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Is there still money for tax cuts?

Published: 6:26PM Monday October 06, 2008 Source: ONE News

National is facing a post-election financial hangover if elected.

The party is keeping its powder dry until its tax cut announcement on Wednesday, but it claims those cuts are part of the solution.

The opening of the government's books has provided a gloomy picture for businesses, showing inflation will peak at 4.5% next year, government spending will balloon and tax revenue will be down as the economy slows.

There are plenty of expensive promises being made on the campaign trail but questions are being asked about whether that spending is going to have to be scaled back given the turbulent economic times ahead.

Key vows that under National, New Zealand will do better and will deliver a growth programme.

Key is not saying how his party will afford tax relief, and admits National is re-evaluating its policies following the new figures. "We took into consideration a weakening economy... we're in the process of updating our models."

He says National has known for some time that the books would be bad but would not say if $50 a week tax cuts are still part of National's plans.

National had already said it would increase government debt by 2% to around 22% of the country's economy to pay for new infrastructure, but Treasury's figures show debt is now expected to blow out to at least 24%.

Key says it will take time for National to consider the numbers and says "we're just running everything through the books at the moment".

But the new figures are likely to spark some pullback on the election chequebook.

And Labour leader Helen Clark is putting the pressure on National ahead of its tax cut announcement on Wednesday. She says now is the not the time to go out and recklessly borrow to offer tax cuts.

Clark says people are going to be looking for experience and common sense to be exercised during these economic conditions. She says the government is having to reprioritise its spending, but isn't planning to cut public expenditure overall.

Roger Kerr of the Business Roundtable says long-term the projections are very mediocre. He says the forecast of 2.5% growth in the next decade and no increase in productivity means the idea of New Zealand closing income gaps with Australia is no longer a prospect.

Kerr says New Zealand should have been thinking long ago about how to keep inflation lower and how to boost productivity.