May 28, 2009, 5:24 GMT
Wellington - New Zealand's new conservative government Thursday ditched a campaign pledge to cut income taxes in the next two years in its first budget statement as it faced up to the realities of an economic recession.
Finance Minister Bill English told parliament that after 15 years of budget surpluses the country was facing a decade of deficits and the tax cuts promised to follow a first tranche which took effect in April were unaffordable and would be shelved indefinitely.
English said New Zealand was in the sixth consecutive quarter of recession and the effects would strip 50 billion New Zealand dollars (31 billion US dollars) off the economy over the next three years.
Giving what analysts described as a very bleak assessment of the economy, English said unemployment was tipped to reach 8 per cent next year and the deficit to peak at 9.3 billion New Zealand dollars in 2010/2011.
He said the minority National Party government, which came to power in November after nine years of Labour Party rule, would borrow 35 billion New Zealand dollars over the next three years to maintain economic activity and prevent more job losses.
This will see the country's gross debt - until now anchored at 20 per cent of gross domestic product - more than double by 2016.
Preview speeches in recent weeks stressing that the country was experiencing the worst economic conditions since the Great Depression of the 1930s had primed New Zealanders to expect few handouts from the budget.
The main proposal to revive part of the economy and preserve jobs was a scheme to give 180,000 homeowners grants of up to 1,800 New Zealand dollars to insulate their homes and install clean heating devices like heat pumps.
Substantial increases in spending on the big-ticket state sectors of health and education were announced but analysts said the bleak medium-term outlook and clamps on spending growth meant they would suffer in years to come.
Pensioners were relieved with confirmation that state superannuation would be maintained at 66 per cent of the average wage for all over-65s, though English suspended automatic contributions to a fund established by the former government which was intended to guarantee pensions for future generations.
Prime Minister John Key said the budget would help put New Zealand on the road to recovery, putting in place policies to ensure that the economy emerged strongly from the current recession.
'While the measures in the budget may be the first steps along that journey, it paints a picture of a bleak landscape along the way,' said Jan Dawson, chief executive of the international accountancy firm KPMG.
Noting rising unemployment, with more than 1,250 New Zealanders joining dole queues last week, Phil Goff, leader of the opposition Labour Party, said, 'It should have been a budget for jobs - it's not.
'It will not stem the dramatic increase in job losses happening right now in New Zealand's cities and towns.'
Your Talkback on this Story