Tax cuts 'the key to recovery' (+video)

National is pressing ahead with plans to unveil tax cuts tomorrow against a backdrop of some of the worst economic news in a decade - and says they are a key plank of its economic recovery plan.
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But after the Treasury opened the books on forecasts that herald an end to a near decade of golden economic weather and usher in a decade of burgeoning government debt and deficits, National is likely to be forced to cut spending elsewhere to pay for them.

The Treasury has also warned that the picture could get uglier, as the risks of a more severe downturn increase amid ongoing uncertainty over the state of the world economy and financial market volatility.

Finance Minister Michael Cullen said New Zealand was well placed to weather the crisis - but acknowledged yesterday that if he had known earlier how bad things would get, he would have taken a "more cautious" approach to cutting taxes.

But National leader John Key said the forecasts showed the economy needed tax cuts now more than ever - and added New Zealanders would be "horrified" that after nine years of good times, the Government had no plan to set the economy back on track. "[They have] delivered New Zealanders a hospital pass."

National has previously flagged tax cuts worth $50 a week to the average worker - but with the books making such grim reading, it will be under pressure to demonstrate that they are affordable.

While it has pledged not to borrow to fund its tax cuts, it has flagged plans to raise government debt to pay for big infrastructure projects. But that was before yesterday's figures, which show debt ballooning to 24 per cent of gdp, from under 20 per cent now.

Mr Key said the new forecasts were worse than National had expected when it drew up its tax cut package. "We had anticipated [the figures] would be bad but they are a bit worse than we had anticipated."

But he indicated that they would not significantly alter the scale of the package.

National has signalled its intention to cut two areas of government expenditure to help pay for the package - and will announce those cuts today or tomorrow.

"We are running the numbers ... but what this shows is that New Zealanders and New Zealand businesses will be under pressure over the next few years and we need to try and take that pressure off them."

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