Three years ago, with surpluses as far as the eye could see, the Treasury suggested to incoming ministers that perhaps it was time for a tax cut.

Finance Minister Michael Cullen, then a firm tax cut denier, publicly derided his officials for what he called their “ideological burp.”

Three years on we have, in the pre-election economic and fiscal update (PRefu) deficits stretching out for nearly a decade.

The causes of this are numerous: the one which makes the headlines is the world economic crisis, with banks failing in the US and - although this has had less coverage in New Zealand - in Europe. Even the stolid Dutch have had to bail out a couple of their banks.

New Zealand’s economy was already slowing before the financial crisis hit. It was mostly a consumer-led slowdown, after the interest rate bill for the borrowing surge we’ve had over the past five years began to bite.

At the same time, of course, New Zealand households were hit by food and petrol price hikes. It has been something of a perfect storm.

The slowdown has yet to show up in tax revenues but will do so from next year: in fact the Treasury is picking a slight increase in tax take from its Budget forecasts, up from $56.673 billion to $56.747 billion.

It takes a dive of $465 million next year though: a further $813 million slump for the year to June 2010 and an even further drop of just over $1 billion the year after that.

The business tax take is already slowing: a drop of 3% in tax gathered form corporates is forecast for the current year.

On the other hand, there is a lagging economic indicator which provides at least a brief fillip for the Crown accounts.

Wage and salary increases are undergoing something of a surge: up 5.8% for the year to September. The extra PAYE tax is flowing into the government’s coffers.

Unemployment though is set to rise. This highlights something of an oddity in the 2008 Budget (one which the National Business Review reported on at the time.

The Budget tables had the number of beneficiaries actually dropping, and thus lower payouts in benefits.

The assumption seems to have been that Working for Families would get more people off benefits, but, as we noted at the time “you will not find an economist in the country who believes the government will not be paying more unemployed benefits over the next couple of years.”

So the yesterday’s release has an average of $500 million extra a year going out in benefits over the next four years.