A future Labour government would fundamentally change the economy to put New Zealand on a pathway to recovery, the party's finance spokesman, David Cunliffe, said today.

There would be "bold changes" by a government that would be fiscally prudent and socially progressive, he told the Institute of Policy Studies in a speech today.

"Because of National's wasteful tax cuts there won't be huge pockets of money to spend when the next Labour government takes office," he said.

"We know we can't just tax and spend our way out of a hole.

"Instead of massive extra spending, we will have to reform the fundamentals of our economy."

Mr Cunliffe said Labour's policies would be in stark contrast to National's "mismanagement" of the economy.

"Our pathway will encourage businesses to innovate more and increase the value of our exports," he said. "Our pathway will include higher skill levels and therefore higher earnings for working people.

"Labour will chart a new course of innovation, saving, ownership and investment."

Mr Cunliffe said the Government's response to new global economic conditions had been "passive" and the recovery had stalled.

"The truth is the only way they can get the numbers to add up is to massively cut government services and privatise assets if they get a second term," he said.

"And even then, how they will pay for current levels of superannuation without pre-funding or doubling the tax burden on our kids is a mystery to everyone - including the Treasury and the Retirement Commission."

Mr Cunliffe said an active economic development partnership between government, business and the community was at the core of Labour's plan to build a strong export economy that would create good jobs and lift incomes.

"We will unlock opportunities to move New Zealand companies up the global value chain and unlock potential across specific sectors and regions," he said.

Mr Cunliffe used Denmark as an example of a country that had developed much higher value niche manufacturing and service industries.

"We are top in milk powder. Denmark makes ridiculously expensive butter and cheese.

"We are great at exporting raw logs. They are number one in furniture design.

"We have abundant renewable hydro power. They are the world's leading exporters of wind farm turbines."

Mr Cunliffe said there would not be much fiscal room to move when Labour took over and it would have to make significant changes which included:

• Stronger use of the capital account and partnerships;
• Stronger commitment to economic development, innovation, skills and research, science and technology;
• Monetary policy that was less volatile and therefore more supportive of exporters; and
• Making sure New Zealanders owned their own future.

(Source Otago Daily Times)