When is the economy expected to recover?
The fiscal outlook continues to show signs of improvement with the majority of fiscal indicators stronger than previously expected. However, due to the continued impact of the COVID-19 pandemic, core Crown expenditure is forecast to increase to combat and secure New Zealand’s recovery.
Tax Revenues
Tax revenue (across all tax types) has lifted in the current year and is expected to progressively increase year on year, rising from $91 billion this year to $113 billion in 2025. This is reflective of the strong economic growth to date and the expectation that this will continue.
Expenditure
Core Crown expenditure is increasing at a slower rate than forecast tax revenues. Expenditure for FY21 is forecast to be $110.8 billion, growing to $121.1 billion by FY25. This is on the back of an expansive programme to address core social spending areas in the Health and Social Security and Welfare areas. In the short-term, some key expenditure areas include funding for Managed Isolation and Quarantine facilities ($1.2 billion), vaccine purchasing ($1.5 billion) and support for aviation and transport facilities ($1.2 billion). The Housing Acceleration Fund also adds an additional $2.1 billion of operating expenditure during this forecast period.
OBEGAL and the Operating Balance
The operating balance before gains and losses (OBEGAL) deficit is forecast to be $15.1 billion (4.5% of GDP) in the current fiscal year, which is a reduction of nearly $8 billion compared to the 2019/20 year. The impact of growing investment markets and interests rates has more than offset this OBEGAL deficit, adding $17.0 billion in valuation gains to the Crown’s operating balance.
Net Core Crown Debt
Net Core Crown Debt is increasing year on year, projected to grow from $113.7 billion at the end of FY21 to $180.8 billion by FY25. This is largely driven by the Reserve Bank of New Zealand’s Funding for Lending Programme on top of the projected deficit and capital expenditure initiatives.
The core Crown residual cash deficit is initially forecast to remain high, however, it is forecast to reduce significantly to return a surplus of $3.3 billion by 2024/25.
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