John Key is taking the biggest gamble of his prime ministership by putting asset sales back on the political agenda after more than a decade.

Key has flagged the partial sale of State-owned power companies in his second term, banking on his huge personal popularity overcoming traditionally stiff public opposition to asset sales.

He has further risked burning up some of his political capital by signalling fresh austerity measures with deep spending cuts in the May Budget in a bid to get the Government's books back into surplus a year earlier.

Key acknowledged yesterday that National's support could take a hit over the measures – but said he would go to the polls campaigning on what he believed in.

"If that costs us the election that costs us the election."

Mighty River Power, Meridian, Genesis and Solid Energy could all be put up for partial sale with preference given to Kiwi investors, subject to further work by Treasury.

The Government is promising to retain a controlling stake and is also promising to give preference to "mum and dad" Kiwi investors – though Key acknowledged there would be nothing to stop those investors selling their stake to overseas buyers down the track.

He confirmed the Government may also look at selling shares in Air New Zealand, which was bailed out by Labour in 2002 to save it going into receivership. Key said there would be no asset sales until National won a second term, giving it a mandate from voters.

National believes as much as $10 billion could be freed up by the partial float – money which Key says will be spent on other priorities including new schools, operating theatres, ultra-fast broadband, road building and other transport infrastructure.

The Government also planned to pay down debt faster and would trim new budget spending by a further $300 million in its 2011 budget. That would leave just $800m to $900m to cope with wage pressures and burgeoning cost pressures in health and education.

The last asset sales were during National's last term in government in 1990 and included Contact Energy and Auckland Airport. Billions of dollars were raised but asset sales became deeply unpopular after some former SOEs fell into foreign ownership and services were run down.

Labour finance spokesman David Cunliffe said National was "flogging off the family silver" to pay for last year's tax cuts.

"National's model of mixed ownership means that the wider public interest that should be an essential requirement in terms of running New Zealand's electricity system will be surrendered to private investors, many of whom will certainly not have New Zealand's best interests at heart," Cunliffe said. "Arguably `mixed ownership' is the worst of both worlds."

NZ First leader Winston Peters said the plan was disastrous and SOEs would end up in Chinese hands because China was one of the few countries with ready cash to invest in countries such as New Zealand.

But Key said the Government was having to borrow $300m a week and the country faced the risk of a credit downgrade because of its high levels of foreign indebtedness.

"I know the polling and the case that people don't necessarily like [asset sales]. But do they like the concept of interest rates going up? Do they like an economy that's all of a sudden getting controlled by a bailout?"

(Source The Press)