Wellbeing Budget 2020

The Fiscal Strategy

We are using our strong fiscal position to respond to COVID-19…

Running operating deficits (Figure 12) and allowing net core Crown debt to increase in the short term (Figure 13) is necessary as we fight the virus, cushion the impact on businesses and workers and position ourselves for the recovery. New Zealand will be able to do so while continuing to maintain one of the strongest fiscal positions held by an advanced economy, owing to the strong starting position before the onset of the COVID-19 pandemic.

Our new short-term fiscal intentions detail how we intend to use fiscal policy over the next three years to support our response to COVID-19.

Figure 12 - Total Crown OBEGAL

Source: The Treasury

Figure 13 - Net core Crown debt

Source: The Treasury

Table 5 - Summary of the Treasury's fiscal forecasts

Year ending 30 June 2019
$ billions
Core Crown revenue 93.5 89.5 87.0 94.6 104.0 109.9
Core Crown expenses 87.0 114.0 113.5 119.8 118.6 113.0
Total Crown OBEGAL 7.4 -28.3 -29.6 -27.2 -16.5 -4.9
Core Crown residual cash -0.7 -32.0 -43.3 -35.2 -26.9 -13.5
Net core Crown debt 57.7 88.9 129.5 163.6 188.7 200.8
Net worth attributable to the Crown 136.7 100.1 71.0 47.0 34.2 33.4
% of GDP
Core Crown revenue 30.8 30.4 29.6 28.8 29.5 29.4
Core Crown expenses 28.7 38.7 38.6 36.5 33.7 30.2
Total Crown OBEGAL 2.4 -9.6 -10.1 -8.3 -4.7 -1.3
Core Crown residual cash -0.2 -10.9 -14.7 -10.7 -7.6 -3.6
Net core Crown debt 19.0 30.2 44.0 49.8 53.6 53.6
Net worth attributable to the Crown 45.1 34.0 24.1 14.3 9.7 8.9

Source: The Treasury

…and continue to be mindful of future generations and the long-term challenges facing New Zealand

Our strong fiscal response in the short term will support the economy recovering to a position where stimulus can be reduced and the Government can return to a more sustainable fiscal position. In responding to the immediate shock and managing the recovery, we are carefully prioritising how we use the fiscal headroom available before the onset of the pandemic.

Over the long run, we intend to return to an operating surplus and maintain net debt at prudent levels, while supporting New Zealanders' wellbeing. Doing so will ensure that we retain a strong underlying structural fiscal position that supports long-run fiscal sustainability. Our long-term fiscal objectives, covering at least the next ten years, describe our approach to long-term fiscal sustainability.

The timeframe and path for meeting our long-term objectives may change as the economy recovers from COVID-19

The long-term fiscal projections set out one possible scenario for returning to an operating surplus within the projection period. As the wider economic picture develops and the full impact of the COVID-19 pandemic becomes clearer, this path will almost certainly change.

However, these initial projections make clear that the return to surplus will be a long-term objective and that responsible fiscal policy during this time means remaining supportive of the economy for some time to come. New Zealand's future level of debt may be higher than the previous target range of 15 to 25 per cent of GDP, however, our debt levels will continue to remain prudent and will continue to remain well below the average for other advanced countries (Figure 14).

Figure 14 – Forecast general government net debt compared to other advanced countries
(IMF definition)[8]

Source: IMF Fiscal Monitor (April 2020)

There is uncertainty around the level at which net core Crown debt will be stabilised. However, given the severe effects of the pandemic so far, with debt rising rapidly in almost every other advanced economy, what can be considered a prudent level of debt will change - domestically and globally.

A prudent level of debt is one that is sustainable; provides a buffer against other future shocks; maintains investors' confidence in the Government; and ensures that tax rates are fair. Recent action by central banks, both here and across the world, in reducing interest rates to historic lows and purchasing government debt at an unprecedented scale have reduced the cost of debt servicing, thereby increasing the level of government debt that can be sustainably supported.

However, the significant impact of COVID-19 will have changed both the costs and the benefits of higher debt levels. We will continue to support intergenerational wellbeing by striking a balance between supporting the economy against the impacts of COVID-19 in the short term and managing the debt burden placed on future generations.


  1. [8] The IMF's forecasts are based on data available up to 8 April . The forecast will therefore not include fiscal policy announced by other countries since 8 April and do not include the impact of the full $62.1 billion of COVID-19 fiscal support included in the Budget fiscal forecasts. The IMF’s definition of general government net debt is also different to the Treasury’s measure of net core Crown debt. New Zealand’s net core Crown debt was 19 per cent in 2018/19.
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