May 21, 12:18 AM EDT

New Zealand government fails to deliver promised budget surplus but says it will next year


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WELLINGTON, New Zealand (AP) -- New Zealand's government on Thursday blamed low inflation for its failure to deliver a promised budget surplus this year but said it remains on target to get its books into the black next year.

New Zealand hoped to become one of the first developed nations to return to a surplus following the 2008 global financial crisis. That would allow it to begin repaying debt.

But when Finance Minister Bill English delivered his annual budget Thursday, the planned surplus had evaporated into a projected deficit of 684 million New Zealand dollars ($501 million) for the year ending June. His forecasts indicate a tiny surplus next year, increasing to a NZ$3.6 billion surplus by 2019.

English said the failure to reach surplus was due to inflation of just 0.1 percent, which was much lower than forecast. He said that was good news for consumers, who weren't facing price increases, but also meant tax revenue was lower than forecast.

Credit rating agency Standard & Poor's said the budget wouldn't have any immediate impact on New Zealand's AA sovereign credit rating. S&P credit analyst Craig Michaels said returning to surplus a little later than planned didn't pose a big problem.

"The real economy is looking pretty rosy, really," he said, though high levels of private borrowing continued to constrain New Zealand's rating.

New Zealand's agriculture-reliant economy has been growing at a healthy annual clip of 3.3 percent. The unemployment rate is 5.8 percent, and immigration has hit all-time highs this year.

But the nation of 4.5 million people faces a number of economic challenges which its Treasury predicts will drag growth lower.

Chief among those are slowing economies in its largest export markets, China and Australia. The price for New Zealand's crucial milk exports has slumped by more than 50 percent since the beginning of last year.

Many economists are also concerned about runaway house prices in the largest city, Auckland. That has prompted the central bank to tighten loan requirements and the government to tighten its tax policy on home sales.

The government announced in the budget it also plans to release some of the unused land it owns in Auckland for housing developments, a measure which it says could ease price pressure by allowing thousands of new homes to be built.

Under the budget provisions, international tourists will also need to pay a little more to visit. A new border levy effective next year would charge people who arrive in the country about NZ$16 and those leaving about NZ$6. When added to existing charges, tourists would need to pay about NZ$36 for a round trip.

One surprise in the budget was the extent of relief promised for low-income families. The government plans to spend an extra NZ$790 million on boosting welfare payments and childcare support over four years, while also increasing the work obligations on welfare recipients.

The budget also included NZ$11 million to try and boost numbers of the country's famous flightless bird, the kiwi. The wild kiwi population has been declining by about 2 percent each year due to predators such as stoats and ferrets.

The New Zealand economy has performed better over recent years than most developed nations. The government's net debt is also lower than in many countries, equivalent to about 26 percent of the economy.

The center-right government led by Prime Minister John Key last year won a third three-year term in office in large part on the merits of its economic performance.

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