Short-term intentions and long-term objectives
The Government's commitments to reduce core Crown expenses as a proportion of GDP, reduce debt as a proportion of GDP, and return to surplus are formalised in statements of short‑term fiscal intentions and long-term fiscal objectives, as required by the Public Finance Act.
The Government's short-term intentions (Table 3) are unchanged from those in the Budget Policy Statement, aside from adding a timeframe for returning to surplus.
Table 3 — The Government's short-term fiscal intentions for the next four financial years
| Fiscal Strategy Report 2024 | |
| Debt |
Maintain total debt at prudent levels. Put net core Crown debt as a percentage of GDP on a downward trajectory towards 40 per cent. |
|---|---|
| Operating balance |
Return the operating balance (before gains and losses) to surplus by 2027/28.
Ensure consistency with the short-term intention for debt. |
| Expenses |
Reduce core Crown expenses as a percentage of GDP.
Ensure expenses are consistent with the operating balance intention. |
| Revenue | Ensure revenue is consistent with the operating balance intention. |
| Net worth | Maintain net worth at around 40 per cent of GDP. |
The Government intends to return the operating balance (before gains and losses) to surplus in 2027/28. As noted above, the operating balance is the difference between government revenue and expenses. Many of the factors that affect this balance - notably changes to tax revenue due to the economic cycle - are largely outside the Government's direct control. A surplus in 2027/28 is at risk if there is a further deterioration in the fiscal outlook. On the other hand, a surplus in 2026/27 is possible if the outlook improves. As noted in the Budget Update, past deviations from historical forecasts suggest there is a 30 per cent chance that total tax revenue will be more than $11 billion higher or lower than the forecast for 2027/28.
The following circumstances could lead the Government to consider amending the short-term intentions in Table 3:
- a significant decline in forecast revenue due to factors outside of the direct control of the Government
- a significant economic shock, arising for example from a natural disaster, that necessitates an increase in spending, or
- a material likelihood of constraints on the ability of monetary policy to stabilise the economy.
The Government's long-term fiscal objectives (Table 4) are unchanged from those stated in the Budget Policy Statement.
Table 4 — The Government's long-term fiscal objectives for the next 15 financial years
| Fiscal Strategy Report 2024 | |
| Debt |
Maintain total debt at prudent levels.
Once net core Crown debt is below 40 per cent of GDP, maintain it within a range of 20 per cent to 40 per cent of GDP, subject to economic shocks. |
|---|---|
| Operating balance |
Maintain operating surpluses sufficient to ensure consistency with the debt objective.
This will ensure that, on average, over a reasonable period of time, operating expenses are funded from operating revenues and not from debt. |
| Expenses | Control growth in government spending so that, over time, core Crown expenses reduce towards 30 per cent of GDP. |
| Revenue | Ensure the level of operating revenues is consistent with the operating balance objective and supports long-term productive economic growth. |
| Net worth | Ensure net worth remains at a level sufficient to act as a buffer to economic shocks |
These intentions and objectives are consistent with the principles of responsible fiscal management set out in the Public Finance Act, as net core Crown debt between 20 per cent and 40 per cent of GDP is within the range of prudent debt based on Treasury modelling.[7] The short-term intentions are consistent with the long-term objectives as they indicate the same direction of travel for each of the fiscal variables. The short-term intentions are also consistent with the Budget Update, as shown in the next section.
Note
- [7] See the Treasury's analysis and recommendations for fiscal rules. The Treasury, May 2022: https://www.treasury.govt.nz/publications/guide/treasurys-analysis-and-recommendations-fiscal-rules