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Economic and Fiscal Performance

Chart 4: Number of daily confirmed COVID-19 cases in New Zealand

Source: Ministry of Health/the Treasury

COVID-19 Developments in New Zealand

The first COVID-19 case in New Zealand was detected in late February. As the number of confirmed cases increased, the New Zealand Government introduced international border restrictions and implemented a four level alert system. The alert levels specify the public health and social measures taken to address the pandemic.

New Zealand is currently at the lowest alert level (1), with no known community transmission since May, and is operating business as usual but with the international borders largely closed.

While New Zealand has the health impacts of COVID-19 largely under control, the economic and fiscal impacts will be more enduring. To cushion the impact on the economy, the Government announced significant fiscal stimulus. A NZD 12.1 billion package was announced on 17 March, and a NZD 50 billion COVID-19 Response and Recovery Fund (CRRF) was announced at BEFU, to cover subsequent COVID-19 related expenditure. Stimulus packages include a wage subsidy scheme, business support packages, a trades training package, and funding for education, health and other social sectors. NZD 14 billion of the CRRF has been set aside for in the event, for example, New Zealand experiences a second wave.

Current Fiscal Strategy

The Government’s fiscal strategy is formally communicated twice a year, typically alongside the BEFU and HYEFU. The Government sets out its short-term intentions and long-term objectives with respect to core parameters such as; debt, operating expenses, operating revenue, the operating balance and net worth. The Fiscal Strategy Report is released alongside the BEFU. The Budget Policy Statement is generally released alongside HYEFU.

Successive Governments have demonstrated a continued commitment to prudent fiscal strategy. However, as a result of COVID-19, the short-term fiscal intentions have been updated to recognise the need for a period of fiscal expansion to support the economy. The Government’s most recent Fiscal Strategy Report was published in May 2020. The Government’s five short-term fiscal intentions for the next three years are to:

  • allow the level of net core Crown debt to rise in the short term
  • run operating deficits in the short term
  • ensure expenses are consistent with the operating balance objective
  • ensure revenue is consistent with the operating balance objective
  • use the Crown’s net worth to fight COVID-19, cushion its impact and position New Zealand for recovery.

While short-term fiscal intentions reflect a period of fiscal expansion, the Government’s long-term fiscal objectives continue to focus on fiscal prudence. This includes stabilising and reducing net core Crown debt to prudent levels, and returning the operating balance to surplus. The long-term fiscal objectives are less specific than usual, but will be refined as uncertainty in the economic and fiscal outlook recedes.

Fiscal Performance

Prior to the onset of COVID-19, the Government had been maintaining an operating surplus and had reduced net core Crown debt to below 20% of GDP. To cushion the economy from the impact of COVID-19, operating deficits of around 10% of GDP are now forecast in 2019/20 and 2020/21. Over the remainder of the forecast period, deficits are expected to gradually reduce.

A core Crown residual cash deficit is anticipated in each of the forecast years, due to both operating and capital spending. The core Crown residual cash deficit peaks at 15% of GDP in 2020/21, in order to fund the response and recovery to COVID-19. Over the five year forecast period, a cumulative cash deficit of about NZD 150 billion is expected.

Consistent with the residual cash deficit forecasts, net core Crown debt to GDP is expected to increase significantly, reaching almost 55% in 2022/23. In addition, Crown net worth as a percent of GDP is forecast to decrease from 47% to 10% in 2023/24, reflecting increased fiscal stimulus.

Economic Performance

The New Zealand economy had been on a solid footing, with annual real production GDP growth averaging 3.2% over the five years to December 2019. However, the emergence of COVID-19 and associated restrictions has led to a contraction in economic activity. The Treasury forecasts real production GDP to decline nearly 12% in the year to March 2021, before recovering and averaging over 5% per year for the remainder of the forecast period (2021/22 to 2023/24).

New Zealand generally runs a current account deficit. This has narrowed from almost 8.0% of GDP during the mid-2000s, and was most recently 2.7% in the year to March 2020. Over the same period, New Zealand’s net international investment liability has improved from over 80% of GDP to 58% currently.

