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Finance Minister announces new debt ceiling and surplus targets, new headline debt measure, and a later return to surplus than earlier targeted

Public Policy / news
Finance Minister announces new debt ceiling and surplus targets, new headline debt measure, and a later return to surplus than earlier targeted
robertson-may22

Finance Minister Grant Robertson has announced new fiscal rules for the budget, which include a debt ceiling of 30% of GDP and that surpluses will be kept within a band of zero to 2% of GDP.

As well, there will be a new debt measure that Robertson said would more closely align New Zealand with how debt is measured in other countries. It will include a wider range of both assets and liabilities, but will make the debt figure about 20 percentage points lower. The new measure will, for example, include the assets of the NZ Super Fund.

Robertson also told a pre-Budget business audience in Wellington that the Government would now not be returning to surplus till the 2024-25 year, which is a year later than was outlined in the last update prior to Christmas. The Budget is on May 19.

The new debt measure rule effectively means the debt ceiling the Government has announced would be 50% under the old measure and 30% under the new.

The Budget documentation will continue to publish the old measure, for transparency and the ability to make historical comparisons.

The zero to 2% surplus rule "will give us the flexibility to dip temporarily into a technical deficit from time-to-time for very specific reasons", Robertson said.

"We are not alone in toning down some of our expectations as a result of the [Ukraine] war and ongoing supply chain issues. The IMF has said global growth will average 3.5% over 2022, down from the 4.4% it had previously forecast in January.

"All that said, achieving a surplus within the next three fiscal years – at a quicker rate than National did after the Global Financial Crisis – is something I am proud to be able to do as Minister of Finance."

Asked by journalists after his speech about why he was changing the debt measure now, rather than five years ago when coming into Government, Robertson said he did talking to Treasury about the changes soon after coming in. But then the pandemic got in the way. He said he restarted conversation with Treasury this year. He denied the new rule was shifting the goalposts and he said it more accurately represented the financial position.

One of the early changes this Government made with its budgets was to move from an annual capital allowance to a multi-year capital allowance. It is now expanding this approach.

Previously Robertson has indicated that there will be two major areas of focus for new spending in the Budget: health and climate change.

And in his speech on Tuesday Robertson said in both cases the Government will be moving to multi-year funding allocations "to better control costs by allowing for longer-term planning".

Health funding will initially move to a two-year basis and later three years, while there will be a four-year rolling funding allowance for climate change spending.

The Government's also piloting three-year funding for two clusters of departments, in the Justice and Natural Resources areas.

Treasury has released a summary of its analysis and recommendations for the new rules.

This is the media release issued by the Minister:

·Surpluses will be kept within a band of zero to two percent of GDP to ensure new day‑to‑day spending is not adding to debt.

·A new debt measure to be introduced to bring New Zealand closer in line with other countries.

·A debt ceiling will ensure New Zealand maintains some of the lowest Government debt in the world, while giving greater room for investment in high quality infrastructure

Finance Minister Grant Robertson has unveiled new fiscal rules to ensure New Zealand continues to maintain a world-leading Government financial position.

“The Government was able to use our strong fiscal position to support New Zealanders through COVID with programmes like the Wage Subsidy Scheme. As we move to a new normal post the peak of COVID, it is the right time to resume a set of fiscal rules to carefully manage costs while planning for the future,” Grant Robertson said.

“Just as the previous National Government ran six annual deficits and increased debt following the Global Financial Crisis and Canterbury Earthquakes, we have done the same to protect New Zealanders from the effects of COVID-19.

“Add in the impact of the war in Ukraine, and the ongoing supply chain disruption as a result of continued COVID responses around the world, we are faced with running five years of deficits compared to National’s six. The first surplus since the 2018/19 year is expected in 2024/25.

“Once we reach surplus, the new fiscal rule will see the government committed to maintaining a small surplus in the range of zero to two percent of GDP over time. The range is based on advice from the Treasury. Surpluses will be measured using the operating balance before gains and losses (OBEGAL).

