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Budget Policy Statement 2016

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

The Government's long term objectives relate to the next 10 years. The Government's long-term objective for debt has been amended since the Fiscal Strategy Report 2015 (FSR) to provide additional scope for debt to fluctuate in response to changing economic circumstances. The rest of the long-term objectives are unchanged from the FSR 2015.

Table A1 - Long-term fiscal objectives

Budget Policy Statement 2016

Debt

Manage total debt at prudent levels.

Reduce net debt to within a range of 0 per cent to 20 per cent of GDP.

Operating balance

Return 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.

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 below 30 per cent of GDP.

Operating revenues

Ensure sufficient operating revenue to meet the operating balance objective.

Net worth

Ensure net worth remains at a level sufficient to act as a buffer to economic shocks. Consistent with the debt and operating balance objectives, we will start building up net worth ahead of the full fiscal impact of the demographic change expected in the mid-2020s.

The Government's short-term fiscal intentions include changes since the FSR 2015 reflecting revisions to the fiscal forecasts including an increase in the capital allowance for Budget 2016 (see Table A2). The short-term intentions have also been made more explicit about the government's priorities over the next five years.

The short-term intentions and long-term objectives are consistent with each other and with the principles of responsible fiscal management as set out in the Public Finance Act 1989. That is, they aim to:

  • reduce total debt to prudent levels and achieve and maintain levels of total net worth so as to provide a buffer against adverse economic shocks
  • ensure that on average total operating expenses do not exceed total operating revenues
  • take into account the impact on monetary policy
  • prudently manage the fiscal risks facing government
  • have regard for present and future generations, and
  • ensure the Crown's resources are managed effectively and efficiently.
Table A2 - Short-term fiscal intentions
Budget Policy Statement 2016 Fiscal Strategy Report 2015

Debt

Our intention is to reduce net debt to around 20 per cent of GDP in 2020.

Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 33.5 per cent of GDP in 2019/20.

Net core Crown debt (excluding NZS Fund and advances) is forecast to be 25.6 per cent of GDP in 2018/19, 24.0 per cent of GDP in 2019/20 and 21.9 per cent in 2020/21.

Debt

Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 31.4 per cent of GDP in 2018/19.

Net core Crown debt (excluding NZS Fund and advances) is forecast to be 22.9 per cent in 2018/19, 20.9 per cent of GDP in 2019/20 and 19.7 per cent of GDP in 2020/21.

Operating balance

Our intention is to maintain rising operating surpluses (before gains and losses) so that net core Crown debt begins to reduce in dollar terms (subject to any significant shocks to the economy).

The operating balance (before gains and losses) is forecast to be -0.2 per cent of GDP in 2015/16, rising to 0.1 per cent of GDP in 2016/17 and 1.7 per cent of GDP in 2019/20.  This is consistent with the long-term objective for the operating balance.

The operating balance is forecast to be 2.6 per cent of GDP in 2019/20.

Operating balance

Our intention is to return the operating balance (before gains and losses) to surplus as soon as practical and no later than 2014/15, subject to any significant shocks.

The operating balance (before gains and losses) is forecast to be -0.3 per cent of GDP in 2014/15. The operating balance (before gains and losses) is then forecast to be 0.1 per cent of GDP in 2015/16 and 1.3 per cent of GDP in 2018/19. This is consistent with the long-term objective for the operating balance.

The operating balance is forecast to be 2.3 per cent of GDP in 2018/19.

Expenses

Our intention is to support fiscal surpluses by restraining the growth in core Crown expenses and reducing these to below 30 per cent of GDP.

Core Crown expenses are forecast to fall from 30.6 per cent of GDP in 2015/16 to 29.1 per cent of GDP in 2019/20.

Total Crown expenses are forecast to be 37.3 per cent of GDP in 2019/20. 

This assumes a new operating allowance of $1 billion in Budget 2016, $2.5 billion in Budget 2017 and $1.5 billion from Budget 2018.

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 30 per cent of GDP by 2015/16.

Core Crown expenses are forecast to be 29.2 per cent of GDP in 2018/19.

Total Crown expenses are forecast to be 37.7 per cent of GDP in 2018/19.

This assumes a new operating allowance of $1 billion in Budget 2016, $2.5 billion in Budget 2017 and $1.5 billion from Budget 2018.

Revenues

Our intention is to support fiscal surpluses by growing revenue in dollar terms, although maintaining it at broadly the same proportion of GDP.

Total Crown revenues are forecast to be 39.2 per cent of GDP in 2019/20. 

Core Crown revenues are forecast to be 30.7 per cent of GDP in 2019/20.

Core Crown tax revenues are forecast to be 28.4 per cent of GDP in 2019/20.

Revenues

Total Crown revenues are forecast to be 39.2 per cent of GDP in 2018/19. 

Core Crown revenues are forecast to be 30.6 per cent of GDP in 2018/19.

Core Crown tax revenues are forecast to be 28.2 per cent of GDP in 2018/19.

Net worth

Our intention is to strengthen the Crown's balance sheet as a buffer against future adverse shocks.

Total net worth attributable to the Crown is forecast to be 36.2 per cent of GDP in 2019/20.

Total Crown net worth is forecast to be 38.2 per cent of GDP in 2019/20.

Net worth

Total Crown net worth is forecast to be 34.6 per cent of GDP in 2018/19.

Total net worth attributable to the Crown is forecast to be 32.8 per cent of GDP in 2018/19.

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