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2 Fiscal Outlook

Introduction

The Pre-election Update fiscal forecasts show a weakening in the fiscal outlook since the Budget Update. There are two key factors influencing this change. Firstly, the economic slowdown discussed in the previous chapter has resulted in slower tax growth and increased costs for social welfare benefits. Secondly, some past policies (such as KiwiSaver subsidies and 20 hours free early childhood education) have proven more expensive as a result of higher take-up rates. The combination of these two factors is forecast to result in a sustained period of deficits in both the operating balance before gains and losses (OBEGAL) and residual cash leading to higher debt and its associated financing costs.

The extended period of growth during the past decade has led to a fiscal position as at 30 June 2008 with gross sovereign-issued debt (excluding Settlement Cash) at 17.4% of GDP, net core Crown debt in a net financial asset position of $19 million and $14.2 billion in net assets held by the New Zealand Superannuation Fund (NZS Fund). Therefore the weakening in the fiscal outlook starts from a strong fiscal position.

This chapter outlines key trends for each of the following five areas:

  • revenue and expenses
  • operating results
  • cash position
  • debt, and
  • the NZS Fund.

The chapter has two sections:

  • Short-term outlook - This covers the fiscal results for the forecast period from 2008/09 to 2012/13.
  • Medium-term and long-term outlook - This covers the fiscal projections out to 2022/23. The medium term projections differ from the forecasts. The forecasts are based on comprehensive modelling, whereas the projections extrapolate the conditions existing in the final year of the forecast period.

Following these two sections is a summary of the key risks associated with the fiscal forecasts. In particular, the Fiscal Outlook chapter should be read in conjunction with the Specific Fiscal Risks chapter (Chapter 4).

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