Budget 2022

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 per cent of GDP, its lowest since 2011.

Figure 2 - OBEGAL

Operating balance before gains and losses

Source: The Treasury

The Government's strong fiscal position means it has been able to support New Zealanders and businesses through the one-in-100-year global economic shock caused by COVID-19, including providing $69.1 billion for COVID-19 response, recovery and rebuild investments.

The final results for the 2020/21 fiscal year were stronger than the Treasury expected at BEFU 2021. The OBEGAL deficit of $4.6 billion in 2020/21 was $10.5 billion lower, while net core Crown debt was lower by $11.6 billion. The improvement in the results from the 2020/21 fiscal year has provided some headroom to manage the fiscal impacts from the recent Delta outbreak.

Figure 3 - Net core Crown debt comparison

Net core Crown debt comparison

Source: The Treasury

HYEFU 2021 shows a continued improvement in the fiscal outlook due to the growing economy and careful management of expenses. The OBEGAL deficit of $20.8 billion in 2021/22 is expected to be higher than at BEFU 2021, largely owing to the Government's fiscal support measures to respond to the Delta outbreak. Beyond 2021/22, a sharp recovery is expected as the temporary fiscal support measures unwind, and the economy is expected to continually grow. An OBEGAL surplus of $2.1 billion is expected in 2023/24, which grows to $8.2 billion by 2025/26, although these results could change by Budget 2022.

Figure 4 - IMF general government net debt in 2024 (forecast)

IMF general government net debt 2024 (forecast)

Source: IMF World Economic Outlook Database October 2021

The net core Crown debt track is now also forecast to be lower than at BEFU 2021, with a new forecast peak of 40.1 per cent in the 2022/23 year compared to 48.0 per cent of GDP at BEFU 2021. Net core Crown debt is forecast to fall to 30.2 per cent of GDP by the end of the forecast period. As discussed in BEFU 2021, 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 financial assets from the FLP, net core Crown debt is now expected to increase to 35.3 per cent of GDP in 2023/24. The FLP is expected to be completed by the 2025/26 year and therefore will no longer impact on net core Crown debt.

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 per cent of GDP. On an internationally comparative measure, New Zealand's net debt currently sits below that of Australia, the United Kingdom, the United States, Canada and the Euro Area and is projected to still be below in 2024 (Figure 4 refers).

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

Year ending 30 June 2021
per cent of GDP            
Core Crown tax revenue 28.8 28.3 28.9 29.0 29.2 29.5
Core Crown expenses 31.7 35.3 30.5 30.1 29.5 29.3
Total Crown OBEGAL (1.3) (5.7) (0.2) 0.5 1.4 1.8
Core Crown residual cash (4.1) (9.4) (5.5) (1.9) 3.3 2.7
Net core Crown debt 30.1 37.6 40.1 39.9 34.6 30.2
Net worth attributable to the Crown 44.6 35.1 33.4 33.6 34.8 36.4

Source: The Treasury

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