Finance Minister Bill English says businesses sacrificed profits to retain staff during the recession which was reflected in a lower tax take.
The crown accounts for the first three months of this financial year released yesterday recorded a deficit of $2 billion, or 77 percent worse than the forecast made in May's budget of a deficit of $1.15b.
Treasury said the bigger deficit was largely because of lower corporate tax revenue, which was down $900 million on forecast.
"I think the numbers are telling us that businesses have made smaller profits and bigger losses than probably was expected through this recession," Mr English told Radio New Zealand.
"... some of them have held on to their employees even though they were losing money because they didn't want to lose skilled people that they worked pretty hard to find in the last few years. But it probably tells us also that business just has not been as strong."
There were other factors as well, such as the impact of the high dollar on exporters.
Positive signs included higher dairy prices -- up an average of 13.7 percent -- in Fonterra's latest monthly online dairy auction yesterday.
"That will help," Mr English said.
The Government would continue to keep a lid on its own spending.
"We've just to keep a steady course with respect to fiscal constraint ... we are moving to pretty tightly controlled government spending.
"And it's going to be important we stick to that because there are these sorts of risks. It could turn out we collect less tax revenue, that means it's important we stick to our plan."
The Government's net operating balance was a deficit of $175m, about $400m better than forecast as higher investment returns offset the tax result.
Labour's finance spokesman David Cunliffe said the performance of the New Zealand Superannuation Fund and ACC's investments showed Mr English had been short-sighted in stopping contributions to the fund and casting doubt on the future viability of ACC.
Mr English said it did not make sense to borrow more to make the payments.
Net government debt stood at $21.25b, which was $367m higher than forecast, equating to 11.8 percent of gross domestic product, against a forecast 11.6 percent.
The Government was "borrowing flat out" and expected the cost of servicing that debt to double from $2.5b to $5b in the next three to four years.
"We are on the road to recovery but it could be a pretty bumpy road. We'll get some good news some weeks, we'll get some bad news other weeks. It's going to be a while before it feels like the economy is really picking up."
