The Government's books have been ravaged by the recession, tax cuts and extra spending, producing the worst budget deficit in the country's history.
Treasury figures issued yesterday show the deficit for the year to June blew out to $10.5 billion - about $2500 for every New Zealander.
This is a $12.9b turnaround from the $2.4b surplus in 2008. Finance Minister Bill English said it represented the biggest yearly turnaround since the 1990s and would take 20 years to recover from.
He ruled out drastic spending cuts to pare back debt, which was rising at $250 million a week and set to increase by $40b over the next four years.
Mr English said a "rip and bust" approach to spending could rebound economically and politically. But with deficits forecast for nine more years, the Government was taking a three-to-five-year view of spending restraint.
It had moved early to raise debt, with New Zealand seen as an attractive destination for lenders. But that could change and other countries would be raising more and more money.
"In two or three years there is going to be a tsunami of debt out there," he said.
The extra debt would increase interest costs by $700 million a year.
A modest turnaround in the economy in the last quarter, ending an 18-month recession, would be little comfort because the current bleak forecasts already included a return to 2 to 4 per cent growth. "A pickup in growth does not make this go away," Mr English said.
Labour finance spokesman David Cunliffe said that in 2008 the previous government had put in place the stimulus needed to support jobs and families through the worst of the recession.
"Kiwis have accepted that the past months have been tough times. Now they want National to inspire new hope for a sustainable future. That won't happen while Bill English continues to talk the economy down."
Treasury deputy secretary Peter Bushnell said the recession, along with recent tax cuts and spending in the 2008 Budget, had driven up the deficit.
Tax revenue was down $3b on last year while spending was up $2b.
Revenue was boosted by one-off gains of $1.4b from court cases against four banks over structured finance deals. The Treasury assumed all four would be successful.
Cases against BNZ and Westpac have already been decided in IRD's favour, but the revenue boost takes into account only the tax - not interest - component.
However, the extra revenue could reverse if appeals by banks were successful.
The past year had seen a $1.5b increase in spending on social assistance and $1.1b extra on health. Education spending was up $900m.
The cost of the student loan scheme added $1b because of impaired loans, slower repayments and lower forecast incomes.
The Government's deposit guarantee scheme, compensating lenders hit by bank and finance company failures, was expected to cost $816m.
Net debt rose to $17b or 9.5 per cent of gross domestic product, after a cash deficit of $8.6b.
The superannuation fund posted a $2.8b loss for the year.
- The Dominion Post