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Budget 2015 Home Page Budget Economic and Fiscal Update 2015

Additional Fiscal Indicators

There are different approaches to assessing the relationship between the economy and fiscal performance, and the relationship between fiscal policy and the economy. One approach to assessing these relationships uses summary fiscal indicators. A discussion of the Treasury’s perspective on these indicators, their use and limitations, and the relationship between them, can be found in the 2010 Budget Update Additional Information.[1]

The Treasury calculates two summary fiscal indicators: the cyclically-adjusted balance (CAB) and the fiscal impulse indicator.

  • The cyclically-adjusted balance adjusts the operating balance before gains and losses (OBEGAL) for the cyclical position of the economy. The CAB is subject to uncertainty because it uses estimated variables and is sensitive to new information, particularly regarding the output gap.
  • The fiscal impulse indicator uses the change in a cash-based version of the fiscal balance (a cyclically-adjusted primary balance supplemented by capital expenditure).

Further information on the methodology behind the indicators can be found in Treasury Working Papers 02/30 and 10/08.[2]

Central estimate

This section discusses the Treasury's central estimates of the cyclically-adjusted balance and fiscal impulse. The next section discusses sensitivity analysis. Detailed tables of data can be found at the end of the Additional Fiscal Indicators section.

Significant “one-off” impacts on expenses from the Canterbury earthquake are removed from estimates of the cyclically-adjusted balance. This is to give a better indication of underlying fiscal performance. Similarly for one measure of the fiscal impulse, some earthquake expenditures that are more of a financial nature are removed as the demand effects arising from such flows (eg, EQC payments to households) will show up in other parts of the economy.

Cyclically-adjusted balance

Figure 1 shows the operating balance (before gains and losses) and the cyclically-adjusted balance. They are broadly similar to those estimated in the Half Year Update. The headline OBEGAL is forecast to be a deficit of 0.3% of GDP in the 2014/15 fiscal year (Half Year Update: -0.2% of GDP). An OBEGAL surplus of 0.1% of GDP is forecast for 2015/16 (Half Year Update: 0.2% of GDP). OBEGAL surpluses are forecast to grow each year thereafter. The cyclically-adjusted balance, excluding earthquake expenses, is estimated to be a deficit of 0.2% of GDP in 2014/15 (consistent with the Half Year Update). The cyclically-adjusted balance is expected to be in broad balance at 0.0% of GDP in 2015/16 (consistent with the Half Year Update).The difference between the headline and cyclically-adjusted balance comprises the impact of the automatic stabilisers and the earthquake adjustment.

Over the forecast period, the cyclically-adjusted balance is slightly lower than the headline OBEGAL owing to the forecast assumption that the economy will be operating above its potential level (ie. a positive output gap). Cyclically-adjusted surpluses increase over the forecast period with a surplus of 0.4% of GDP in 2016/17, growing to 1.2% of GDP in 2018/19.

Figure 1 - Cyclically-adjusted balance
Figure 1 - Cyclically-adjusted balance   .
Source: The Treasury

Notes

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