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Statement of Intent 2014-2019

The Economic Cycle is Managed so that Pressures on Interest Rates and the Exchange Rate are Moderated

What would success look like?

Tax, product, financial and labour market settings and operation of fiscal policy do not unnecessarily amplify the business cycle. This will minimise how much work interest rates and the exchange rate have to do to keep the economy operating close to full employment, thus maximising the conditions for higher trend growth.

Medium-term success:

  • Fiscal policy has supported monetary policy by placing downward pressure on aggregate demand growth as measured by a range of indicators (such as spending to GDP, fiscal impulse).
  • The Government's financial buffers have been strengthened, with core Crown net debt on track to be below 20% of GDP by 2020.
  • Any positive operating balance surprises are used mainly to further strengthen the Government's balance sheet.
  • A lift in both government and private sector saving rates contributes to higher national saving over time.
  • Housing supply is more responsive to housing demand and house price growth is substantially lower than in the previous cycle, such that there is a moderate fall in the house price/income ratio.
  • The increase in interest rates over the forthcoming economic cycle is smaller than it was during the 2000s.
  • Assessments of exchange rate misalignment do not show material over- (or under-) valuation.
  • Strengthened preventative measures are in place, and settings ensure a bank failure can be appropriately managed.
  • Financial stability risks related to New Zealand are within the "normal range".

Specific 2014/15 objectives:

  • The operating balance excluding gains and losses (OBEGAL) returns to surplus in 2014/15, with fiscal policy settings having placed downward pressure on aggregate demand.
  • Fiscal forecasts show further increases in the OBEGAL surplus beyond 2014/15, declining government debt and a continuation of negative fiscal impulses.
  • Informed commentators (eg, the International Monetary Fund [IMF], OECD and credit rating agencies) endorse operation of macroeconomic policy and associated frameworks.
  • Measures have been taken to reduce any remaining regulatory barriers to the supply of housing.
  • Issues relating to banking sector failure management have been clarified and action is in train to strengthen institutional settings where appropriate.
  • Crown agencies work collaboratively together and take a long-term view to maximise financial sector stability and the efficiency and effectiveness of capital markets.
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