New Zealand Fiscal Management Approach

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.

Table of Content

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