The Budget Policy Statement
December 2019
Summary From a parliamentary perspective, the Budget Policy Statement (the Statement) commences the Budget cycle. The requirement for a Statement was first legislated in the Fiscal Responsibility Act 1994, and is now included within the Public Finance Act 1989. The Government must pursue its policy objectives in accordance with eight principles of responsible fiscal management set out in the Public Finance Act 1989. The Statement must provide details of the broad strategic priorities guiding the Government in the preparation of the Budget for the upcoming financial year (which commences 1 July). The Statement is required to provide details around how the upcoming Budget aligns with the short-term intentions published in the latest Fiscal Strategy Report (or any amended short-term intentions). The Statement is referred to the Finance and Expenditure Committee, which then reports back to the House of Representatives within 40 working days. The next general debate after the presentation of the Committee’s report to the House of Representatives is replaced by a two hour debate on the Statement and the Finance and Expenditure Committee’s report on the Statement.
The Budget Policy Statement commences the Budget cycle From a parliamentary perspective, the annual financial cycle commences with the publication of the Budget Policy Statement (the Statement). The Public Finance Act 1989 requires the Statement to be published and presented to the House of Representatives by 31 March (i.e. three months prior to the commencement of a new financial year on 1 July).1
For the upcoming financial year, the Statement must “…state the broad strategic priorities by which the Government will be guided in preparing the Budget…” The Statement must include:
the overarching policy goals that will guide the Government’s Budget decisions;
the policy areas that the Government will focus on in the upcoming financial year; and
how the Budget for the upcoming financial year accords with the short-term intentions referred to in the most recent Fiscal Strategy Report (or any amended short-term intentions).2
1 Public Finance Act 1989, s 26M.
2 The Fiscal Strategy Report is normally published as part of the Budget documentation on Budget Day. Therefore the Fiscal Strategy Report referred to, is that published as part of the previous Budget.
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The 2020 Statement included the following five priorities:
2020 Budget Policy Statement priorities Just Transition – Supporting New Zealanders in the transition to a climate-resilient, sustainable and low-emissions economy. Future of Work – Enabling all New Zealanders to benefit from new technologies and lift productivity through innovation. Māori and Pacific – Lifting Māori and Pacific incomes, skills and opportunities. Child Wellbeing - Reducing child poverty and improving child wellbeing. Physical and Mental Wellbeing – Supporting improved health outcomes for all New Zealanders. Source: Hon Grant Robertson, Minister of Finance, Budget Policy Statement. Budget 2020 (11 December 2019).
Usual practice is for the Statement to be published at the same time as the Half Year Economic and Fiscal Update (HYEFU).3 However, this is not always the case (see Appendix 1). Specifically in election years, if the Pre-election Economic and Fiscal Update is published between 1 October and 31 December, a HYEFU is not required to be published.4 This occurred in 1999 and 2011. In December 2008, due to the impact of the Global Financial Crisis on the New Zealand economy, the Government requested that the Treasury publish updated Economic and Fiscal Forecasts, despite a Pre-election Economic and Fiscal Update being published on 6 October 2008. The Statement was published on the same day as these Forecasts. Appendix 2 provides details of the Budget Policy Statement cycle.
The role of the Fiscal Responsibility Act 1994 The Statement was a creation of the Fiscal Responsibility Act 1994. This legislation was enacted to “improve the conduct of fiscal policy by specifying principles of responsible fiscal management and by strengthening the reporting requirements of the Crown”.5 These reporting requirements included the publication of a Budget Policy Statement. Content of the Statement had to include the Government’s long-term objectives for fiscal policy, its broad strategic priorities for the upcoming Budget, and its fiscal intentions for the upcoming financial year and following two years.6
The first Statement was published on 23 February 1995 by the Minister of Finance, Rt Hon Bill Birch. In the Statement’s Introduction, the Minister said that “These strategic documents are
3 The Half Year Economic and Fiscal Update publication was previously known as the December Economic and Fiscal Update. Its name was changed in 2005 due to an amended Public Finance Act 1989 enabling the Update to be published in either November or December.
