Treasury says next week's Budget needs to show how debt will be sustainably reduced over time.
In a pre-budget speech, Treasury Secretary John Whitehead said the country risks a costly downgrade from ratings agencies if the Government does not outline a plan to bring spending under control.
In Treasury's worst case scenario, gross debt is projected to rise to 39% of gross domestic product by 2013, which means issuing an extra $50 billion in debt, rising to 75% of GDP, or $245 billion, by 2023.
Mr Whitehead said the Budget will need to balance the short term needs to bolster the faltering economy, and long term measures to boost economic growth.
He said factors in New Zealand's favour include room to move on monetary policy, a low debt starting point and no need for bank bailouts.
However, that has to be balanced against a high current account deficit, structural higher spending rather than temporary fiscal stimulus, expressed rating agency concern and a greater need for external investment.
Mr Whitehead said this means New Zealand cannot afford to carry high levels of public debt.
The Budget will be announced on Thursday 28 May.
