WELLINGTON: New Zealand's conservative government has signalled it will deliver an austerity budget on Thursday which assumes the struggling economy will be buffeted by a sharp recession in Europe.
Prime Minister John Key said there will be no new spending, with all initiatives paid for by savings or tax hikes as the government looks to clear debt and return to surplus by 2014/15.
"We're putting the economy in the strongest position to cope with any crisis by getting the books back in order and limiting debt," Key, who was comfortably re-elected last November, told reporters this week.
New Zealand, which posted economic growth of just 1.4 percent in calendar 2011, had its long-term foreign currency rating downgraded a notch to "AA" from AA+" last September amid concerns about its soaring external debt.
With the government also in the midst of a multi-billion dollar programme to rebuild Christchurch after a series of devastating earthquakes, Key said the government was "taking a responsible path of fiscal management".
Key, a former investment banker, said the greatest uncertainty to the global economy centred on the eurozone and the budget outlook to be released Thursday had taken into account the potential impact on New Zealand.
"Those forecasts already factor in a good deal of weakness and volatility in Europe, including a sharp recession across the euro area," he said.
"However, it's true to say that the risk of something worse happening in Europe has increased, so we're closely monitoring developments."
The government has already earmarked an extra NZ$510 million (US$390 million) for education and almost NZ$250 million for health care in the budget, although it has not detailed where the funds will come from.
It has previously announced plans to raise NZ$5.0-7.0 billion by further reducing its 74.6 percent stake in Air New Zealand and partially privatising four state-owned energy assets.
The main opposition Labour Party said the government's plans would do nothing to stimulate growth or create job in an economy where unemployment is running at 6.7 percent.
Labour leader David Shearer said the budget was "nothing to boast about, it's an admission of failure".
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