The Government needs to borrow $250 million a week after the havoc wreaked by the recession on its books.

The Crown accounts for the year to June, released yesterday, showed an all-up deficit of $10.5 billion, compared with a surplus of $2.4 billion the previous year.

The state's core operations - such as health, education and defence - recorded a deficit of $4.5 billion as tax revenues fell while spending grew.

The other $6 billion reflects writedowns and results from the broader Crown sector including ACC, the New Zealand Superannuation Fund and state-owned enterprises.

Finance Minister Bill English said the impact of the recession on the Government's finances would be felt for many years.

Tax revenues over the next four years would be about $16 billion less than they would have been if the economy had kept growing at a normal rate.

The revenue from the next 4 per cent of growth would be swallowed up in higher debt-servicing costs.

Deficit predictions for the next nine years will push up the level of Government debt. For now, that means borrowing $250 million a week, according to Mr English.

The annual cost of servicing that debt is expected to double to $5 billion by 2014 - more than the combined spending on defence and law and order - and hit $8 billion by 2023.

And that is at current interest rates. Mr English said global rates could rise when a "tsunami" of borrowing by governments over the next two or three years had to compete with a recovering private sector also in need of finance.

In the meantime, while rates are relatively low the Government is borrowing faster than it needs to - some $5 billion since June.

Mr English said that on his recent tour of financial capitals he had stressed the Government had a strategy to slow the growth in state spending and "bend the debt line down".

"While these figures look bad, a lot of other governments' look worse," he said. "If we challenge ourselves a bit we can build a strong New Zealand story over the next few years."

Any package of changes to the mix of taxes that was recommended by the tax working group chaired by Professor Bob Buckle would have to yield at least as much revenue as the existing system does, Mr English said.

"We would indicate by the 2010 Budget whether we would be making any significant tax changes," which were likely to be phased in.

The Government has written down the value of its student loan book by nearly $1.1 billion to $6.5 billion to reflect slower repayment rates and more people defaulting.

And it is allowing for $800 million of possible losses under the retail deposit guarantee scheme.

But not all the changes are in red ink. The Government has also booked $1.4 billion in taxes from the banks, judging it more likely than not that it will win and they will lose litigation now before the courts.