It is a time to focus on the prudent use of debt.

As a country our net debt is $159.2 billion. Most of this is private-sector debt. The Government, with $17.6 billion, accounts for 6.1 percent of New Zealand's gross international liabilities of $289 billion. Bank borrowing is much higher at $138.9 billion. Our current account deficit for the past year was $14.97 billion. But 93 percent of that was due to the international investment deficit from banks borrowing to fund mortgages, and repatriation of profits to foreign owners.

This is not a pretty picture. The one bright spot is that government debt is low. In 2008, core government spending will be 31.8 percent of gdp. And net government debt has fallen from 21 percent of gdp in 1999-2000 to 1 percent (and once the NZ Super Fund is added we end up in positive territory). But net debt is expected to rise to 6.2 percent of gdp by 2012. Gross debt was forecast to fall from 18.9 percent of gdp in 2006-07 to 16.8 percent of gdp by 2012. But the pre-election fiscal update may show a faster and higher track in terms of debt to gdp levels. So the pressure is already there.

With households and firms holding so much debt, the one buffer that builds a perception of security from international lenders around economic management is the prudent management of government debt.

But this is now at risk. The National Party may think it makes political sense for it to offer a further round of tax cuts on top of what the Labour-led Government will deliver in a couple of weeks. After all, the National Party has been promising large tax cuts for ages.

But it doesn't seem to make any economic sense for New Zealand.

It is a large and unnecessary risk. There is room for tax cuts, but they are expensive. Budget 2008 showed that relatively modest tax cuts use up a large amount of money. The annual average cost of the tax cuts starting on October 1 is $2.7 billion.

Of course, at times like these, there will be calls for the Government to prime the pump even further, but this would need to be carefully considered.

In a speech to the National Party conference on August 2, Bill English said that "small operating deficits, for a limited time, are not the end of the world".

But this uses up the buffer, and begs the question on what a National-led Government would do to then get out of a deficit situation. Borrow even more?

We know its instinct is to privatise and to cut into government spending. It looks probable that it would do that anyway, judging by remarks in recent months, but the point is that its approach to fiscal management, when combined with its true ideological instincts, amplifies the risks of privatisation and significant spending cuts.

The National Party health policy discussion document released last year outlined plans to make greater use of the private sector and increase competition. National outlined plans to increase private provisions in education, its desire to open the ACC scheme to competition, and its support for greater private sector involvement in schools, prisons and roads.

This is the problem with National's approach – it is too risky. It shows poor judgment on fiscal management and increases the likelihood of cuts in public services and privatisation.

And are we really that highly taxed? The 'tax wedge', calculated as the difference between labour costs to the employer and the net take-home pay of the employee, including any cash benefits from government welfare programmes, is on average 37.7 percent across OECD countries for a single person employed at average earnings levels in 2007. In New Zealand it was 21.5 percent. For a single- earner married couple with two children on average earnings, the tax wedge for OECD countries was on average 27.3 percent. In New Zealand it was 2.8 percent.

We need to be careful of 'casino economics'. That is what we get if some of the exuberance for debt in global financial markets spills over into government borrowing. It is what we get if National attempts to say that large tax cuts will pay for themselves through higher growth.

* Helen Kelly is president of the Council of Trade Unions.

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