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Budget 2005 Home Page Half-Year Economic & Fiscal Update 2005

2   Fiscal Outlook

Fiscal Forecasts – Finalisation Dates and Key Assumptions

Finalisation Dates
Economic and tax outlook (refer Chapter 1) 18 November
Tax revenue forecasts 23 November
Fiscal forecasts 7 December
Government decisions and circumstances 7 December
Actual asset revaluations 31 October
Foreign exchange rates 30 September
Specific fiscal risks (refer Chapter 4) 7 December
Contingent liabilities and commitments (refer Chapter 4) 31 October

Key assumptions

The fiscal forecasts have been prepared in accordance with the Public Finance Act 1989. They are based on the Crown’s accounting policies and assumptions (refer page 90 of the GAAP tables). As with all assumptions, there is a degree of uncertainty surrounding them. This uncertainty increases as the forecast horizon extends. A summary of the key economic assumptions that are particularly relevant to the fiscal forecasts is provided below (on a June-year-end basis to align with the Crown’s balance date of 30 June):

  2005/06 2006/07 2007/08 2008/09 2009/10
Real GDP (P) (ann avg % chg) 2.2 2.9 1.7 2.5 3.7 3.1
Nominal GDP (E) ($m)[1] 156,481 158,947 163,062 169,897 178,805 187,853
CPI (annual % change) 2.9 3.4 3.1 2.4 2.2 2.0
Govt 10-year bonds (qty avg %) 6.1 6.0 6.2 6.1 6.0 6.0
90-day bill rate (qty avg %) 7.0 7.5 6.8 6.3 6.0 5.8
Unemployment rate ((HLFS) basis ann avg %) 3.9 3.4 3.8 4.1 4.3 4.5
Full-time equivalent employment (ann avg %) 0.8 2.8 0.4 0.6 1.2 1.3
Current account (% of GDP) -7.6 -9.1 -8.3 -7.2 -6.6 -5.9

Source: The Treasury

New Zealand Superannuation (NZS) Fund

The contribution to the NZS Fund for the year ending 30 June 2007 is $2.351 billion. The contribution to the NZS Fund is calculated over a 40-year rolling horizon to ensure that superannuation entitlements over the next 40 years can be met if the contribution rate were to be held constant at that level. The Government is making the required minimum annual contribution for 2005/06 as calculated by the formula set out in the NZS Act.

$ billion (June year end) 2004 2005 2006 2007 2008 2009 2010
Required contribution 1.879 2.107 2.337 2.351 2.443 2.677 2.819
Actual/Budgeted contribution 1.879 2.107 2.337 2.351 2.443 2.677 2.819

Source: The Treasury

The underlying assumptions in calculating the contributions for 2007 are the nominal GDP series to 2047, the NZS expense series to 2047 and the expected long-term, net after-tax annual return of the NZS Fund (6.1%) (6.1% Pre-election Update). The forecast rate of return is based on the Treasury’s assumptions for the rate of return on financial portfolios of Crown financial institutions. The Treasury website contains further information on the NZS Fund, as well as a copy of the NZS Fund model.


The forecast fiscal outlook for the Half Year Update reflects:

  • the OBERAC as a percentage of GDP declining from 5.9% in 2004/05 to 3.7% in the current year. It drops to a low of 1.9% in 2008/09 before rebounding to 2.7% in 2009/10
  • net worth increasing by around $24 billion over the forecast period, largely resulting from the accumulation of financial assets (primarily the NZS Fund)
  • the cash equivalent of the OBERAC is not sufficient to fund all of the Government’s investing activity over the forecast period, leaving an expected cash shortfall to be met by reducing financial assets and additional borrowing
  • gross sovereign-issued debt as a percentage of GDP slowly reducing over the forecast period, while in nominal terms gross debt rises near the end of the forecast period.

Compared to the Pre-election Update the OBERAC is lower due to:

  • tax revenue being slightly higher in the early forecast years
  • the increase in the operating allowance for Budget 2006 for the extension to the Working for Families package announced on 18 August which reduces the OBERAC by around $2.2 billion over the forecast period
  • the impact of the fair value changes due to the interest free student loan policy reducing the OBERAC by around $1 billion in the current year (refer page 39)
  • the economic assumptions used in compiling the fiscal forecasts is the Central Forecast outlined in the Economic and Tax Outlook chapter.


  • [1]Historical March year nominal GDP was revised in National Accounts data released on November 17.
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