Recent years have seen a gradual resurgence in the emphasis given to fiscal policy as a tool for achieving macroeconomic stabilisation. For many countries this reflects the limitations of monetary policy (e.g., zero interest bound in the US and Japan; unavailability of country-specific monetary policy in EMU). For other economies it reflects renewed recognition of the impact of fiscal policy on the macro policy "mix", and therefore on the real exchange rate and macroeconomic imbalances.

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... re questions are being asked about what role fiscal policy could have played in limiting the build-up of imbalances in the run-up to the global financial crisis. However, making fiscal policy less pro-cyclical in economic upturns is very difficult, in large part because of the political economy challenges of running large surpluses during prolonged economic upturns. This paper draws lessons for New Zealand from the last economic cycle and surveys the options for making fiscal policy "more stabilising" in future economic upturns. Options considered include: revising the Public Finance Act so as to increase the importance that is placed on avoiding pro-cyclical fiscal policy; more focus on sticking to ex ante spending plans; or a stabilisation fund to safeguard revenue windfalls. The potential role of an independent fiscal council is also touched on.