The latest financial accounts show the Government's books are in better shape than expected, but Finance Minister Bill English is not celebrating.
Mr English says the Government still faces a substantial challenge to get its books into good shape.
The financial statements for the first six months of the financial year revealed a deficit, excluding investment gains, of $3.7 billion - a deficit $800 million smaller than the Treasury forecast in December last year.
Mr English says the improvement is due to a number of reasons, including some one-off gains.
However, it does not signal that the Government will relax its purse strings.
Mr English says the Government has made it clear that most agencies and departments will not get any extra money in the Budget in May, simply because there is no new money available.
The Treasury says the operating deficit was $1.5 billion lower than forecast in December.
Excluding gains made on investments held by government agencies - such as the New Zealand Superannuation Fund - the deficit was $800 million lower than expected.
Tax revenue was $300 million higher than forecast and spending $500 million lower.
Despite that, the cash deficit was $1 billion higher than forecast because payments forecast for January were made in December. The Treasury expects the cash deficit would have been reversed during January.