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Putting It Together: An Explanatory Guide to New Zealand's State Sector Financial Management System

Appendix B: Reporting on Fiscal Responsibility

Fiscal responsibility provisions in the Public Finance Act help establish stable and predictable operating environments for businesses, financial markets and state services. They ensure the public and any incoming government understand the fiscal situation, and the impact of current policies and risks.

The Public Finance Act requires publication of specific fiscal indicators and forecasts over a three-year period. These forecasts get updated regularly. The Act also requires long-term projections. Governments must pursue their policy objectives within, and report to Parliament against, five statutory principles of fiscal responsibility (section 26G of the Public Finance Act):

  1. reducing total government debt to prudent levels
  2. maintaining prudent levels of debt
  3. achieving and maintaining levels of net worth to protect against shocks
  4. managing the Government's fiscal risks in a prudent manner
  5. pursuing consistent policies giving predictability to levels of taxation.

Collectively, statutory reporting against these principles ensures transparency about New Zealand's expected fiscal position, and provides valuable protections against imbalanced spending and indebtedness.

Budget Policy Statement

The Public Finance Act provides for publication of a Budget Policy Statement no later than 31 March each year. This is required to set out the Government's:

  • broad strategic priorities for the coming financial year
  • overarching policy goals and policy areas for the coming year
  • how the Budget fits with short-term intentions in the most recent Fiscal Strategy Report (inconsistencies must be explained).

Fiscal Strategy Report

  • Fiscal Strategy Reports (FSRs) must be presented to Parliament as part of the Budget package. They:
    • look out over at least ten years
    • state the Government’s long-term fiscal objectives, in particular for total operating expenses, revenues, total debt and net worth
    • show how short-term intentions (three years) meet long-term objectives
    • assess the consistency of expectations in the current FSR with the previous FSR and explain any differences
    • explain how short-term and long-term objectives fit with the principles of fiscal responsibility and explain (a) any differences between short-term and long-term objectives, and (b) how consistency will be restored.

Economic and Fiscal Updates

The Public Finance Act requires the Treasury to prepare economic and fiscal updates, which the Minister of Finance presents to Parliament at specified times:

  • when the Budget is presented
  • in November or December (the ‘Half-year Economic and Fiscal Update’)
  • 20-30 working days before the day of each general election.

Updates contain forecasts for the financial year to which the update relates (the next year, for budget updates) and at least two consecutive years.

Economic information must include forecast movements in gross domestic product, consumer prices, unemployment and employment, the current account position of the balance of payments, and a statement of all significant underlying assumptions.

Fiscal information must reflect the forecast financial operations for the Government, including the forecast financial position, and statements of borrowings, commitments and specific fiscal risks. They must state all significant underlying assumptions and show how sensitive fiscal aggregates are to changing economic conditions.

Statement on Long-Term Fiscal Position

At intervals not exceeding four years, the Treasury must prepare a Statement on Long-term Fiscal Position, which the Minister of Finance must present to Parliament. This looks forward over at least 40 fiscal years at the likely aggregate costs and affordability of existing policies, allowing for demographic change and other reasonably predictable influences.

While the Public Finance Act does not prescribe the contents of this Statement in detail, the Secretary of the Treasury must sign a responsibility statement that the fiscal outlook (projections) and risk statements are based on best professional judgement, and all significant assumptions are clearly stated.

The responsibility statement itself requires the Secretary to disclose known trends or risks that may impact beyond the ten-year period of the Fiscal Strategy Report, and ensures transparency over an extended timeframe.

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