The Budget Responsibility Rules are the basis of our fiscal strategy
The Budget Responsibility Rules underpin the Coalition Government’s fiscal strategy. They are to:
• Deliver a sustainable operating surplus across an economic cycle
• Reduce the level of net core Crown debt to 20 per cent of GDP within five years of taking office
• Prioritise investments to address the long-term financial and sustainability challenges facing New Zealand
• Take a prudent approach to ensure expenditure is phased, controlled and directed to maximise its benefits. The Government will maintain its expenditure to within the recent historical range of spending to GDP ratio
• Ensure a progressive taxation system that is fair, balanced and promotes the long-term sustainability and productivity of the economy.
The Government has demonstrated its continued commitment to these rules
throughout its term to date. We have delivered sustainable OBEGAL21 surpluses (Figure 22), maintained core Crown expenses around their historical average and are on track to reduce net core Crown debt to 20 per cent of GDP within five years of taking office (Table 8).
A strong fiscal position is not just a signal of sound fiscal management, it is also a
prerequisite for improving the intergenerational wellbeing of New Zealanders. Maintaining debt at prudent levels supports New Zealand’s resilience to risks, such as unexpected
economic downturns or natural disasters.
Sustainable operating surpluses help debt remain on a stable trajectory in the medium term.
Avoiding deficits will ensure future generations are not burdened with paying for initiatives that primarily benefit the current generation.
Prioritising expenditure on high-value initiatives supports the effective and efficient management of the Crown’s resources.
21 Operating balance before gains and losses.
Figure 22 – Total Crown OBEGAL
Source: The Treasury
2009 2011 2013 2015 2017 2019 2021 2023
$ billions (RHS) % of GDP
% of GDP
Forecasts Actuals
Year ending 30 June
$ billions
THE FISCAL STRATEGY
Table 8 – Summary of the Treasury’s fiscal forecasts
Year ending 30 June 2018
Actual 2019
Forecast 2020
Forecast 2021
Forecast 2022
Forecast 2023 Forecast
$ billions
Core Crown revenue 86.8 91.6 96.4 102.9 108.1 113.8
Core Crown expenses 80.6 87.3 93.3 98.9 101.7 105.7
Total Crown OBEGAL 5.5 3.5 1.3 2.1 4.7 6.1
Core Crown residual cash 1.3 -2.8 -4.2 -4.3 -0.6 1.2
Net core Crown debt 57.5 60.3 64.7 69.2 69.9 68.5
Net worth attributable to the Crown 129.6 130.0 134.7 140.7 149.8 160.8
% of GDP
Core Crown revenue 30.0 30.6 30.4 30.8 30.9 31.1
Core Crown expenses 27.9 29.1 29.4 29.6 29.0 28.8
Total Crown OBEGAL 1.9 1.2 0.4 0.6 1.3 1.7
Core Crown residual cash 0.5 -0.9 -1.3 -1.3 -0.2 0.3
Net core Crown debt 19.9 20.1 20.4 20.7 19.9 18.7
Net worth attributable to the Crown 44.9 43.4 42.5 42.1 42.8 43.9
Source: The Treasury
Capital and operating allowances have been increased
This Budget has progressed the Coalition Government’s wellbeing objectives by investing in the five Budget priorities announced in the Budget Policy Statement 2019:
• Taking Mental Health Seriously – Supporting mental wellbeing for all New Zealanders, with a special focus on under 24-year-olds
• Improving Child Wellbeing – Reducing child poverty and improving child wellbeing, including addressing family violence
• Supporting Māori and Pasifika Aspirations – Lifting Māori and Pacific incomes, skills and opportunities
• Building a Productive Nation – Supporting a thriving nation in the digital age through innovation, social and economic opportunities
• Transforming the Economy – Creating opportunities for productive businesses, regions, iwi and others to transition to a sustainable and low-emissions economy.
Budget 2019 required extensive information about the wellbeing impact of Budget initiatives.
