Budget 2022: New fiscal rules revealed by Finance Minister Grant Robertson

The Finance Minister has revealed a new debt measure, debt cap and surplus rule as the Government prepares for a "new normal" past the COVID-19 peak.

The new debt measure takes into account the Government's assets, including the Super Fund, as well as liabilities such as debt held by Crown agencies like Kainga Ora. Finance Minister Grant Robertson said it is "more reflective of the real state of our fiscal position" and more comparable to other countries around the world. 

Previously, there has been a main net core Crown debt measure as well as a measure of net core Crown debt including assets of the New Zealand Superannuation Fund. 

The change comes on the recommendation of the Treasury and puts the headline net debt figure about 20 percentage points below the current one. The old measure will continue to also be published in the Budget alongside the new one for transparency and historical comparisons. 

The second new fiscal rule Robertson announced is a net debt ceiling.

"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," Robertson said. 

"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."

According to International Monetary Fund forecasts, government net debt will be 21.3 percent of GDP in 2023 before falling to 16.4 percent in 2027. For comparison, Australia's government net debt is predicted to hit 40.7 percent in 2023, peak at 41.3 percent in 2024 and fall to 37.9 percent in 2027.

The next surplus is expected by 2024/25, Robertson said. That's a year later than what was forecast by Treasury in December. Once surplus is reached, the Government will be committed to maintaining it in the range of zero to 2 percent of GDP over time.

"That means as we enter the new normal, the spending required to operate government services won’t be adding to Government debt," Robertson said.

"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."

The Finance Minister said as New Zealand moves to a "new normal post the peak of COVID", it's the right time "to resume a set of fiscal rules to carefully manage costs while planning for the future". 

"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."

Budget 2022 will be delivered on May 19.