Reserve Bank Governor Alan Bollard has singled out tax reform as an important tool in tackling our economic challenges.

Many risks still threaten the sustainability of economic growth, Treasury said today.

Finance Minister Bill English told a taxation review workshop that any major tax changes would need widespread public support to succeed.

Treasury has painted a bleak picture of an under-performing New Zealand economy and outlined some tough choices for the Government.

The Government faces an increased deficit due to extra spending and the effects of the recession, says Bill English.