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

Operating balance

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.

• Operating surpluses during the build-up phase of the NZS Fund.   Our focus is on maintaining the OBEGAL excluding NZS Fund revenue at a level sufficient, on average, to meet the requirements for contributions to the NZS Fund.
• Our focus in meeting this objective is on core Crown revenues and expenses, maintaining tax to GDP and core Crown expenses to GDP around current levels.
• Consistent with our revenue strategy, we will 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.

Revenue

Ensure sufficient revenue to meet the operating balance objective.

Expenses

Ensure expenses are consistent with the operating balance objective.

Debt

Manage total debt at prudent levels.  Gross sovereign-issued debt broadly stable at around 20% of GDP over the next 10 years.

• Gross sovereign-issued debt to GDP will be broadly stable over the period ahead of the major demographic changes associated with population ageing.
• The Government is effectively targeting a level of gross sovereign-issued debt excluding the increase in debt on the Reserve Bank balance sheet as a result of the change in the liquidity management regime.
• Core Crown net debt, with NZS Fund assets, is expected to fall towards -20% of GDP by 2018 (ie, a net financial asset position).
• SOEs will have debt structures that reflect best commercial practice.  Changes in the level of debt will reflect specific circumstances.

Net worth

Increase net worth consistent with the operating balance objective.

• Increasing net worth consistent with the operating balance objective will see core Crown net worth at almost 40% of GDP by 2018.
• The NZS Fund is expected to be above 22% of GDP by 2018.
• Consistent with the net worth objective, there will also be a focus on quality investment.

Operating balance

Based on operating amounts for the 2008 Budget, and indicative amounts for the 2009 and 2010 Budgets, the OBEGAL excluding NZS Fund revenue is forecast to be around 3.6% of GDP in 2007/08, decreasing to 1.7% of GDP by 2011/12.  This remains consistent with the long-term objective for the operating balance.

Operating balance

Based on operating amounts for the 2007 Budget, and indicative amounts for the 2008 and 2009 Budgets, the OBEGAL excluding NZS Fund revenue is forecast to be 3.1% of GDP in 2007/08, decreasing to 1.4% of GDP by 2010/11.  This remains consistent with the long-term objective for the operating balance.

Debt

Total debt (including Reserve Bank settlement cash) is forecast to be 24.7% of GDP in 2011/12.

Gross sovereign-issued debt including net settlement cash is forecast to be 18.6% of GDP in 2011/12.  Excluding net settlement cash, gross sovereign-issued debt is forecast to be 15.6% of GDP in 2011/12.

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. 

Debt

Total debt (including Reserve Bank settlement cash) is forecast to be 25.3% of GDP in 2010/11.

Gross sovereign-issued debt including net settlement cash is forecast to be 21.8% of GDP in 2010/11.  Excluding net settlement cash, gross sovereign-issued debt is forecast to be 18.8% 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.  

Expenses

Total Crown expenses are forecast to be 41.8% of GDP in 2011/12.  

Core Crown expenses are forecast to average 32.5% over the forecast period and be 33.0% of GDP in 2011/12.

This assumes new operating expense amounts of $2.0 billion for the 2008 Budget, $2.0 billion for the 2009 Budget, and $2.1 billion for the 2010 Budget (GST exclusive).

Expenses

Total Crown expenses are forecast to be 42.5% of GDP in 2010/11.  

Core Crown expenses are forecast to average 32.7% over the forecast period and be 33.1% of GDP in 2010/11.

This assumes new operating expense amounts of $1.97 billion for the 2007 Budget, $2.0 billion for the 2008 Budget, and $2.0 billion for the 2009 Budget (GST exclusive).

Revenues

Total Crown revenues are forecast to be 43.6% of GDP in 2011/12.  Within this, core Crown revenues are forecast to be 34.3% of GDP in 2011/12.

This assumes new revenue initiatives in the 2008 Budget resulting in a $1.5 billion reduction in revenue per annum from April 2009, plus the previously announced Business Tax Reform resulting in a $1.13 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.

Revenues

Total Crown revenues are forecast to be 44.3% of GDP in 2010/11.  Within this, core Crown revenues are forecast to be 34.1% of GDP in 2010/11.

This assumes new revenue initiatives in the 2008 Budget resulting in a $1.13 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.

Net worth

Total Crown net worth is forecast to be 58.5% of GDP in 2007/08, rising to 60.6% of GDP in 2011/12. 

Excluding NZS Fund assets, total Crown net worth is forecast to be 46.0% of GDP in 2011/12.  Core Crown net worth is forecast to be 34.9% of GDP in 2011/12.

Net worth

Total Crown net worth is forecast to be 54.4% of GDP in 2006/07, rising to 57.3% of GDP in 2010/11. 

Excluding NZS Fund assets, total Crown net worth is forecast to be 43.8% of GDP in 2010/11.  Core Crown net worth is forecast to be 33% of GDP in 2010/11.