The New Zealand government yesterday lifted infrastructure spending by nearly NZ$8 billion (US$5 billion) to support jobs over five years in its annual budget, while more than doubling borrowing to steer the economy through the global recession.
In an unprecedented move, it also shelved two rounds of personal tax cuts due this year and in 2011, suspended government cash injections into state retirement funds and slowed some areas of government spending to avert an even bigger debt blowout in the next decade.
Within hours of the budget, credit rating agency Standard Poor’s upgraded its outlook on New Zealand’s AA+ rating to stable from negative.
S&P, which had earlier warned that ballooning debt could lead to a downgrade of New Zealand’s rating, said the measures in the budget would help stabilize the government’s finances over the next few years.
Moody’s Investors Service has an Aaa stable rating outlook for New Zealand, but added that its widening budget deficit was a concern.
“Because the starting point for the debt ratios is low, a rising trend for the next several years does not necessarily threaten the government’s rating,” Steven Hess, Moody’s vice president and lead analyst for New Zealand, said in a statement.
Even with the changes, figures show the government’s deficit for the budget year ending on June 30 is likely to reach NZ$2.9 billion — the nation’s first deficit in nine years — and swell to NZ$7.7 billion the following year. The government’s gross debt will peak at 43 percent of GDP in 2017, from 20 percent now, and then begin to decline.
New Zealand Finance Minister Bill English said he had the “dubious distinction” of managing the economy through the worst global recession in more than 60 years. New Zealand is in its sixth straight quarter of economic contraction.
Government borrowing of NZ$8 billion will support “tens of thousands” of jobs, he said.
“Borrowing now will sustain activity through the trough of the recession,” English said. “We have all been surprised by the ferocious nature of the recession.”
But the government will ensure “debt does not skyrocket out of control” by capping growth in new government spending at 2 percent a year, the minister said.
Without measures to control spending, debt would balloon to 70 percent of GDP by 2023.
More than NZ$1.1 billion would be spent in the coming year on highways, high-speed broadband roll-out, education, electricity transmission and private home insulation — as well as NZ$31 million dollars on a new nationwide cycle way — to support employment.
The government projects unemployment to rise to nearly 8 percent from its present 5 percent level by late next year.
By 2013, annual average growth is projected to be 4 percent, from a 1.7 percent contraction in the year ending March 2010.
The budget follows some NZ$3.1 billion of stimulus spending announced in recent months to fight the worst effects of the international financial crisis, including personal and business tax cuts of about NZ$700 million.
Further tax cuts would only be considered when the economy was growing strongly again, English said, noting that the economic recovery is expected to be “slow.”
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