Note 29: Capital Objectives and Fiscal Policy
The Government's fiscal policy is pursued in accordance with the principles of responsible fiscal management set out in the Public Finance Act 1989:
- reducing total debt to prudent levels so as to provide a buffer against factors that may impact adversely on the level of total debt in the future by ensuring that, until those levels have been achieved, total operating expenses in each financial year are less than total operating revenues in the same financial year
- once prudent levels of total debt have been achieved, maintaining those levels by ensuring that, on average, over a reasonable period of time, total operating expenses do not exceed total operating revenues
- achieving and maintaining levels of total net worth that provide a buffer against factors that may impact adversely on total net worth in the future
- managing prudently the fiscal risks facing the Government, and
- pursuing policies that are consistent with a reasonable degree of predictability about the level and stability of tax rates for future years.
Consistent with these principles, the Government seeks to strengthen its fiscal position to help manage future spending demands, particularly those arising from an ageing population by maintaining debt at prudent levels and accumulating assets through the NZS Fund.
The Government's fiscal strategy can be expressed through its long term objectives and short term intentions for fiscal policy.
Further information on the Government's fiscal strategy can be found in the Fiscal Strategy Report published with the Government's budget.
| Fiscal Strategy Report 2008 | Fiscal Strategy Report 2009 |
|---|---|
DebtManage total debt at prudent levels. Gross sovereign-issued debt broadly stable at around 20% of GDP over the next 10 years. |
DebtManage total debt at prudent levels. Over the short to medium term it is prudent to allow an increase in debt to deal with the current economic and fiscal shock. However, we need to ensure that this increase is eventually reversed and that we return to a level of debt that can act as a buffer against future shocks. We will do this by ensuring that net debt remains consistently below 40% of GDP, and is brought back to around 30% of GDP no later than the early 2020s. Over the longer term, we consider that it is prudent to have net debt closer to 20% of GDP and we will work towards this as conditions permit. |
Operating balanceOperating surpluses on average over the economic cycle sufficient to meet the requirements for contributions to the NZS Fund and ensure consistency with the debt objective. |
Operating balanceReturn to an operating surplus sufficient to meet the Government's net capital requirements, including contributions to the New Zealand Superannuation Fund, and ensure consistency with the debt objective. |
Operating expensesEnsure expenses are consistent with the operating balance objective. |
Operating expensesReduce the growth in government spending to ensure operating expenses are consistent with the operating balance objective. |
Operating revenuesEnsure sufficient operating revenue to meet the operating balance objective. |
Operating revenuesEnsure sufficient operating revenue to meet the operating balance objective. |
Net worthIncrease net worth consistent with the operating balance objective. |
Net worthEnsure net worth remains at a level sufficient to act as a buffer to economic shocks. Over the medium term, net worth will continue to fall as the impact of the global financial crisis unfolds. Consistent with the debt and operating balance objectives, we will start building up net worth ahead of the demographic change expected in the mid-2020s. |
