PREVIEW-New Zealand's pandemic budget sets stage for Ardern's re-election bid

New Zealand will unleash billions of stimulus dollars at its annual budget this week to cushion the economic blow from the coronavirus pandemic, leaving it with ballooning debt and a dismal fiscal position that will take years to fix.

Spending on infrastructure, healthcare projects, state housing, and more subsidies for low-income workers and cash-strapped businesses are on the cards in the annual budget to be unveiled on Thursday. The budget also paves the way for Prime Minister Jacinda Ardern's re-election campaign, as her center-left coalition government hopes its success in limiting the outbreak and spending plans entice voters ahead of the September poll.

The government has already pumped NZ$20 billion ($12.15 billion) into the economy, largely through wage subsidies to limit job losses. Economists are expecting fiscal support to be doubled, at least. "Thursday's Budget will include billions more in new spending and investment to support the recovery phase, and it's likely that even that won't be the end of it," said Westpac Senior Economist Michael Gordon, adding those billions were the least costly option.

"Without them, the damage to New Zealanders' livelihoods and well-being would be immense, and the consequences would be felt for many years," he said. The spending would mean an operating deficit of about NZ$30 billion or nearly 10% of the gross domestic product in the 2021 fiscal year, economists said, while debt would spike higher.

"The weak economy will weigh on tax revenues – heavily – and expenses are skyrocketing," ANZ Senior Economist Miles Workman said. Workman said the government would have to abandon its strategy of keeping debt between 15-25% of GDP, with that ratio now likely to hit 40-50% of GDP. Debt is currently under 20%.

Bond issuance will spike to around NZ$145 billion over the next few years, he said, NZ$100 billion more than a projection made in December. SOBERING OUTLOOK

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 economies, which is dependent on trade and tourism, with growth expected to slow significantly and hundreds of thousands of jobs to be lost.

Finance Minister Grant Robertson last week said the budget forecasts would be "sobering" and stressed more financial support is needed to keep jobless rates below 10% from 4.2% currently. In neighboring Australia, the government postponed its annual budget to October from May, as the coronavirus cast massive uncertainty over economic projections.

Ardern eased some tough lockdown measures this week, after pressure from the main opposition National Party, which said they were crippling small businesses and hurting the economy. Thursday's budget includes NZ$3.6 billion for health services over the next four years, NZ$200 million to tackle domestic violence, and pay hikes for teachers.

A NZ$12 billion infrastructure package for roads and rail announced before the coronavirus pandemic would also go ahead. "At its heart, it is the simple idea that our team of 5 million has united to beat the virus, now together we can also unite to rebuild our economy," Ardern said at a news conference on Monday.

($1 = 1.6455 New Zealand dollars)

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