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Annual Report of the Treasury for the Year Ended 30 June 2009

Note: Note 13 of the Annual Report of the Treasury for the year ended 30 June 2009 has been amended from the printed version to correct an inadvertent omission.

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The Treasury

Crown Company Monitoring Advisory Unit (CCMAU)

Financial Statements

Annexes

 

Chief Executive's Introduction

The world in which the Treasury operates changed markedly in 2008/09, and the face of the Treasury has changed with it. In the past year we have had to call on all our strengths as the Government's lead advisor on economic and financial issues, demonstrate public sector leadership as a Central Agency (alongside the State Services Commission (SSC) and Department of the Prime Minister and Cabinet (DPMC)) and take on important new operational roles.

In 2008/09, New Zealand was in the midst of the most difficult economic conditions we have experienced in generations as a deep, synchronised, global recession coincided with our own protracted domestic recession. That has meant facing challenges and thinking about some issues in new ways.

In the political environment, a change of government has led to new priorities and different performance expectations. Ministers are looking for the Treasury to take a lead in improving public sector performance - acting as a catalyst for sector-wide change as well as being an effective deliverer of services ourselves.

These developments in the economic and political landscape reinforce the importance of the longstanding core of work the Treasury undertakes to lift economic growth and raise living standards. Demands for practical economic advice and robust forecasts are stronger than ever. It is critical that we continue to advise effectively on policies and strategies that matter for New Zealand's long-term economic performance. We need to help maintain a stable and sustainable economy during the most unstable conditions for decades. We also have to keep driving public sector performance that reflects fiscal reality and delivers on the Government's objectives for smarter, better public services for less.

2008/09 Developments and Challenges

In addition to this longer-term work, a number of developments within the Treasury during the year serve as examples of just some of the ways we are addressing formidable economic challenges and focusing on the Government's priorities.

Among the most pressing issues as the global economic and financial crisis unfolded was the need to maintain depositors' confidence in New Zealand's financial sector, and to ensure the sector continues to have access to funding. Since October 2008 the Treasury has administered the Crown Retail Deposit Guarantee Scheme[1], a role which involves assessing and approving financial institutions, monitoring compliance with the Scheme and ensuring eligible depositors receive their entitlements if the guarantee is called on. The Treasury also administers the Wholesale Funding Guarantee Facility[2], which was put in place to facilitate improved access to international funding markets for New Zealand's investment-grade financial institutions. The retail and wholesale guarantee schemes represent substantial new operational areas of work for us.

Another way New Zealand responded to the crisis was to expand our assistance to New Zealand exporters. After private trade credit insurers reduced their line of cover (making it harder for many of our exporters to continue trade in some countries), the New Zealand Export Credit Office (NZECO) introduced a short-term trade credit guarantee in February 2009. Owing to strong demand, the facility for the short-term trade credit guarantee has risen from $50 million to $150 million. The financial crisis has also generated greater interest from exporters in a range of other NZECO products.

Complementing our immediate responses to the global downturn were other developments during 2008/09 that have bolstered the Treasury's role in helping position New Zealand to come out of the recession with higher productivity and stronger economic growth.

Among the Government's objectives is for New Zealand's infrastructure to be a means to permanently lift the sustainable growth rate of the economy, through increased productivity and improved management of Crown assets. The National Infrastructure Unit was established within the Treasury to take a national overview of the Government's infrastructure priorities - providing cross-government coordination, planning and expertise. The Unit is assisting the Government to produce its first 20-year National Infrastructure Plan with the intention thereafter of updating this every three years. This will present a high-level view of the state of New Zealand's infrastructure and include a stock-take of existing infrastructure and anticipated future requirements. The Plan will help Ministers, agencies, local government and the private sector identify needs and prioritise investments to lift growth.

In mid-2008 the Government took decisions to strengthen the regulatory management system, and put in place a more strategic approach to managing the impact of regulation on economic performance. From November 2008, the Treasury took on three new roles. First, all proposals with regulatory implications are referred to the Treasury for possible scrutiny. The Treasury's Regulatory Impact Analysis Team (RIAT) is responsible for independent assessment of regulatory impact analyses and statements for proposals likely to have a significant impact on economic growth. Second, the Treasury is tasked with advising the Government on a prioritised regulatory review programme and coordinating across government agencies to deliver on this programme. The third main area is strategic coordination of the regulatory quality system, including recommending improvements to the system and Cabinet and parliamentary processes related to regulations and regulatory reform.

Lifting our Performance

Current circumstances make it more important than ever that our longstanding work and new responsibilities are performed to the highest standards. We aim to strengthen our performance across all of our activities, both because of, and in the face of, a rapidly-changing economic environment. I believe the Treasury has responded well to the challenges so far. Our successes during 2008/09 have reaffirmed the steps we have taken in recent years to focus on results and operate more flexibly and nimbly. We need to continue down this track, as there is always more we can do to sharpen our performance. In particular, we have to ensure we can continue to respond to the leadership role demanded of the Treasury as a Central Agency, and ensure we are well placed to help form and inform public debate on major economic and State sector issues.

Looking Ahead

The Treasury has great quality staff with which to meet the priorities of the Government, the demands of the economy and the aims of the organisation. It is imperative that we make the most of the skills and expertise of our people as we take on challenges and opportunities over the coming year. Most notably, we will be marshalling our efforts to achieve results in some key areas: the financial crisis, medium-term economic strategy, State sector performance, infrastructure, regulatory reform, macroeconomic stability, the Crown balance sheet, debt management and organisational performance.

I would like to thank all staff for their hard work and dedication in 2008/09 and their continuing commitment and professionalism in the year ahead.

John Whitehead's signature

John Whitehead
Secretary to the Treasury

Notes

  • [1]This Scheme is funded through the Crown Deposit Guarantee Scheme appropriation in Vote Finance.
  • [2]This Facility is funded through the Crown Wholesale Guarantee Facility appropriation in Vote Finance.

What We Do

The Treasury's overall vision is to be a world-class Treasury working for higher living standards for New Zealanders. We aim to raise the country's capacity to deliver on people's aspirations for a better quality of life, through making an impact on the issues that are important to New Zealand's economic performance and State sector management.

Guiding the Treasury's work is our focus on achieving three main outcomes, all of which are necessary to attaining higher living standards for New Zealanders:

  • improved economic performance
  • improved State sector performance, and
  • a stable and sustainable macroeconomic environment.

The Treasury also has five core roles that underpin what we do:

  • Economic role - concentrates on issues with policy implications that may have a significant and therefore pervasive impact on the performance of the economy as a whole.
  • Financial role - concentrates on issues that have significant fiscal implications both now and in the longer term, and financial management and standards (including financial probity issues).
  • Regulatory role - concentrates on improving the quality of government regulation with a particular focus on removing the barriers to growth and improving productivity.
  • Central Agency role - concentrates on helping the Government develop its overall strategy and manage significant issues that emerge.
  • Operational role - concentrates oncore operational functions such as those carried out by the New Zealand Debt Management Office (NZDMO) and NZECO. In the 2008/09 year this role expanded with the establishment of the wholesale and retail guarantee schemes and the National Infrastructure Unit.

As these roles suggest, the Treasury is uniquely placed to provide the Government with advice that integrates economic and financial perspectives including interests in institutions, macroeconomic performance and structural policy issues. We bring it together in a way that helps the Government focus on what really matters to raise living standards. We operate in partnership with other agencies that have more specific responsibilities, as well as our fellow Central Agencies to ensure that the public service overall is well placed to fulfil the Government's priorities.

The Treasury also engages with stakeholders across the public and private sectors to strengthen our analysis and to identify where our efforts to raise living standards can best be targeted. Our engagement and analysis have helped us prioritise four strategic result areas where our advice over the next three to five years can have the most impact:

  • Skills - to achieve a substantive increase in the economic performance by enhancing New Zealand's collective skills base.
  • International connections - to achieve a sustained increase in New Zealand's economic growth through our international connections.
  • Natural resource management - to ensure the New Zealand economy uses its natural resources sustainably and productively.
  • Long-term fiscal sustainability - to empower decision-makers to determine appropriate action to meet New Zealand's long-term fiscal challenges.

Crown Company Monitoring Advisory Unit

The Crown Company Monitoring Advisory Unit (CCMAU) is a stand-alone unit within the Treasury responsible for maintaining and enhancing the Crown's ownership interest in a range of Crown Research Institutes (CRIs), State-Owned Enterprises (SOEs), Crown companies and other entities. The Executive Director of the Unit is directly accountable to the Secretary to the Treasury for the Crown's investment in CCMAU, and for CCMAU's performance.

Our Outcome Performance for 2008/09

This section reports on progress we made in our three outcome areas: Improved overall economic performance, Stable and sustainable macroeconomic environment and Improved State sector performance. These three outcomes reflect those areas where we feel we can have most influence towards achieving the Government's goals.

The Treasury's main output, or service, is policy advice. This policy advice, as well as the other services we provide, is captured in our six output classes. As the diagram below illustrates, these individual output classes may contribute to one or more of the three outcomes.

The nine output classes contribute directly to results we want to achieve. These result areas are selected because they represent the areas where we can have the greatest impact, and our aim in focusing on them is to maximise the impact that we have and to enhance our effectiveness as a department.

Success in achieving our portfolio of results involves engaging effectively internally, and with our key external customers, providing good-quality policy advice and operations and being flexible in our approach so that we can respond to changes in our operating environment.

The Treasury's Outcome Performance for 2008/09
The Treasury's Outcome Performance for 2008/09.
Source:  The Treasury

Outcome: Improved Overall Economic Performance

The Treasury brings an overall perspective, including interests in institutions, macroeconomics and microeconomics, to advise Ministers on what really matters for New Zealand's economic performance.

Common with most Organisation for Economic Cooperation and Development (OECD) countries, recent economic performance has been poor. New Zealand's financial institutions have weathered the financial crisis well; however, this has not allowed the economy to escape the effects of global recession: real Gross Domestic Product (GDP) and real Gross National Product (GNP) fell 1% and 1.9% respectively in the year to March 2009 and unemployment increased by 1.2 percentage points.

As New Zealand and the global economy return to positive growth, it is important that two structural weaknesses are addressed:

  • New Zealand's low level of GDP per hour worked (labour productivity), and
  • macroeconomic imbalances (persistent current account deficits and very high net external indebtedness) that increase our vulnerability to any future external shocks.

Strong GDP performance since 2000 has masked two broad underlying weaknesses in the economy. The majority of GDP growth (around 1.8% p.a.) has been sourced from increased labour utilisation, and whilst this offers both social and economic benefits, it is not sustainable. Labour productivity grew at an average of just 1.3% p.a. between 2000 and 2008, falling from the 2% average achieved in the period from 1978. Accelerating labour productivity growth will be critical to achieving progress toward the Government's goal of reducing the income gap with Australia and other countries.

Further, economic growth has primarily been associated with rising consumption and significant macroeconomic imbalances. In particular, New Zealand has experienced a combination of a shortfall in national saving relative to investment over a very long period of time and a relatively high level of net external indebtedness. This tends to be associated with increased vulnerabilities, upward pressure on interest rates and can contribute to large swings in the exchange rate.

Future policy action should be focused on achieving the twin objectives of accelerating productivity growth and reducing macroeconomic imbalances. Shifting to a more balanced growth path driven by a greater contribution from productivity will require sustained effort on multiple fronts. However, the policies to achieve these twin aims are likely to be complementary in many cases: an environment that promotes increased saving and investment will also help to promote productivity growth and improve standards of living.

Overview of Progress in 2008/09

Some of the areas in which we have had a significant impact through our work this year include:

  • Provided advice on medium-term economic and fiscal policy options and implementing a productivity-focused economic agenda.
  • Provided advice on the October 2008 and April 2009 personal tax reduction packages and advice on pressures and directions for medium-term tax reform.
  • Provided advice and support to Ministers on the Government's response to the financial crisis, including implementation of the Crown Deposit Guarantee Scheme and Crown Wholesale Guarantee Facility.
  • Coordinated the Government's regulatory review agenda, provided advice on regulatory quality management, including measures to improve regulatory quality, and established the RIAT within the Treasury to independently assess the quality of regulatory impact analyses for significant regulatory proposals.
  • Established the National Infrastructure Unit to assist the Government in developing an infrastructure programme that is both strategically sound and helps build a more competitive, more productive economy.
  • Advised the Minister on climate change issues, including the economic impact of a range of target levels for reducing greenhouse gas emission levels relative to other countries, and options regarding an Emissions Trading Scheme.

Outcome: Improved Overall Economic Performance (continued)

 

The Treasury's Economic Performance Results 2008/09
Overall results we were seeking Key objectives we set for 2008/09 What we achieved in 2008/09

Strategic Result Area: Strengthening International Connections

  • Enable decision-makers, the policy community, other stakeholders and the public at large to understand the implications of globalisation and how New Zealand's international connections can be used to lift productivity and long-run economic performance.
  • Ensure New Zealand's international engagement activities advance regional economic integration and financial stability.
  • Ensure New Zealand's at-border/international policy settings maximise net benefits to New Zealand.
  • Ensure New Zealand's foreign policy, overseas development assistance and Pacific development objectives are delivering value for money and are aligned across Government.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • A forward-looking, strategic globalisation “story” for New Zealand will be developed in partnership with other key agencies and stakeholders.
  • Progress current Single Economic Market (SEM) initiatives with Australia (pension portability, investment protocol, double-tax agreement) and develop the future SEM work programme.
  • Successful completion of New Zealand's term as Chair of the Asia-Pacific Economic Cooperation (APEC) Economic Committee and ensure a smooth and effective transition to a new Chair.
  • Constructively contribute as New Zealand delegate to international economic forums such as APEC and the East Asian Summit.
  • Ensure Finance Ministers are appropriately supported in their international engagements, including attendance at APEC and other multilateral forums/meetings.
  • Undertake reviews of specific domestic policy settings from an international perspective. This objective was removed from the programme mid-year.
  • Complete a review of Overseas Investment Act Regulations with a view to streamlining consideration of overseas investment applications.
  • In conjunction with other agencies, consider whether the economic benefit from spending on the Government's offshore presence can be improved.
  • Published a Treasury productivity paper “International Connections and Productivity: Making Globalisation Work for New Zealand”.
  • Made progress on SEM initiatives with Australia. Completed double-tax agreement. Brought pension portability close to agreement. Made progress on investment protocol.
  • Successfully completed New Zealand's period as Chair of the APEC Economic Committee. Reoriented the focus of the Committee towards removing behind the border impediments to trade. Increased participation from member economies and positioned the Committee well for the future.
  • Represented New Zealand on behalf of Ministers at the Commonwealth Finance Ministers meeting, World Bank and International Monetary Fund (IMF) annual meetings, the Pacific Finance and Economic Ministers Meeting and the APEC Finance Ministers Meeting. Provided support for the Minister's bilateral meeting with the Australian Treasurer and other Ministers.
  • Helped the Minister exercise a number of votes in international financial institutions, including a general capital increase for the Asian Development Bank.
  • Completed changes to Overseas Investment Regulations. Delegated more decisions from Ministers to the Overseas Investment Office. Started work on adjusting fees to cover costs. Started legislative review.
  • Reached agreement to a review of New Zealand's offshore presence as part of Budget 2009 and initial work underway.

Strategic Result Area: Management of Natural Resources

  • Ensure the New Zealand economy uses natural resources sustainably and productively.
  • Ensure Government influences the collective international response to climate change.
  • Ensure the economy adjusts at least cost to sustainable natural resource use, exploiting opportunities and managing risks.
  • Promote, with other agencies, policies to achieve the above results.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Analysis of policies that would help the economy to adjust to, and take advantage of, the opportunities presented by sustainability.
  • Support finalisation of the National Policy Statement on Water Management and development of allocation instruments.
  • Contribute to developing a New Zealand position on burden sharing in a future international agreement which will influence New Zealand's future target.
  • Coordinate analysis of possible trade implications of future international agreements to inform negotiators of possible second-order effects.
  • Continue to contribute to the implementation and monitoring of the Emissions Trading Scheme.
  • Develop a view on the issues and options relating to central government capability and structures that would best support the Government's sustainability agenda.
  • Contribute to the interdepartmental development of advice on an integrated sustainability agenda, in particular ensuring economic impacts are taken into account.
  • Evaluate whether New Zealand's innovation structures are contributing as well as possible to sustainability.
  • Provided advice on overall natural resource management policies through joint briefings (with other agencies involved in the management of natural resources) for the new Government on key issues and policies, and in the development of a set of principles on the relationship between environmental and economic policy.
  • Helped shape the reform of the Resource Management Act 1991 through our contribution to interdepartmental policy advice.  This included providing advice on specific legislative proposals.
  • Helped ensure that due consideration was given to allocative efficiency and growth in the National Policy Statement on Freshwater Management issued for consultation in July 2009 and in the new administration's strategy for freshwater  “A New Start for Fresh Water”.
  • Reported to Ministers (separately and jointly with Ministry for the Environment (MfE) and SSC on the role, shape and organisational form of an Environmental Protection Agency. Ministers expect to consider this advice in early 2009/10.
  • Owing to changing priorities, we did not progress an evaluation of the contribution of innovation structures to sustainability.
  • Continued to participate in policy development on, and a review of, the Emissions Trading Scheme. Hosted the Emissions Trading Group until October 2008 and continued to second staff to this group after it transferred to MfE.
  • Presented New Zealand Conceptual Framework on burden sharing at United Nations Framework Convention on Climate Change (UNFCCC) meeting.
  • Demonstrated in international negotiations of the UNFCCC the relative effort of meeting emissions targets as a percentage of GDP.
  • Oversaw interdepartmental modelling group to prepare material to inform our international negotiations.

Productivity

  • Provide robust, evidence-based advice on the impact of productivity policy and contribute to a rich and informed public debate so that Ministers are able to make informed decisions.
  • Assist Government in setting a compelling agenda to raise productivity.
  • Improve the effectiveness of the Government's economic policies by bringing a strong productivity focus to its economic development programme.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results while also maximising growth and fiscal sustainability.  
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Contribute to public debate around productivity to increase the public profile and understanding of this issue, including pursuing public speaking opportunities, publications and wider external engagement.
  • With other agencies, including the Ministry of Economic Development (MED), review the Economic Transformation (ET) agenda to ensure ET priorities reflect findings of the 2007/08 work on productivity drivers.
  • Supported Government decision-making on economic strategy by providing advice to Ministers on:
    • medium-term economic and fiscal policy options
    • implementing a productivity-focused economic agenda, and
    • implementing the Government’s short-term economic and fiscal agenda.
  • Sought to shape policy debate on policies to lift productivity growth through:
    • discussion of the Treasury’s productivity analysis with various departments and private sector groups, and
    • major speech to the New Zealand Institute of Directors on “Positioning New Zealand for a Post-recession World”.
  • Undertook analysis of options for a New Zealand Productivity Commission to support high-quality policy analysis aimed at lifting productivity performance.
  • Led an interdepartmental forum aimed at keeping abreast of developments in response to the financial crisis and contributed to the Department of DPMC-led review of business assistance.

Financial Markets, Investment and Savings

  • Shape the savings and investment agenda to influence the future direction of financial and economic policy.
  • Ensure regulatory and supervisory arrangements are in place to meet the needs of firms and individuals by effectively intermediating saving and investment (includes banks and Non-Bank Deposit Takers (NBDT)).
  • Ensure active interventions undertaken by Government support financial system development and meet the needs of firms and individual investors.
  • Facilitate a cultural change reflected in increased financial literacy and enhanced entrepreneurial skills.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results while also maximising growth and fiscal sustainability.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Participate in meetings and exercises as part of the Trans-Tasman Banking Council.
  • Coordinate cross-agency work and the steering group that evaluates and advises on financial markets, savings and investments.
  • Complete an external review of the location of NZECO, with key findings of this review reported to the Minister.
  • Chair an interagency team that identifies appropriate ways to organise and coordinate government initiatives to increase financial literacy.
  • Research trends arising from KiwiSaver and other initiatives to help inform advice to Minister and others. This objective was removed from the programme mid-year.
  • Implementation of the wholesale and retail deposit guarantee schemes.
  • Maintained progress on the Trans-Tasman Banking Council's work programme which focuses on enhancing cooperation on the supervision of trans-Tasman banks and reviewing the crisis response preparedness for events involving banks that are common to both countries.
  • Participated in the inter-agency Financial Markets, Savings and Investment Sponsors Group which provides a forum for cross-agency discussion and coordination of work programmes on financial markets, savings and investment.
  • Provided advice and support to the Capital Market Development Taskforce as it seeks to identify initiatives to support the development of New Zealand's capital markets.
  • Completed an external review of the location of NZECO and follow-up work on NZECO's corporate form. Reviewed NZECO risk management processes.
  • Developed, with other agencies, a map of financial literacy initiatives and activities across Government before passing responsibility for leading further work on increasing financial literacy to MED.
  • Worked with other agencies on an evaluation programme for KiwiSaver to establish whether and how KiwiSaver is addressing and meeting its policy objectives.
  • Improved the KiwiSaver forecasting model performance by working with Inland Revenue Department (IRD) to update the model's assumptions.
  • Advised on KiwiSaver including on the design of KiwiSaver's mortgage diversion facility, and the implications of the 2% minimum contribution level and the employer tax credit.
  • Designed and implemented the retail and wholesale guarantee schemes to achieve the objectives of ensuring depositor confidence in New Zealand financial institutions and facilitating access to international financial markets. This work has included over 125 deeds entered into with institutions to cover retail depositors; the confirmation of five institutions as eligible for the wholesale guarantee facility; implementation of monitoring and management information to manage scheme risks; and regular review of wholesale scheme pricing.
  • Managed two depositor payout processes for firms that defaulted under the retail deposit guarantee scheme (Mascot Finance Ltd. and Strata FinanceLtd.).
  • Prepared initial advice to the Minister regarding the future of the retail deposit guarantee scheme and permanent arrangements.
  • Provided input into a range of other policy development processes intended to facilitate the development of New Zealand’s financial markets and/or facilitate private savings These include Anti-money Laundering and Countering the Financing of Terrorism, the review of the Securities Act 1978, regular KiwiSaver evaluation reports, NZECO papers on short-term trade finance and US Surety issues.