4 Fiscal Responsibility Act 1994, s 13(3) and Public Finance Act 1989, s 26S(4).
5 Fiscal Responsibility Act 1994, Long title.
6 Ibid.
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designed to provide confidence and certainty about the Government’s direction and to create an opportunity for debate about the choices that face the community”.7 The Statement was referred to the Finance and Expenditure Committee, which then undertook public hearings and had the Minister of Finance appear in front of it.8 The Committee’s report was presented to the House of Representatives on 30 March 1995, and the first ever debate on a Budget Policy Statement took place on 5 April 1995.9
In 2004, the Fiscal Responsibility Act 1994 was repealed, with sections incorporated into the Public Finance Act 1989.10 According to the explanatory note of the amending bill, the intention was to consolidate the principal legislation regarding public finances, while retaining the principles of the Fiscal Responsibility Act 1994.11 Some changes were introduced at this point, including:
a refocusing of the Statement towards the Government’s budget strategy for the upcoming Budget, and reducing the emphasis on the long-term fiscal policy objectives; and
allowing the Statement to be published earlier than 1 December.
Principles of responsible fiscal management The Public Finance Act 1989 specifies that the Government must pursue its policy objectives in accordance with principles of responsible fiscal management. The Government can only depart from these principles temporarily. When it does so, the Minister is required to state the reason for the departure, the approach the Government intends to take to return to the principles, and the period of time it is expected to take.12
The Public Finance (Fiscal Responsibility) Amendment Act 2013 increased the number of principles from five to eight (while also amending the fifth principle).13 The Treasury’s An Introduction to New Zealand’s Fiscal Policy Framework noted that these additional principles broadened the definition of good fiscal policy (which was based around sustainability) to also include economic stability and fiscal structure.14 The eight principles of responsible fiscal management are:15
7 Rt Hon Bill Birch, Minister of Finance Budget Policy Statement 1995 (23 February 1995) at 5.
8 (5 April 1995) 547 NZPD 6707.
9 (30 March 1995) 547 NZPD 6573. (5 April 1995) 547 NZPD 6706.
10 The Treasury A Guide to the Public Finance Act (August 2005) at 42.
11 Public Finance (State Sector Management) Bill, Explanatory note.
12 Public Finance Act 1989, s 26G.
13 The fifth principle was previously defined as “Pursuing policies that are consistent with a reasonable degree of predictability about the level and stability of tax rates for future years”.
14 The Treasury An Introduction to New Zealand’s Fiscal Policy Framework (March 2015) at 8.
15 Public Finance Act 1989, s 26G.
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1. Reducing total debt to prudent levels so as to provide a buffer against factors that may impact adversely on the level of total debt in the future by ensuring that, until those levels have been achieved, total operating expenses in each financial year are less than total operating revenues in the same financial year.
2. Once prudent levels of total debt have been achieved, maintaining those levels by ensuring that, on average, over a reasonable period of time, total operating expenses do not exceed total operating revenues.
3. Achieving and maintaining levels of total net worth that provide a buffer against factors that may impact adversely on total net worth in the future.
4. Managing prudently the fiscal risks facing the Government.
5. When formulating revenue strategy, having regard to efficiency and fairness, including the predictability and stability of tax rates.
6. When formulating fiscal strategy, having regard to the interaction between fiscal policy and monetary policy.
7. When formulating fiscal strategy, having regard to its likely impact on present and future generations.
8. Ensuring that the Crown’s resources are managed effectively and efficiently.
“Prudent” debt levels are not defined in the Act, allowing for each Government to decide what level of debt it considers to be prudent. Similarly, a “reasonable period of time” is also undefined in the legislation. The Treasury’s An Introduction to New Zealand’s Fiscal Policy Framework noted that “By setting their own targets, governments are more likely to commit to meeting them”.16
Budget Policy Statement requirements For the upcoming financial year, the Statement is required to provide the details of the broad strategic priorities guiding the Government in the preparation of the Budget. According to the Public Finance Act 1989, these have to include:17
The overarching policy goals that will guide the Government’s Budget decisions;
The policy areas that the Government will focus on in the upcoming financial year; and
How the Budget for that year accords with the short-term intentions referred to in the most recent Fiscal Strategy Report (normally published as part of the Budget documentation on Budget day), or any amended short-term intentions.
16 Treasury, above n 17 at 2.
17 Public Finance Act 1989, s 26M.
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The Public Finance (Wellbeing) Amendment Bill (which is currently being considered by the Finance and Expenditure Committee) will also require the Government to provide details of the wellbeing objectives that will guide the Government’s Budget decisions.
Under the Public Finance Act 1989, the Minister needs to explain in the Statement whether there have been any changes to the long-term objectives since the latest Fiscal Strategy Report, and if so, how they accord with the principles of responsible fiscal management. If the short-term intentions have changed, the Statement must indicate what the new short-term intentions are, and how they accord with the principles of responsible fiscal management and the long-term objectives in the latest Fiscal Strategy Report. The Statement also needs to cover any changes in Government strategy for managing spending, assets and liabilities from those referred to in the latest Fiscal Strategy Report.
