New Zealand’s lauded fiscal legislation: has it reduced fiscal uncertainty?

Abstract

The principles-based legislation governing New Zealand’s fiscal policy, introduced in 1994, is praised for delivering sustainable public debt outcomes. Based on the provisions of the legislation, we argue that the legislation’s success in delivering an alternative outcome – reduced fiscal policy uncertainty – also needs to be assessed. We estimate the legislation has reduced net tax (government spending) uncertainty by between 32 and 46 per cent (31 and 40 per cent). We also show that fiscal uncertainty’s effect on output is regime dependent, and net tax uncertainty is more detrimental to output under the present regime than government spending uncertainty.