The Government will borrow to cover the $10 billion the Christchurch earthquakes will cost it, Finance Minister Bill English says.

In a speech to an ANZ capital markets conference in Wellington yesterday, he said meeting the Government's share of the cost would require a substantial front-loading of Crown debt over the next year or two.

Debt was the appropriate response to a one-off cost, he said. It allowed the burden to be borne over time, just as the benefits of rebuilding would be permanent.

"We will still be looking at shifting the Government's spending around but that will be on the basis of the merits of the case, not because we are trying to fund the earthquake."

The Government had looked at a levy but its strong preference was to avoid one if it could.

"A levy is likely to make it harder for the economy to recover. People are already feeling a bit of pressure. The economy has been a bit flat. We need to give it the best chance of getting up off the floor."

The operating deficit for the fiscal year to June 2011 is now expected to be about $16 billion, up from the $11 billion forecast in December. It is expected to halve, to $8 billion, next year but that is still higher than December's forecast of $6 billion.

It now seemed likely the Budget would get back in surplus by 2015/16, a year later than had been hoped, English said.

Only about $1 billion of the $5 billion increase in this year's deficit will be expended over the next three months, however.

"The auditors and accountants tell us that when we know what cost the Crown is going to incur we should be recognising it, even if it is before we spend the money."

The $10 billion "ballpark" cost to the Government of the February and September quakes includes $3 billion of claims against the Earthquake Commission before its reinsurance kicks in, the costs of restoring infrastructure, an unknown but "potentially quite significant" cost of land remediation, emergency income support and temporary housing assistance, and ACC claims.

The increase in this year's deficit is not just about the earthquakes, however. It will include the Government's share of paying for leaky homes and schools and the revenue impact of a weaker than expected economy even before the February disaster.

The Treasury now expects nominal gross domestic product - a proxy for the tax base - to be a cumulative $15 billion smaller over the five years to 2015 than it thought in December. But about two-thirds of that reflects the weaker economy evident before last month's earthquake.

All the same it will mean between $3 billion and $5 billion less tax revenue.

English said preliminary Budget forecasts suggested net Crown debt could now top 30 per cent of GDP by 2014, compared with the December forecast of 28 per cent and the current level of 14 per cent.

"It's important that we get net Crown debt back to pre-earthquake levels so we can absorb future economic shocks."

He said the nation's high total net foreign liabilities - "extremely high" at about 85 per cent of GDP - were being watched closely by overseas lenders and credit rating agencies.

The numbers
* $10b estimated cost to Government of Christchurch earthquakes
* $16b expected operating deficit for year to June 2011
* $8b expected deficit for following year.