Immigration New Zealand could be heading for a record deficit because of the drop in numbers of people coming to this country.
A briefing paper to the Immigration Minister says the agency's memorandum account is forecast to hit a deficit of $44 million at June 30, up from a deficit of $28.1 million recorded last October.
"This is largely a result of a drop in visa application volumes following the global financial crisis and the Canterbury earthquakes," the paper says.
It said the agency's high fixed-cost business model meant it was unable to reduce operating costs in the short term in line with the decreased application volume.
Steve Stuart, acting immigration head, said overall visa applications dropped by 17,301 last year to 516,024 - down from 533,325 the previous year.
The largest drops were in the number of people approved for permanent residence, down 11.5 per cent, temporary work visa applications, which dropped 4.7 per cent, and student visa applications, down 2.6 per cent.
"Immigration New Zealand's revenue from visa applications was $108.3 million, representing 58.4 per cent of total revenue," Mr Stuart said.
The paper said the agency was moving towards a new operating model that would provide "better immigration services at less cost", which would be technology-enabled, and that work was under way to establish a "future funding model".
Mr Stuart would not say if there would be job losses at the agency under this new model.
"It is too early to specify the exact changes needed and the staffing which will be necessary for the new operating model, but we do know that the type, nature and number of roles required within Immigration will change," Mr Stuart said.
"Any changes will be subject to full consultation with the staff throughout before decisions are made."
The Government is spending $90.5 million to upgrade computer systems at the agency, which is hoped to improve efficiency and reduce operating costs by $12.1 million over 15 years.
It will introduce the Immigration Global Management System over five years to replace the current ageing system.
The agency is aiming to save 1 per cent a year in administration and support costs.
"In the year to October 2011, annual net migration into New Zealand fell to negative 100 people," the report said.
"This is the first annual net loss since the September 2001 year."
The outflow of migrants has continued to January, when the annual population net loss from migration hit 3100 - the highest in more than a decade.
The target of attracting between 45,000 and 50,000 residents was not met, with just 40,737 residence visas issued in 2010-11.
"Reducing the minimum threshold for skilled migrants would ... weaken migrants' economic and settlement outcomes," the paper said. "Skilled migrants who are granted residence without a skilled job offer may not be able to find work."