Wellbeing Budget 2022

A Secure Future

The Government's short-term intentions and long-term objectives for fiscal policy reflect the new fiscal rules

The Public Finance Act 1989 requires the Government to set short-term intentions and long-term objectives for five variables: total debt, total operating expenses, total operating revenue, the operating balance and total net worth.

The Government's short-term intentions relate to the years 2022/23 to 2024/25 while the long-term objectives relate to the 10 years beginning 2022/23. These have been updated since the Budget 2021 Fiscal Strategy Report to reflect the new fiscal rules of the Government. It should be noted that the strong fiscal performance through COVID-19 means that the previous short-term intentions and long-term objectives were being met and would have continued to be met based on the Budget Update forecasts. On that basis the fiscal performance of the Government is consistent with the 2021 Fiscal Strategy Report.

We have updated the short-term intentions and long-term objectives for debt, the operating balance and net worth to reflect the new fiscal rules.

The change in the operating balance intention highlights the Government's short-term fiscal strategy to return to a surplus by 2024/25. This is consistent with our long-term objective of maintaining an average surplus in the range of 0 percent to 2 percent of GDP, reflected in Table 3 on fiscal projections. The short-term intention and long-term objective for total debt have been updated to maintain total debt such that net debt remains below the new ceiling at 30 percent of GDP.

All new short-term intentions are consistent with the new long-term objectives. Further, the Budget Update forecasts are consistent with all new short-term intentions, as they show net debt well below the ceiling of 30 percent of GDP, and OBEGAL returning to a surplus in 2024/25 and then maintaining a surplus of 0.7 percent of GDP on average from 2024/25 to 2035/36, within the target range of 0 percent to 2 percent of GDP.

The new short-term intentions and long-term objectives accord with the principles of responsible fiscal management in the Public Finance Act 1989

The Government has been guided by the principles of responsible fiscal management in setting its new short-term intentions and long-term objectives for fiscal policy. All new short-term intentions and long-term objectives are consistent with the principles.

For example, and with reference to specific principles, maintaining net debt at below 30 percent of GDP will ensure prudent levels of total debt continue to be achieved. Returning to an operating surplus (before gains and losses) by 2024/25 and maintaining an average surplus in the range of 0 percent to 2 percent of GDP thereafter (subject to economic and fiscal conditions) will ensure that, on average, total operating expenses do not exceed total operating revenues over the forecast and projection period. Using the Crown's net worth to maintain a productive, sustainable and inclusive economy, consistent with the debt and operating balance objectives, will allow the Government to prudently manage fiscal risks and maintain a buffer for future shocks. Combined, the new short-term intentions and long-term objectives will ensure the Crown's resources are managed effectively and efficiently.

The new short-term intentions and long-term objectives represent a return to more specific fiscal targets following the Government's response to COVID-19

As the fiscal outlook has improved and stabilised through the COVID-19 pandemic, the Government has been able to set more specific short-term intentions and long-term objectives - for example, targeting a return to an operating surplus (before gains and losses) in 2024/25, where the previous short-term intention was simply to reduce deficits over the forecast period as economic conditions allow. To this end, the new short-term intention for the operating balance is consistent with the previous short-term intention.

The new short-term intentions for net worth and total debt are not consistent with the previous short-term intentions. This departure is appropriate as New Zealand enters a new stage of the pandemic, and the updated short-term intentions for these two variables reflect that the Government's balance sheet is not expected to be utilised to the same extent in the response to and recovery from COVID-19.

Due to the new fiscal rules introduced at Budget 2022, the new long-term objectives for total debt and the operating balance are not consistent with the previous long-term objectives. The new long-term objectives reflect the current economic and fiscal context, and this departure is appropriate as the Government shifts its focus to medium-term structural challenges, supported by more specific fiscal rules. The Government intends for the new fiscal rules to be enduring, and this will generally translate to enduring short-term intentions and long-term objectives for fiscal policy.

The short-term intentions and long-term objectives for expenses and revenue and the long-term objective for net worth have not materially changed and are therefore consistent with the short-term intentions and long-term objectives in the previous Fiscal Strategy Report.

Table 3 - Short-term intentions for the next three years in the 2022 Fiscal Strategy Report and comparison with 2021 Fiscal Strategy Report

Table 3 - Short-term intentions for the next three years in the 2022 Fiscal Strategy Report and comparison with 2021 Fiscal Strategy Report
2022 Fiscal Strategy Report 2021 Fiscal Strategy Report
Debt

Maintain total debt at prudent levels. Maintain net debt at below 30 percent of GDP based on the new net debt measure including the NZSF, subject to significant shocks.

Gross debt is forecast to be 36.1 percent of GDP at the end of the forecast period.

Net debt is forecast to peak at 19.9 percent of GDP in 2023/24 and reduce over the forecast period to 15.0 percent of GDP in 2025/26.

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.
Operating balance

Our intention is to return to an operating surplus (before gains and losses) by 2024/25, subject to economic and fiscal conditions.

The operating balance (before gains and losses) is forecast to be 0.6 percent in 2024/25.

The operating balance is forecast to be 2.1 percent of GDP in 2024/25.

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.
Expenses

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

Core Crown expenses are forecast to be 29.8 percent of GDP in 2025/26. Total Crown expenses are forecast to be 38.2 percent of GDP in 2025/26.

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

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

Total Crown revenue is forecast to be 39.8 percent of GDP in 2025/26.

Core Crown revenue is forecast to be 32.2 percent of GDP in 2025/26.

Core Crown tax revenue is forecast to be 29.8 percent of GDP in 2025/26.

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

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

Total net worth attributable to the Crown is forecast to be 32.1 percent of GDP in 2025/26.

Total Crown net worth is forecast to be 33.6 percent of GDP in 2025/26.

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.

Table 4 - Long-term objectives for at least the next ten years in the 2022 Fiscal Strategy Report and comparison with 2021 Fiscal Strategy Report

Table 4 - Long-term objectives for at least the next ten years in the 2022 Fiscal Strategy Report and comparison with 2021 Fiscal Strategy Report
2022 Fiscal Strategy Report 2021 Fiscal Strategy Report
Debt Maintain total debt at prudent levels. Maintain net debt at below 30 percent of GDP based on the new net debt measure including the NZSF, subject to significant shocks. 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

Once the operating balance (before gains and losses) has returned to a surplus, our long-term objective is to maintain an average surplus in the range of 0 percent to 2 percent of GDP, subject to economic and fiscal conditions.

This will ensure that, on average, over a reasonable period of time total operating expenses do not exceed total operating revenue.

The Government will run an operating balance consistent with meeting the long-term debt objective.
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 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 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, consistent with the debt and operating balance objectives.
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 use the Crown's net worth to maintain a productive, sustainable and inclusive economy, consistent with the debt and operating balance objectives.
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