English: Govt faces biggest budget deficit in history

Finance Minister Bill English. Photo / Mark Mitchell

The Government will face the biggest budget deficit in New Zealand's history at the end of the current financial year, Finance Minister Bill English says.

Mr English faced criticism in Parliament today from Labour MPs who questioned the need for cutting budget spending, which the Government says is necessary because it is going to have to pay back money borrowed to rebuild Christchurch.

"We made it clear that we would be borrowing money to pay those bills," Mr English said.

"We are taking on more debt - we have to.

"The Government is in the middle of spending a couple of hundred million dollars right now, over this four to six week period, just on income support for 56,000 people in Christchurch."

Mr English said that at the same time, the Government had to lay out a path that would lead to a return to surplus in 2014/15.

"The advice I have received is that in this current financial year, ending June 30, we will run the largest budget deficit ever," he said.

"We are looking at running a budget deficit of 8 per cent to 9 per cent of GDP, which is the largest budget deficit run by a New Zealand government."

Opposition parties say the Government doesn't need to take $800 million of new spending out of the budget that is being prepared for May 19, and Green Party co-leader Russel Norman asked Mr English whether doing so would amount to a cut because of inflation.

"It depends on what part of the budget...some services will continue to get somewhere near an inflation adjustment, such as health and education, inflation adjustments will continue to be made to income support programmes such as superannuation and benefits," Mr English said.

"There will be services that will have no increase in spending, and that means they will be cut in real terms."

Dr Norman again pushed the Green's case for a taxpayer levy to pay for rebuilding Christchurch, rather than borrowing money.

He said the levy could be set at $3.50 a week, a figure Mr English doubted.

"My guess is it would be a lot higher than that," he said.

"With regard to an earthquake levy for the kinds of numbers we are talking about with the Christchurch earthquake, there would have to be a pretty significant levy for quite a long time."

- NZPA