Te Rautaki Moni Tūmatanui The Fiscal Strategy
The Public Finance Act 1989 requires the Minister of Finance to present to the House on Budget Day a report on the Government’s fiscal strategy.
Sections 26J-26L of the Public Finance Act 1989 prescribe the required content of this report. This chapter and pages 23 to 33 of the Wellbeing Outlook and Approach chapter constitute the Fiscal Strategy Report required by the Public Finance Act.
The economic outlook
The New Zealand economy has emerged from the COVID-19 pandemic in a solid position with modest growth anticipated over 2023
The New Zealand economy expanded by 2.4 percent over the 2022 calendar year, but growth remains relatively volatile following COVID‑19 and the emergence of new challenges such as the ongoing war in Ukraine and high rates of inflation.
The post-COVID-19 economic recovery has been faster than following the GFC…
The recovery from COVID-19 continues to exceed that following the global financial crisis (GFC), with economic activity now 6.7 percent ahead of the pre-COVID-19 peak. In contrast, at the comparable point in time following the onset of the GFC, activity was 0.8 percent below pre-GFC levels (Figure 2). OECD data highlights that New Zealand’s economic recovery has been amongst the top 10 OECD countries and is broadly comparable to Australia’s (Figure 3). Strong demand in the economy has resulted in record low rates of unemployment. Unemployment is now at 3.4 percent, and has been below 4 percent for seven consecutive quarters.
Figure 2 – Economic recoveries: Change in real production GDP since the previous peak
Sources: Stats NZ, the Treasury
Note: The 2007 December quarter is the reference quarter for the peak value of real production GDP before the GFC and the December 2019 quarter is the reference quarter for the peak value before the COVID-19 crisis.
Figure 3 – Change in real expenditure GDP between 2019 and 2022 December quarter
Source: OECD
…but high inflation continues to be a challenge globally
Strong demand, together with constrained supply, have contributed to high inflation both in New Zealand and abroad. The war in Ukraine also contributed to record fuel prices in the first half of 2022, although a combination of falling world oil prices and reduced fuel excises have seen pump prices fall back to late-2021 levels. Annual consumers price index (CPI) inflation peaked at 7.3 percent in June 2022, before easing to 6.7 percent at the start of 2023. With rising prices putting pressure on household budgets, the Government has taken a number of steps to reduce the impact on households including supporting approximately 1.35 million people through the cost of living payments announced in May 2022. Supporting New Zealanders with the cost of living is a key priority for Budget 2023.