Services safe from tax cuts, says Key

National's finance spokesman John Key (left) with party leader Don Brash in front of a backdrop image of Prime Minister Helen Clark during the campaign. Picture / Kenny Rodger

National finance spokesman John Key has defended the party's tax cuts policy, claiming it would not axe funding for vital services but simply increase spending at a slower rate than Labour.

With Labour falling behind in the polls, Finance Minister Michael Cullen yesterday went on the offensive, attacking National's tax policy as unaffordable without large cuts in services such as health.

Using figures updated from the Pre-election Economic and Fiscal Update, Dr Cullen said National's tax cuts would cost $7.2 billion more than Labour would spend over the same period.

This $7.2 billion in lost revenue from tax cuts would have to be funded through borrowing and cuts to services.

"Government spending is just like household spending. If you are going to cut your income, you've either got to borrow more or spend less," Dr Cullen said.

National has said it would borrow $3.5 billion over four years to fund the costs, leaving, by Dr Cullen's estimate, $3.7 billion in cuts to spending.

National had said it would cut the savings incentive scheme Kiwisaver and some other items to save $950 million over four years. This would leave $2.7 billion in cuts which National had yet to identify, Dr Cullen said.

Services would have to be cut, because there was barely enough money in the Government's coffers to maintain those currently provided, taking into account cost increases like salary rises.

Mr Key told National Radio today that Labour was proposing to increase government spending "much faster" than the rate of growth in the economy.

Dr Cullen was saying this rate of spending was what everyone should accept as normal and that National's slower rate of spending amounted to a cut in spending, Mr Key said.

"Well, that's nonsense," Mr Key said.

National would increase government spending as a percentage of GDP and would spend around $10 billion more by the third year, Mr Key said.

National would be spending more but at a slower rate than Labour.

From the surplus, National had enough to pay for all of the day-to-day expenditure it was committed to, "every nurse, every teacher, every doctor", enough to pay for all of the pre-funding of New Zealand Superannuation, and enough to have some left over to fund some capital requirements, Mr Key said.

Neither Labour or National had enough cash to pay for all capital items but that was not unusual, Mr Key said.

That was the way every OECD country operated and that was the way New Zealand had operated up until the past two years when it had very large surpluses, he said.

There was "very limited room" to make new expensive pledges, Mr Key said.

"Our main pledge has been to reduce taxes. That's been our big key policy plank if you like in terms of spending so we have move around with that."

Dr Cullen said: "There are no thousand dollar notes sitting around in this office for Mr Key to come in and give away as tax cuts."

National's promises were the "most profligate approach to try and buy an election since Sir Robert Muldoon".

- NZPA