The Government's operating deficit before gains and losses halved to $9.2 billion in the year ended June but the total Crown operating balance was a deficit of $14.9 billion, up from $13.4 billion in the previous corresponding period.
The 2012 accounts were hit by a harsh write-down of over-valued KiwiRail assets. The write-down of $1.4 billion meant the operating balance was $800 million above forecast instead of $600 million below.
BNZ economist Doug Steel said the main message he took away from the accounts released on Thursday was they were "close to Budget".
"That said, returning to surplus by 2014-15, as projected in the May 2012 Budget, still looks a challenge to us."
The 2012 deficit at 4.5% of gross domestic product (GDP) was larger than the 4.1% projected in the Budget. The miss was more than accounted for by the expense associated with the KiwiRail restructuring, giving a hint of better-than-Budget projections underneath, he said.
Gross debt sat at 38.9% of GDP, compared with the Budget forecast of 38.5%, and net debt was 24.8%, compared with the forecast of 25%.
"It is on the debt side of things that New Zealand's fiscal position stands out for the better from many overseas, considering the gross debt levels for the likes of the United States and the United Kingdom at 107% and 89% of GDP respectively."
From a fiscal point of view, New Zealand was well away from the likes of Ireland at 118%, Italy at 126%, Portugal at 119% and Greece at 171%, Mr Steel said.
In New Zealand, solid economic growth through the first half of 2012 helped shrink the underlying deficit, amid a longer period of generally slow economic growth.
"Repairing the Crown accounts while the economy is growing slowly is tough enough, but there is no doubt that it is a heck of a lot easier than trying to restore balance when the economy is contracting. That is absolutely no fun - ask Europe."
However, at 4.5% of GDP, New Zealand continued to have a sizeable deficit. The Government still had a challenge on its hands to return to surplus in coming years, he said.
The direction of change in the fiscal accounts - shrinking deficits - will be important to the rating agencies and more important than the precise timing of any return to surplus.
The question remained whether any improvement in future fiscal accounts would be enough to offset a highly likely deterioration in the nation's external accounts, Mr Steel said.
The current account deficit was already close to 5% of GDP and was anticipated to be pushing 7% in a year or so.
While helping the accounts balance, fiscal consolidation would be a drag on growth. The Budget had core government expenditure falling to 30.2% of GDP by 2015-16. The latest figures put it at 33.8%, down from 35.6% in 2011.
"All this is worth keeping an eye on," Mr Steel said.
