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Returning to Surplus: New Zealand's Post-GFC Fiscal Consolidation Experience

Author

Listed:
  • Dhritidyuti Bose
  • Renee Philip
  • Richard Sullivan

    (The Treasury)

Abstract
New Zealand's fiscal outlook deteriorated following the Global Financial Crisis, and in late 2008 fiscal projections showed net government debt in New Zealand increasing from 5% of GDP to around 40% within 10 years, mostly reflecting permanently lower expectations for future tax revenue. These circumstances were compounded by the significant costs associated with the Canterbury earthquakes in 2010 and 2011. The structural deficit peaked at 4% of GDP in 2011. In 2011, the Government set a target to return the Budget to surplus by 2014/15, and stepped up its fiscal consolidation programme. A surplus was achieved in that year, and net debt has now peaked just above 25% of GDP. The surplus was achieved predominantly by slowing the growth rate of nominal spending so that expenses-to-GDP declined. The slowing in expense growth reflected a combination of factors including programme savings, efficiency savings, reprioritisation, and slower public sector wage growth. New Zealand's fiscal management approach - a combination of fixed nominal baselines for most expenditure alongside comprehensive top-down constraints on new spending through the Budget - provided effective tools for controlling expense growth. Nevertheless, the return to surplus is only the first step in fiscal consolidation and challenges remain to ensure these surpluses are sustained, and to rebuild the fiscal buffers that existed prior to 2009.

Suggested Citation

  • Dhritidyuti Bose & Renee Philip & Richard Sullivan, 2016. "Returning to Surplus: New Zealand's Post-GFC Fiscal Consolidation Experience," Treasury Working Paper Series 16/05, New Zealand Treasury.
    • Handle: RePEc:nzt:nztwps:16/05
    as

    Download full text from publisher

    File URL: https://treasury.govt.nz/sites/default/files/2016-12/twp16-05.pdf
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    References listed on IDEAS

    as
    1. Miles Parker & Daan Steenkamp, 2012. "The economic impact of the Canterbury earthquakes," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 75, pages 13-25, September.
    2. Tracy Mears & Gary Blick & Tim Hampton & John Janssen, 2010. "Fiscal Institutions in New Zealand and the Question of a Spending Cap," Treasury Working Paper Series 10/07, New Zealand Treasury.
    3. Robert A Buckle & Amy A Cruickshank, 2013. "The Requirements for Long-Run Fiscal Sustainability," Treasury Working Paper Series 13/20, New Zealand Treasury.
    4. Matthew Bell & Paul Rodway, 2013. "Tales of three budgets: Changes in long-term fiscal projections through the GFC and beyond," Treasury Working Paper Series 13/23, New Zealand Treasury.
    5. Oscar Parkyn, 2010. "Estimating New Zealand's Structural Budget Balance," Treasury Working Paper Series 10/08, New Zealand Treasury.
    6. Bruce White, 2013. "Macroeconomic Policy in New Zealand: From the Great Inflation to the Global Financial Crisis," Treasury Working Paper Series 13/30, New Zealand Treasury.
    7. Brian McCulloch & Jane Frances, 2001. "Financing New Zealand Superannuation," Treasury Working Paper Series 01/20, New Zealand Treasury.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Buckle, Robert A., 2018. "A quarter of a century of fiscal responsibility: The origins and evolution of fiscal policy governance and institutional arrangements in New Zealand, 1994 to 2018," Working Paper Series 20848, Victoria University of Wellington, Chair in Public Finance.
    2. Buckle, Robert A., 2018. "A quarter of a century of fiscal responsibility: The origins and evolution of fiscal policy governance and institutional arrangements in New Zealand, 1994 to 2018," Working Paper Series 7693, Victoria University of Wellington, Chair in Public Finance.
    3. Gill, Derek, 2018. "The Fiscal Responsibility Act 1994: The astonishing success of a weak non-binding policy," NZIER Working Paper 2018/1, New Zealand Institute of Economic Research.

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    More about this item

    Keywords

    Balanced Budget; Fiscal policy; Fiscal institutions; Fiscal Management Approach; Fiscal Policy; Fiscal Target; National Budget; Public Finance Act; Surplus;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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