Key Points:

National leader John Key has reduced the size of his promised tax cuts in the wake of Treasury's pre-election report which showed the economic forecasts to be worse than the most pessimistic predictions.

Mr Key said the worst of the economic slowdown has not been factored into the Crown accounts released yesterday.

"On the back of that we've decided to scale back our tax package slightly," Mr Key said.

National's tax strategy and the size of the tax cuts will be revealed tomorrow.

Mr Key said National was committed to tax cuts which would begin on April 1 next year.

"We confirm that the indications we gave for someone on the average wage are broadly correct," Mr Key said.

He said under National the tax cuts would "promote growth" for businesses while house prices decline and some people lose their jobs.

"Tomorrow is going to be an economic plan, not just tax cuts," Mr Key said.

Mr Key said National would like to give a larger tax cut but will be acting responsibly.

"It's important we show economic leadership in that time and I think New Zealanders will understand that," he said.

Treasury has predicted budget deficits of billions of dollars for the next 10 years - a far cry from the surpluses Finance Minister Michael Cullen has run for nine years.

Public debt is tipped to spiral higher as the weak domestic economy gets further buffeted by a growing international financial crisis.

The picture is starkly different from one revealed only five months ago in the Budget, and still does not include the tumultuous global events of the past five weeks.

The latest Treasury update forecasts Government debt to rise to 24.3 per cent of GDP, well beyond the 20 per cent self-imposed target Dr Cullen has set.

Over a longer period it is projected to get as high as 30 per cent of GDP.

With the increased debt comes higher debt servicing costs of around $500 million each year - meaning National's higher debt plan would further weaken government accounts.

The main reasons for the sharply different books are the weaker economy driving lower tax revenue and higher unemployment, while higher-than-expected take-up of policies like KiwiSaver has increased spending.

Dr Cullen was yesterday full of caution about the debt track and said that while he was not concerned about movement over the next couple of years, beyond that any finance minister would not be wanting to see the trend contained in the longer projections.

He also suggested Labour might revisit its Budget decision to spend $600 million on the Ministry of Foreign Affairs and Trade, "because that may be crowding out other opportunities which are of higher relevance to New Zealand's economic growth and social development over the medium period".

Yesterday Mr Key emphasised now was not a time to be "slamming on the brakes".

The country needed tax cuts and a plan for economic growth, he said.

Dr Cullen also steered clear of panic.

He said the Government had purposely strengthened accounts over the past nine years for a "rainy day" and "that rainy day has arrived".

Dr Cullen argued New Zealand was well positioned to weather the storm and emerge from it in better shape than other developed economies.