Budget 2019

The Fiscal Strategy

Long-term fiscal objectives and short-term fiscal intentions

The Government’s long-term objectives relate to the next 10 years beginning in 2019/20 (Table 10). These long-term objectives are consistent with those set out in the Fiscal Strategy Report 2018, with additional detail for the debt objective, as discussed above.

Table 10 – Long-term fiscal objectives

Fiscal Strategy 2019

Operating balance

The Government will deliver a sustainable operating surplus across an economic cycle.

Operating expenses

The Government will maintain its expenditure to within the recent historical range of spending as a ratio of GDP.

The Government will take a prudent approach to ensure expenditure is phased, controlled and directed to maximise its benefits, in particular prioritising investments to address the long-term financial and sustainability challenges facing New Zealand.

Operating revenues

The Government will ensure a progressive taxation system that is fair, balanced and promotes the long-term sustainability and productivity of the economy.

Debt

Maintain total debt at prudent levels.

The Government will reduce the level of net core Crown debt to 20 per cent of GDP within five years of taking office and maintain it at prudent levels thereafter. Prudent levels of net core Crown debt are within a range of 15 to 25 per cent of GDP (subject to any significant shocks to the economy).

Net worth

The Government will strengthen net worth consistent with the debt and operating balance objectives.

The Government’s short-term fiscal intentions have not changed since the Fiscal Strategy Report 2018 (Table 11). However the indicator values that the intentions are measured against have been updated since the Budget Policy Statement 2019 to reflect the impact of changes in the Budget Economic and Fiscal Update 2019 forecasts, which remain consistent with the short-term intentions. The updates to the indicator values reflect changes to the economic forecasts, the impact of policy changes and changes in the allowances for this and future Budgets.

Table 11 - Short-term fiscal intentions

Fiscal Strategy 2019 Fiscal Strategy Report 2018

Debt

Our intention is to reduce the level of net core Crown debt to 20 per cent of GDP within five years of taking office (subject to any significant shocks to the economy).

Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 26.9 per cent of GDP in 2022/23.

Net core Crown debt (excluding NZS Fund and advances) is forecast to be 20.4 per cent of GDP in 2019/20, 20.7 per cent of GDP in 2020/21, 19.9 per cent of GDP in 2021/22, and 18.7 per cent of GDP in 2022/23.

This assumes a multi-year capital allowance of $14.8 billion for Budget 2019 and the next three Budgets.

Debt

Our intention is to reduce the level of net core Crown debt to 20 per cent of GDP within five years of taking office (subject to any significant shocks to the economy).

Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 27.3 per cent of GDP in 2021/22.

Net core Crown debt (excluding NZS Fund and advances) is forecast to be 20.6 per cent of GDP in 2019/20, 20.2 per cent of GDP in 2020/21 and 19.1 per cent in 2021/22.

This assumes new capital allowances of $3.8 billion in Budget 2018, $3.7 billion in Budget 2019, $3.4 billion in Budget 2020, and $3.0 billion in Budget 2021.

Operating balance

Our intention is to deliver operating surpluses (before gains and losses) to ensure net debt falls to 20 per cent of GDP within five years of taking office.

The operating balance (before gains and losses) is forecast to be 1.2 per cent of GDP in 2018/19, rising to 1.3 per cent of GDP in 2021/22 and 1.7 per cent of GDP in 2022/23. This is consistent with the long-term objective for the operating balance.

The operating balance is forecast to be 3.0 per cent of GDP in 2022/23.

Operating balance

Our intention is to deliver operating surpluses (before gains and losses) to ensure net debt falls to 20 per cent of GDP within five years of taking office.

The operating balance (before gains and losses) is forecast to be 1.1 per cent of GDP in 2017/18, rising to 1.7 per cent of GDP in 2019/20 and 2.1 per cent of GDP in 2021/22. This is consistent with the long-term objective for the operating balance.

The operating balance is forecast to be 3.3 per cent of GDP in 2021/22.

Expenses

Our intention is to ensure expenses are consistent with the operating balance objective.

Core Crown expenses are forecast to fall from 29.1 per cent of GDP in 2018/19 to 28.8 per cent of GDP in 2022/23.

Total Crown expenses are forecast to be 36.5 per cent of GDP in 2022/23.

This assumes new operating allowances of $3.8 billion per year in Budget 2019, $3.0 billion per year in Budget 2020 and $2.4 billion per year in Budgets 2021 and 2022.

Expenses

Our intention is to ensure expenses are consistent with the operating balance objective.

Core Crown expenses are forecast to be 28.1 per cent of GDP in 2017/18 and 28.0 per cent of GDP in 2021/22.

Total Crown expenses are forecast to be 36.2 per cent of GDP in 2021/22.

This assumes new operating allowances of $2.8 billion per year in Budget 2018 and $2.4 billion per year in Budget 2019, 2020 and 2021.

Revenues

Our intention is to ensure sufficient revenue to meet the operating balance objective.

Total Crown revenues are forecast to be 38.3 per cent of GDP in 2022/23.

Core Crown revenues are forecast to be 31.1 per cent of GDP in 2022/23.

Core Crown tax revenues are forecast to be 28.8 per cent of GDP in 2022/23.

Revenues

Our intention is to ensure sufficient revenue to meet the operating balance objective.

Total Crown revenues are forecast to be 38.4 per cent of GDP in 2021/22.

Core Crown revenues are forecast to be 30.4 per cent of GDP in 2021/22.

Core Crown tax revenues are forecast to be 28.3 per cent of GDP in 2021/22.

Net worth

Our intention is to increase net worth consistent with the operating balance objective.

Total net worth attributable to the Crown is forecast to be 43.9 per cent of GDP in 2022/23.

Total Crown net worth is forecast to be 45.4 per cent of GDP in 2022/23.

Net worth

Our intention is to increase net worth consistent with the operating balance objective.

Total net worth attributable to the Crown is forecast to be 44.2 per cent of GDP in 2021/22.

Total Crown net worth is forecast to be 45.8 per cent of GDP in 2021/22.

Both the short-term intentions and the long-term objectives remain consistent with each other and with the principles of responsible fiscal management as set out in the PFA. That is, they aim to:

  • reduce total debt to prudent levels and achieve and maintain levels of total net worth so as to provide a buffer against adverse economic shocks
  • ensure that, on average, total operating expenses do not exceed total operating revenues
  • have regard to efficiency and fairness, including the predictability and stability of tax rates
  • take into account the impact of fiscal policy on monetary policy
  • prudently manage the fiscal risks facing the Government
  • have regard for present and future generations
  • ensure the Crown’s resources are managed effectively and efficiently.
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