The government has forecast a return to budget surplus by 2014/15 and the creation of 170,000 jobs. It has forecast economic growth will rise to 4 per cent, helping to control its borrowing. Here's five reasons these forecasts are not believable and why the Government will need to cut spending harder and raise taxes either next year or in 2013 to fix its structural deficit.

The de-leveraging drag

New Zealand households and businesses have changed their approach to spending and debt. They are avoiding borrowing and repaying debt at every opportunity. This is suppressing any economic rebound from the global financial crisis. Some analysis suggests this de-leveraging drag could lower economic growth by between 1 per cent and 2 per cent of GDP for up to a decade after the 2008 crisis. This is not reflected in the Treasury's forecasts.

Household debt to disposable income remains only marginally below its record highs of almost 160 per cent. A drop back to the 100 per cent levels seen in the early 2000s would suppress domestic and retail spending and spending in construction.

Banking the payments

The Government has argued $15 billion worth of reinsurance payments, spending during the Rugby World Cup and the commodity price boom windfall for farmers will boost growth.

However, there are already signs homeowners, businesses and farmers are choosing to put their insurance payments and Fonterra payouts in the bank to repay debt, rather than rebuild immediately or spend money on consumption.

Bank executives have become nervous in recent weeks about a lack of net lending growth as households refuse to take on extra risk when they know interest rates are unlikely to drop any further and house prices are flat to falling in most parts of New Zealand, except for central Auckland.

Slow earthquake rebuild

The Government is assuming more than $20 billion worth of earthquake rebuilding will surge through the economy over the next three to five years. But there remain doubts about how quickly the land stability issue can be finalised and whether the Christchurch CBD will be rebuilt to anything like its previous capacity. The rebuild after the September 4 quake was surprisingly slow and the enormity of the task after the February 22 quake confounds many.

Global growth fears

Treasury's forecasts depend on continued strong growth in China and recoveries in America and Europe. However, there are fresh doubts about China's ability to control an inflationary surge and the European sovereign debt crisis continues to bubble along. America has also failed to bounce out of its recession with any vigour.

The slide seen in commodity prices in recent weeks is one symptom of those doubts.

Dairy powder prices have already fallen 12 per cent from their peaks in March.

IRD forecast much less

The Inland Revenue Department forecast revenues would be $4 billion lower than the revenues forecast by Treasury over the next five years. The IRD saw lower corporate tax revenues in later years, yet the Government chose to use the rosier Treasury forecasts.

The risks are economic growth and, therefore, tax revenues will be less than expected, leaving the Budget mired in deficits and the Government borrowing heavily from foreign creditors, including the People's Bank of China.

This is not the balanced, cautious approach promoted by John Key and Bill English. They may find themselves redoing the numbers soon after the November 26 election.