Main indicators
This section discusses the Treasury's central estimates of the cyclically-adjusted balance and fiscal impulse. Detailed tables of data can be found at the end of the Additional Fiscal Indicators section.
Cyclically-adjusted balance
The operating balance (before gains and losses) and the cyclically-adjusted balance are shown in Figure 1. The headline deficit is forecast to be 8.4% of GDP in 2010/11. The cyclically-adjusted balance, adjusting for the one-off earthquake expenses, is estimated to be a deficit of 4.8% of GDP. The difference comprises the impact of the automatic stabilisers which are relatively small (0.7% of GDP) and the earthquake-expense adjustment of 2.9% of GDP. As consolidation measures take hold, the cyclically-adjusted deficit is projected to unwind over the forecast horizon. A surplus is projected on both a cyclically-adjusted and headline basis for 2014/15.
- Figure 1 - Cyclically-adjusted balance
- Source: The Treasury
Fiscal impulse
The fiscal impulse indicator is shown in Figure 2. As has been noted in previous Economic and Fiscal Updates, capital expenditure on defence, KiwiSaver subsidies and Deposit Guarantee Scheme payments are excluded from the measure of fiscal impulse since these are expected to have a limited direct impact on aggregate demand.
The fiscal impulse indicator suggests that core Crown discretionary fiscal policy will add net stimulus of 1.3% of GDP in 2010/11, before becoming neutral in 2011/12 and tightening by around 2% of GDP in 2012/13 and 2013/14. The core Crown plus Crown entity indicator shows similar results, although with greater stimulus in 2010/11 (1.9% of GDP). The Crown entity sector includes the Earthquake Commission (EQC) which is liable for insurance payouts for damage caused by the Canterbury earthquakes. This accounts for much of the impulse of the Crown entity sector, as indicated by the measure excluding EQC payments.
The estimated profile of fiscal impulses is much changed from the 2010 Half Year Update due to the expenditure on recovery and reconstruction following the February earthquake. Specifically, 2011/12 is now expected to be broadly neutral, rather than contractionary, with the start of tightening delayed by one year. While this reflects the aggregate stance of fiscal policy, the policy impact will be unevenly distributed geographically and over time because of the key role of the Canterbury reconstruction.
- Figure 2 - Fiscal impulse estimates
- Source: The Treasury
