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Note 23: 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
  • when formulating revenue strategy, having regard to efficiency and fairness, including predictability and stability of tax rates
  • when formulating fiscal strategy, having regard to its interaction with the interaction between fiscal policy and monetary policy
  • when formulating fiscal strategy, having regard to its likely impact on present and future generations, and
  • ensuring that the Crown's resources are managed effectively and efficiently.

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 held by the New Zealand Superannuation Fund.

Further information on the Government's fiscal strategy can be found in the Fiscal Strategy Report published with the Government's budget.

The Government's fiscal strategy is expressed through its long term objectives and short term intentions for fiscal policy.

Long Term Fiscal Objectives - Fiscal Strategy Report 2017[4]

Debt

Manage total debt at prudent levels. Reduce net debt to within a range of 10% to 15% of GDP.

Operating balance

Return to an operating surplus sufficient to meet the Government's net capital requirements, including contributions to the NZS Fund, and ensure consistency with the debt objective.

Operating expenses

To 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 revenues

Ensure sufficient operating revenue to meet the operating balance objective.

Net worth

Ensure net worth remains at a level sufficient to act as a buffer to economic shocks. Consistent with the debt and operating balance objectives, the Government will start building up net worth ahead of the full fiscal impact of the demographic change expected in the mid-2020s.

Short Term Fiscal Intentions
Fiscal Strategy Report 2016 Fiscal Strategy Report 2017 Fiscal Position 2017[5]

Debt

The Government's intention is to reduce net debt to around 20% of GDP in 2020.

Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 30.4% of GDP in 2019/20.

Net core Crown debt (excluding NZS Fund and advances) is forecast to be 23.1% in 2018/19, 20.8% of GDP in 2019/20 and projected to be 19.3% of GDP in 2020/21.

Debt

The Government's Intention is to reduce net debt to around 20% of GDP in 2020 and to between 10% and 15% of GDP by 2025.  Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to 26.3% of GDP in 2020/21. 

Net core Crown debt (excluding NZS Fund and advances) is forecast to be 20.6% of GDP in 2019/20 and 19.3% in 2020/21. It is projected to be 13.3% in 2024/25 and 11.8% in 2025/26.

Debt

Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) at 30 June 2017 was 34.5% of GDP (2016: 36.8%).

Net core Crown debt (excluding NZS Fund and advances) at 30 June 2017 was 22.2% of GDP (2016: 24.4%).

Operating balance

The Government's intention is to maintain rising operating balance (before gains and losses) surpluses so that net core Crown debt begins to reduce in dollar terms (subject to any significant shocks to the economy).

The operating balance (before gains and losses) is forecast to be 0.3% of GDP in 2015/16, 0.3% of GDP in 2016/17 and 2.2% of GDP in 2019/20. This is consistent with the long-term objective for the operating balance.

The operating balance is forecast to be 3.2% of GDP in 2019/20.

Operating balance

The Government's intention is to maintain rising operating surpluses (before gains and losses) so that net core Crown debt begins to reduce in dollar terms (subject to any significant shocks to the economy).

The operating balance (before gains and losses) is forecast to be 0.6% of GDP in 2016/17, rising to 1.0% of GDP in 2017/18 and 2.2% of GDP in 2020/21.  This is consistent with the long-term objective for the operating balance.

The operating balance is forecast to be 3.3% of GDP in 2020/21.      

Operating balance

The operating balance (before gains and losses) for the year ended 30 June 2017 was a surplus of 1.5% of GDP (2016: 0.7%).

The operating surplus for the year ended 30 June 2017 was 4.6% of GDP (2016: - 2.1%).

Expenses

The Government's intention is to support fiscal surpluses by restraining the growth in core Crown expenses and managing these to below 30% of GDP.

Core Crown expenses are forecast to fall from 29.7% of GDP in 2015/16 to 28.3% of GDP in 2019/20.

Total Crown expenses are forecast to be 36.4% of GDP in 2019/20.

This assumes a new operating allowance of $1.5 billion in Budget 2017 and for the remainder of the forecast period, growing at 2% thereafter.

Expenses

The Government's intention is to support fiscal surpluses by restraining the growth in core Crown expenses and reducing these to below 30% of GDP.

Core Crown expenses are forecast to fall from 28.8% of GDP in 2016/17 to 27.5% of GDP in 2020/21.

Total Crown expenses are forecast to be 35.2% of GDP in 2020/21.

This assumes new operating allowances of $1.7 billion per year in Budget 2018, growing at 2% per Budget until Budget 2020.

Expenses

Core Crown expenses for the year ended 30 June 2017 were 28.5% GDP (2016: 29.2%).

Total Crown expenses for the year ended 30 June 2017 were 37.2% of GDP (2016: 37.9%).

Revenues

The Government's intention is to support fiscal surpluses by growing revenue in dollar terms, although maintaining it at broadly the same proportion of GDP.

Total Crown revenues are forecast to be 38.8% of GDP in 2019/20.

Core Crown revenues are forecast to be 30.6% of GDP in 2019/20.

Core Crown tax revenues are forecast to be 28.2% of GDP in 2019/20.

Revenues

The Government's intention is to support fiscal surpluses by growing revenue in dollar terms, although maintaining it at broadly the same proportion of GDP.

Total Crown revenues are forecast to be 37.6% of GDP in 2020/21.

Core Crown revenues are forecast to be 29.8% of GDP in 2020/21.

Core Crown tax revenues are forecast to be 27.7% of GDP in 2020/21.

Revenues

Total Crown revenues for the year ended 30 June 2017 were 38.9% of GDP (2016: 38.8%).

Core Crown revenues for the year ended 30 June 2017 were 30.5% of GDP (2016: 30.1%).

Core Crown tax revenues for the year ended 30 June 2017 were 28.2% of GDP (2016: 27.8%).

Net worth

The Government's intention is to strengthen the Crown’s financial position as a buffer against future adverse shocks.

Total net worth attributable to the Crown is forecast to be 36.4% of GDP in 2019/20.

Total Crown net worth is forecast to be 38.4% of GDP in 2019/20.

Net worth

The Government's intention is to strengthen the Crown’s balance sheet as a buffer against future adverse shocks.

Total net worth attributable to the Crown is forecast to be 40.9% of GDP in 2020/21.

Total Crown net worth is forecast to be 42.7% of GDP in 2020/21.

Net worth

Total net worth attributable to the Crown as at 30 June 2017 was 41.2% of GDP (2016: 35.3%).

Total Crown net worth as at 30 June 2017 was 43.4% of GDP (2016: 37.7%).

Notes

  • [4]The long-term fiscal objectives are stated in the Fiscal Strategy Report 2017.
  • [5]GDP for the year ended 30 June 2017 was $268,101 million (2016: $253,211 million revised).
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