Education, health to benefit from budget: Key

There will be more money for education and health, but very little for other areas in the upcoming budget, Prime Minister John Key said today.

The last update of the crown accounts ahead of the May 28 budget released today continued to paint a grim picture with falling revenue, growing costs and ballooning debt.

Mr Key said the accounts came as no surprise, but he said the budget would not be all gloom.

"I wouldn't describe it as black, in fact we are spending a lot of extra money on health and education, but beyond that there is a not lot more to go around," Mr Key said.

Finance Minister Bill English said he would be scaling back some of the spending promises made by Labour, but there would still be increases.

"The Government has to re-sort the priorities for spending, some people who were expecting big spending increases promised by the previous government won't be getting big spending increases, but they will be getting something," Mr English said.

Labour's finance spokesman David Cunliffe said National was trying to paint a grimmer picture than existed in order to soften up the public for a black picture.

"The economy is continuing to slow down, that New Zealand businesses are hurting and that mums and dads and households are hurting, because GST is down," Mr Cunliffe said.

But today's crown accounts update showed "although they're bad, they're actually slightly better than last month and it looks like we are starting to stabilise".

The accounts released by Treasury showed the Government's fiscal position worsened in March as a prolonged and deepening recession took its toll on investment returns and the tax take.

The operating balance for the nine months to March 31 was a deficit of $7.72 billion, or 324 per cent below the forecast made last October of a surplus of $3.44 billion.

Treasury said the deficit was largely because of $5.3 billion in losses from various state investment funds, $2.4 billion from a pension fund liability, and $2 billion losses arising from revaluations of workplace accident insurance liabilities.

Tax revenue was around $1.9 billion below forecast, as lower company earnings, reduced consumer spending and lower interest rates and investment earnings reduced receipts.

The Treasury said it expected the fall in tax revenue to deteriorate because of recession.

The operating balance excluding gains and losses (OBEGAL), which strips out unrealised investment gains or losses, was a deficit of $233 million against a forecast surplus of $1.9 billion.

Net government debt stood at $5.12 billion, which was $203 million lower than forecast, equating to 2.9 per cent of gross domestic product, against a forecast 3 per cent.

The government's net cash position, the difference between all income and spending - operational and capital - was a deficit of $7.88 billion compared with a forecast deficit of $6.1 billion.

In December, the Treasury forecast an overall operating deficit of $4.33 billion for the fiscal year to June 30, with an OBEGAL deficit of $550 million, and net cash shortfall of $6.63 billion.

It also forecast a sustained period of large budget deficits and increased borrowing to cover the shortfalls.

Mr English has said on several occasions this year that the Government will not let deficits and borrowing get out of control, and that the budget will tackle the issue.

- NZPA