Finance Minister Bill English indicated he would resist all temptations to loosen the spending reins before the May 20 Budget, but he will come under increasing pressure from colleagues and opponents to not appear Scrooge-like in his spending announcements.
The Crown operating balance before gains and losses for the seven months ended January was a deficit of $3.36 billion, well down on the predicted deficit of $4.2 billion.
The operating balance was a deficit of $630 million, a 70% improvement on the forecast deficit of $2 billion.
Core Crown tax revenue was $72 million higher than forecast but there were some worrying signs in the tax take. Corporate tax revenue was about $150 million, or 4.3%, below forecast because of weaker than expected current tax-year profitability.
There was also an underlying corporate tax receipts shortfall, highlighting a potential future risk to tax revenue.
GST provided a partial offset of $258 million, 3.9% higher than forecast.
GST was likely to remain above forecast for the rest of the financial year.
Crown expenses were $678 million lower than forecast because of Treaty of Waitangi settlements being later than forecast and a $128 million reduction in the provision of the deposit guarantee scheme.
ACC insurance expenses were $201 million lower than forecast because of a lower claims cost.
Mr English played down the Treasury figures.
The Budget would continue to focus on managing the Government's finances in a disciplined and responsible way, he said.
"It's essential, as we come out of recession, that the Government shows leadership in managing its finances and getting back to surplus as soon as possible.
"Surpluses give us choices."
With another six years of forecast Budget deficits and net Crown debt forecast to treble to $65 billion by 2014, the Government would not have those choices for some time, he said.
Most government agencies would receive no new money in the Budget. They would need to reprioritise existing spending to ensure they were delivering better services to the public and value for money for taxpayers.
The Government would operate within the $1.1 billion allowance for new spending it set out in the Budget last year.
"This is not a one-off exercise and will need to continue for years to come if we are to get the Government's books back into good shape and bring borrowing under control," Mr English said.
Labour finance spokesman David Cunliffe said it was time Mr English was frank with New Zealanders, admit the books were improving and and ensure he did not talk down the recovery as cover for delivering a tough Budget.
"This year's Budget needs to deliver to the many, not the few. But all we have heard from National are plans to hike GST to 15% and a tax cut plan that will offer little to middle and low-income Kiwis," he said.
New Zealanders had gone without during the recession. The improvement in the Crown accounts should provide comfort there were better times ahead, he said.
