New Zealand Budget Deficit Forecast To Increase Less Than Expected

Sponsored Links

New Zealand's deficit is expected to widen less than previously estimated as the global economy stabilized and the worst of the global economic and financial crisis has passed, the Budget Policy Statement 2010 released by Treasury showed Tuesday.

The cash deficit is expected to widen to NZ$11.35 billion in the year to June 2011 and narrow thereafter. In May, the government had estimated the deficit to widen to NZ$12.52 billion.

The net core crown debt is seen at NZ$64.9 billion by 2014, up from NZ$57.54 billion in 2013. The debt is estimated to stay below 30% of GDP. The expected debt level was better than the earlier projection of NZ$62.6 billion or 30.9% of GDP for 2013. Further, the budget deficit will rise to NZ$10.09 billion for the year ending June 2010 from NZ$8.64 billion in 2009.

The Government's fiscal position remains challenging. "The forecast operating deficit for 2010/11 is $6.7 billion and the Government's accounts are not expected to return to surplus until 2016," Finance Minister Bill English said today in issuing the Half-Year Economic and Fiscal Update and 2010 Budget Policy Statement.

Today, the treasury upgraded its economic outlook and expect recovery in 2011. The economy is expected to shrink 0.4% during the twelve months ended March 2010, better than the 1.7% decline estimated in May. Gross domestic product is likely to grow 2.4% in the year to March 2011 and 3.2% in 2012. At the same time, inflation outlook for 2010 was lifted to 2.5% from 2.4%.

New Zealand is on the road to recovery. "Growth matters because it creates jobs, increases incomes and improves the living standards of New Zealand families," English said. "However, that does not mean that all of the problems of the recession have passed - risks remain that growth could weaken again," he added.

English said the government has a significant economic programme that has already assisted the nation to come through the recession in better shape than many other economies. He revealed that the Budget 2010 will set out the next steps of the Government's growth strategy while continuing the emphasis on sound public finances.

Further, the treasury expects the jobless rate to peak at 7% in 2010, down from its 8% estimate in the May budget. By 2014, unemployment is forecast to ease to 4.8%. "However, it is likely to remain at elevated levels throughout 2010, even as the economy improves. So the year ahead will remain difficult for many New Zealanders," said English.

Economists at Westpac Bank said the New Zealand Government is stuck between a rock and a hard place. Infrastructure and the tax system will be in the spotlight when the Budget is released next year. On fiscal restraint, broader spending caps are being investigated, while the management of the governments' assets is also being scrutinized.

New Zealand's deficit is expected to widen less than previously estimated as the global economy stabilized and the worst of the global economic and financial crisis has passed, the Budget Policy Statement 2010 released by Treasury showed Tuesday. (Market News Provided by RTTNews)