Follow Herald updates on Twitter by searching #NZbudget09
International credit rating agency Standard and Poor's has given a favourable verdict on the budget, upgrading New Zealand's outlook from negative to stable.
Finance Minister Bill English today delivered his first budget, which dragged down long term debt forecasts through a mix of axing planned tax cuts, suspending payments to the New Zealand Superannuation Fund and reducing long term spending increases.
Read all the Budget documents here.
The Government had been worried that if S&P had cut New Zealand's credit rating it would mean an increase in interest rates for them and everyone.
S&P said today that the budget delivered a "sound" outlook.
"The change in the outlook on the foreign currency rating reflects our view that the measures announced in today's budget will support stabilisation in the government's fiscal position over the medium term," S&P credit analyst Kyran Curry said.
But Labour leader Phil Goff took a different view, calling the indefinite postponement of Super Fund contributions the "death knell" for generations of New Zealanders.
The decision to put Super Fund contributions on hold until the Government is back in surplus was among the biggest Budget surprises.
The Government will deposit $250m into the fund this year on the back of pre-election promises, but further contributions may be on hold for at least a decade.
The Cullen Fund, as it's become known, was set up in 2003 as a way of pre-funding the state superannuation needs of the so-called "baby boomers" who are about to start retiring from the workforce in increasingly large numbers.
The announcement was one of the Budget's key points.
Mr Goff said the Government's "decade of deferrals" was an astounding move that had gutted the scheme.
"The net result will be that future entitlements to super are put at risk no matter what pious pledges Bill English makes," Mr Goff said.
Mr English said the Government is suspending the contributions because New Zealand can't afford to borrow to maintain the payments.
The Government deficit for 2009 is expected to be $2.9b before growing to $7.7b in 2010 and hitting $9.26b in 2011.
Increased debt levels also mean moves to proceed with planned tax cuts next year and the year after would have put an unacceptable strain on the Government's books.
Mr English said spending reviews found $2bn in cuts over the next four years which will be ploughed back into areas the Government feels are of higher priority.
Health and education were the big winners, with health receiving a $3b injection over the next four years focusing on more doctors and cheaper medicine.
Education Minister Anne Tolley said a $1.68bn boost was aimed at "strengthening the ladder of opportunity" aimed at improving front-line education over four years.
Funding of $385.4 million over the next four years has been set aside for forecast increases in the prison population, including nearly 1000 new prison beds. Double bunking will begin next year.
The Government announced 600 more police on the streets by the end of 2011.
There would be 300 extra frontline officers in Counties-Manukau by the end of next year, and 300 more across the rest of the country by the end of 2011.
Changes to KiwiSaver mean funds will no longer be able to go towards mortgage repayments.
The facility allowed members to divert up to half their KiwiSaver contributions to their mortgage repayments.
Defence receives $309m over four years for "operational challenges", with $52m next year for building the equipment repairs
There's no great stimulus package to create or protect jobs, but neither will there be benefit cuts or wholesale slashing of Government expenditure.
While using the word "deferred" English could not put a date on any future tax cuts and has admitted it was unlikely they could happen during the current term of the National-led Government.
He made it clear such moves are firmly off the agenda for the foreseeable future with the economic recession stripping some $50 billion out of New Zealand's economy over the next three years.
Speaking to assembled media in this morning's Budget 'lock-up', Mr English said the budget would 'set New Zealand on a road to recovery'. It would keep the economy going during the current recession, treading the line between safeguarding entitlements and controlling debt.
Just a year ago, conditions like this were unknown, 'every worst case scenario eventuated', he said. Our current recession had highlighted structural imbalances, which had grown over the past ten years. Imbalances caused by excessive debt-fuelled consumption.
The current recession would pass, but the economic imbalances needed to be addressed, otherwise they would continue to act as a "handbrake on New Zealand".
Council of Trade Unions economist Peter Conway said the Government has been too mindful of Standard and Poor's impending credit rating.
There are not enough jobs created, workplace education has been eroded and not enough is being done to build the road to recovery in this year's budget, Mr Conway said.
"It was always going to be a tough budget and I'm reluctant to be too critical of a Government that has faced some hard choices. To have dropped their tax cuts which was their flag ship policy was an indication of that," Mr Conway said.
He said while the home insulation scheme will help short term unemployment, Treasury is forecasting 180,000 being unemployed.
And the home insulation scheme does require people to invest money upfront.
He said another problem is the claw back on providing skills to workers.
"They've actually cut industry training funding," Mr Conway said.
Mr English said growth forecasts were pointing to a slow recovery – with annual GDP growing at 1.8 per cent in the year to March 2011, then 3 per cent the following year and 4 per cent in 2013.
These Treasury figures are on the conservative side of projections coming from other economists.
Of particular interest to the credit rating agencies is today's projection of Government debt growth.
It is expected to peak at 43 per cent of GDP in 2016/17 before falling to 37pc in 2022/23, against forecasts of 70pc and climbing, in 2022/23 without policy changes.
