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Budget 2015 Home Page Fiscal Strategy Report - Budget 2015

Fiscal Performance

The Government manages its revenue, expenditure, assets and liabilities to deliver a wide range of economic and social outcomes.

Since being elected in 2008, this Government has had to manage through difficult times. The New Zealand economy went into recession in early 2008 and was then hit by the global financial crisis. Large spending increases in the mid-2000s proved to be unaffordable when revenue fell. Projections showed that if the Government maintained the spending and revenue tracks it inherited, it would face never-ending deficits and net debt would exceed 60 per cent of GDP by the early 2020s. Subsequently, Canterbury was hit by devastating earthquakes and the global recovery was much slower than expected.

The Government's fiscal strategy throughout this time was to support the economy in the short term by running operating deficits, but to reduce these deficits by slowing growth in government spending as the economy recovered. The Government also looked to get better results and improve public services from its existing spending.

This approach helped to cushion New Zealanders and their families from the worst effects of the recession and did so within a clear framework that would return the operating balance to surplus and reduce debt back to more prudent levels over time.

In 2010/11, the operating deficit reached a peak of $18.4 billion, or 9 per cent of GDP. Net debt increased by the equivalent of 20 per cent of GDP between 2007/08 and 2013/14.

The fiscal outlook, however, has improved markedly. Forecasts now show growing surpluses and reducing debt. Tax revenue has increased as the economy has recovered.

The Government has taken steps to limit the build-up of debt, for example, by suspending contributions to the New Zealand Superannuation (NZS) Fund, and by recycling capital freed up through the Government share offers.

But the biggest contribution to the fiscal turnaround has been considered expenditure restraint, including reprioritising spending, reducing Budget operating allowances, and a focus on delivering better public services and improving results for the most vulnerable.

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