The Treasury

Global Navigation

Personal tools

3 Risks and Scenarios (continued)

Fiscal Scenarios

The fiscal position is strongly influenced by the economy. The major economic determinants, and how they impact on the fiscal position, are listed below.

  • Nominal GDP - higher GDP levels are reflected in higher tax revenue, which increases the operating balance and lowers the Government's net debt.
  • Interest rates - higher interest rates lead to increased debt-financing costs, although this would be partially offset by higher interest-based revenue on assets.
  • The level of unemployment - higher levels of unemployment translate to an increase in spending because the number of unemployment beneficiaries rises. This decreases the operating balance and raises net debt levels.
  • CPI inflation - as most benefits are indexed to CPI movements, higher inflation results in increased benefit costs. This reduces the operating balance and increases debt.

Of the two alternative scenarios, the differences from the main forecast are much greater in the downside scenario, reflecting the asymmetric risk profile of the main forecast. In the downside scenario, the fiscal position deteriorates markedly over the forecast horizon:

  • The deficit of the OBEGAL (excluding the NZS Fund retained revenue) is greater than the main forecast throughout the period with the largest difference of 0.5 percentage points of GDP occurring in 2009/10. The deficit ranges from 0.2% of GDP in 2008/09 to 1.8% of GDP in 2012/13 (Figure 3.7).
Figure 3.7 - OBEGAL (excluding NZS Fund retained revenue)
Figure 3.7 - OBEGAL (excluding NZS Fund retained revenue).
Source:  The Treasury
  • GSID is 26.2% of GDP at the end of the forecast period compared with 24.3% of GDP in the main forecast (Figure 3.8).
Figure 3.8 - Gross sovereign-issued debt (excluding Settlement Cash)
Figure 3.8 - Gross sovereign-issued debt (excluding Settlement Cash).
Source:  The Treasury

Under the upside scenario, the overall impact of higher nominal GDP is a small improvement in the fiscal position relative to the main forecast:

  • The OBEGAL is higher by around 0.2 percentage points of GDP throughout the forecast periodrelative to the main forecast.
  • GSID is 23.3% of GDP at the end of the forecast period.
Page top