New Zealand curbs spending in quest for surplus
New Zealand said it would contain spending to try to put the government's books back in the black within three years, while also fostering growth in the struggling economy. Unveiling his annual budget on Thursday, Finance Minister Bill English said he had rejected a "slash and burn" approach to achieving a surplus, mindful of the social and economic costs that radical measures would have. "We are avoiding the substantial cuts to public services and living standards that we are seeing in many other developed countries," he said. English said $4.4 billion ($3.3 billion) in new spending would be paid for by savings or tax hikes, helping to clear debt and provide a modest surplus by 2014-15. New Zealand had its long-term foreign currency rating downgraded a notch to "AA" from "AA+" last September amid concerns about its soaring external debt, and English said responsible fiscal management was at the core of the budget. He said the deficit, which jumped in the wake of last year's devastating Christchurch earthquake, would be reduced to NZ$7.90 billion ($5.90 billion) in 2012-13 and turn into a NZ$197 million surplus in 2014-15. The Christchurch disaster flattened much of the country's second largest city and resulted in 185 deaths, but was set to boost the economy as a NZ$20 billion-plus reconstruction programme gained momentum. English said 17,000 skilled workers were pouring into the city and the rebuilding would add one percentage point a year to national growth, which was forecast to peak at 3.4 percent in 2013-14, up from 1.4 percent in 2011. "It's not an opportunity we sought but now that it's here it's a significant stimulus to the economy," he said. English said that while the full impact of the eurozone crisis remained unclear, the growth forecasts assumed there would be a sharp recession in Europe. The projected 2014-15 surplus could be deferred slightly if events in Europe continued to deteriorate, he said, but added the government did not believe it would be necessary. Pointing out that New Zealand's main trading partners Australia and China appeared set to weather the worst of any economic crisis centred on Europe, English said long-term prospects for the farm-reliant economy were good. "Our outlook is more positive than most -- we are a food-producing economy on the doorstep of a rapidly growing middle class in the Asia-Pacific region," he said. "Providing we stick to the government's balanced and ongoing economic programme over the coming years, I am confident we will grasp these opportunities." International ratings agency Standard & Poor's said the budget would have no immediate impact on New Zealand's credit rating and the country's outlook remained stable. "The budget is the latest incremental step toward consolidating the government's fiscal settings after four years of deficits," analyst Kyran Curry said in a statement.
