The Government is adopting a new financial indicator and a new approach to capital allowances, Finance Minister Nicola Willis says.
These changes follow reviews, announced at the Budget, of the operating balance before gains and losses (OBEGAL) and the multi-year capital allowance (MYCA).
“Since 2008, governments have used OBEGAL to communicate their short-term fiscal strategy operating targets.
“However, in recent years, this picture has been increasingly coloured by ACC’s deficits, which reached $4.1 billion in 2023/24.
“As a long-term insurance scheme that is set up, for the most part, to be fully funded, supported by a current asset base of around $50 billion, ACC’s annual financial results are not relevant to government tax and spending decisions in the near term,” Nicola Willis says.
“Therefore, the Government has decided to establish a new operating balance measure – OBEGALx – that is based on OBEGAL but excludes ACC revenue and expenses. This is to avoid incentivising unnecessary and unhelpful short-term decision making.
“Ministers should not be raising taxes or reducing public spending to compensate for ACC deficits in pursuit of a short-term surplus target.
“The OBEGAL result will continue to be reported alongside OBEGALx and other fiscal indicators in the Treasury’s economic and fiscal updates and financial statements.
“The rolling four-year MYCA was introduced by the previous government in 2019 to give governments more flexibility to move funding forward or back between Budgets to support a longer-term view of capital investment.
“However, it did not have the desired effect. Instead of supporting more considered investment decision-making, it created opportunities for Ministers to make large annual increases to the MYCA and immediately commit them.
“In Budget 2023, for example, the previous government topped up the MYCA by $17.6 billion and committed $17.4 billion in that Budget alone, leaving only $3.1 billion in the MYCA to cover new capital investments in the following three Budgets.
“This Government has, therefore, decided to discontinue the MYCA framework. It will set capital allowances for each Budget in the forecast period, with flexibility to vary them according to the circumstances at the time.
“Single-Budget capital allowances will be easier to understand and communicate.”