Competition and Regulatory Frameworks

  • Appropriate quality assurance systems are in place and capability exists in Government to facilitate ongoing improvements in the regulatory environment.
  • The productivity implications of regulation, and related trade-offs, are well understood and communicated.
  • The implementation and enforcement of regulation support good regulatory outcomes.
  • Regulatory frameworks deliver the greatest net benefit to New Zealand.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results while also maximising growth and fiscal sustainability.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Establish the RIAT in the Treasury.
  • Contribute to the broader 2009 regulatory review work programme, and lead the review of the Cabinet and parliamentary processes and incorporate key findings into advice provided by the RIAT. This output is dependent on funding approval by Cabinet.
  • Established the Government's regulatory review agenda, which comprises reviews of 15 major and pervasive regulatory regimes. The Treasury is coordinating the delivery of these reviews, which are being undertaken by a number of departments, and reporting regularly on progress.
  • Provided advice to the Minister of Finance and the Minister for Regulatory Reform on regulatory quality management, including the Government Statement on Regulation, measures to enhance regulatory impact analysis and managing the stock of regulation.
  • Established and serviced the Regulatory Responsibility Taskforce, which is looking at ways to increase transparency and accountability in law-making.
  • Assumed responsibility for regulatory impact analysis.  The RIAT independently assess the quality of the regulatory impact analyses and regulatory impact statements for significant regulatory proposals. RIAT completed assessments for 10 significant regulatory proposals.
  • Prepared material for a number of speeches on regulation made by the Minister of Finance, the Minister for Regulatory Reform and the Secretary to the Treasury.

Tax Policy

  • New Zealand's tax system is sustainable and fulfils Government's revenue, efficiency and distributional objectives.
  • New Zealand's tax policy is designed and implemented in a manner that is consistent with the above and also the security of tax receipts is maintained.
  • A better understanding of how the existing tax system, or new specific taxes, affect the sustainable use of New Zealand's natural resources.
  • New Zealand's tax system is responsive to changes in the global economy that affect the attraction and retention of labour and capital.
  • New Zealand has an efficient and well-performing revenue authority.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results while also maximising growth and fiscal sustainability.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Potential policy advice during 2008/09 may include advice on Crown tax management, structured finance transactions, measures to protect the tax base, the imputation system, reform of the provisional tax rules, tax simplification measures or other matters or on specific proposals of interest to Ministers.
  • Advice to Government on reform of the international tax rules and the influences of international tax policy settings.
  • Assist with the passage of legislation following the International Tax Review.
  • Research on the impacts of current and alternative tax policies on the use of natural resources. This objective was removed from the work programme during the year.
  • Advice to Government on the implementation of key policies including student loans and KiwiSaver.
  • Provided advice to Ministers on medium-term tax issues.
  • Presented papers to Victoria University of Wellington (VUW) conference in February 2009 and the New Zealand Association of Economists (NZAE) conference.
  • Provided background papers to the VUW Tax Working Group.
  • Provided advice to Ministers on the Job Summit proposals and on tax initiatives coming out of the Job Summit.
  • Provided advice to the Cabinet Finance and Expenditure Committee (FEC) inquiry into monetary policy and the taxation of housing.
  • Work with IRD:
    • Assisted with the implementation of the December personal tax cut package.
    • Provided policy advice on deferring tax cuts in Budget 2009 and assisted with implementation.
    • Developed a three-year revenue strategy.
    • Contributed to the development of a package to assist Small to Medium Sized Enterprises (SMEs) through the financial crisis.
    • Completed submission to Australia’s Future Tax System review on the mutual recognition of imputation and franking credits.
    • Completed discussion document on streaming and refundability of imputation credits.
    • Completed reports on income splitting; shared equity mortgages; taxation of redundancy issues; taxation of accommodation benefits; GST and local authorities; charities; double-tax agreements; binding rulings; and residential mortgage-backed securities.
    • Worked on development of the following tax regimes: Stapled Stock, Life Insurance and Annuities.
    • Worked on a framework for taxation of non-portfolio foreign investment funds.
    • Assisted with the assessment of and provided advice to FEC on submissions on the International Tax Reforms as well as other components of the July 2009 Tax Bill.

Infrastructure

  • Investment in the transport sector represents value for money and supports current and future economic growth.
  • The implementation of the Government's rail policy.
  • Advancements in communications infrastructure that promotes productivity and economic growth and the implementation of government decisions to increase broadband uptake.
  • Provide advice to support the ongoing growth and development of Auckland as a world-class city, including an effective transport system.
  • Secure energy supply within reasonable prices and environmental outcomes.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results while also maximising growth and fiscal sustainability.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Develop advice on a long-term investment strategy for high-speed broadband that supports future joint investment.
  • Develop a new industry structure that allows for efficient operation and investment in New Zealand's rail system, and ensures that rail expenditure is applied to projects that deliver the greatest benefits to New Zealand's economy.
  • Advice on how to optimise the contribution of infrastructure to economic growth.
  • Secretariat support, as required, for the National Infrastructure Advisory Board.
  • Develop a National Infrastructure Plan.
  • Coordination and development of an omnibus Infrastructure Bill.
  • Led the interagency working group on the Waterview Connection state highway extension that provided advice on developing this project as a public-private partnership.
  • Provided advice on the Government's response to the report of the Royal Commission on Auckland Governance, the legislation establishing the Auckland Council and the Auckland Transition Agency (ATA), the establishment and monitoring of ATA and policy advice on aspects of the governance reforms of specific interest to the Infrastructure and Finance portfolios.
  • Contributed to interagency Infrastructure Update & Outlook report.
  • Developed advice on the Government's preferred broadband investment approach and continued to be actively involved in policy refinement following public consultation.
  • Led the interagency working group on rail policy and funding and reported to shareholding Ministers. Developed the framework for rail policy and funding that will help shape and guide future government investment in the national rail network.
  • Established the National Infrastructure Unit to ensure that the Government's infrastructure programme is both strategically sound and helps build a more competitive, more productive economy. The National Infrastructure Advisory Board was appointed, providing independent expert advice to the Treasury, the Infrastructure Minister and helping to develop the first 20-year National Infrastructure Plan.
  • Worked on a draft discussion document, Infrastructure: Facts and Issues, for review by the Minister for Infrastructure and National Infrastructure Advisory Board, and subsequent engagement with intended parties. 
  • Completed initial drafting of Infrastructure Bill and prepared Bill for introduction in to Parliament.

Note:

In addition to the results identified here, the infrastructure work programme also covers the Treasury's work on Capital Asset Management (CAM).  Progress and achievements on the CAM result, which was developed as a separate work programme in 2008/09, are reported on page 27.   These programmes have been integrated for 2009/10.

Innovation

  • Ensure the broad drivers of innovation are well understood and policies are in place to support the non-research drivers of innovation.
  • Ensure Ministers can have confidence that the public research system is making a strong contribution to the innovation system.
  • Encourage increasing investment in research and development and innovation by firms.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results while also maximising growth and fiscal sustainability.  
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Contribute to the implementation of the New Zealand Fast Forward initiative, including setting up the New Zealand Fast Forward Fund. The Fund will invest money to fund the Fast Forward initiative, which is aimed at fostering a step change in pastoral and food innovation.
  • Contribute to Ministry of Research, Science and Technology's (MoRST) evaluation of the effectiveness of the research and development tax credit. This objective was removed from the work programme during the year.
  • Provide advice on ways to better align and integrate public expenditure across innovation votes to contribute to agreed focus areas.
  • Provide advice on the innovation system's contribution to sustainability goals.
  • Provided advice on a number of policy and funding proposals to Cabinet including budget-related work for Vote Research Science and Technology.
  • Provided  advice on the Research and Development (R&D) tax credit, proposed AgResearch/Lincoln merger, funding incentives, the statement of government priorities and CRI strategic plans.
  • Produced ongoing advice on the implementation of Fast Forward including disestablishing New Zealand Fast Forward, in line with Government's priorities.

Management of Claims Against the Crown, Contractual Liabilities and Crown Properties

  • Protect the Crown's cash flows and minimise the Crown's exposure to any litigation related to the 1973 Maui Gas Contract.
  • Achieve efficient management of the Crown's liability arising from holding its geothermal assets, and disposal of these assets in Treaty settlements or by sale as appropriate.
  • Discharge the Crown's obligations under the State-Owned Enterprises (SOE) Act 1986 to transfer legal land titles to SOEs as efficiently as possible.
  • Achieve durable Treaty settlements at the lowest long-run fiscal and economic cost.
  • Efficient and effective defence of building weathertightness claims against the Crown, related to the Building Industry Association's regulation of the building industry.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Identification of core and non-core land for SOE and Crown companies as defined in the agreements for sale and purchase, and delivery of the appropriate freehold title or easement interest.
  • Day-to-day management of the Crown's contractual obligations to the Maui mining companies and downstream gas users.
  • Management of residual Crown-owned geothermal wells.
  • Working towards the settlement of all historical Treaty of Waitangi claims by 2020.
  • Monitoring and advising on the commercial aspects of Treaty settlements.
  • Undertook ongoing management of transfer of legal title to SOEs.
  • Undertook ongoing management of the Crown's day-to-day contractual obligations.
  • Provided advice on several settlement proposals, including advice to Ministers on the implications of financial and commercial redress proposals.
  • Undertook analysis of overall fiscal trends and implications for settling by 2014.
  • Administered and implemented the Deed of Settlement with Central North Island (CNI) Forest iwi to enable the transfer of forest assets on 1 July 2009.

New Zealand Export Credit Office (NZECO)

  • Increase exports through exporters using export credit guarantees, bonding and working capital products, at no cost to the Crown over the medium term. 
  • Ensure well-informed ministerial decision-making on the location of NZECO, following the completion of the external review of location (July 2009).
  • If Ministers decide that NZECO should not be located in the Treasury, the Treasury will ensure the change of location is soundly implemented.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • To achieve our results we will provide export credit guarantees, bonding and working capital products to exporters in accordance with targets set out in the NZECO Statement of Intent 2008/09.
  • Advice to Ministers on the location of NZECO.
  • Implement decisions based on the NZECO review.
  • Managed the introduction, implementation and delivery of the short-term trade credit guarantee to address gaps in the provision of short-term trade credit guarantees (and finance) in response to the global financial crisis.
  •  Increased education to exporters, financiers and industry organisations (both government and non-government) regarding the availability of NZECO guarantees to address key risks associated with non-payment by overseas buyers, and to provide overseas buyers with innovative solutions to exploit trade opportunities.
  • Managed the increased utilisation of NZECO guarantees by exporters and banks, as a result of NZECO's increased marketing/education efforts and in response to the global financial crisis. 557.5% increase in value of guarantees issued (new exposure) compared to 2007/08, ie, new exposure in 2007/08 was $26.4m, compared with new exposure in 2008/09 of $147.2m.
  • Advice to Ministers on the location of NZECO has been postponed and is not expected until 2009/10.
  • Information on our actual performance against our agreed targets for 2008/09 is provided in the table below.

Outcome: Improved Overall Economic Performance (continued)

Key NZECO performance targets for 2008/09 relating to increased exports through direct provision of NZECO.

NZECO performance targets for 2008/09
Objectives Target
2008/09
Actual
2008/09
Direct contact (face-to-face meetings) with exporters, financiers, industry groups and
marketing-related contacts with government agencies
332 421
Number of new indications[1]    
  • Medium-Long-Term Trade Credit Guarantee
30 61
  • Contract Bonds – US Surety and General
26 14
  • Working Capital Guarantee
9 4
  • ST Trade Credit Guarantee
15 124

Value of short-term trade credit guarantees (target for 2008/09: $6.6m)
Agreed by Cabinet in February 2009

$6.6m $40.7m 
Value of export transactions being considered for support (aka value of indications) $291.7m $793.1m
Number of applications made to NZECO for support 47 100
Number of policies underwritten 31 53
Total new exposure – the Crown’s guaranteed portion of underwritten policies  $227.3 m $147.2m
Total value of exports supported by the Crown guarantee   N/A $396.2m
Cash received – premium and application fee (spread over the life of the policy)  $6,363,311 $4,608,712
Revenue – premium fee spread over the life of the policy $4,294,731 $2,245,404
Total expenses (direct and overhead costs for this output class)  $2,171,071 $1,015,122
Net income from insurance operations (revenue recognised less expenses) $2,123,660 $1,230,282
Number of assists[2] 10 4

 

Notes

  • [1] An “indication” is a transaction that is being actively pursued by the exporter and where negotiations are active and ongoing with the buyer.
  • [2] An “assist” is defined as a situation, whereby with NZECO support the exporter has been more successful in a transaction than it otherwise may have been. For example, an exporter was required to offer finance to remain in a tender. The NZECO helped to put the offer together with the bank. The exporter won the deal, but the buyer decided to pay cash up-front. Without NZECO assistance, the exporter would not have won the deal.

Outcome: Stable and Sustainable Macroeconomic Environment

The Treasury provides advice on macroeconomic conditions and fiscal policy. We also provide economic and fiscal forecasts and produce the Crown Accounts.

A stable and sustainable macroeconomic environment contributes to higher economic growth by allowing individuals, businesses and the Government to plan more effectively for the longer term. This improves the quality and quantity of investment in physical and human capital and helps to raise productivity, and ultimately contributes to higher economic growth and higher living standards for New Zealanders.

Our focus throughout this year has been on areas where our work is likely to have the most impact on the performance of the macroeconomy, and in particular, the institutional frameworks that promote macrostability, and the sound operation of fiscal policy.

Overview of Progress in 2008/09

Macroeconomic conditions were particularly challenging in 2008/09. This was primarily owing to volatile international economic and financial market conditions, stemming initially from a meltdown of the US sub-prime mortgage market, and then the flow-on of this into the real economy around the world and in New Zealand. This impact came at a time when the domestic economy was already showing weakness as previous imbalances, particularly high house prices and high interest rates, unwound and the agricultural sector was only just starting to recover from the effects of the 2007/08 summer drought. The impact of these forces on the New Zealand economy significantly reduced tax revenue, leading to a marked deterioration in the fiscal position as projected under policies in place at the time of the Pre-election Economic and Fiscal Update (PREFU). These factors also led to a heightened degree of uncertainty about New Zealand's macroeconomic prospects and required additional effort to be applied to monitoring, forecasting and advising on economic developments.

In the event, economic activity declined sharply in the second half of 2008 and the economy continued to contract in the first half of 2009. The rate of decline in economic activity is forecast to slow in the second half of 2009 followed by a slow increase in forecast growth during 2010 and 2011. The current account deficit reduced slowly in line with these forecasts. However, inflation pressures have turned out to be lower and as a result monetary policy has loosened well in excess of earlier forecasts.

This environment formed the backdrop for the Treasury's advice on fiscal policy for Budget 2009, with a particular focus on advising the Government on initial ways to address the consequent deterioration in the fiscal outlook. Decisions taken in Budget 2009 markedly improved the fiscal outlook and avoided a credit ratings downgrade (although more latterly one agency, Fitch, has placed New Zealand on negative outlook). While Budget 2009 delivered the necessary set of decisions to stabilise and improve the fiscal outlook and begin a focus on baseline spending, more emphasis on this will be needed in the future. Looking forward, the public sector, supported by the Treasury, will need to find new ways of thinking about service delivery and funding priorities.

The fiscal strategy announced in Budget 2009 has also given renewed prominence to the long-term (40-year) fiscal projections. The decisions taken to address the medium-term fiscal position have brought the long-term pressures more to the fore in terms of individual spending areas - the reductions in growth necessary to live with the new fiscal strategy will require choices that can begin to address some of the longer-term challenges.

The NZDMO's work during 2008/09 was dominated by this worsening fiscal position (and consequent increase in forecast government debt) and the international financial markets crisis. A range of measures was introduced to support the increase in debt issuance, including increasing tender frequency from fortnightly to weekly, the introduction of tap tenders, and reverse tap tenders, and the introduction of a new long bond. NZDMO also adopted a more proactive approach to investor relations and marketing, and placed increased emphasis on relationships with credit rating agencies.

Looking forward, risks remain around the re-emergence of imbalances in the economy as part of the recovery, and the Treasury will be providing advice on policy choices to prevent or mitigate those risks.

Measuring Progress on our Results

The Treasury monitors the stability and sustainability of the macroeconomic environment through the Economic and Fiscal Updates and the Financial Statements of the Government of New Zealand, which include both fiscal and macroeconomic indicators of economic performance. As mentioned above, the economy contracted during the second half of 2008 and the first half of 2009. This should be seen in the context of a domestic economy that has had the longest period of economic growth since World War II, and a world economy where most developed economies faced multiple quarters of declining growth during 2008/09.

Like virtually all other forecasters, the Treasury did not foresee the speed or depth of the recession; however, for the whole of the 2000 to 2008 period we were the most accurate of 12 regular forecasters of the New Zealand economy. Compared with our target of ±3%, the forecast error for 2008/09 was -3.1%. However, the Budget did not forecast the extent of the shock in international financial markets and flow-on economic impacts, and was prepared with no knowledge of the SME package announced in February 2009, the April 2009 tax cuts or the outcome of the decision in a major court case between the IRD and the Bank of New Zealand (BNZ).

The fiscal outlook is weaker than was forecast in Budget 2008 owing to the decrease in revenue resulting from the recession. However, the Government's decisions in Budget 2009 meant that this deterioration in the fiscal outlook is not as large as it would have been had no action been taken to address the outlook - net Crown debt with no policy response was projected to reach over 60% of GDP by 2023 and still be trending upwards, compared to final Budget 2009 projections forecasting net debt at close to 30% of GDP by 2023, then trending down.

During the year, debt issuance was increased to its highest levels since 1991/92. Bonds issued under the domestic borrowing programme reached $5.5 billion by year end, compared with $1.9 billion in 2007/08.

Outcome: Stable and Sustainable Macroeconomic Environment (continued)

The Treasury's Macroeconomic Performance Results 2008/09
Overall results we were seeking Key objectives we set for 2008/09 What we achieved in 2008/09

Strategic Result Area: Ensuring Long-term Fiscal Sustainability

  • Promote understanding of long-term fiscal issues within the broader public sector and among the public so that Ministers experience a more conducive environment in which to take action.
  • Enable the Government to take an approach to its fiscal policy that is consistent with demographic challenges of the next 40 years.
  • Ensure options for managing long-term fiscal challenges reflect a mix of aggregate expenditure and taxation that is best in terms of growth and value for money.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results while also contributing to growth.
  • Advise the Government on public policy issues that have importance to delivering these results.
  • Provide post-election advice on policy options for addressing long-term fiscal pressures.
  • Provide an update on the long-term fiscal outlook and fiscal policy implications in the strategy phase of the 2009 Budget.
  • Respond to the Retirement Commissioner's recommendations relating to the long-term fiscal implications of retirement income policies.
  • Co-led with the Ministry of Social Development (MSD) a response to the Retirement Commission's recommendations on population ageing and retirement incomes. This work stopped at the end of 2008/09 on the grounds that the economic and fiscal environment had changed.
  • Updated our fiscal modelling framework to better reconcile medium- and long-term views.
  • Began work on the second Long-term Fiscal Position for publication in October 2009.

Budget

  • Public and parliamentary understanding of and debate of government funding decisions.
  • Ministers' spending priorities deliver higher living standards.
  • Public sector delivers on ministerial spending priorities efficiently and effectively.
  • Budget is consistent with the wider fiscal and economic strategy through a process that ensures ministerial consideration of the long-term trade-offs between spending areas.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Management of the 2009 Budget process, including the following:
    • Delivery of advice to Ministers, in accordance with timeframes agreed with the Minister of Finance.
    • Advice to the incoming Government on options around process and content for Budget 2009.
    • Delivery of the Budget Policy Statement (BPS).
    • Delivery of accountability documents to support Budget 2009, including Specific Fiscal Risks (SFR) and Estimates documents, in accordance with timeframes in the Public Finance Act 1989.
    • Undertake a review of the quality of Budget 2008 processes and document, with a view to making changes that advance our results.
  • Provided information about the PREFU to key stakeholders, including Central Agencies and departments. The presentations have enabled the implications of the global economic crisis to be understood better by these key stakeholders.
  • Completed baseline update in accordance with timetable set by the Government and the statutory limits of the Public Finance Act 1989.
  • Designed and managed the 2009 Budget consistent with the expectations of the Minister of Finance.
  • Provided advice to the Government on all proposals seeking funding through Budget 2009 to support the Minister's decision-making.
  • Informed key groups both pre- and post-Budget through various media engagements and speeches.
  • Reviewed the quality of the Budget 2008 processes and documentation was completed.

Macroeconomic Stabilisation

  • Support decision-makers to take policy actions that optimise macrostability.
  • Ensure Ministers fully understand and have confidence in the Treasury's macroeconomic policy advice.
  • Ensure key economic agents understand the main drivers of the macroeconomy and support the macroeconomic framework.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results while also maximising growth.  
  • Policy advice associated with the strategy and subsequent decision-making phases of the 2009 Budget.
  • Provide advice to the Government on a response to the FEC report on monetary policy.
  • Develop engagement plans for key non-ministerial stakeholders to foster better understanding.
  • Support country reviews work undertaken by the IMF and the OECD.
  • Work with Statistics New Zealand (SNZ) and Reserve Bank to develop official Institutional Sector Accounts which will provide a more complete picture of saving activity in the economy and facilitate better evaluation and policy initiatives over time.
  • Prepared our post-election briefing advice on ways to reduce exchange rate volatility, and the interaction of fiscal and monetary policy.
  • Provided advice on the Government's response to the FEC Inquiry into Monetary Policy.
  • Provided a macro policy perspective on a range of advice to Government on managing through the recession and longer-term policy settings.
  • Provided advice, jointly with Reserve Bank, on the risks of the recovery leading to further imbalances.
  • Provided initial advice on how to address these imbalances, as part of helping the Government develop its medium-term growth agenda.
  • Ongoing advice to the Minister of Finance as he formed his strategy for Budget 2009.
  • Published the FSR containing plan to address deteriorating fiscal position.
  • Engaged with rating agencies over the Budget.
  • Assisted the completion of IMF and OECD reviews.
  • Agreed funding sharing arrangement with SNZ for the production of Institutional Sector Accounts.

Fiscal Reporting

  • Ensure key stakeholders understand the fiscal strategy and can monitor against it.
  • Ensure fiscal information is presented in a way that aids decision-making, monitoring against the fiscal strategy and analysis of economic impact.
  • Ensure collection and processing meet standards which are fit for purpose.
  • Four-yearly fiscal forecasts as part of the Economic and Fiscal Updates.
  • Publication of the monthly and year-end Financial Statements of the Government of New Zealand.
  • Develop and report on a view of departmental financial management capability.
  • Prepared the financial statements for the Government and fiscal forecasts in line with statutory requirements.
  • Provided advice on accounting policy issues.
  • Provided strategic leadership on accounting standard setting frameworks.
  • Provided representation on international and domestic accounting standard setting boards.
  • Completed the implementation of International Financial Reporting Standards (“NZ IFRS”) and produced the first set of NZ IFRS compliant audited financial statements.

