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Working paper

Returning to Surplus: New Zealand's Post-GFC Fiscal Consolidation Experience (WP 16/05)

Issue date: 
Friday, 3 February 2017
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Publication category: 
JEL classification: 
E62 - Fiscal Policy
E65 - Studies of Particular Policy Episodes
H62 - National Deficit; Surplus

Formats and related files

The New Zealand Government's announcement of an operating surplus in 2014/15 after six years of deficits was an important milestone on the path of fiscal consolidation. However, the consolidation is not complete, with net debt remaining above the Government's stated target range. Nevertheless, the achievement of surplus is an appropriate point to look back at how it was achieved and the prevailing conditions.


New Zealand's fiscal outlook deteriorated following the Global Financial Crisis, and in late 2008 fiscal projections showed net government debt in New Zealand increasing from 5% of GDP to around 40% within 10 years, mostly reflecting permanently lower expectations for future tax revenue. These circumstances were compounded by the significant costs associated with the Canterbury earthquakes in 2010 and 2011. The structural deficit peaked at 4% of GDP in 2011. In 2011, the Government set a target to return the Budget to surplus by 2014/15, and stepped up its fiscal consolidation programme. A surplus was achieved in that year, and net debt has now peaked just above 25% of GDP. The surplus was achieved predominantly by slowing the growth rate of nominal spending so that expenses-to-GDP declined. The slowing in expense growth reflected a combination of factors including programme savings, efficiency savings, reprioritisation, and slower public sector wage growth. New Zealand's fiscal management approach - a combination of fixed nominal baselines for most expenditure alongside comprehensive top-down constraints on new spending through the Budget - provided effective tools for controlling expense growth. Nevertheless, the return to surplus is only the first step in fiscal consolidation and challenges remain to ensure these surpluses are sustained, and to rebuild the fiscal buffers that existed prior to 2009.


The authors would like to thank Mark Blackmore, Simon Duncan, Tim Irwin, Kamlesh Patel and Kam Szeto for their contribution to this paper. Andrew Craig, Mario DiMaio, Nicola Haslem, John Janssen, Simon McLoughlin, Mark Vink and Ben Udy provided valuable comments on an earlier version of this paper.


The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.

Last updated: 
Friday, 3 February 2017