Treasury consults on responding to future economic shocks

Consultation opens today on the Treasury’s draft 2025 Long-term Insights Briefing[1].

“The Treasury’s 2025 Long-term Insights Briefing - Te Ara Mokopuna is focused on if, when and how fiscal policy can be used to buffer the economy from shocks and cycles, and how to do so in a sustainable way,” Treasury Secretary Iain Rennie said.

Mr Rennie says sustainable fiscal policy matters for affording public services and responding to shocks in the future

“New Zealand has seen government debt levels rising in recent decades, partly because fiscal responses to adverse shocks have not been mirrored by savings between shocks.

“Major economic shocks in the last 20 years have included the 2023 North Island weather events, the Canterbury and Kaikōura earthquakes as well as the Global Financial Crisis.

“The experience from the response to COVID-19 shows that fiscal policy is easier to loosen in a downturn or shock but much more difficult to tighten in an upturn. This can lead to debt ratcheting upwards over time.

“It is important that the government maintains low debt levels, so we have the capacity to respond to economic shocks when they occur. On average, from the late 1980s to now, we have spent the equivalent of 10% of our annual GDP each decade responding to these shocks.

“We need to make sure we are passing on to future generations that same flexibility we have had so that they are able to respond to the shocks they will undoubtedly face. That means paying our debt down when the sun is shining.

“This Long-term Insights Briefing sets out ways New Zealand can respond to future shocks in a more sustainable way.

“Fiscal policy should be used sparingly. Rather, monetary policy should take the lead role in smoothing economic cycles and responding to crises affecting the whole country. 

“It is important to also maintain structural features of the economy that keep it flexible and adaptable in the face of shocks, including maintaining the resilience of the private sector.

“Tools for responding to shocks should be prepared ahead of time, and it is important to have institutional arrangements in place that support transparency of fiscal policy.

“Where fiscal policy is used, it should be timely, temporary and targeted, with clear exit strategies.

“We are seeking feedback on this draft Long-term Insights Briefing to get New Zealanders talking about how to plan for the shocks that could impact on the living standards of future generations, and the options and tools available to meet these challenges.”

The consultation document and information on how to make a submission can be found at Draft Briefing for Consultation: Te Ara Mokopuna Long-term Insights Briefing 2025. Submissions close on Thursday 8 May 2025. Read a short summary of the draft Long-term Insights Briefing 2025.

The Treasury will finalise and publish its Long-term Insights Briefing at the end of June 2025.