ar06-07.pdf (785 KB) | Using PDF Files Previous | Contents | Next

Outcome 2: Stable and Sustainable Macroeconomic Environment

The Treasury provides advice on macroeconomic conditions and fiscal policy and on the performance of monetary and financial policy. We also provide timely and accurate economic and fiscal data through economic and fiscal forecasts and reporting through the Crown accounts. A stable and sustainable macroeconomic environment contributes to higher economic growth by allowing individuals, businesses and the Government to plan more effectively for the longer term. This improves the quality and quantity of investment in physical and human capital, and helps to raise productivity.

Our focus is on the institutional frameworks that promote macro stability, and on the sound operation of fiscal policy. In particular, we are concerned to ensure that these policies perform well with the least collateral damage to the economy in terms of long-run growth.

Over the past year we moved from four outcomes to three, resulting in a split of the former Efficient Management of the Crown’s Assets and Liabilities outcome (pages 31-35 of the Statement of Intent 2006-2009). The management of Crown debt and financial assets contributes to this outcome area, with the rest now falling under Improved State Sector Performance.

Key priorities for the 2006/07 year

In order to have more impact, we identified a clear set of priority areas for action in 2006/07. These were long-term fiscal policy, tax forecasting, and fiscal reporting.

In addition, advising the Minister of Finance on macroeconomic policy frameworks became a high priority through the year.

Output delivery

The results contributing to the Stable and Sustainable Macroeconomic Environment outcome are delivered through the following outputs:

Policy Advice: General Economic and Fiscal Strategies
Budget Management
Debt and Related Financial Asset Management
Economic and Fiscal Forecasting and Reporting.
Detailed information relating to individual output classes can be found on pages 24-44.

Long-term fiscal policy

Long-term (LT) fiscal policy is about delivering a sound fiscal position over the long term. The overall goal of this result area is that decisions are made to help meet long-term fiscal challenges, to ensure the government’s debt position does not become unsustainable.

The output classes that contribute to this result area are Policy Advice: General Economic and Fiscal Strategies; Budget Management; and Economic and Fiscal Forecasting and Reporting.

Key Results Wanted Over 2006/07	Key Indicators of Success for 2006/07	Achieved?
Decision-makers accept that the LT fiscal position is a constraint and that policy change is necessary.	Major speeches are delivered by decision-makers and key stakeholders acknowledging the importance of the LT fiscal position.	Yes. Speeches have been given by the Minister and senior Treasury officials on the importance of lowering the growth rate of health spending to help meet LT fiscal challenges.
	The Fiscal Strategy Report(FSR) extends our current analysis of the fiscal position into the longer term (at least a 40-year horizon).	Yes. The FSR in Budget 2007 discussed ageing and LT fiscal challenges, especially around superannuation and health.
Advice with LT implications from the Treasury and key departments acknowledges the LT fiscal outlook and the key drivers.	Monthly updates from Treasury vote teams for Health, Education, Social Development and IRD indicate that some analysis of LT fiscal impacts has been included in Cabinet papers, etc.	Partially. The advice from the Treasury about the need to constrain growth of the health track and increase effectiveness has been accepted by some parts of the health sector. We have yet to see this in other spending areas.
	There are requests for presentations on the LT fiscal position from key departments.	Partially. We were asked to make presentations to several departments, but have yet to see much acceptance of the need for constraint in LT spending.
There is more commentary about LT fiscal issues in the general media.	Periodic reviews of published material indicate there is more commentary about LT fiscal issues.	The first few months or so after release of the Long-term Fiscal Statement produced a flurry of articles and commentary, but fewer since then. Some articles have more recently appeared in specialised journals.
Key target audiences have an understanding of the LT fiscal position and its drivers.	There are requests from interest groups for presentations on LT fiscal position in key areas.	Some success. A few presentations have been made to special interest groups.

Tax forecasting

Treasury has under-forecast tax revenues in recent years. More accurate, well-explained forecasts, recognised as credible by Ministerial and other stakeholders are wanted as a better basis for making fiscal decisions.

The output class that contributes to this result area is Economic and Fiscal Forecasting and Reporting.

Key Results Wanted Over 2006/07	Key Indicators of Success for 2006/07	Achieved?
The Minister and other key stakeholders accept Treasury forecasts as being the best possible for the decisions they need to make.	Ministerial and Ministerial advisor comment indicates acceptance of Treasury forecasts.	Yes – in part. Forecasts were presented and explained as part of the Budget process to Finance Ministers and advisors and were used as the basis for the 2007/08 Budget.
Forecasts are accurate and well explained.	Internal Treasury quality assurance groups agree there is a coherent, integrated explanation of tax and macroeconomic trends.	Yes. Internal Treasury quality assurance groups agreed that an integrated, coherent explanation was provided of underlying macroeconomic and tax trends. Base analysis of forecast accuracy was completed as a basis for future comparisons and published in a working paper.
Stakeholders understand tax forecast performance, its limitations and context.	Ministers and Ministerial advisors understand the reasons for past errors and accept measures have been put in place to correct them.	Partially achieved. Ministers and stakeholders have been advised of risks and uncertainties underlying forecasts within the Budget process. Fuller explanation will be provided in 2007/08.

Key Results Wanted Over 2006/07

Key Indicators of Success for 2006/07

Achieved?

The Minister and other key stakeholders accept Treasury forecasts as being the best possible for the decisions they need to make.

Ministerial and Ministerial advisor comment indicates acceptance of Treasury forecasts.

Yes – in part. Forecasts were presented and explained as part of the Budget process to Finance Ministers and advisors and were used as the basis for the 2007/08 Budget.

Forecasts are accurate and well explained.

Internal Treasury quality assurance groups agree there is a coherent, integrated explanation of tax and macroeconomic trends.

Yes. Internal Treasury quality assurance groups agreed that an integrated, coherent explanation was provided of underlying macroeconomic and tax trends.

Base analysis of forecast accuracy was completed as a basis for future comparisons and published in a working paper.

Stakeholders understand tax forecast performance, its limitations and context.

Ministers and Ministerial advisors understand the reasons for past errors and accept measures have been put in place to correct them.

Partially achieved. Ministers and stakeholders have been advised of risks and uncertainties underlying forecasts within the Budget process. Fuller explanation will be provided in 2007/08.

Fiscal reporting

The Treasury’s goal for fiscal reporting over the next three to five years is for key stakeholders to consider that the reporting fully illuminates fiscal performance and impacts of the government finances on the economy. Our primary focus for 2006/07 was to prepare for the transition to the new NZ IFRS accounting standards, including the preparation of Budget 2007 in compliance with these standards.