Budget 2021

Budget Policy Statement

Fiscal outlook and forecasts

Careful management of expenses and the growing economy mean New Zealand enters the next stage of the COVID-19 response with one of the strongest fiscal positions among advanced economies.

Before the onset of the COVID-19 pandemic, the Labour-led Government ran surpluses and reduced net core Crown debt below 20% of GDP, its lowest since 2011.

The Government's strong fiscal position meant it has been able to support New Zealanders and businesses through the 1-in-100-year global economic shock caused by COVID-19, including providing $62.1 billion for COVID-19 response, recovery and rebuild investments.

The Treasury's fiscal forecasts at the 2020 Budget Update in May 2020 showed operating balance before gains and losses (OBEGAL) deficits of close to $30 billion a year over the period 2020 to 2022, while net core Crown debt was expected to climb, reaching 53.6% of GDP by 2023/24. The final results for the 2019/20 fiscal year were stronger than the Treasury expected at the 2020 Budget Update. The OBEGAL deficit of $23.1 billion in 2019/20 was $5.2 billion lower than forecast by the Treasury. As a share of the economy, net core Crown debt was 26.4% of GDP, compared to a forecast of 30.2% of GDP at the 2020 Budget Update.

The Treasury's 2020 Half Year Update in December showed continued improvement in the fiscal forecasts due to the growing economy and careful management of expenses, with OBEGAL deficits expected to be much lower than at the 2020 Budget Update. The 2020 Half Year Update forecasts an OBEGAL deficit of $21.6 billion in 2020/21 and $16.4 billion in 2021/22, lower by $8 billion and $10.8 billion, respectively, compared to the 2020 Budget Update. By the end of the forecast period, the OBEGAL deficit is forecast to have narrowed to $4.2 billion or just 1% of GDP.

The net core Crown debt track is now also forecast to be lower than at the 2020 Budget Update, with a new forecast peak of 52.6% in the 2022/23 year. Net core Crown debt is forecast to fall to 46.9% of GDP by the end of the forecast period. As discussed in the Half Year Update, the impacts of the Reserve Bank's Funding for Lending Programme (FLP) have affected the headline net debt forecasts due to the definition of net core Crown debt. Looking through the impact of the FLP, net core Crown debt is now expected to increase to 44.8% of GDP in 2022/23 and then stay relatively stable throughout the forecast period. This is around eight percentage points lower at the end of the forecast period when compared to the 2020 Budget Update.

The New Zealand Government's net debt position remains considerably favourable compared to other advanced economies, which went into COVID-19 with net debt averaging above 80% of GDP. On an internationally comparative measure, New Zealand's net debt currently sits below Australia, the United Kingdom, the United States, Canada and Ireland[9].

Figure 1 - OBEGAL

Figure 1 - OBEGAL

Source: The Treasury

Figure 2 - Net core Crown debt comparison

Figure 2 - Net core Crown debt comparison

Source: The Treasury

Table 4 - Summary of the Treasury's Half Year Update fiscal forecasts

Year ending 30 June 2020
Actual
2021
Forecast
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
% of GDP            
Core Crown tax revenue 26.9 27.3 26.3 26.9 26.8 26.9
Core Crown expenses 34.5 35.3 32.2 31.1 30.1 29.3
Total Crown OBEGAL (7.3) (6.7) (4.9) (2.9) (2.0) (1.0)
Core Crown residual cash (7.5) (12.4) (10.7) (6.6) (1.4) 1.0
Net core Crown debt 26.4 39.7 49.1 52.6 50.7 46.9
Net worth attributable to the Crown 34.9 25.9 20.4 17.5 15.7 15.1

Source: The Treasury

Note
  1. [9] IMF Fiscal Monitor, International Monetary Fund, October 2020. https://www.imf.org/external/datamapper/[email protected]/ADVEC/FM_EMG/FM_LIDC
Your browser is out-of-date!

Update your browser to view this website correctly. Update my browser now

×

Back to Top