Budget 2019

The Fiscal Strategy

This chapter meets the requirement for the Government to report on its fiscal strategy alongside the Budget as set out in sections 26I-26L of the Public Finance Act 1989 (PFA).

As set out in the Budget Policy Statement 2019, the Government plans to amend the PFA to ensure each Budget is developed with wellbeing in mind. The intention is that the Government will be required to set out how its wellbeing objectives, together with its fiscal objectives, have guided its Budget.

A strong economy

The New Zealand economy is performing well

The New Zealand economy is sound, with robust growth and low unemployment. New Zealand’s real GDP growth was 2.8 per cent in the year ended December 2018, well above the OECD average of 2.3 per cent. The unemployment rate remains at a 10-year low in 2019.

Government investment will support growth in the face of global headwinds

The pace of growth eased over the second half of 2018 at the same time as global uncertainty grew and international growth slowed. Increased domestic investment means New Zealand’s real GDP growth is expected to strengthen from 2.4 per cent in the year ending June 2019 to 3.0 per cent in the year ending June 2020. Growth is then expected to moderate in subsequent years (Figure 20). GDP growth averages 2.6 per cent per year across the forecast period. Risks are broadly balanced domestically, but are mostly negative internationally.

Figure 20 – Real GDP growth

Sources: The Treasury, Stats NZ

The stimulus coming from additional government investment in this Budget will lift growth in the near term, supporting household incomes, with increased demand flowing through into business investment. Growth will also be supported by historically low interest rates, continued net immigration inflows and historically high export prices. The unemployment rate is expected to remain low, settling around the Government’s target of 4 per cent across the forecast period (Figure 21).

Figure 21 – Unemployment rate

Sources: The Treasury, Stats NZ

Budget 2019 strikes the right balance between supporting growth and wellbeing by investing in new initiatives, while maintaining a prudent fiscal buffer for unexpected events or risks.

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