Fiscal Policy and Strategy

  • Decision-makers have the advice and information necessary to make fiscal decisions that are consistent with sustainability over the medium term while contributing to macroeconomic stability and growth.
  • Ministers take decisions that improve the long-term fiscal outlook.
  • Ministers choose and implement a fiscal strategy that is consistent with sustainability over the medium term while contributing to macroeconomic stability and growth.
  • Key members of the public understand the fiscal framework and understand the fiscal strategy.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results while also maximising growth.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Provide advice on the long-term fiscal objectives and the short-term fiscal intentions as part of the 2009 Budget process that fully considers the impact on fiscal sustainability, the wider balance sheet, macroeconomic stability and growth.
  • Assist the Minister of Finance to produce the 2009 BPS and 2009 FSR that fully consider the impact on fiscal sustainability, the wider balance sheet, macroeconomic stability and growth.
  • Assist the OECD and IMF with country reviews and rating agency assessments.
  • Prepared the Treasury's post-election advice on fiscal strategy, responses to the deteriorating fiscal position, fiscal indicators and approaches to fiscal management.
  • Provided advice to the Minister of Finance on potential fiscal stimulus options.
  • Published the 2008 BPS.
  • Provided a fiscal policy perspective on a range of advice to Government on managing through the recession and longer-term policy settings.
  • Ongoing advice to the Minister of Finance as he formed his strategy for Budget 2009.
  • Advised the Minister on new long-term fiscal objectives (including a new net debt anchor), as published in the FSR.
  • Published the FSR containing plan to address deteriorating fiscal position.
  • Provided initial advice on an expenditure rule.
  • Commenced work on quantification of the Crown Balance Sheet risks, and the policy merits of a more centralised risk management approach.
  • Significant engagement with rating agencies over the Budget.
  • Assisted the IMF and OECD as they undertook their reviews of New Zealand.

Outcome: Stable and Sustainable Macroeconomic Environment (continued)

The Treasury's Macroeconomic Performance Results 2008/09
Overall results we were seeking Key objectives we set for 2008/09 What we achieved in 2008/09

Tax and Economic Forecasting and Modelling

  • Provide accurate and well-explained economic and tax forecasts.
  • Provide authoritative commentary on the New Zealand economy.
  • Ensure stakeholders understand forecast performance, its limitations and context.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Provided advice to the Government on the nature of forecasts and tax revenue outcomes.
  • Pre-election, post-election, December update and Budget forecasts were prepared and advice provided.
  • Economic and tax forecasts to the Minister of Finance as part of economic and fiscal updates, together with explanations of main trends.
  • Updated forecasts were provided in October and November.
  • Weekly and monthly updates on economic developments.
  • Provided weekly and monthly respectively.
  • Advice on current significant economic developments in the New Zealand and international economies.
  • Daily updates on recent financial crisis provided until December.  Selective advice has been provided since.
  • Report on the accuracy of the Treasury forecasts.
  • Material was provided to the Minister of Finance and published on the Treasury website on forecast accuracy.
  • Undertake actions to increase forecast accuracy, such as:
    • Develop four- to six-quarter ahead forecasting model.
  • Model was developed and is now used as supplementary tool.
  • New GST forecasting model developed.
    • Extend knowledge of influences on terms of trade and commodity prices.
  • Specific research was carried out on South American dairying and research was commissioned and completed on the terms of trade from the New Zealand Institute of Economic Research (NZIER).
    • Quantify effects of fiscal drag and incorporate in tax models.
  • Adjustments made to tax models to reflect new tax scales.

New Zealand Debt Management Office

  • Manage the Crown's debt, net cash flows and some of its interest bearing assets.
  • Maximise the long-term net return on the NZDMO's debt and financial asset portfolios, within an appropriate risk management framework.
  • Manage the domestic borrowing programme, including issuing government bonds, Treasury Bills and Kiwi bonds.
  • Full-year programme of $5.5b in bonds issued, the largest since 1991/92.
  • Weekly issue of up to $500m Treasury Bills.
  • Increased tender frequency from fortnightly to weekly, introduced tap tenders and introduced a new long-dated bond.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Provided advice on the operation of the wholesale guarantee scheme.
  • Collaboration with the Macro team on the 2008 PREFU and 2009 Budget forecasts, and in particular the funding profile for the increase to the borrowing programme.
  • Lending services to Crown entities with respect to investing in specific assets, eg, housing, district health boards and rail.
  • New lending to Crown entities (gross of repayments):
    • Housing New Zealand borrowed $136m.
    • District Health Boards (DHBs) borrowed $163m.
    • KiwiRail borrowed $185m.
  • Manage the portfolios  to maximise value add:
    • tactical portfolios – $50m
    • quasi-tactical portfolios – $15m.
  • Tactical: $68.168m.
  • Quasi-tactical: $30.5m.
  • Maintain Value at Risk (VaR) in both tactical and quasi-tactical portfolios at less than 10% (on average) of the overall monthly VaR limit approved by the Minister of Finance ($14m).
  • VaR maintained within limits throughout 2008/09.
  • Manage credit risk to ensure that no losses are incurred from the credit-related sale of securities, or from default by a counterparty.
  • No credit losses.
  • Transactional processing conforms to market practice with minimal settlement failures. NZDMO settlement errors do not exceed 12 and do not cost more than $10,000 in total during the financial year. Transactional processing conforms to market practice with minimal settlement failures. NZDMO settlement errors do not exceed 12 and do not cost more than $10,000 in total during the financial year.
  • There were two NZDMO settlement errors, with a cost to the Crown of $2,775.
  • Key stakeholders determine the range of businesses the NZDMO undertakes, following discussion of the Consultants Report.
  • The Review of the Scope of the NZDMO is expected to be completed in October 2009.
  • Establish an appropriate cost per transaction measurement methodology.
  • This was not progressed, owing to planned changes in NZDMO's appropriation structure for 2009/10.

Measuring Progress - Crown Debt and Related Financial Asset Management

NZDMO's objective is to manage Crown debt and related financial assets in order to maximise the long-term net return on the Crown's financial asset and debt portfolios, within an appropriate risk management framework. Our priority for 2008/09 was to manage the impact of the financial markets crisis, and to respond to the deteriorating fiscal position. Debt issuance was increased to its highest levels since 1991/92.

Performance measures have been developed to assess the amount of return (value added) and risk incurred by these portfolios. The goal is to maximise net return while reducing risk as much as possible. These activities should also be managed as cost-effectively as possible.

Our performance against these measures is discussed below. The measures are not intended to be interpreted with reference to any particular benchmark, but are rather to be seen as highlighting trends in performance in key result areas over time. The trends demonstrate that value add has remained strong, largely as a result of the flight to quality which raised demand for government securities, and an increase in foreign exchange risk management activity. Risk, as measured by monthly VaR, was higher than in recent years, but has been maintained well within target limits. Settlement errors remain low by historical standards, even while the volume of transactions has increased. The Treasury will continue to measure itself in these areas.

Cost-effectiveness

Value added generated for the Crown

Annual value-added result
Annual value-added result   .
Source:  The Treasury

The value-added figure is derived from NZDMO's management reporting, which is calculated on a different basis from the financial statement reporting. The value-added result for 2008/09 is the highest since the measure was introduced, owing primarily to:

  • higher demand for government securities in 2008/09, and
  • substantially increased foreign exchange risk management activity on behalf of Crown clients.

Market risk

Monthly VaR
Monthly VaR   .
Source:  The Treasury

NZDMO measures market risk (interest rate and foreign exchange rate risk) using VaR. VaR measures the worst expected loss over a given time interval under recent market movements at a given confidence level. The monthly VaR limit at the 95% confidence level is set at $14 million.

Owing to extreme market volatility, VaR increased significantly over the past year. VaR peaked in the March quarter and then reduced as market volatility eased. The average VaR for 2008/09 is $714,000; this is more than double the average VaR for 2007/08.

Accuracy of settlement

Settlement errors against number of cash flows settled
Settlement errors against number of cash flows settled   .
Source:  The Treasury

In 2009, NZDMO settled a total of 27,000 cash flows, being an average of 520 cash-related transactions per week. Over the year, there were two settlement processing errors by NZDMO and 52 settlement errors by NZDMO's settlement counterparties.

Gross payments against gross cost of settlement errors
Gross payments against gross cost of settlement errors   .
Source:  The Treasury

In 2009, the total gross value of cash payments settled by NZDMO was $290 billion. The financial cost relating to NZDMO's settlement processing errors was $2,775.

Outcome: State Sector Performance

The Treasury provides advice to ensure the work of the State sector represents value for money in achieving the Government's aims and objectives. This includes advice on policy and regulatory settings, the public management system and the management of, and return on, the Crown's assets and liabilities.

Our focus over the longer term is on ensuring that we have a sustainable public sector that represents value for money in meeting the Government's priorities and generates the maximum possible benefit for taxpayers for a given level of expenditure.

The State sector is a significant part of the economy in its own right. Because of its size, improvements in performance, for example through increases in labour and capital productivity or through delivering services in a more cost-effective way, will have an impact on economic growth. Improved performance will also place less stress on fiscal policy, assisting in finding fiscal headroom to progress priority areas, and contributing to the Treasury's stable and sustainable macroeconomic environment outcome.

Initially, we have chosen to focus on performance in the fiscally significant areas, for example, in health, education and the benefit system, as a matter of priority. In these areas we are developing measures of performance and options to improve performance and manage longer-run fiscal pressures over time.

Overview of Progress in 2008/09

To achieve our longer-term aim of having a sustainable public sector that represents value for money means that, in the short to medium term, our focus is on improving our ability to measure performance and advising Ministers on how they can get better results.

We prioritised our efforts on those areas of performance that are most critical to the Government's objectives and where we were likely to get the greatest returns for improved performance. In 2008/09 this included the following fiscally significant areas:

  • health
  • education
  • maintaining the revenue base
  • the benefit system, and
  • roading/transport.

In addition, we focused on improving the performance of agencies that significantly impact on the priorities as reflected in our economic performance or macro performance outcomes:

  • firms/economic transformation
  • skills/social mobility
  • transport
  • Auckland, and
  • climate change.

In terms of system-wide improvements, we sought to improve agencies' performance in capital and asset management and in providing sound performance information for decision-makers. We also pursued a system-wide approach to better manage State sector remuneration pressures. In progressing the above priorities, we have worked alongside other Central Agencies to target and strengthen our collective efforts.

Key highlights for 2008/09 have been in the following areas:

  • Skills: analysing future skill requirements to support higher productivity and growth. This analysis was used to support advice on lifting youth achievement and on improving outcomes from tertiary education more broadly.
  • Value-for-money: managing and supporting a series of line-by-line reviews prior to Budget 2009. We also provided recommendations on further reviews and other actions, on an individual agency basis.
  • Capital asset management: promulgating best practices amongst capital intensive agencies and reporting to Ministers on aggregate capital intentions. The latter supported budget strategy processes.
  • Health: providing ongoing advice on fiscal and performance challenges in the health sector, and in-depth analysis of primary care policy settings.
  • Benefit system: reviewing the effectiveness of Work and Income interventions for job seekers, in partnership with MSD.
  • Central Agencies: developing a Performance Improvement Framework to assess agency and sector performance.

Measuring Progress on our Results

The changing economic and fiscal environment has further highlighted the importance of improving the performance of agencies with significant impact on fiscal settings and economic growth. Treasury advice on State sector performance provided a robust base for ministerial decisions in Budget 2009 and assisted with the delivery of the necessary set of decisions to stabilise and improve the fiscal outlook and begin a focus on baseline spending. Treasury support of the Cabinet Expenditure Control Committee and its ongoing assessment of agency performance through performance improvement actions have enabled the Minister to assess fiscally significant sectors' management of baselines. Looking forward, the public sector, supported by the Treasury, will need to find new ways of thinking about service delivery and funding priorities.

The Review of Accountability Documents (RoADs) project has resulted in providing more accessible information that assists Ministers, MPs and select committees. For Estimates examination in early 2008/09 most select committees needed to deal with only the new slim Estimates volume plus one or two of the sector volumes of Information Supporting the Estimates. In addition, most Statements of Intent (SOIs) follow a common structure making it easier to find core information across different departments' SOIs. There has been less progress than we would have liked in improving the quality of the performance information; there was progress in Budget 2009 and this will continue to need attention. The Treasury and other Central Agencies will continue to work with the Office of Auditor General to complement their work on performance information reporting.

Senior Ministers have high expectations of and rely on the Central Agencies to lead the wider State sector through a difficult period. There has been a strong focus on working with chief executives to improve State sector performance and strengthening the leadership of the State sector. This has been done in various ways, including closer involvement by chief executives in the preparation of budget advice through the Senior Executives group, and the development of a common performance improvement framework to pilot stage. Measurement of whether Central Agencies are adding value to State sector performance was done through a survey of State sector agency leaders, and feedback from Central Agency Ministers. Chief executives were interviewed in 2008 and feedback from chief executives has been positive on their greater involvement in system-wide issues, such as the Budget.

The Treasury's State Sector Performance Results 2008/09
Overall results we were seeking Key objectives we set for 2008/09 What we achieved in 2008/09

Strategic Result Area: Skills

  • Shape and lead the debate on skills to ensure a better match between the skills we have and the skills we need to achieve productivity and social mobility objectives.
  • Improve engagement and achievement in education and training by 15- to 19-year-olds to lift the quality of skills of young people entering the workforce.
  • Provide policies that support improved skill levels and use of skills in the adult workforce so as to contribute to improved economic growth and living standards.
  • Strengthen early foundation in skill development.
  • Ensure a credible and predictable funding path for all education spending that has regard for the long-term fiscal outlook and where increases in funding are matched with increases in value.
  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Review evidence on the link between skills and economic performance, and develop projections based on anticipated future demand arising from the economic transformation agenda.
  • Review evidence on whether and how improvements in development and use of skills can be achieved.
  • Analysis of returns to senior secondary and tertiary education.
  • Identify gaps in current performance measures and develop options for new measures. Analyse participation rate changes to understand factors during these trends.
  • In conjunction with relevant agencies, provide policy advice on improving outcomes relating to participation and quality in childhood education.
  • Provided advice on the direction and approach for the Youth Guarantee and development of the tertiary work programme.
  • Modelled and reported on the skill levels we will need in future for increased growth and likely skills gaps.
  • Modelled the contribution performance improvements in various areas could make to addressing these gaps.
  • Provided analysis on the benefits from secondary and tertiary qualifications as part of the skills modelling work.
  • Contributed to Ministry of Education (MOE) work on improving the cost-effectiveness of early childhood education and improving participation by under-represented groups.

State Sector Management

  • Ensure there are measurable improvements in the contribution of agencies to the achievement of the Government's objectives in priority areas.

  • Advice to Government on public policy issues that have strategic importance to delivering these results.
  • Complete the implementation of technical changes to improve the quality of Vote-specific accountability documents to better meet the needs of Ministers.
  • Provide Ministers with overarching messages and advice to Government on options to enhance the usefulness of accountability documents in improving performance.
  • Report to the Cabinet Expenditure Control Committee (ECC) six monthly on the financial and non-financial performance of selected Crown entities against the current base of performance information.
  • Provide Ministers with appropriate overarching messaging and risk mitigation strategies for managing industrial relations and remuneration risks as part of Central Agency advice.
  • Provide advice on budget parameters for major industrial relations and remuneration risks, informed by the Government's fiscal strategy, other spending priorities and labour market conditions.
  • Provide advice to Ministers relating to the collection of non-tax Crown receivables.

  • Provided advice on a number of matters including:  performance improvement actions process, purchase advisors, capping the public sector and purchasing models.
  • Implemented changes to improve the quality of Vote work. This included providing seminars and guidance to agencies and briefings to incoming Ministers on accountability documents.
  • Reporting on options to enhance accountability documents was deferred.
  • Completed two reports on performance of selected Crown entities; owing to the general election only the second was provided to Cabinet Committee.
  • Provided advice to Ministers and State Sector Employment Relations (SSER) meetings.
  • Provided advice to Ministers on the collection of non-tax receivables in the core State sector.

Health

  • Health budgets are delivered with regard to medium- to long-term sustainable funding track.
  • Performance information drives health decision-making at all levels.
  • Systems, structures and settings support an effective health system that represents value for money and is fiscally sustainable in the long term.
  • A focus on performance and value for money is embedded in the Ministry of Health (MOH) and the wider health sector.

  • Advice to Government on ways to manage health spending growth to a sustainable medium- to long- term track.
  • Analysis of health sector performance issues, including DHB monitoring and capital planning.
  • Analysis of policies to support an effective health system that is value for money and fiscally sustainable.
  • Build understanding in the health sector of the long-term challenges of health spending growth.
  • Second opinion advice and contribute to interagency advice on health policy and performance issues.

  • Provided advice to Ministers on Budget 2009 parameters, and on the medium-term fiscal sustainability of health spending. This was incorporated into budget decisions for out-year allocations for Budget 2010.
  • Provided advice and reporting to joint ministers on DHB annual plans, capital approvals and deficit risks.
  • Provided advice on specific health sector performance challenges, including hospital productivity, OECD review of New Zealand health system, wider fiscal sustainability concerns.
  • Provided analysis of the long-term challenges in health to Ministers, the MOH and used in external presentations and communication with health sector leaders. Presentations posted on the Treasury website.

Justice

  • Ensure New Zealand's justice system provides timely justice and community safety is enhanced through effective (including cost-effective) central government interventions.
  • Support the development of leadership and integration in the criminal justice sector.
  • Support material reductions in the actual prison muster relative to forecast and capital plans.
  • Enable justice sector agencies to demonstrate advanced asset management practices and improved performance.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results.
  • Assist the Ministry of Justice (MOJ), Corrections and Police with the development of long-term capital plans (up to 20 years) to inform strategic phase of Budget 2009.
  • Engage with MOJ, Corrections and Police regarding enhancing capital asset management, asset utilisation and performance measurement.
  • Identify suitable candidates for the Gateway Review.
  • Provide advice on proposals to build new prison capacity, taking account of the success of Sentencing Council and other Effective Intervention initiatives.
  • Support MOJ to develop sector leadership and monitoring role, in partnership with DPMC and SSC.
  • Worked with agencies to ensure their capital plans reflected the new capital asset management expectations and ensured compliance with Cabinet guidelines for Gateway Review.
  • Analysed initial capital plans for the Department of Corrections and engaged with Corrections to reduce the forward capital requirements.
  • Worked with other Central Agencies to take a joined up approach to dealing with justice sector issues.
  • Advised the Minister of Finance on the budget impact of, and options to reduce, forecast growth in prison capacity caused by increased justice sector volumes.

Defence and Security

  • Ensure appropriate fiscal controls are in place and that agencies provide these services in an efficient and effective way that represents value for money.
  • Ensure long-term CAM planning and portfolio management are in place.
  • Ensure new capital acquisitions are in compliance with CAM planning.
  • Assist the New Zealand Defence Force (NZDF) and Customs with the development of long-term capital plans (up to 20 years) to inform strategic phase of Budget 2009.
  • Independent assurance on major decisions, explicit performance results and long-term monitoring of major investments.
  • Cost growth analysis to inform a review of the long-term development plan and consider the future Defence Force Structure.
  • Strategic engagement with Defence to ensure strengthened financial, capital and programme management skills.
  • Worked with NZDF and the New Zealand Customs Service to develop 10-year capital plans which meet the new CAM expectations.
  • Worked with Defence to ensure that all major capital expenditure projects had independent quality assurance.
  • Provided analysis of cost growth and economic and fiscal information to inform the Defence Review and the public consultation document.
  • Worked with Defence to establish a programme management office.

The Benefit System

  • Ensure government expenditure on the benefit system provides value for money and is fiscally sustainable.
  • Ensure Ministers and Central Agencies have confidence that performance and value for money of MSD spending is increasing.
  • Ensure decisions on working age benefits and NZ Superannuation (NZS) policies are made with a full understanding of their long-term fiscal implications.
  • Ensure the reasons underlying the trends in working age benefit numbers are understood in the context of current policy settings.
  • Promote, with other agencies, policy settings in all areas that are consistent with achieving the above results.
  • Report to Ministers on the value for money of MSD spending. We will engage with MSD on the articulation of its business model and the underlying intervention logic as part of this process.
  • Scope Working New Zealand and Working for Families if changes are sought by Ministers and report to Ministers on trends in working age benefit numbers.
  • Develop model of long-term fiscal implications of the changes in NZS policies and working age benefits and report to Ministers on the long-term fiscal implications of NZS.
  • Advised Minister of Finance and Cabinet on outcome of MSD Value for Money review and gave presentation to the Minister for Social Development on key issues in the Vote.
  • Completed with MSD preliminary review of effectiveness of Work and Income interventions for job seekers.
  • Advised on transfer payments as part of the Tax Working Group.
  • Advised on improving the benefit system - this is being picked up in a joint work programme with MSD.
  • Advised on Government's 100-day manifesto priorities, including developing the Transitional Relief Package (which extended the In Work Tax Credit) and Job Support Scheme (nine-day fortnight) with MSD.
  • Joint coordination of work programme on implications of ageing population with MSD, including modelling of labour force participation and tax scenarios to address the related long-term fiscal pressures.

Capital Asset Management

  • Contribute to the sustainability of the Government's long-term fiscal position.
  • Enable government/agency negotiation of service delivery and outcome performance.
  • Provide greater certainty for agencies that they have the capital required to deliver their strategies.
  • Support CAM practice and deliver long-term capital profiles that:
    • provide reliable capital projections and no material surprises
    • provide early consideration of options
    • demonstrate the cost effectiveness of existing assets to support service provision, and
    • inform budget prioritisation decisions.
  • Submission of capital intensive agency and sector long-term capital profiles and asset performance information one-pager to Ministers.  
  • Production of whole of government aggregate profile for Ministers and input into strategic planning phase of Budget 2009.
  • Development of the Treasury's macroeconomic assumptions to inform agency long-term capital profile for Budget 2010.
  • Review the 10- to 20-year capital plans that are being developed by the capital intensive agencies, ensuring that resources are applied to the highest priority areas.
  • Scrutinise the levels of expenditure forecast within a context of affordability under New Zealand's long-term fiscal forecasts and ensuring value for money.
  • The Treasury continued to foster improvements in asset management in capital intensive agencies by:
    • creating visibility over the long-term capital spending intentions of 15 capital intensive departments and Crown entities over a 10- year horizon to assist budget strategy processes
    • promulgating best practices and asset management leadership, and
    • providing a regular forum to promote the sharing of knowledge and expertise on asset management issues.
  • Completed analysis and reporting on aggregate capital intentions and presented to the Minister of Finance in December 2008.
  • Published final set of macro planning assumptions and detailed information specification for the next round of capital intentions information for Budget 2010.

