The Government's coffers are in the red for the first three months of the financial year, as investment losses offset a higher tax take.
The Treasury says the operating balance recorded a deficit of $757 million in the quarter ending 30 September, compared with a forecast surplus of $943 million.
It says the deficit is largely due to investment losses of $1.8 billion from falling equity markets, plus a $400 million loss arising from a drop in the discount rate used to value workplace accident insurance liabilities.
When investment losses are excluded, the Crown saw an operating surplus of $891 million due to higher corporate and GST tax receipts.
However, the Treasury says the higher tax take has been boosted by one-off effects and the financial crisis is starting to affect company tax payments.
The Government's net cash position, which is the difference between all income and spending, is in deficit by $3.2 billion. Net government debt was $2.6 billion, or about 1.4% of gross domestic product.
In a pre-election economic and fiscal update issued on 6 October, the Treasury forecast rising deficits and higher borrowing to deal with an economy in recession and the impact of the credit crisis.
Economists from the BNZ and ANZ-National banks say tax cuts and a weakening economy mean the deficits are bound to grow in size during the rest of this year and into 2009.