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Pre-Election Economic and Fiscal Update 2020 B.16 Pre-election Economic and Fiscal Update 16 September 2020 ISBN: 978-1-98-858098-2 (print) 978-1-98-858099-9 (online) An introduction to the Pre-election Economic and Fiscal Update The Treasury is New Zealand’s economics and finance ministry. We advise on the direction of New Zealand’s economic policy with the aim of achieving a strong and sustainable economy, and raising New Zealand living standards. This includes reporting on the expenditure of government (fiscal) revenue, and assisting to ensure spending is fit for purpose and can improve outcomes for New Zealanders. Sharing what we do As the government’s lead economic and financial adviser, we forecast the economic outlook for New Zealand and the Government’s fiscal outlook. This Pre-election Economic and Fiscal Update (Update) is part of a suite of documents we release as required by the Public Finance Act 1989. This Update primarily outlines what the Treasury observes in our current economic and fiscal climate, what we might see in the future, and what risks we may face over the next four years (our forecast period). This gives an indication of what the economy is most likely to do to inform decision-making. Making it New Zealander-centric Our advice is not just based on facts and figures. Improving outcomes means we need to understand which outcomes to improve and what is important to New Zealanders. We use the Treasury’s Living Standards Framework to recognise the different aspects of New Zealanders’ living standards and wellbeing. Our framework builds on 30 years of New Zealand and international evidence on wellbeing and provides a high-level framework on intergenerational wellbeing. Understanding our path The Treasury is in a unique position to focus on improving the way our economy can raise New Zealand living standards. Along with delivering first-rate economic and financial advice, we are committed to providing it in a way so New Zealanders understand how we work to achieve our goals. If you would like to know more about who we are and what we do, please go to our website at https://treasury.govt.nz © Crown Copyright This work is licensed under the Creative Commons Attribution 4.0 International licence. In essence, you are free to copy, distribute and adapt the work, as long as you attribute the work to the Crown and abide by the other licence terms. To view a copy of this licence, visit https://creativecommons.org/licenses/by/4.0/. Please note that no departmental or governmental emblem, logo or Coat of Arms may be used in any way which infringes any provision of the Flags, Emblems, and Names Protection Act 1981. Attribution to the Crown should be in written form and not by reproduction of any such emblem, logo or Coat of Arms. Internet The URL for this document on the Treasury’s website at September 2020 is https://treasury.govt.nz/publications/efu/pre-election-economic-and-fiscal-update-2020 Contents Statement of Responsibility ................................................................................ 1 Executive Summary ............................................................................................. 3 The impacts of the response to COVID-19 on the economic and fiscal outlook ....... 6 Economic Outlook .............................................................................................. 11 Summary ................................................................................................................11 Economic Outlook ...................................................................................................15 Alternative Scenarios ..............................................................................................30 Fiscal Outlook ..................................................................................................... 39 Summary ................................................................................................................39 30 June 2020 Actual Results ..................................................................................44 Short-term Outlook .................................................................................................49 Core Crown Tax Revenue ......................................................................................51 Core Crown Expenses ............................................................................................55 Operating Balance before Gains and Losses and the Operating Balance ...............59 Residual Cash and Net Core Crown Debt ...............................................................62 Total Crown Balance Sheet ....................................................................................67 Comparison to the Budget Update ..........................................................................70 Key Economic Assumptions Used in the Forecast Financial Statements ................76 Medium-term Outlook .............................................................................................77 Key Assumptions for Medium-term Fiscal Projections ............................................82 Risks to the Fiscal Forecasts ............................................................................ 85 Overview ................................................................................................................85 COVID-19 ...............................................................................................................87 Fiscal Sensitivities .................................................................................................89 Balance Sheet Risks ...............................................................................................90 Specific Fiscal Risks ...............................................................................................93 Summary Table ......................................................................................................96 Policy Change Risks by Portfolio ..........................................................................101 Cost Pressure and Cost Variance Risks by Portfolio .............................................108 Cross-portfolio Specific Fiscal Risks .....................................................................118 Risks Removed Since the Budget Update ............................................................121 Contingent Liabilities and Contingent Assets ........................................................122 Forecast Financial Statements ........................................................................ 133 Statement of Accounting Policies ..........................................................................134 Government Reporting Entity ................................................................................135 Forecast Financial Statements ..............................................................................139 Notes to the Forecast Financial Statements ..........................................................147 Forecast Statement of Segments ..........................................................................159 Core Crown Expense Tables ........................................................................... 165 Glossary of Terms ............................................................................................ 170 Time Series of Fiscal and Economic Indicators ............................................ 176 B.16 | i 2020 . PRE- ELECTION ECONOMIC AND FISCAL UPDATE . List of Tables Table 1 – Funding of fiscal support measures .......................................................... 6 Table 2 – Fiscal impact of the Government’s COVID-19 support measures ............. 7 Table 1.1 – Key economic variables ....................................................................... 13 Table 1.2 – Economic forecasts ............................................................................. 16 Table 1.3 – Scenario summary ............................................................................... 31 Table 2.1 – Fiscal indicators ................................................................................... 40 Table 2.2 – Profile of COVID-19 funding decisions and unallocated portion of the CRRF ........................................................................................................... 43 Table 2.3 – Fiscal impacts of the Government’s COVID-19 support measures ....... 43 Table 2.4 – 2019/20 unaudited results compared to previous years ....................... 44 Table 2.5 – NZS Fund contributions ....................................................................... 50 Table 2.6 – Change in core Crown tax revenue by major tax type .......................... 51 Table 2.7 – Core Crown tax revenue uncertainty .................................................... 54 Table 2.8 – Net capital expenditure activity ............................................................ 63 Table 2.9 – Net issuance of Government bonds and short-term borrowing ............ 65 Table 2.10 – Fiscal indicators and the financial forecasts ....................................... 66 Table 2.11 – Breakdown of net worth ..................................................................... 67 Table 2.12 – Change in assets and liabilities reflecting the change in net worth ..... 68 Table 2.13 – Key fiscal indicators compared to the Budget Update ........................ 70 Table 2.14 – Changes in OBEGAL compared to the Budget Update ...................... 72 Table 2.15 – Top-down adjustment .......................................................................
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