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An Introduction to New Zealand's Fiscal Policy Framework

The effectiveness of the fiscal responsibility provisions

Until the substantive amendments in 2013, the provisions were very much focused on the sustainability dimension of good fiscal policy, in particular, the need to keep public debt low.

Certainly, New Zealand governments have been committed to achieving and maintaining prudent levels of public debt since the introduction of the fiscal responsibility provisions. Figure 1 shows the path of public debt from shortly before the introduction of the principles until now.

Net core Crown debt as a % of GDP
Net core Crown debt as a % of GDP

It would be inaccurate to suggest the reduction in public debt since the early 1990s is solely due to the fiscal responsibility provisions. Multi-party commitment to, and understanding of the importance of fiscal sustainability, plus public expectations that governments will be good fiscal managers, have also played a critical part. The fiscal responsibility provisions are part of a self-reinforcing circle that encourages multi-party commitment to prudent fiscal policy in order to underpin New Zealand's living standards.

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