Key set to boost nation's savings

Prime Minister John Key. Photo / Mark Mitchell

Prime Minister John Key will deliver a state-of-the nation speech today in Auckland, focusing on the economy, and in particular fresh measures to boost national savings and investment.

The savings and investment working group releases its report next week.

"Simply put, we need to increase our national savings so we can control our destiny as a country," Mr Key said.

Foreign debt was the biggest vulnerability and credit rating agency Standard and Poors had advised New Zealand would be downgraded if the position did not improve.

Mr Key attacked the promises of Labour leader Phil Goff in his state of the nation speech yesterday (first $5000 tax-free) as fiscally irresponsible.

On the basis of that information, Labour was about $1.1 billion short - if the top rate of tax was 38c at $120,000 - and it would have to be borrowed.

New Zealand's credit rating would be downgraded and interest rates would rise.

"We live in New Zealand, not fantasy land.

"There is no magical fairy with a printing press at the end of the New Zealand garden. This is money that would have to be borrowed from overseas. It's money we can't afford to borrow, all for about $9 or $10 a week."

New Zealand's foreign debt was around 85 per cent of GDP. The only countries with a similar profile were Ireland, Portugal, Spain and Greece - "not happy company to be in".

In the year to June 30, the country's deficit is $15.6 billion, but then it starts reducing. Current forecasts have the Government books getting back into the black in the 2015-2016 year.

Mr Key said he would have some respect for Labour's policy if it had said how it would be funded - Mr Goff has promised details before the election.

Finance Minister Bill English said making the first $5000 of income tax free and Labour's policy of removing GST from fruit and vegetables would cost $1.5 billion a year.

Ring-fencing tax breaks on rental losses and increasing the tax rate on incomes over $120,000 would raise $440 million. Labour also wanted to restore research and development tax credits ($330 million annually); extend paid parental leave to 18 weeks ($50 million); increase Working for Families for under 2s (cost unknown) and not take dividends from state-owned power companies ($700 million).