$50b hole in economy

Job losses are mounting as the Government advised that the country is staring down the barrel of a $50 billion recession.

Inland Revenue staff were told yesterday up to 250 jobs would be axed as government departments are told to tighten their belts and Finance Minister Bill English has issued a stark warning of trade-offs in the May Budget, which will outline a plan to tackle ballooning debt.

Superannuation entitlements, Working for Families, interest-free student loans and social welfare benefits were not under threat. But tax cuts in 2010 and 2011 would only go ahead if they were affordable, Mr English said.

The recession was expected to blow a $50b hole in the economy during the next three years, plunging the Government further into the red as costs climb and tax revenues fall.

"That's $50 billion we will not recover as a nation, and $50 billion that cannot be taxed by the Government," Mr English told a business audience in Auckland.

Labour leader Phil Goff said the Government was softening the public up for a broken promise on tax cuts.

"I think [Mr English] is making the situation as black as he can in order to justify breaking a promise on tax cuts and slashing services to New Zealanders."

Layoffs at Inland Revenue have alarmed the Public Service Association. The union said the cuts coincided with an increase in workload because of tax changes and KiwiSaver.

"Our concern is that job cuts in the public service will push workloads to unmanageable levels that will threaten the provision of essential public services like those at Inland Revenue," national secretary Richard Wagstaff said.

Inland Revenue commissioner Robert Russell said the redundancies among the department's 6000 staff were voluntary at this stage.

The department, like other businesses, was having to tighten its belt, he said. Normally it would try to avoid redundancies by applying a sinking lid, but with the economy so uncertain, staff were staying put.

"People who used to be very confident about being able to leave a job today and getting a new one tomorrow just don't have that confidence."

The State Services Commission also said this week it was cutting about 20 jobs. Public service layoffs are expected to accelerate during the next few months as spending is scrutinised by a Cabinet razor gang.

Ports of Auckland said yesterday that it was cutting 30 jobs.

Mr English warned that with the economy now in what was likely to be its sixth quarter of recession, and government gross debt set to double in the next three years, the Government had no choice but to bring debt under control or leave the country "especially vulnerable".

With no change in policy, debt would reach 70 per cent of gross domestic product by 2023 equivalent to $30,000 for every New Zealander.

If left to rise to those levels, it would eventually require "radical steps to bring it under control".

"We will not let that happen."