The Government's short-term intentions and long-term objectives for fiscal policy remain unchanged from Budget 2021
Our fiscal strategy continues to take a balanced approach to supporting current and future generations by managing debt prudently and reducing the deficit caused by COVID-19, while growing the economy sustainably and investing in important public services like health and education. Given the nature of the COVID-19 global economic shock and the need to support the economy, debt remains at prudent levels throughout the forecast period, and there remains space in the Government's fiscal strategy to respond to future shocks.
The Government's strong fiscal strategy and New Zealand's comparatively favourable debt position compared to other advanced economies mean credit rating agencies have maintained their strong ratings on New Zealand Government Bonds through COVID-19. In a ratings report, S&P Global Ratings noted that New Zealand was in a strong fiscal position before the pandemic hit and that proactive policy-making was supporting sustainable public finances and economic growth. Moody's continues to rate New Zealand Government debt at its strongest Aaa rating, while Fitch most recently retained its strong AA+ local currency rating.
Recent economic growth and careful management of government spending mean that net core Crown debt including FLP assets is now forecast to peak lower than in Budget 2021, at 35.3 per cent of GDP in 2023/24. Even at this peak, New Zealand's net debt as a percent of GDP remains lower than that of most other advanced economies based on comparable measures. OBEGAL is also forecast to return to surplus in 2023/2024. This shows an improvement since Budget 2021 and for comparison, OBEGAL did not return to surplus until the seventh year following the Global Financial Crisis.
The ongoing uncertainty around COVID-19 and volatility in the global economy mean that the current short-term intentions and long-term objectives remain fit for purpose, and have therefore not changed since the 2021 Fiscal Strategy Report (see page 43 of that document). The Government's strategy for managing its expenditure, assets, and liabilities has also not changed since the 2021 Fiscal Strategy Report.
Budget 2022 is expected to accord with our current short-term intentions and long-term objectives for fiscal policy by allowing net core Crown debt to rise in the short term while the Government is responding to COVID-19, and improving OBEGAL over the forecast period as economic conditions allow. The Government is committed to setting new fiscal targets at Budget 2022 with the expectation that the global economic outlook and conditions will stabilise.
Table 5 – Fiscal intentions and objectives
|Short-term intention||Long-term objective|
|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.||The Government will stabilise net core Crown debt as a percentage of GDP by the mid-2020s and then reduce it as conditions permit (subject to any significant shocks).|
|Operating balance||The Government will use fiscal policy to secure the economic recovery for New Zealand and reduce deficits over the forecast period as economic conditions allow.||The Government will run an operating balance consistent with meeting the long-term debt objective.|
|Expenses||Our intention is to ensure expenses are consistent with the operating balance objective.||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.|
|Revenue||Our intention is to ensure revenue is consistent with the operating balance objective.||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.|
|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.||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.|