The Statement contains sections which can differ from year to year, but includes details around the Government’s budget priorities, fiscal strategy, economic and fiscal outlook, and budget allowances. The long-term fiscal objectives and short-term fiscal intentions are normally set out in an Annex at the back of the Statement.
In the 2020 Statement the long-term fiscal objectives were:
Long-term fiscal 2020 Budget Policy Statement details objective Operating balance The Government will deliver a sustainable operating surplus across an economic cycle. Operating The Government will maintain its expenditure to within the recent historical range expenses of spending as a ratio of GDP. The Government will take a prudent approach to ensure expenditure is phased, controlled and directed to maximise its benefits, in particular prioritising investments to address the long-term financial and sustainability challenges facing New Zealand. Operating The Government will ensure a progressive taxation system that is fair, balanced, revenues and promotes the long-term sustainability and productivity of the economy. Debt Maintain total debt at prudent levels. The Government will reduce the level of net core Crown debt to 20 per cent of GDP within five years of taking office and maintain it at prudent levels thereafter. Prudent levels of net core Crown debt are within a range of 15 to 25 per cent of GDP (subject to any significant shocks to the economy). Net worth The Government will strengthen net worth consistent with the debt and operating balance objectives. Source: Hon Grant Robertson, Minister of Finance, Budget Policy Statement. Budget 2020 (11 December 2019) Annex.
The 2020 Statement noted that the Government’s debt short-term fiscal intention has changed since the 2019 Fiscal Strategy Report. It now incorporates the Government’s commitment to maintain net debt within a range of 15 to 25 per cent. The operating balance short-term intention has also been updated to reflect this. According to the Statement, “Maintaining debt
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within a range provides flexibility for fiscal policy to support economic stability and encourages a longer-term perspective for fiscal policy by allowing the Government to look through short-term volatility in net debt”.18 The high-level short-term intentions in the 2020 Statement were as follows:19
Short-term fiscal 2020 Budget Policy Statement details intentions Debt Our intention is to reduce the level of net core Crown debt to 20 per cent of GDP within five years of taking office (subject to any significant shocks to the economy). We will continue to maintain debt at prudent levels (a range of 15-25 per cent of GDP). Operating balance Our intention is to deliver operating surpluses (before gains and losses) to ensure net debt falls to 20 per cent of GDP within five years of taking office and to maintain it at prudent levels thereafter (a range of 15-25 per cent of GDP). Expenses Our intention is to ensure expenses are consistent with the operating balance objective. Revenues Our intention is to ensure sufficient revenue to meet the operating balance objective. Net worth Our intention is to increase net worth consistent with the operating balance objective. Source: Hon Grant Robertson, Minister of Finance, Budget Policy Statement. Budget 2020 (11 December 2019) Annex.
Finance and Expenditure Committee oversight Under Standing Order 332, the Statement is referred to the Finance and Expenditure Committee for examination.20 The Committee has 40 working days to report back to the House of Representatives on the Statement. During this process the Committee can ask for submissions from the public and can request the responsible Minister to appear in front of them.21
After the presentation of the Committee’s report to the House of Representatives, the next general debate (held on a Wednesday) is replaced by a two hour debate on the Statement and the Finance and Expenditure Committee’s report on the Statement. The chairperson of the Finance and Expenditure Committee normally moves a motion relevant to the report and speaks first. This is followed by 12 ten-minute speeches, followed by a vote “That the House take note of the report of the Finance and Expenditure Committee on the Budget Policy Statement”.
18 Hon Grant Robertson, Minister of Finance Budget Policy Statement 2020 (11 December 2019) at 31.
19 The table of short-term fiscal intentions in the Statement also includes forecast figures for each of the indicators.
20 Standing Orders of the House of Representatives 2017, SO 332.
21 There were 66 submissions received by the Financial and Expenditure Committee on the 2019 Budget Policy Statement, while the Minister of Finance and the Secretary to the Treasury appeared in front of the Committee.
