Govt Introduces New Fiscal Indicator and Overhauls Capital Allowance System

Finance Minister Nicola Willis says changes aim for clearer fiscal strategies and better capital investment decisions.

The Government is set to adopt a new financial indicator and a revamped approach to capital allowances, marking a significant shift in its fiscal management framework. Finance Minister Nicola Willis announced the changes following reviews of the operating balance before gains and losses (OBEGAL) and the multi-year capital allowance (MYCA), which were outlined in this year’s Budget.

New Financial Measure: OBEGALx

Since 2008, the OBEGAL measure has been a cornerstone of governments' short-term fiscal strategy, providing a snapshot of operating surpluses or deficits. However, Finance Minister Willis said OBEGAL’s usefulness had been undermined in recent years by the growing impact of deficits from the Accident Compensation Corporation (ACC).

ACC’s deficits reached $4.1 billion in the 2023/24 fiscal year, despite the scheme being fully funded and backed by an asset base of approximately $50 billion. Willis noted that these annual fluctuations in ACC’s finances are irrelevant to the Government’s immediate tax and spending decisions.

To address this, the Government will introduce a new operating balance measure, OBEGALx, which will exclude ACC revenue and expenses.

“Ministers should not be raising taxes or reducing public spending to compensate for ACC deficits in pursuit of a short-term surplus target,” said Willis. “By removing ACC-related volatility from OBEGAL, OBEGALx will ensure a more transparent and accurate reflection of the Government’s core fiscal performance.”

The traditional OBEGAL result will still be reported alongside OBEGALx and other fiscal indicators in Treasury’s economic and fiscal updates and financial statements.

Capital Allowance Overhaul: Goodbye to MYCA

The Government is also scrapping the multi-year capital allowance (MYCA) framework, introduced in 2019 under the previous government. MYCA was intended to provide greater flexibility for capital investments over a rolling four-year period, allowing funding to be moved forward or back between Budgets. However, Willis said the framework had failed to meet its objectives.

Instead of fostering long-term investment planning, MYCA created opportunities for large, unsustainable increases in capital allowances, often committed immediately.

Willis cited Budget 2023 as a prime example, where the previous government topped up the MYCA by $17.6 billion and committed $17.4 billion of that amount in the same Budget. This left only $3.1 billion to fund new capital projects over the next three Budgets.

“This approach undermined fiscal discipline and strategic planning,” Willis said. “It allowed Ministers to frontload funding commitments and depleted resources for future Budgets.”

Under the new system, the Government will return to setting single-year capital allowances for each Budget in the forecast period. This change will offer greater flexibility to adjust capital allowances based on economic circumstances while being easier to communicate and understand.

“Single-Budget capital allowances provide a clearer, more transparent framework for making investment decisions,” Willis explained. “They will help ensure fiscal responsibility while still allowing the Government to respond to changing priorities.”

Moving Toward Fiscal Clarity and Discipline

The changes to both OBEGAL and MYCA reflect the Government’s broader commitment to improving fiscal transparency and supporting sound, long-term decision-making. By introducing OBEGALx and ending the MYCA framework, Willis said the Government aims to strike a better balance between flexibility and fiscal discipline while avoiding short-termism in public spending and investment.

The first full reporting of OBEGALx is expected in upcoming Treasury updates, alongside traditional fiscal indicators. The new capital allowances framework will take effect in the next Budget cycle, providing a fresh approach to managing investment priorities.

These reforms, Willis concluded, mark a step toward “better fiscal management and more sustainable investment strategies to secure New Zealand’s economic future.”