Two-thirds of the way through its financial year the Government has slipped further behind the deficit track forecast in the pre-election economic and fiscal update.
The operating balance excluding gains and losses for the eight months to February was a deficit of $5.5 billion, $400 million larger than forecast.
Some of that is bad luck. The pre-election forecast predated the December aftershocks in Christchurch and since then there has been an increase of $500 million, net of reinsurance, in the Earthquake Commission's expenses, 90 per cent of it related to the pre-Christmas quake.
But the numbers for core Crown revenue and expenses show an underlying deterioration.
Tax revenue is $800 million or 2.4 per cent below forecast for the eight months with a weaker-than-expected labour market hitting PAYE and lower-than-expected profits hitting the company tax take, the Treasury says.
Meanwhile core Crown expenditure was 3 per cent below forecast.
"I'm encouraged that we've kept core Crown expenses $1.4 billion below forecast," Finance Minister Bill English said.
But the accounts make it clear most of that is either factors beyond the Government's control, like a lower price for carbon credits it doles out under the emissions trading scheme, or timing issues which will reverse later, like delays to Treaty settlements or spending on transport projects.
Meanwhile, the Government has responded to claims its tax policy since coming to power three and a half years ago has contributed to a deterioration in the fiscal position.
Prime Minister John Key in Parliament yesterday cited figures prepared for the Minister of Finance showing the impact of tax changes in the post-election package in 2008 and the three subsequent Budgets.
The net effects were revenue-negative in 2008/09 and 2009/10, by $427 million and $322 million respectively. In other words they were economically stimulatory during the recession and in the year following.
The following year, 2010/11, the net impact flipped to being revenue-positive by $270 million.
In the current fiscal year it is forecast to be positive by $1.4 billion, rising to $1.8 billion next year and $2 billion in 2013/14.
But the breakdown shows that nearly three-quarters of the cumulative impact over the six years is due to the cancellation in 2009 of tax cuts which had been planned for 2010 and 2011.
Budget 2010's "tax switch" is forecast to fall a cumulative $400 million short of being revenue-neutral over the first four years.
But last year's Budget changes, to Working for Families tax credits and KiwiSaver, are expected to save an additional $2.1 billion over the first three years.
Goldman Sachs economist Philip Borkin said returning to surplus by 2014/15, as the Government insists it is committed to doing, would be a challenge.
The Government is now foreshadowing a zero Budget in May when as recently as February's Budget Policy Statement it still had an $800 million allowance for new spending.
The fiscal headwinds for the economy were growing larger, Borkin said, but they would be offset by what would be by historical standards a more gradual monetary policy tightening by the Reserve Bank.