New Zealand unveils record spending to deal with coronavirus shock

The NZ$50 billion fund will be used over a four-year forecast period, and about NZ$30 billion of it has already been allocated this year. PHOTO: AFP

WELLINGTON (REUTERS) - New Zealand unveiled a record NZ$50 billion (S$42.47 billion) fund in its budget on Thursday (May 14) to restore an economy hit by the coronavirus pandemic, but warned it may not be enough to stop thousands from losing jobs and businesses shutting.

The massive spending, which includes billions on infrastructure, healthcare, housing and an extension of its wage subsidy scheme, sets the stage for Prime Minister Jacinda Ardern's re-election campaign, as her centre-left government seeks to consolidate support ahead of the September poll.

Ms Ardern said the priority was to stop massive unemployment and described the package as a "jobs" budget.

The NZ$50 billion will be spent over a four-year forecast period and is more than any New Zealand government has ever spent in one budget.

"Nothing about this time in our history is usual and so neither should our response be," Ms Ardern told lawmakers in a speech to parliament

Economic forecasts released with the budget cast a grim picture for the years ahead, with unemployment seen spiking to nearly 10 per cent by June from 4 per cent currently.

The dark outlook comes as neighbouring Australia on Thursday reported record monthly jobs losses of about 600,000 in April.

New Zealand's spending means debt projections balloon to NZ$200 billion for 2024, from NZ$76 billion in December's forecasts.

The operating deficit for fiscal year ending June 2020 is now expected to be 9.6 per cent of gross domestic product, well up on the 0.3 per cent forecast in December.

The deficit is expected to average 9.3 per cent over the next two years.

"There will be a sharp fall in economic activity and a substantial rise in unemployment," Finance Minister Grant Robertson said in his speech.

GDP for 2020 was seen shrinking 4.6 per cent but gradually recovering by 2022.

"Today's budget delivered an economic support package that was even more massive than expected, an extraordinary response to extraordinary times," said Mr Michael Gordon, a Senior Economist at Westpac.

RECOVERY EXPECTED

Ratings firm S&P said in a note the budget indicated a significant hit to New Zealand's finances in the next couple of years before slowly recovering.

"We expect New Zealand's economy to recover faster than the budget assumes, aided by the quicker easing of lockdown restrictions than assumed in the budget," the agency said.

Mr Robertson said the measures will bring unemployment rate back to its current level of 4.2 per cent by June 2022.

He estimated the package would save 140,000 jobs over two years.

Prime Minister Ardern has garnered global praise for her leadership amid the pandemic, with the country recording only 21 deaths from coronavirus, among the lowest tolls in the world.

But she faces a tough task rebooting the US$200 billion (S$284.18 billion) economy, which is dependent on trade and tourism, with growth expected to slow significantly and hundreds of thousands of jobs to be lost.

She eased some tough lockdown measures this week amid growing pressure from critics who said they were crippling small businesses and hurting the economy.

The main opposition National Party slammed the budget, saying it lacked any detail of how money would be spent and what it will achieve.

"Kiwis have sacrificed so much through the restrictions of the lockdown, our collective efforts have so far worked well, now we need to get our economy cranking again," opposition leader Simon Bridges said.

The government said it would build 8,000 new homes to support the construction sector, and create 11,000 jobs in environmental projects.

It plans to spend NZ$4 billion on supporting businesses and extended its current wage subsidy scheme for another eight weeks.

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