The Treasury's Three Outcomes (continued)
A stable and sustainable macroeconomic environment
A stable and sustainable macroeconomic environment is fundamental to all of the Government's policy objectives and integral to the Treasury’s other outcomes. Economic growth and macroeconomic stability are mutually dependent on each other. An economy that has low and stable inflation rates and predictability in tax and spending allows individuals and businesses to plan and invest more effectively for the longer term. Improved planning and investment are key factors in economic growth. In addition, economic growth makes the economy less vulnerable to shocks.
An improved State sector and stable and sustainable macroeconomic environment are also related. A high-performing State sector can provide an environment that supports economic growth; for example, by reducing unnecessary compliance costs associated with regulation. A State sector that is performing well reduces pressure on the Crown's fiscal position and assists in developing a more balanced economy by enabling a shift in resources from the non-tradeable to tradeable sectors.
Ultimately, a stable and sustainable macroeconomic environment is a significant factor in achieving the improved economic performance that enables higher living standards for New Zealanders.
The New Zealand economy faces large challenges over the next few years as it deals with the after-effects of the global financial crisis. The economy is dealing with a shock that sharply reduced economic activity, lifted unemployment and pushed the Crown accounts into deficit. While the economy is recovering, the after-effects are likely to remain for some time. Continued efforts are needed to bring government debt back to a prudent level to provide a buffer to future economic shocks and prepare for the longer-term fiscal challenges associated with the pressures of an ageing population.
In addition to helping the Government manage its overall fiscal position, we will provide options that encourage a more balanced pattern of economic growth than in much of the past decade, which featured high current-account deficits and high levels of household debt.
What will we do to achieve a stable and sustainable macroeconomic environment?
This outcome has two separate though interrelated parts: a stable macroeconomic environment and the sustainability of this environment. The Treasury will contribute to each of these parts through the results set out below:
| The Treasury results that contribute to this outcome | |
|---|---|
Short- and medium-term macroeconomic stability |
Macro and fiscal advice to achieve a stable macroeconomic environment: We will offer advice on options in fiscal, monetary, regulatory and tax policy to promote the stability of the economy. |
| State sector performance: We will provide advice on key elements of the public management model, including the provision of institutions and interventions to achieve the Government's economic objectives, monitor the performance of significant Crown entities and advise on industrial relations issues. | |
Sustainability of the macroeconomic envirnment |
Macro and fiscal advice to achieve a stable macroeconomic environment: We will deliver a programme for Government that is sustainable over the long term, and a macroeconomic environment that is increasingly robust to economic shocks. This will incorporate the development of fiscal, monetary, regulatory and tax policy to promote the sustainability of the economy. |
| State sector performance: We will focus on spending in key sectors, to ensure that it is consistent with the long-term fiscal strategy (in particular, health, education, justice and welfare spending). | |
| Effective and efficient management of financial operations - debt and financial asset management: We will secure the Government's borrowing requirements, and manage debt and associated assets in a way that minimises costs while keeping risk at an appropriate level. | |
| Management of Crown risks and balance sheets: We will improve the management of risk across the Crown's balance sheet to support achieving strong financial performance and effective risk management, through improved direct and indirect governance and monitoring. | |
Medium-term economic strategy: Lift economic growth by supporting a dynamic environment for firms in which they are given an opportunity to expand and shift their activities in line with market signals. We will do this by providing well-integrated, analytically robust and persuasive advice on policies to deliver:
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| Infrastructure: We will focus on consistently identifying the most welfare-enhancing public infrastructure projects (including social assets such as schools and hospitals), improving the management of public infrastructure assets, removing regulatory bottlenecks and increasing certainty for private sector investment. | |
