Budget 2009: NZ ends tax cuts, pension contributions as deficits soar

Net debt, the government's preferred measure, is projected to almost double to $27.3 billion, or 16% of gross domestic product this year and reach 31% of GDP by 2013, according to Economic and Fiscal Update. 

Finance Minister Bill English's first budget is made against a backdrop of rising unemployment and dwindling tax revenue as the global economy suffers its worst slump since WWII. Standard & Poor's has the nation's AA+ debt rating on negative outlook and running the ruler over the 2009 budget is key to its decision whether to downgrade New Zealand. That could add $600 million to the nation's annual borrowing cost. 

"I have the dubious distinction of being the first finance minister in 60 years to deliver a budget while the global economy is shrinking," English told reporters and analysts at the budget lock-up in Wellington. The 2009 budget "ensures that forecasts of skyrocketing debt . . . will not eventuate."  

The Treasury now projects a weaker track for GDP than it did in its December Economic and Fiscal Update. The economy contracted 0.9% in the year ended March 31, according to its latest estimate, from a previous forecast of 0.3% growth. A contraction of 1.7% is now predicted for the current year, versus an earlier estimate of 0.8% growth.