N.Z. Treasury Says Budget Deficits Will Deteriorate

By Tracy Withers

Nov. 13 (Bloomberg) -- New Zealand's budget deficits will be wider than forecast less than six weeks ago as a slump in the global economy curbs consumer spending and government revenue, according to a report from the Treasury departments.

The economy will grow just 0.4 percent in the year ending March 31, 2009, and 1.3 percent a year later, the department said in an e-mailed report. The budget cash deficit will be about NZ$1.5 billion ($840 million) wider by 2011, it said.

New Zealand's economy faces a prolonged recession as slowing global demand curbs exports and tightening credit stalls consumer spending and business investment. Prime Minister-elect John Key yesterday said the worse fiscal position won't stop cutting income taxes in April.

The report was written on Nov. 7 for Finance Minister Michael Cullen. The estimates are ``very preliminary'' and the fiscal forecasts ``should be regarded as indicative only,'' Treasury said, adding that forecasts aren't adjusted for new policies that Key, who won a Nov. 8 election, may introduce.

``Given the current international environment, considerable uncertainty surrounds the economic outlook and hence the fiscal implications,'' Treasury said. ``There is the distinct possibility that future revisions to our forecasts will be to the downside.''

Economic Growth

Last month, Treasury said the cash deficit would be NZ$5.9 billion in the year ending June 30, 2009, and NZ$6.6 billion by June 2011. Those estimates were completed before the slump in financial markets and a deepening global economic slowdown.

The deficit will probably be little changed this year, then will balloon to NZ$8.08 billion in the year to June 2011, the department said today.

Economic growth in 2010 will slow from a previously forecast 1.8 percent pace, it said. Treasury said business investment will probably contract and companies are likely to need fewer workers. The jobless may rise to 5.7 percent by mid- 2010, the highest since 2000.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.