New Zealand posts second straight surplus, targets infrastructure spending

[WELLINGTON] The New Zealand government expects to post a bigger-than-forecast budget surplus in 2017 and plans to invest the extra cash in infrastructure to fuel the growing economy, Finance Minister Steven Joyce said Thursday.

The government predicted a NZ$1.62 billion (S$1.58 billion) surplus in the year to June versus its prior forecast for a NZ$473 million surplus in the December half-year economic and fiscal update. "These surpluses are significant, but they will be needed to meet the cost of the very large new capital investment the Government has committed to," said Mr Joyce while presenting the annual budget.

Mr Joyce announced NZ$11 billion in spending on infrastructure including roal, rail, prisons and housing over the next four years. The budget also included a NZ$6.5 billion package to increase family incomes by adjusting tax thresholds and increasing grants as the government tries to woo voters ahead of national elections this year.

The better-than-expected result was a windfall from strong corporate tax intake and some reconstruction-related spending from November's severe earthquake being yet to take place.

The government forecast a NZ$2.85 billion surplus in the year to June 2018, versus a prior forecast of a NZ$3.34 billion surplus.

A recovery from last year's sharp drop in global prices for New Zealand's main export earner, dairy, and booming tourism has led to unemployment hovering around eight-year lows of 4.8 per cent and GDP growth at 2.7 per cent.

The Treasury lifted its forecast economic growth to 3.7 per cent in the year to June 2018 from 3.4 per cent, and 3.5 per cent in the following year from the 2.6 per cent previously forecast.

Despite a strong economy that remains the envy of developed country peers, fast-rising housing costs have pressured the government to do more for first-time buyers who have been priced out of the market.

Record immigration, which has fuelled rises in housing prices, is also putting a strain on infrastructure. The government previously announced a plan to build 34,000 new homes over the next decade.

The ruling National party is touting its careful management of New Zealand's NZ$250 billion economy ahead of elections on Sept 23 as it fights for a fourth term against the centre-left Labour party.

Mr Joyce also said the government would lift the homeowners'earthquake levy to replenish the country's national disaster fund, which has been wiped out by deadly earthquakes centred in Christchurch in 2011 and Kaikoura in 2016.

The budget forecasts show net debt at 23.2 per cent of GDP in the year to June 2017 and the government aims to bring it down to 10 to 15 per cent by the year to June 2025.

REUTERS