KEY POINTS:
National has reduced its planned tax cuts for high income earners so it can keep its pledge to give the average earner a cut of $50 a week.
The rethink was forced by the bad news revealed in the opening of the Government's books on Monday.
National will today unveil an economic policy that includes tax cuts, likely reductions to government KiwiSaver contributions and an updated picture of what the party will do about debt if it wins the election.
Party leader John Key yesterday admitted that the pre-election opening of the books by the Treasury showed a picture that was much worse than he had expected.
"We'd always expected a slowdown, but I don't think anyone saw deficits for 10 years and such a deterioration in the accounts."
The economic and fiscal update showed cash deficits forecast to reach $7 billion and budget deficits for the next 10 years.
Higher unemployment was also forecast because the domestic economy was likely to slow more than had been expected.
National spent Monday night doing its sums, and its leaders decided they could not go ahead with the original tax cut plan.
"We've scaled them back a bit," Mr Key said in Auckland yesterday afternoon. "I think that's the sensible thing to do."
National has realised that the alarming state of the Government's books means it would look irresponsible if it goes too big on its tax cuts.
Also behind the decision is the fact that the forecasts revealed by the Treasury this week do not take into account the tumultuous events of the past month, in which banks have collapsed, the US Government has approved an enormous bail-out deal for Wall Street, and the flow of credit internationally has virtually seized up.
It is understood National's changes reduce tax cuts at the top end of the package.
The party has done little in recent months to counter expectations that it would give $50 a week back to average earners, and it appears to have decided it cannot take the risk of not delivering.
"The indications that we gave for someone on the average wage are broadly correct," Mr Key said.
The $50 reduction won't be reached until until April 2011, and will include the tax cuts Labour introduced on October 1.
But it seems likely the biggest part of the cut will take effect on April 1 next year in an attempt to accelerate the country's economic recovery.
Prime Minister Helen Clark yesterday cast doubts on National's statement that it had scaled down its tax cut plan.
"I believe they over-promised on their tax package and they are now using the excuse of the books to try and talk down expectations," she said.
One of the important aspects of today's announcements will be the details of where National plans to cut spending.
Reductions are likely to government contributions to KiwiSaver, possibly through cuts to tax credits for employers or for savers, both of which are now worth up to $20 a week.
