Fiscal Outlook
The fiscal position has weakened significantly in recent years. Crown revenue has fallen owing to a combination of income tax cuts, the recession and a long-lasting impact on the economy from the global financial crisis. Previous spending decisions, which had been in place before the crisis, lifted Crown expenses. The recession added to this increase as a weaker labour market caused the number of Unemployment Benefit recipients to rise. As expenses rose and revenue fell, the Crown operating balance was in deficit in the June 2009 year for the first time in 15 years.
Operating deficits are expected to fall over the next four years owing largely to a recovery in tax revenue. Crown expenses are forecast to rise, boosted by higher benefit payments when GST rises, but trend down as a share of the economy as unemployment falls and the annual operating allowance remains at $1.1 billion (growing at 2% per annum after 2010/11). However, the operating balance is still expected to be in structural (ie, non-cyclical) deficit over the forecast period.
Ongoing operating deficits are expected to see a fall in net worth over the forecast period, as well as a rise in net debt to over 26% of Gross Domestic Product (GDP). Although debt levels would remain lower than most developed nations, New Zealand faces relatively high borrowing costs so the financing costs of any given level of debt are higher. As outlined in the Fiscal Strategy Report, the Government's long-term fiscal objective is for net debt to be brought back to a level no higher than 20% of GDP by the early 2020s.
|
2009 Actual |
2010 Forecast |
2011 Forecast |
2012 Forecast |
2013 Forecast |
2014 Forecast |
|
|---|---|---|---|---|---|---|
| Economic (March years, %) | ||||||
| Economic growth1 | -1.4 | -0.3 | 3.2 | 3.1 | 2.9 | 3.0 |
| Consumer price inflation2 | 3.0 | 2.2 | 5.9 | 2.4 | 2.4 | 2.4 |
| Unemployment rate3 | 5.0 | 7.1 | 6.2 | 5.5 | 5.1 | 4.6 |
| Fiscal (June years, % of GDP) | ||||||
| Operating balance4 | -2.1 | -3.7 | -4.2 | -2.5 | -1.9 | -1.3 |
| Net debt5 | 9.3 | 14.1 | 19.6 | 23.0 | 25.3 | 26.5 |
| Net worth6 | 54.0 | 50.9 | 43.9 | 39.8 | 37.0 | 34.8 |
Notes:
- Real production GDP, annual average percentage change
- Consumers Price Index, annual percentage change
- Percent of labour force, March quarter, seasonally adjusted.
- Total Crown operating balance before gains and losses
- Net core Crown debt excluding the New Zealand Superannuation Fund and advances
- Total Crown net worth
Sources: Statistics New Zealand, the Treasury
