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Budget Management That Counts: Recent Approaches to Budget and Fiscal Management in New Zealand - WP 01/24

Annex 3: graph showing how the Provisions influence the trend of the operating balance

The following graph provides an illustrative view of how a government can influence the long-term track of the operating balance through a focus on the fiscal provisions.

Operating Balance (1999 Budget)
Operating Balance (1999 Budget).
The operating balance increases as the economy expands, providing greater tax revenue, while baselines are fixed.
  • The operating balance track is reduced through the inclusion of the provisions for future initiatives (or “fiscal allowances” in the years beyond the fiscal forecast horizon.
  • The operating balance may fluctuate within the identified band (illustrative only[21]) due to events beyond the immediate control of the Government (such as liability valuation changes).
  • By altering the fiscal parameters for new spending and baselines, the Government can influence the underlying operating balance track.
  • While short-term volatility can detract from the underlying trends (in the operating balance or debt for example), it is the underlying trends that are central to sound fiscal policy action. As noted in the section 2.3, the fiscal provisions should only be altered if progress towards the Government’s medium- to long-term objectives is seriously threatened.

Notes

  • [21]Magnitudes (for different probabilities) are provided in Treasury Working Paper 01/11.
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