Just three weeks before the Government delivers its first Budget, its books have gone further into the red as the tax take tumbles.
Treasury has warned tax income will continue to fall as the economy feels the full effect of the recession.
In the Government accounts for the nine months to 31 March, the cash deficit has blown out to $7.7 billion. In October, the forecast was for a surplus of $3.4 billion.
The Treasury said on Wednesday the deficit was largely because of $5.3 billion in losses from various state investment funds, $2.4 billion from a pension fund liability and $2 billion losses arising from disclosures of workplace accident insurance liabilities.
Tax revenue was around $1.9 billion below forecast, as lower company earnings, reduced consumer spending and lower interest rates and investment earnings reduced receipts.
Treasury says tax revenues will continue to be lower than forecast until the middle of next year as the deterioration in the world economy hits New Zealand.
Losses on investments by the New Zealand Superannuation Fund, ACC and the Earthquake Commission also contributed to an increase in the size of the operating deficit.
But during March, the losses on investments were much smaller than in previous months.
In fact, the Super Fund made a small gain on its investments during the month.
Earlier this week, Treasury said the New Zealand economy probably shrank around 1% in the three months to 31 March, making a fifth consecutive quarter of contraction.
Finance Minister Bill English has said the Government will not let deficits and borrowing get out of control, and that the Budget on 28 May will tackle the issue.
Ratings agency Standard & Poor's has warned that New Zealand is at risk of a credit rating downgrade because of the deterioration in the Government's fiscal position.