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Fiscal strategy

Fiscal policy is one tool a government has to achieve its economic and social objectives. The operation of fiscal policy is governed by the Public Finance Act 1989 (PFA).

Fiscal Strategy of the Government

The Government's fiscal priorities are set out in the:

The Government is committed to operate within five:

  • Budget Responsibility Rules
    • 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.

Background

The Public Finance Act and Responsible Fiscal Management

The PFA prescribes that the Government must pursue its policy objectives in accordance with the following principles:

  • (a) reducing total debt to prudent levels so as to provide a buffer against factors that may impact adversely on the level of total debt in the future by ensuring that, until those levels have been achieved, total operating expenses in each financial year are less than total operating revenues in the same financial year
  • (b) once prudent levels of total debt have been achieved, maintaining those levels by ensuring that, on average, over a reasonable period of time, total operating expenses do not exceed total operating revenues
  • (c) achieving and maintaining levels of total net worth that provide a buffer against factors that may impact adversely on total net worth in the future
  • (d) managing prudently the fiscal risks facing the Government
  • (e) when formulating revenue strategy, having regard to efficiency and fairness, including the predictability and stability of tax rates
  • (f) when formulating fiscal strategy, having regard to the interaction between fiscal policy and monetary policy
  • (g) when formulating fiscal strategy, having regard to its likely impact on present and future generations
  • (h) ensuring that the Crown's resources are managed effectively and efficiently.

The PFA requires the Government to present, in each financial year, reports outlining its fiscal policy: the Budget Policy Statement (BPS) and the Fiscal Strategy Report (FSR). The BPS has a short run focus setting out policy goals that will guide the Government's Budget decisions and priorities. The FSR is presented with the Budget and must state the Government's long term objectives for fiscal policy over a period of at least ten years and the Government's short term intentions for fiscal policy over a period of three years. The FSR must also provide projections of fiscal variables to show progress towards meeting the long-term objectives.

In addition, the Treasury is required to publish, at least every four years, a"

This has a horizon of at least 40 years and identifies how demographic and other changes may impact the fiscal position.

Last updated: 
Tuesday, 20 March 2018