Fiscal projections and assumptions
The fiscal projections in Table 7 show the Government is on track to meet its long-term objectives of maintaining average surpluses in the range of 0 percent to 2 percent of GDP and keeping debt below the ceiling. These projections are based on a set of modelling assumptions described on the Treasury website.[16] These assumptions are based on trend or long-run averages for growth rates or levels of key economic, fiscal and demographic variables, and generally assume no policy changes beyond those built into their forecast base.
The key assumptions in the projections are as follows:
- Other than for the areas of welfare-related expenses and interest costs, spending growth is largely determined by operating allowances, which are assumed to be $3.5 billion in Budget 2027, growing at 2 percent per year for subsequent Budgets.
- Capital allowances are assumed to be $7 billion in the first projected year of 2027/28, growing at 2 percent per year for subsequent years.
- Both operating and capital expenditure on the Climate Emergency Response Fund (CERF) is projected, with their combined total set equal to projected cash proceeds from auctioned ETS units.
The assumptions for projected allowances are the same as those shown in the Fiscal Strategy Report 2022 except for the starting projected operating allowance (which was lower, at $3 billion) and CERF expenditure which was not projected beyond the end of the forecast base of the projections, although ETS cash proceeds were. The medium-term fiscal outlook is weaker at Budget 2023 compared to Budget 2022, mainly due to a forecast base of lower revenue and higher expenses and incorporating higher projected operating allowances and CERF expenditure.
However, this projection scenario is consistent with all of the Government's long-term objectives for fiscal policy. It shows net debt remaining well under the 30 percent of GDP ceiling and declining not only as a percentage of GDP but also in nominal dollar terms. Also, while OBEGAL surpluses fall over the projection years, it remains in surplus and averages 0.3 percent of GDP over the 12 years from returning to surplus in 2025/26 to the end of the projections in 2036/37.
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 to grow at trend growth rates, with no economic cycles in the projections.
Table 7 – Summary of fiscal projections
| Year ending 30 June percent of GDP |
2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | … | 2037 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Forecasts | Projections | |||||||||||
| Core Crown revenue | 32.2 | 32.4 | 32.4 | 32.9 | 32.9 | 32.8 | 32.7 | 32.6 | 32.5 | 32.4 | ….. | 31.9 |
| Core Crown expenses | 32.5 | 33.0 | 32.3 | 32.0 | 31.5 | 31.8 | 31.7 | 31.7 | 31.7 | 31.7 | ….. | 31.6 |
| Core Crown residual cash | -5.7 | -6.5 | -0.1 | 0.0 | 0.0 | -0.8 | -0.6 | -0.6 | -0.7 | -0.7 | ….. | -0.8 |
| Total Crown revenue | 39.5 | 40.1 | 39.8 | 40.2 | 40.0 | 39.9 | 39.8 | 39.8 | 39.7 | 39.5 | ….. | 39.0 |
| Total Crown expenses | 41.1 | 41.8 | 40.5 | 40.0 | 39.2 | 39.4 | 39.3 | 39.2 | 39.2 | 39.2 | ….. | 38.9 |
| Total Crown OBEGAL1 | -1.8 | -1.8 | -0.8 | 0.1 | 0.7 | 0.4 | 0.5 | 0.4 | 0.4 | 0.3 | ….. | 0.0 |
| Total Crown operating balance2 | 1.1 | -0.3 | 0.6 | 1.5 | 2.0 | 1.8 | 1.9 | 1.9 | 1.9 | 1.8 | ….. | 1.7 |
| Net debt3 | 18.0 | 22.0 | 21.7 | 20.7 | 18.4 | 17.1 | 15.7 | 14.5 | 13.3 | 12.3 | ….. | 8.3 |
| Net core Crown debt4 | 38.5 | 43.1 | 41.1 | 39.1 | 37.3 | 36.4 | 35.3 | 34.5 | 33.7 | 33.1 | ….. | 31.0 |
| Core Crown borrowings5 | 47.7 | 50.5 | 51.6 | 50.8 | 49.6 | 48.1 | 46.6 | 45.3 | 44.2 | 43.3 | ….. | 39.6 |
| Total Crown net worth | 45.4 | 42.9 | 41.3 | 40.6 | 40.7 | 40.7 | 40.8 | 41.0 | 41.3 | 41.6 | ….. | 42.5 |
| Net worth attributable to the Crown6 | 43.4 | 40.9 | 39.4 | 38.8 | 39.0 | 38.9 | 39.0 | 39.3 | 39.5 | 39.8 | ….. | 40.8 |
Notes
- Operating balance before gains/(losses)
- Excludes minority interests
- Includes Crown entity borrowings (excl. Kiwi Group borrowings) and financial assets of the NZSF and core Crown advances
- Excludes financial assets of the NZSF and core Crown advances
- This indicator is a proxy for total debt and includes unsettled purchases of securities
- Excludes assets and liabilities belonging to minority interests
Source: The Treasury