New Zealand has one of the highest labour participation rates in the OECD, at just over 70% of the working age population. New Zealand’s unemployment rate in the March 2020 quarter was 4.2%. It has remained around this rate since early 2018, but is expected to widen to almost 10% over the next six months before gradually narrowing to below 5% by 2024.

Annual CPI inflation was 1.5% in the June 2020 quarter, slowing from 2.5% in March 2020 due to the fall in oil prices and some temporary price freezes due to COVID-19. In March 2020, the RBNZ lowered the Official Cash Rate (OCR) to 0.25% (where it has remained), and set an LSAP programme upper limit of NZD 30 billion. This was subsequently increased to NZD 60 billion at the 13 May 2020 meeting. Annual headline CPI inflation is expected to gradually increase over the forecast period to reach near the 2.0% target midpoint.

Chart 5: New Zealand OCR

Source: RBNZ

Table 1: Summary of the Treasury’s Economic and Fiscal Forecasts

  Actual Forecast
Year Ending 30 June 2019 2020 2021 2022 2023 2024
Real GDP (production basis, annual average % change) 2.8 -4.6 -1.0 8.6 4.6 3.6
Unemployment rate (% of labour force, June quarter) 4.0 8.3 7.6 5.7 5.2 4.8
CPI inflation (annual % change, June quarter) 1.7 1.5 0.8 1.5 1.8 1.9
Current account balance (% of GDP) -3.4 -2.0 -5.7 -4.2 -3.8 -3.6
Fiscal (% of GDP)
Core Crown tax revenue 28.5 28.0 27.2 26.6 27.4 27.3
Core Crown expenses 28.7 38.7 38.6 36.5 33.7 30.2
Total Crown Operating balance before gains and losses 2.4 -9.6 -10.1 -8.3 -4.7 -1.3
Core Crown residual cash -0.2 -10.9 -14.7 -10.7 -7.6 -3.6
Net core Crown debt 19.0 30.2 44.0 49.8 53.6 53.6
Net worth attributable to the Crown 47.2 36.0 26.0 16.0 11.2 10.3

Source: The Treasury, in conjunction with BEFU, 14 May 2020

Wellbeing and Sustainability

The New Zealand Government has clearly outlined wellbeing objectives to improve living standards of New Zealanders. The inaugural Wellbeing Budget was delivered in 2019 and included a package of initiatives to measure progress focused on the wellbeing of people, the health of the environment and the strength of the community. There were two key environmental initiatives as part of the Wellbeing Budget; setting a provisional emissions target and revised cap and price controls for the emissions trading scheme[7]; and the formation of an independent Climate Change Commission to advise on carbon reduction techniques.

In the 2020 Wellbeing Budget, a number of the new initiatives were postponed in order to fund the targeted COVID-19 response and recovery measures. However, Budget Initiatives remain focused on the wellbeing of current and future generations of New Zealanders.

In addition, New Zealand is amongst the highest rated sovereigns on sustainability and Environmental Social and Governance (ESG) ratings. This includes a ranking of 16 out of 193 countries on the SDG (Sustainable Development Goals) Index.

Credit Ratings

New Zealand’s credit rating is within the top twenty sovereign ratings globally. S&P Global Ratings and Fitch Ratings currently maintain an AA+ long-term local currency rating for New Zealand, while Moody’s Investors Service has maintained an Aaa rating for New Zealand since October 2002.

In January 2019, S&P Global Ratings revised the outlook on New Zealand’s long-term ratings from stable to positive. S&P Global Ratings subsequently affirmed the positive outlook in May 2020, due to their expectation that the impact of COVID-19 on fiscal measures will be temporary. Fitch Ratings also revised the New Zealand long-term foreign currency credit rating outlook from stable to positive in January 2020.

Table 2: New Zealand Long-term Credit Ratings

Rating Agency Local Currency Foreign Currency Latest Update
Moody's Investors Service Aaa (stable outlook) Aaa (stable outlook) Apr-20


S&P Global Ratings AA+ (positive outlook) AA (positive outlook) May-20


Fitch Ratings AA+ (stable outlook) AA (positive outlook) Jan-20

Source: Moody’s Investors Service, S&P Global Ratings, Fitch Ratings

Last updated: 
Monday, 3 August 2020