Key says Budget will turn debt tide

John Key says tackling the rising debt has been a Government priority to avoid a downgrade by credit agencies. Photo / Mark Mitchell.

Prime Minister John Key says the Government's debt track will be reversed from upwards to downwards in the Budget on May 28.

He also strongly hinted yesterday that the 2010 and 2011 tax cuts will be a casualty in order to achieve that, echoing a similar message last week from Finance Minister Bill English.

A TV3 poll last night suggested that a small majority of voters believe the Government should abandon the last two tranches of its three-stage tax cuts.

But more than a third do not believe it should.

Mr Key said that addressing the debt curve had been his Government's top priority in order to avoid a downgrade by the credit agencies, which would increase the cost of credit.

"We are getting on top of our debt curve and at this stage that has been our focus as opposed to anything else," he said at his post-Cabinet press conference yesterday. "It stops sloping up."

Asked if the Budget books will show it starting to slope down, he said: "Yes, over time."

The initial figures from the Treasury "had an upward-sloping debt curve that would have been unacceptable to the Government".

"In other words, New Zealand would have become indebted to a level we believe was unacceptable and on that basis we have made a number of decisions across a number of areas."

Asked if he was preparing the ground to cancel the tax cuts, the Prime Minister said: "They are your words, not mine."

Mr Key would not go into any detail about what the debt projections would be, but in an interview with Radio New Zealand National's Checkpoint last week, Mr English said that 50 per cent of gross domestic product (GDP) was a line he would not want to cross.

At present, the national debt is about 20 per cent of GDP.

Mr English said last week that with no policy change by National, Crown gross debt would go to 45 per cent of GDP by 2013 and 70 per cent by 2023.

Mr Key - referring to the poll showing that more than half of respondents believed the Government should drop its tax-cuts policy - said New Zealanders were realistic enough to understand that the economic conditions in the past six months "have deteriorated substantially from what they expected to take place when the election occurred".

"Now the Government's view is that tax cuts are a very important instrument for economic growth and we will just have to wait and see for the Budget."

POLL RESULTS

*Should John Key abandon the next two rounds of tax cuts in 2010 and 2011 because the economic climate has changed since the last election?

*Yes 52.6 per cent
*No 37.9 per cent
*Don't Know 9.5 per cent

*When you receive tax cuts this month [they began on April 1], do you think you will be most likely to spend it, save it, pay off debt or other?
*Spend it 25.3 per cent
*Save it 30.1 per cent
*Pay off debt 22.4 per cent
*Other 12.6 per cent
*Not applicable 9.6 per cent

Source: TV3 News Poll