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Fiscal Strategy

Page updated 22 Nov 2007

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). This fiscal strategy is given effect through the setting of 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, and;
  • 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 strategy - set out in the Fiscal Strategy Report 2007 - aims to deliver a fiscal position that is sustainable in the long term, contributes to economic stability and advances key priority policies.

The Government has sought to strengthen its fiscal position so that it is well placed to respond to future challenges such as those associated with population ageing.

The strategy aims to provide certainty to households, businesses and investors by keeping taxes and core Crown expenses around current levels. By keeping finance costs low, it will ensure flexibility in meeting future fiscal pressures by maintaining a low level of debt. It also aims to build up assets in the New Zealand Superannuation Fund to assist with future superannuation payments as the New Zealand population ages.

Key Publications

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