“That means as we enter the new-normal, the spending required to operate government services won’t be adding to Government debt. There will be allowances for significant shocks, and it is an average percentage so as to allow additional investment in a particular year if required.

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

New debt measure

“Over a number of decades, the Treasury has published a suite of debt indicators and depending on circumstances the Government has focused on one of these indicators to formulate its fiscal strategy. The main headline measure has been net core Crown debt. Another one has been net core Crown debt including the assets of the New Zealand Superannuation Fund.

“The Treasury has now recommended that New Zealand starts using a headline measure closer to the international norm, that is more reflective of the real state of our fiscal position and so that we can accurately compare ourselves against others. The new measure includes a wide range of government assets (like the Super Fund and advances) and liabilities (including debt held by other Crown agencies like Kainga Ora).

“The new measure gives a headline net debt figure 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 the time being.” Grant Robertson said.

The introduction of a debt cap

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

“Under the old measure of net debt, the Treasury has recommended the ceiling be 50 percent of GDP. When we translate that to the new measure, so we can better compare it to other countries, that cap is 30 percent of GDP. It is a limit rather than a target, and again is flexible enough to allow 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 day-to-day spending as that is limited by the surplus rule. This leaves the debt ceiling to guide capital investments needed in infrastructure to keep our economy moving.

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

“In light of current inflationary pressures and capacity constraints we will not be increasing the planned multiyear capital allowance in Budget 2022. This will also give time to ensure that we are making future investments in the most effective and efficient way possible, in line with the Infrastructure Strategy.” Grant Robertson said.

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72 Comments

The old framework meant we couldn't spend as much as we wanted to, so we innovated and changed the maths.

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29

... so , he's thrown out the old " framework " and replaced it with a giant inflatable balloon ... which , at his whim he can blown out in any direction he fancies  ... a massive bubble , unconstrained by the former framework , free to blow ... 

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14

Really is a shame that we have to wait near on 18 months for out next general election.

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14

The next election is going to be a cracker, I cannot wait for it. National are going to have so much ammo they are going to be knee deep in brass. Labour are going to have nothing but a long list of total failures to fire at. With interest rates rising all this year the sheeple that voted this lot in are going to be in a world of pain in 2023.

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4

I hope so but honestly I'd barely raise an eye brow if the Nats used all that ammo to shoot themselves in the face.

Where is the fresh start party, with leadership who have done something with themselves, who have some real life experience to apply to complex problems? 

TOP was a false start but there has been nothing else, are people so disenfranchised that they have given up?  Will the voter turn out be lower than ever?

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3

The national party have had a large change in MPs, Chris Luxton is a fresh face who did really well at Air New Zealand. Him leaving Air New Zealand started its decline I reckon.

The only "old" MP who has had a term in parliment before the current one in ACT is David. The Maori party also has all new MPs.

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1

I hear you but the policy base is exactly the same.

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1

sadr001,

As Matthew Hooton-no left winger-wrote in the Herald today, "Luxon and his barely middling team". I would go further and put Luxon himself firmly in that category. For some reason, successful businessmen rarely make good politicians and luxon is, in my view, a shocker already,

He may well be the next PM and that doesn't excite me at all.

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0

How many voters will be gun shy of voting in another majority government after this one?

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0

I suspect that we will never get another majority government under MMP following this one; it will be the first and last.  Jacinda & co. must know even now that their chances in the next election are virtually zero so they will move quickly to enact the most extreme of their ideological social and governance policies using their absolute majority whilst they have it.  To middle New Zealand many of these policies will seem altogether just too extreme, which will be enough to forever put voters off giving any one party a parliamentary majority on its own.

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3

Have a look at what the Mayor of Rotorua is trying to ram through on her way out the door

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3

It’s the CPI all over again!

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3

In other words, Grant read "rich Dad,poor Dad" on the weekend and reckons it's worth a crack.

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13

Well he must be working hard...isn't that sweat in his hair?

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2

... pomade  ... " Dapper Dan's " ...

