Fiscal projections and assumptions
The fiscal projections in Table 8 show the Government is on track to meet its long-term objectives of maintaining an average surplus in the range of 0 percent to 2 percent of GDP and keeping net debt below the ceiling of 30 percent of GDP. These projections are based on a set of modelling assumptions that are outlined on the Treasury website at: https://treasury.govt.nz/information-and-services/financial-management-and-advice/fiscal-strategy/fiscal-strategy-model. These assumptions are predominantly based on trend or long-run averages for growth rates and therefore are less closely associated with current policy settings. Where more appropriate, they are instead based on levels of key economic, fiscal and demographic variables.
The key assumptions in the projections are:
- Non-welfare spending growth is largely determined by operating allowances, which are assumed to be $3.0 billion in Budget 2026, growing at 2.0 percent per year for subsequent Budgets.
- Capital allowances are assumed to be $7.0 billion in the first projected year of 2026/27, growing at 2.0 percent per year for subsequent years.
These assumptions differ from the central projection scenario shown in the Fiscal Strategy Report 2021, which assumed allowances of $2.0 billion (operating) and $4 billion (capital) in Budget 2025, growing at 2.0 percent per year. The medium-term fiscal outlook is much stronger at Budget 2022 compared to Budget 2021, and this allows for higher allowances that balance future investment needs with long-term fiscal sustainability.
This projection scenario is consistent with all of the Government's new long-term objectives for fiscal policy. In particular, it shows total debt remaining consistent with the net debt ceiling, and OBEGAL maintaining an average surplus of 0.7 percent of GDP from 2024/25 to 2035/36.
Projecting the various fiscal variables requires projections of a number of economic variables. The projection of these economic variables applies Stats NZ's demographic projections, policy settings, and growth or level values based on outturn data over the last decade or more. Several economic variables, such as the unemployment rate, CPI inflation, annual labour productivity growth, average weekly hours worked, and nominal average hourly wage growth are projected to transition back to long-run stable assumptions over the early years of the projection period. Once this transition has happened, the economy is assumed by the Treasury to grow at trend growth rates, with no economic cycles in the projections.
Both the economic and fiscal projected variables are highly dependent upon their forecast bases, and so changes in these from the previous Economic and Fiscal Update will have major effects on the projections.
Table 8 - Summary of fiscal projections
|Year ending 30 June
percent of GDP
|Core Crown revenue||31.2||31.3||31.5||31.8||32.2||32.1||32.0||31.9||31.8||31.7||31.6||…..||31.2|
|Core Crown expenses||35.4||31.6||31.1||30.4||29.8||29.7||29.7||29.7||29.7||29.7||29.7||…..||29.5|
|Core Crown residual cash||-8.8||-7.3||-2.2||1.8||3.8||0.2||0.4||0.4||0.4||0.4||0.5||…..||0.7|
|Total Crown revenue||37.5||37.9||38.3||38.7||39.8||39.8||39.7||39.7||39.6||39.5||39.4||…..||39.0|
|Total Crown expenses||42.7||39.5||38.8||38.0||38.2||38.3||38.3||38.5||38.6||38.8||38.9||…..||39.1|
|Total Crown OBEGAL1||-5.2||-1.7||-0.6||0.6||1.5||1.5||1.3||1.1||0.8||0.5||0.4||…..||-0.1|
|Total Crown operating balance2||-7.7||-0.4||0.8||2.1||3.0||3.0||2.9||2.7||2.5||2.2||2.1||…..||1.7|
|Net core Crown debt4||36.9||40.8||41.2||37.5||31.9||30.1||28.4||26.8||25.2||23.8||22.3||…..||16.7|
|Total Crown net worth||36.0||32.1||31.5||32.1||33.6||35.0||36.4||37.6||38.6||39.3||40.0||…..||41.6|
|Net worth attributable to the Crown5||34.2||30.5||29.9||30.6||32.1||33.5||34.9||36.1||37.1||37.8||38.5||…..||40.1|
- Operating balance before gains/(losses)
- Excludes minority interests
- Includes Crown entity borrowings and financial assets of the NZS Fund and core Crown advances
- Excludes financial assets of the NZS Fund and core Crown advances
- Excludes assets and liabilities belonging to minority interests
Source: The Treasury