The Government announced today that it would not proceed with the arrangements to lease and purchase 28 F16 fighter aircraft entered into by the previous government.

Prime Minister Helen Clark said the decision had been taken after a thorough consideration of the report commissioned from Hon Derek Quigley, and of financial information provided by Treasury. She thanked Mr Quigley for his comprehensive and well-researched report.

Helen Clark said that the arrangements offered by the United States for the F16s were good ones, provided that expenditure now on upgrading the air combat force was a priority and that the Defence Force's other priorities were also affordable. Unfortunately, she said, neither of those assumptions could be sustained.

"Mr Quigley's report describes the Defence Force's fiscal position as parlous. Its capital expenditure requirement is unsustainable. It is also experiencing cash flow problems which would require at least a doubling of the capital injection contemplated in 1997.

"Unfortunately there is no priority setting mechanism in the New Zealand Defence Force which effectively and consistently links individual activities or projects to the government's most pressing national security concerns. Getting rationality and coherence into defence planning and priority setting is now at the top of the coalition government's agenda."

Helen Clark said that the A-4 Skyhawks would continue in service and that they remained capable for some years to come. The question of whether New Zealand should retain an air combat capability was one which would take more time to address.

Helen Clark said that the government greatly appreciated the fact that at all times the United States Government had been helpful as New Zealand had worked its way through the issues surrounding the F16 purchase. The government looked forward to continuing co-operation with the United States as the modernisation of the New Zealand Defence Force was pursued.

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