KEY POINTS:
Finance Minister Bill English has a blunt message about Government spending as he prepares his first Budget.
"Restraint is permanent," he says.
That is what he wants New Zealanders to realise, and it is what he told a group of department heads last week.
"For the rest of their careers, there isn't going to be more money or more people," he said.
The latest Crown accounts show tax revenue $1 billion down on October's forecasts.
Decisions on the Budget - to be delivered on May 28 - are likely to be made on the basis of Treasury forecasts in April.
The most recent forecasts, made in December, show the Government's cash position, after capital commitments are taken into account, deteriorating from a $6.6 billion deficit in the year to June to an $11.3 billion deficit in 2013.
But as Mr English acknowledges, those figures are already out of date.
"By the time of the Budget we are going to be looking at some quite substantial deficits."
The biggest risk for New Zealand was the extent to which the recession affected its trading partners.
"What we know is there will be further deterioration," Mr English said.
"And it is going to be larger in scale than any move we can make in the short term on savings."
That was why he was having a "containable, quick" round of Budget planning before going on to a more thorough long-term look at how to deliver better and "smarter" services through innovation.
That shift in thinking would have to come from Government departments themselves.
Rather than the Treasury working out where to cut spending, he wants the departments to change the way they think.
"We will get them doing it. They are going to have to own this," he said.
"It is permanent restraint - more services with the same or fewer people and the same or less funding."
Mr English rejected any suggestion that taxes would be increased to ease the spending pressure.
And no changes would be made to the 2010 and 2011 personal tax cuts that National promised in last year's election campaign.
After years without personal tax cuts, "we have ended up with the worst of all worlds".
Labour refused to give tax cuts until last year, saying its surpluses were not "structural", or permanent.
New Zealand now had large "structural" spending commitments on policies such as interest-free student loans, free early childhood education, KiwiSaver subsidies,and Working for Families, as well as tax cuts.
Keeping Labour's spending commitments had put pressure on elsewhere.
"This stuff about not doing enough is absolute nonsense," he said. "We are going out on current assumptions to borrow $40 billion [over three years] to support it.
"That's a huge bloody commitment."
Mr English said Government debt - at 2.3 per cent of GDP - and deficits were in a good position now.
The problem was the continuing forecasts of increases.
Even factoring in "plausible" growth assumptions did not reduce the deficit track much.
"The revenue grows but so does the expenditure," Mr English said.
There was some benefit from growth "but nothing like enough that you can sit there and say we will grow our way out of this".
Today's recession was different to others because it was asset-based. It was not caused by inflation or anything that could fix itself easily.
"The uncertainties are just multiplied up - not just uncertainty about whether you can control the expenditure, or the length of the recession, it is the speed of recovery at the other end. No one quite knows."
Despite the unknowns, Mr English is confident that New Zealand is resilient enough to weather the recession.
"I remember the last severe economic episode, late 80s early 90s, people were paralysed by that event.
"Now, we have been a small open economy for 20 years and people are more resilient than they were.
"It means they know things are going to be tough for a while and they have got a bit of confidence they will come right - and so have we."
