New Zealand's economy was nearly at the level of Treasury's worst-case scenario, Finance Minister Bill English admitted yesterday.
Confirmation of where the country was in relation to Treasury forecasts would not be known until March, but his "gut feeling" was that of the three produced yesterday, the "down-side scenario" was probably the closest to where New Zealand was.
That showed unemployment rising to 5% next year and peaking at 7.2% in 2010 before falling to 7.1% in 2011, 5.9% in 2012 and 4.8% in 2013.
The Government's operating balance was forecast to fall to -0.6% of GDP next year, -3.6% in 2010 and peaking at -4.5% in 2011.
Forecasts produced by Treasury in the 2009 Budget Policy Statement and the Economic and Fiscal Forecasts made for gloomy reading.
Government debt is set to soar and the much- vaunted operating surpluses have quickly turned into large deficits.
The operating balance, excluding gains and losses, is forecast to be a $550 million deficit next year, a $4.1 billion deficit in 2010, a $6 billion deficit in 2011 and a $6.3 billion deficit in both 2012 and 2013.
Mr English said New Zealand would not see surpluses in this term of government.
The country had been in recession all year and was still in recession, he said, in contrast to the position taken by the Reserve Bank, which last week indicated the country had lifted out of recession.
Asked by the Otago Daily Times when New Zealand would be out of recession, Mr English said he was hopeful it would be sometime in the next 12 months.
The projected increases in debt and falls in the Crown's net worth were outside the range the Government considered prudent and it would not allow those projections to come about.
"Accumulating debt places a burden on future generations and this is inequitable when not matched by an equivalent increase in productive assets."
To help lift the country out of recession, next year's budget would be the start of a three-year approach to implementing the Government's priorities.
The first year would see a focus on the post-election action plan, managed within an operating allowance of $1.75 billion a year.
To bring forward infrastructure spending, the Government was increasing the capital allowance from $900 million to $1.45 billion in the 2009 budget.
The 2010 and 2011 budgets would have the same allowance, meaning a total of $5.8 billion in new capital spending between 2009 and 2012.
The Government was already legislating for some of those changes.
The April 1 tax cuts had been passed into law and changes to the Resource Management Act would go before Parliament early next year.
The transitional relief package to help people made redundant came in on January 1.
"Tax cuts and infrastructure spending will underpin future growth and provide a short-term boost to activity."
The quality of investments in infrastructure must improve, Mr English said.
The road and electricity networks were examples of areas of national significance where a faster consent process and more rapid construction were needed.
Reform of the RMA would have important implications for productivity by reducing costs, delay and uncertainty that some applicants faced in seeking to advance their projects and by encouraging a more efficient allocation of natural resources, he said.
ANZ-National Bank chief economist Cameron Bagrie said that credit rating agencies would become increasingly nervous with New Zealand having operating deficits in so many areas and with no near-term improvement in the country's external position.
"But we suspect that they will hold judgement until the Government reveals its concrete plans to address the deteriorating fiscal position next year.
"After all, New Zealand is hardly unique in the current environment, with sovereigns around the world grappling with deteriorating fiscal positions."
