifted this level to 65 per cent, which is similar to other countries.

These two rules together mean that we need to keep some cash in the bank, and that we can only borrow so much.

While our cash position has improved by more than $35 million since the last Budget, funding our response to the pandemic has come at a steep cost, resulting in borrowings of $130 million.

This is a large increase in debt, but one that still leaves us below our new threshold.

If we did not take on more debt, the consequences would have been much worse for our people and our country. We would have seen businesses go bankrupt, mortgaged homes being foreclosed and sold off, and more of our people leaving. So our economic response was a lifesaver for many.

And despite the Opposition calling for cuts to public spending, now is not the time for austerity.

Government still needs to stimulate the economy and provide fiscal interventions to help us get back on track, and we will continue do this through our Economic Recovery Roadmap, the ERR, and our capital investment programme.

This year’s Budget includes a further $5.2 million for the ERR in 2022-23, and a total of $8 million over the next four years.

This will fund a number of initiatives that are aimed at growing the economy by reducing barriers to competition, growing our labour force, making Government more efficient, and by focusing our capital investment plans on projects that can offer a greater level of economic stimulus straight away.

These capital investment projects include things like developing our government buildings in Rarotonga – the National Stadium and our Health, Justice and Police ministry buildings for example – and also work in the Pa Enua, where CIIC and ICI are developing public infrastructure in Mangaia, Tongareva, Manihiki, Rakahanga, Pukapuka and Nassau.

Before I finish, I must mention two groups of people who are very important to both our economy and our nation – and that is our healthcare workers and our teachers.

The pandemic has highlighted the importance of having enough healthcare workers, and so this Budget includes additional funding of $324,000 annually from 2022-23 – a total of $1.37 million dollars over the next four years.

We are also providing for the second tranche of teachers’ salary increases, building on the changes rolled out in September last year – this funding amounts to a total of $1.34 million over the next four years.

As I said, this year’s Budget is about keeping the faith in our plans and policies. We must balance both fiscal responsibility and the needs of our nation as we build on the momentum of the past two years. We have laid the foundations for a speedy recovery and faster future growth.

I hope you all will continue to keep that faith alongside me.

Kia Manuia.