Fiscal Strategy

Page updated 18 Dec 2012

Fiscal policy is one tool a government has to achieve its economic and social objectives. The operation of fiscal policy is governed by the Public Finance Act 1989 (PFA).

The Act requires the Government to outline its fiscal policy intentions in the annual Fiscal Strategy Report (FSR). The FSR sets out the Government's long-term fiscal objectives relating to expenses, revenue, the operating balance, debt and net worth over a period of at least 10 years.

The Public Finance Act and Responsible Fiscal Management

The Public Finance Act 1989 (PFA) requires the Government to pursue its policy objectives in accordance with the following principles of responsible fiscal management:

• Maintaining debt at a prudent level by ensuring that, on average, over a reasonable period of time, total operating expenses do not exceed total operating revenue.
• Achieving and maintaining net worth at levels which provide a buffer against factors which may adversely impact on net worth in the future.
• Managing prudently the fiscal risks facing the Government.
• Pursuing policies which are consistent with a reasonable degree of predictability about the level and stability of taxes for future years.

The PFA requires the Government to present, in each financial year, reports outlining Government's fiscal policy: the Budget Policy Statement (BPS) and the Fiscal Strategy Report (FSR). The BPS has a short run focus setting out policy goals that will guide the Government's Budget decisions and priorities. The FSR is presented with the Budget and must state the Government's long term objectives for fiscal policy over a period of at least 10 years and the Government's short term intentions for fiscal policy over a period of three years. The FSR must also provide projections of fiscal variables to show progress towards meeting the long-term objectives (Progress Outlooks).

In addition, the Treasury is required to publish, at least every four years, a Statement of the Long Term Fiscal Position. This has a horizon of at least 40 years and identifies how demographic and other changes may impact the fiscal position.

Fiscal Strategy of the Government

The current Government's fiscal goals - set out in the Fiscal Strategy Report 2012 – include:

• Returning to operating surplus in 2014/15 and reducing net debt to prudent levels,
• Maintain a broad-base, low-rate taxation system that minimises economic distortions, and
• Effectively managing the Crown’s balance sheet.

Eliminating the fiscal deficit and reducing debt will help to:

Key Publications

• Fiscal Strategy Report 2012 - Presents the Government's fiscal strategy, including its long-term fiscal objectives and progress outlooks with projections of fiscal trends for the next ten years.
• Budget Policy Statement 2013
• Putting It Together: An Explanatory Guide to New Zealand's State Sector Financial Management System (September 2011)
• Fiscal Responsibility chapter of A Guide to the Public Finance Act (August 2005) - Explains the principles of responsible fiscal management.
• Financial Statements of the Government of New Zealand for the Year Ended 30 June 2012
• New Zealand Fiscal Management Approach: An Explanation of Recent Changes (January 2003) - Guidance for State sector entities explaining how the Government's current approach to fiscal management informs the Budget process.