Major pre-budget speech from PM today

Prime Minister John Key will today outline changes to KiwiSaver and Working for Families in a pre-budget speech.

The speech, to be delivered around midday in Wellington, comes as Finance Minister Bill English warns of a record deficit which could hit $17 billion by the end of the June year. Mr English was commenting on the Government's accounts for the nine months to March 31, which showed a deficit of $10.2b compared with a forecast deficit of $8.9b.

The Earthquake Commission's costs of $1.5b accounted for most of the difference, but the figures didn't include any further earthquake costs like government support packages or the rescue package for AMI insurance policy holders.

In Parliament Mr English said the Government was borrowing $380 million a week and Mr Key said that was unaffordable.

Mr Key said the Government's bond programme for the financial year had been extended to $20b, which was more than was needed, and advantage was being taken of favourable market conditions.

"On a weekly basis that averages out to new debt of $380 million a week, that sort of increase in debt is absolutely unaffordable," he said.

The Government has confirmed it will make changes to Kiwisaver and Working for Families. It was reported last week that the May 19 budget could target the KiwiSaver tax credit, worth up to $20 a week.

The tax credit costs the Government up to $700 million a year, and there has been speculation it could be scrapped or reduced. Higher income earners are likely to be made ineligible for Working for Families.

"These are very big schemes, they cost a lot of money, they are there to lift national savings," Mr Key said at his post-cabinet press conference.

"They were put in place in different economic conditions by the previous Labour government and we're all aware how those conditions have changed."

Before the 2008 election National campaigned on certain changes to Kiwisaver but said other entitlements would not be changed.

Labour's David Cunliffe said New Zealanders went on a mortgage borrowing binge and the country was short of capital because people were not saving enough.

"Kiwisaver is the best scheme around for doing that, it's been very successful, the best scheme since (former National PM Rob) Muldoon canned the last one," he said on TVNZ's Breakfast programme.

Mr Cunliffe said if the Government changed the two schemes they would have broken election promises.

The economic situation was serious but most of New Zealand's debt was private and that was why saving was so important.

"Cutting Kiwisaver may well be one of the dumbest things the Government could do if it means Kiwis save less."

Today the Government got support for some of its measures from the International Monetary Fund.

Ray Brooks, the division chief of the IMF's Asia Pacific department, told Radio New Zealand selling state assets would be "helpful in reducing the gross debt burden".

The Government is considering some partial privatisations, especially of power companies, and will campaign on it at this year's general election.

He said streamlining regulations and being careful of cost to business was important.

"In the coming budget our directors agreed the need for very credible measures to reduce that deficit over time to bring it back to surplus over 2014-15 or earlier if feasible."

Expenditure should be tackled.

"Even aside from the earthquake New Zealand has increased its spending by 6 percent of national income over six years."

Saving was a serious problem which made New Zealand vulnerable on overseas borrowing.