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 New Zealand Superannuation 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 2011 | Fiscal Strategy Report 2012 |
|---|---|
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 35% 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. |
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 shocks. 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 35% of GDP, and is then brought back to a level no higher than 20% of GDP by 2020. 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 expensesTo meet the operating balance objective, the Government will control the growth in government spending so that over time, core Crown expenses are reduced to around 30% of GDP. |
Operating expensesTo meet the operating balance objective, the Government will control the growth in government spending so that over time, core Crown expenses are reduced to below 30% of GDP. |
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 2011 | Fiscal Strategy Report 2012 | Fiscal Position 20121 |
|---|---|---|
DebtGross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 37.2% of GDP in 2014/15. Core Crown net debt (excluding NZS Fund and advances) is forecast to be 29.6% in 2014/15. |
DebtGross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 35.1% of GDP in 2015/16. Core Crown net debt (excluding NZS Fund and advances) is forecast to be 27.7% in 2015/16. |
DebtGross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) at 30 June 2012 was 41.1% of GDP (2011: 39.1%). Core Crown net debt (excluding NZS Fund and advances) at 30 June 2012 was 24.8% of GDP (2011: 20.3%). |
Operating balanceBased on the operating allowance for the 2011 Budget, the operating deficit is forecast to be 3.5% of GDP in 2011/12. The operating balance is forecast to be 1.9% of GDP in 2014/15. This is consistent with the long-term objective for the operating balance. The operating deficit (before gains and losses) is expected to be 4.7% in 2011/12. |
Operating balanceBased on the operating allowance for the 2012 Budget, the operating balance (before gains and losses) is forecast to be -3.6% of GDP in 2012/13. The operating balance (before gains and losses) is forecast to be 0.1% of GDP in 2014/15. This is consistent with the long-term objective for the operating balance. The operating balance is forecast to be |
Operating balanceThe operating (before gains and losses) deficit for the year ended 30 June 2012 was 4.5% of GDP (2011: 9.3%). The operating deficit for the year ended 30 June 2012 was 7.3% of GDP (2011: 6.8%). |
ExpensesTotal Crown expenses are forecast to be 40.5% of GDP in 2014/15. Core Crown expenses are forecast to be 31.3% of GDP in 2014/15. This assumes a new operating allowance of $0.8 billion per annum for Budgets 2012 and 2013, then returning to $1.19 billion, growing at 2% for Budgets thereafter (GST exclusive). |
ExpensesCore Crown expenses are forecast to be 30.2% of GDP in 2015/16. Total Crown expenses are forecast to be 39.6% of GDP in 2015/16. This assumes a new operating allowance of $800 million for Budget 2013, increasing to $1.19 billion in Budget 2014 and growing at 2% for Budgets thereafter (GST exclusive). |
ExpensesCore Crown expenses for the year ended 30 June 2012 were 33.8% GDP (2011: 35.6%). Total Crown expenses for the year ended 30 June 2012 were 45.3% of GDP (2011: 50.6%). |
RevenuesTotal Crown revenues are forecast to be 41.0% of GDP in 2014/15. Core Crown revenues are forecast to be 31.0% of GDP in 2014/15. Core Crown tax revenues are forecast to be 27.8% of GDP in 2014/15. |
RevenuesTotal Crown revenues are forecast to be 40.5% of GDP in 2015/16. Core Crown revenues are forecast to be 30.5% of GDP in 2015/16. Core Crown tax revenues are forecast to be 27.8% of GDP in 2015/16. |
RevenuesTotal Crown revenues for the year ended 30 June 2012 were 40.8% of GDP (2011: 41.3%). Core Crown revenues for the year ended 30 June 2012 were 29.6% of GDP (2011: 29.1%). Core Crown tax revenues for the year ended 30 June 2012 were 26.9% of GDP (2011: 26.1%). |
Net worthTotal Crown net worth is forecast to be 34.1% of GDP in 2014/15. Core Crown net worth is forecast to be 7.9% of GDP in 2014/15. |
Net worthTotal Crown net worth is forecast to be 28.6% of GDP in 2015/16. Core Crown net worth is forecast to be 8.8% of GDP in 2015/16. |
Net worthTotal Crown net worth as at 30 June 2012 was 29.0% of GDP (2011: 40.8%). Core Crown net worth as at 30 June 2012 was 11.4% of GDP (2011: 17.7%). |
- GDP for the year ended 30 June 2012 was $204,551 million (2011: $197,699 million). Comparative GDP percentages have been updated to reflect restated Statistics New Zealand nominal GDP.
