Statement 3:
Fiscal Strategy and Outlook
(Continued)
The Government's fiscal strategy
The Government's medium‑term fiscal strategy is designed to ensure fiscal sustainability. It has remained unchanged since the Government's first Budget, in 2008‑09, providing a clear and stable basis for the conduct of fiscal policy.
The strategy provides the necessary flexibility for the budget position to vary in line with economic conditions, as it has in response to the global financial crisis, while providing for long‑term fiscal sustainability. As the economy recovers, the strategy provides a framework for returning the budget to surplus.
Key elements of a sustainable medium‑term fiscal strategy
The Government's medium‑term fiscal strategy is to:
- achieve budget surpluses, on average, over the medium term;
- keep taxation as a share of GDP below the level for 2007‑08, on average; and
- improve the Government's net financial worth over the medium term.
Allowing the budget to vary in line with economic conditions is a key element of the fiscal strategy and makes an important contribution to macroeconomic stability.
In the February 2009 Updated Economic and Fiscal Outlook (UEFO), the Government committed to a two‑stage fiscal strategy to support economic growth and jobs through the global financial crisis in a manner consistent with the medium‑term fiscal strategy.
1. Support the economy during the global recession
As part of this strategy, the Government committed to take action during the global financial crisis to support the economy and jobs by:
- allowing the variations in receipts and payments, which are naturally associated with slower economic growth, to drive a temporary underlying cash budget deficit; and
- using additional spending to deliver timely, targeted and temporary stimulus, with the clear objective of other budget priorities and new policy proposals being met through a reprioritisation of existing expenditure.
The 2009‑10 Budget delivered on this strategy in full.
2. Deficit exit strategy as the economy recovers
With above‑trend growth forecast, the Government has taken action to return the budget to surplus by:
- allowing the level of tax receipts to recover naturally as the economy improves, while maintaining the Government's commitment to keep taxation as a share of GDP below the 2007‑08 level on average; and
- holding real growth in spending to 2 per cent a year until the budget returns to surplus.
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