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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 Fiscal Strategy section of the Wellbeing Budget 2020: Rebuilding Together document.

The Government’s short-term fiscal intentions include running operating deficits and allowing the level of net core Crown debt to rise in the short term to fight COVID-19, cushion its impact and position New Zealand for recovery.

The Government’s long-term objectives are to:

  • maintain total debt at prudent levels
  • stabilise and then reduce net core Crown debt to prudent levels over the long term (subject to any significant shocks) and beyond. Prudent levels of net core Crown debt are those that are within sustainable limits and provide a buffer for future shocks
  • return the operating balance (before gains and losses) to surplus over the long term and maintain an operating balance consistent with the debt objective thereafter
  • ensure operating expenses support a responsible and proportionate role for the Government in maintaining a productive, sustainable and inclusive economy, consistent with the debt and operating balance objectives
  • ensure a progressive taxation system that is fair, balanced and promotes the long-term sustainability and productivity of the economy, consistent with the debt and operating balance objectives
  • use the Crown's net worth to maintain a productive, sustainable and inclusive economy, consistent with the debt and operating balance objectives.   

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:

  1. 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
  2. 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
  3. 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
  4. managing prudently the fiscal risks facing the Government
  5. when formulating revenue strategy, having regard to efficiency and fairness, including the predictability and stability of tax rates
  6. when formulating fiscal strategy, having regard to the interaction between fiscal policy and monetary policy
  7. when formulating fiscal strategy, having regard to its likely impact on present and future generations
  8. 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 and a report on the Government’s fiscal strategy. The Budget policy statement has a short run focus setting out policy goals that will guide the Government's Budget decisions and priorities. The fiscal strategy report 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 report on the fiscal strategy 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 Statement of the Long Term Fiscal Position.

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

Last updated: 
Wednesday, 10 June 2020