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2

Hes sweating because of the BS coming out his month.

 

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0

Will this new policy disclose the value of any currently undisclosed government off-balance sheet debt?

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18

Now, now... there's no need to mix things up THAT much

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17

Debt to GDP is a very simple measure and should stay that way, it is not a balance sheet view. By all means have a standardised debt ratio, but every nation will massage their's. How long before roads and schools are added to the ratio, or fish stocks, or fresh water? It's a slippery slope. Debt to GDP is first and foremost a debt servicing ratio.

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7

As well, there will be a new debt measure that Robertson said would more closely align New Zealand with how debt is measured in other countries. It will include a wider range of both assets and liabilities, but will make the debt figure about 20 percentage points lower.

So they've reduced the debt in the same way they've cleaned up the waterways and reduced child poverty - change how these things are measured.

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31

A Govt with trade deficits running budget surpluses is a Govt that taxes more than it spends into the economy. This is a commitment to households and businesses running a deficit. I do not see how Govt can do this and invest in our crumbling infrastructure.

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17

aka "housing number go up"

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3

It can't.

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0

I have nothing nice to say.

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27

... it doesn't stop the rest of us ... go on  , have a rip ! ... you'll feel better , and the rest of us will piss ourselves larfing ...

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7

Anyone else find it interesting that these sort of announcements are done with bank sponsorship in the background? 

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14

The Luxon Effect is telling.

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5

... as Hosking said , the usual Jacindamaniac journalists are tearing into Luxon ... which , is a good sign for the Gnats ... Labour are reeling  , heading down the gurgler ... 

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13

Media control in this term has been all about delivery.

https://twitter.com/nzherald/status/1442320891862470657

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1

I wouldn't hold much stock in Hosking aka JK's a** kisser

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1

With Robbo you don't know what you are tasting. Alf or Robbo?

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0

The Rabobank normally tries to align itself with winners. Epic fail on their part. Grant has read the memo on trying to get respectability by association.

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2

They're recommending a "new measure" that reflects the "real state" of the financial position. But the "new measure" makes debt look 20% lower than the old measure.

lol ok. So the old measure, which, by implication, did not reflect the "real state" of the financial position was OK until now?

Forget inflating the debt away, we can just measure it differently and it magically reduces.... Got it.

 

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12

Damn I wonder if my bank will let me do this.... 

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13

... tell them Robbo sent you . .... Sorted  !

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6

I've just decided to add my current vegetable crop and a few fruit trees into my valuation of our property.

So good.

 

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12

Yes yes, yes,  if it's good enough for the commies then by golly gosh,  it's good enough for us :)

 

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0

They do it with the CPI for inflation, and measures of affordability.   Its not smart but it to be expected from politics.

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9

They're also doing it with water safety under Three Waters; making water safer to drink by changing the definition of "safe". It's a constant theme.

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2

Not sure it really matters, wont the new government just come in and change the measures - especially if we go through another financial crisis and we need to borrow to keep the economy afloat.

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6

Bernard Hickey - The Kākā...

Essentially, the Government has chosen to freeze its infrastructure growth plans to keep interest rates low, despite saying there is an infrastructure deficit of over $100b.

In my view, it is choosing today’s older asset owners over tomorrow’s young renters.

Same old story from the Government then...

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17

Not just that, but hey kids, we're now counting the super fund as collateral on our (I mean your) debts.

Hopefully nobody comes calling for it.

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12

6 years of Labour's "infrastructure delivery" and "mental health spending" mean that 100b can only have grown.

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5

Labour has become National Lite.

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4

How so? National follows accounting principles (such as taxing income no revenue) and provides certainty (as opposed to giving people 5 days notice of a rule change). Labour seems diametrically opposite to such principles

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8

In my view, it is choosing today’s older asset owners over tomorrow’s young renters.

In that choice.

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2

For all that I respect BH I think he misses the point. Multiple governments of both colours have neglected infrastructure for decades unless forced into it. What BH doesn't say is that infrastructure is crucial to economic success. Without the basics on which to pin economic activity, then that activity in itself will start to breakdown and fail. 

