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.

Table of contents

  • 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

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.