The Government says tax cuts are now off the table in this year's Budget and possibly next year's Budget as well.
Finance Minister Bill English confirmed this afternoon that the Government would instead prioritise paying down national debt.
In a pre-Budget speech to the Wellington Chamber of Commerce, Mr English said lowering income taxes remained a Government priority, in particular for low and middle income earners.
"However, as we've always said, tax reductions remain dependent on fiscal and economic conditions.
"With continuing tight fiscal conditions, we don't currently have an explicit provision for tax reduction in the fiscal forecasts.
"At this point, we've prioritised additional debt repayment over setting aside money in Budget 2017 for tax cuts."
Mr English said the Government's tax take was driven largely by the size of nominal GDP.
Treasury had forecast significant reductions in nominal GDP, influenced by inflation staying lower for longer than expected. Higher-than-expected population growth had also put more pressure on spending.
As a result, Mr English said, new spending for the 2016 and 2017 Budgets had been "rearranged". Spending which had previously been earmarked for the 2017 Budget would now be brought forward.
Another portion of the spending earmarked for next year's Budget would be used to reduce debt, to help meet a target of reducing debt to 20 per cent of GDP by 2020.
Before the "rearrangement", the Government had set aside $1 billion in new spending for Budget 2016 and $2.5 billion for Budget 2017.