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Budget 2006 Home Page Half Year Economic & Fiscal Update 2006

2   Fiscal Outlook

Summary of the Half Year Update

The Government’s fiscal position is strong.

The Financial Statements of the Government for the year ended 30 June 2006 recorded residual cash of $3 billion ($1.2 billion ahead of the Budget Update forecast), gross sovereign-issued debt (GSID) standing at 22.5% of GDP at year end, and, with the addition of the $9.9 billion NZS Fund, the Government was in a net financial asset position of $2.1 billion.

GDP growth, as expected, has been easing, but not by as much as we thought at the time of the Budget Update. Economic growth is now expected to bottom out at a somewhat higher rate, and overall, the economic forecasts described in Chapter 1 paint a less cyclical picture for the economy.

Forecast tax revenue has increased as a result of this updated view of the economy and judgements about the impact of fiscal drag and the build-up of tax losses. These tax forecasts, together with updated expenditure forecasts and the indicative allocations for future Budgets described in the Budget Policy Statement released today, result in higher forecast operating surpluses across the forecast period than at the Budget Update.

These operating surpluses flow through to a stronger fiscal position throughout the forecast period than at Budget Update. The forecasts show ongoing progress in implementing the Government’s fiscal strategy and its objective of strengthening the fiscal position in advance of future pressures arising from population ageing and increased demand for health care.

The fiscal forecasts also imply a somewhat firmer fiscal stance over the period 2005/06 to 2007/08 than predicted at the time of the Budget Update.

More specifically, the forecasts show:

  • Core Crown revenues peaking in 2006/07 at 36.3% of GDP and then settling at 34.3%, with tax to GDP broadly stable throughout the forecast period at around 31%.
  • A similar pattern for core Crown expenses, peaking in 2006/07 at 33.2% of GDP and then falling to around 32%.
  • An operating balance and OBERAC of around $6.0 billion across the forecast period. This is expected to be sufficient to meet the Government’s annual contribution to the NZS Fund and some, but not all, capital spending.
  • Cash deficits increasing to $1.8 billion in 2008/09 and then falling to $0.3 billion in 2010/11. This represents an increase in the cash position over the forecast period in comparison to the Budget Update of about $3.6 billion.
  • GSID falling from 23.3% of GDP in 2006/07 to 20.7% of GDP by the end of the forecast horizon. In the early years of the forecast the debt track is higher but in later years is broadly consistent with the Budget Update and consistent with the Government’s long-term debt objective to have gross debt broadly stable at around 20% of GDP over the next 10 years.
  • The NZS Fund increasing to $26.7 billion (13.5% of GDP) by 2010/11, with net core Crown debt including NZS Fund assets forecast to be in a positive financial position of $19.2 billion (9.7% of GDP).
Table 2.1 – Summary fiscal indicators[1]
 Year ended 30 June
($ million) 2006 Actual 2007 Forecast 2008 Forecast 2009 Forecast 2010 Forecast 2011 Forecast
Core Crown revenue[2]59,170 59,020 59,917 61,577 64,746 67,895
% of GDP 37.6 36.3 35.1 34.2 34.3 34.3
Core Crown expenses49,900 53,963 55,577 58,159 60,554 63,479
% of GDP 31.7 33.2 32.6 32.3 32.1 32.0
Operating balance11,473 6,260 6,071 5,197 5,826 5,979
% of GDP 7.3 3.8 3.6 2.9 3.1 3.0
OBERAC8,648 6,656 6,071 5,197 5,826 5,979
% of GDP 5.5 4.1 3.6 2.9 3.1 3.0
OBERAC excluding NZS Fund returns8,068 5,981 5,231 4,170 4,588 4,511
% of GDP 5.1 3.7 3.1 2.3 2.4 2.3
Residual cash2,985 107 (691)(1,821)(978)(294)
% of GDP 1.9 0.1 (0.4) (1.0) (0.5) (0.1)
Gross sovereign-issued debt35,461 37,867 40,153 39,192 38,615 41,082
% of GDP22.5 23.3 23.5 21.8 20.5 20.7
Net core Crown debt7,745 6,382 5,923 7,187 7,697 7,525
% of GDP 4.9 3.9 3.5 4.0 4.1 3.8
Net core Crown debt (incl NZS Fund)(2,116)(6,271)(9,703)(11,792)(14,979)(19,195)
% of GDP(1.3) (3.9) (5.7) (6.6) (7.9) (9.7)

Source: The Treasury

Notes

  • [1]Detailed tables of the key indicators for the Half Year Economic and Fiscal Update (HYEFU) and Budget and Economic and Fiscal Update (BEFU) are located on pages 54 and 55. The fiscal fact sheet on pages 59 to 62 provides a guide to the key fiscal indicators used to measure the Government’s performance.
  • [2]The 2005/06 core Crown revenue includes the one-off non-cash adjustment of $1.8 billion (1.2% of GDP), reflecting the change in accounting treatment for the recognition of provisional tax.
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