Having a strong fiscal position is a prerequisite to maintaining and improving intergenerational wellbeing
A strong fiscal position helps to ensure intergenerational fairness, while maintaining resilience to risks. Running surpluses, on average, will ensure future generations are not burdened with paying for initiatives that primarily benefit the current generation. The Budget Policy Statement 2020 sets out our fiscal strategy in the form of short-term intentions and long-term objectives.
The Government remains committed to a prudent fiscal strategy
The Government will deliver a sustainable operating surplus across an economic cycle. A sustainable operating surplus is one that exists once policy objectives have been met, recognising that sustainability is a long-term concept where outcomes in one year are less important than the overall trend.
Over the last two financial years, OBEGAL surpluses averaged $6.4 billion per year, and last year's $7.3 billion surplus represented the largest surplus since 2008.
The Treasury forecasts OBEGAL to show an initial small deficit this year owing to increased investment at recent Budgets and the temporary effects of global headwinds flowing through to the New Zealand economy. The rising OBEGAL surpluses thereafter will more than outweigh this deficit to produce an OBEGAL surplus, on average, over the next five years. The Treasury forecasts OBEGAL to be in a small deficit initially of 0.3 per cent of GDP in 2019/20, rising to a surplus of 1.5 per cent in 2023/24.
The Government will maintain net debt within a range between 15 and 25 per cent of GDP. Maintaining Government debt within a prudent range provides the flexibility for fiscal policy to support economic stability. The target range recognises that current and forecast debt levels are prudent and provides a degree of flexibility for the Government to use debt to progress high-value investments in New Zealand. It also encourages a longer-term perspective for fiscal policy by allowing the Government to look through short-term volatility in net debt.
We reached our net core Crown debt target of below 20 per cent of GDP within a year of taking office. In the fiscal year 2018/19 it reached 19.0 per cent. While the Treasury's forecasts suggest that net core Crown debt will increase as a share of GDP over the next three financial years, the benefits of increasing debt to fund investment in high-value initiatives outweigh the costs. Nevertheless, we remain committed to keeping debt at prudent levels. The Treasury forecasts net core Crown debt will fall to 19.6 per cent of GDP in 2023/24.
Credit rating agencies view New Zealand's fiscal position as strong compared to similarly rated peers. Moody's most recent credit opinion report states: “the stable outlook is anchored by our expectation that, even in the face of shocks, New Zealand's credible institutions with highly effective policymaking and ample policy space will maintain economic and financial stability and credit metrics consistent with an Aaa rating”. Investor demand for New Zealand Government debt has also remained robust.
The Government will prioritise investments to address the long-term financial and sustainability challenges facing New Zealand. The Government remains committed to making responsible investments that enhance the long-term wellbeing of New Zealanders. The new capital investment will enable investment in infrastructure to support our growing population, develop our regions and reduce the long-term fiscal and economic risks of climate change. In addition, the Government restarted contributions to the New Zealand Superannuation Fund (NZS Fund) after seven years of no payments by the previous Government, and we are making investments through the Green Investment Fund and the New Zealand Venture Capital Fund.
The Government will take a prudent approach to ensure expenditure is phased, controlled and directed to maximise its benefits. The Government will maintain its expenditure to within the recent historical range of spending to GDP. The Treasury forecasts that core Crown expenditure will rise to 29.4 per cent of GDP in 2020/21 before falling back down to 28.1 per cent of GDP in 2023/24. These forecasts are well below the recent peak of spending of 34.1 per cent of GDP in 2011 and in line with the recent historical average of 30.3 per cent of GDP.
The Government will ensure a progressive taxation system that is fair, balanced and promotes the long-term sustainability and productivity of the economy. The Government is committed to a progressive tax system that is sustainable, fair and efficient. It has refreshed its tax policy work programme, and is committed to a tax system with the fundamental principles of a broad base and low rates, while making improvements to maintain its integrity, fairness and neutrality.
Further details on the Government's specific short-term intentions and long-term objectives can be found in the Annex.
-  The 2018/19 financial results have been restated owing to changes in accounting policies, to be consistent with policies applied in the Treasury's fiscal forecasts. The results stated here therefore differ from those published in the Financial Statements of the Government of New Zealand for the Year Ended 30 June 2019.