WELLINGTON (Reuters) – New Zealand unveiled a record NZ$50 billion ($30 billion) spending package on Thursday to revive an economy hit by the coronavirus pandemic, but warned it may not be enough to stop thousands from losing jobs and businesses shutting.
The massive budget stimulus, which includes billions on infrastructure, healthcare, housing and wage subsidy schemes, sets the stage for Prime Minister Jacinda Ardern’s re-election campaign, as her centre-left government seeks to consolidate support ahead of the September poll.
Ardern said the priority was to stop massive unemployment and described the package as a “jobs” budget.
The NZ$50 billion will be spent over a four-year forecast period and is more than any New Zealand government has ever spent in one budget.
“Nothing about this time in our history is usual and so neither should our response be,” Ardern told lawmakers in a speech to parliament.
Economic forecasts released with the budget cast a grim picture for the years ahead, with unemployment seen spiking to nearly 10% by June from 4% currently.
The dark outlook comes as neighbouring Australia on Thursday reported record monthly jobs losses of about 600,000 in April.
New Zealand’s spending means debt projections balloon to NZ$200 billion for 2024, from NZ$76 billion in December’s forecasts. The operating deficit for fiscal year ending June 2020 is now expected to be 9.6% of gross domestic product, well up on the 0.3% forecast in December. The deficit is expected to average 9.3% over the next two years.
“There will be a sharp fall in economic activity and a substantial rise in unemployment,” Finance Minister Grant Robertson said in his speech.
GDP for 2020 was seen shrinking 4.6% but gradually recovering by 2022.
“Today’s budget delivered an economic support package that was even more massive than expected, an extraordinary response to extraordinary times,” said Michael Gordon, a Senior Economist at Westpac.
Ratings firm S&P said in a note the budget indicated a significant hit to New Zealand’s finances in the next couple of years before slowly recovering.
“We expect New Zealand’s economy to recover faster than the budget assumes, aided by the quicker easing of lockdown restrictions than assumed in the budget,” the agency said.
Robertson said the measures will bring unemployment rate back to its current level of 4.2% by June 2022. He estimated the package would save 140,000 jobs over two years.
Prime Minister Ardern has garnered global praise for her leadership amid the pandemic, with the country recording only 21 deaths from coronavirus, among the lowest tolls in the world.
But she faces a tough task rebooting the $200 billion economy, which is dependent on trade and tourism, with growth expected to slow significantly and hundreds of thousands of jobs to be lost.
She eased some tough lockdown measures this week amid growing pressure from critics who said they were crippling small businesses and hurting the economy.
The main opposition National Party slammed the budget, saying it lacked any detail of how money would be spent and what it will achieve.
“Kiwis have sacrificed so much through the restrictions of the lockdown, our collective efforts have so far worked well, now we need to get our economy cranking again,” opposition leader Simon Bridges said.
The government said it would build 8,000 new homes to support the construction sector, and create 11,000 jobs in environmental projects. It plans to spend NZ$4 billion on supporting businesses and extended its current wage subsidy scheme for another eight weeks.
(Reporting by Praveen Menon; Editing by Sam Holmes)