Roles of Fiscal Policy in New Zealand (WP 08/02)

Abstract

Economic growth is one of the objectives of the current government. Fiscal policy, encompassing government expenditure and taxation decisions, can significantly impact on economic growth. This paper proposes a framework which views fiscal policy through three lenses and applies this approach to consider how fiscal policy affects economic growth. The three lenses are: fiscal sustainability, fiscal structure and fiscal stabilisation. The paper reviews international literature pertaining to these three lenses and discusses the extent to which these lenses are incorporated into New Zealand’s current fiscal framework. Contemporary New Zealand fiscal challenges are discussed and, in light of these challenges, the paper concludes with consideration of areas to investigate which may yield improvements to the New Zealand fiscal framework.

Acknowledgements

Earlier versions of this paper were presented at a conference on “Fiscal policy frameworks: Monetary policy implications, and intergenerational financial funds” hosted by the Australian National University Centre for Applied Macroeconomic Analysis and the Lowy Institute for International Policy, Sydney, 23-24 August, 2007, at a Macroeconomic Issues Seminar held at the Treasury, Wellington, September, 2007, and  at a workshop on “The business cycle, housing and the role of policy” hosted by The Treasury and the Reserve Bank of New Zealand, Wellington,  10-11 December, 2007.  We are grateful for comments received from participants at these workshops and seminars and for constructive discussions and suggestions from many colleagues at The Treasury, the Department of Inland Revenue, and the Reserve Bank of New Zealand.

Disclaimer

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.