All Government departments will be asked to find savings when National delivers its first Budget on May 28, Finance Minister Bill English has warned.
Mr English told the finance select committee that the Budget was being written under tough economic circumstances and the extent of the worldwide recession was still unknown.
In a one-hour hearing, he confirmed that Treasury's December's forecasts were following their most pessimistic scenario with New Zealand enduring ongoing economic recession.
The largest worry was that many main trading partners were looking at longer and deeper recessions.
The wave of "disastrous" economic events that flowed around the world in December was bound to wash on to New Zealand businesses, it was just a matter of where and who was affected, Mr English said.
The banking sector remained stable, but maintaining this was the Government's primary policy objective because if it became unstable it would cause "huge problems" for the wider economy.
The next greatest threat was the future of export prices and how trading partners such as Australia and Britain fared over the coming year.
Mr English said not all exporters were suffering - some were faring well, while others were being hurt.
His third-worst fear was that falling housing prices and rising unemployment would lead to a "negative economic spiral" with out of work people unable to maintain their mortgages, while the value of their homes were falling.
Mr English said New Zealand was luckier than some as it gone into the recession with very low unemployment.
Whether the "housing adjustment" was over had yet be seen as values were still above their long-term average.
He was optimistic that the negative spiral being seen in some countries such as the United States would not be repeated here.
Not all was doom and gloom, Australia was still fairly optimistic about its economic prospects and continuing growth in China was flowing through to its productive sectors.
Mr English pointed to a tough Budget round with all Government departments asked to find savings, but still coming up with imaginative bids for a share of what little was available for new spending.
Growth in overall departmental spending had to be halted or New Zealand would face unacceptably high permanent levels of debt, he said.