Short-term intentions and long-term objectives
Given the downward revisions to the fiscal outlook - particularly to the operating balance track - the Government had a choice to either:
- reduce future operating allowances below $2.4 billion to improve the fiscal forecasts, or
- stick to existing operating allowances and accept some impact on the short-term intentions.
The Government has chosen the latter. As stated in the FSR, the Government has a deliberate, medium-term approach to fiscal consolidation and will not over-react to movements up or down in the forecasts. The alternative approach - a more severe, short‑term consolidation, driven off very low allowances - comes with risks: that spending reductions, over and above those being considered for Budget 2025, could impact front-line public services; or that significant revenue increases could constrain growth, especially as the economy comes out of recession. Nonetheless, the Government will continue to look at its options during the lead-up to Budget 2025 and consider whether updated forecasts next year warrant any further action.
As discussed above, the Government has decided to express a new short-term operating balance intention in terms of OBEGALx (that is, excluding ACC). Had it done so before Budget 2024, the BEFU forecasts would have shown a $166 million OBEGALx surplus in 2026/27. Given the changes in fiscal forecasts set out in Table 3 above, it is unlikely a 2026/27 OBEGALx surplus can be met. The intended date for returning to an OBEGALx surplus has therefore been set at 2027/28. This is effectively a one-year delay in returning to surplus, considering the change in indicator from OBEGAL to OBEGALx.
This one-year delay in returning to surplus is consistent with the statement in the FSR that a significant decline in forecast revenue due to factors outside the direct control of the Government, could lead to amending the short-term intentions.
The Government's new short-term intention for OBEGALx is also accompanied by a short‑term intention for the balance between total operating expenses and total operating revenues, as required by the PFA.
The full set of short-term fiscal intentions is set out in Table 4.
Table 4 - The Government's short-term fiscal intentions for the next four financial years
| Budget Policy Statement 2025 | 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. |
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 | Bring total operating expenses and total operating revenues into balance. Return the operating balance (before gains and losses, excluding ACC) to surplus by 2027/28. Ensure consistency with the short-term intention for debt. |
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. |
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. | Ensure revenue is consistent with the operating balance intention. |
| Net worth | Maintain net worth at around 40 per cent of GDP. | Maintain net worth at around 40 per cent of GDP. |
Consistent with the FSR, the following circumstances could lead the Government to consider amending the short-term intentions:
- 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 are unchanged from those in the FSR (Table 5).
Table 5 - The Government's long-term fiscal objectives for the next 15 financial years
| Budget Policy Statement 2025 | |
|---|---|
| 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. |
The amended operating balance short-term intentions in Table 4 accord with the principles of responsible fiscal management in the PFA. For example, because they target a return to surplus, the new intentions accord with the principle to ensure that, on average, over a reasonable period of time, total operating expenses do not exceed total operating revenues and therefore maintain debt at prudent levels. The amended short-term intentions accord with the Government's long-term objectives in Table 5 because they are targeting a return to surplus which will, in turn, support the debt and net worth objectives.
Budget 2025 accords with the short-term intentions outlined in Table 4, as maintaining tight operating allowances supports returning the operating position to surplus, reducing core Crown expenses as a percentage of GDP, and putting net core Crown debt on a downward trajectory.