Result: Macro and Fiscal Advice to Achieve a Stable Economic Environment
What are we seeking to achieve?
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. 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.
We will assist the Government over the next few years to deal with the after-effects of the global financial crisis. The recovering economy presents a number of risks to the Government. It also presents opportunities such as addressing some of the imbalances that built up over recent years. We will assist the Government to build a stable and sustainable macroeconomic environment.
What will we do to achieve this?
Providing appropriate support to the Government requires timely, high-quality analysis and advice. We will produce accurate forecasts of the economic and fiscal outlook at least twice yearly in the Budget Economic and Fiscal Update (BEFU) and Half Year Economic and Fiscal Update (HYEFU). In addition, information will be produced on a weekly (Weekly Economic Update) and monthly (Monthly Economic Indicators) basis to provide analysis and updates on developments in the domestic and international economies. Advice relating to the Government's fiscal position will also be provided each month.
The Treasury will incorporate forecast and monitoring advice and other relevant information to advise the Government how it can stabilise debt at a prudent level, and assist the Minister of Finance to produce the annual Fiscal Strategy Report (FSR). We will also advise on options for changes the Government can make in fiscal, monetary, regulatory and tax policy to promote the stability of the macroeconomy. Advice regarding the economic and fiscal outlook will be well-integrated and linked to a wider perspective that picks up progress in dealing with the imbalances in the economy.
Our focus is not only on assisting in the formation of the Government's strategy, but also on how to support and deliver it. A large component of this is the assistance provided in managing the annual fiscal management cycle to ensure that baseline expenditure and changes in expenditure advance government priorities, and are consistent with the fiscal strategy. This activity will integrate with other Treasury activities related to management of the State sector and enhancing New Zealand’s productivity performance and economic growth.
How will we demonstrate success in achieving this?
We will have demonstrated success when:
- the Treasury forecasts and financial reporting provide reliable information to assist decision-making, and tax revenue forecast accuracy is maintained within a 3% variance
- the Government has fiscal plans, as evidenced in the FSR, that will lead to levels of debt and net worth being maintained at, or returned to, prudent levels as soon as possible within the 15-year projection period
- decisions are taken to address the long-term fiscal challenges that will contribute to the stabilisation at prudent levels of government debt and tax as a percentage of GDP over the next 40 years, and
- national saving increases, New Zealand runs smaller current-account deficits and consequently an improved net international investment position, and neutral real interest rates are lower.
The above success measures encapsulate what we need to achieve to meet the key challenges arising from the economic downturn. The first measure provides the Government a good basis from which to make decisions. The second and third measures relate to ensuring that the fiscal position is sustainable over time. Finally, the fourth measure will reduce the economic vulnerability New Zealand faces in the context of a large external shock or loss of investor confidence.
|Impact measures for 3 to 5 years||Milestones for 2010/11|
Levels of debt and net worth being maintained at, or returned to, prudent levels.
The long-term fiscal challenges are addressed in a way that will contribute to the tabilisation at prudent levels of government debt and tax as a percentage of GDP over the next 40 years.
National saving increases, New Zealand runs smaller current-account deficits and consequently an improved net international investment position, and neutral real interest rates are lower.
Fuller engagement with the Minister on developments and drivers in the economy and discussion of macro and fiscal policy options to enhance performance of the economy and the State sector in particular.
Enhance our reputation with the Minister and other key stakeholders for authoritative analysis. This will be demonstrated in meeting all quality standards for financial reporting, insightful analysis and accurate forecasts.
Provide options to stabilise debt at a prudent level, and assist the Minister of Finance to produce the annual FSR.
Advise potential changes the Government can make in the areas of fiscal, monetary, regulatory and tax policy to promote the stability of the macroeconomy.
Fiscal reporting and Management
|The budget process and fiscal reporting are consistent with the Government's overall fiscal objective and ensure government spending represents value for money.||
Better integration of fiscal management and reporting into the State sector outcome. Fiscal management and the budget process cease to be standalone and are integrated into the achievement of other results.
Ministers are provided with options that allow them to decide whether to affect the price, quantity and standards of existing expenditure. Budget strategy advice and the Budget Policy Statement (BPS) are developed to support the Government's fiscal strategy, growth and State sector objectives.
Unqualified audit opinion on the 2009/10 Crown accounts.
Advice provides options that enable the Government to deliver the Budget consistent with their fiscal strategy and BPS.
The scope of the annual review of the budget process is widened to test that Chief Executives and Ministers consider the budget process integrates with relevant State sector improvement activities.
Forecasting and Monitoring
|Forecasts and financial reporting provide reliable information to assist decision-making and forecast accuracy is maintained within a 3% variance.||
Produce forecasts of the economic and fiscal outlook at least twice yearly (BEFU and HYEFU), provide regular updates on developments in the domestic and international economies and provide monthly updates on the Government's fiscal position.
Revenue forecasts improve to within a 3% variance.