Governing Principles of Fiscal Strategy

The Government�s fiscal strategy objective is to strengthen the State�s balance sheet so that, in the event of an economic recession or major cyclical downturn in revenue, the Government could continue to provide key services. A strong balance sheet provides the Government with the flexibility to meet a revenue shortfall by borrowing rather than having to reduce service delivery, and without jeopardising the State�s AAA credit rating.

Over the past decade the State�s fiscal strategy has been guided by a range of fiscal targets and principles set out in the General Government Debt Elimination Act 1995 (GGDEA). However, with most of the key targets in the GGDEA achieved, the Government updated its fiscal strategy with the introduction of the Fiscal Responsibility Act 2005. The new Act continues the broad thrust of the GGDEA, but extends the range of fiscal targets and principles so that the fiscal strategy keeps pace with the fiscal challenges that will confront New South Wales in the years ahead.

The fiscal targets in the Act are:

To reduce the level of general government sector net financial liabilities as a share of Gross State Product to 7.5% or less by 30 June 2010, and to 6% or less by 30 June 2015;
To maintain general government underlying net debt as a share of Gross State Product at or below its level as at 30 June 2005;
To eliminate total state sector unfunded superannuation liabilities by 30 June 2030.

The fiscal principles in the Act are:

keeping the budget and forward estimates (operating result) in surplus;
constrained growth in net cost of services and expenses;
managing public sector employee costs;
evaluation of capital expenditure proposals;
managing state finances with a view to long term fiscal pressures;
maintaining or increasing general government sector net worth;
funding employer superannuation liabilities;
total asset management;
prudent risk management; and
tax restraint.

Refer to NSW Budget Paper No: 2 for a more in-depth discussion of the State�s fiscal strategy, and a report on its targets and principles.