Budget preview: It's about controlling debt

Bill English will today deliver what is being called NZ's most important Budget in over 25 years. Photo / Mark Mitchell

Finance Minister Bill English will today unveil plans for a big debt programme to fund New Zealand's Budget deficits for at least the next five years.

But Prime Minister John Key was adamant yesterday that the debt would be controlled enough to prevent a downgrade in New Zealand's credit rating - which would cost the Government and homeowners in higher interest rates.

If the news is good, rating agency Standard & Poor's is expected to issue a bulletin tonight giving what Mr Key calls its "verdict" on the Budget.

The Government has already borrowed about $15 billion this financial year.

In its first Budget, National will today outline spending that will exceed the total for the current year - about $63.5 billion. But National has also vowed to cut the rate of increase in spending.

Mr English will outline a $7 billion capital spending programme over five years.

Health, education, and law and order will receive boosts.

But most other sectors will have to make do with current spending or less.

Mr Key told reporters the "primary focus out of this Budget is to avoid a ratings downgrade" because he believed it would add about 1.5 per cent to mortgage interest rates.

Questioned later by reporters, Mr English said avoiding a ratings downgrade was not the primary focus of the Budget.

"No it isn't. The primary focus of the Budget is making the right decisions for New Zealand, to manage our way through a recession and deal with the consequences of that."

When it comes to personal tax cuts, however, Mr Key and Mr English have sent signals in unison that the 2010 and 2011 tranches - the second and third - will be canned.

The billions saved there and the suspension of the annual contribution to the Superannuation Fund, which has been about $2 billion a year, will help reduce debt.

Mr Key yesterday defended the cost of ministerial purchase advisers - paid up to $2000 a day - to help find Budget cuts.

"I am satisfied as Prime Minister that they well and truly provided value for money," he said.

Meanwhile, the Treasury has decided to change the way it identifies "fiscal risks" in the Budget following the ACC controversy surrounding last year's Pre-Election Fiscal and Economic Update and what is to be included.

An ACC funding shortfall of $300 million was identified before the pre-election opening of the books but because it was not under "active consideration" at the time it was not mentioned.

Treasury Deputy Secretary Peter Bushnell said "active consideration" had been taken to mean a paper presented to the Cabinet.

Now the determining factor was the "likelihood of matters being approved by the Government", and that was decided by a group of senior Treasury managers in discussion with the Minister of Finance.