New Zealand to spend budget windfall on roads and cut taxes

By NICK PERRY Markets Associated Press

New Zealand's conservative government is planning to reduce taxes and spend more money on building roads and railways as it looks to cash in on a thriving economy.

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The budget released Thursday is the ninth for the National Party after it gained power in 2008 and the first under new Finance Minister Steven Joyce.

The South Pacific nation is in a financial position many other countries might envy as it decides what to do with rising budget surpluses. Joyce's plan will spend the windfall rather than paying down debt and comes during an election year.

The budget will reduce taxes for most families, saving them an average of 26 New Zealand dollars ($18) a week. It will give extra help to low-income earners, with increased subsidies for children and accommodation. Pensioners and students will also benefit.

Joyce said the budget offered a "once-in-a-generation" opportunity to raise living standards for all New Zealanders.

"We have been talking about changing tax rates and returning some of the benefits of growth to families for the last four years," Joyce said. "We now finally have the opportunity to do so."

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Included in the plan is money to rebuild a highway damaged last year during an earthquake, as well as money for commuter rail in Auckland and freight rail elsewhere. There is also extra money to build more prison cells and buy new defense equipment.

The nation's economy has been growing at an annual rate of about 3 percent, thanks to increases in tourism and immigration. That growth rate is stronger than in most developed nations and is forecast to rise to 3.8 percent over the next two years before moderating.

The government plans to continue subsidizing big-budget films made in New Zealand, after the success of movies like director Peter Jackson's trilogy "The Hobbit."

Joyce said he had misgivings about the fairness of subsidizing one particular industry, but recognizes it's how the international entertainment industry operates.

The budget plan comes as the National Party seeks to win a fourth consecutive three-year term during September elections. Polls indicate the party's popularity has dipped a little since Bill English became prime minister in December, after former leader John Key resigned.

The National Party remains the most popular single party, but liberals see an opportunity to take power at the election by joining forces. Under New Zealand's proportional voting system, political parties typically need to form alliances to govern.

Opposition leader Andrew Little said the budget plan amounted to an irresponsible election bribe.

"This is a tired government whose only idea left is to splash the cash instead of a genuine commitment to fix housing, health, education and infrastructure," he said in a statement.

The Treasury predicts the government's operating surplus will increase from 2.9 billion New Zealand dollars ($2 billion) next year to NZ$7.2 billion in 2021. Although the government plans to spend the windfall, it says debt will still decline as a proportion of the economy, mainly because the economy will be larger.

The government plans to reduce net debt to less than 20 percent of GDP by 2021 and to between 10 and 15 percent of GDP by 2025.

The nation's annual GDP is 269 billion New Zealand dollars ($188 billion). Government spending amounts to about 30 percent of the overall economy.