National leader Don Brash is floating the prospect of a recession, saying the Government is doing nothing to allay a major slump in business confidence.

In his annual Orewa speech yesterday he said that with news of export companies closing doors or laying off staff - over 300 in recent weeks - business confidence was at its lowest in more than 30 years.

Even if it recovered in the near future, there was little doubt economic growth would slow considerably over the next 18 months and "as a result many businesses will face very tough times and ... unemployment will rise steeply".

"At this stage it is almost too late to avoid a recession," said Dr Brash.

"If business confidence stays around current levels - and this Government is doing nothing that might help avoid that - we are almost certainly heading for a recession.

"The collapse in business confidence is like the warning light on your petrol tank - ignore it at your peril.

"Well it is flashing, and the Government is asleep at the wheel."

The Government however dismissed the speech with Deputy Prime Minister Michael Cullen describing it as the "same, tired old right-wing rhetoric"

A recession is defined as two financial quarters of negative economic growth, but Dr Cullen said growth was only forecast to drop to 1.5 per cent at the lowest.

Entitled "Labour's legacy; a faltering economy" the speech claimed Labour continued to overspend last year despite warnings of the impending economic slowdown.

Dr Brash returned to a number of National's key election campaign themes including the income gap between New Zealand and Australia.

If the gap continued to widen, "the risk is that we reach a tipping point from which it is increasingly difficult to recover".

Raising productivity levels was necessary but the Government had failed to use the "golden weather" to build growth - the "real tragedy".

Dr Brash marked out immigration, health and the "tension" between the need for infrastructural improvements and the need to "improve our outstanding natural environment on the other" as areas National would in future pay particular attention to.

Both immigration and health have been earmarked as problem areas by the Government.

Immigration policy is already under review and National hopes to drive a wedge between Labour and confidence and supply partner New Zealand First over the issue.

Health, meanwhile, swallows up a fifth of all Government cash and it has said that despite the increasingly ageing population, spending cannot continue on the current trajectory.

Aside from a belief there is wastage in the system and a need to develop a more comprehensive health policy, National is planning to increase its focus on the area to help build a softer image as its searches for centre votes.

It is increasing its environmental emphasis for the same reason.

Dr Brash said strong net immigration "may" be a good thing "but clearly there are limits to how far we can go in finding more people".

Immigration was not just about the economy - but the "common values that bind us together as a nation".

"New Zealand is a liberal, tolerant and secular society, a society that embraces the Western Enlightenment ideals of personal liberty, private property and rationality as the basis for decision-making.

Dr Brash strongly denied to reporters that his comments discriminated against some immigrants.

He also restated his commitment to leading National into the next election, telling reporters: "There is some unfinished business ... that I want to finish."

In reaction to the speech, Prime Minister Helen Clark said she had predicted an "essentially negative speech".

She said the comments about the importance of New Zealand's secular society were a "little rich" coming from "someone who was happy to take a great deal of money from a fundamentalist sect [the Exclusive Brethren] which would very much like to see a different sort of society".

Finance Minister Michael Cullen said he was "underwhelmed" by Dr Brash's speech.

"This is a speech which says and does nothing new at all and adds nothing to political debate within New Zealand.

"It's the same tired old right-wing rhetoric from the same tired old leader," Dr Cullen said.

The speech must "give hope" to Mr Key and Bill English "who are looking to replace Dr Brash before the next general election".

Dr Cullen said the National leader had come up with no solutions but was "talking down New Zealand and talking down New Zealanders".

The economic downturn that had been forecast for the past two years was "very modest".

Green MP Keith Locke described the immigration comments as a "coded attack on non-white migrants" and with Mr Peters muzzled, Dr Brash was trying to fill his shoes.

- Additional reporting NZPA