Finance Minister Bill English says it will take longer than a year for the tax switch package - during which GST went up to 15% and income and company tax rates were cut - to be fiscally neutral.
In the latest financial statements released on Tuesday, Treasury said income tax, GST and corporate tax were all below what it forecast just before last year's election.[image:3954:third:right]
The operating deficit for the seven months to the end of January, once investment gains and losses are removed, was $4.3 billion - 12% higher than forecast.
Mr English told Radio New Zealand's Morning Report programme that the forecast showed that the Government was likely to collect about $1 billion less in tax this year.
However he rejected suggestions from Labour that the tax switch package might be responsible for the lower tax take.
Mr English said the comments were premature as the Government's tax package had not yet run a full year, and it would take longer for the process to be fiscally neutral.
He said there will be gains for the economy over five to seven years.
A boost was expected in the middle of this year as the rebuilding of Christchurch gears up, but the Government has to avoid any more debt.
Mr English said the partial sale of state owned assets will help control debt.
Labour's finance spokesperson David Parker said the problem is that the Government does not have a plan to increase jobs and exports to get the country out of the hole.
Mr Parker says major changes are needed to get more investment in the productive export sector and less in the speculative housing market.
"You need to change the tax signals so that New Zealanders are investing on the basis of the profitability of the business rather than the tax-effectiveness of the business.
"We need changes to monetary policy and we need better savings."
Mr Parker said asset sales - changing the ownership of what already exists - does nothing to improve the output of the economy.