New Zealand is set to unveil a better-than-expected budget surplus on Thursday and will target any spare cash on infrastructure and housing as the centre-right government tries to woo voters ahead of national elections this year.
The South Pacific island nation has enjoyed the highest GDP growth in the developed world in recent years, and that has helped boost the corporate tax intake and strengthen the government's balance sheet.
For the latest fiscal year ending June 30 the government is expected to forecast a budget surplus much higher than the NZ$473 million ($327.51 million) projected by the Treasury in December's half-year update.
Indeed, government figures showed a NZ$1.5 billion surplus in the nine months to March, well above the NZ$147 million forecast in December, partly as some reconstruction-related spending from November's severe earthquake was yet to take place.
"Overall, a fairly positive story for the government in terms of its books," said Christina Leung, economist at think tank the New Zealand Institute of Economic Research.
"We are going into an election year so no doubt there will be some pre-election sweeteners going into there, but overall a pretty prudent program, we would expect," she added.
The ruling National party is touting its careful management of New Zealand's NZ$250 billion economy ahead of elections on Sept. 23 as it fights for a fourth term against the centre-left Labour party.
A recovery from last year's sharp drop in global prices for New Zealand's main export earner, dairy, and booming tourism has led to unemployment hovering around eight-year lows of 4.8 percent and GDP growth at 2.7 percent.
However, despite a strong economy that remains the envy of developed country peers, fast-rising housing costs have pressured the government to do more for first-time buyers who have been priced out of the market. Record immigration, which has fuelled rises in housing prices, is also putting a strain on infrastructure.
Industry estimates put New Zealand's housing prices roughly 50 percent above the previous peak in 2007.
While recent polls show the National party comfortably ahead of Labour, the high house costs have started to test the government's support.
The opposition Labour party has vowed to build 100,000 homes in ten years, as house prices rise more than 10 percent per year and net migration continues to break records, with more New Zealanders also likely to return or stay home.
The government has already said it would funnel NZ$11 billion into infrastructure over four years and build 34,000 new houses in Auckland over the next decade.
Finance Minister Steven Joyce had also flagged that reducing the country's net debt was a priority. Net debt was expected to be 24.3 percent of GDP in the 2017 financial year, with the government aiming to cut it to around 20 percent by 2020.
"It's important we start to save now for our next rainy day. The most important protection against future shocks is to run a strong and vibrant economy," he said in a speech in May.
($1 = 1.4443 New Zealand dollars)
