"It is becoming apparent that the Government's spending plans are less affordable than previously thought.
"Moreover, for the incoming government, the implications are clear - there will be less room to move when it comes to spending promises and or tax cuts in the years ahead," Westpac senior economist Donna Purdue said.
Prospective tax cuts moved into the political arena again yesterday after National Party leader John Key said he would unveil the party's tax cut package next week.
Mr Key said it was likely he would reveal how much people would get next week, following the pre-election opening of the Government's books.
Unusually, the tax package details are likely to be released before the party's official campaign launch on October 12.
Mr Key said the ongoing credit crisis had led to National bringing forward its tax cut policy announcement to next week.
Mr Key and finance spokesman Bill English had indicated the tax cuts - once Labour's were incorporated - would be worth about $50 a week for average wage earners.
Prime Minister Helen Clark said her Government's $10.6 billion tax reduction took effect in three stages, beginning yesterday with further reduc-tions on April 1, 2010 and April 1, 2011.
At full im-plementation, workers would get tax cuts of between $1130 and $2870 a year or between $22 and $55 a week.
"New Zealanders can trust that Labour's tax cut package is fair, affordable and realistic, unlike the National Party's plan to borrow recklessly for tax cuts when interna-tional financial markets are in meltdown," she said.
National has said it would treat Labour's tax cuts as the first tranche of its tax cut programme.
That would be followed by another tranche of reductions on April 1 next year and further cuts in 2010 and 2011.
Mr English yesterday said that Miss Clark and Finance Minister Michael Cullen could not be trusted on tax.
In 2000, Miss Clark was quoted as saying "tax cuts are the promises of a visionless and bankrupt people".
And Dr Cullen said yesterday that tax cuts would strengthen the economy and promote growth, when his previous position over many years was that they would not, Mr English noted.
"Dr Cullen's recent comments that he is beyond his comfort zone, most definitely put any future tax cuts planned by Labour in doubt."
The National Party had long been an advocate of placing more trust in taxpayers to make more decisions with their own money.
Labour thought it could spend taxes better than taxpayers, he said.
Ms Purdue said the economic backdrop had altered dramatically since the budget was released in May.
Internationally, the credit crisis had escalated, sending financial markets into a frenzy.
The global growth outlook had deteriorated and New Zealand, Asia and Australia were now feeling the ill-winds of the credit crises.
At home, business and consumer confidence had taken a hammering and although both had lifted off their lows, at current levels they remained indicative of subdued activity.
Inflation was now expected to have reached 5% in the Sep-tember quarter and the Reserve Bank was cutting interest rates.
"Overall, it is not a pretty picture."
The pre-election financial update was mainly an update of the economic assumptions underpinning the Government's financial accounts and did not include any new policy initiative planned by the Government, she said.
The immediate focus for markets would be on the rise in government debt levels and the associated increase in borrowing requirements.
