Fiscal outlook and forecasts
The Government has decided to maintain a contractionary fiscal policy through the forecast period, to assist the Reserve Bank in its monetary policy approach. This will require prioritisation of new spending to where it is needed most, and making trade-offs in expenditure to maintain public service levels, particularly in health, education, and housing.
The strong economy in 2021 and 2022 meant that the final results for the 2021/22 fiscal year were better than forecast at BEFU 2022. The operating balance before gains and losses (OBEGAL) deficit of $9.7 billion in 2021/22 was $9.3 billion less than forecast at BEFU 2022.
Looking ahead, the Government is forecast to run smaller deficits in the current 2022/23 year and 2023/24 than forecast at BEFU 2022, by a combined total of $5.1 billion. The 2023/24 deficit is reduced to just $461 million. We have maintained a return to surplus in the 2024/25 year, forecast at $1.7 billion.
This will mean the Government will have run five years of deficits following the COVID‑19 economic shock, averaging 2.5 per cent of GDP per year, compared to six deficits run after the Global Financial Crisis averaging 3.6 per cent of GDP (see Figure 5).
Figure 5 - OBEGAL during the COVID-19 pandemic and the Global Financial Crisis
Source: The Treasury
As we move away from the COVID-19 emergency response, real government consumption is forecast to fall by 8.2 per cent between the September 2022 and December 2024 quarters. While this is a significant decline, it follows the temporary increase in spending to support the economy through the pandemic. In fact, the Treasury advises that real government consumption as a share of GDP returns to pre-pandemic levels over the forecast period.
Delivering lower deficits across the next two years, and surpluses from 2024/25 onwards, will give the Government options to prioritise spending in areas that support our wellbeing objectives and overarching policy goals.
At Budget 2022 the Government adopted a new net debt indicator to bring New Zealand's debt measure more closely in line with international reporting. We also adopted a net debt ceiling of 30 per cent of GDP. The volatility in the valuation losses of the New Zealand Superannuation Fund, which are included in the new net debt indicator, means that the starting position of net debt is higher compared to Budget 2022, but remains well below the ceiling of 30 per cent of GDP. Net debt is now forecast to peak at 21.4 per cent of GDP ($88.2 billion) in the 2023/24 year before falling by $20 billion to 14.1 per cent of GDP by 2026/27 ($68.2 billion) (see Figure 6).
Figure 6 - Net debt forecast comparison
Source: The Treasury
The New Zealand Government's net debt position remains considerably favourable compared to other advanced economies. The International Monetary Fund's (IMF's) general government net debt indicator (which is similar to New Zealand's net debt measure) forecasts New Zealand's debt at 23.1 per cent of GDP in 2024, compared to 30.2 per cent in Canada, 37.4 per cent in Australia, 65.1 per cent in the United Kingdom, and 101.6 per cent in the United States (see Figure 7).
Figure 7 - IMF-forecasted general government net debt in 2024
Source: IMF World Economic Outlook, October 2022
Table 4 - Summary of the Treasury's Half Year Update fiscal forecasts
|Year ending 30 June||2022
|% of GDP|
|Core Crown tax revenue||30.2||29.9||30.3||30.3||30.7||30.8|
|Core Crown expenses||35.0||32.8||32.6||32.2||31.5||30.9|
|Total Crown OBEGAL||(2.7)||(0.9)||(0.1)||0.4||1.4||1.9|
|Core Crown residual cash||(7.5)||(6.4)||(4.3)||1.7||1.0||1.3|
|Net worth attributable to the Crown||46.5||42.1||41.5||41.1||41.6||42.9|
- Net debt is the 'new' net debt fiscal indicator that includes core Crown advances, Crown entity borrowings (excluding Kiwi Group), and the New Zealand Superannuation Fund.