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Phil Goff -
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Finance Minister Bill English has laid out a grim economic scenario as he prepares his May 28 budget and Labour says the government is getting ready to break its tax cuts promise.
Speaking at a pre-budget business leaders lunch in Auckland on Wednesday, English said the budget was being readied against a backdrop of negative global and domestic economic conditions and trade-offs would be needed.
English says the government was committed to retaining social entitlements and improving public services but it would not let debt get out of control.
The tax cuts National campaigned on for 2010 and 2011 would only go ahead if they could be afforded, he says.
Labour leader Phil Goff says National should not have promised the tax cuts during last year's election campaign.
"They're softening the public up to breach the basic promise they made - that people would be better off through tax cuts," he told reporters.
"The honest time to say tax cuts could not be afforded was during the election campaign, not after it."
Goff said Labour had been cautious and had under-promised, intending to over-deliver.
"National has done the reserve - it promised more than it could afford," he says.
During his speech English said the budget would focus on reprioritising government spending, particularly spending for public services.
There would be no room for significant fiscal stimulus in the budget and the rate of increased spending would be lower than in the past.
He says New Zealand was expected to permanently lose about $50 billion of output over the three years to 2012 because of the recession.
While other countries faced large contractions in their economies New Zealand had gone into recession sooner and was now in its sixth quarter of recession.
Tax revenue and receipts for the eight months to February were $1.8 billion lower than forecast in the Pre-Election Update.
Core crown expenditure this year to June 30 was expected to be $63.5 billion - up $21.6 billion or 51% in the past five years while the economy was estimated to grow by 23 percent in that time and tax revenue by just 24%.
"The point I'm making here is that government spending growth cannot continue at this rate, particularly with revenue falling so significantly in the current environment."
English says growing expenditure and dropping revenue would lead to significant deficits.
With no policy change, Crown gross debt would hit 45% of GDP by 2013 - up from the main December forecast of 33%. And it would exceed 70% by 2023 - up from 57% in the main December forecast.
Crown debt would have jumped by more than $100 billion to around $135 billion by 2023; "or $30,000 for every man, woman and child in New Zealand.
"Those preliminary forecasts are unacceptable to us. We need to get that debt down so the budget will outline a plan for reducing those very high potential debt levels."
