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 2009 | Fiscal Strategy Report 2010 |
|---|---|
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. |
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 then brought back to a level no higher than 20% of GDP by the early 2020s. We will work towards achieving this earlier as conditions permit. |
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 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 expensesReduce the growth in government spending to ensure operating 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 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. |
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. |
| Fiscal Strategy Report 2009 | Fiscal Strategy Report 2010 | Fiscal Position 20101 |
|---|---|---|
DebtGross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 45% of GDP in 2012/13. Core Crown net debt (excluding NZS Fund and advances) is forecast to be 30.9% in 2012/13. |
DebtGross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 35.3% of GDP in 2013/14. Core Crown net debt (excluding NZS Fund and advances) is forecast to be 26.5% in 2013/14. |
DebtGross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) at 30 June 2010 was 31.1% of GDP (2009: 27.6%). Core Crown net debt (excluding NZS Fund and advances) at 30 June 2010 was 14.1% of GDP (2009: 9.3%). |
Operating balanceBased on the operating allowance for the 2009 Budget, the operating deficit is forecast to be 3.3% of GDP in 2009/10. The operating deficit is forecast to be 2.9% of GDP in 2012/13. This decrease is consistent with the long-term objective for the operating balance. |
Operating balanceBased on the operating allowance for the 2010 Budget, the operating deficit is forecast to be 3.5% of GDP in 2010/11. The operating deficit is forecast to be 0.3% of GDP in 2013/14. This decrease is consistent with the long-term objective for the operating balance. |
Operating balanceThe operating deficit was 2.4% of GDP for the year ended 30 June 2010 (2009: 5.7%). |
ExpensesTotal Crown expenses are forecast to be 48.2% of GDP in 2012/13. Core Crown expenses are forecast to be 36.3% of GDP in 2012/13. This assumes a new operating allowance of $1.45 billion per annum for the 2009 Budget and $1.1 billion per annum for Budgets thereafter, growing at 2% per annum (GST exclusive). |
ExpensesTotal Crown expenses are forecast to be 42.4% of GDP in 2013/14. Core Crown expenses are forecast to be 32.4% of GDP in 2013/14. This assumes a new operating allowance of $1.1 billion per annum for the 2010 Budget growing at 2% for Budgets thereafter (GST exclusive). |
ExpensesTotal Crown expenses were 42.8% of GDP for the year ended 30 June 2010 (2009: 45.2%). Core Crown expenses were 33.8% GDP for the year ended 30 June 2010 (2009: 34.7%).
|
RevenuesTotal Crown revenues are forecast to be 44% of GDP in 2012/13. Core Crown revenues are forecast to be 32.1% of GDP in 2012/13. Core Crown tax revenues are forecast to be 28.8% of GDP in 2012/13. |
RevenuesTotal Crown revenues are forecast to be 41.1% of GDP in 2013/14. Core Crown revenues are forecast to be 30.7% of GDP in 2013/14. Core Crown tax revenues are forecast to be 27.5% of GDP in 2013/14. |
RevenuesTotal Crown revenues were 39.5% of GDP for the year ended 30 June 2010 (2009: 43.1%). Core Crown revenues were 29.7% of GDP for the year ended 30 June 2010 (2009: 32.2%). Core Crown tax revenues were 26.8% of GDP for the year ended 30 June 2010 (2009: 29.6%). |
Net worthTotal Crown net worth is forecast to be 34.5% of GDP in 2012/13. Core Crown net worth is forecast to be 10% of GDP in 2012/13. |
Net worthTotal Crown net worth is forecast to be 34.8% of GDP in 2013/14. Core Crown net worth is forecast to be 10.7% of GDP in 2013/14. |
Net worthTotal Crown net worth was 50.2% of GDP as at 30 June 2010 (2009: 53.9%). Core Crown net worth was 23.6% of GDP as at 30 June 2010 (2009: 28.8%). |
1. Comparative GDP percentages have been updated to reflect restated Statistics New Zealand nominal GDP.
