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Budget 2012 Summary — Reuters (Wellington)

Budget 2012 Summary — Reuters (Wellington)
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New Zealand

New Zealand unveiled its toughest budget in 20 years on Thursday, with no spending increase and moves to increase the tax take in the struggling economy, as it laid out a return to a budget surplus by 2015.

The Government said spending had been kept around the previous year's level by reprioritising policies, cutting programmes, and it would bolster its income by closing tax loopholes.

Forecasts showed budget deficits falling sharply over the next two years and a small surplus in 2014-2015, which it has seen as vital to maintaining its high credit ratings and satisfying foreign lenders.

The Government said the "zero" budget for the second year would see net new government spending slashed to only NZ$26.5 million over four years from a previous allowance of NZ$800 million a year.

"The Government is making significant new investment in priority areas, while at the same time keeping a tight rein on growth in spending and public debt," Finance Minister Bill English said.

The New Zealand dollar was little changed around $0.7500/10 after the budget was released.

New Zealand's sluggish economy has seen tax revenue fall below forecast, forcing the Government to slash spending, cut public service jobs through merging ministries and trim services, including shutting overseas embassies.

The Government also reiterated its plan to sell state assets from the third quarter, including power companies, to raise up to NZ$7 billion to help fund the budget gap.
New Zealand's deficit hit a record NZ$18.4 billion last year, worsened by the earthquake in Christchurch.

The Government said it would borrow NZ$13.5 billion in the coming year to finance a budget deficit of NZ$7.9 billion, or 3.6 per cent of GDP.

The deficits were forecast to fall until a tiny surplus of NZ$197 million in the 2014/15 fiscal year, which compared with a forecast surplus of NZ$370 million in February and NZ$1.45 billion in October.

Mr English said the budget was balanced and responsible in a world sensitive to debt-funded expansion of the economy.

"It will reduce upwards pressure on interest and exchange rates. It will stop our debt rising and allow us to start reducing it," Mr English told a media briefing.

He said the Government would increase tobacco tax, reduce tax avoidance, and close tax loopholes around livestock and holiday home assets, to counter a forecast NZ$1 billion deterioration in its finances over the next three years.

The Treasury lowered its growth forecast for 2012-2013 to 2.9 per cent from 3.4 per cent in October, while slightly raising its 2013-2014 forecast to 3.4 per cent from 3.3 per cent.

New Zealand's public finances have come under pressure as the economy has failed to gather momentum because of weaknesses in retail, manufacturing and construction.

"The ratings agencies will be more than comfortable with what they see here. There's a genuine commitment from the government to see the accounts improve," said Bank of New Zealand head of research Stephen Toplis.

Standard & Poor's, which downgraded New Zealand's sovereign rating last September by one notch, has said the country will retain its rating even if the government misses its targeted return to a budget surplus by one year.


People Mentioned:
Bill English; Stephen Toplis
Organisations Mentioned:
Standard & Poor's
Reference No:

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