The government has declared drought conditions on the east coast of the South Island, triggering a range of support measures, and said the tax department will invoke income equalisation rules that give farmers more flexibility in the timing of tax payments.

Primary Industries Minister Nathan Guy declared a medium-scale adverse event for parts of Otago, Canterbury and the Marlborough District during a visit to the Opuha Dam in South Canterbury, a water storage dam often held up as a model for meeting the irrigation needs of farmers, and community and ecological objectives. Opuha will run dry in the next few weeks without more rain.

"Most farmers have coped so far by destocking and using feed supplies, and most will not need extra support," Guy said. "However it's clear that conditions are only going to get tougher as the seasons change and we need to prepare now."

Last month, Reserve Bank governor Graeme Wheeler cited the risk of drought as among key factors that could slow economic growth, while Fonterra Cooperative Group reduced its milk volume forecast for the 2014-2015 season by 3.3 percent due to the impact of dry weather on production.

By declaring a drought, extra government funding will be made available via Rural Support Trusts. Farmers will also be able to apply for rural assistance payments through Work and Income.

Separately, Revenue Minister Todd McClay said the Inland Revenue Department has exercised its discretion under its income equalisation scheme for farmers in the affected areas. Under the scheme, IRD will allow late deposits from the 2014 income tax year to be made up to April 30 this year and early refunds would also be allowed, McClay said.

Guy said the government is also keeping a watch on the Wairarapa and southern Hawkes Bay, which are also "suffering from very dry conditions."