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New Zealand government projects budget surplus and reverse to years of borrowing

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WELLINGTON, New Zealand - New Zealand will become one of the first developed nations to return to a budget surplus since the 2008 financial crisis plunged the global economy into recession, the government said Thursday.

The spending plans outlined by the government are a turnaround after several years of belt-tightening it said was needed to prevent debt levels rising too high. The slowdown in growth after the financial crisis prompted many governments to borrow to keep their countries afloat.

The improvement in the government's finances has been helped by a strengthening economy, which officials estimate is growing at a brisk rate of 4 per cent. Growth has been boosted by strong demand in China for New Zealand milk and rebuilding efforts in Christchurch following a 2011 earthquake that destroyed much of the city's downtown.

Budget figures indicate the government expects its revenue such as taxes to exceed spending by 372 million New Zealand dollars ($320 million) in the year beginning July. It projects the surplus will rise to NZ$1.3 billion the following year and to NZ$3.5 billion in 2017-18.

The government plans to spend some of the windfall by extending the maximum age at which children can get free doctor visits from 5 to 12. It also plans to increase the amount of paid maternity leave from 14 weeks to 18 weeks and to reduce a tax on car ownership.

Finance Minister Bill English said he plans to reduce the government's debt from its current level of about 26 per cent of gross domestic product to below 20 per cent over the next six years.

Financial projections indicate it will take three years before overall government debt levels begin to fall. Craig Howie, a spokesman for English, said that's because it takes time for an accounting surplus to manifest into extra cash.

English is promising to maintain a disciplined approach to spending.

"We're on the right track. We've been making good progress," English said. "And that means New Zealand can look ahead with confidence."

The New Zealand budget is stark contrast to the austerity announced by neighbouring Australia two days earlier. The Australian government is planning tax hikes, welfare cuts and layoffs as it attempts to slash a ballooning budget deficit.

Australia in the past has lured New Zealand workers with the promise of higher wages, more career opportunities and better living standards. But that trend now appears to be reversing in a reflection of the changing fortunes of the two countries.

Figures from government agency Statistics New Zealand show that in the year ending March, a net 13,000 New Zealanders moved to Australia, down from 36,000 the year before.

Some officials predict there may soon be a flow of Australians to New Zealand, which, when added to immigrants coming from other countries, could put further pressure on an already frothy New Zealand housing market.

"We haven't taken steps to change the migration flows. We're still trying to understand what's going on with the big slowdown in New Zealanders leaving," English said. "My own view is that the Australian economy is in better shape than Australians think."

Despite the rosy budget figures, challenges remain for the New Zealand economy. Both housing prices and household debt levels are high when compared to other developed nations.

And officials project the economy's growth rate will slow to 2.1 per cent over the next two years. The Reserve Bank warns that an expected further slowdown in China's growth may hurt New Zealand exporters.

David Cunliffe, leader of the opposition Labour Party, said the government had fudged some of its numbers to ensure it posted a surplus and had done little to help families that are struggling on stagnant wages. He said the budget did nothing to help folks wanting to buy their first home, who had watched prices skyrocket.

Treasury figures indicate the government will spend about NZ$73 billion next year, representing 30 per cent of the country's NZ$241 billion economy. About NZ$24 billion will go to social security and welfare; NZ$15 billion to health; and NZ$13 billion to education.

A recently completed program of asset sales has helped improve the books. The government has sold minority stakes in three power companies and national carrier Air New Zealand, raising a total of NZ$4.7 billion.

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