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Budget Policy Statement 2017

Fiscal Strategy

The Kaikōura earthquakes last month highlighted the importance of delivering on the Government's fiscal strategy, which remains unchanged.

Keeping on top of spending and paying down debt in the good times ensures we are in a good position to cope with economic shocks and natural disasters, and allows the Government to support New Zealand communities through challenging times.

While the recent earthquakes are significant both in terms of their impact on communities in and around Kaikōura and their fiscal cost, the strength of the Government's books means we are able to respond as needed.

The Half Year Update forecasts show the Government is delivering on its overall fiscal strategy: keeping a tight rein on spending, focusing on getting better results from public services, and starting to pay down debt.

The Government's long-term fiscal objectives are to reduce net government debt to between 0 and 20 per cent of GDP, keep core Crown expenses below 30 per cent of GDP and ensure operating balances are sufficient to meet net capital requirements, including NZ Superannuation Fund contributions.

Consistent with the long-term objectives, the Government's shorter-term fiscal priorities are:

  • maintaining rising OBEGAL surpluses over the forecast period so that cash surpluses are generated and net debt begins to reduce in dollar terms
  • reducing net debt to around 20 per cent of GDP in 2020
  • if economic and fiscal conditions allow, beginning to reduce income taxes, and
  • using any further fiscal headroom - including from positive revenue surprises - to reduce net debt faster.

The improving fiscal situation gives the Government choices around progressing these objectives while also investing in priority public services and infrastructure.

When it is affordable, and when economic conditions permit, the Government would like to lower income taxes, with a focus on helping lower and middle income earners obtain a greater return from their own hard work. However, responding to the earthquakes and reducing debt are currently of higher priority.

The Half Year Update does not make an explicit provision for tax reductions, but the Government will continue to consider options for lowering tax rates or thresholds - either in Budget 2017 or after - as the fiscal situation continues to improve.

Contributions to the NZ Superannuation Fund are forecast to start in 2020/21, in line with the current policy to resume contributions once net debt falls below 20 per cent of GDP.

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