Key: We cannot afford KiwiSaver

Prime Minister John Key. Photo / APN

Prime Minister John Key and Finance Minister Bill English yesterday emphasised the worst news in the Government's latest accounts as they continue to lay the ground for a tough Budget next week, including cuts to KiwiSaver and Working for Families.

Mr Key described the KiwiSaver scheme as "wildly successful at one level" because the 1.67 million who had signed up had far exceeded predictions but "at the end of the day it is not affordable in its current form".

Asked when it became unaffordable, he said: "Bluntly it has become unaffordable when New Zealand is no longer running the big surpluses that the previous Labour Government thought were there."

He pointed to the Government accounts published yesterday - for the nine months to March - and compared the forecast deficit not to last year's Budget or to the December half yearly update but to the pre-election fiscal update of October 2008.

Mr Key said the Government's revenue had been collapsing ever since it came to office - at the same time as the global financial crisis was gripping the world.

Mr English chose to highlight the biggest differences possible - those between the pre-election update and the forecast deficit for the year to June.

Of the two deficit figures, the operating balance and the cash position, Mr English chose to highlight the worst, the cash deficit which takes into account borrowing.

"The pre-election update in the October 2008 forecast that the deficit for this year would be $2.4 billion," he said in Parliament.

"It is much more likely to be about $15 billion or $16 billion."

That was all the more reason for people to be "very sceptical about political promises to spend more, borrow more, and run up even larger deficits".

Mr Key said yesterday he was "comfortable" the changes to the KiwiSaver scheme would not break National's election promises to retain entitlements.

It promised that apart from changes it has passed, that entitlements would remain the same - a promise good until the next election.

But he hinted at big changes beyond that.

Mr Key would not comment on whether the changes would affect existing KiwiSaver members or new savers, but said the direction of changes would become clearer today when he spoke to a Business New Zealand audience at lunchtime in his first pre-Budget speech as Prime Minister.

Asked if he would be within the promise of no entitlement changes, besides those already made, he said: "I am comfortable that we are going to meet those conditions."

Labour's Finance spokesman David Cunliffe drew attention to the fact the New Zealand superannuation fund had made a return of 32 per cent since the Government cancelled payments to it until surpluses return.

Mr Cunliffe said Crown debt would have been reduced by $375 million if contributions had been maintained.

Mr English said the fund had lost billions and it had clawed "a fair bit of that" back.

CASH DEFICIT

* $2.4b - pre-election forecast, Oct 2008.

* $15b - Bill English's estimate now.