Central Agency

  • Provide Ministers with confidence that the Treasury is performing effectively in its Central Agency leadership role:
    • Central Agencies focus on what really matters.
    • Central Agencies demonstrate improved results through working more effectively together.
  • Work with agencies to deliver progress on ministerial priorities and concerns.
  • Focus joint effort on working with agencies that have critical and system-wide performance implications.
  • Develop and deliver a series of seminars highlighting good practice across the State sector on a range of issues.
  • Foster regular contact across Central Agencies, particularly Treasury State Sector Performance Group and Vote staff, SSC performance specialists and DPMC policy advisory group and Cabinet office, sharing material, issues and views across new as well as experienced staff, across all levels of Central Agencies, driving effective action.
  • Identify systems and technology improvements to help Central Agencies work together.
  • Established a collective Central Agency engagement with five key agencies, and with key chief executives groupings (eg, natural resources and Senior Executive Group).
  • Seminars delivered to central agencies on: performance information; CAM; VFM; Crown entity monitoring; advice on price, quality and standard; financial management capability; and broader State sector performance.
  • Collective Central Agencies engaged on issues such as: preparation for supporting incoming Ministers; State sector industrial relations; performance information improvement; and a joint work programme that enabled joint action, joint reporting and effective consideration of priority issues.
  • Central Agencies progressed work on the following issues identified as part of the Central Agencies Enabler Review: leadership engagement; direction setting; and developing to pilot stage a framework for assessing performance.

Housing

  • Ensure the Government's investment in the housing sector represents value for money.
  • Support housing and Central Agencies to provide strategic housing policy advice which delivers on government priorities.
  • Ensure the sector's assets are well managed.
  • Specific results for 2008/09 were documented in the Treasury's Results and Outputs Plan 2008/09.
  • Provided advice to Cabinet on housing affordability and providing second opinion advice on significant housing initiatives and developments.
  • Provided advice and analysis to inform value for money discussions and the assessment of Budget bids.
  • Provided advice on the Government's infrastructure agenda in relation to housing and regulatory reviews (in particular the review of the Building Act 2004).

Crown Financial Institutions

  • Monitoring report of the Crown Financial Institutions (CFIs).
  • Review of the Guardians of New Zealand Superannuation Fund.
  • Engage with CFIs over the development of their SOIs for 2009 - 2012.
  • Provide a quarterly monitoring report of the CFIs.
  • Review of the Guardians of New Zealand Superannuation Fund.
  • Engage with CFIs over the development of their SOIs for 2009 - 2012.
  • Reports delivered.
  • Terms of reference completed for the review of the Guardians of New Zealand Superannuation Fund. The legislation requires that this is reviewed every five years. The terms of reference were approved by the Minister and responses have been requested from suitably qualified parties.
  • Engagement with CFIs and advice on the SOI reports delivered as appropriate.
  • Prepared advice on the appointment of Board members to certain CFIs.

Maintaining and Monitoring the Quality of our Policy Advice

The Treasury revised its Quality Standards for Policy Advice in 2008. The revised Standards (refer pages 116 and 117) have been used since then as the basis for measuring our performance. An external desktop quality review was commissioned in April 2009 to provide an independent assessment of performance against the Standards.

The objectives of the review were to:

  • benchmark the quality of our written advice against the Quality Standards, as the basis for tracking progress over time
  • follow through on our commitment to deliver high-quality policy advice, and to report on our performance in the Annual Report 2009, and
  • foster “continuous improvement” in our performance: the external review would help in building a picture of the quality of our advice allowing us to learn from our successes, and identifying areas for future improvements.

Key Findings

Fifteen streams of policy advice were reviewed. All were rated as being “satisfactory” or better.

In the opinion of the reviewer, the Treasury's advice displayed the following strengths:

  • A breadth of institutional knowledge in many areas of policy and spending.
  • A robust approach to identifying and defining problems and issues.
  • Advice was contextualised with strong understanding about the role of the Minister of Finance, the Government and the processes of government.
  • Advice was supported by analysis, clear reasoning and evidence.
  • Advice was communicated concisely and clearly.
  • A clear sense of the long-run consequences of current trends such as spending pressures or a continuing relative decline in New Zealand's productivity performance.

The reviewer identified that there was scope for lifting the quality of our advice by having greater emphasis on broader decision-making frameworks, a stronger results orientation, wider and more forward-looking approach to evidence and a greater emphasis on systemic factors and change management.

We are sharing the review findings with Treasury managers and teams, and working with them to address those areas identified as offering the greatest scope for lifting performance.

Organisational Development and Capability

Our Organisational Strategic Direction - Progress with Stepping Up

Our major change programme, Stepping Up, implemented in November 2006, involved a fundamental look at the Treasury's strategic direction, how we organise ourselves, how we operate and how we engage most effectively with stakeholders. The changes were driven by a desire to improve our effectiveness and efficiency - in order to increase our impact as an organisation. We decided to concentrate our efforts on a smaller set of strategic issues - those areas where we can have greatest influence and impact and increase our ability to help frame and shape the economic agenda.

During 2008/09 we continued to build on the progress made as a result of the Stepping Up changes. Significant early success, in terms of getting better at identifying our Minister's current and future needs and in having a strong results focus (having a clear focus on what is important across the organisation, and making sure that drives what we do on a day-by-day basis), was maintained and incrementally improved. In addition, as in 2007/08, we targeted change in four key areas: leadership and management; quality; strategic policy leadership; and external engagement.

Leadership and Management Development

During 2008/09 we invested significant effort to create developmental strategies designed to lift management and leadership capability. We continued to roll out the Lominger competency framework (initiated in 2007/08 with the development of role profiles for deputy secretaries and assistant secretaries) with the development of role profiles for managers. In addition, managers received 360° feedback based on their performance relative to these role profiles as a mechanism for establishing individual development plans. Individual plans have included development options such as secondments, greater use of on-the-job training, peer review and one-on-one coaching for specific skill gaps. Creating competency role profiles and the 360° feedback process will be further cascaded throughout the organisation over the next couple of years.

In reflecting on the implications of changes to our external environment, new ministerial expectations and what this means for Treasury roles, and the extent of progress made towards Stepping Up objectives, the Secretary also initiated a review of the Treasury's leadership to ensure that the Treasury is positioned to meet the challenges we face. The review aims to conclude in September 2009 and any changes will be implemented in 2009/10.

Quality

Ensuring consistent quality in both policy advice and operations is key to maximising our impact as an organisation. In 2007/08 we rolled out a revised and updated Quality Standards for Policy Advice. The new Standards were published in the Statement of Intent 2008-13. In 2008/09 we undertook an external review of a selection of our written advice in order to formally assess our performance against the Quality Standards - for a discussion of the findings of this review see page 29. We also conducted two internal reviews of specific pieces of work undertaken during the year. These helped identify specific lessons as well as foster a culture of continuous improvement. The focus for the future will be to use the learning from the internal and external quality reviews to further develop the expertise, tools and systems we need to deliver the best advice to Ministers that we can.

Strategic Policy Leadership

The focus of the Treasury's strategic policy leadership efforts in 2008/09 was around post-election preparedness and advice to the incoming Government. We finalised and delivered briefing papers “Guide to the Treasury”, “Responding to Your Priorities” and “Medium-term Economic Challenges”. These were used to frame early conversations on how the Treasury could best support the Minister and his staff to take forward the Government's economic priorities in the short term (first 100 days) andto develop a longer-term programme of action. A series of “hot-topic” briefings developed as part of the Post-election Preparedness (PEP) process were used extensively and successfully to provide more in-depth, issues-based advice for the Minister of Finance and other Ministers with economic portfolios. Investment we had made in 2007/08 in our Strategic Result Areas – International Connections, Long-term Fiscal Sustainability, Natural Resource Management and Skills – meant that we were well placed to deliver strategic post-election advice.

External Engagement

Bringing a stronger external focus to our work has been a priority for the past couple of years. In the course of developing our post-election advice the Treasury engaged with a range of private sector stakeholders, which helped with the depth and rigour of our analysis. We have a continuing programme of engagement with individuals and groups from the private sector, which has ranged from addresses by Treasury leaders to sector conferences, to boardroom meetings with small groups of directors or law firm clients. They are important opportunities to provide input into the direction and tenor of debate, as well as hear from those operating at the cutting edge of the economy.

A number of key speeches were delivered by the Secretary to the Treasury during the 2008/09 year. These included his address to the February Jobs Summit, which underlined the need for new ideas and practical solutions to help New Zealand ride out the recession in the best possible shape. The Secretary's pre-Budget address to an audience of public sector leaders, analysts and market commentators gave a forthright and comprehensive account of the setting in which the Budget was framed, and was accordingly well received. So too was an outline of the Treasury's thinking on tax, delivered to the Tax Working Group in June. These are examples of the organisation engaging with key players, and informing the discussions that will help determine policy decision-making.

Value for Money and Organisational Efficiency

Our organisation changed as a result of Stepping Up, and the Organisational Performance Group (OPG) needed to evolve with that to ensure that corporate support functions were well aligned with business priorities. During 2008 we reviewed OPG's performance, its configuration and its level of resourcing, and implemented changes during 2008/09. The objectives of the review were to ensure we had “back office” teams that were customer focused, operated efficiently, delivered value for money services and provided “joined-up” advice to the rest of the business that enabled quality decision-making. Key improvements in 2008/09 as a result of the OPG review include more integrated, higher-quality decision-support to senior managers, a number of initiatives to improve our customer focus (all OPG managers and staff participated in customer focus workshops) and the development of a results framework that improves our ability to deliver joined-up and seamless services to internal clients. The review also produced savings of $500,000 per annum through a reduction in back office resources. The quest for value for money and organisational efficiency is ongoing and we will continue to seek organisational efficiency improvements in the year ahead.

The OPG Review, in combination with work we had done to assess our internal capability to deliver on the priorities of an incoming Government, meant that the Treasury was well placed to respond to the Government's “Line-by-Line” Review. We provided an analysis of historical changes in our baseline and work programme and identified potential efficiency gains. As the primary driver of Treasury expenditure is related to policy tasks, we presented the Minister with a menu of options around policy advice he could purchase from the Treasury. This informed a subsequent budget initiative that used a combination of reprioritisation and new funding to address government priorities, especially in the areas of infrastructure, regulatory quality, State sector performance and value for money.

Our People

The change in Government in November 2008 resulted in the Treasury being asked to focus on different priorities and also to undertake additional responsibilities (for example, the set up of the National Infrastructure Unit). To ensure we could deliver on these expectations we assessed our capability and identified current capability strengths and gaps. These findings are informing our recruitment and development strategies for 2009/10 to ensure we have the right capability in place at the right time. Following on from this, we have also begun to develop a three- to five-year people strategy to ensure the Treasury has the robust core capability we need to deliver across all our roles over the medium term.

The Treasury employed 343 full-time equivalent employees (FTEs) at the end of June 2009. This included seven staff on secondment to other government agencies, three to Ministers' offices and three staff on secondment to international institutions.

We have continued our focus on being an employer of choice by ensuring our work environment, culture, policies and procedures are fair and equitable. We reviewed and updated our flexi-working arrangement policy and procedures in response to the changes in employment relations law in 2008. As a result we have seen an increase in requests for flexi-working arrangements which has contributed to the increase of part-time staff employed from 10.5% in 2007/08 to 13% in 2008/09.

Staff Experience

The Treasury recognises that an engaged workforce contributes to quality productivity and retaining and attracting talent. At the end of 2008/09 we started our engagement programme with the launch of the Gallup Engagement Survey. The results and subsequent action plans will be delivered during 2009/10.

The average use of sick leave by Treasury staff increased from 4.19 days in 2007/08 to 4.48 days in 2008/09. Average annual leave balances increased by two days to 18.15 in 2008/09.

Staff Experience
As at 30 June 2009[5] 2008[5] 2007 2006
Turnover 11.1% 22.2% 18.9 15.4
Average length of service (years) 6.51 6.4 6.2 6.6
Proportion of staff staying more than 1 year 83% 74% 82% 86%
Numbers and Distribution of Staff
As at 30 June 2009 2008 2007 2006
Staff Numbers
Total full-time equivalent 343 324 312 304
Full-time staff 310 298 278 270
Part-time staff 46 35 46 50
Total headcount 356 333 324 320
Gender Distribution All Staff
Women 52% 51% 50% 47%
Men 48% 49% 50% 53%
Ethnicity Distribution
NZ European 72% 73% 72% 72%
NZ Maori 5% 6% 5% 5%
Pacific Islander 2% 2% 2% 2%
Asian 6% 5% 4% 4%
Other European 11% 10% 13% 13%
Other ethnic groups 1% 1% 1% 1%
Undeclared 3% 3% 3% 3%
Numbers and Distribution of staff
As at 30 June 2009[6] 2008 2007 [7] 2006
Management Staff (male/female) M F M F M F M F
Tier 1[8] 1 - 1 - 1 - 1 -
Tier 2[9] 3 1 4 1 4 1 4 1
Tier 3[10] 7 6 8 3 8 4 20 10
Tier 4[11] 25 15 18 12 19 11

Staff Training and Experience

As a knowledge-based organisation, our success in contributing to our outcomes depends on maintaining and developing a talented workforce and making full use of its experience and expertise.

During 2008/09 we delivered a range of development across the organisation including managers being able to complete a Diploma in Frontline Management run in-house; staff could attend a number of in-house courses ranging from cost-benefit analysis to effective writing skills to improved computer skills.

We recognised that the majority of development comes from actually doing the work, so as part of the Lominger framework we have started to place greater emphasis on on-the-job development through work allocation. Peer review groups have also been started to assist with on-the-job style development.

We also started to create Lominger competency role profiles for roles below managers (for example, senior analysts) to help identify critical skills gaps and create development plans that specifically address these gaps.

Notes

  • [5]Turnover for 2009 and 2008 has been calculated differently from previous years. We have started to treat staff going on two years’ leave without pay as resignation as this better reflects actual staff changes. The 2007/08 Annual Report reported turnover at 24.3%, however for comparison in the above table we recalculated using the modified formula for the 2008/09 Annual Report.
  • [6]The increase in Tier 4 managers reflects the introduction of team leaders in the IT team as a result of the OPG Review.
  • [7]The figures from 2007 show a shift resulting from our Stepping Up changes in management structure - a number of Tier 3 assistant secretary positions were created and a number of principal advisor positions disestablished.
  • [8]Tier 1 is the chief executive officer.
  • [9]Tier 2 includes all deputy secretaries.
  • [10]Tier 3 includes all assistant secretaries and other managers who report directly to deputy secretaries.
  • [11]Tier 4 includes all managers who report directly to assistant secretaries in Tier 3.

Vote Finance Output Class Performance

Statement of Objectives and Service Performance Section 45A of the Public Finance Act 1989

This section provides information about the outputs (services and activities) that the Treasury provided during the 2008/09 year.

Descriptions of the Treasury's nine output classes follow, along with some significant highlights of the 2008/09 year.

Through introducing results specification in all areas of our work, we are endeavouring to develop better measures of our performance.

Administration of Guarantees and Indemnities given by the Crown PLA

Scope of Appropriation

This appropriation is limited to expenses incurred in connection with administering of guarantees and indemnities given by the Crown, as authorised by section 65ZG of the Public Finance Act 1989.

Output Class Description

This appropriation covers the expenses incurred in managing the Crown's interests in default events covered by the Crown Deposit Guarantee Scheme, the Crown Wholesale Guarantee Facility and NZECO.

Administering this appropriation involves the timely, effective and efficient management of any claims under the relevant schemes, consistent with policy objectives. This appropriation requires the active management of the Crown's interests in relation to defaults of specific institutions. The Treasury will also seek to achieve recovery of Crown interests in default and receivership processes to minimise long-run loss to the taxpayer.

Significant Work Completed During 2008/09

  • Development of payout processes.
  • Management of the payout process for the two entities whose defaults triggered the Retail Deposits Guarantee.
Statement of Service Performance for Output Class: Administration of Guarantees and Indemnities Given by the Crown PLA
Performance Dimensions Performance
All policy outputs comply with the Treasury's Quality Standards for Policy Advice as assessed by the Minister three times a year.   Target: Rated as meeting or frequently exceeding expectations.

Not assessed during 2008/09.

Three performance reports were provided to the Minister outlining progress against the 2008/09 objectives. Invitations were extended to the Minister on each of these occasions to assess his satisfaction with the Treasury's performance. While no formal feedback was received through this mechanism, the Minister has instigated monthly meetings and reporting systems to enable more regular and timely feedback on the Treasury's work.

The Quality Standards for Policy Advice were implemented across the Treasury's work portfolio, and given this was the first year in which these have been used, an external review was conducted to provide a performance benchmark for future reference and to identify areas for focus for future service performance.

The Treasury actively manages the Crown's interests in the event of a specific default.  Target: Achieved. Achieved.
No unnecessary delays in processing depositors' claims. Target: Achieved.

Achieved.

A process to pay out depositors' claims was established in response to specific defaults. The Treasury intends to streamline this process in 2009/10.

Statement of Service Performance for Output Class: Administration of Guarantees and Indemnities Given by the Crown PLA
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 866 730 - -
Funded by:
Revenue Crown 845 730 - -
Other Revenue 21 - - -

This appropriation is incurred under permanent legislative authority.

Actual 2008/09 output class expenditure was $136,000 or 19% over Supplementary Estimates budgets owing to the unpredictable nature of these costs. The appropriation for this output class was increased by $730,000 in the Supplementary Estimates owing to establishment of the Deposit Guarantee Scheme in October 2008.    

Debt and Related Financial Asset Management (NZDMO)

Scope of Appropriation

Operational management of the Crown's sovereign-issued debt portfolio, associated financial investments (including departmental cash management) and lending and derivatives transactions with government-related entities.

Output Class Description

The overall result in this area is effective and efficient debt and financial asset management. This includes issuing government bonds, Treasury Bills and Kiwi bonds, managing overall net cash flows and managing some of its interest-bearing assets within an appropriate risk management framework. The NZDMO also provides advice to the Government on the policy issues that have strategic importance to delivering these results.

Significant Work Completed During 2008/09

  • NZDMO's work during 2008/09 was dominated by the international financial markets crisis and the widening fiscal deficit position.
  • During the year debt issuance was increased to its highest levels since 1991/92. Bonds issued under the domestic borrowing programme were increased twice from $3.4 billion (announced in Budget 2008) to $5.5 billion (by year end).
  • A range of measures was introduced to support the increase in debt issuance, including increasing tender frequency from fortnightly to weekly, the introduction of tap tenders and reverse tap tenders and the introduction of a new long-dated bond.
  • NZDMO also adopted a more proactive approach to investor relations and marketing. Relationships with the credit rating agencies were a particularly high priority in the face of the deteriorating fiscal position.
  • Significant policy work included advice on the funding profile for the increase to the borrowing programme, and advice on the introduction of the Wholesale Guarantee Facility.
  • In volatile market conditions, NZDMO achieved a record value-added result of $68 million for the tactical portfolio. This was driven by the flight to quality boosting demand for Crown securities, and an increase in both value and volume of foreign exchange risk management activity on behalf of clients. (The value-added figure is derived from NZDMO's management reporting, which is calculated on a different basis from the financial statement reporting.)
  • Owing to extreme market volatility, portfolio risk increased significantly over the year. The average monthly VaR figure for the tactical portfolio in 2008/09 was $714,000. This is more than double the figure for last year, but remains well within the policy limit of $14 million. Further information on this is provided on pages 21 and 22.
  • Market volatility also resulted in a number of instances where NZDMO exceeded its credit exposure limits, owing to exchange rate movements causing large fluctuations in asset valuations from day to day.
  • No credit-related losses were realised - a notable result given credit market conditions during the year.
  • NZDMO processed over 27,000 transactions, with total cash-related payments of around $290 billion.
Statement of Service Performance for Output Class: Debt and related financial asset management (NZDMO)
Performance Dimensions Performance
All policy outputs comply with the Treasury's Quality Standards for Policy Advice as assessed by the Minister three times a year.  Target: Rated as meeting or frequently exceeding expectations.

Not assessed during 2008/09.

Three performance reports were provided to the Minister outlining progress against the 2008/09 objectives. Invitations were extended to the Minister on each of these occasions to assess his satisfaction with the Treasury's performance. While no formal feedback was received through this mechanism, the Minister has instigated monthly meetings and reporting systems to enable more regular and timely feedback on the Treasury's work.

The Quality Standards for Policy Advice were implemented across the Treasury's work portfolio, and given this was the first year in which these have been used, an external review was conducted to provide a performance benchmark for future reference and to identify areas for focus for future service performance.

Compliance with risk management policies and parameters for portfolio management and debt issuance. Compliance expectations: 100%.

Not achieved.

Extreme market volatility gave rise to large overnight swings in the value of NZDMO's asset portfolio. As a result there were a number of instances where NZDMO exceeded its credit exposure limits and liquidity cover requirements (six credit breaches and one liquidity breach). NZDMO's risk management target was not met in relation to compliance breaches.

Value added from management of the Crown's debt and related financial assets to meet targets for tactical portfolios.  Target: Met.

Agreed targets for 2008/09 were:

  • Tactical portfolios: target $50m
  • Quasi-tactical portfolios: target $15m

Achieved.

Value added was:

  • Tactical portfolios: $68m
  • Quasi-tactical portfolios: $30.5m

Average market risk in tactical portfolios at less than 10% of the overall monthly VaR limit agreed with the Minister of Finance.  Target: Levels not exceeded.

For 2008/09 the agreed level was $14m.

Achieved.

Average monthly VaR for the tactical portfolios was $714,000.

Annual cost of NZDMO settlement errors not to exceed the limits specified in the Vote: Finance Results and Outputs Plan.  Target: Settlement errors do not exceed 12 and do not cost more than $10,000 in total during the financial year.

Achieved.

Two NZDMO settlement errors occurred, at a cost to the Crown of $2,775.

Statement of Service Performance for Output Class: Debt and related financial asset management (NZDMO)
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 8,714 9,338 9,001 8,080
Funded by:        
Revenue Crown 8,545 9,177 8,850 7,921
Other Revenue 169 161 151 159

Actual 2008/09 output class expenditure was $624,000 or 7% under Supplementary Estimates budgets owing to vacancies and cost savings.

The appropriation for this output class was increased by $337,000 in the Supplementary Estimates largely owing to a higher demand for Kiwi bonds, resulting in a corresponding increase in commissions to agents.

Policy Advice and Management: Macroeconomic

Scope of Appropriation

Provision of macroeconomic policy advice and management including budget management; macroeconomic, tax and fiscal forecasting; advice on fiscal policy and strategy; and fiscal reporting and departmental financial management controls including the development and application of generally accepted accounting practice to the Crown.

