Its bleak projections include a decade of deficits against a background of shrinking growth, falling revenue and higher borrowing.
Unemployment is forecast to peak at 8 percent in late 2010 with 90,000 people on the dole and the public service has been warned it will have to adapt to even tougher times ahead.
Spending growth has been cut to $1.45 billion compared with an average $2.8b over the last five years.
The deficit in the year to June 2010 is $7.74b, compared with a surplus of $2.4b in last year's budget.
The economy is expected to shrink by 1.7 percent in the year to March 2010 and then expand by 1.8 percent, 2.9 percent and 4 percent in the three years to March 2013.
Payments into the National Superannuation Fund have been suspended until 2020, and the Government will have to make up for that when its books are in better shape.
Tax cuts promised for next year and 2011 have gone, wit h no promises that they will be resurrected before the next election.
"The world has moved very quickly from the best of times to the worst of times," Finance Minister Bill English told Parliament.
"Ten years of economic growth and expansive appetites for debt and government spending have ended."
He said the budget marked a turning point as the Government put in place its plans to increase productivity, and despite increased borrowing its balance sheet was one of the strongest in the OECD.
"Our confidence in recovery is the resilience of New Zealanders -- in our collective ability to make practical changes that solve the problems we face, to channel our resources and our brain power to where they are productive and create new jobs," he said.
Mr English gave categorical assurances that pensions would not be cut and welfare programmes would be maintained.
He has been able to increase funding for health, education, law order and corrections, helped by rigorous departmental spending reviews throughout the public service which have delivered savings of about $500 million a year.
Mr English said no one had predicted how savagely the international recession would bite, and imbalances in New Zealand's economy had been laid bare by it.
"New Zealand continues to spend more than it earns and finance the difference by excessive borrowing," he said.
"Productivity performance has been poor...there has been insufficient growth and investment in those parts of the economy that either export or compete with foreign producers."
He said the Government's short term measures had helped cushion people against even greater job losses.
"But in the long term New Zealand must balance its economy in favour of more investment and jobs in internationally competitive industries."
Mr English pledged the Government would do that, and New Zealand would not only survive the recession but emerge from it stronger and more competitive.
