ACT leader John Banks said it had been his suggestion to remove the spending cap provision for the Budget, if it did not have the numbers to pass.

The Government has shelved a cornerstone of its support deal with ACT that would have capped spending after Revenue Minister Peter Dunne refused to back the move.

But Banks would put forward a separate Government Bill, containing the spending cap provisions, and it had the support of the Maori Party and Dunne to first reading.

"It does not make sense for any centre-right Government not to support this bill."

But Dunne said he had not pledged to support it to first reading, because he had not yet seen a draft.

"As a rule I might support a first reading ... it depends what it said."

Dunne said his comments critical of a spending cap still stood.

He said yesterday the spending cap was ''part of an unnecessary right-wing agenda'' and was not consistent with constitutional principles which prevented one parliament binding another.

While he would listen to the arguments ''I am not eminently persuadable''.

''Discussions are ongoing, but I am sceptical about caps as an attempt to bind future Parliaments,'' he said.

Finance Minister Bill English said the planned change had been set aside "at this stage" after consultation with other parties.

''The decision has now been made to introduce the spending limit as a stand alone Bill later this term. This will allow for further consultation and more policy work to be completed."

But it seems unlikely those talks will be successful, and the move appears to be doomed.

Labour leader David Shearer said three days ago English had told him the Government would not proceed with the spending cap.

But now he had released a statement from overseas saying the spending cap is back on.

"Bill English has done a complete u-turn in the space of three days and now his support partners Banks and Dunne are having a public spat.

"This is no way to proceed with a major piece of economic policy."

He said only Act and National supported the spending cap.

"With Peter Dunne dead-set against it, there's no way the cap will pass."

Green co-leader Rusel Norman said a spending cap was ''a stupid idea that has come to a crashing halt''.

It would remove the flexibility governments needed.

Under its confidence and supply agreement with ACT, National agreed to adopt and implement the cap.

They noted the current fiscal problems had been caused by ''irresponsible increases in government spending between 2005 and 2008''.

They agreed this could happen again unless ''institutional changes are put in place that will better constrain excessive future increases in government spending''.

It was agreed the law change would limit the growth of core crown operating spending, excluding finance charges, unemployment benefit, asset impairments and spending on natural disasters.

''Under this limit expenditure will grow no faster than the annual increase in the rate of population growth multiplied by the rate of inflation.

The finance minister would have to explain unplanned breaches of the cap to Parliament and outline what actions would be taken to ensure future spending stayed within the cap.

- © Fairfax NZ News