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Budget 2016 Home Page Fiscal Strategy Report - Budget 2016

Fiscal Performance

The New Zealand economy entered recession in early 2008 and was subsequently hit by the global financial crisis. Fiscal projections, prepared in early 2009, showed that if there was no policy response net debt would increase to over 50 per cent of GDP within 10 years.

The incoming Government's response was to support the economy in the short term by running operating deficits. However, it also began to make well-considered spending changes that would bring the operating balance back to surplus and gradually reduce debt to more prudent levels.

Budget operating allowances were reduced, efficiency savings were made across the public sector and specific programmes were altered to control long-term costs. Government agencies focused on working together to achieve results under an assumption of limited new funding. Significant tax changes were introduced in a fiscally-neutral package. Contributions to the New Zealand Superannuation (NZS) Fund were suspended and capital was reallocated from within the Crown's balance sheet.

In 2010/11, following the Canterbury earthquakes, the operating deficit reached a peak of $18.4 billion, or 9 per cent of GDP. By 2014/15, however, OBEGAL was showing a small surplus, in line with the Government's stated goal. Net debt increased by the equivalent of 20 per cent of GDP between 2007/08 and 2012/13 but has now plateaued and is expected to start falling relative to GDP after 2016/17 as surpluses grow more strongly.

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