Fiscal Strategy Report 2024
Te Rautaki Moni Tūmatanui

Fiscal consolidation

The Government has two main levers to achieve fiscal consolidation - adjusting expenses and adjusting revenue. Of these two levers, the Government's focus is squarely on controlling expenses, although it will also maintain an active tax policy programme to ensure the tax system remains fit for purpose (see the Revenue Strategy section of this Fiscal Strategy Report).

The Government's strategy for managing spending is to embed a culture of responsible spending, restore fiscal discipline, right-size the government's footprint, and improve the efficiency and productivity of spending.

Budget operating allowances are the key top-down tool to ensure this strategy is realised. In its recent Economic Survey of New Zealand, the OECD highlighted the expenditure “slippage” that occurred under the previous Government, whereby spending at each Budget tended to exceed what had previously been signalled in operating allowances.[3] In this Fiscal Strategy Report, the Government is setting tight but realistic operating allowances (see next section) and intends to keep to them.

The Government has a deliberate medium-term approach to fiscal consolidation.[4] The alternative approach - a more severe, short-term consolidation - would have a significant impact on the front-line public services New Zealanders rely on.

In charting this medium-term course of fiscal consolidation, the Government will not over-react to typical movements up or down in the forecasts by significantly decreasing, or increasing, allowances. Upside revenue surprises will contribute to reducing the deficit.