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Budget 2007 Home Page Budget Policy Statement 2007

Annex: Long-term Fiscal Objectives and Short-term Fiscal Intentions

The Government’s long-term fiscal objectives are unchanged from the 2006 FSR.

Table A1 – Long-term fiscal objectives
Long-term fiscal objectives To achieve the objectives, the Government’s high-level focus is on:
Operating balance
  • Operating surpluses(measured by the OBERAC) during the build-up phase of the NZS Fund. The focus is on core Crown revenues and expenses, with tax to GDP and core Crown expenses to GDP around current levels.
  • Because the OBERAC surplus includes the net (after-tax) return on the NZS Fund, which the NZS Fund will retain, the Government is effectively targeting OBERAC surpluses excluding the NZS Fund’s retained investment returns.
  • Ensure tax policy decisions are consistent with the overall fiscal strategy including the Government’s long-term revenue objective.
  • SOEs and Crown entities contributing to surpluses, consistent with their legislation and Government policy.
Operating surplus on average over the economic cycle sufficient to meet the requirements for contributions to the NZS Fund and ensure consistency with the debt objective.
Revenue
Ensure sufficient revenue to meet the operating balance objective.
Expenses
Ensure expenses are consistent with the operating balance objective.
Debt
  • SOEs will have debt structures that reflect best commercial practice. Changes in the level of debt will reflect specific circumstances.
  • Gross sovereign-issued debt to GDP will be broadly stable over the period ahead of the major demographic changes associated with population ageing.
  • Net debt, with NZS Fund assets, is expected to fall towards minus 18% of GDP by 2017 (ie, a net financial asset position).
Manage total debt at prudent levels. Gross sovereign-issued debt broadly stable at around 20% of GDP over the next 10 years.
Net worth
  • Increasing net worth consistent with the operating balance objective will see net worth a little below 58% of GDP by 2017.
  • The NZS Fund is expected to be above 21% of GDP by 2017.
  • Consistent with the net worth objective, there will also be a focus on quality investment.
Increase net worth consistent with the operating balance objective.

The Government’s fiscal intentions are consistent with progress towards meeting its long-term objectives and the principles of responsible fiscal management, as specified by the Public Finance Act (1989). The fiscal forecasts in the HYEFU are consistent with the Government’s short-term intentions. Differences between short-term intentions set out in the 2007 BPS and those in the 2006 FSR reflect changes in the economic and fiscal forecasts, together with policy changes. These changes are discussed in more detail in the HYEFU.

Table A2 – Short-term fiscal intentions
2007 Budget Policy Statement 2006 Fiscal Strategy Report
Operating balance Operating balance
Based on operating amounts for the 2007 Budget, and indicative amounts for the 2008 and 2009 Budgets, the operating surplus on an OBERAC basis and excluding net returns on the NZS Fund, is forecast to be around 3.1% of GDP over the next three years, remaining consistent with the long-term objective for the operating balance.Based on operating amounts for the 2006 Budget and indicative amounts for the 2007 and 2008 Budgets, the operating surplus on an OBERAC basis and excluding net returns on the NZS Fund, is forecast to be around 2% of GDP over the next three years, remaining consistent with the long-term objective for the operating balance.
Debt Debt
Total debt is forecast to be 25.0% of GDP in 2010/11.
Gross sovereign-issued debt is forecast to be 20.7% of GDP in 2010/11.
The Government will set forecast new operating and capital spending amounts over the next three years that are consistent with the long-term objective for debt.
Total debt is forecast to be 21.4% of GDP in 2009/10.
Gross sovereign-issued debt is forecast to be 19.4% of GDP in 2009/10.The Government will set forecast new operating and capital spending amounts over the next three years that are consistent with the long-term objective for debt.
Expenses Expenses
Total Crown expenses are forecast to be 40.7% of GDP in 2010/11.
Core Crown expenses are forecast to average 32.5% over the forecast period and be 32.0% of GDP in 2010/11.
This assumes new operating expense amounts of $1.9 billion for the 2007 Budget, $2.0 billion for the 2008 Budget and $2.0 billion for 2009 Budget (GST exclusive).
Total Crown expenses are forecast to be 41.3% of GDP in 2009/10.
Core Crown expenses are forecast to average 32.5% over the forecast period and be 32.3% of GDP in 2009/10.
This assumes new operating expense amounts of $2.5 billion for the 2006 Budget and $1.9 billion for the 2007 and 2008 Budgets (GST exclusive).
Revenues Revenues
Total Crown revenues are forecast to be 43.7% of GDP in 2010/11. Within this, core Crown revenues are forecast to be 34.3% of GDP in 2010/11.
This assumes new revenue initiatives in 2008 Budget resulting in a $1.0 billion reduction in revenue from 2008/09.
The Government will set revenue plans over the next three years that ensure progress is made towards the long-term revenue objective.
Total Crown revenues are forecast to be 44.1% of GDP in 2009/10. Within this, core Crown revenues are forecast to be 34.2% of GDP in 2009/10.
The Government will set revenue plans over the next three years that ensure progress is made towards the long-term revenue objective.
Net worth Net worth
Net worth is forecast to be 47.8% of GDP in 2006/07, 49.1% in 2007/08, 49.5% in 2008/09, 50.2% in 2009/10 and 50.9% of GDP in 2010/11. Excluding NZS Fund assets it is forecast to be 37.5% of GDP in 2010/11.Net worth is forecast to be 37.4% of GDP in 2005/06, 40.2% in 2006/07, 40.6% in 2007/08, 40.5% in 2007/08, and 41.4% of GDP in 2009/10, excluding NZS Fund assets it is forecast to be 29.0% of GDP in 2009/10.
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