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WELLINGTON — The government lifted infrastructure spending by nearly 8 billion New Zealand dollars ($5 billion) to support jobs over five years in its annual budget Thursday as it more than doubles borrowing to steer the economy through the global recession.
In an unprecedented move, it shelved two rounds of personal tax cuts due in 2010 and 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.
Even with these measures, figures showed the government's deficit for the budget year ending June 30, 2009 is likely to reach $2.9 billion New Zealand dollars — the nation's first deficit in nine years — and swell to $7.7 billion New Zealand dollars the following year. The government's gross debt will peak at 43 percent of gross domestic product in 2017, from 20 percent now, and then begin to decline.
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 $8 billion New Zealand dollars 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 finance minister said. Without measures to control spending, debt would balloon to 70 percent of GDP by 2023.
More than $1.1 billion dollars would be spent in the coming year on highways, high-speed broadband roll-out, education, electricity transmission and private home insulation — as well as $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 $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 $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".
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.
New Zealand's Treasury Department said a downgrade would have added $371 million a year to the government's interest bill.