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Appendix 1: Budget Policy Statement publication dates
Budget Date published Minister Published same day as an Economic and Fiscal Update (1) 1995 Thursday, 23 February 1995 Rt Hon Bill Birch, Minister of Finance No 1996 Tuesday, 13 February 1996 Rt Hon Bill Birch, Minister of Finance No 1997 Tuesday, 4 March 1997 Hon Winston Peters, Treasurer No 1998 Wednesday, 4 February 1998 Hon Winston Peters, Treasurer No 1999 Wednesday, 9 December 1998 Rt Hon Bill Birch, Treasurer & Minister of Finance Yes 2000 (2) Wednesday, 8 March 2000 Hon Dr Michael Cullen, Treasurer & Minister of Finance No 2001 Tuesday, 19 December 2000 Hon Dr Michael Cullen, Treasurer & Minister of Finance Yes 2002 Tuesday, 18 December 2001 Hon Dr Michael Cullen, Treasurer & Minister of Finance Yes 2003 Thursday, 19 December 2002 Hon Dr Michael Cullen, Minister of Finance Yes 2004 Thursday, 18 December 2003 Hon Dr Michael Cullen, Minister of Finance Yes 2005 Tuesday, 14 December 2004 Hon Dr Michael Cullen, Minister of Finance Yes 2006 Monday, 19 December 2005 Hon Dr Michael Cullen, Minister of Finance Yes 2007 Tuesday, 19 December 2006 Hon Dr Michael Cullen, Minister of Finance Yes 2008 Tuesday, 18 December 2007 Hon Dr Michael Cullen, Minister of Finance Yes 2009 Thursday, 18 December 2008 Hon Bill English, Minister of Finance Yes (3) 2010 Tuesday, 15 December 2009 Hon Bill English, Minister of Finance Yes 2011 Tuesday, 14 December 2010 Hon Bill English, Minister of Finance Yes 2012 (4) Thursday, 16 February 2012 Hon Bill English, Minister of Finance No 2013 Tuesday, 18 December 2012 Hon Bill English, Minister of Finance Yes 2014 Tuesday, 17 December 2013 Hon Bill English, Minister of Finance Yes 2015 Tuesday, 16 December 2014 Hon Bill English, Minister of Finance Yes 2016 Tuesday, 15 December 2015 Hon Bill English, Minister of Finance Yes 2017 (5) Thursday, 8 December 2016 Hon Bill English, Minister of Finance Yes 2018 Thursday, 14 December 2017 Hon Grant Robertson, Minister of Finance Yes 2019 Thursday, 13 December 2018 Hon Grant Robertson, Minister of Finance Yes 2020 Wednesday, 11 December 2019 Hon Grant Robertson, Minister of Finance Yes
Notes: 1. This publication was called the Economic and Fiscal Update in years 1994 and 1995, then the December Economic and Fiscal Update up to December 2004, and thereafter the Half Year Economic and Fiscal Update. 2. No December Economic and Fiscal Update published due to the publication of the Pre-Election Economic and Fiscal Update on 21 September 1999 (General election held 27 November 1999). 3. Economic and Fiscal Forecasts published in December 2008 instead of a full Half Year Economic and Fiscal Update. The Government requested that updated economic and fiscal updated be published despite no legal requirement to do so, due to the publication of a Pre-Budget Economic and Fiscal Update on 6 October 2008 (General election held 8 November 2008). 4. No Half Year Economic and Fiscal Update published due to the publication of a Pre-Election Economic and Fiscal Update on 25 October 2011 (General election held 26 November 2011). 5. While the Budget Policy Statement 2017 was published by Hon Bill English as the Minister of Finance, the 2017 Budget was delivered by Finance Minister Hon Steven Joyce on 25 May 2017.
Sources: The Treasury, Current and past Budgets. Minister of Finance or Treasurer, Budget Policy Statement(s). Various years.
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Appendix 2: Budget Policy Statement cycle
Government The Budget Policy Statement must be published at least three months prior to the commencement of a new financial year on 1 July (i.e. must be published by 31 March).
Parliament The Budget Policy Statement is referred to and examined by the Finance and Expenditure Committee. If requested, the Minister responsible for presenting the Budget appears in front of the Committee, and it is usual for them to announce the date of the Budget at this point. The Committee also calls for submissions on the Statement from the public.
Parliament Finance and Expenditure Committee must report on the Budget Policy Statement within 40 working days of the presentation of the Statement to the House.
Parliament The House debates the Statement in place of the first general debate after the report from the Finance and Expenditure Committee has been presented. The debate is held on the Statement and on the associated report from the Finance and Expenditure Committee. Following the speech of the Chairperson of the Finance and Expenditure Committee, there are 12 speeches of ten minutes each (two hours total).
Government Minister of Finance delivers Budget in the House on or before 31 July. An Imprest Supply Bill must be passed before 30 June, whether or not the Budget has been presented and the main Appropriation Bill has been introduced by this date. This Imprest Supply Act provides the sole parliamentary authority from 1 July until the main Appropriation Bill has been enacted.
Grant Cleland Research Services Analyst – Economics Parliamentary Library, Research and Information Email: [email protected]
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