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Fiscal Policy

Prudent Fiscal Management

In 1994, the Government enacted the Fiscal Responsibility Act. The Act was intended to assist in achieving consistent good-quality fiscal management over time. Good-quality fiscal management should enable the Government to make a major contribution to the economic health of the country and be better positioned to provide a range of services on a sustained basis. The provisions of the Fiscal Responsibility Act have since largely been incorporated into Part 2 of the Public Finance Act 1989.

Part 2 requires the Government to pursue its policy objectives in accordance with the principles of responsible fiscal management. The principles of responsible fiscal management are:

  • reducing debt to prudent levels to provide a buffer against future adverse events
  • maintaining prudent debt levels by ensuring that, on average, total operating expenses do not exceed total operating revenues (ie, the Government is to live within its means over time, with some scope for flexibility through the business cycle)
  • achieving and maintaining levels of net worth to provide a buffer against adverse events
  • managing the risks facing the Crown
  • when formulating tax policy, have regard to efficiency and fairness, including the predictability of tax rates
  • when formulating fiscal policy, have regard to the interaction between fiscal policy and monetary policy
  • when formulating fiscal policy, have regard to its likely impact on present and future generations, and
  • ensuring the Crown's resources are managed effectively and efficiently.

Key Fiscal Indicators

An extended period of growth had led to a strong fiscal position for the Government in the 2007/08 year. However, the recession that began in the first quarter of 2008 resulted in a decrease in revenues and expenditure increases which weakened the fiscal position in subsequent years. However, in 2014/15 the Government reached surplus for the first time since the GFC.

Operating balance: In 2014/15, OBEGAL was a surplus of $0.4 billion (0.2% of GDP). When gains and losses are included, the operating balance was a surplus of $5.8 billion (2.4% of GDP). The December 2015 Half Year Update forecasts for OBEGAL for 2015/16, 2016/17, 2017/18, 2018/19 and 2019/20 are for a deficit of $0.4 billion (0.2% of GDP) and surpluses of $0.4 billion (0.1%), $1.0 billion (0.4%), $3.5 billion (1.2%) and $4.9 billion (1.7%) respectively.

Core Crown operating expenses as a percentage of GDP fell to 30.1% in 2014/15 from 30.4% in 2013/14. Expenses are controlled through output budgeting, accrual reporting and decentralised cost management.

Net debt: Net debt was broadly steady at 25.2% of GDP in 2014/15 as nominal growth offset additional borrowing undertaken by the Government to cover its cash deficit.

Net worth: After a prolonged period of deficits, net worth attributable to the Crown rose in 2014/15 to $86.5 billion, reflecting the operating surplus coupled with positive property revaluations.

Fiscal Objectives

The Government's long-term fiscal objectives were set out in the Fiscal Strategy Report (FSR) published with the 2015 Budget and re-confirmed in the 2016 Budget Policy Statement (BPS) in December 2015. The long-term fiscal objectives include objectives for debt, the operating balance, operating expenses and revenue, and net worth.

The long-term debt objective states that net debt will be brought back to no higher than 20% of GDP by 2020 and remain between 10% and 20% thereafter. Consistent with this, the objective for the operating balance is to return to an operating surplus sufficient to meet the Government's net capital requirement, including contributions to the Government Superannuation Fund, and ensure consistency with the debt objective.

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