Annex 2
Long-term Objectives and Short-term Intentions
The Public Finance Act 1989 requires that the FSR state the Government's long-term fiscal objectives, for 10 years or more, for operating expenses, operating revenues, the balance between operating expenses and revenues, the level of debt and the level of net worth. The Government is also required to indicate short-term fiscal intentions for those variables for at least three financial years.
The Government's long-term objectives are not materially different from those outlined in the 2011 Budget Policy Statement (BPS). There has been a change to the wording of the net debt objective, with the upper ceiling being reduced from 40% of GDP to 35% of GDP to underline the Government's commitment to keeping net debt under control. The long-term objective for operating expenses has been quantified to reflect the degree of spending control involved in securing and maintaining an operating surplus.
| Fiscal Strategy Report 2011 |
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Debt Manage total debt at prudent levels. Over the short to medium term it is prudent to allow an increase in debt to deal with the current economic and fiscal shock. However, we need to ensure that this increase is eventually reversed and that we return to a level of debt that can act as a buffer against future shocks. We will do this by ensuring that net debt remains consistently below 35% of GDP, and is then brought back to a level no higher than 20% of GDP by the early 2020s. We will work towards achieving this earlier as conditions permit. |
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Operating balance Return to an operating surplus sufficient to meet the Government's net capital requirements, including contributions to the New Zealand Superannuation Fund, and ensure consistency with the debt objective. |
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Operating expenses To meet the operating balance objective, the Government will control the growth in government spending so that over time, core Crown expenses are reduced to around 30% of GDP. |
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Operating revenues Ensure sufficient operating revenue to meet the operating balance objective. |
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Net worth Ensure net worth remains at a level sufficient to act as a buffer to economic shocks. Over the medium term, net worth will continue to fall as the impact of the global financial crisis unfolds. Consistent with the debt and operating balance objectives, we will start building up net worth ahead of the demographic change expected in the mid-2020s. |
The Government has revised its short-term fiscal intentions from those in the 2011 BPS, as set out in Table A2.2 below. Our short-term intention for operating expenses outlines the degree of spending control involved in securing an earlier return to surplus, in 2014/15. The revised short-term fiscal intentions are consistent with the 2011 Budget Forecasts. The revised short-term fiscal intentions are also consistent with the revised long-term fiscal objectives and the principles of responsible fiscal management and reflect the Government’s view of prudent debt over time.
| Fiscal Strategy Report 2011 | Budget Policy Statement 2011 |
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Debt Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 37.2% of GDP in 2014/15. Core Crown net debt (excluding NZS Fund and advances) is forecast to be 29.6% in 2014/15. |
Debt Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 36.9% of GDP in 2014/15. Core Crown net debt (excluding NZS Fund and advances) is forecast to be 28.5% in 2014/15. |
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Operating balance Our intention is to return the operating balance (before gains and losses) to surplus as soon as practical and no later than 2015/16, subject to any significant shocks. Based on the operating allowance for the 2011 Budget, the operating deficit is forecast to be 3.5% of GDP in 2011/12. The operating balance is forecast to be 1.9% of GDP in 2014/15. This is consistent with the long-term objective for the operating balance. The operating deficit (before gains and losses) is expected to be 4.7% in 2011/12. |
Operating balance Based on the operating allowance for the 2011 Budget, the operating deficit is forecast to be 1.9% of GDP in 2011/12. The operating balance is forecast to be 1.1% of GDP in 2014/15. This is consistent with the long-term objective for the operating balance. Our intention is to return the operating balance (before gains and losses) to surplus as soon as practical and no later than 2015/16, subject to any significant shocks. |
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Expenses Our intention is to support a return to fiscal surplus by restraining the growth in core Crown expenses - so that they are reduced to around 31% of GDP by 2014/15. Core Crown expenses are forecast to be 31.3% of GDP in 2014/15. Total Crown expenses are forecast to be 40.5% of GDP in 2014/15. This assumes a new operating allowance of $800 million per annum for Budgets 2012 and 2013, then returning to $1.19 billion, growing at 2% for Budgets thereafter (GST exclusive). |
Expenses Total Crown expenses are forecast to be 40.8% of GDP in 2014/15. Core Crown expenses are forecast to be 31.7% of GDP in 2014/15. This assumes a new operating allowance of $1.12 billion per annum, continuing to grow at 2% for Budgets thereafter (GST exclusive). |
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Revenues Total Crown revenues are forecast to be 41% of GDP in 2014/15. Core Crown revenues are forecast to be 31% of GDP in 2014/15. Core Crown tax revenues are forecast to be 27.8% of GDP in 2014/15. |
Revenues Total Crown revenues are forecast to be 40.8% of GDP in 2014/15. Core Crown revenues are forecast to be 30.9% of GDP in 2014/15. Core Crown tax revenues are forecast to be 27.7% of GDP in 2014/15. |
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Net worth Total Crown net worth is forecast to be 34.1% of GDP in 2014/15. Core Crown net worth is forecast to be 7.9% of GDP in 2014/15. |
Net worth Total Crown net worth is forecast to be 33.6% of GDP in 2014/15. Core Crown net worth is forecast to be 8.6% of GDP in 2014/15. |
