Finance Minister Bill English insists he can still deliver a budget surplus, despite a major shift in the forecast in just a few months.
In its half year economic and fiscal update the Treasury has forecast a deficit of $572 million for the June 2015 financial year, due to a lower tax take from falling dairy prices and the effects of low inflation.
That compares with a $297m surplus predicted in the pre-election update in August.
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But Finance Minister Bill English said solid economic growth and keeping government spending in check would result in a surplus when the final accounts were revealed next October.
"There's another forecasting round to come in Budget 2015. We actually won't know whether we have a surplus until the Government's accounts are published next October," he said.
"We believe that the strength of the economy and constrained Government spending can deliver a surplus this year."
Mr English has trimmed new spending from $1.5 billion to $1 billion in the next two budgets, and pushed the savings into the 2017 budget - when the allowance then jumps to $2.5 billion.
Treasury predicts the economy will grow about 2.8 percent on average over the next five years, driven by the rebuilding of Christchurch and construction in Auckland, rising immigration and still-high commodity prices.
But further declines in dairy and log prices due to weaker demand from China will provide less support to growth than previously predicted.
The economy is expected to peak at 3.5 percent in the March 2015 year, compared with 3.8 percent in August's update, before easing back to 3.4 percent and 2.8 percent in the 2016 and 2017 years respectively, and 2.3 percent and 2.2 percent in the two years after that.
That in turn will affect the Government's financial position, with the $572m budget deficit now predicted in June 2015.
Not so glum: Bill English delivering the half-year financial update. Photo: RNZ / Diego Opatowski
Future slightly dimmed
The growth in following surpluses have also been pared back to $565m in the June 2016 financial year, rising to $4.1b by 2019.
Net debt is still expected to fall to 20 percent of GDP by 2021, after peaking this financial year.
Unemployment is slightly lower, falling from 5.4 percent in the September quarter this year, to 5.1 percent in 2016 and a low of 4. 5 percent by 2018.
Mr English said the Government would not take a slash and burn approach to return to surplus.
He said the Government would stick to its spending plans to protect the most vulnerable.
Cynical manipulation
Labour Party finance spokesperson Grant Robertson said the Government was cynically manipulating the books so it could acheive its promised goal of reaching surplus this year.
The surplus was the political totem pole which Mr English and Prime Minister John Key had set up for themselves, and it had fallen over, Mr Robertson said.
"They have said now for four budgets and two elections that there would be a surplus this year - it will not happen without fiddling the books.
"This is actually a judgement on Bill English's financial leadership, he set this test for himself and he's failed it."
Mr Robertson said the the changes to the spending track were being done for political, not economic, reasons.
"Well it's deeply cynical. The Government is actually moving the the money around to make it look like they can get a surplus next year, that's actually in some danger now, and then leaves them in 2017 with an election year lolly scramble.
"They're currently promising tax cuts in 2017, that starts to look very irresponsible."
Greens co-leader Russel Norman said if the Government continued down its current path, Mr English would have broken Robert Muldoon's record of six deficits in a row.
National was now about to break an election promise that it would increase spending each year by $1.5b, he said.