Output Class Description

This class of outputs involves the provision of policy advice and services related to helping the Government maintain a stable and sustainable macroeconomic environment. Such an environment allows individuals, businesses and the Government to plan more effectively for the longer term, contributing to higher economic growth and higher living standards for New Zealanders.

By creating an appropriate environment for sustainable growth, macroeconomic performance is fundamental to all of the Government's policy objectives. Through the Budget process, the Treasury plays a key role in helping Ministers prioritise initiatives, ensuring that additional government spending is oriented towards achieving priorities through fiscally sustainable, value-for-money initiatives.

The Treasury focuses on areas where work is likely to have the greatest impact on the performance of the macroeconomy, and on supporting Ministers in their priority outcome areas. The performance of the State sector is also fundamental to achieving this outcome as public sector productivity and the spending path in key sectors such as health, education and welfare have significant impacts on the macroeconomic environment.

Significant Work Completed During 2008/09

  • The support and advice that the Treasury provided to the Minister of Finance assisted him to deliver a Budget $300 million less than the allowance in the 2008 BPS.
  • An improved process was adopted to capture and report fiscal risks in Economic and Fiscal Updates.
  • Delivered the BPS and FSR, including advice on the Government's response to the significantly deteriorating outlook.
  • Developed the Government's response to the FEC inquiry into the future monetary policy framework.
  • Completed the implementation of NZ IFRS, the basis for preparing the Financial Statements of the Government of New Zealand. In October 2008 we published the first set of audited annual financial statements under NZ IFRS and this has increased the quality and usefulness of government fiscal reporting.
  • Produced the economic, tax and fiscal forecasts for the 2008 PREFU, December 2008 Economic and Fiscal Forecasts (EFF) and 2009 Budget Economic and Fiscal Update.We provided sufficient commentary to aid decision-making and enable stakeholders to understand the forecasts.
  • Provided input into international and domestic accounting standard setting boards with new Treasury appointments to both the International Public Sector Accounting Standards Board (IPSASB) and the New Zealand Financial Reporting Standards Board (FRSB). These appointments support these boards in producing reporting standards that are “fit for purpose” (with particular regard to public benefit entities).
  • Provided monthly and weekly Economic Updates for the Minister of Finance.
  • Provided commentaries and previews on key data releases for the Minister of Finance.
  • Organised and hosted the IMF Article IV visit to New Zealand, and contributed to the IMF's Article IV report on New Zealand.
  • Provided macro and fiscal input into the annual visits of Moody's Investor Services, Standard & Poor's and Fitch rating agencies which saw New Zealand's sovereign ratings remain unchanged for Moody's and Standard & Poors, but put on negative outlook for Fitch.
Statement of Service Performance for Output Class: Policy advice and management: Macroeconomic
Performance Dimensions Performance
All policy outputs comply with the Treasury's Quality Standards for Policy Advice as assessed by the Minister three times a year.  Target: Rated as meeting or frequently exceeding expectations.

Not assessed during 2008/09.

Three performance reports were provided to the Minister outlining progress against the 2008/09 objectives. Invitations were extended to the Minister on each of these occasions to assess his satisfaction with the Treasury's performance. While no formal feedback was received through this mechanism, the Minister has instigated monthly meetings and reporting systems to enable more regular and timely feedback on the Treasury's work.

The Quality Standards for Policy Advice were implemented across the Treasury's work portfolio, and given this was the first year in which these have been used, an external review was conducted to provide a performance benchmark for future reference and to identify areas for focus for future service performance.

Outputs will be prepared consistent with the Budget timetable set by the Government and the statutory limits of the Public Finance Act 1989. Target: 100% Achieved.

Tax revenue forecast error on one-year-ahead forecasts.  Target for 2008/09: Less than 3%.

The tax revenue forecast root means square error and mean error over the five years to June 2007 were 4.4% and 4.2% respectively.

Not achieved.

Actual rate for 2008/09 was 3.1%.

Unqualified audit opinion issued by the Controller and Auditor-General on the Financial Statements of the Government. Achieved.
Statement of Service Performance for Output Class: Policy advice and management: Macroeconomic
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 12,380 12,761 12,762 12,586
Funded by:        
Revenue Crown 12,150 12,559 12,548 12,334
Other Revenue 230 202 214 252

Actual 2008/09 output class expenditure was $381,000 or 3% under Supplementary Estimates budgets owing to vacancies.

The appropriation for this output class was increased by $1,000 in the Supplementary Estimates owing to minor forecasting changes  

Crown Deposit Guarantee Scheme

Scope of Appropriation

This appropriation is limited to the implementation and operation of the Crown Deposit Guarantee Scheme excluding expenses incurred in connection with administering claims under a guarantee or indemnity given under the Scheme.

Output Class Description

This class of outputs involves the provision of policy advice to Ministers and the management of operations to establish and monitor guarantees. Policy advice includes recommendations on responses in the event of financial system instability or the failure of a systemic institution and advice on options for the transition and exit from the current retail deposit guarantee. Operational processes are focused on the establishment of risk monitoring processes to actively manage the Crown's interests in guaranteed entities and planning for default events. The central objective is to maintain depositor confidence in New Zealand's financial system.

This work will require ongoing monitoring of financial stability and liquidity and reporting to Ministers to ensure that they are well-appraised of developments in credit conditions and financial stability and their significance.

Significant Work Completed During 2008/09

  • Set up the Crown Deposit Guarantee Scheme.
  • Established deeds of guarantee for retail deposit institutions.
  • Established a risk monitoring process for retail institutions.
  • Established a fee management process.
Statement of Service Performance for Output Class: Crown Deposit Guarantee Scheme
Performance Dimensions Performance
All policy outputs comply with the Treasury's Quality Standards for Policy Advice as assessed by the Minister three times a year. Target: Rated as meeting or frequently exceeding expectations.

Not assessed during 2008/09.

Three performance reports were provided to the Minister outlining progress against the 2008/09 objectives. Invitations were extended to the Minister on each of these occasions to assess his satisfaction with the Treasury's performance. While no formal feedback was received through this mechanism, the Minister has instigated monthly meetings and reporting systems to enable more regular and timely feedback on the Treasury's work.

The Quality Standards for Policy Advice were implemented across the Treasury's work portfolio, and given this was the first year in which these have been used, an external review was conducted to provide a performance benchmark for future reference and to identify areas for focus for future service performance.

No unnecessary delays in processing applications.  Target: Achieved. Achieved.
Development and implementation of an overall plan for managing the Crown's interests including default events.   Target: Achieved.

Achieved.

A range of initiatives to manage the Crown's interests were implemented and further enhancement is planned for 2009/10.

Active monitoring of guaranteed institutions is undertaken to minimise Crown exposure.  Target: Achieved.

Achieved.

A monitoring process was put in place with further development of monitoring and reporting planned for 2009/10.

The Treasury actively manages the Crown's interests in the event of a specific default. Target: Within 7 days of default.

Achieved.

Processes for managing specific defaults were put in place and are being further refined in 2009/10.

Statement of Service Performance for Output Class: Crown Deposit Guarantee Scheme
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 1,425 1,661 - -
Funded by:
Revenue Crown 1,410 1,642 - -
Other Revenue 15 19 - -

This output class belongs to a multi-output class appropriation.

Actual 2008/09 output class expenditure was $236,000 or 14.2% under Supplementary Estimates budgets owing to part-year vacancies during the establishment of the scheme and some cost savings identified.

The appropriation for this output class was increased by $1,661,000 in the Supplementary Estimates owing to establishment of the scheme in October 2008.

Crown Wholesale Guarantee Facility

Scope of Appropriation

This appropriation is limited to the implementation and operation of the Crown Wholesale Guarantee Facility.

Output Class Description

This class of outputs involves the provision of policy advice to Ministers and the establishment of guarantees to facilitate the access of investment grade financial institutions to international financial markets. The central objective is to ensure a stable and liquid financial system that supports economic growth.

This work requires ongoing monitoring of the state of the economy and reporting to Ministers to ensure that they are well-appraised of developments in credit conditions and financial stability. It also includes monitoring of eligible financial institutions to minimise Crown exposure, developing options for responding to systemic financial risk and developing contingency measures should credit/liquidity conditions worsen.

Significant Work Completed During 2008/09

  • Established processes for the Crown Wholesale Guarantee Facility.
  • Set up the required risk assessment processes to be applied before any wholesale issuance is guaranteed.
  • Established a fee management process for wholesale facility fees.
Statement of Service Performance for Output Class: Crown Wholesale Guarantee Facility
Performance Dimensions Performance
All policy outputs comply with the Treasury's Quality Standards for Policy Advice as assessed by the Minister three times a year. Target: Rated as meeting or frequently exceeding expectations.

Not assessed during 2008/09.

Three performance reports were provided to the Minister outlining progress against the 2008/09 objectives. Invitations were extended to the Minister on each of these occasions to assess his satisfaction with the Treasury's performance. While no formal feedback was received through this mechanism, the Minister has instigated monthly meetings and reporting systems to enable more regular and timely feedback on the Treasury's work.

The Quality Standards for Policy Advice were implemented across the Treasury's work portfolio, and given this was the first year in which these have been used, an external review was conducted to provide a performance benchmark for future reference and to identify areas for focus for future service performance.

No unnecessary delays in processing applications.  Target: Achieved. Achieved.
Development and implementation of an overall plan for managing the Crown's interests including default events.   Target: Achieved. Achieved.
Active monitoring of guaranteed institutions is undertaken to minimise Crown exposure.  Target: Achieved.

Achieved.

A monitoring process was implemented.

The Treasury actively manages the Crown's interests in the event of a specific default. Target: Within 7 days of default.

Not applicable.

There were no default events of guaranteed wholesale facilities during 2008/09.

Statement of Service Performance for Output Class: Crown Wholesale Guarantee Facility
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 849 1,878 - -
Funded by:        
Revenue Crown 827 1,849 - -
Other Revenue 22 29 - -

This output class belongs to a multi-output class appropriation.

Actual 2008/09 output class expenditure was $1,029,000 or 55% under Supplementary Estimates budgets owing to part-year vacancies during the establishment of the facility and some cost savings identified.

The appropriation for this output class was increased by $1,878,000 in the Supplementary Estimates owing to establishment of the facility in November 2008.    

Management of Liabilities, Claims Against the Crown and Crown Properties

Scope of Appropriation

Management of contractual or Treaty of Waitangi-related claims against the Crown and the management of New Zealand House, London.

Output Class Description

This class of outputs involves managing a range of commercial, contractual, legal and Treaty of Waitangi-related claims against the Crown. In practice, these are often relatively small, ongoing issues of a commercial nature, and the result we are seeking in relation to each usually relates to ensuring the appropriate protection of Crown interests in an efficient manner within the context of broader government objectives. In many cases, the Treasury contracts with third parties for the delivery of specific outputs.

Specific outputs include:

  • Protect the Crown's cash flows and minimise the Crown's exposure to any litigation related to the 1973 Maui Gas Contract.
  • Achieve efficient management of the Crown's liability arising from holding its geothermal assets, and transfer or disposal of these assets in Treaty settlements or by sale as appropriate.
  • Discharge the Crown's obligations under the SOE Act 1986 to transfer legal land titles to SOEs as efficiently as possible.
  • Achieve durable Treaty settlements at the lowest long-run fiscal and economic cost.
  • Efficient and effective defence of building weather-tightness claims against the Crown, related to the Building Industry Association's regulation of the building industry.

Significant Work Completed During 2008/09

  • Undertook ongoing management of the transfer of legal titles to SOEs and of the Crown's day-to-day contractual obligations.
  • Provided advice on the following Treaty settlement proposals: Tūranganui-a-Kiwa (Gisborne), Ngāti Apa, Ngāti Kahu, Ngāti Porou, Te Tau Ihu, Te Hiku (Far North), Ngāti Pahauwera, Waikato-Tainui River, Ngāti Manawa, Ngāti Makino, Waitaha, Central North Island Forest, Te Roroa, Taranaki Whānui ki te Upoko o te Ika, Ngāi Tūhoe, Ngāti Whare. Progressed arrangements regarding the CNI collective settlement (including commercial discovery process, establishment of Central North Island (CNI) Holdings Ltd and iwi governance entities) for transfer of forest assets on 1 July 2009.
  • Provided advice to Ministers on the implications of financial and commercial redress proposals and undertook analysis of overall fiscal trends and implications for settling remaining Treaty claims by 31 December 2014.
  • Provided advice on various aspects of Rugby New Zealand 2011 Limited (RNZ 2011), including advice on Eden Park funding issues, variations to the Shareholders Agreement, the tournament budget for the 2011 Rugby World Cup.
  • Undertook ongoing management of day-to-day contractual obligations regarding the 1973 Maui Gas Contract. Specific work this year included management of allocation disputes.
  • Provided ongoing advice on debt restructuring options for Taitokerau Forests Limited.
Statement of Service Performance for Output Class: Management of liabilities, claims against the Crown and Crown properties
Performance Dimensions Performance
All policy outputs comply with the Treasury's Quality Standards for Policy Advice as assessed by the Minister three times a year. Target: Rated as meeting or frequently exceeding expectations.

Not assessed during 2008/09.

Three performance reports were provided to the Minister outlining progress against the 2008/09 objectives. Invitations were extended to the Minister on each of these occasions to assess his satisfaction with the Treasury's performance. While no formal feedback was received through this mechanism, the Minister has instigated monthly meetings and reporting systems to enable more regular and timely feedback on the Treasury's work.

The Quality Standards for Policy Advice were implemented across the Treasury's work portfolio, and given this was the first year in which these have been used, an external review was conducted to provide a performance benchmark for future reference and to identify areas for focus for future service performance.

Settlement of liabilities within parameters set by Ministers. Target: Achieved. Achieved.
Statement of Service Performance for Output Class: Management of liabilities, claims against the Crown and Crown properties
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 2,971 2,740 5,786 2,901
Funded by:        
Revenue Crown 2,917 2,670 5,697 2,842
Other Revenue 54 70 89 59

This output class belongs to a multi-output class appropriation.

Actual 2008/09 output class expenditure was $231,000 or 8% over Supplementary Estimates budgets owing to increased work in this area such as Maui Gas margin disputes and Terralink as well as increased external costs in relation to the transfer of legal land titles to SOEs and Treaty settlements.

The appropriation for this output class was decreased by $3,046,000 in the Supplementary Estimates largely owing to the return to the Crown of $3 million for the management of litigation against the former Building Industry Authority, relating to the weather-tightness of homes.

New Zealand Export Credit Office (NZECO)

Scope of Appropriation

Implementation of the Government's Export Credit Guarantees policy and operation of NZECO.

Output Class Description

This class of outputs involves the provision of export credit guarantees and managing and operating NZECO in accordance with the delegated authority from the Minister of Finance. Outputs contribute to greater export activity within the bounds of the Government’s financial risk parameters set out in the Delegation.

Specific outputs include:

  • Providing export credit insurance, bonding and working capital products to exporters. Annual performance targets for NZECO's portfolio of products are set out in the NZECO SOI.

Significant Work Completed During 2008/09

  • Introduction, implementation and delivery of the short-term trade credit guarantee to address gaps in the provision of short-term trade credit insurance (and finance) in response to the global financial crisis.
  • Increased education to exporters, financiers and industry organisations (both government and non-government) regarding the availability of NZECO guarantees to address key risks associated with non-payment by overseas buyers, and to provide overseas buyers with innovative solutions to exploit trade opportunities.
  • Increased utilisation of NZECO guarantees by exporters and banks, with actual exposures increasing from $37 million to $155 million, supporting exports totalling $382 million.
  • Achieved the 2008/09 operational targets agreed with the Minister.
Statement of Service Performance for Output Class: Management of liabilities, claims against the Crown and Crown properties
Performance Dimensions Performance
All policy outputs comply with the Treasury's Quality Standards for Policy Advice as assessed by the Minister three times a year. Target: Rated as meeting or frequently exceeding expectations.

Not assessed during 2008/09.

Three performance reports were provided to the Minister outlining progress against the 2008/09 objectives. Invitations were extended to the Minister on each of these occasions to assess his satisfaction with the Treasury's performance. While no formal feedback was received through this mechanism, the Minister has instigated monthly meetings and reporting systems to enable more regular and timely feedback on the Treasury's work.

The Quality Standards for Policy Advice were implemented across the Treasury's work portfolio, and given this was the first year in which these have been used, an external review was conducted to provide a performance benchmark for future reference and to identify areas for focus for future service performance.

Value of short-term trade credit guarantees. Target: $6.6m.

Achieved: $40.7m.

NZECO successfully implemented the Short-term Trade Credit Guarantee (ST-TCG) agreed by Cabinet in February 2009. Demand for the product outstripped expectations. To meet the increase in demand of the product, the facility has been increased from $50m to $150m.

NZECO will conform to international best practice for the provision of export credit guarantees, as specified in the OECD and World Trade Organisation Guidelines. Target: 100%. Achieved.
Value of new medium- to long-term credit guarantee policies. Target: $77m.

Not achieved: $58.6m.

Owing to introduction of short-term product in February 2009, which changed focus of NZECO to respond to global financial crisis.

Value of new US contract bonds. Target: $24m.

Achieved: $69.1m.

New Zealand exporters successfully awarded contracts at a rate greater than anticipated.

Value of new non-US contract bonds. Target: $8m.

Not achieved: $1.7m.

Transaction timing delays but expect to recoup in 2009/10.

Value of new working capital policies. Target: $5m.

Not achieved: $1.4m.

Demand was less than anticipated as banks' appetites affected by global economic downturn.  Utilisation is expected to increase in 2009/10 owing to greater marketing and greater appetite by banks as GFC issues are easing.

Statement of Service Performance for Output Class: Management of liabilities, claims against the Crown and Crown properties
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 1,919 2,277 1,594 1,209
Funded by:        
Revenue Crown 1,878 2,242 1,568 1,186
Other Revenue 41 35 26 23

This output class belongs to a multi-output class appropriation.

Actual 2008/09 output class expenditure was $358,000 or 16% under Supplementary Estimates budgets owing to less demand than anticipated for contract bond products in the 2008/09 year.

The appropriation for this output class was increased by $683,000 in the Supplementary Estimates largely owing to the establishment of the ST-TCG scheme.

Policy Advice: Economic Performance

Scope of Appropriation

Policy advice on the Government's economic strategy and policy settings and their effect on New Zealand's economic growth.

Output Class Description

This class of outputs involves the provision of policy advice and services relating to helping the Government to improve New Zealand's economic performance. This includes helping Ministers, the Government and State agencies understand policies that are important for economic growth and the connections between overall economic performance and other desired outcomes when developing strategies and evaluating intervention options.

The Treasury works alongside other government agencies, such as MED, to achieve this outcome.

The advice the Treasury provided included:

  • analysis and advice to Ministers on broad economic strategies to promote economic growth and their impact on living standards
  • analysis of the drivers of productivity growth and advice to Ministers on the policies, regulations and institutional arrangements that best achieve improved overall economic performance, and
  • advice on trade-offs between these and other government outcomes.

Raising New Zealand's productivity performance is crucial for a better standard of living, and relies on better use of the country's capital, skills and international connections. Consistent with our objectives, we are seeking to achieve higher GDP per capita, higher productivity and higher living standards. Two of the four strategic result areas (SRAs) set out in the SOI 2008-13 fall under the Economic Performance outcome and its associated class of outputs. These are:

  • Strengthening international connections, and
  • Sustainable use of natural resources.

The Skills SRA, which also significantly affects economic performance, is allocated to the State Sector Performance outcome and its associated class of outputs in this plan.

Beyond the focus on SRAs, we have prioritised advice on the following specific policy areas which have a significant and pervasive impact on New Zealand's economic performance:

  • productivity
  • financial markets, investment and savings
  • competition and regulatory frameworks
  • tax policy
  • infrastructure - including transport and telecommunications, and
  • innovation.

Significant Work Completed During 2008/09

  • Advice to Ministers on:
    • the reform of the Resource Management Act 1991 and other natural resource management policies
    • medium-term economic and fiscal policy options, implementing a productivity-focused economic agenda and options for a New Zealand Productivity Commission-style institution
    • the direction of innovation policy including structures, governance, funding incentives and assessment of the research and development tax credit
    • SEM initiatives: double-tax agreement, pension portability, CER investment protocol
    • options for change to the overseas investment regime: delegations, regulations, fees and initial work on a legislative review, and
    • medium-term tax reform issues and options, changes to the international tax regime and various other tax issues.
  • Published a productivity paper on “International Connections and Productivity: Making Globalisation Work for New Zealand”.
  • Provided advice and support to Ministers regarding the Government's response to the financial crisis. This included measures to give depositors confidence in New Zealand's financial system (Crown Deposit Guarantee Scheme) and to enable New Zealand institutions to access wholesale funding markets (Crown Wholesale Guarantee Facility), providing support to the Job Summit and developing a package of measures to assist business through the financial crisis.
  • Established and serviced the Regulatory Responsibility Taskforce, coordinated the Government's regulatory review agenda, which comprises reviews of 13 major and pervasive regulatory regimes, and provided advice on regulatory quality management, including measures to improve regulatory quality.
  • Established RIAT to independently assess the quality of regulatory impact analyses and regulatory impact statements for significant regulatory proposals.
  • Established the National Infrastructure Unit to assist the Government in developing an infrastructure programme that is both strategically sound and helps build a more competitive, more productive economy.
  • Advised the Minister on climate change issues, including the economic impact of a range of target levels for reducing greenhouse gas emission levels relative to other countries; and options regarding an Emissions Trading Scheme.
Statement of Service Performance for Output Class: Policy advice: Economic performance
Performance Dimensions Performance
All policy outputs comply with the Treasury's Quality Standards for Policy Advice as assessed by the Minister three times a year. Target: Rated as meeting or frequently exceeding expectations.

Not assessed during 2008/09.

Three performance reports were provided to the Minister outlining progress against the 2008/09 objectives. Invitations were extended to the Minister on each of these occasions to assess his satisfaction with the Treasury's performance. While no formal feedback was received through this mechanism, the Minister has instigated monthly meetings and reporting systems to enable more regular and timely feedback on the Treasury's work.

The Quality Standards for Policy Advice were implemented across the Treasury's work portfolio, and given this was the first year in which these have been used, an external review was conducted to provide a performance benchmark for future reference and to identify areas for focus for future service performance.

Regulatory impact analysis: Number of significant regulatory impact statements assessed. Target for 2008/09: 12.

Not achieved: 10 assessments completed.

The number of formal adequacy assessments undertaken by RIAT is dependent on the number of significant regulatory proposals being submitted to Cabinet.

