The Government has effectively "waved the white flag" by announcing it will shift its debt target from 20 per cent of GDP to a range of 5 points either side, the National party says.
Finance Minister Grant Robertson said in a speech to investors this morning that the Government was looking at a range of around 15 to 25 per cent of GDP from 2021/22.
National's finance spokeswoman Amy Adams said the 20 per cent target had been a significant and consistent promise for Prime Minister Jacinda Ardern and Robertson.
"Now he's admitting what we've been saying for months, which is that this Government has overpromised and cannot deliver."
The decision gives the Government wriggle room to spend more - potentially up to $15 billion based on an additional 5 per cent of GDP.
Alternatively, it could spend less and pay down debt.
It also gives it the ability to promise more in the 2020 election campaign, and spend more in a second term.
Adams said it wasn't wriggle room, it was "Grant Robertson giving the Government licence to borrow more and more money on the account of the taxpayers".
Ardern said it was not an admission of failure by the Government, telling reporters in Christchurch that the Government would again meet its Budget responsibility rules this year.
"That means we're keeping debt in check, that we're running surpluses and that overall we're showing fiscal responsibility while also investing in our people."
But Adams said it was a backdown from the Government.
"This is very clear, [Grant] is now saying 'forget about the under 20 per cent of GDP I promised New Zealand, as long as it's under 25 per cent we'll consider it a win'."
National's view was that the Government should be slowly paying down debt so that when there was a shock, it was able to deal with it.
"Going into the GFC and the earthquakes we had very low debt and that allowed us to cater for New Zealanders through that time," Adams said.
Robertson told reporters after his speech that the move would give the Government flexibility to borrow more in times of need such as a recession.
"For the Budget responsibility rules period, we will meet our debt targets, that's what we will do in this Budget. But we are obliged to say what we will do in the medium term and that's what we're doing."
Robertson said the 15-25 per cent range was "consistent with the Public Finance Act's requirement for fiscal prudence.
Next week's Budget would not be the same old Budget repackaged with softer edges and brighter colours, he said.
"You will see a Budget that is new, with a more structured approach and a new, explicit emphasis on what we want to achieve for the long term for our country."
Act leader David Seymour said a responsible government would get "wasteful spending under control before it borrowed more and left more debt, and therefore higher taxes, for our children and grandchildren".
Economist Ganesh Nana called the move a "start".
"The move to a range makes more sense from an economic perspective."
He warned the Government this week that it was nearing "the last throw of the dice" if it wanted to be truly transformational following backdowns on the capital gains tax and radical welfare reform.
He urged the Government to relax its fiscal restraints and suggested Crown debt as high as 30 per cent of GDP would not be excessive compared to international peers.