The Government has halved its operating deficit, excluding gains and losses, to $9.2 billion in the year to the end of June.
A large fall in spending on earthquake-hit Canterbury, an overall cut in other spending and higher tax income all contributed to the drop in the deficit.
Prime Minister John Key says the public finances are heading in the right direction, but can't give any guarantee that the books will be back in surplus in 2014-15 as New Zealand is always subject to international conditions.
The deficit would have been even smaller had the figures not included the cost of a large devaluation of KiwiRail. As a result, it added $1.4 billion to the deficit.
Once investment gains and losses are included, the deficit rose to $14.9 billion compared with $13.4 billion a year earlier. But in the previous year, both the ACC and New Zealand Superannuation Fund had made big investment gains.
In this most recent financial year, the investment gains have been much more modest, and the long-term liabilities for the ACC and Government Superannuation Fund have both gone up, adding billions to the deficit.
That increase in liabilities has been driven by a drop in interest rates. If interest rates go back up, the liabilities will fall and the operating balance will then look much healthier.
Because investment gains and losses can wax and wane, the operating balance, excluding gains and losses, is a better measure of the underlying state of the Government's financial position, Radio New Zealand's political editor says. It clearly shows how much the Government is spending and how much it is earning from tax and other revenue.
The Labour Party on Wednesday welcomed the halving of the deficit, but finance spokesperson David Carter says the Government's obsession with the public finances has come at the expense of the wider economy.
Mr Parker says the Government does deserve some credit for the improving state of the public finances, but there is more to the economy than cutting government spending and it has done nothing to help the export sector and stop job losses in manufacturing.
Tax income up, Government spending down
The financial statements for the year to the end of June reveal that tax income was up $3.5 billion on the previous year.
The Treasury's chief financial officer, Fergus Welsh, said larger business profits contributed substantially to the increase in tax income.
Government spending fell $1.5 billion and the cash deficit was $10.6 billion. Net debt rose to $50.7 billion, or 25% of GDP, as the Government borrowed more, but it was still lower than forecast.
The Treasury says putting aside the increase in ACC and Government Superannuation Fund liabilities and the cost of the one-off revaluation of KiwiRail, the books are in line with the Budget forecasts.
And Finance Minister Bill English says the financial statements show the economy is recovering and the public finances are improving.
Core government spending fell during the year to $69.1 billion, compared with $70.5 billion a year earlier as the Government's spending cuts began to take effect.
But continuing cash deficits and the rising liabilities of ACC and the Government Superannuation Fund have hurt the Government's net worth which dropped to $59.3 billion at the end of June compared with $80.6 billion in 2011.