Budget 2019

The Fiscal Strategy

Fiscal projections and assumptions

The fiscal projections in Table 13 show the Government is expected to meet its long-term objectives. These projections are based on a set of modelling assumptions that are outlined on the Treasury website at https://treasury.govt.nz/information-and-services/financial-management-and-advice/fiscal-strategy/fiscal-strategy-model.

The key assumptions in the projections are: 

  • Non-welfare spending growth is largely determined by operating allowances, which are assumed to be $2.6 billion in Budget 2023, growing at 4.5 per cent per year for subsequent Budgets.
  • Capital allowances are assumed to be $6.6 billion in each year of the projection period, sufficient to keep net core Crown debt stable at around 19 per cent of GDP. The capital allowances are assumed to be spent in the year they are allocated, in contrast to the forecast period where capital allowances are spread over a number of years. In reality, the profile of capital spend will differ reflecting the timing of decisions and profile of expenditure. As a result, net debt will fluctuate around the levels shown in the projection.
  • The long-term core Crown tax-to-GDP ratio is assumed to be 28.3 per cent.
  • The economy is assumed to grow at trend growth rates with no economic cycles in the projections.

The main changes to fiscal projections since the Fiscal Strategy Report 2018 are:

  • changes in the economic and fiscal forecasts, which affect the starting point for the projections
  • changes to the assumptions for capital allowances across the projection horizon
  • a change to the length of time needed for 10-year government bond yields to return to their assumed long-run levels, reflecting economic developments
  • changes to indexation settings for main benefits, consistent with the policy decision in the Budget to adjust growth rates in line with average wage growth rather than CPI inflation
  • revisions to some of the major tax types’ long-term stable ratios to GDP, which reflects economic developments, along with extensions to the number of years before some of the tax types stabilise.

Table 13 – Summary of fiscal projections

Year ending 30 June 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2033
% of GDP Forecasts Projections
Core Crown revenue 30.6 30.4 30.8 30.9 31.1 30.7 30.6 30.6 30.6 30.6 30.6 30.7
Core Crown expenses 29.1 29.4 29.6 29.0 28.8 28.7 28.8 28.9 29.1 29.2 29.4 30.0
Total Crown revenue 38.8 38.1 38.4 38.3 38.3 38.1 38.0 38.0 38.0 38.0 38.0 38.2
Total Crown expenses 37.6 37.6 37.7 36.9 36.5 36.4 36.6 36.7 36.9 37.0 37.2 37.9
Total Crown OBEGAL1 1.2 0.4 0.6 1.3 1.7 1.6 1.4 1.2 1.0 0.9 0.7 0.2
Total Crown operating balance2 -0.1 1.5 1.8 2.6 3.0 2.5 2.4 2.2 2.1 2.1 2.0 1.7
Gross sovereign-issued debt 29.7 29.2 28.2 29.3 26.9 27.2 27.1 27.2 27.2 27.2 27.2 27.6
Net core Crown debt3 20.1 20.4 20.7 19.9 18.7 18.9 18.8 18.8 18.8 18.8 18.9 19.2
Total Crown net worth 45.4 44.4 43.9 44.5 45.4 46.1 46.5 46.8 47.0 47.2 47.2 46.9
Net worth attributable to the Crown 43.4 42.5 42.1 42.8 43.9 44.5 45.0 45.4 45.6 45.8 45.9 45.8

Source: The Treasury

Footnotes

1. Operating balance before gains and losses.

2. Excludes minority interests.

3. Excludes the NZS Fund and advances.

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