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Budget 2017 Home Page Fiscal Strategy Report - Budget 2017

Budget Allowances

Operating and capital allowances have been updated since the Budget Policy Statement (Table 2). This is in part to recognise that, as well as increasing tax revenues, higher-than-expected population growth is increasing demand for health, education and other expenditures, and also to allow for further investment in infrastructure and improving public services.

Budget 2017 has an operating allowance of $1.8 billion per year. For Budget 2018 it has been set at $1.7 billion per year, growing at 2 per cent each Budget until Budget 2020.

Capital allowances for Budgets 2017 to 2020 have been increased to $11 billion in total in order to provide for greater infrastructure investment over the next four years. This includes $4 billion for Budget 2017, which has been increased by $1 billion largely in response to the Kaikōura earthquake.

Table 2 - Budget operating and capital allowances
$billions Budget
2017
Budget
2018
Budget
2019
Budget
2020
Operating allowances at Budget Policy Statement 2017 1.50 1.50 1.50 1.50
Operating allowances at Budget 2017 1.80 1.70 1.73 1.77
Capital allowances at Budget Policy Statement 2017 3.00 2.00 2.00 2.00
Capital allowances at Budget 2017 3.98 2.00 2.50 2.50

Source: The Treasury

Budget 2017 also includes the Family Incomes Package - which is aimed at sharing the gains of the growing economy. The package boosts the after-tax incomes of low and middle income households and provides greater rewards for hard work by increasing the bottom two income tax thresholds and implementing targeted increases to Working for Families and the Accommodation Supplement.

Operating allowances remain well below those adopted in the mid-2000s (Figure 5).

Figure 5 - New operating allowances in each Budget (final year impact)
Figure 5 - New operating allowances in each Budget (final year impact).
Source: The Treasury

Budget 2017 remains consistent with the Government's fiscal strategy. Economic and fiscal forecasts, accompanied by medium-term projections to 2030/31, show the Government is on track to meet its short-term fiscal intentions and long-term fiscal objectives.

The Treasury estimates that the Government's fiscal settings have a moderately expansionary impact on the economy in the short term and a moderately contractionary impact towards the end of the forecast period (Figure 6). This is expected to add slightly to interest rate pressures in the short term, although the impact unwinds over the forecast period. This is in the context of a significant period of historically low interest rates and weak inflation pressures, high population growth and the need to respond to the Kaikōura earthquake.

Figure 6 - Fiscal Impulse[2]
Figure 6 - Fiscal Impulse.
Source: The Treasury

Notes

  • [2] Fiscal impulse for core Crown and Crown Entities adjusted for EQC and Southern Response payments and receipts.
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