Our fiscal approach
This Government's prudent fiscal management since taking office has provided us with a strong balance sheet to respond to the challenges of COVID-19
When the Coalition Government came into office, the Budget Responsibility Rules formed the basis of our fiscal strategy. Before the onset of the COVID-19 pandemic we had met these rules, delivering large surpluses, maintaining core Crown expenses around their historical average and reducing net core Crown debt below 20 per cent of GDP within a year of taking office.
Following the reduction of net core Crown debt to 19 per cent in 2019, we adopted a new objective of maintaining net core Crown debt within a range of 15 to 25 per cent of GDP subject to any significant shocks to the economy. The Treasury's Half Year Economic and Fiscal Update in December 2019, before the impact of COVID-19, showed the Government was on track to meet this objective for the foreseeable future.
Maintaining debt at low and prudent levels has allowed us to build a strong fiscal position, with debt lower than nearly all other advanced economies (Figure 11). Most importantly, it has improved our resilience and allowed us to build a buffer to manage unforeseen shocks like the one we face now.
Figure 11 – General government net debt compared to other advanced countries in 2019 (IMF definition)
Source: IMF Fiscal Monitor (April 2020)
Now is the time to use our strong fiscal position to respond to COVID-19
Given the severe global impact of COVID-19, an unprecedented public health and economic response will continue to be required from the Government. We need to use our strong fiscal position to support New Zealand through this pandemic, particularly given the limited space available for further monetary policy responses.
Since the outbreak, the Government has made $62.1 billion available to support the COVID-19 response and recovery, including an initial $12.1 billion Economic Response Package which we announced on 17 March. This included $500 million of investment into the public health response, wage subsidies for all affected businesses, a $2.8 billion income support package for our most vulnerable, $2.8 billion in business tax changes and a $6.25 billion Business Finance Guarantee Scheme. This is on top of the $12 billion of infrastructure investment that the Government announced on 29 January 2020 through the New Zealand Upgrade Programme.
While the measures taken so far have been critical in fighting the virus and cushioning the blow for New Zealanders through the immediate onset of the crisis, the effects of COVID-19 will continue to be far-reaching.
Our response and recovery efforts must therefore also be far-reaching. To support those efforts, as part of Budget 2020, the Government has established a $50 billion COVID-19 Response and Recovery Fund (CRRF). Building on the $12.1 billion Economic Response Package, as at 20 April, $10.7 billion of the CRRF had been committed with the first wave of the Government’s response focused on supporting businesses and households. The $50 billion package will lead our response, kickstarting the recovery and supporting New Zealanders’ wellbeing. All support under the CRRF will be aligned to our plan to respond to the COVID-19 pandemic:
- Fighting the Virus and Cushioning the Blow - acting swiftly to contain the virus and avoid the extreme human and economic costs of an uncontrolled outbreak.
- Kickstarting the Recovery - continuing to support households and businesses and preparing to kickstart the economy in the medium term.
- Resetting and Rebuilding - taking the opportunity to reset our economy, address longstanding challenges and chart a course to return to a more sustainable fiscal position.
-  The IMF's definition of general government net debt is different to the Treasury's measure of net core Crown debt. New Zealand's net core Crown debt was 19 per cent in 2018/19.