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2  Fiscal provisions

2.1  What are the fiscal provisions?

The provisions framework consists of a pre-determined fiscal limit across the parliamentary cycle (three years, generally from November to November), and a set of principles and rules for “counting" against that limit. The limit is a pool of funds available for implementing government policy. The principles and rules establish when the fiscal implications of policy decisions will be “counted” against the limit.

When fiscal forecasts are produced, the provisions sit “on top of” the projected expenditure for existing government programmes and policies. This means they represent the operating balance impact of changes to existing policy, whether this be an increase in funding for an existing policy or funding for new policy. The framework focuses on ministerial decision-making and, therefore, only applies to discrete policy decisions. This means the framework excludes those automatic forecasting or indexation changes that are factored into baselines based on previously agreed parameters, with little ministerial input from year to year.

This means that the provisions framework built onto and extended the existing practice of using fixed nominal baselines for most departmental spending, while allowing forecasting changes (i.e. formula-driven items) to fluctuate with the state of the economy. For example, an increase in benefit payments due to higher unemployment would not be financed from (or “count against”) the provisions. If, on the other hand, the government decides to increase the amount of the benefit payment, the resulting increase in forecast benefit payments would count against the provisions.

Beyond the three-year Parliamentary cycle, forecasts include a proxy for the provisions that is referred to as a “technical”[8] provision, representing potential future policy decisions to be made as part of future Budgets. The technical provision is determined by the Treasury (and agreed to by Ministers) based on an approximate average of the cost of new policy over the last few years.[9]

Notes

  • [8]The term “technical” is used to emphasise the fact that as yet there is no political commitment to the projected expenditure target. In the 2001 Budget the “technical” provisions were altered to “indicative” provisions to provide a better indication of potential future spending (outlined in the Fiscal Strategy Report page 23 of B.2 & B.3).
  • [9]In the current 10-year fiscal projections required as part of the Fiscal Strategy Report, the amount set aside beyond the fiscal forecast horizon is termed a “fiscal allowance” as opposed to a fiscal provision. The allowance indicates the fiscal flexibility the Government has for spending and revenue initiatives, contributions to partially pre-fund future New Zealand superannuation pressures, and responding to developments in the economic and fiscal position. It provides a broad indication of flexibility rather than a specific policy commitment.
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