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NZ government forecasts record budget deficit

NZ government forecasts record budget deficit

May 19th, 2011 by RAY LILLEY, Associated Press in News

WELLINGTON, New Zealand (AP) - New Zealand's government Thursday unveiled a bleak annual budget that forecasts a record deficit following a devastating earthquake earlier this year.

The government said its books would be 16.7 billion New Zealand dollars ($13.2 billion) in the red for the year ending June 30, 2012 - the highest deficit in the country's history.

But it pledged a return to a modest NZ$1.3 billion ($1 billion) surplus within four years - a year earlier than previously projected.

The government also announced plans to sell minority shareholdings in four energy companies and to reduce its 75 percent stake in national carrier Air New Zealand to repay up to NZ$7 billion ($5.5 billion) in debt. The government would retain majority ownership of all five companies.

Air New Zealand and Kiwi Rail, which is the national railways company, were both sold by a previous government in the 1980s, but bought back after they failed under private ownership.

The budget, which contains cuts to spending in many areas after tax reductions in the past two years, is widely seen as a gamble by Prime Minister John Key that voters will respect his efforts to get the nation's books back in order.

The budget includes NZ$5.5 billion ($4.4 billion) for rebuilding Christchurch, the country's second biggest city, which was hit by an earthquake on Feb. 22 that killed 181 people.

Quake damage is estimated at NZ$15 billion ($12 billion). More than 1,000 central city commercial buildings and 10,000 homes were destroyed. The government also will launch a special "Earthquake Bond" to allow New Zealanders to invest in the city's recovery, Finance Minister Bill English said.

Treasury figures forecast the economy will be growing by 4 percent by 2013, well above the 1 percent expected in 2011, following the severe economic effects of the quake.

Wages are projected to grow 4 percent a year over the next three years and unemployment to drop from 6.8 percent to 4.6 percent by 2015.

Budget tables show government debt will peak at 29.6 percent of gross domestic product in 2015, below the 34.5 percent level projected earlier. Key said staying below the 30 percent threshold likely would prevent a ratings downgrade that would result in higher interest rates on borrowing.

Traditionally, New Zealand governments spend to shore up support ahead of a general election. The next polls are scheduled for November.