Kiwis: Economy picking up, fiscal pressures remain

New Zealand is growing more strongly than expected but the recovery is still patchy and the government will face high deficits and borrowing for several years yet, Minister Bill English said in a speech recently.

He said the economy had emerged from the global slowdown and domestic recession in better shape than many other economies, helped by strong growth in trade partners Australia and China.

“It's clear that the economy is recovering slightly more strongly than the Treasury forecast in December and that growth is predicted to strengthen further in the year ahead,” English said in a speech to a business group.

He said the cap on new spending in the coming 2010/11 fiscal year would remain within the previously promised NZ$1.1bn ($780m) limit.

He also repeated that changes to the tax system in its May 20 would be cost neutral and fair, with the bulk of taxpayers being better off.

The package is expected to include a rise in the indirect value-added goods and sales tax (GST) to pay for cuts in personal tax rates.

“The prime minister has said that any tax switch involving cutting personal taxes across the board and raising GST to 15 percent would leave the vast bulk of New Zealanders better off. That will definitely be the case,” English said.

The NZ government is expected to post large budget deficits and need hefty borrowing at least until 2016. In March, the IMF called on the New Zealand government to make further efforts to cut spending to return to budget surpluses earlier than forecast, which would ease the pressure on the exchange rate and interest rates.

The government's fiscal position has been closely tracked by ratings agencies because of the size of its external liabilities.

Fitch Ratings put New Zealand's AA-plus rating on a negative outlook in July last year on worries about its huge current account deficit and rising external debt.

But both Standard and Poor's and Moody's have New Zealand at stable, saying they were satisfied by the government's plans to return to surpluses and keep borrowing under control.

Fitch told reporters that New Zealand needs sustainable improvement in its fiscal position and debt levels to secure an upgrade in its credit rating outlook.

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