Govt must adjust for global economic decline - Dunne

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Revenue Minister Peter Dunne says the Government will be forced to look at how it can tighten the tax system if the global economy deteriorates further.

For the first time yesterday, Prime Minister John Key conceded he might have to drop plans to return the Government's books to the black by 2014-15.

In his first major speech for the year, he said the slowing global economy and the European debt crisis had forced Treasury to cut the expected surplus to less than $500 million from the $1.5 billion tipped before the election.

If the outlook worsened before the May Budget, more may have to be done to return the books to surplus or the target dropped altogether.

Dunne this morning said a global recession would force the Government to look at plugging tax loopholes, clamp down on tax avoidance and ensure the system was coherent and consistent.

Some work was already underway.

"We just had public consultation on the use of mixed assets such as holiday homes and launches, and we've been doing other work looking at the tax treatment of various forms of activity."

"That programme needs to be ongoing... what we should be doing is making sure we are collecting all the existing taxes which are due and if there anomalies and loopholes we need to be closing those to make sure the system is fair to everyone."

It was estimated the Government was missing out on hundreds of millions of dollars of revenue a year, Dunne said.

The Government was not considering changing tax rates, he stressed.

Key's speech yesterday drew criticism from Labour, with leader David Shearer saying the prime minister was now talking about managing economic decline, not recovery, less than two months after the election.

"At this rate, the prospect of any surplus at all will soon become a mirage.

"John Key's spin is now to talk up a decline in New Zealand's economy as somehow inevitable, giving him cover for his Government's under-performance."

However, his comments were dismissed by Dunne as a "great political free hit at the start of the year".

"New Zealand isn't living in isolation from what's going on in the rest of the world.

"We might well be doing our level best to keep our books in order to keep our economy afloat but we can't stand aside from a massive international storm."

The situation in Europe was changing daily and that inevitability had an impact on New Zealand.

"This crisis isn't sudden, it began before the 2008 election and it isn't going away quickly.

"We could well be in for more shocks yet," Dunne warned.

- © Fairfax NZ News