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Working paper

Three Policy Options for Crown Financial Policy (WP 03/30)

Issue date: 
Monday, 1 December 2003
View point: 
Publication category: 
JEL classification: 
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
H11 - Structure, Scope, and Performance of Government
H63 - National Debt; Debt Management; Sovereign Debt

Formats and related files

In this paper, a qualitative analysis is conducted to select three high-level policies for detailed quantitative analysis of Crown financial policy in future papers.


Crown financial policy is concerned with how the government manages the Crown’s assets and liabilities. The recently established New Zealand Superannuation Fund, which is projected to grow to around 45% of GDP over the next few decades, highlights that Crown financial policy is likely to become an important economic policy tool with potentially significant implications for New Zealand economic welfare.

Previous work has identified that four objectives should form the main basis for assessing alternative Crown financial policies. Three of the objectives relate to minimising distortionary taxation, time-inconsistency of policy and agency cost of government. However, the absolute and relative importance of these objectives is subject to considerable uncertainty. The fourth objective, which is to avoid exacerbating any existing inefficiencies or creating any new ones, is considered part of the baseline common to all policies.

In this paper a qualitative analysis is conducted to select three high-level policies for detailed quantitative analysis in future papers. The three policies vary in terms of level of risk:

  • A low risk policy that places emphasis on time-consistency and agency cost issues while down-weighting the significance of distortionary taxation;
  • A medium risk policy that applies a balanced weighting to the three issues; and
  • A high risk policy that places emphasis on distortionary taxation while down-weighting time-consistency and agency cost.

Detailed policy targets are specified for the candidate policies in terms of Crown net worth, overall risk/return properties of the Crown balance sheet, and the level and structure of financial assets and public debt. The policy targets under the status quo are presented for comparative purposes.


I wish to thank John Carran, Philip Combes, Aaron Gill, Arthur Grimes, Greg Horman, Brian McCulloch and Tim Ng for comments on an earlier draft of this paper. All errors remain my responsibility.


This paper was written while the author was on the staff of the New Zealand Treasury. The views expressed in this Working Paper are those of the author(s) and do not necessarily reflect the views of the New Zealand Treasury. The paper is presented not as policy, but with a view to inform and stimulate wider debate.

Last updated: 
Wednesday, 24 October 2007