The Treasury forecasts that 68,000 New Zealanders will lose their jobs in the next 15 months.
But if the international recession worsens, it says, that figure could reach 87,000.
That would mean 162,000 unemployed, or as high as 181,000.
It also forecasts much bigger deficits than it did before the election - $11 billion within five years.
And it says financing the deficit will send Government debt soaring, from 17.5 per cent of gross domestic product to 33 per cent in five years and much, much higher beyond that.
But Finance Minister Bill English yesterday said he was not willing to accept persistently rising debt as a given.
"We are not going to let this happen," he said.
Dealing with a persistently rising burden of debt would be too big a burden for future workers.
A combination of effective management of Government spending and higher than expected growth rates would turn the debt track around, Mr English said, "and we are determined to do so".
He acknowledged that surpluses would form no part of this three-year term of government, but predicted they could re-appear in three terms.
"I dream about surpluses. We won't see surpluses in this term of Government," he said. "I would expect us to be in surplus in three terms and I'm willing to stay around long enough to make it happen."
Unemployment is 4.2 per cent, or 94,000. It is forecast to rise to 6.4 per cent in 2010, but the Treasury also included a worse scenario based on an extended global downturn and slow growth for our trading partners.
Under that, unemployment would rise to 7.2 per cent in 2010 before improved economic growth created new jobs and unemployment fell.
The deficits are forecast despite other forecasts that show the economy moving out of recession and into sustained positive growth.
But revenue is likely to fall well short of Government expenditure.
Mr English and Prime Minister John Key met public service chief executives yesterday to hammer home what they want for their first Budget - no new spending bids.
"We are going to have a lengthy period of restraint," Mr English said. "This is not a one-off. And success over the next two or three years for them and their departments is going to be about providing high-quality services with less."
They would not be able to afford the pay increases the public service had been accustomed to getting.
And every cent of spending would be subjected to a line-by-line review over the next three years.
Also facing a knockback is KiwiRail, which might not be getting all it sought in a recent bid for new money promised by Labour.
Mr English said his first Budget next year would include $1.45 billion of new capital spending, up from the $900 million allowed for by the previous government.
New capital spending over five years would be $5.8 billion.
He said he would stick to his commitment to increase the operating budget next year and each year by no more than $1.75 billion a year.
"I want to stress that New Zealand starts from a reasonable position in dealing with the uncertainty of our economic outlook.
"We have room to respond. This is the rainy day that Government has been saving up for."
"The plan in essence is quite simple, that is to maintain significant short-term stimulus in the economy, to protect people from the sharp edge of recession and to get on with the job of raising our longer term growth prospects ... with some urgency".
Labour finance spokesman David Cunliffe said National had revealed no plan and he assumed Mr English had one up his sleeve.
He also said there should be a mini-Budget in the new year and Labour was prepared to take a bipartisan approach to work on it.
"Let's not wait until June. Let's not see international markets and domestic markets further deteriorate until June 2009 until we see the shape of a real plan."