New Zealand says 'zero' budget will bring surplus

WELLINGTON, New Zealand (AP) — New Zealand's center-right government unveiled a relatively austere budget Thursday, saying it will tackle rising debt and return the country's books to the black in two years.

Finance Minister Bill English described his economic blueprint as a "zero budget" because it contains no increase in discretionary spending. Under the plan, modest spending increases on education and health would be paid for by raising tobacco taxes and increasing student loan repayments, among other measures.

The government's pledge to return to surplus also depends on a plan to sell minority stakes in several state-owned energy companies. Many New Zealanders oppose that plan, which has sparked several large street protests.

Neighboring Australia recently announced a plan to become the first major developed nation to return to a budget surplus following the economic downturn, and New Zealand hopes to follow close behind. China's continued demand for commodities has helped both countries weather the downturn better than most. In New Zealand, the unemployment rate remains a relatively healthy 6.7 percent.

However, an earthquake in the second-largest city of Christchurch last year, which killed 185 people and destroyed much of the downtown, has cost the country billions of dollars. And the country's small size and reliance on farming makes it vulnerable to economic changes in Europe and elsewhere.

The National Party-led government predicts the rebuilding effort in Christchurch will stimulate the economy, helping it grow by an average of 3 percent over each of the next four years.

English said the budget balances austerity with growth, making it a "sensible budget for uncertain times."

But opposition Labour Party leader David Shearer said austerity will not help improve the economy. "A zero budget is nothing to boast about. It's an admission of failure," he said in a release.

Opposition parties also blame National for imposing tax cuts they say have benefited wealthy New Zealanders at the expense of low-income earners and the country's overall economic health.

The budget plan shows the country running a deficit of NZ$7.9 billion ($5.9 billion) in the fiscal year that begins in July. The government expects a deficit of NZ$2 billion ($1.5 billion) the following year before returning to a slim surplus of NZ$200 million ($150 million) in the year beginning July 2014.

The budget includes a 40 percent hike in tobacco taxes over four years and a plan to raise extra money by cracking down on tax fraud. It shows public debt peaking at about 29 percent of gross domestic product next year, a low level compared with the U.S. and Europe.

However, New Zealand continues to have relatively high levels of private debt, which has helped fuel high housing prices. Concerns about the total debt levels last year prompted two ratings agencies to downgrade New Zealand's credit rating.

Although English was promoting his plan as a "zero budget," increased costs for nondiscretionary items like the pension program are forecast to push overall government spending up by about 4.5 percent over the next year, to NZ$73.7 billion ($55 billion), or one-third of the country's economy.