National Party leader John Key is confident New Zealand can still afford further tax cuts despite worsening Government finances, and says the country needs them.
In its pre-election economic and fiscal update released on Monday, Treasury forecast a cash deficit this financial year of almost $6 billion, rising to $7.3 billion by 2013.
The Government's operating deficit is $31 million this year and will worsen to $3.2 billion in five years.
National is to announce details of its tax cut plan on Wednesday.
John Key says deteriorating figures show that further tax cuts are needed to take the financial pressure off New Zealanders and New Zealand businesses.
He says the party is looking at the Treasury numbers, but had already taken into account a weakening economy when it calculated its tax cut programme.
The party's finance spokesperson Bill English says although the figures are a bit worse than the party expected, they do not derail the party's tax plans.
Mr English told Checkpoint the state of the public finances is partly due to Government spending not being under control, as well as the effect of the international financial situation.
Government saved for 'rainy day', says Cullen
Finance Minister Michael Cullen has defended his management of the Government books.
"What we thought we knew even five months ago has been overtaken, obviously, by events," Dr Cullen said, after the release of the fiscal update figures.
"The dramatic scale and speed with which international financial markets have moved in recent weeks have been extraordinary."
He said the Government had strengthened the Crown's balance sheet to prepare for a rainy day, which he said had now arrived.
Dr Cullen told Checkpoint that if the figures had looked this bad in May, he would not have announced a $10.6 billion tax cut plan.
He says although he would probably have announced a more modest plan, it would still have started on 1 October.
Labour policies to be scaled back
Before the update was released, Labour leader Helen Clark said the state of the Government's books meant the party would have to scale back some of the policies it will announce during the election campaign.
Labour is expected to announce a series of spending initiatives, however Miss Clark says the party's campaign policies will be phased in rather than introduced immediately.
"There are things that we would very much like to announce that we were able to do from day one after the re-election of a Labour-led Government we are having to phase and scale things so that we're very careful with the government's budget."
Green Party co-leader Jeanette Fitzsimons said New Zealand needs to curb its borrowing in the face of global financial instability.
She said it is clear that any tax cuts are going to come out of borrowing, and with the global financial crash and unstable credit markets, more credit is not a good idea.