The Treasury

Global Navigation

Personal tools


Budget 2017 Home Page Budget Economic and Fiscal Update 2017

Fiscal Sensitivities

Table 3.2 sets out some rules of thumb on the sensitivities of the fiscal position to small changes in specific variables. For example, if nominal GDP growth is one percentage point higher than forecast in each year up to June 2021, tax revenue would be around $4.6 billion higher than forecast in the June 2021 year as a result. The sensitivities are broadly symmetric and if nominal GDP growth is one percentage point lower than expected each year, tax revenue would be around $4.5 billion lower than forecast in the June 2021 year. The figures are indicative and can be influenced by the composition of growth as different types of activity have different effective tax rates.

A different interest rate path from the forecast would also impact the fiscal position owing to the effect on the portfolios of various government reporting entities, such as the NZS Fund, ACC and the Treasury's Debt Management Office (NZDMO). A one percentage point lower interest rate would result in interest income on funds managed by the NZDMO being $112 million lower in the June 2021 year. This would be more than offset by interest expenses $350 million lower in the June 2021 year. As above, the sensitivities are broadly symmetric.

Table 3.2 - Fiscal sensitivity analysis
Years ended 30 June

Impact on tax revenue of a 1 percentage point increase in growth of

Nominal GDP 745 1,570 2,475 3,515 4,635
Wages and salaries 320 670 1,020 1,440 1,890
Taxable business profits 150 350 580 840 1,120

Impact of 1% lower interest rates on

Interest income1 -71 -118 -102 -102 -112
Interest expenses1 13 -58 -188 -273 -351
Net impact on operating balance -84 -60 86 171 238


  1. Funds managed by the Treasury's NZDMO only.

Source: The Treasury

The interest rate impacts in the table above represent the impact of lower interest rates on the financial assets and debt managed by NZDMO. While the majority of the Government's debt is managed by NZDMO, other government reporting entities hold financial assets and liabilities that are also sensitive to changes in interest rates. For example, at 30 June 2016, a 1.0% increase in NZ interest rates would have reduced the total Crown operating balance by $896 million while a 1.0% decrease would have increased the total Crown operating balance by $926 million.

The forecast financial position is based on a number of judgements and assumptions about the future. To inform these judgements and assumptions we rely on market information. Some additional assumptions include those around foreign exchange rates, share prices, the carbon price and property prices. Where the actual outcome differs from our assumptions, the Crown's actual financial position is likely to differ from the forecasts. For example, foreign currency-denominated financial assets and liabilities are converted into New Zealand dollars at the reporting date, the Government's listed share investments are reported on market prices and property owned by the Crown is valued using market information. Changes in these variables can also have flow-on effects on the Crown's operating balance. For example, a strengthening of share prices may result in higher returns from the Government's direct share investments.

Page top