High-income earners will cop the fallout from global financial turmoil when National unveils a trimmed package of tax cuts today.
After a day of carnage on world money markets and grim Treasury predictions of rising government debt and ballooning deficits, National has taken a knife to its tax-cut package - but leader John Key said the pledge to deliver about $50 a week to workers on the average wage remained on track.
The biggest changes are understood to have been made to tax cuts pencilled in for earners in the top tax bracket. In 2005, National promised the highest earners cuts of $92 a week.
The party has also been forced to pull back on its plans to borrow more if it gets into office - a key plank of its plan to speed up infrastructure projects.
It is an acknowledgment that, in the current environment, it is risky to make promises that leave National open to accusations that bigger tax cuts will fuel debt and worsen the state of the government's books.
Mr Key confirmed yesterday that the biggest chunk of National's tax cuts would be made in April, with smaller cuts pencilled in for 2010 and 2011.
Prime Minister Helen Clark said yesterday that National was poised to raid KiwiSaver to fund its tax- cut pledge and that would hurt the economy, as well as let down the 800,000-plus Kiwis who had signed up to it.
She said National had over-inflated expectations and was using the financial turmoil to talk them down.
But as the election campaign hits its straps and parties scrap over the contents of a cupboard that looks increasingly bare, Labour has also been forced to pare back its plans - Miss Clark confirmed that she was holding back from new policy announcements till the economic picture became clearer.
Shares, the Kiwi dollar and oil prices are all diving as shock waves from the international credit crisis continue.
The one light on the horizon is that the turmoil has raised the likelihood of a dramatic lowering of interest rates.
The Australian Reserve Bank stunned the markets yesterday by cutting its official interest rate by 100 basis points to 6 per cent, sparking speculation that New Zealand's Reserve Bank would follow suit, perhaps before its next review on October 23.
The two central banks have been in close contact as the crisis deepens.
The Australian bank said financial markets had taken a turn for the worse, and the deterioration in prospects for global growth, together with much more difficult market conditions even for the creditworthy borrowers, raised the risks of recession.
The price of oil is down sharply and if it heads back under US$80 a barrel, as some expect, petrol prices should be lower by Christmas - though for now that is being offset by a dive in the New Zealand dollar.
But business survey results issued yesterday suggested recession was likely to continue for the rest of 2008, despite earlier hopes that the worst may be over.
Kiwi shares bounced back late yesterday from what had been a near 3 per cent slide earlier in the day, as the market took another hammering from the crisis.
The dollar ended the day at US63 cents, down US2c in a day, and almost 6 per cent lower in just a week.
- © Fairfax NZ News