Statement of Service Performance for Output Class: Policy advice: Economic performance
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 15,836 15,978 15,458 16,002
Funded by:        
Revenue Crown 15,553 15,726 15,199 15,709
Other Revenue 283 252 259 293

This output class belongs to a multi-output class appropriation.

Actual 2008/09 output class expenditure was $142,000 or 1% under Supplementary Estimates budgets owing to vacancies and cost savings.

The appropriation for this output class was increased by $520,000 in the Supplementary Estimates to enable the Treasury to perform the Regulatory Impact Analysis function and to take on strategic leadership of the regulatory quality assurance system.

Policy Advice: State Sector Performance

Scope of Appropriation

Policy advice on the effective and efficient use of State resources including improved decision-making and performance management systems and the efficient management of Crown assets.

Output Class Description

This class of outputs involves the provision of policy advice related to ensuring the work of the State sector represents value for money in achieving the Government's aims and objectives. This includes advice on:

  • enhancing economic growth and living standards by lifting the standard and utilisation of New Zealand's collective skill base
  • fiscal and financial management of all government agencies
  • specific agency or entity performance, including Crown entities, Crown companies, CFIs and SOEs
  • in-depth performance analysis of priority agencies or sectors, and
  • the overall performance of the public management system including thematic and cross-cutting analysis, eg, CAM, State sector remuneration, Crown entity monitoring.

For all departments and Votes, Treasury advice and services included:

  • management of core government Budget processes
  • efficient support of good financial management and probity within agencies, and
  • maintaining an informed overview to foresee significant emerging financial or performance risks.

The Treasury differentiates the level of advice and service routinely provided on, or to, different government agencies and sectors. Priority is given to agencies and sectors that offer significant gains in terms of State sector performance, fiscal management or economic performance. For these sectors and agencies, Treasury advice extends to in-depth performance analysis, including a focus on the most efficient and effective policies, regulation, administration and delivery to achieve the Government's aims and objectives. Priority sectors and agencies for 2008/09 were:

  • health
  • justice
  • defence and security
  • the benefit system
  • Central Agency performance
  • CFIs, and
  • transport, competition and regulatory policy and management of natural resources.

Empirical and analytical research is undertaken as required to inform policy advice.

Significant Work Completed During 2008/09

  • Provided advice on the direction and approach for developing the Youth Guarantee and tertiary work programmes.
  • Provided modelling of the skill levels we need to increase economic growth, the likely future skills gaps and options for addressing them.
  • Advice on the justice sector volumes forecast and cost of meeting capacity requests.
  • The Defence Review includes consideration of the economic and fiscal context.
  • Development of the Performance Improvement Actions (PIAs) programme. In particular, we delivered a series of reports and briefings for the Minister on State sector value for money. These resulted in the development of the PIA programme which was approved and implemented by the ECC. The PIA programme has resulted in specific PIAs being generated by State sector agencies, with key agencies reporting regularly to ECC as well as six-monthly and annual reporting of performance by the Treasury.
  • Expectations for pay and employment conditions in the State sector set within the fiscal and economic contexts and advice to SSER was coordinated with SSC which has resulted in clearer messaging to departments on their responsibilities in negotiating within the expectations, contributed to lowered demand for capability bids in Budget 2009 and ensured that Ministers are positioned for setting high-level messages on salaries and conditions.
  • Worked in collaboration with SSC and DPMC to advance the Performance Information Framework (PIF) programme to drive performance improvement across State services through the use of a single comprehensive way of looking at performance, indicators of what constitutes good performance, greater consistency in performance evaluation and identifying actions to improve that performance. This programme included the completion of a pilot project.
  • Prepared reports on the financial performance of the CFIs, including advice on the appointment of directors to the boards of certain institutions.
  • Through its CAM change management project, the Treasury continued to foster improvements in asset management in capital intensive agencies by, for example:
    • reating visibility over the long-term capital spending intentions of 15 capital intensive departments and Crown entities over a 10-year horizon to assist budget strategy processes
    • promulgating best practices and asset management leadership, and
    • providing a regular forum to promote the sharing of knowledge and expertise on asset management issues.
Statement of Service Performance for Output Class: Policy Advice: State Sector Performance
Performance Dimensions Performance
All policy outputs comply with the Treasury's Quality Standards for Policy Advice as assessed by the Minister three times a year. Target: Rated as meeting or frequently exceeding expectations.

Not assessed during 2008/09.

Three performance reports were provided to the Minister outlining progress against the 2008/09 objectives. Invitations were extended to the Minister on each of these occasions to assess his satisfaction with the Treasury's performance. While no formal feedback was received through this mechanism, the Minister has instigated monthly meetings and reporting systems to enable more regular and timely feedback on the Treasury's work.

The Quality Standards for Policy Advice were implemented across the Treasury's work portfolio, and given this was the first year in which these have been used, an external review was conducted to provide a performance benchmark for future reference and to identify areas for focus for future service performance.

Statement of Service Performance for Output Class: Policy Advice: State Sector Performance
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 12,322 12,157 13,378 12,492
Funded by:        
Revenue Crown 12,104 11,961 13,153 12,271
Other Revenue 218 196 225 221

This output class belongs to a multi-output class appropriation.

Actual 2008/09 output class expenditure was $165,000 or 1% over Supplementary Estimates budgets owing to vacancies and cost savings.

The appropriation for this output class was decreased by $1,221,000 in the Supplementary Estimates largely owing to changes in forecast assumptions.  

Ministerial Servicing Performance 2008/09

Following the 2008 General Election, the Treasury acquired new responsibilities for servicing the Minister for Regulatory Reform and the Minister for Infrastructure. The additional volumes of correspondence and servicing requirements impacted on the ability of the Treasury to meet performance expectations. Following successful integration of new responsibilities, the performance of Ministerial servicing has improved. With agreement of the Office of the Minister of Finance, answers to 25 parliamentary questions were delivered late, one day after the formal deadline. In addition, the Treasury has responded to a large number of public enquiries about the operation of the Deposit Guarantee Scheme, introduced in 2008. While these enquiries have been handled by resources allocated to Ministerial servicing, they are not included in the figures for Ministerial servicing.

The category Policy Advice: Economic Performance also includes the three output classes added during 2008/09.

Ministerial Servicing
2008/09
Target Timeframes
Parliamentary Questions
(PQs)
Ministerial Correspondence
(MCs)
Ministerial OIA Requests
(MOIAs)
Treasury OIA Requests
(TOIAs)

Policy Advice: Economic Performance

       
Estimated 130-140 800-850 55-65 100-110
Actual draft replies 23 602 32 81
% answered by due date 100% 81% 75% 91%
% first draft accepted 100% 94% 94% N/A

New Zealand Export Credit Office

       
Estimated 0-5 0-5 0-5 0-5
Actual draft replies 14 6 1 0
% answered by due date 100% 100% 100% N/A
% first draft accepted 93% 100% 100% N/A

Management of Claims Against the Crown, Contractual Liabilities and Crown Properties

       
Estimated 25-35 35-45 5-15 10-20
Actual draft replies 0 12 4 3
% answered by due date N/A 92% 100% 100%
% first draft accepted N/A 92% 100% N/A

Policy Advice and Management: Macroeconomic

       
Estimated 45-55 190-210 10-20 15-25
Actual draft replies 14 238 15 13
% answered by due date 100% 74% 73% 77%
% first draft accepted 93% 91% 87% N/A

Debt and Financial Asset Management

       
Estimated 0-5 0-5 0-5 0-5
Actual draft replies 1 0 0 0
% answered by due date 100% N/A N/A N/A
% first draft accepted 100% N/A N/A N/A

Policy Advice: State Sector Performance

       
Estimated 40 -50 50-60 10-20 5-15
Actual draft replies 35 267 41 46
% answered by due date 100% 46% 93% 78%
% first draft accepted 97% 90% 98% N/A

Ownership - Organisational Performance Group

       
Estimated 35-45 0-10 15-25 20-30
Actual draft replies 69 11 10 21
% answered by due date 64% 73% 80% 91%
% first draft accepted 99% 100% 100% N/A

Quality and Timeliness Indicators for Ministerial Servicing
  Description Timeframe Quality Indicator
MC Submit a reply to MCs for approval by the Minister and Associate Ministers of Finance and/or other Ministers on referral from the Minister.

Submit a reply within 5 working days of referral, unless otherwise agreed, to correspondence which is marked “Urgent” by the Minister's office.

Submit a reply within 15 working days of referral, unless otherwise agreed, to all other correspondence.

At least 95% of replies to MCs will be delivered within agreed timeframes.

At least 95% of replies to MCs will be acceptable to the Minister and will not require amendment.

Ministerial servicing will not exceed budgeted costs.

PQ Drafting responses for PQs as requested by the Minister or Associate Ministers of Finance.

Oral questions to the Minister's office by 12.30 pm.

Written questions to the Minister's office by noon on the due date.

Draft answers to all PQs will be consistent with Standing Order 378.

Ministerial servicing will not exceed budgeted costs.

MOIA

Submit a reply to requests made under the Official Information Act 1982, in accordance with the requirements of the Act, on referral from the Minister or Associate Ministers of Finance.

This includes, where applicable, an extension or transfer of a request or a response to an investigation by an Ombudsman.

All MOIA requests will be handled within the time limits prescribed by the Act.

Replies will be delivered to the Minister at least 5 working days before the relevant statutory time limit, unless otherwise agreed.

All replies will be complete and accurate in the information they convey.

Advice on, handling of and replies to MOIA requests will accord with the provisions of the Official Information Act 1982.

At least 95% of MOIA replies will be acceptable to the Minister and will not require amendment.

All stated timeframes will be met.

Ministerial servicing will not exceed budgeted costs.

TOIA

 

Prepare a reply to requests made to the Treasury under the Official Information Act 1982, in accordance with the requirements of the Act.

This includes, where applicable, an extension or transfer of a request or a response to an investigation by an Ombudsman.

All TOIA requests will be handled within the time limits prescribed by the Act.

The Treasury will consult and inform the Minister and Associate Ministers of Finance and/or other Ministers on proposed replies to TOIAs, as required and within agreed timeframes.

All replies will be complete and accurate in the information they convey.

Advice on, handling of and replies to, TOIA requests will accord with the provisions of the Official Information Act 1982.

Consultation on proposed replies will be appropriate and acceptable to the Minister.

All stated timeframes will be met.

Ministerial servicing will not exceed budgeted costs.

Crown Company Monitoring Advisory Unit (CCMAU)

Executive Summary

During 2008/09, CCMAU maintained its role in the ownership monitoring of the wide range of SOEs, Crown companies and entities in its portfolio. The performance of these companies and entities, which form a significant part of the Crown's balance sheet, is critical to the performance of the wider economy.

We have been involved in assessing and advising shareholding Ministers on a wide range of matters this year. Many of these matters have involved important ownership and performance monitoring issues.

CCMAU was closely involved in advising Ministers on the actions they could take to enhance SOE performance. This led to SOEs being expected to produce much more informative Statements of Corporate Intent (SCIs) with more demanding financial targets, higher and more predictable dividend yield and more transparent commercial valuations.

CCMAU's Science and Innovation Team evaluated the business case that resulted in the merger of Crop & Food Research and HortResearch.

Our Appointments and Governance Team contributed actively to the significant changes that the new Government made to SOE and Crown Research Institute (CRI) boards in the second half of the year. CCMAU's relationship with Massey University's Graduate School of Business, our governance training provider, continued to evolve and, based on the feedback we have received, the suite of programmes provided is highly regarded. In March 2009, we launched our new online board and candidate management system (accessible at www.boardappointments.co.nz).

We have enjoyed a stable workforce this year which enabled us to ensure Ministers' expectations continued to be met. The skills and experience of CCMAU's staff have enabled us to respond positively to the revised expectations of our key stakeholders.

CCMAU is well placed to build on current expertise to more effectively contribute to the greater emphasis on financial analysis and disclosure of performance information sought by the Government.

What we do

Our Mission

CCMAU aims to be the New Zealand Government's ownership advisor of choice in the provision of commercial and wider ownership advice.

Our Purpose

CCMAU provides services in the following areas:

  • Ownership environment management - maintaining a strategic perspective over the ownership environment and assisting Ministers to improve the clarity and awareness of the owner's expectations with a focus on performance.
  • Performance monitoring - increasing the evaluation of performance against agreed targets and external measures and, where necessary, advising Ministers on actions they can take (or are being taken by the companies and entities themselves) to address performance that is below expectations.
  • Issues management - assisting Ministers to respond to correspondence, parliamentary questions and Official Information Act requests, and ensuring the companies and entities take responsibility for managing issues that could impact on their performance.
  • Governance - identifying and screening potential directors, managing the board appointment process and director fee-setting in the context of desired ownership outcomes and taking a leading role in ensuring best practice corporate governance of SOEs, CRIs and Crown companies and entities is achieved.

Relationship with the Treasury

The Executive Director of CCMAU is directly accountable to the Secretary to the Treasury for the Crown's investment in CCMAU, and for CCMAU's performance in providing the output classes Ministers seek.

The Year in Review

CCMAU has contributed to a wide range of activities and initiatives this year. The key achievements in each sector were:

Science and innovation sector
Proposed Activity Progress
Develop and manage clear ownership objective statements for the companies in the science and innovation sector. Provided advice to Ministers on the production of a 2009 Outline of Shareholder Expectations for CRIs and individual outlook letters (letters of expectation) for each CRI and the New Zealand Vesture Investment Fund (NZVIF).
Administration of CRI Capability Fund. This is an ongoing activity which includes annual collection and validation of CRI data and consultation with MoRST on reporting requirements for the CRIs.
Provide advice on significant ownership issues.

Provided advice on the proposed merger between Crop & Food Research and HortResearch, which took effect on 1 December 2008.

CCMAU also provided advice to Ministers on a request for equity from Research and Education Advanced Network New Zealand (REANNZ).

Strengthen feedback loops so that boards are in no doubt about whether current performance really meets the owner's expectations and aspirations. Provided advice to Ministers on communication to boards and posted performance summaries on the CCMAU website. This was in addition to regular contact and performance discussions between CCMAU officials and boards and management.

 

Energy, land and environment sector and Communications, services and infrastructure sector
Proposed Activity Progress
Develop and manage clear ownership objective statements for the companies in the energy, land and environment sector and communications, services and infrastructure sector.

Provided advice to Ministers on actions they could take to enhance SOE performance and key shareholder messages to give to a meeting of SOE Chairs.

CCMAU drafted expectations letters for Ministers to send each SOE Board.

Provide advice on significant ownership issues.

Managed the windup of Timberlands and the transfer of Timberlands' assets to the Crown.

Provided advice to Ministers on Public Trust's financial difficulties and future options.

Provided advice on Hawke's Bay Airport's corporatisation process.

Provided advice on Radio New Zealand's (RNZ) and KiwiRail's future organisational form.

Continued to manage the ongoing Terralink liquidation and legal claim against the Crown.

Strengthen feedback loops so that boards are in no doubt about whether current performance really meets the owner's expectations and aspirations.

Provided advice to Ministers on a disclosure regime that is similar to what publicly-listed companies have through theNew Zealand Exchange (NZX).

Provided advice on a preference for SOEs to hold a physical annual general meeting instead of providing a written shareholders' resolution in lieu of holding a meeting.

Posted performance summaries on its website.

Use valuation techniques to provide a wider perspective on company and entity performance.

Provided advice on the Government's response to the Commerce Select Committee's report on “Inquiry into Valuation Methodology and Practice for Valuing State-owned Enterprises”.

Provided advice on options for SOE valuations.

 

Appointments and governance
Proposed Activity Progress
Manage the appointments process in the context of more transparent board performance measures. Individual appointments and reappointments for SOEs, CRIs and other entities completed.
Continue to develop pool of director candidates to ensure that shareholding Ministers are able to make the best possible appointment decisions. In partnership with our governance training provider, Massey University's Graduate School of Business, CCMAU ran three core programmes for aspiring and recently-appointed directors. We also held two series of professional development updates for serving Crown directors focused on board evaluation and governance in an economic downturn.
Commission new board succession management system. New system commissioned in March 2009.

Maintaining and Developing Capability

The skills and experience of CCMAU's staff are vital determinants of the quality of the outputs produced. The average length of service of CCMAU staff has gradually increased over the past five years and staff turnover is at an all-time low.

CCMAU is committed to ensuring that staff are fully equipped to meet Ministers' expectations. During the year we maintained our commitment to staff training and development, and reviewed our staff policies to ensure that they are consistent with those of the Treasury.

CCMAU has continued to benefit from its leadership role in the international network of ownership monitoring agencies it helped establish. Equally, opportunities to learn from how other jurisdictions manage their Crown companies and entities have arisen during the year and were taken up.

Over the past five years, measures of staff statistics and satisfaction have been as follows:

Staff Statistics
  2008/09 2007/08 2006/07 2005/06
Women (FTEs) 6 8 8 6
Men (FTEs) 13 11 12 14
Total staff (FTEs) 19 19 20 20
Staff satisfaction index Survey deferred Survey deferred 69.5% 72.7%
Staff turnover 5% 31% 29% 15%
Average length of service (years) 4.71 3.79 3.80 3.49

Ministerial servicing

As part of its outputs, CCMAU drafts replies to parliamentary questions, Ministerial correspondence and Official Information Act requests. The estimated draft replies are based on previous years' activity. Although volumes were generally at or below estimated levels, CCMAU completed virtually all of its draft replies within agreed deadlines.

Ministerial Servicing
2008/09 PQs MCs OIAs

Ministerial Servicing: Crown Research Institutes

Estimated draft replies 25-50 20-40 3-6
Actual draft replies 68 23 2
% answered by due date 100% 100% 100%

Ministerial Servicing: State-Owned Enterprises

Estimated draft replies 100-140 160-180 12-20
Actual draft replies 43 121 19
% answered by due date 100% 99% 100%

Murray Wright

Executive Director

CCMAU Output Class Performance

Statement of Objectives and Service Performance Section 45A of the Public Finance Act 1989

Vote Crown Research Institutes

Crown company monitoring advice to the Minister of Research, Science and Technology (RS&T) and Minister for Economic Development.

This appropriation is limited to provision by CCMAU of ownership monitoring advice to, and management of issues on behalf of, the Minister of RS&T and the Minister for Economic Development in respect of the Ministers' responsibilities as shareholders in CRIs, REANNZ and NZVIF.[12]

Output Class Description

This output includes:

  • advising the Minister of RS&T, the Minister for Economic Development and the Minister for SOEs on the strategic direction of CRIs, REANNZ, NZVIF and NZFF Fund respectively and the commercial and fiscal risks associated with Crown ownership
  • providing advice that assists the Minister of RS&T, Minister for Economic Development and the Minister for SOEs to set ownership objectives and targets for CRIs, REANNZ, NZVIF and NZFF Fund
  • advising the Minister of RS&T, Minister for Economic Development and the Minister for SOEs on the performance of CRIs, REANNZ, NZVIF and NZFF Fund against these objectives and targets
  • advising the Minister for SOEs on the establishment and disestablishment of NZFF Fund
  • providing policy advice on, and managing issues arising from, the ownership of CRIs, REANNZ, NZVIF and NZFF Fund including residual implementation issues
  • managing, on behalf of the responsible Ministers, the appointment of CRI, REANNZ, NZVIF and NZFF Fund directors and monitoring the performance of those directors and boards, and
  • assisting the responsible Minister in the formulation of shareholders' expectations in relation to the governance practices and structures companies adopt.

Maintaining and enhancing the Crown's ownership interest in these companies contributes to the efficient management of the Crown's assets and liabilities. The CRIs, NZVIF, REANNZ and NZFF Fund have an important role to play in the New Zealand innovation system, thereby contributing to improving New Zealand's overall economic performance.

Significant Work Completed During 2008/09

  • Analysed and reported on each company's draft SCI/SOI and Strategic Plan so that shareholding Ministers were able to provide informed advice to boards.
  • Completed quarterly performance reports for the June, September, December and March quarters, which were presented to Cabinet.
  • Contributed to the 2009 Outline of Shareholder Expectations for CRIs and outlook letters (letters of expectations) for the CRIs and NZVIF.
  • Provided a briefing to the incoming Minister of RS&T.
  • Managed various company issues, and provided advice to Ministers on such issues.
  • Continued to take a lead agency role in the International Network of Government Ownership Agencies (INGOA), including organising and chairing the annual meeting of members in October 2008.
  • Hosted three core training programmes for recently appointed or aspiring directors.
  • Hosted six professional development updates for existing Crown directors (two series of three workshops on board evaluation and governance in an economic downturn).
  • Hosted a one‐day induction seminar for new CRI directors.
  • Commissioned a new director appointment and board management database.
  • Managed expressions of interest from candidates wishing to be considered for Crown governance roles.
  • Continued to provide assistance to other agencies regarding nominations.
  • Provided advice to Ministers on a number of appointments and governance issues, including:
    • the 2008/09 CRI appointment round, and
    • the level of director fees for 2008/09.
Statement of Service Performance for Output Class: Crown Research Institutes
Performance Dimensions Performance
Quality standards for analysis and advice. Target: Achieved. Achieved.
Ministerial satisfaction. Target: Materially met. Materially met.
Statement of Service Performance for Output Class: Crown Research Institutes
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 997 1,074 1,074 1,062
Funded by:        
Revenue Crown 981 1,052 1,052 1,042
Other Revenue 16 22 22 20

Actual 2008/09 output class expenditure was $77,000 or 7% under Supplementary Estimates budgets.

Notes

  • [12]CCMAU also provided advice under Vote CRIs to the Minister for SOEs in respect of New Zealand Fast Forward Fund Ltd (NZFF Fund), which was established during the year.

Vote State-Owned Enterprises

Crown company monitoring advice to the Minister for State-Owned Enterprises and other responsible Ministers.

This appropriation is limited to provision by CCMAU of ownership monitoring advice to, and management of issues on behalf of, the Minister for SOEs and other responsible Ministers in respect of the Ministers’ shareholder responsibilities.

Output Class Description

This output includes:

  • advising the Minister for SOEs and other responsible Ministers on the strategic direction of SOEs; the commercial and fiscal risks associated with Crown ownership; proposals to establish and restructure SOEs; and the processes and outcomes of significant SOE divestments and acquisitions
  • providing advice which assists Ministers to set ownership objectives and targets for SOEs
  • monitoring and advising Ministers of SOEs' performance against these objectives and targets
  • providing policy advice on, and managing issues arising out of, the ownership of SOEs, including residual implementation issues
  • managing, on behalf of responsible Ministers, the appointment of SOE directors and monitoring the performance of those directors and boards, and
  • assisting responsible Ministers in the formulation of shareholders' expectations in relation to the governance practices and structures companies adopt.

