Finance Minister Michael Cullen has accused the previous Government of dishonesty for failing to budget for hundreds of millions of dollars worth of defence spending.
He claims the shortfall in expenditure on equipment for the armed forces promised in the 1997 Defence Assessment has been his"biggest nasty surprise" since taking office.
It was one of the first things Treasury put in front of him, "so they clearly were deeply concerned about it."
"We are talking here of hundreds of millions of dollars of shortfall. In other words, what they were promising Defence they were not projecting the money to deliver. We have to therefore revisit those issues."
Dr Cullen said the cancellation of the F-16s deal with the United States would allow the Government to meet other armed forces spending priorities.
The 1997 assessment foresaw $1.084 billion in capital spending, including a third frigate and upgrading the Hercules fleet.
Yet only $582 million of that was provided for in the pre-election Treasury update.
But Opposition finance spokesman Bill English said Dr Cullen was trying to justify the Government's planned defence review, and the details were all contained in the Treasury's forecasts.
The update shows a provision for capital injections for defence of $582 million over the next three years.
It noted that the Government's total known capital risks were $2 billion against a provision for just $1.2 billion.
Explaining the discrepancy, the Treasury said it had made an assessment based on the proportion of capital risks that had materialised in past years.
