Next month's Budget will not contain plans for tax cuts, Prime Minister John Key said today.

He announced a tax package for small and medium business -- the first costed pre-Budget announcement that will cost $187 million over four years.

"There will be no personal tax reform in the Budget," Mr Key told reporters in Wellington afterwards.

Asked if that included tax cuts, he said, yes.


Essentially it is back to plan A - meaning any tax cuts are likely to be announced next year - election year - which has a plumper new operating allowance.

For several months now, Mr Key and Finance Minister Bill English have suggested that the operating allowance set for the next four Budgets could be "rephrased" and that tax cuts could be moved to this year.

The new operating allowance for the May 26 Budget is $1 billion; $2.5 billion for Budget 2017 and $1.5 billion each for Budgets 2018 and 2019.

Tax cuts remains a priority for the Government.

In February Mr Key said the Government's overall fiscal strategy was to keep a tight rein on spending, focus on results from public services, start to pay down debt, "and look to return any excess revenue on top of this to taxpayers".

Mr Key said today that the Government activity made up a quarter of the economy including schools, hospitals, transport, electricity and housing businesses, law enforcement and defence services.

"Our biggest contribution to the New Zealand's productivity is in running our 25 per cent better."