The New Zealand Fiscal Management Approach - An Explanation Of Recent Changes

Published 1 Jan 2003

An Outline of the Changes Made to Further Integrate the Annual Budget Process with the Government's Fiscal Policy Approach

This paper builds on Treasury working paper 2001/24, Budget Management that Counts: Recent Developments in Budget and Fiscal Management in New Zealand (Barnes and Leith), which outlined the evolution of the New Zealand's fiscal management until 2001. 2001/24 noted the use of "fiscal provisions" as a tool for setting limits and allocating resources for budget management purposes, and (along with subsequent papers, including 2001/25) posed challenges for further development of the Government's fiscal management approach.

This paper and its annexes:

outline the changes that have since been made to the New Zealand fiscal management approach (see Table 1 for a useful summary)
explain how these changes fit within New Zealand's wider fiscal management framework
provide the rationale behind these changes
provide further detail on how the budget process will be managed
discuss the risks and challenges with the new approach respectively.

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Introduction New Zealand's fiscal management approach - the changes The wider fiscal management picture The changes Concluding remarks Annex 1 Evolution of the Fiscal Provisions, and issues prompting revisions Evolution of the Fiscal Provisions "Fiscal provisions" developed at a time when the government needed to establish its fiscal credibility Fiscal provisions provided a tangible budgeting constraint Issues Prompting Revisions Economic and fiscal pressures constantly change Provisions sometimes resulted on over-focus upon one aspect of fiscal policy Calculation and rules around managing the fiscal provisions limit Room for improvement Annex 2 Further detail on how Budget Packages will manage wider impacts There is still a nominal spending amount, but it will manage a wider range of impacts Spending intentions not altered for some pre-specified volatilities A wider spending amount will involve wider management, and wider information flows Final qualitative assessment just a "road-check" Annex 3 Risks and challenges List of Tables Table 1 - comparison between the previous fiscal provisions and the revised fiscal management approach Table 2 - Managing the forecast new operating spending amount Table 3 - Managing the forecast new capital spending amount List of Figures Figure 1 - New Zealand's fiscal management approach: the context Figure 2 - Expense increase components 2001/02 to 2005/06 Figure 3 - The Government's fiscal provisions 9	fmapproach.pdf(196 KB) pp. 18

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Introduction

New Zealand's fiscal management approach - the changes

The wider fiscal management picture
The changes
Concluding remarks

Annex 1 Evolution of the Fiscal Provisions, and issues prompting revisions

Evolution of the Fiscal Provisions
- "Fiscal provisions" developed at a time when the government needed to establish its fiscal credibility
- Fiscal provisions provided a tangible budgeting constraint

Issues Prompting Revisions

Economic and fiscal pressures constantly change
Provisions sometimes resulted on over-focus upon one aspect of fiscal policy
Calculation and rules around managing the fiscal provisions limit
Room for improvement

Annex 2 Further detail on how Budget Packages will manage wider impacts

There is still a nominal spending amount, but it will manage a wider range of impacts
Spending intentions not altered for some pre-specified volatilities
A wider spending amount will involve wider management, and wider information flows
Final qualitative assessment just a "road-check"

Annex 3 Risks and challenges

List of Tables

Table 1 - comparison between the previous fiscal provisions and the revised fiscal management approach
Table 2 - Managing the forecast new operating spending amount
Table 3 - Managing the forecast new capital spending amount

List of Figures

Figure 1 - New Zealand's fiscal management approach: the context
Figure 2 - Expense increase components 2001/02 to 2005/06
Figure 3 - The Government's fiscal provisions 9

fmapproach.pdf(196 KB) pp. 18

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