Labour can still pay for policies despite softer economic outlook, Ardern says

The Labour Party is promising that it can still follow through on its core health, housing and education plans despite new forecasts showing the next Government will have less cash to spend than first thought.

Labour leader Jacinda Ardern said yesterday that her party could carry out its agenda without borrowing more money and without raising income tax, including the top tax rate - something which it had left the door open to but has now ruled out.

Labour and National firmed up their economic plans yesterday after the Treasury opened its books and revealed the state of the economy.

The Treasury's pre-election update showed an initial bump in economic growth and spare cash for the incoming Government, followed by several years of lower-than-expected growth, lower surpluses, and less cash to spend.

After becoming leader, Ardern said she wanted to put more emphasis on investing in health, social and education investment - though not all of these would require more funding.

Ardern said this was still affordable because her party would scrap National's $2 billion tax cuts and bring down debt two years later than National's target of 2021.

"Certainty there was some anticipation that [the surpluses] would be better, but that does not interrupt our plans."

Despite the softer economic outlook, Ardern would still not rule out bringing forward the party's free tertiary education policy, which would not be fully implemented until 2025.

Finance Minister Steven Joyce said the fiscal update showed that spare cash would be "tight" until 2020. For that reason, a second round of tax cuts would be off the table until 2020 unless economic conditions drastically changed.

"There is very limited room for additional expenditure of any type until then," he said.

Even in 2020, the party would only go ahead with new tax breaks for families if it could do so without borrowing or reducing its spend on health, education and infrastructure.

Prime Minister Bill English said the Treasury results showed that tax hikes were not needed to deliver on core public services and lift incomes.

Treasury predicted 216,000 more jobs would be created by 2021 and the average wage would rise by $6500.

English said Labour would not be able to implement its policies without borrowing or raising taxes.

That was rejected by Ardern, who confirmed that Labour would neither raise income tax nor ask a planned working group to consider it if Labour was in Government.

"We are not campaigning on an increase in taxes for personal income, and it is not part of our plans," she said.

The party will outline its economic plan next week, which appears likely to include a tax on tourists. The party has already promised a tax on freshwater.

Green Party co-leader James Shaw said short-term growth and bigger surpluses gave the Government room to spend on environmental and social policies, rather than tax cuts.