Rock star economy remains rock solid, says Finance Minister, but heat is on from falling dairy prices.

Rock star to rock bottom? That's not where the New Zealand economy is heading despite the usual temptations of Opposition politicians to flossy up the revised Government figures into just the sort of Christmas present no one wants.

Finance Minister Bill English has a vested interest in presenting the projected $572 million Budget deficit for 2014/2015 as an unfortunate blip. The upshot of the impact of weakening dairy prices and a reduced tax take.

English - aided by Treasury forecasts that still point to growth of 3.3 per cent of GDP further out - reckons the economy is rock solid. But the fundamental question is whether the Budget gap that has opened (it's effectively $944 million when the projected $372 million surplus is factored in) is structural rather than a blip.

Yesterday, English suggested the Treasury forecast for 2014/15 could be wrong. It was possible that the Government's finances could be back in the black by June 30, 2015. This is in line with the pre-election hoopla.

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The finance minister is not going to defer normalised spending to ensure a June 30 surplus. But he has suggested that tight fiscal management could help bring the books back into balance.

To that end, English has pared back the $1.5 billion of new initiatives allocated in last year's Budget to try and get the fiscal projections back on track. Where English leaves himself open to criticism is by flagging a potential tax cut further down the track in 2017 - an election year.

There are problems facing this economy as a result of the galloping house price bubble - particularly the over-exposure of householders to personal debt - that could leave them and the economy over-exposed in a downturn.

This potential is already making itself felt in the dairy sector where many farmers will face crunch time if commodity prices do not kick-up along with projections next year.

The Reserve Bank is playing a moderating role.

Governor Graeme Wheeler last week indicated interest rates would not be going up anytime soon and that with inflation sitting at a relatively benign level he could afford to allow a steady-as-she-goes environment to persist.

This is welcome news for the broader business community.

Lower interest rate settings can be a spur to business investment and growth. An outstanding issue is really around the currency - a drop would be of assistance to export facing companies.

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But the big issue is around dairy prices.

Fonterra - as expected - slashed its forecast dairy payout back to $4.70. But even for that to be achieved the auction price for whole milk powder - which still underpins the company's commodity trade - needs to flatten out and start strengthening again.

The problem is - as Wheeler noted in a ground-breaking speech earlier this year - that the dairy debt is now over $32 billion.

An indication of the potential leverage problem is the fact that half of that debt is held by just 10 per cent of farmers. If prices do not recover that will put pressure on the banks.

This is a big issue. Let's hope the Treasury forecasters do have their finger on the commodity pulse.

At present it still looks as if there is a big reality gap between the Reserve Bank and Treasury on this.