The National Government's economic focus will be on paying down debt as Crown finances improve but a Labour-led government would take the country backwards, Prime Minister John Key said this morning.

In his state of the nation speech to the West Auckland Business Club, Mr Key said that with mounting signs of economic improvement, he was looking forward with confidence and optimism.

"But that doesn't mean the job's done _ in fact it's just begun.''

It was vitally important to continue hard-won gains of recent years, "that includes a huge improvement in managing the country's finances''.


His Government's record of "careful savings'', disciplined spending and running a more efficient public sector was in contrast to the last Labour Government which increased spending by 50 per cent over nine years.

"That spending helped push mortgage rates to almost 11 per cent and crippled the internationally competitive parts of the economy. New Zealand can't afford that approach again''

With the Government back to running surpluses from next year "there might be some room for modest spending or revenue initiatives, but the top priority has to be getting our debt down''.

The Government had borrowed about $50 billion over six years to get the country safely through a recession, the global financial crisis and the Canterbury earthquakes.

"In better economic times we have to reduce that debt. That will lift national savings, and help keep a lid on interest rate rises as the economy heats up.

"We also have to lock in the improvements we are making to New Zealand's economic settings. And we have to lock in the progress we are making in delivering better public services.''

The alternative was "to go off into left field''.

That meant a Labour-Greens government and their polices including new regulation of the electricity market.


"They would be the only government in the world to want less competition in their electricity market. Less competition means higher prices.''

"On top of that, Labour wants an emissions trading scheme that would put up household energy bills by $500 a year _ just like that.

Mr Key also attacked Labour's plan to raise the retirement age to 67.

"They want people to work two more years before they can retire.''

He said Labour would also look to reintroduce the national awards system for wage setting "like we had in the 70s _ so hello strikes and goodbye productivity''

"They want to put up income taxes and introduce a new tax on all productive businesses and farms in the country.''

Labour and the Greens' "alternative prescription'' was "a combination of high spending, untried economic experiments and a lack of focus on what really matters''.

"It would be a huge step backward when the country is so obviously moving forward.

"So this year I want people to think hard about where New Zealand is going, and how to keep us on the right track.''

NZ First Leader Winston Peters said Mr Key was presenting "a particularly self-serving, selective view of what is actually happening in New Zealand".

"The Prime Minister omitted to mention that there are 150,000 people unemployed, not to mention the scores more that are underemployed throughout the country.

Mr Key had also "failed to talk about the lack of action over the net $150 billion of overseas debt that New Zealand has".

The figure referred to by Mr Peters includes private sector debt as well as direct
Government borrowing.

Mr Peters also said the "Kiwi dream" of home ownership "has vanished for young New Zealanders after his Government failed to do anything to stop the speculative housing bubble".

"And as for his educational changes, let's hope Novopay can pay the new positions promptly and properly!

"The Prime Minister is fooling no one with his selective view, and many New Zealanders will let him know that at the polling booth this year," says Mr Peters.