What will we do to achieve this outcome? (continued)
Intermediate outcome: Fiscal position returned to a sustainable footing
Returning the fiscal balance to surplus and reducing government net debt back to prudent levels will contribute to macroeconomic stability over the short term and increase fiscal sustainability. The act of reducing the fiscal deficit will directly reduce upward pressure on interest and exchange rates over the next few years and help manage external vulnerabilities. Returning to surplus on a sustained basis will restore the fiscal buffer provided by low debt, will increase public saving and reduce future borrowing and finance costs. Alongside this, maintaining a broad-base, low-rate tax system minimises economic distortions. To help the Government achieve a sustainable fiscal position, the Treasury provides advice on fiscal strategy, policy and frameworks.
Reducing net debt to 20% of GDP will require continuing expenditure constraint into the medium term with core Crown expenses falling as a share of GDP. The Treasury will provide advice on government expenditure - both new and existing - to assist Ministers to bring the operating balance back to surplus by 2014/15. Reducing government spending as a share of GDP will allow room for resources to flow to the rebuilding of Christchurch and the more productive parts of the economy. The Treasury will also manage the Budget production and provide fiscal monitoring, reporting (including production of the Crown financial statements) and forecasting.
In the most recent Long-term Fiscal Statement (2009), the Treasury outlined the choices and trade-offs that will be needed to meet future cost and demand pressures. It showed that, without policy changes, especially in public spending, New Zealand's ageing population structure will make it increasingly harder to avoid significant fiscal deficits. Either debt will lift, or tax rises will be required to keep debt in check, leading to significant impacts on macro stability and growth, whichever occurs.
The Treasury will publish another Long-term Fiscal Statement in 2012/13. We will evaluate the extent to which spending is consistent with the long-term fiscal strategy. This will include evaluating key policy choices and trade-offs with particular focus on tax and the sectors with the highest levels of government spending - health, education, welfare and justice. Our analysis will be tested by an external panel of experts and we will seek the individual views of a range of experts as part of developing and finalising our analysis and conclusions.
Refer to Measures section below to see how we assess the Treasury's contribution.
| Intermediate outcomes (and outcome indicators) | Current situation | Impact measures | Core activities and services |
|---|---|---|---|
| What will medium-term success look like? | How are we currently placed against our outcome indicators? | How will we demonstrate our success? | What will we do to have an impact on our intermediate outcomes? |
A stable macroeconomic environment |
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| Variability in GDP growth is minimised and absolute falls in annual real GDP are avoided. Variability is in the lowest third of OECD countries, and below that recorded in the 1980s and 1990s. | The standard deviation of New Zealand's annual real GDP growth was around 2.2 percentage points in the 10 years to 2010 (13th out of 34 OECD economies), compared to 2.1 (13th out of 28) and 2.6 (22nd out of 34) in the 1980s and 1990s respectively. |
Fiscal policy that is not excessively pro-cyclical (as measured by a range of indicators), especially during the upswing in the business cycle, and does not contribute to a build up and continuation of imbalances. New Zealand has a high-quality fiscal framework as recognised by informed commentators (eg, international institutions, rating agencies, surveys and academic studies). The financial stability regime (regulatory, supervisory and resolution) appropriately balances managing the risks of financial crisis and supporting economic growth. |
First opinion policy advice on macroeconomic strategy; fiscal policy, strategy and frameworks; and joint advice with RBNZ on financial stability. Research and advice on savings policy. Economic and fiscal monitoring, reporting and forecasting. Second opinion policy advice on proposals by other agencies that impact on the macroeconomic environment. |
| Current account and net international investment position (NIIP) are sustainable. | The Treasury forecasts in the Budget 2012 Economic and Fiscal Update show the current account deficit increasing from current levels, such that the NIIP also begins to increase again. The net international liability position fell as a share of GDP between March 2009 and March 2011 partly owing to re-insurance inflows associated with the Canterbury earthquakes, but nevertheless remains at a high level by international standards. |
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| Financial stability risks related to New Zealand are either generally falling or are within the normal range (as measured by the domestic financial sector components of the cobweb model published in RBNZ's Financial Stability Report). | In November 2011 financial stability risks remained above their normal range. The indicators relating to financial market conditions and funding and liquidity showed an increase in risks between May and November 2011. | ||
Fiscal position returned to a sustainable footing |
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| Structural fiscal position is returned to broad balance and a primary surplus achieved inside the current 2011/12 to 2015/16 forecast period. | The Budget 2012 fiscal forecasts show a small surplus in 2014/15, with net debt peaking below 29% of GDP and falling to less than 20% by 2021. |
Budget decisions are in line with short-term fiscal intentions in the Budget Policy Statement (BPS). Gross capital requirements are met from balance sheet over the next four years. A majority of New Zealanders want action taken to address the long-term fiscal position within the next 10 years. The average cost of new core Crown borrowing is less than the long run of borrowing rate of 5.5%. |
First opinion policy advice on fiscal policy, strategy and frameworks; fiscal reporting frameworks; and balance sheet management. Fiscal monitoring, reporting and forecasting, including the production of the Crown financial statements. Implementing the Mixed Ownership Model. Production of the Long-term Fiscal Statement. Monitoring advice on the performance of key expenditure areas. Budget production. Guidance and support to agencies to enable them to fulfil their Public Finance Act 1989 and Cabinet requirements. Managing New Zealand's debt. |
| Core crown net debt is reduced to no higher than 20% of GDP by 2020. | |||
| Government spending as a share of GDP is reduced to around 30% of GDP by 2015/16. | Core Crown government spending as a share of GDP is forecast to decline from 34.4% in 2011/12 (excluding earthquake costs) to around 30% in 2015/16. | ||
