Wellbeing Budget 2020

The Fiscal Strategy

Short-term fiscal intentions and long-term fiscal objectives

The new short-term intentions reflect the need for further fiscal expansion

Table 6 - Short-term fiscal intentions for the next three years

Fiscal Strategy 2020 Budget Policy Statement 2020
Debt Debt

Our intention is to allow the level of net core Crown debt to rise in the short term to fight COVID-19, cushion its impact and position New Zealand for recovery.

Net core Crown debt (excluding NZS Fund and advances) is forecast to be 30.2 per cent of GDP in 2019/20, 49.8 per cent of GDP in 2021/22 and 53.6 per cent of GDP in 2023/24.

Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 74.0 per cent of GDP in 2023/24.

This assumes a new multi-year capital allowance of $8.4 billion for Budget 2020 and the next three Budgets.

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 in the economy). We will continue to maintain debt at prudent levels (a range of 15-25 per cent of GDP).

Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 28.2 per cent of GDP in 2023/24.

Net core Crown debt (excluding NZS Fund and advances) is forecast to be 19.6 per cent of GDP in 2019/20, 21.5 per cent of GDP in 2021/22 and 19.6 per cent of GDP in 2023/24.

This assumes a new capital allocation of $8.0 billion in the 2019/20 financial year and a multi-year capital allowance of $8.4 billion for Budget 2020 and the next three Budgets.

Operating balance Operating balance

Our intention is to run operating deficits in the short term to fight COVID-19, cushion its impact and position New Zealand for recovery. We can do this because of our strong starting position and low net core Crown debt going into this pandemic.

The operating balance (before gains and losses) is forecast to be -9.6 per cent of GDP in 2019/20, improving to -1.3 per cent of GDP in 2023/24.

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 and to maintain it at prudent levels thereafter (a range of 15-25 per cent of GDP).

The operating balance (before gains and losses) is forecast to be -0.3 per cent of GDP in 2019/20, increasing to 1.5 per cent of GDP in 2023/24. This is consistent with the long-term objective for the operating balance.

The operating balance is forecast to be 2.8 per cent of GDP in 2023/24.

Expenses Expenses

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

Core Crown expenses are forecast to fall from 38.7 per cent of GDP in 2019/20 to 30.2 per cent of GDP in 2023/24.

Total Crown expenses are forecast to be 38.1 per cent of GDP in 2023/24.

This assumes new operating allowances of $3.3 billion per year in Budget 2020, $2.4 billion per year in Budget 2021, $2.4 billion per year in Budget 2022 and $2.6 billion per year in Budget 2023.

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

Core Crown expenses are forecast to fall from 29.3 per cent of GDP in 2019/20 to 28.1 per cent of GDP in 2023/24.

Total Crown expenses are forecast to be 35.9 per cent of GDP in 2023/24.

This assumes new operating allowances of $3.0 billion per year in Budget 2020, $2.4 billion per year in Budget 2021, $2.4 billion per year in Budget 2022 and $2.6 billion per year in Budget 2023.

Revenue Revenue

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

Total Crown revenues are forecast to be 36.9 per cent of GDP in 2023/24.

Core Crown revenues are forecast to be 29.4 per cent of GDP in 2023/24.

Core Crown tax revenues are forecast to be 27.3 per cent of GDP in 2023/24.

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

Total Crown revenues are forecast to be 37.6 per cent of GDP in 2023/24.

Core Crown revenues are forecast to be 30.2 per cent of GDP in 2023/24.

Core Crown tax revenues are forecast to be 28.4 per cent of GDP in 2023/24.

Net worth Net worth

Our intention is to use the Crown's net worth to fight COVID-19, cushion its impact and position New Zealand for recovery. Significant risks will be transferred onto the Crown’s balance sheet through the response period.

Total net worth attributable to the Crown is forecast to be 8.9 per cent of GDP in 2023/24.

Total Crown net worth is forecast to be 10.3 per cent of GDP in 2023/24.

 

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

Total net worth attributable to the Crown is forecast to be 43.5 per cent of GDP in 2023/24.

Total Crown net worth is forecast to be 44.9 per cent of GDP in 2023/24.

As set out above, our updated short-term intentions recognise the need for a period of further fiscal expansion in cushioning the impact of COVID-19 and supporting the recovery, particularly given the limited space available for monetary policy to respond.

The change in the intentions highlights that we will run operating deficits, both now and - as shown in the projections - for several years to come. We have adapted our short-term intentions and long-term objectives since the 2020 Budget Policy Statement (set out in Table 6 and 7) and approach to the principles of responsible fiscal management outlined in the Public Finance Act 1989 (PFA) to help us face a global pandemic, the scale and length of which remains highly uncertain and unlike anything experienced in modern times.

Our short-term intentions remain consistent with our long-term objectives and the principles of responsible fiscal management, with the exception of the operating balance intention. Across the forecast period the Government is forecast to be running operating deficits but these will reverse out to an operating surplus by the end of the projection period. However, future surpluses may not be larger than the deficits needed in the short term to manage this shock. This will be rectified as the need for higher levels of Crown expenditure declines as the immediate impact of COVID-19 passes and the need for fiscal support reduces.

The intentions are consistent with the 2020 Budget Update forecasts showing net debt and OBEGAL deficits rising in the near-term and lower net worth.

The Government remains committed to the principles of responsible fiscal management, including in our COVID-19 response and recovery strategy. Over time we intend to return to surplus and maintain debt at prudent levels. Our short-term intentions will be updated as our understanding of the economic impacts of COVID-19 change and the economy begins to recover.

The long-term fiscal objectives have changed in light of COVID-19

We have also updated our long-term objectives in light of COVID-19. The fiscal projections reflect our best view as to what moving towards these objectives will look like at this stage.

Table 7 - Long-term fiscal objectives for at least the next ten years

Fiscal Strategy 2020 Budget Policy Statement 2020
Debt Debt

Maintain total debt at prudent levels.

The Government will stabilise and then reduce net core Crown debt to prudent levels over the long term (subject to any significant shocks) and beyond. Prudent levels of net core Crown debt are those that are within sustainable limits and provide a buffer for future shocks.

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).

Operating balance Operating balance

The Government will return the operating balance (before gains and losses) to surplus over the long term and maintain an operating balance consistent with the debt objective thereafter.

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

Operating expenses Operating expenses

The Government will ensure operating expenses support a responsible and proportionate role for the Government in maintaining a productive, sustainable and inclusive economy, consistent with the debt and operating balance objectives.  

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 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, consistent with the debt and operating balance objectives.

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

Net worth Net worth

The Government will use the Crown's net worth to maintain a productive, sustainable and inclusive economy, consistent with the debt and operating balance objectives.   

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

The long-term objectives are consistent with the principles of responsible fiscal management outlined in the PFA. That is, they aim to:

  • maintain total debt at 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 government
  • have regard for present and future generations
  • ensure the Crown's resources are managed effectively and efficiently.

The long-term objectives for debt, operating balance, expenses and net worth have changed since the 2020 Budget Policy Statement to reflect a change in the domestic and global economic environment and our fiscal response to COVID-19. These long-term objectives will be updated and refined as the economic and fiscal picture becomes clearer over time.

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