Short-term intentions and long-term objectives
As previously stated, the Government has a deliberate, medium-term approach to fiscal consolidation and will not over-react to movements up or down in the forecasts. The FSR states that the role of fiscal policy, in the first instance, is to allow automatic stabilisers to operate without trying to offset their fiscal impact. The Government is continuing to follow that approach by maintaining the operating allowances set out in the FSR.
There are alternative approaches. A shorter, sharper fiscal consolidation, signalled by further reductions to near-term Budget allowances, would improve the OBEGALx and net core Crown debt forecasts above. It would also come with risks - that savings measures, over and above those already being considered, could impact the delivery of front-line public services and further depress weak demand in the short term. Another option would be to spend more in the near term to stimulate the economy, but this would delay the necessary return to a structural surplus and is unlikely to be well timed or well targeted. Monetary policy is better placed to manage the economic cycle.
The PFA requires the Government to set out its short-term intentions and long-term objectives for five fiscal indicators, including the operating balance. The current short-term intention for the operating balance includes returning OBEGALx to surplus by 2027/28. Given the new forecast is for a $5.1 billion deficit in 2027/28, the Government is revising this intention to indicate a return to OBEGALx surplus by the following year, 2028/29. The new forecast for 2028/29 is a deficit of $0.9 billion but forecasting uncertainty, and the ability to adjust settings in the future, mean this target is achievable. This change is consistent with a deliberate, medium-term approach to consolidation.
In full, the revised short-term intention for the operating balance is to:
- Bring total operating expenses and total operating revenues into balance.
- Return the operating balance (before gains and losses, excluding ACC) to surplus by 2028/29.
- Ensure consistency with the short-term intention for debt.
This revised operating balance short-term intention accords with the principles of responsible fiscal management in the PFA. In particular, because it targets a return to surplus, the revised intention accords with the principle of ensuring that, on average, over a reasonable period of time, total operating expenses do not exceed total operating revenues. The revised intention also accords with the Government's long-term fiscal objectives, because targeting a return to surplus will support debt to be maintained at prudent levels.
No other short-term intention or long-term objective has been changed. The current intention for net worth is not being met on current forecasts. The Government will reconsider this intention ahead of the next fiscal strategy report.
The full set of short-term fiscal intentions and long-term fiscal objectives are set out in Tables 4 and 5.
Table 4 - The Government's short-term intentions for the next four financial years
| Budget Policy Statement 2026 | |
|---|---|
| Debt | Maintain total debt at prudent levels. Put net core Crown debt as a percentage of GDP on a downward trajectory towards 40 per cent. |
| Operating balance | Bring total operating expenses and total operating revenues into balance. Return the operating balance (before gains and losses, excluding ACC) to surplus by 2028/29. Ensure consistency with the short-term intention for debt. |
| Expenses | Reduce core Crown expenses as a percentage of GDP. Ensure expenses are consistent with the operating balance intention. |
| Revenue | Ensure revenue is consistent with the operating balance intention. |
| Net worth | Maintain net worth at around 40 per cent of GDP. |
Budget 2026 accords with these short-term intentions as maintaining tight operating allowances supports returning to surplus, reducing core Crown expenses as a percentage of GDP, and putting net core Crown debt on a downward trajectory.
The following circumstances could lead the Government to consider amending the short-term intentions:
- a significant change in forecast revenue or benefits due to factors outside of the Government's direct control
- a significant economic shock, arising for example from a natural disaster, that necessitates an increase in spending, or
- a material likelihood of constraints on the ability of monetary policy to stabilise the economy.
Table 5 - The Government's long-term objectives for the next 15 financial years
| Budget Policy Statement 2026 | |
|---|---|
| Debt | Maintain total debt at prudent levels. Once net core Crown debt is below 40 per cent of GDP, maintain it within a range of 20 per cent to 40 per cent of GDP, subject to economic shocks. |
| Operating balance | Maintain operating surpluses sufficient to ensure consistency with the debt objective. This will ensure that, on average, over a reasonable period of time, operating expenses are funded from operating revenues and not from debt. |
| Expenses | Control growth in government spending so that, over time, core Crown expenses reduce towards 30 per cent of GDP. |
| Revenue | Ensure the level of operating revenues is consistent with the operating balance objective and supports long-term productive economic growth. |
| Net worth | Ensure net worth remains at a level sufficient to act as a buffer to economic shocks. |