Key Points:

Tax cuts flagged by Finance Minister Michael Cullen this morning are likely to be 'a drop in the bucket', an economist has said.

ANZ Bank chief economist Cameron Bagrie said the cuts would have little impact while people faced high food and petrol prices.

"In the overall scheme of things I think people will get 20 bucks a week," he said.

In a speech to the Canterbury Manufacturers Association, Dr Cullen said workers would get tax cuts, but they "cannot be huge".

The cuts would be aimed at workers who were "finding it hard to make ends meet", he said.

Dr Cullen did not reveal the amount of tax cuts or how or when they would be rolled out.

"We know that the last thing workers want is an irresponsible tax cut programme that leads to cuts in services or higher interest rates," he said.

In brief

* $750 million in new health investments

* "More funding" for education and social services

* Increase in capital spending including rail and broadband

* More money for science and research

Click here for the full speech

Dr Cullen said tax cuts were limited by available revenue as well as inflationary pressures.

Mike Treen from Unite Union said tax cuts were good but Dr Cullen needed to look at introducing tax thresholds for those on high incomes.

"We think the current tax system is unequal in that it penalises people on the lowest incomes," Mr Treen said.

He said a tax cut for the first $10,000 earned would benefit the rich also. But if higher thresholds were introduced for those on $100,000 and $200,000 then the Government could afford a more meaningful tax cut across the board.

"Whether it's high income tax levels and low income, also GST, petrol, tobacco or booze - there's a whole range of flat rate taxes that hurt workers disproportionately," Mr Treen said.

No 'silver bullet'

Dr Cullen said the Government would not introduce "gimmicks" or a "silver bullet" rescue package for the economy.

Infrastructure and public services would also get a boost in funding, while the future of the economy was safeguarded by sustainable development, he said.

Dr Cullen said the Government would invest further in rail and the release of a broadband package designed to increase competition.

"We will run a highly efficient rail business and it will deliver serious dividends for our economy."

Dr Cullen said it was not politically easy to be talking about the need to save for a "rainy day" while the economy was in a sunny period.

Mr Bagrie said New Zealand was going through a normal business adjustment with inflationary pressure and an account deficit.

"Night follows day and it's not going to be a pretty picture for the next 24 months."

He said fiscal policy had to deliver the right incentives but it wasn't necessarily delivering cash in the pocket.

"It's to give people the right incentives to go out there and get ahead. It's the carrot," Mr Bagrie said.

He said part of that was saving and the Government's research and development scheme and lower corporate tax have been steps in the right direction. Mr Bagrie said the rail and broadband investment flagged in the speech were also good steps.

"The most important fundamental is productivity growth and we've absolutely dropped the ball," he said.

Dr Cullen outlined the challenges ahead for the New Zealand economy, which included the subprime mortgage crisis in the United States, the international credit crunch and the pressure on households by way of rising food and fuel prices.

He said the drought which had cut farmers' profits and international pressures were outside of the control of the Government but the country was not powerless.

"The truth is that we always have choices on how to respond, both when times are good and when we are faced with challenges," he said.

Dr Cullen also had a message for families feeling the pinch: "We know New Zealanders are feeling pain at the pump and at the supermarket checkout.

"We know that for many families' mortgage repayments or rentals are wiping out disposable income. We know that some regional economies are still struggling with the economic effects of drought.

"We will deliver relief," he said.

The amount and timing of the tax cuts will be revealed at Dr Cullen's ninth budget announcement next Thursday.

- NZHERALD STAFF