PM hints at tax crackdown, economy on the turn

More tightening of the tax net and higher funding for Inland Revenue have been signalled by Prime Minister John Key, who thinks the economy has bottomed out and is on the turn.

In his main pre-Budget speech in Wellington, he said the government intends some "base broadening" of the tax system, accompanied by a higher spend by the IRD aimed at "protecting and improving the integrity of the tax system".

It is understood officials have been working on further proposals to gather more from property investors, as well as from the cash economy.

Mr Key also signalled moves to recoup more student loan repayments, as well as tighter targeting of Working For Families.

There will be more new investment in science and innovation.

The prime minister also believes the economy is on the turn.

In off-the-cuff comments after his main speech he said he believed the $1 billion shortfall in current tax revenue would reverse out because the economic pick up is getting properly under way.

"Typically, Treasury have … overestimated the income on the way down and underestimated it on the way up.

"If you are of the view, as I am, that the economy has now bottomed out and is on the way back up, we might do a bit better on the upside."

Asked whether he was really convinced the economy is finally on the turn after a lengthy period of not shrinking but not growing much either, Mr Key gave a firmly affirmative answer and said tax is "largely a lagging indicator".

Feedback from businesses, manufacturing figures and data from the Reserve Bank indicate a turning point, he said.

"Other data the government sees looks quite a bit better, and that is confirmed by both what the Reserve Bank and businesses are telling us – they are back hiring people, there are skill shortages starting to happen, and Christchurch is arguably doing a bit better than we thought.

"Personally, if you want my view I think we're on the way back up."

The government is on track to deliver a surplus by the end of the 2015 financial year, he said in his speech to Business New Zealand.

"We don't have the final forecasts through from Treasury yet, but we have enough headroom now to be sure that there will be a surplus in that year.

"It might not be the world's biggest surplus, on current forecasts.

"But in 2014-15, for the first time since the global financial crisis and the worldwide recession, the government's books will be back in the black."

In previous Budgets Mr Key has confirmed increases in research and development, science and innovation investment, and although that got a mention in this year's speech it was just one line.

"There is an increase. I think it is fair to say we are in a fairly cash-strapped position ... not helped by the fact we have billion-dollar bigger hole than was there when we started thinking about this in February...

'We are not spending everything we would want in that area."

That would be "one of the key areas" for increase once there was a return to surplus, he said.

The Budget will be delivered by Finance Minister Bill English on May 24.