Tide of red ink increases PM's Budget gloom

John Key says that a reduction in revenue has presented the Government with a challenge. Photo / Martin Sykes

The Budget will increase spending on education and health but not much else, says Prime Minister John Key.

And Finance Minister Bill English said it would contain measures to more actively manage risks to big taxpayer investments, such as those by ACC, the Earthquake Commission and the Super Fund.

They were commenting after the monthly opening of books showed the Government's accounts going deeper into the red - an operating deficit of $7.7 billion, which is $11.1 billion, or 324.5 per cent, worse than the December forecast.

The main reason was the tax take was $1.9 billion down on the forecast for the March year and investment losses were $5.3 billion worse than projected.

Asked if the figures indicated a black Budget, Mr Key said: "I wouldn't describe it as black. In fact, we are spending a lot of extra money on health and education, but beyond that there is not a lot more to go around."

The Budget will be delivered on May 28, and today Mr Key will give his pre-Budget speech in Wellington outlining where he sees New Zealand heading.

Yesterday, he said the books indicated clearly the challenge the Government faced, "which is that revenue is reducing rapidly".

Mr English said the decline was following a predictable path, and "we are not going to panic about the tax take going down".

The Government was reprioritising expenditure and people who had been expecting big increases promised by the last Government would not be getting them.

Mr English also said the Government would take "a pretty hard look at the risks it is taking", ranging from investment in overseas equity markets to the banking guarantees.

"The Government needs to be more transparent with taxpayers about what risks it is taking."

No one imagined when NZ Superannuation was set up that it could rapidly lose $5 billion to $6 billion.

"Now we know that can happen, we need to take steps to mitigate those risks."

Mr English said it was not so much about changing what the Government was doing but getting an overview of what risks were being taken with taxpayers' money.

ACC, EQC and Super Fund investment totalled between $30 billion and $40 billion.

"Anyone else will be paying a great deal of attention to how that money is invested and the Government has to pay more attention."

Mr English and Mr Key would not comment on the fact that the New Zealand Superannuation Fund made a gain in March or say if that would alter their intention to suspend payments to the fund in the next financial year.

ACC losses this year are $500 million, EQC is down $400 million and the Super Fund $4.8 billion, a total of $5.7 billion.

The opening of the books also revealed that gross Crown debt was $45 billion - 25 1 per cent of gross domestic product, and 45.7 per cent higher than the forecast in October of $30.9 billion, or 17.2 per cent of GDP.

- ADDITIONAL REPORTING: AGENCIES