Fundamentally in the real world nothing ever gets cheaper. There is a saying that if you didn't start doing it yesterday then it is never cheaper than to start doing it today. An example would be the transmission Gully motorway; if that was started today how much would it cost as opposed to what it actually did cost(ignore the mismanagement and poor decisions).

My view is that the Government should learn the lessons of the TG and establish a works ministry (go back in history) to build and retain the expertise to build and renew infrastructure efficiently on an ongoing basis to support our economy. Otherwise they are gifting the children a forth or fifth world economy. 

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6

Asked by journalists after his speech about why he was changing the debt measure now, rather than five years ago when coming into Government, Robertson said he did talking to Treasury about the changes soon after coming in. But then the pandemic got in the way.

Did anyone point out to him that he did nothing for 3 years then?

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12

... this is a Labour government ... stop being such a silly billy by bringing facts into the argument  ...

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13

This Government, and the RBNZ, are panicking because they are running out of Covid. Sadly for them, they won't be able to use this excuse for much longer.

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9

"bring out the new variant!"

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5

It's only a matter of time...

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1

In other news, I've lost 20kg by changing the way I weigh myself. 

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27

Haha well played.

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3

Username checks out

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1

... the worlds best diet , 100 % foolproof  : Weigh yourself today in imperial units , pounds ...

Weigh yourself tomorrow in metric , kilograms : wallah  , like magic , you've lost half your body weight overnight  ...

... if anyone asks tricky questions , tell them its Robbovian logic  ...

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9

Chin's up mate, you will not have to worry about it from 2023.

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12

Harsh but fair 

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4

He was probably waiting for Jenee to leave before he announced this magic trick.

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9

This Government is addicted to wasteful spending. Like any addict, it will do anything, and find any excuse under the sun, to continue in its ways. Make the 50% deficit appear as a 30% deficit, and all is good.

Never mind, they are already thinking about new taxes....  

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7

... when Robbo took over as Finance Minister in 2017 , the government's borrowing limit was 20 % of GDP ... he raised that to 25 % ... now to 50 % ...

And yet , he has constantly slagged off any plans mooted by National as " unfunded " , or " inflationary " ...

... Labour'a middle name is " hypocrite ! " ...

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11

Last I looked National did not intend to spend any less, either. Which is interesting.

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3

Claytons indeed.  'Rules' --  with ummmh  - 'flexibility'

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1

Doesn't the NZ Superannuation Fund exist for a guaranteed future liability? The clue is in the name. The money is already spent. Just not yet. Its not a sovereign wealth fund full of surplus cash to be spent on whatever takes the fancy of the government of the day.

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12

I'd really like to see the finance minister get a grilling on this point.

Would there need to be a bump up in any required rate of return on investments held by the super fund to match the risk it could be called on in the future for non superannuation payouts?

It smells a lot like this......

https://www.stuff.co.nz/the-press/110674808/plunder-how-the-bill-for-th…

"The feud between EQC and Treasury had started much earlier, during the tail-end of the fourth Labour Government."

"

The change was announced with fanfare, and sold as giving greater independence to EQC. In retrospect there appeared to be another motivating factor.

"It was a budget repair job," said Newberry. "There was a couple of billion dollars in EQC, so it was very tempting.""

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6

Back to Austerity for the majority.

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10

A never ending state of affairs since GFC 2008.

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2

Reality shows to the rescue, the price of entertaining the masses scales down nicely with the advances in technology.

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0

Hes been warned by treasury get your house in order the "reef fish are circling"

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1

In simple terms --- my Budget does not add up and will break all the rules -- so i am changing them the week before !    queue the primeminister --  Has Grant robertson changed the rules to allow you to spend more -- I reject the premise of the question ...... yawn 

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7

Jessica then Tova...

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1

Tgis looks like part of a bigger plan,watch the water assets be placed into the superfund. With large amount of assets our debt measure will quickly be meet.

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0