A new PM defied the odds as the Govt struggled to deal with the worst recession in decades, and Labour played catch up politics.

The economy's prospects look a lot brighter in the Treasury's latest forecasts than they did when it was preparing the Budget in April.

Prime Minister John Key says there is "light at the end of the tunnel", after half-yearly accounts painted a better picture than the Budget.

The investment portfolios of ACC and the New Zealand Superannuation Fund continued to prop up the government's books as corporate and personal tax revenues dwindled, says Treasury.

The tax system has deteriorated beyond the point where tinkering and tweaking are enough, was the message this week.

Tax reform and a much tougher approach to Govt spending will be necessary if NZ is to narrow the income gap with Australia, Treasury says.

Treasury released a paper yesterday arguing that cuts to Government spending would take pressure off interest rates and the dollar.

Treasury has painted a bleak picture of an under-performing New Zealand economy and outlined some tough choices for the Government.

Treasury has tweaked the retail deposit scheme to help companies wean themselves off Crown support.

A report out today says the government's Emissions Trading Scheme (ETS) could cost twice as much as originally estimated.

A prominent British science writer has slammed New Zealand's clean, green reputation, calling it a "green mirage".

Taxpayers will be stuck with 84 per cent of NZ's Kyoto Protocol bill, while farmers and industrial emitters get hefty subsidies, a study says.

The New Zealand Superannuation Fund is on track to meet its performance targets.