Finance Minister Bill English says the Government is following a plan it laid out 12 months ago to control spending growth.
The Reserve Bank is urging restraint in Government spending to help take the pressure off interest rates.
Mr English told Morning Report this year's Budget allocates just $1.1 billion of new money compared with $2.5bn - $3bn in the last three or four budgets.
"We've given the public service leadership a 12-month lead time to think about how they're going to deal with a much smaller increase.
"We've also signalled to them, again almost 12 months ago, that they wouldn't be getting new money for probably three to five years."
Mr English says health and education would get new money in the Budget.
Reserve Bank Governor Alan Bollard told Morning Report that as the country moves out of recession the private sector should be taking over more of the engine of growth from the public sector.
Reserve Bank statement
In its March monetary policy statement, delivered on Thursday, the bank said if the Government does more to control its spending, it would help reduce the work monetary policy has to do to keep inflation under control.
The bank left its official cash rate unchanged at 2.5% but said interest rates are likely to rise from the middle of the year.
Dr Bollard says Government spending, together with low interest rates, helped the economy through the recession last year, but that those increases in spending now have to be reversed.
Mr English says the Government has struck the right balance and the next budget will be fiscally neutral.
"That means it's not going to be adding to Dr Bollard's problems with interest rates, nor will it slow down the growth of the economy."
Cuts hard to justify - Labour
Labour Party finance spokesperson David Cunliffe says the Government will have a hard time justifying cuts to schools and hospitals at the same time as tax cuts to higher earners.
Mr Cunliffe says Dr Bollard should also be considering the inflationary impact of proposed tax cuts.
Dr Bollard told Morning Report he would look at the overall effect on the economy of the entire tax package.
"If there was an increase in GST but a decrease in other taxes then it might all come out in the wash in terms of spending, but we'd be calculating that."
He says the Reserve Bank would be pushing monetary policy tighter if people were using a GST rise as a way to increase margins or wages, but would not take action over a GST rise in itself.
Read more: Reserve Bank holds interest rates steady
