Volatile world sharemarkets and the fallout from the European debt crisis hurt the Government accounts in May, but the financial position remains well ahead of the same period last year.
The Government's operating balance for the 11 months ended May was a deficit of nearly $2.2 billion, well down on the $7.2 billion deficit in the previous corresponding period.
However, the operating balance, excluding gains and losses, (obegal) was a deficit of $4.7 billion in the current period, compared with a deficit of $1.2 billion in the previous period.
The most obvious answer to the latest release from Treasury is that Government revenue deteriorated by $2.4 billion in the current period to $51.7 billion and expenses rose $2.3 billion to $57.7 billion.
Treasury deputy secretary Colin Lynch said the actual May results were reported against a forecast released in the May Budget.
Overall, those figures showed the obegal for the year was a deficit of $4.7 billion, $1.1 billion less than expected, with tax revenue slightly higher than forecast and expenditure slightly lower.
Treasury expected revenue to come in close to forecasts for the full financial year ended June 30.
Finance Minister Bill English said the Government had made good progress in keeping spending under control and delivering a faster-growing economy that would help increase revenue.
"However, in many ways, restraint in the public sector is only just starting.
"We still have a significant medium-term challenge to get back to surplus as soon as possible."
Budget forecasts showed that would not happen until 2015-16, but Mr English would like to get back to surplus sooner.
The Government took early steps to bring deficits and Government debt under control.
It would build on that over the next few years by living within the $1.1 billion annual allowance for extra operating spending and weeding out lower-priority spending, he said.
However, Council of Trade Unions economist Bill Rosenberg said faster cuts in Government spending risked tipping the economy back into recession.
"Despite steady reductions in the Government's deficit, well ahead of forecasts, it is still talking of getting the accounts back into surplus even earlier.
"With real risks in the world economy, and the recovery in New Zealand still weak, even harsher Government spending cuts and public service job losses could lead to the recovery faltering."
There was no need for more spending cuts, he said.
New Zealand's debt situation was mild compared with other developed economies.
While debt was undesirable, it was not to be avoided at all costs, he said.
