Prime Minister John Key was accused of managing down Kiwis' expectations yesterday, as he warned that increasing spending will drive interest rates higher.
Following his pre-Budget speech in Auckland, Key said the Beehive had been advised by Treasury there was little leeway for additional spending in excess of $1 billion, before the Government became "part of the problem", stoking inflation and driving up interest rates.
"If a political party wants to spend a lot more than that billion dollars, it's highly likely that will put pressure on the Reserve Bank governor to raise interest rates."
Despite Treasury forecasts expected to show that, after a "wafer thin" surplus in 2014-15, the Government will be reaping billions in excess of expenses in future years, Key has spent this week warning that there will be no "lolly scramble".
"It's really important everyone's expectations are in the right place, that there won't be a massive spend-up either during the Budget or the election," Key said.
Earlier he pledged ongoing restraint in spending, with a focus on paying down debt - which recently reached $60b - from 26 per cent of gross domestic product to less than 20 per cent by 2020.
"Our focus is on sustaining economic growth over the medium term, so the economy doesn't just burn brightly for a couple of years and then run out of oxygen."
Labour leader David Cunliffe said National was trying to manage down the expectations of Kiwis. "New Zealanders already have low expectations of the National Government because they've been fiddling while the economy's been going backwards.
"He [Key] is offering no vision, no hope and no plan for New Zealand."
Labour is planning to release soon its alternative monetary policy, which it claims could mean the Reserve Bank is able to keep interest rates lower.
Cunliffe said National was doing nothing to reform the economy.
"They've got outdated monetary policies, a warped tax system and inadequate savings and they're too gutless to fix it."
While interest rates have already started rising, National has warned that Labour and the Green Party plan to ramp up spending, which would mean the cost of borrowing would end up higher than it would be if National remained in power.
Cunliffe pledged to run fiscal surpluses in its budgets, and while he would not say how much new spending there would be until he had access to the latest advice from the Treasury, he expected Labour would look to pay down debt "at or about the same rate as National".
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- The Dominion Post
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