The sight of red ink bleeding from the Government’s books has led to National scaling back the tax cuts package it will announce on Wednesday.
On Monday, Treasury predicted there would be years of deficits ahead and an increase in borrowing to meet the cash gap.
It predicted that unless growth was higher than forecast, the current economic conditions would lead to government debt rising from current levels of 17 per cent to GDP to 25 per cent by 2012.
National leader John Key gave no details about the policy, but said the package would only change “slightly”, but still “broadly” deliver $50 a week to a person on the average wage of $48,000.
National has not given any clues to how the package will be designed, but Key said it would not involve higher levels of borrowing and would leave the Government in a better position than that outlined by Treasury on Monday.
Finance Minister Michael Cullen said Key’s comments were baffling as he seemed to promise both a reduction in the party’s initial tax cut package as well as the maintenance of it.
Key told journalists in Auckland that it would be irresponsible at this stage to proceed on the scale National originally envisaged.
He blamed Labour for the state of the books saying they were “significantly worse” than expected and the potential risk was all on the downside.
Asked if some people would be disappointed at getting less in the pocket, Mr Key said he believed that people would understand the need for leadership.
“We have made some changes to our tax package in light of the news Michael Cullen dished up in yesterday’s pre-election fiscal update (Prefu),” Key said.
“The thrust has not changed. But we are being realistic about what is fair and affordable in light of the mess Labour will be leaving behind it.”
Following on from the Labour tax cuts of October 2008, National would still be making further tax reductions on April 2009, April 2010 and April 2011.
“The largest chunk of this tax reduction will be provided on April 1 next year.
“For someone on the average wage, the actual amount of the tax cuts will be similar to that which we have previously signalled, and I will detail those numbers tomorrow.”
He said National remained committed to ongoing tax cuts.
National has been keen to paint the tax cuts as part of a wider economic management strategy and Key continued with that theme.
He said he had been briefed by the Reserve Bank and was confident the current plans were sufficient to maintain confidence in the New Zealand financial system over the coming months.
National was concerned by projections outlined in yesterday’s opening of the government books, and the current outlook for New Zealand’s long-term growth prospects.
“If New Zealand is to avoid the Treasury’s projected decade of deficits we simply must focus our attention on growing the economy,” Mr Key said.
National has been promising to tighten control on Government spending, reduce red tape, stop the rise in bureaucracy, ongoing tax reduction, increased investment in infrastructure and lifting education standards.