There are some big challenges for the New Zealand economy. New Zealand spends far more than it earns. Over the last five years of the Labour Government the economy has become hopelessly lopsided. It is characterised by too much low quality government spending and too much borrowing to buy investment properties.

Neither characteristic is healthy for the economy nor for our prospects of achieving economic growth and rising standards of living. For example, over investment in property pushes up house prices which then pushes up our debt to the rest of the world. It also makes it harder for young families to buy homes.

There is a need to shift investment away from property and into exports and new jobs. Taxation is a powerful lever to boost economic performance. The taxation system can help the economy grow by encouraging saving and productive investments, and by discouraging spending. This is important at a time when New Zealand is spending much more than it is earning. Getting the taxation system right will boost those sections of the economy that earn New Zealand's living with the rest of the world and that create sustainable jobs.

Seen in this context, next month's budget takes on huge importance for New Zealand's economic growth.