New Zealand's Prime Minister Jacinda Ardern briefs the media about the coronavirus at the Parliament House in Wellington on April 27, 2020. (PHOTO / AFP)

WELLINGTON — New Zealand will unleash billions of stimulus dollars at its annual budget this week to cushion the economic blow from the coronavirus pandemic, leaving it with ballooning debt and a dismal fiscal position that will take years to fix.

Spending on infrastructure, healthcare projects, state housing and more subsidies for low income workers and cash-strapped businesses are on the cards in the annual budget to be unveiled on Thursday.

The budget also paves the way for Prime Minster Jacinda Ardern’s re-election campaign, as her centre-left coalition government hopes its success in limiting the outbreak and spending plans entice voters ahead of the September poll.

Thursday’s Budget will include billions more in new spending and investment to support the recovery phase, and it’s likely that even that won’t be the end of it

 Michael Gordon,Westpac Senior Economist 

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The government has already pumped NZ$20 billion (US$12.15 billion) into the economy, largely through wage subsidies to limit job losses. Economists are expecting fiscal support to be doubled, at least.

“Thursday’s Budget will include billions more in new spending and investment to support the recovery phase, and it’s likely that even that won’t be the end of it,” said Westpac Senior Economist Michael Gordon, adding those billions were the least costly option.

“Without them, the damage to New Zealanders’ livelihoods and well-being would be immense, and the consequences would be felt for many years,” he said.

The spending would mean an operating deficit of about NZ$30 billion, or nearly 10percent of gross domestic product in the 2021 fiscal year, economists said, while debt would spike higher.

“The weak economy will weigh on tax revenues – heavily – and expenses are skyrocketing,” ANZ Senior Economist Miles Workman said.

Workman said the government would have to abandon its strategy of keeping debt between 15-25percent of GDP, with that ratio now likely to hit 40-50percent of GDP. Debt is currently under 20percent.

Bond issuance will spike to around NZ$145 billion over the next few years, he said, NZ$100 billion more than a projection made in December.

Sobering Outlook

Prime Minister Ardern has garnered global praise for her leadership amid the pandemic, with the country recording only 21 deaths from coronavirus, among the lowest tolls in the world.

But she faces a tough task rebooting the US$200 billion economy, which is dependent on trade and tourism, with growth expected to slow significantly and hundreds of thousands of jobs to be lost.

Finance Minister Grant Robertson last week said the budget forecasts would be “sobering” and stressed more fiscal support is needed to keep jobless rates below 10percent from 4.2percent currently.

In neighbouring Australia, the government postponed its annual budget to October from May, as the coronavirus cast massive uncertainty over economic projections.

READ MORE: New Zealand to ease lockdown restrictions next week

Ardern eased some tough lockdown measures this week, after pressure from the main opposition National Party, which said they were crippling small businesses and hurting the economy.

Thursday’s budget includes NZ$3.6 billion for health services over the next four years, NZ$200 million to tackle domestic violence and pay hikes for teachers.

A NZ$12 billion infrastructure package for roads and rail announced before the coronavirus pandemic would also go ahead.

“At its heart it is the simple idea that our team of 5 million has united to beat the virus, now together we can also unite to rebuild our economy,” Ardern said at a news conference on Monday.