Finance Minister Bill English says a quick switch by households from borrowing to saving is reshaping the economic recovery.
Excluding unrealised investment gains and losses, the Government's budget deficit stood at $6.3 billion in the year to the end of June, better than forecast due to a drop in tax revenue and flat spending.
Mr English says the books leave no room for the Government to ease its spending restraint and it will continue to limit new spending to $1.1 billion per year until at least 2016.
But Mr English says there's been a marked turnaround in households' behaviour, with people cutting debt and injecting about $5 billion of equity into their homes in the year to the March.
He says New Zealanders are very careful with their spending and have reduced their consumption.
Mr English says economic growth over the next few years will also depend on exporters doing well.
The cash deficit stood at $9 billion, which is due to rise to $13 billion this financial year.
Government spending totaled $64 billion, but the Crown revenue from tax was just under $51 billion.
Net Government debt stood at $26.7 billion, or about 14% of Gross Domestic Product.