This led to more scrutiny of initiatives than has been the case in the past and has ensured that new expenditure was directed to maximise benefits. This approach will be continued and enhanced over future Budgets.
This evidence-based approach has identified a number of initiatives that have significant wellbeing benefits. To deliver these we have increased the operating allowance in Budget 2019 from $2.4 billion to $3.8 billion. The operating allowance for Budget 2020 has also increased
from $2.4 billion to $3.0 billion. A further $1.7 billion has been added to the multi-year capital allowance for future Budgets (Table 9).22
These increases will allow the Government to invest in high-quality initiatives that both enhance the lives of New Zealanders and support the economy in the face of global headwinds.
Table 9 – Budget allowances
$ billions Budget
2019 Budget
2020 Budget
2021 Budget 2022 Operating allowances at Budget Policy Statement 2019 2.4 2.4 2.4 2.4
Operating allowances at Budget 2019 (per year) 3.8 3.0 2.4 2.4
Capital allowance at Budget Policy Statement 2019 13.1
Capital allowance at Budget 2019 14.8
Source: The Treasury
The Government will increase investment, while maintaining a sound fiscal position
The Government will increase investment in essential public services and infrastructure while maintaining a sustainable fiscal outlook. The Government remains on track to meet its Budget Responsibility Rules and short-term fiscal intentions. Sustainable OBEGAL surpluses are expected across the forecast period, and core Crown expenses will stay within the historic range of
spending as a percentage of GDP. Net worth attributable to the Crown is forecast to increase by
$31.2 billion over the forecast period.
Increased Government investment is forecast to lift net core Crown debt slightly before it falls to below 20 per cent of GDP in 2021/22 (Figure 23). Government debt will remain very low compared to most OECD countries. New Zealand has the fifth lowest gross general government debt in the OECD.23
Increased Government investment will support economic growth alongside monetary policy.
The increase in spending announced in the Budget might be expected to place slight upward pressure on interest rates. However, a moderate increase in spending is appropriate, given the need for greater investment and in the context of subdued inflation and historically low interest rates.
22 The multi-year capital allowance is explained further in the Investing in New Zealand section (see page 98).
23 As a share of GDP in 2018, IMF World Economic Outlook, April 2019.
Figure 23 – Net core Crown debt
Source: The Treasury
2009 2011 2013 2015 2017 2019 2021 2023
$ billions (RHS) % of GDP
% of GDP
Year ending 30 June
Actuals Forecasts
$ billions
THE FISCAL STRATEGY
…while the Government will maintain a prudent level of debt in the long term…
The Government has committed to reducing net core Crown debt to 20 per cent of GDP within five years of taking office and maintaining it at prudent levels thereafter.
The long-term objectives have been updated in this Budget to provide more detail about the Government’s view of what a prudent level of debt is. Beyond 2021/22 the Government will maintain net debt within a range between 15 and 25 per cent of GDP.
Maintaining net debt within a range recognises that there is no specific level of net debt that is prudent but rather there is a range of levels that meet the Public Finance Act 1989 (PFA) requirements of prudent fiscal management.
Maintaining net debt within a range also provides flexibility for fiscal policy to support economic stability. It encourages a longer-term perspective for fiscal policy by allowing the Government to look through short-term volatility in net debt.
A range of 15 to 25 per cent of GDP for net core Crown debt recognises that current debt levels are prudent, while providing a degree of flexibility for the Government to use debt to progress high-value investments in New Zealand. In the short term, capacity constraints within the economy may limit investment opportunities.
Fiscal discipline will also be supported by the Government’s other long-term objectives, including the commitments to sustainable operating surpluses and managing expenditure within the recent historical ratio of spending to GDP.
…and remains committed to transparency about its fiscal management The Government remains committed to fiscal responsibility and, as announced in Budget 2018, we are establishing an Independent Fiscal Institution that will measure progress against the fiscal strategy. The Government has consulted on the proposal, is considering the submissions received and will make further announcements later this year.