New fiscal rules unveiled to maintain fiscal position

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Finance Minister Grant Robertson has unveiled new fiscal rules to ensure New Zealand continues to maintain one of the best government fiscal positions in the world.

“The government has been able to use our strong fiscal position to support New Zealanders through COVID with programs such as the Wage Subsidy Scheme. As we transition to a new normal following the peak of COVID, now is the right time. to resume a set of budget rules to carefully manage costs while planning for the future,” said Grant Robertson.

“Just as the previous national government incurred six annual deficits and increased debt following the global financial crisis and the Canterbury earthquakes, we have done the same to protect New Zealanders from the effects of COVID-19.

“Add to the impact of the war in Ukraine and the continued supply chain disruption due to continued COVID responses around the world, we are facing five years of shortfalls compared to National’s six. The first surplus since the 2018/19 campaign year is expected in 2024/25.

“Once we reach the surplus, the new fiscal rule will see the government commit to maintaining a small surplus in the range of zero to 2% of GDP over time. The range is based on Treasury advice. Surpluses will be measured using Balance Before Gains and Losses (OBEGAL).

“This means that as we move into the new normal, spending to run government services will not increase public debt. There will be allowances for large shocks, and these are an average percentage to allow for additional investment in a particular sector year if necessary.

“The surplus target will also be the main rule that controls our spending decisions and will require a careful and balanced approach.

New debt measure

“Over several decades, the Treasury has published a series of debt indicators, and depending on the circumstances, the government has focused on one of these indicators to formulate its fiscal strategy. Crown Core Net Debt Another was Crown Core Net Debt, including the assets of the New Zealand Superannuation Fund.

“The Treasury has now recommended that New Zealand begin using an aggregate measure closer to the international standard, which better reflects the true state of our fiscal position and allows us to accurately compare ourselves to others. The new measure includes a wide range of government assets (such as the Super Fund and advances) and liabilities (including debt held by other Crown agencies such as Kainga Ora).

“The new measure gives an overall net debt figure that is about 20 percentage points lower than the current one, but is more internationally comparable.

“I will ensure that the budget documents continue to publish the old measure alongside the new measure for transparency and the ability to make historical comparisons for now.” said Grant Robertson.

The introduction of a debt ceiling

“Based on Treasury advice, the other aspect of our new fiscal rules will be a net debt ceiling for the government that will ensure New Zealand maintains one of the lowest public debts in the world,” Grant said. Robertson.

“Under the old measure of net debt, the Treasury recommended that the ceiling be 50% of GDP. When we translate that into the new measure, to better compare it to other countries, that ceiling is 30 % of GDP. This is a limit rather than a target, and again is flexible enough to provide a buffer against short-term shocks, while providing greater room for productive investment.”

The interaction of the two fiscal rules means that the additional debt cannot be used for current spending, as this is limited by the surplus rule. This leaves the debt ceiling to guide the capital investments needed in infrastructure to keep our economy moving.

“While this rule still gives us a relatively low level of net debt, it will provide fiscal space to fund high-quality capital investments that improve productivity and welfare. As made clear yesterday the Infrastructure Commission, New Zealand has a gaping infrastructure deficit.In the past, our debt targets have led to underinvestment in critical infrastructure.Our new approach means we are able to invest in long-term transformational projects that will support productivity and provide certainty and security for businesses and households.

“In light of current inflationary pressures and capacity constraints, we will not be increasing the multi-year capital cost allowance provided for in Budget 2022. This will also give us time to ensure that we are making future investments in the way as effective and efficient as possible, in accordance with the infrastructure strategy. said Grant Robertson.

(With contributions from the New Zealand government press release)


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