Maintaining and enhancing the Crown's ownership interest in these entities contributes to the efficient management of the Crown's assets and liabilities.

Significant Work Completed During 2008/09

  • Analysed and reported on each company's draft SCI/SOI and Business Plan so that shareholding Ministers were able to communicate informed expectations to boards.
  • Completed quarterly performance reports for the June, September, December and March quarters, which were presented to Cabinet.
  • Provided a briefing to the incoming Minister for SOEs (and other responsible Ministers).
  • Provided advice on the Government's response to the Commerce Select Committee's report on “Inquiry into Valuation Methodology and Practice for Valuing State-Owned Enterprises”.
  • Provided advice on actions to enhance SOE performance and a proposed framework for engagement during the 2009 business planning round.
  • Received notification of various company issues and provided advice to Ministers on such issues.
  • Continued to take a lead agency role in the INGOA, including organising and chairing the annual meeting of members in October.
  • Hosted three core training programmes for recently appointed or aspiring directors.
  • Hosted six professional director updates for existing Crown directors (two series of three workshops on board evaluation and governance in an economic downturn).
  • Hosted a one‐day induction seminar for new SOE directors.
  • Commissioned a new director appointment and board management database.
  • Managed expressions of interest from candidates wishing to be considered for Crown governance roles.
  • Continued to provide assistance to other agencies regarding nominations.
  • Provided advice to Ministers on a number of appointments and governance issues, including:
    • the 2008/09 appointment rounds, and
    • the level of director fees for 2008/09.
Statement of Service Performance for Output Class: State-Owed Enterprises
Performance Dimensions Performance
Quality standards for analysis and advice. Target: Achieved. Achieved.
Ministerial satisfaction. Target: Materially met. Materially met.
Statement of Service Performance for Output Class: State-Owed Enterprises
Cost
  2008/09
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2007/08
Actual
$000
Expenses 2,517 2,568 2,468 2,639
Funded by:        
Revenue Crown 2,477 2,500 2,400 2,588
Other Revenue 40 68 68 51

Actual 2008/09 output class expenditure was $51,000 or 2% under Supplementary Estimates budgets.

The appropriation for this output class was increased by $100,000 in the Supplementary Estimates to cover the cost of monitoring an expanded New Zealand Railways Corporation (following the acquisition of KiwiRail).

Statement of Responsibility

Pursuant to sections 45 and 45C of the Public Finance Act 1989, the Secretary to the Treasury is responsible for the preparation of the Department's financial statements and non-departmental supplementary schedules, and the judgements made in the process of producing these financial statements and supplementary schedules.

The Department's internal control procedures provide reasonable assurance as to the integrity and reliability of its financial reporting.

In the opinion of the Secretary to the Treasury:

  • The Department's financial statements and statements of service performance fairly reflect its financial position and operations for the financial year ended 30 June 2009.
  • The supplementary schedules fairly reflect the assets, liabilities, contingencies and commitments managed by the Treasury on behalf of the Crown as at 30 June 2009 and revenues and expenses managed by the Treasury on behalf of the Crown for the year ended on that date.
     John Whitehead.

    John Whitehead
    Secretary to the Treasury

    30 September 2009

     Kathryn McBride.

    Kathryn McBride
    Acting Chief Financial Officer
    (countersigned)

    30 September 2009

     Philip Combes.

    Philip Combes
    Treasurer - NZDMO
    (countersigned)

    30 September 2009

    Financial Statements – Departmental

    Overview of Departmental Financial Results

    for the year ended 30 June 2009

    The following significant movements in actual results between the 2008/09 and 2007/08 years, and actual results against the 2008/09 Supplementary Estimates budget, are explained below:

    Overview of Departmental Financial Results
    2008
    Actual
    $000
    2009
    Actual
    $000
    2009
    Supp.
    Estimates

    $000

    Revenue

    55,893 Crown 59,687 62,108

    Expenses

    38,489 Personnel 40,887 41,704

    Current Assets

    1,650 Accounts receivable 627 510

    Non-current Assets

    4,734 Property, plant and equipment 4,604 4,800
    571 Intangible assets 718 799

    Current Liabilities

    5,085 Creditors and other payables 5,239 4,450
    4,768 Provision for employee entitlements 4,542 5,053

    Non-current Liabilities

    223 Provision for employee entitlements 1,151 230

    Significant Movements Between 2007/08 and 2008/09

    Revenue Crown for departmental outputs increased by $3.8 million, mainly owing to an underspend of $0.6 million in 2007/08 and increased funding for the Crown Deposit Guarantee Scheme, Wholesale Funding Guarantee Facility and NZECO for 2008/09.

    Personnel increased by $2.4 million mainly owing to market or performance increases in salaries and growth in annual leave liability.

    Accounts receivable has decreased by $1 million mainly owing to 2007/08 recovery of costs from other departments for work undertaken by the Treasury on the Central North Island settlement and climate change programmes.

    Provision for employee entitlements current and non-current have moved between these categories by $0.9 million owing to the change in the actuarial methodology and assumptions used across the public sector. In addition, annual leave provision included within the provision for employee entitlements current, increased owing to higher average staff numbers.

    Significant Variances Between 2008/09 Actuals and Supplementary Estimates Budget

    Revenue Crown for departmental outputs decreased by $2.4 million, mainly owing to less demand for the Wholesale Funding Guarantee Facility, NZECO Bonds and New Zealand government bond products than originally forecast.

    Creditors and other payables have increased by $0.8 million primarily owing to ongoing rent review negotiations.

    Statement of Financial Performance

    for the year ended 30 June 2009

    The Statement of Financial Performance details the revenue and expenses relating to all outputs (goods and services) produced by the Department, including CCMAU, during the financial year ended 30 June 2009. Total expenses equals total departmental output classes expenditure and appropriations in the Statement of Expenditure and Appropriations on page 72.

    Statement of Financial Performance

    2008
    Actual

    $000


    Notes

    2009
    Actual

    $000

    2009
    Main
    Estimates

    $000

    2009
    Supp.
    Estimates

    $000


    Revenue





    55,893 Revenue Crown 2 59,687 60,467 62,108
    1,078 Revenue other 3 1,109 1,054 1,054
    56,971

    60,796 61,521 63,162

    Expenses





    38,489 Personnel 4 40,887 39,758 41,704
    14,612 Operating 5 15,737 16,884 16,756
    1,968 Consultants
    2,037 2,488 2,471
    1,185 Depreciation 7 1,341 1,441 1,359
    148 Amortisation 8 270 429 351
    569 Capital charge 6 524 521 521
    56,971

    60,796 61,521 63,162
    -

    Net Surplus

      - - -

    Explanations of significant variances against budget are detailed in the Overview of Departmental Financial Results on page 64.

    The accompanying accounting policies and notes form part of these financial statements.

    Statement of Movements in Taxpayers' Funds

    for the year ended 30 June 2009

    The Statement of Movements in Taxpayers' Funds combines information about the net surplus with other aspects of the financial performance of the Department, including CCMAU, to give a measure of comprehensive income.

    Statement of Movements in Taxpayers' Funds

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main
    Estimates

    $000

    2009
    Supp.
    Estimates

    $000

    7,840 Taxpayers' funds at the beginning of the year 7,240 7,240 7,240
    Movements during the year
    - Net surplus - - -
    7,840 Total Recognised Revenue and Expenses for the Year 7,240 7,240 7,240
    - Capital contributions from the Crown 308 - 308
    (600) Capital withdrawal repaid to the Crown (600) (600) (600)
    7,240 Taxpayers' Funds at the End of the Year 6,948 6,640 6,948

    The accompanying accounting policies and notes form part of these financial statements.

    Statement of Financial Position

    as at 30 June 2009

    The Statement of Financial Position reports the total assets and liabilities of the Department, including CCMAU, as at 30 June 2009. Taxpayers' funds are represented by the difference between the assets and liabilities.

    Statement of Financial Position

    2008
    Actual

    $000

    Notes

    2009
    Actual

    $000

    2009
    Main
    Estimates

    $000

    2009
    Supp.
    Estimates

    $000

    Taxpayers' Funds
    7,240 General funds 6,948 6,640 6,948
    7,240 Total Taxpayers' Funds   6,948 6,640 6,948
    Represented by:
    Assets
    Current Assets
    3,614 Cash and bank balances 3,794 2,872 3,446
    505 Prepayments 439 468 430
    1,650 Accounts receivable 627 394 510
    6,244 Debtor - Crown 7,698 6,696 6,696
    12,013 12,558 10,430 11,082
    Non-current Assets
    4,734 Property, plant and equipment 7 4,604 4,796 4,800
    571 Intangible assets 8 718 868 799
    5,305 5,322 5,664 5,599
    17,318 Total Assets   17,880 16,094 16,681
    Less:
    Liabilities
    Current Liabilities
    5,085 Creditors and other payables 9 5,239 4,300 4,450
    4,768 Provision for employee entitlements 10 4,542 4,764 5,053
    2 Finance lease liability - - -
    9,855 9,781 9,064 9,503
    Non-current Liabilities
    223 Provision for employee entitlements 10 1,151 390 230
    223 1,151 390 230
    10,078 Total Liabilities   10,932 9,454 9,733
    7,240 Net Assets   6,948 6,640 6,948

    The accompanying accounting policies and notes form part of these financial statements.

    Statement of Cash Flows

    for the year ended 30 June 2009

    The Statement of Cash Flows summarises the cash movements in and out of the Department during the financial year. It takes no account of money owed to the Department or owing by the Department and therefore differs from the Statement of Financial Performance on page 65.

    Statement of Cash Flows

    2008
    Actual

    $000

    Notes

    2009
    Actual

    $000

    2009
    Main
    Estimates

    $000

    2009
    Supp.
    Estimates

    $000

    Cash Flows from Operating Activities

    Cash was provided from:
    55,320 Supply of outputs to the Crown 58,233 60,467 61,656
    1,050 Supply of outputs to third parties 1,097 1,084 1,086
    56,370 59,330 61,551 62,742
    Cash was disbursed to:
    37,930 Personnel 40,184 36,721 38,993
    16,524 Operating 16,670 22,209 21,118
    569 Capital charge 524 521 521
    55,023 57,378 59,451 60,632
    1,347 Net Cash Flows from Operating Activities 11 1,952 2,100 2,110

    Cash Flows from Investing Activities

    Cash was provided from:
    1 Sale of property, plant and equipment - - -
    1 - - -
    Cash was disbursed to:
    (861) Purchase of property, plant and equipment (1,218) (983) (1,450)
    (210) Purchase of intangible assets (392) (544) (579)
    (1,071) (1,610) (1,527) (2,029)
    (1,070) Net Cash Flows from Investing Activities (1,610) (1,527) (2,029)

    Cash Flows from Financing Activities

    Cash was provided from:
    - Capital contribution 283 - 308
    41 Goods and services tax (net) 155 (50) 43
    41 438 (50) 351
    Cash was disbursed to:
    (600) Capital withdrawal (600) (600) (600)
    (559) Net Cash Flows from Financing Activities (162) (650) (249)
    (282) Net movement in cash and bank balances 180 (77) (168)
    3,896 Cash and bank balances at the beginning of the year 3,614 2,949 3,614
    3,614 Cash and Bank Balances at the End of the Year 3,794 2,872 3,446

    The accompanying accounting policies and notes form part of these financial statements.

    Statement of Commitments

    as at 30 June 2009

    2008
    Actual

    $000

    2009
    Actual

    $000

    Capital Commitments
    576 Property, plant and equipment -
    Non-cancellable Operating Lease Commitments
    3,474 Not later than one year 3,450
    13,796 Later than one year and not later than five years 13,763
    13,875 Later than five years 10,434
    31,145 Total Non-cancellable Operating Lease Commitments 27,647
    Other Non-cancellable Commitments
    575 Not later than one year 378
    34 Later than one year and not later than five years -
    - Later than five years -
    609 Total Other Non-cancellable Commitments 378
    32,330 Total Commitments 28,025

    Capital Commitments

    There are no capital commitments for this year.

    Non-cancellable Operating Lease Commitments

    The Department has non-cancellable leases on its principal premises at No 1 The Terrace, Wellington (the Treasury) and Floor 2, No 3 The Terrace (CCMAU) until 2017. These operating lease commitments have been recorded at their gross values in the Statement of Commitments.

    Other Non-cancellable Commitments

    The Department has other operating commitments consisting of computer maintenance contracts, building services contracts and contracts for service.

    The accompanying accounting policies and notes form part of these financial statements.

    Statement of Contingent Liabilities and Contingent Assets

    as at 30 June 2009

    Unquantifiable Contingent Liabilities

    The Department has the following unquantifiable contingent liabilities:

    • Carpark licence (Pastoral House) - In relation to the one carpark leased by the Treasury at Pastoral House, the Crown indemnified AMP NZ Office Pastoral Ltd against certain damages or loss caused by our use of that carpark.
    • Carpark licence (No 3 The Terrace) - In relation to the eight carparks leased by the Treasury at No 3 The Terrace, the Crown indemnified AMP NZ Office 1 The Terrace Ltd against certain damages or loss caused by our use of those carparks.`
    • Deed of Lease (No 1 The Terrace) - In relation to the lease by the Treasury of levels 5-14, the basement and the sub-basement of the building at No 1 The Terrace, the Crown indemnified AMP NZ Office 1 The Terrace Ltd against certain damages or loss in relation to our lease of the premises.
    • Research in Motion Limited - In accordance with a delegation from the Minister of Finance dated 23 May 2005, the Treasury has granted an indemnity to Research in Motion Limited under a licence agreement for software used in conjunction with Blackberry mobile email devices, covering breach of the licence agreement, intellectual property rights, claims arising from incorrect use of the software, defamation type actions and breach of export restrictions.
    • Reuters Services Contract - The Treasury has indemnified Reuters Group PLC and its subsidiaries against any losses arising from the Treasury's use of certain Reuters services or arising from a breach of the Services Contract relating to the provision of financial information services. Further the Treasury indemnified Lipper (a Reuters company) in respect of third party copyright and intellectual property rights.

    Quantifiable Contingent Liabilities

    As at 30 June 2009, the Department had no quantifiable departmental contingent assets and liabilities (30 June 2008: nil).

    The accompanying accounting policies and notes form part of these financial statements.

    Departmental Capital Expenditure

    for the year ended 30 June 2009

    Departmental capital expenditure incurred in accordance with section 24 of the Public Finance Act 1989

    Departmental Capital Expenditure

    2002
    Actual

    $000

    2003
    Actual

    $000

    2004
    Actual

    $000

    2005
    Actual

    $000

    2006
    Actual

    $000

    2007
    Actual

    $000

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main
    Estimates

    $000

    2009
    Supp.
    Estimates

    $000

    Property, Plant and Equipment





     


    Computer hardware 734 897 912 610 873 160 800 1,088 909 1,320
    Furniture and fittings - - 32 884 126 3 7 74 40 53
    Leasehold improvements - - 2,664 1,927 433 33 39 37 40 37
    Leased equipment - - - - 56 - - - - -
    Office machinery and electrical equipment - 15 52 - 5 27 21 12 75 15
    Total Property, Plant and Equipment 734 912 3,660 3,421 1,493 223 867 1,211 1,064 1,425
    Intangibles





     


    Computer software - internally generated - - - - - 295 195 - 244 -
    Computer software - other 634 9 16 - 278 17 15 500 300 579
    Total Intangibles 634 9 16 - 278 312 210 500 544 579
    Total Capital Expenditure 1,368 921 3,676 3,421 1,771 535 1,077 1,711 1,608 2,004

    The accompanying accounting policies and notes form part of these financial statements.

    Statement of Departmental Expenses and Capital Expenditure Against Appropriations

    for the year ended 30 June 2009

    The Statement of Expenditure and Appropriations details expenditure against appropriations. Total Departmental Output Classes Expenditure and Appropriations equals total expenses in the Statement of Financial Performance on page 65.

    Statement of Departmental Expenses and Capital Expenditure Against Appropriations

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main  Estimates

    $000

    2009
    Supp. Estimates

    $000

    Vote Finance: Departmental Output Classes

    - Administration of Guarantees and Indemnities given by the Crown[13] 866 - 730
    8,080 Debt and Related Financial Asset Management 8,714 9,001 9,338
    12,586 Policy Advice and Management: Macroeconomic 12,380 12,762 12,761
    State Sector and Economic Performance Policy Advice and Management (multi-class output appropriation)
    - Crown Deposit Guarantee Scheme 1,425 - 1,661
    - Crown Wholesale Guarantee Facility 849 - 1,878
    2,901 Management of Liabilities, Claims against the Crown, Contractual Liabilities and Crown Properties 2,971 5,786 2,740
    1,209 New Zealand Export Office 1,919 1,594 2,277
    16,002 Policy Advice: Economic Performance 15,836 15,458 15,978
    12,492 Policy Advice: State Sector Performance 12,322 13,378 12,157
    32,604 35,322 36,216 36,691
    53,270 Total Vote Finance: Departmental Output Classes 57,282 57,979 59,520

    Vote Crown Research Institutes: Departmental Output Classes

    1,062 Crown Company Monitoring Advice to the Minister for Crown Research Institutes, the Minister for Economic Development and the Minister for Research, Science and Technology 997 1,074 1,074
    Vote State-Owned Enterprises: Departmental Output Classes
    2,639 Crown Company Monitoring Advice to the Minister for State-Owned Enterprises and Other Responsible Ministers 2,517 2,468 2,568
    56,971 Total Departmental Output Classes Expenditure and Appropriation 60,796 61,521 63,162

    Capital Expenditure

    867 Property, plant and equipment 1,211 1,064 1,425
    210 Intangibles 500 544 579
    1,077 Total Departmental Capital Expenditure 1,711 1,608 2,004

    There was no unappropriated expenditure incurred during 2008/09 (2007/08: nil).

    The accompanying accounting policies and notes form part of these financial statements.

    Notes

    • [13]These expenses or capital expenditures have permanent legislative authority.

    Notes to the Financial Statements

    for the year ended 30 June 2009

    1 - Statement of Accounting Policies

    Reporting entity

    The Treasury is a government department (the Department) as defined by section 2 of the Public Finance Act 1989 and is domiciled in New Zealand.

    In addition, the Department has reported on Crown activities and trust monies which it administers.

    The primary objective of the Department is to provide services to the public rather than making a financial return. Accordingly, the Department has designated itself as a public benefit entity for the purposes of New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

    The financial statements of the Department are for the year ended 30 June 2009. The financial statements were authorised for issue by the Secretary to the Treasury on 30 September 2009.

    Basis of preparation

    These financial statements have been prepared in accordance with, and comply with, NZ IFRS and other Financial Reporting Standards, as appropriate for public benefit entities.

    The financial statements have been prepared on a historical cost basis.

    The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000). The functional currency of the Department is New Zealand dollars.

    Standards, amendments and interpretations that are not yet effective and have not been early adopted

    The Treasury has elected to early adopt all NZ IFRSs and Interpretations that had been approved by the New Zealand Accounting Standards Review Board as at 30 June 2009 that are not yet applicable, except NZ IAS 1: Presentation of Financial Statements (revised) approved by the Accounting Standards Review Board in November 2007. This Standard becomes effective for periods commencing on or after 1 January 2009, and was adopted in the forecast financial statements presented with the 2009 Budget, but not those presented with the 2008 Budget, against which these financial statements are compared. The adoption of NZ IAS 1: Presentation of Financial Statements (revised) results in presentation changes only.

    The early adoption of these standards did not have a material impact on the financial statements.

    Revenue

    Revenue is measured at the fair value of consideration received.

    Revenue Crown

    Revenue earned from the supply of outputs to the Crown is recognised as revenue when earned.

    State Sector Retirement Superannuation and KiwiSaver Schemes revenue

    This revenue included reimbursements by SSC for contributions made by the Department to the State Sector Retirement Superannuation Scheme and the KiwiSaver Scheme, and tax credits for contributions to KiwiSaver received from IRD.

    Rental income

    Lease receipts under an operating sub-lease have been recognised as income on a straight line basis over the lease term.

    Sale of publications

    Sale of publications is recognised when the product is sold to the customer. The recorded revenue is the gross amount of the sale.

    Capital charge

    The capital charge is recognised as an expense in the period to which the charge relates.

    Operating lease

    The Department leased office premises during the year ending 30 June 2009. Substantially all the risks and benefits of ownership were retained by the lessor, and therefore these leases are classified as operating leases. Operating lease costs are written off to the Statement of Financial Performance over the period of the lease.

    Financial instruments

    Financial assets and financial liabilities are initially measured at fair value plus transaction costs unless they are carried at fair value through profit and loss in which case the transaction costs are recognised in the Statement of Financial Performance.

    Financial instruments primarily comprise cash and bank balances, accounts receivable and payables. All financial instruments are recognised in the Statement of Financial Position at cost. Revenues and expenses in relation to all financial instruments are recognised in the Statement of Financial Performance.

    Cash and cash equivalents

    Cash includes cash on hand and funds on deposits with banks.

    Debtors and other receivables

    Debtors and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate, less impairment charges.

    Impairment of a receivable is established when there is objective evidence that the Department will not be able to collect amounts due according to the original terms of the receivable.

    Property, plant and equipment

    Property, plant and equipment consists of leasehold improvements, computer hardware, furniture and fittings and office equipment.

    Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. All computer equipment assets costing over $1,000 and all other assets costing more than $5,000 are capitalised.

    Additions

    The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to the Department and the cost of the item can be measured reliably.

    Disposals

    Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses are recorded in the Statement of Financial Performance.

    Subsequent costs

    Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to the Department and the cost of the item can be measured reliably.

    Depreciation

    Depreciation of property, plant and equipment is provided on a straight line basis so as to allocate the cost of property, plant and equipment, less their estimated residual values, over their estimated useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows:

    Depreciation
    Furniture and fittings: Shelving
    Other
    10 years
    5 years
    Leasehold improvements:   12 years
    Office machinery and electrical equipment: Photocopiers
    Other
    Electronic white boards
    Facsimile machines
    5 years
    5 years
    3 years
    3 years
    Computer hardware: UPS/Air conditioning
    Cabling
    PCs, terminals and printers
    Other hardware
    5 years
    5 years
    3 years
    3 years

    Leasehold improvements are depreciated over the unexpired period of the lease or the estimated remaining useful lives of the improvements, whichever is the shorter.

    The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year end.

    1 - Statement of Accounting Policies (continued)

    Intangible assets

    Software acquisition and development

    Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

    Costs associated with maintaining computer software are recognised as an expense when incurred. Costs that are directly associated with the development of software for internal use by the Department are recognised as an intangible asset. Direct costs include the software development and employee costs.

