Long-term fiscal objectives
The fiscal projections in Figures 9 to 13 assume a continuation of current government policy settings, including operating and capital spending, until the end of the projection period.[5]
- Figure 9 - Core Crown net debt
- Source: The Treasury
The Government is committed to its long-term debt objective to ensure net debt remains consistently below 35 per cent of GDP. To further underline its commitment to returning net debt to prudent levels, the Government has amended the long-term objective to ensure that net debt is brought back to a level no higher than 20 per cent of GDP by 2020 (from the previous "...the early 2020s"). This will ensure that future governments and generations have better choices over fiscal policy.
Core Crown net debt is forecast to peak at 28.7 per cent of GDP in 2013/14, slightly lower and earlier than in the 2011 Pre-election Economic and Fiscal Update (Figure 9). Net debt is currently projected to be 21 per cent of GDP in 2020 - slightly higher than the Government's long-term objective.
However, net debt remains on a downward trajectory throughout the projection period and reaches two per cent of GDP by 2025/26.
Net worth is expected to start building up from 2013/14 (Figure 10).
- Figure 10 - Total Crown net worth
- Source: The Treasury
Contributions to the New Zealand Superannuation Fund are projected to resume in 2017/18, the same as forecast in the 2011 Pre-election Economic and Fiscal Update. This will assist in meeting some, but not all, of the future fiscal pressures from population ageing.
Figure 11 shows the projected paths for core Crown revenue and expenses. Revenue is projected to increase as a proportion of GDP until 2020/21, at which point tax ratios are assumed to remain broadly stable.
- Figure 11 - Core Crown revenue and expenses
- Source: The Treasury
Ongoing expenditure restraint is essential for New Zealand's long-term fiscal sustainability and to put the country back on a sustainable growth path, with economic growth led by the private sector. The long-term objective for operating expenses is consistent with the objectives of running sufficient surpluses to return debt to prudent levels.[6] The Government will restrain the growth in government spending so that, over time, core Crown expenses are reduced to below 30 per cent of GDP. This objective has been changed since the BPS to ensure consistency with the Government's spending limit (Figure 12).
- Figure 12 - Core Crown expenses (excl. Unemployment Benefits, debt-financing costs, asset impairments, and natural disasters)
- Source: The Treasury
Total Crown OBEGAL is projected to continue increasing as a share of GDP throughout the projection period, reaching more than four per cent of GDP in the mid-2020s (Figure 13).
- Figure 13 - Total Crown operating balance (before gains and losses)
- Source: The Treasury
Notes
- [5]See Annex 3 for more details.
- [6]The long-term fiscal objectives in Annex 2 explain how operating expenses have to correspond to an operating surplus sufficient to meet the Government's net capital requirements, including contributions to the NZS Fund, and ensure consistency with the debt objective.
