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Goodbye, surplus dream.

Treasury’s revised away the wafer-thin surplus that it had been expecting this financial year.

Its acting secretary Vicky Robertson delivered the bad news this morning, at the Half-Year Economic and Fiscal Update.

Treasury now projecting the government’s books will stay $572 million in the red through to June next year, due to a continued lower-than-expected tax take and falling global dairy prices.

Before the election, Treasury projected a surplus of $297 million in 2014/15.

National’s been banking on a return to surplus since 2011 – even making it an election promise this year.

But Ms Robertson explained the government will have to wait another year, with the first surplus – of $565 million – now anticipated by June 2016.

The surplus is projected to grow to $4.1 billion in 2018/19.

The news means another of National’s election promises – tax cuts – remain on ice for three years, at least.

Finance Minister Bill English says those will be considered in the 2017 budget.

He says the government doesn’t plan to slash its existing spending plans, set in the May budget – but it will slash its “operating spending allowance”.

In May, the government said it would have $1 billion for new spending and $500 million to save for tax cuts and paying down debt, from next year.

That sum was set to increase by two per cent in subsequent years.

Now, Mr English says the allowance will be reduced to $1 billion total in each of 2015 and 2016, before rising in 2017.

Ever the optimist, Mr English’s budget policy statement, released today, says despite Treasury’s projections, “the government believes the final accounts published late next year will show a surplus for 2014/15”.

He hasn’t ruled out cuts elsewhere.

Mr English says the government will continue its “significant focus on rigorously testing and reviewing the performance” of its expenditure – including new performance targets for taxpayer-funded agencies and Crown-owned entities.

The new budget policy statement gives some details of what’s to come in next year’s budget – including reiterating the government’s commitment to cut ACC levies from 2016.

And it’s indicating that agencies and services working with vulnerable families and children could be in for a shake-up, saying it’ll “look hard” at the billions of dollars it’s spending on the sector, “to determine whether this can be better spent”.

In other projections, Treasury says it expects economic growth to increase slightly to 3.5 per cent next year, from 3.2 per cent this year.

Net migration is expected to peak in March, reaching 52,400 migrants – up from 42,500 projected ahead of the election.

Treasury’s warning that while that’ll increase the country’s output, it will add pressure to demand for goods and services, and for housing.