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Annex 1: Short-term Fiscal Intentions and Long-term Fiscal Objectives

The Government's short-term fiscal intentions have been updated since the previous Fiscal Strategy Report to reflect the continued focus on net debt reduction to build resilience. The Government's short-term intentions are consistent with the long-term objectives.

Table A1.1 - Short-term fiscal intentions

Fiscal Strategy Report 2017 (May 2017)

Budget Policy Statement 2017 (Dec 2016)

Debt

Our intention is to reduce net debt to around 20 per cent of GDP in 2020 and to between 10 per cent and 15 per cent of GDP by 2025.

Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 26.3 per cent of GDP in 2020/21.

Net core Crown debt (excluding NZS Fund and advances) is forecast to be 20.6 per cent of GDP in 2019/20 and 19.3 per cent in 2020/21. It is projected to be 13.3 per cent in 2024/25 and 11.8 per cent in 2025/26.

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 28.8 per cent of GDP in 2019/20.

Net core Crown debt (excluding NZS Fund and advances) is forecast to be 22.2 per cent of GDP in 2018/19, 20.3 per cent of GDP in 2019/20 and 18.8 per cent 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 0.6 per cent of GDP in 2016/17, rising to 1.0 per cent of GDP in 2017/18 and 2.2 per cent of GDP in 2020/21.  This is consistent with the long-term objective for the operating balance.

The operating balance is forecast to be 3.3 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 2016/17, rising to 1.2 per cent of GDP in 2017/18 and 2.7 per cent of GDP in 2020/21.  This is consistent with the long-term objective for the operating balance.

The operating balance is forecast to be 3.8 per cent of GDP in 2020/21.

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 28.8 per cent of GDP in 2016/17 to 27.5 per cent of GDP in 2020/21.

Total Crown expenses are forecast to be 35.2 per cent of GDP in 2020/21. 

This assumes new operating allowances of $1.7 billion per year in Budget 2018, growing at 2 per cent per Budget until Budget 2020.

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 29.6 per cent of GDP in 2016/17 to 27.7 per cent of GDP in 2020/21.

Total Crown expenses are forecast to be 35.5 per cent of GDP in 2020/21. 

This assumes new operating allowances of $1.5 billion per year in Budgets 2017 to 2020.

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 37.6 per cent of GDP in 2020/21. 

Core Crown revenues are forecast to be 29.8 per cent of GDP in 2020/21.

Core Crown tax revenues are forecast to be 27.7 per cent of GDP in 2020/21.

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 38.4 per cent of GDP in 2020/21. 

Core Crown revenues are forecast to be 30.6 per cent of GDP in 2020/21.

Core Crown tax revenues are forecast to be 28.3 per cent of GDP in 2020/21.

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 40.9 per cent of GDP in 2020/21.

Total Crown net worth is forecast to be 42.7 per cent of GDP in 2020/21.

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 40.7 per cent of GDP in 2020/21.

Total Crown net worth is forecast to be 42.5 per cent of GDP in 2020/21.

The Government's long-term objectives relate to the 10 years beginning in 2017/18. These have been updated since the previous Fiscal Strategy Report to provide for a focus on a tighter range of net debt than the previous 0 per cent to 20 per cent range and to make it clear that the Government intends to further reduce net debt after the 20 per cent of GDP target has been met. The other objectives are unchanged and are consistent with the new net debt objective.

Table A1.2 - Long-term fiscal objectives

Fiscal Strategy Report 2017

Debt

Manage total debt at prudent levels.

Reduce net debt to within a range of 10 per cent to 15 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, the Government will start building up net worth ahead of the full fiscal impact of the demographic change expected in the mid-2020s.

These 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. More detailed information on the principles can be found at www.treasury.govt.nz/publications/guidance/publicfinance/fiscalpolicyframework/

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