The Government's plan to axe all new spending in the upcoming budget will make it the most radical since the early 1990s, warns Labour finance spokesman David Cunliffe.
Prime Minister John Key confirmed yesterday that most, if not all, of the $800 million "new money" spending originally planned for the May budget would go.
There would still be between $600m and $800m extra spending for health and education, but it would come from cuts in other areas.
Some Government programmes will be axed and cuts to Working for Families payments for high income earners were being considered.
But Mr Key has ruled out benefit cuts like those is the 1991 "mother of all Budgets" and assured pensioners their superannuation payments would be safe.
Mr Cunliffe this morning said the Government's position was extreme and dangerous.
"My warning to New Zealand is that this is an unbalanced response, it's a very radical response. The closest thing we've had to it has been Ruth Richardson's mother of all budgets," he told Radio New Zealand.
"Trying to balance the Government's budget and throwing the rest of the economy deeper into recession is no recipe for success. We have to have a budget that allows New Zealanders to invest, to employ, to get back to work and in that way of course revenues follow to the Crown when the growth rate picks up."
Labour would take a balanced approach with a reasonable package of taxation and revenue, Mr Cunliffe said.
"There would be some re-prioritisation, certainly, but the National party's position here is a very extreme one," he said.
Labour leader Phil Goff said the Government had flip-flopped on spending cuts.
"Five days ago, (Finance Minister) Bill English gave us a big speech saying there wasn't going to be short-term cuts, they'd deal with this over the long-term," he told TV One this morning.
"Suddenly we're hearing the term 'zero budget' but they're not telling us where the cuts are coming from."
Mr Key would not single out areas where cuts were likely, but yesterday said the Government would look at the books very carefully to see where it could free up money to fund increases in health and education.
"Some programmes will cease, no one is arguing this is easy," he said.
"Government is all about the allocation of resources and at the moment the allocation that is required is Christchurch, health and education.
"On that basis, some other expenditure won't be undertaken."
The budget would not be finalised for three to four weeks and all the options were being considered.
Mr Key said the Christchurch earthquake had prompted the measures.
"The reality is, New Zealand changed at that point and the Government can't close its eyes to that."