Prime Minister John Key believes a surplus is still possible but the Government will not deliver a slash-and-burn Budget to get one.
Mr Key will deliver his first major pre-Budget speech in Wellington today in advance of the May 21 Budget. He did not believe a surplus was out of reach "but it's going to be tight".
He described it as an "artificial target".
"Could we hit an artificial target? We are so close to it that potentially the answer is 'yes'. But I don't think people would really want us to take irresponsible actions just to hit an artificial target."
He said the Government would stick to its $1 billion cap on new spending and would not trim that down to get a surplus.
"If we had to take $300 million out of the health budget or something to achieve that, I think most people would think that's a bit silly."
He said the Government would spend more on areas it believed were important, "but not excessively more".
After the election, Mr Key said child poverty would be a focus of his third term. He would not give any Budget hints but said he stood by that. "It's something I'd like to see us continue to work on."
He denied the Government's economic credibility would be dented if it did not achieve the surplus, given it had campaigned on it to emphasise its economic record.
The most recent release of Crown accounts forecast a deficit of $269 million - a sum Mr Key said was small change in the context of the size of the $200 billion economy.
NZ First leader Winston Peters said Mr Key was wrong to dismiss the deficit. "National's mounting failure to make a Budget surplus since 2008 is causing damage to the economy. Last May, Mr Key beat his chest over a promised $372 million surplus, increasing surpluses and a growing economy."
Mr Key said it would not be clear until October if a surplus had been reached, but predicting it was like "landing a 747 on a pinhead".
"In my view the public won't be fixated on whether it's a couple of hundred million dollars either way."
The Budget would focus on continuing "sensible reforms". He compared New Zealand's books to those in Australia which is heading toward a $40-50 billion deficit.