KEY POINTS:
The Labour Party suspended big policy announcements in the two weeks following the rise of Parliament while it waited for the latest economic updates, the Prime Minister said yesterday.
"We have continued to fine-tune in light of the circumstances," Helen Clark said following the Pre-election Economic and Fiscal Update (Prefu).
"When we saw what was happening in international markets we held back from our original intention of announcing policies in the two weeks between Parliament rising and the formal launch of the campaign because we wanted to be able to gauge the very latest and taking into the Prefu - which obviously we had a hands-up on - before committing to the new promises we are making."
Helen Clark said that while the commitment to expand the Ministry of Foreign Affairs would have to be reassessed if she was re-elected, Government spending would not be cut overall. "It's not a time to be slashing public spending."
The Treasury forecast 10 years of deficits but its estimates were done before the financial crisis that has gripped the United States in the past month.
Helen Clark said the Government kept close to the Reserve Bank and the Treasury, which had continually told the Administration that the New Zealand financial system was sound.
"They have options should they need them but at this time are not recommending that options be exercised."
The personal tax cuts that began last week would provide stimulus to the economy and the Government had investments in programmes that would help grow the economy.
Finance Minister Michael Cullen hinted yesterday that his tax package would have been a lot different if he had known in May what he knows now. "I think if we had these forecasts we would have taken a more cautious approach because we are a prudent and cautious Government."
It was not yet possible to tell what the impact would be on the global economy, he said, but the economic slowdown translated into higher welfare payments, and less tax revenue than was expected.
Tax was forecast to bring in $3.1 billion less in the years up to June 2013 - made up of:
* $1.3 billion less from goods and services tax.
* $1.4 billion less from corporate taxes.
* $609 million less from other persons' tax (self-employed).
* $328 million less from other sources.
Dr Cullen also said that over the same period, the cost of KiwiSaver was forecast to increase by $650 million and free early childhood education by more than $800 million.
Welfare payments have ballooned $358 million in the current year from the May forecast. They are forecast to rise by $629 million next year, then by $678 million and $543 million in the two years after that.
Dr Cullen said the Government had worked hard to build the economy's productive capacity and strengthen the Crown's balance sheet.
"We did so as a conscious choice to empower the nation in preparation for the inevitable future rainy day.
"That rainy day has arrived."
