The operating deficit halved in the year ended June 30 to $9.24 billion, compared with $18.4 billion in the previous corresponding period.
The result reflected an increase in tax revenue as the economy recovered, and lower core Crown expenses due to such factors as costs associated with the Emissions Trading Scheme and the weathertight homes package, and lower Canterbury earthquake recovery costs in the latest year.
The operating deficit was $800 million larger than forecast, mainly as a result of Crown expenses exceeding forecast by $1.7 billion - $1.4 billion of that being impairment expenses of rail-related assets.
The good news ended when the total Crown operating balance was reviewed. That went to a $14.9 billion deficit from a $13.4 billion deficit as financial markets were less kind to the Government's investments through ACC and the New Zealand Superannuation Fund. The investments made a loss of $5 billion this year compared with a gain of $5 billion last year.
The Government's two large long-term liabilities - ACC and the Government Superannuation Fund - increased significantly during the year, resulting in a loss of $6.8 billion being reported. Because those liabilities were paid out over more than 50 years, the present-day value of those future payments was sensitive to interest-rate changes, Mr English said.
When interest rates fell, as they had in the past year, the present-day value of those liabilities increased. If interest rates rose, the present-day value of the liabilities was expected to fall.
Also, the financial effect of the earthquakes continued to significantly affect the New Zealand economy and the Government's finances, Mr English said.
Total Crown expenses relating to the earthquakes totalled $1.9 billion this year - net of reinsurance - as the cost of insurance claims and red-zone property purchases increased, along with the inclusion of an initial estimate of some costs associated with replacing water infrastructure.
Those expenses were in addition to the $9.1 billion recorded last year.
"The Government remains committed to supporting the recovery of the Canterbury region, which is why we've set aside $5.5 billion for the Canterbury Earthquake Recovery Fund," Mr English said.
The Government's accounts, published by the Treasury, were not as easy to read as in previous years.
The residual cash deficit improved markedly to $10.6 billion, down from the $13.3 billion deficit last year.
Core Crown net debt was less than predicted at $50.7 billion, or 24.8% of GDP, but still up on the $40.1 billion, or 20.3% of GDP, last year.
Mr English said it was important the Government helped New Zealanders through the recession by maintaining government programmes and public services. It was also important it provided the financial resources needed to help the people of Canterbury after the earthquakes.
"That has meant running large deficits in recent years. However, that could not continue indefinitely. The consequences of too much government debt are all too clear in Europe and the United States, where we are seeing big cuts to public services and pensions - and higher taxes," he said.
Labour Party leader David Shearer said the Government's claim to be a credible manager of the books had been blown out of the water.
"Its deficit is $800 million more than it forecast in May. This statement is for June, so it has lost $800 million in a month."
Mr Shearer omitted to say in his statement that the $800 million was partly due to the write-down of KiwiRail assets bought by the previous Labour administration.
The government accounts show KiwiRail's land was valued at $5.6 billion in June last year, but was revalued at $3.3 billion in June this year.
The rail infrastructure was valued at $7.1 billion last year but was only worth $856 million now, a fall in value of about $6.3 billion. That hurt the government accounts by $1.4 billion.
With the one-off KiwiRail expenses excluded, the deficit would have been $7.8 billion, $600 million more than forecast in the May Budget.
