New Zealand raised borrowing and moved to rein in spending, including scrapping tax cuts, in a budget aimed at supporting the recession hit economy but stave off a possible credit rating downgrade.
The New Zealand dollar eased after the government forecast net debt to peak later than economists had expected.
Unveiling its budget for the coming year, the government said it would post its biggest budget deficit in 25 years and expected to remain in the red for up to 10 years, which would see debt more than doubling.
“I am not convinced that they are being fiscally prudent. There is not that fiscal austerity in the medium term that is required. If there isn't a concerted move to a surplus on a 10-year horizon, S&P may judge that harshly,” said Annette Beacher, an economist at TD Securities.
Ratings agency Standard & Poor's warned this year it could cut New Zealand's credit rating.
Finance Minister Bill English said the budget was aimed at cushioning the economy through its deepest recession in more than 30 years, while getting the government's books in order.
“We're confident that we have struck the right balance between supporting the economy in the short term and doing that by borrowing money, with a credible plan to get on top of that debt,” English told a media briefing.
He said the government had been forced to scrap planned tax cuts, and would also suspend its NZ$2 billion ($1.25 billion) annual contributions to the NZ Superannuation Fund, the state investment fund for long term pension costs, probably for at least a decade.
“The severity of the recession means tax cuts ... are currently unaffordable,” English said.
The New Zealand dollar slipped to $0.6139 from $0.6160 before the budget, and was slightly negative on the day from being mildly positive.
The benchmark two-year swap rate fell to 3.6450 percent from 3.6750 percent before the budget.
New government spending in the coming year would be reduced to NZ$1.45 billion, with the allowance in future years limited to around NZ$1.1 billion.
Reuters