The half-year economic and fiscal update and the 2009 budget policy statement will be released together tomorrow and will show the new National-led Government is facing some challenging times.
Details on how the Government plans to assist the economy through the global economic downturn are likely to be included in the policy statement.
Prime Minister John Key has already hinted the outlook for unemployment and the operating balance will be considerably worse than that disclosed in the pre-election opening of the books.
An update of the economic and fiscal position to the incoming government on November 7 gave a good indication of how much worse things had become.
Real GDP growth was lowered in the report by a cumulative 0.4% over the four years to 2013, while nominal GDP growth was revised back by 1.8%.
Westpac chief economist Brendan O'Donovan said his assessment of developments since November 7 suggested the economic update would reveal even weaker growth, particularly in the March 2010 and March 2011 years.
"On the downside, the trading partner growth outlook has deteriorated further, which sees the export and commodity price outlooks dragged even lower. This will be partially offset by the continued aggressive easing of the Reserve Bank, the lower trade-weighted exchange rate, falling petrol prices and signs that the housing market may finally be in the trough."
The unknown factor in the fiscal accounts would be the cost-benefit associated with the change in policy direction under the new government, he said.
So far, many of the policy announcements had cancelled each other out.
The tax package would be funded by the savings from changes to KiwiSaver and discontinuing the research and development tax credit.
However, capital spending was set to increase substantially in line with the bringing forward of infrastructure investment.
"In fact, the Government has already announced that they will be committing a further $8.6 billion in new capital projects over the next six years. That will place even more pressure on the already substantial deficits we anticipate in the economic update and will see the Government's borrowing requirements skyrocket."
Bigger cash deficits pointed to a bigger Government borrowing requirement.
For the current year, the funding requirement would be about $1 billion higher than in the pre-election update, taking it to $5 billion in total.
Mr O'Donovan said he would concentrate tomorrow on any details provided around the timing and magnitude of capital expenditure and the expected increase in fiscal stimulus.
