The Government is eyeing partial sales of key state assets, including the three big energy generators and coal company Solid Energy as it looks to lower its borrowing.



It is also planning to cut its provision for new spending from the current $1.1 billion to between $800m and $900m in this year's Budget.



Prime Minister John Key, in his first major speech of the year, said Treasury would be asked to advise on the merits of selling up to 49 per cent of Mighty River Power, Meridian Energy, Genesis and Solid Energy.



It would also look at selling some of its existing shares in Air NZ, while maintaining a majority stake.



"No other SOEs are being considered and no decisions have been made,'' Mr Key said,.



The Government would consider Treasury's advice and make its plans clear well before the election.



It would also look at ways to borrow less for its capital spedning programme over the next few years.



Key said that as well as freeing up capital for other investments, the mixed ownership model, created by a partial float of shares in SOEs, would broaden investments available to New Zealanders.



It would only go ahead if the Government retained a majority stake and NZ investors would be in the front of the queue.



The partial sales would have to provide good opportunities for investors, the freed-up capital would be used to fund new public assets and they would have to be satisfied that industry-specific regualtions would rptect consumers.

He said this year's Budget would focus on savings and investments.



"New Zealand as a whole needs to save more, spend less and reduce out reliance on foreign debt."



The Government would consider further changes to the tax system, to KiwiSaver and investment products suggested by the Savings Working Group.



Effective tax rates on some forms of saving remained very high, he said.



"The Government is also interested in ideas that increase participation in KiwiSaver and raise national savings, but which don't result in an ongoing and unaffordable fiscal cost, which again would have to be borrowed,'' Key said.



Yesterday, Key slammed Labour's plan, which would create a tax-free band up to $5000 and put in a new top tax rate on income "well into six figures''.



Phil Goff said Labour would not borrow to pay for the tax free band, and the new top tax rate and a clamp down on tax avoidance and loopholes would help cover the cost.



But he is yet to release details of how he plans to fund the full $1.3bn cost, which comes on top of a pledge to take GST off fresh fruit and vegetables at a cost of $250m a year.



Key said the Labour plan left a shortfall of $1.1 billion.



That would push up borrowing from foreign lenders, increase interest rates and prompt a ratings downgrade.



"There's no magical fairy with a printing press at the end of the NZ garden.''



Goff had signalled Labour would look at ring-fencing losses on investment property so they could not be offset against other income tax.



Key said National had considered that and rejected it. At most it would raise $260m a year, but once sophisticated investors restructured their financial affairs "you might raise $130m if you are lucky''.



He said the Government was borrowing $300m a week.



If Labour borrowed the full $1.1 billion that could rise to about $320m a week.

"Exactly which little pixie is going to deliver that? The answer is a foreign pixie that we have to borrow from.''



Labour countered today, saying Mr Key was planning to "sell the family silver to foreign pixies''.



Labour's SOEs spokesman Clayton Cosgrove said National's plan lacked vision.



"They've done it before. It didn't work then though we were promised we would be better off. And it won't work now. It's a dumb idea.''



The three big state-owned generators had a combined value of $11.75bn, and earned $700m a year.



"If John Key's economic plan consists of hocking off the family silver to the foreign pixies from whom he's also borrowing $120 million a week to give tax cuts to the rich, then he's living in a fantasy land.''