    Amortisation

    The carrying value of an intangible asset with a finite life is amortised on a straight line basis over its useful life. Amortisation begins when the asset is available for use and ceases at the date that the asset is derecognised. The amortisation charge for each period is recognised in the Statement of Financial Performance.

    The useful lives and associated amortisation rates of major classes of intangible assets have been estimated as follows:

    Amortisation
    Computer software: Internally generated software 3 years
    System software 3 years

    Creditors and other payables

    Creditors and other payables are measured at cost.

    Employee entitlements

    Short-term employee entitlements

    Employee entitlements that the Department expects to be settled within 12 months of balance date are measured at nominal values based on accrued entitlements at current rates of pay. These include salaries and wages accrued up to balance date, annual leave earned but not yet taken at balance date, retiring and long service leave entitlements expected to be settled within 12 months and sick leave.

    The Department recognises a liability for sick leave to the extent that absences in the coming year are expected to be greater than the sick leave entitlements earned in the coming year. The amount is calculated based on the unused sick leave entitlement that can be carried forward at balance date, to the extent that the Department anticipates it will be used by staff to cover those future absences.

    The Department recognises a liability and an expense for bonuses where it is contractually obliged to pay them, or where there is a past practice that has created a constructive obligation.

    Long-term employee entitlements

    Entitlements that are payable beyond 12 months, such as long service leave and retiring leave, have been calculated on an actuarial basis. The calculations are based on:

    • likely future entitlements based on years of service, years to entitlement, the likelihood that staff will reach the point of entitlement and contractual entitlements information, and
    • the present value of the estimated future cash flows. A weighted average discount rate of 3.35% and a salary inflation factor of 0% to 3.5% were used. The discount rate is based on the weighted average of government bonds with terms to maturity similar to those of the relevant liabilities. The inflation factor is based on the expected long-term increase in remuneration for employees.

    Superannuation schemes

    Defined contribution schemes

    Obligations for contributions to the State Sector Retirement Savings Scheme, KiwiSaver and the Government Superannuation Fund are accounted for as defined contribution schemes and are recognised as an expense in the Statement of Financial Performance as incurred.

    Provisions

    The Department recognises a provision for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that an outflow of future economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses.

    Taxpayers' funds

    Taxpayers' funds is the Crown's investment in the Department and is measured as the difference between total assets and total liabilities.

    Commitments

    Expenses yet to be incurred on non-cancellable contracts that have been entered into on or before balance date are disclosed as commitments to the extent that there are equally unperformed obligations.

    Cancellable commitments that have penalty or exit costs explicit in the agreement on exercising that option to cancel are included in the Statement of Commitments at the value of that penalty or exit cost.

    Goods and services tax

    All items in the financial statements, including appropriation statements, are stated exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis. Where GST is not recoverable as input tax, then it is recognised as part of the related asset or expense.

    The net amount of GST recoverable from, or payable to, IRD is included as part of receivables or payables in the Statement of Financial Position.

    The net GST paid to, or received from, IRD, including the GST relating to investing and financing activities, is classified as an financing activity cash flow in the Statement of Cash Flows.

    Commitments and contingencies are disclosed exclusive of GST.

    Income tax

    Government departments are exempt from income tax as public authorities. Accordingly, no charge for income tax has been provided for.

    Budget figures

    The budget figures are those included in the Department's SOI for the year ended 30 June 2009, which are consistent with the financial information in the Main Estimates. In addition, the financial statements also present the updated budget information from the Supplementary Estimates.

    Statement of cost allocation policies

    The Statement of Cost Allocation Policies was in place for the 2008/09 year. The details of the policy are outlined as follows:

    Direct costs are costs that can be identified with a single output/result. Where possible, costs are assigned directly to outputs/results.

    Indirect costs are costs that cannot be identified with an output in an economically feasible manner. They are incurred for the common benefit of more than one output. Indirect costs are pooled as overhead costs and allocated to outputs/results based on the actual hours worked at a predetermined standard cost rate.

    A time recording system is used to collect the information of actual hours worked on each output/result.

    The predetermined standard cost per hour is set at the beginning of the year and is derived from dividing expected indirect costs for the year, including salaries and overheads, across expected hours to be worked for the year.

    As the standard cost per hour is set at the beginning of the year, differences in costs and hours worked result in either an under or over recovery of costs during the year. This difference is allocated to outputs/results based on the hours worked on each output/result at the end of each month.

    Critical accounting estimates and assumptions

    In preparing these financial statements the Department has made estimates and assumptions concerning the future. These estimates and judgements may differ from the subsequent actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. These estimates and judgements do not have a material impact on the carrying amounts of assets and liabilities.

    2 - Revenue - Crown

    This is revenue earned for the supply of outputs to the Crown.

    3 - Other Revenue

    3 - Other Revenue

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main Estimates

    $000

    2009
    Supp. Estimates

    $000

    32 Rental income - - -
    1,026 State Sector Retirement Superannuation and KiwiSaver Schemes 1,074 1,054 1,045
    20 Miscellaneous 35 - 9
    1,078   1,109 1,054 1,054

    4 - Personnel Costs

    4 - Personnel Costs

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main Estimates

    $000

    2009
    Supp. Estimates

    $000

    36,708 Salaries and wages 37,434 36,466 37,976
    1,466 Employer contributions to defined contribution plans 1,516 1,436 1,456
    77 Increase in employee entitlements 514 70 191
    238 Other 1,423 1,786 2,081
    38,489   40,887 39,758 41,704

    5 - Operating Expenses

    5 - Operating Expenses

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main Estimates

    $000

    2009
    Supp. Estimates

    $000

    2,973 Lease of premises 3,477 3,458 3,502
    Fees to KPMG for audit of the Department and NZDMO
    255  - GAAP 344 281 264
    25  - NZ IFRS - - -
    Fees to Office of Auditor-General for audit of the Financial Statements of the Government
    160  - GAAP 112 252 51
    114  - NZ IFRS - - -
    71 Fees for other services to Department and NZDMO auditors (KPMG) 21 - -
    3 Provisions for onerous lease - - -
    1 Finance charges on finance lease - - -
    2,412 Process management services 2,366 5,374 2,926
    1,252 Transport and travel 1,163 1,395 1,446
    879 Information costs 990 1,161 1,011
    875 Data processing costs 669 679 651
    48 Furniture/office equipment purchases 21 31 29
    5,544 Other operating costs 6,574 4,253 6,876
    14,612   15,737 16,884 16,756

    6 - Capital Charge

    The Treasury pays a capital charge to the Crown on its average taxpayers' funds for the six months ended 30 June and 31 December.

    The capital charge rate for the financial year ended 30 June 2009 was 7.5% (30 June 2008: 7.5%).

    7 - Property, Plant and Equipment

    The following categories of property, plant and equipment were used by the Department:

    7 - Property, Plant and Equipment

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main Estimates

    $000

    2009
    Supp. Estimates

    $000

    Computer Hardware

    Cost
    4,048 Opening balance as at 1 July 4,594 5,061 4,649
    800 Additions 1,088 909 1,320
    (254) Disposals (444) (350) (488)
    4,594 Closing balance as at 30 June 5,238 5,620 5,481
    Accumulated depreciation
    3,404 Opening balance as at 1 July 3,673 3,655 3,726
    521 Depreciation 695 758 715
    (252) Disposals (446) (350) (488)
    3,673 Closing balance as at 30 June 3,922 4,063 3,953
    921 Carrying amounts 1,316 1,557 1,528

    Furniture and Fittings

    Cost
    1,078 Opening balance as at 1 July 1,085 1,078 1,085
    7 Additions 74 40 53
    - Disposals - - -
    1,085 Closing balance as at 30 June 1,159 1,118 1,138
    Accumulated depreciation
    558 Opening balance as at 1 July 767 768 767
    209 Depreciation 215 210 214
    - Disposals - - -
    767 Closing balance as at 30 June 982 978 981
    318 Carrying amounts 177 140 157

    Leasehold Improvements

    Cost
    5,058 Opening balance as at 1 July 5,097 5,058 5,097
    39 Additions 37 40 37
    - Disposals - - -
    5,097 Closing balance as at 30 June 5,134 5,098 5,134
    Accumulated depreciation
    1,228 Opening balance as at 1 July 1,642 1,643 1,642
    414 Depreciation 418 423 418
    - Disposals - - -
    1,642 Closing balance as at 30 June 2,060 2,066 2,060
    3,455 Carrying amounts 3,074 3,032 3,074

    Leased Equipment

    Cost
    56 Opening balance as at 1 July 56 - -
    - Additions - - -
    - Disposals (56) - -
    56 Closing balance as at 30 June - - -
    Accumulated depreciation
    36 Opening balance as at 1 July 54 - -
    18 Depreciation - - -
    - Disposals (54)
    54 Closing balance as at 30 June - - -
    2 Carrying amounts - - -

    Office Machinery and Electrical Equipment

    Cost
    674 Opening balance as at 1 July 682 700 682
    21 Additions 12 75 15
    (13) Disposals (47) (200) (47)
    682 Closing balance as at 30 June 647 575 650
    Accumulated depreciation
    634 Opening balance as at 1 July 644 658 644
    23 Depreciation 13 50 12
    (13) Disposals (47) (200) (47)
    644 Closing balance as at 30 June 610 508 609
    38 Carrying amounts 37 67 41
    4,734 Total Property, Plant and Equipment 4,604 4,796 4,800

    Summary

    Cost
    10,914 Opening balance as at 1 July 11,514 11,897 11,513
    867 Additions 1,211 1,064 1,425
    (267) Disposals (547) (550) (535)
    11,514 Closing balance as at 30 June 12,178 12,411 12,403
    Accumulated depreciation
    5,860 Opening balance as at 1 July 6,780 6,724 6,779
    1,185 Depreciation 1,341 1,441 1,359
    (265) Disposals (547) (550) (535)
    6,780 Closing balance as at 30 June 7,574 7,615 7,603
    4,734 Total Property, Plant and Equipment 4,604 4,796 4,800

    8 - Intangible Assets

    The following categories of intangible assets were used by the Department:

    8 - Intangible Assets

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main Estimates

    $000

    2009
    Supp. Estimates

    $000

    Computer Software - Internally Generated

    Cost
    519 Opening balance as at 1 July 714 748 714
    195 Additions - 244 -
    - Disposals - - -
    714 Closing balance as at 30 June 714 992 714
    Accumulated amortisation
    64 Opening balance as at 1 July 171 173 171
    107 Amortisation 210 269 211
    - Disposals - - -
    171 Closing balance as at 30 June 381 442 382
    543 Carrying amounts 333 550 332

    Computer Software - Acquired

    Cost
    1,162 Opening balance as at 1 July 1,177 1,335 1,177
    15 Additions 392 300 579
    - Transfer in from other government department 108 - -
    - Disposals - (130) -
    1,177 Closing balance as at 30 June 1,677 1,505 1,756
    Accumulated amortisation
    1,108 Opening balance as at 1 July 1,149 1,157 1,149
    41 Amortisation 60 160 140
    - Transfer in from other government department 83 - -
    - Disposals - (130) -
    1,149 Closing balance as at 30 June 1,292 1,187 1,289
    28 Carrying amounts 385 318 467
    571 Total Intangible Assets 718 868 799

    9 - Creditors and Other Payables

    9 - Creditors and Other Payables

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main Estimates

    $000

    2009
    Supp. Estimates

    $000

    2,426 Creditors 1,136 1,500 1,500
    22 Creditors for property, plant and equipment - - -
    65 Receipts in advance 32 - -
    2,164 Accrued expenses 3,490 2,400 2,500
    408 GST payable 581 400 450
    5,085 Total Creditors and Other Payables 5,239 4,300 4,450

    Creditors and other payables are non-interest-bearing and are normally settled on 30-day terms, therefore the carrying value of creditors and other payables approximates fair value.

    10 - Provision for Employee Entitlements

    10 - Provision for Employee Entitlements

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main Estimates

    $000

    2009
    Supp. Estimates

    $000

    1,346 Retirement, resigning and long service leave 1,404 1,522 1,420
    2,559 Annual leave 2,999 2,750 2,750
    71 Sick leave 87 87 71
    409 Accrued salaries 556 500 600
    212 Accrued performance payments 122 200 192
    394 Accrued other entitlements 525 95 250
    4,991   5,693 5,154 5,283
    Represented by:
    4,768 Current 4,542 4,764 5,053
    223 Non-current (relating to retirement and long service leave) 1,151 390 230
    4,991   5,693 5,154 5,283

    11 - Reconciliation of the Net Surplus to the Net Cash Flows from Operating Activities

    This reconciliation discloses the non-cash adjustments applied to the net surplus reported in the Statement of Financial Performance on page 65 to arrive at the net cash flows from operating activities disclosed in the Statement of Cash Flows on page 68.

    11 - Reconciliation of the Net Surplus to the Net Cash Flows from Operating Activities

    2008
    Actual

    $000

    2009
    Actual

    $000

    2009
    Main Estimates

    $000

    2009
    Supp. Estimates

    $000

    -

    Net Surplus from Statement of Financial Performance

    - - -
    Non-cash items:
    1,333 Depreciation and amortisation 1,611 1,870 1,710
    Add/(less) working capital movements:
    (99) Decrease/(increase) in advances and prepayments 66 37 75
    (1,190) (Increase)/decrease in accounts receivable 1,023 1,256 1,140
    (573) Decrease/(increase) in debtor - Crown (1,454) (452) (452)
    1,953 Increase/(decrease) in payables, accrued expenses and provisions (220) (776) (368)
    (19) Increase/(decrease) in other current liabilities (2) (2) (2)
    (59) (Decrease)/increase in non-current liabilities 928 167 7
    1 Net loss/(gain) on sale of property, plant and equipment - - -
    1,347 Net Cash Flows from Operating Activities 1,952 2,100 2,110

    12 - Financial Instruments

    The Department is party to financial instrument arrangements as part of its everyday operations. These financial instruments include cash and bank balances, advances, accounts receivable, debtor-Crown and creditors and other payables.

    Credit risk

    In the normal course of its business the Department is subject to credit risk from debtors other than the Crown.

    The Department does not require any collateral or security to support financial instruments with financial institutions with which the Department deals, as these entities have high credit ratings. For its other financial instruments the Department does not have significant concentrations of credit risk.

    Fair value

    The fair value of financial instruments is equivalent to the carrying amount disclosed in the Statement of Financial Position.

    Currency and interest rate risk

    The Department has no significant exposure to currency exchange loss risk and its financial instruments are not interest rate sensitive.

    Liquidity risk

    Liquidity risk is the risk that the Department will encounter difficulty raising liquid funds to meet commitments as they fall due.

    In meeting its liquidity requirements, the Department closely monitors its forecast cash requirements with expected cash drawdowns from NZDMO. The Department maintains a target level of available cash to meet liquidity requirements.

    All of the Department's financial liabilities (creditors and payables) will be settled in less than six months from the balance date.

    13 - Related Party Information

    The Department is a wholly owned entity of the Crown. The Government significantly influences the roles of the Department as well as being its major source of revenue.

    The Department enters into transactions with other government departments, Crown entities and SOEs on an arm's length basis. Those transactions that occur within a normal supplier or client relationship on terms and conditions no more or less favourable than those which it is reasonable to expect the Department would have adopted if dealing with that entity at arm's length in the same circumstances are not disclosed.

    Key management personnel compensation (includes the Chief Executive and his direct reports)

    2008
    Actual

    $000

    2009
    Actual

    $000

    2,222 Salaries and other short-term employee benefits 2,138
    138 Post-employment benefits 117
    1 Other long-term benefits 1
    2,361 Total Key Management Personnel Compensation 2,256

    14 - Events Subsequent to Balance Date

    There were no events subsequent to balance date that required adjustment to the financial statements or disclosure (2008: none).

    15 - Capital Management

    The Department's capital is its equity (or taxpayers' funds). Equity is represented by net assets. The Department manages its expenses, revenues, assets, liabilities and general financial dealings prudently. The Department's equity is largely managed as a by-product of managing income, expenses, assets, liabilities and compliance with the Government Budget processes and with Treasury Instructions.

    The objective of managing the Department's equity is to ensure the Department effectively achieves its goals and objectives for which it has been established, whilst remaining a going concern.

    16 - Explanation of Major Variances Against Budget – refer Department Overview

    Supplementary Financial Schedules - Non-Departmental

    for the year ended 30 June 2009

    The following supplementary financial schedules record the expenses, revenue and capital receipts, assets and liabilities that the Department manages on behalf of the Crown. These supplementary financial schedules include NZDMO balances reported on pages 104 and 105.

    The Department administered $5,537 million of expenses, $3,632 million of revenue, $433 million of capital receipts, $4,467 million of capital expenditure, $30,341 million of assets and $57,968 million of liabilities on behalf of the Crown for the year ended 30 June 2009.

    The financial information reported in these schedules is consolidated into the Financial Statements of the Government, and therefore readers of these schedules should also refer to the Financial Statements of the Government for the year ended 30 June 2009.

    Overview

    Capital Charge

    Capital charge receipts in 2008/09 increased by 8.6% compared with 2007/08. This was primarily owing to an increase in the capital base of departments as a result of revaluations of property, plant and equipment.

    Crown Guarantee Schemes: Crown Retail Deposit Guarantee Scheme and Wholesale Funding Guarantee Facility

    The Government provides two guarantee schemes in relation to financial institution deposits: the Retail Deposit Guarantee Scheme and the Wholesale Funding Guarantee Facility. Information on the Government's exposure as a result of these schemes, the management of these exposures and the impact of these schemes is detailed below.

    Retail Deposit Guarantee Scheme

    On 12 October 2008 the Minister of Finance initiated an opt-in Retail Deposit Guarantee Scheme. The objective of this scheme is to ensure ongoing retail depositor confidence in New Zealand's financial system given the international financial market turbulence. Under the Retail Deposit Guarantee Scheme, fees are payable to the Government by participating institutions if they hold significant deposits (ie, greater than $5 billion) or if they experience significant growth in deposits (ie, greater than 10% per annum). Approved deposit takers to date are listed on the Treasury website.

    The Government is managing its exposure to this risk both through the prudential regulation processes for registered banks, and by requiring other deposit takers who sign the guarantee to agree to certain controls on their business including:

    • some restrictions on distributions to shareholders
    • some assurance that the business dealings of the deposit taker are on arm's-length terms
    • the ability for the Crown to appoint an inspector
    • the ability for the Crown to withdraw the guarantee if the business is being deliberately operated in a way to undermine the intention of the guarantee, and
    • personal undertakings from directors to ensure the non-bank deposit takers comply with the guarantee.

    In addition, the Crown has established a monitoring regime to continually assess the risk associated with the scheme as it develops.

    As at 30 June 2009, 73 financial institutions had joined the scheme and deposits totalling $124.2 billion had been guaranteed. This is the maximum exposure and does not include any offset resulting from the recovery of the remaining assets of the financial institution in the event the guarantee is called upon. The Crown assesses the potential loss to be associated with the entities that hold significant deposits (ie, greater than $5 billion) as being remote. It is recognising the revenue received from these institutions over the guarantee period and has made no provision for any loss associated with these entities.

    For other entities within the scheme (ie, entities that hold deposits of less than $5 billion) a provision has been made both when guarantees have been triggered and to provide for losses that are more likely than not to occur. Guarantees have been triggered for two entities and the estimated total cost of payments associated with these guarantees of $70 million has been included in Other Expenses Incurred by the Crown - Payment in Respect of Guarantees and Indemnities (page 93). The payments are offset by expected recoveries of $34 million included within Other Current Revenue (page 96). The Crown also continually updates the likelihood of further default actions triggering the guarantee and assesses the expected loss given default. Based on these assessments, the Crown has provided for $816 million as at 30 June 2009 for future payments under this scheme. The provision has been made applying the assumption that the Retail Deposit Guarantee Scheme will finish in October 2010, the policy position as at 30 June 2009. The policy decision to extend and amend the Retail Deposit Guarantee Scheme announced on Tuesday 25 August 2009 represents a change in conditions that arose after the reporting period, it has not led to an adjustment of the provision. This decision would however be unlikely to significantly impact the amount of the provision.

    The Treasury notes that while the provision represents a best estimate of likely loss, a significant range of outcomes are possible under the scheme in terms of which entities may default and the eventual loss to the Crown following an event of default. This reflects the significant uncertainty as to the value that can be realised from an entity's assets following an event of default. Except as provided on the Treasury website, further information on the Retail Deposit Guarantee Scheme cannot be provided due to commercial sensitivity.

    >
    Summary of Retail Deposit Guarantee Scheme  disclosures in the Supplementary Schedules - Non-Departmental
    $m
    Schedule of Expenditure and Appropriations - Payments in Respect of Guarantees and Indemnities
    (gross expense for entities in default) ((page 93)
    70
    Schedule of Expenditure and Appropriations - Payments in Respect of Guarantees and Indemnities 
    (provision for future loss given default) (page 93)
    816
    Schedule of Revenue - Crown Retail Deposit Guarantee Scheme (fees) (page 96) 67
    Schedule of Revenue - Other current revenue (expected recoveries) (page 96) 34
    Schedule of Assets - Accounts receivable (expected recoveries) (page 98) 34
    Schedule of Liabilities - Deferred Revenue (retail deposit guarantee fees) (page 99) 23
    Schedule of Liabilities - Guarantee scheme payable/provision (page 99) 831

    Wholesale Funding Guarantee Facility

    On 1 November 2008 the Minister of Finance initiated an opt-in Wholesale Funding Guarantee Facility. The objective of the opt-in Wholesale Funding Guarantee Facility is to facilitate access to international financial markets by New Zealand financial institutions, in a global environment where international investors remain highly risk averse and where many other governments have offered guarantees on their banks' wholesale debt. Under the Wholesale Funding Guarantee Facility, the Government receives a fee from each participating institution based on the institution's credit rating and the term and amount of guaranteed debt issued. Fees of $6 million were recognised for the 2008/09 year (page 96) and deferred revenue for this scheme of $131 million appears on the Schedule of Liabilities (page 99).

    Deposit-taking financial institutions utilising the Wholesale Funding Guarantee Facility have applied for a guarantee under the Crown Retail Deposit Guarantee Scheme. In addition to the risk management under the retail scheme, the Government further manages its risk exposure by:

    • limiting the availability of the scheme to financial institutions that have an investment grade credit rating (BBB- or better), and have substantial New Zealand borrowing and lending operations (but not to institutions that are simply financing a parent or related company)
    • limiting the amount of debt covered by the guarantee to debt up to 125% of the total stock of eligible types of debt in issue prior to the intensification of the crisis
    • establishing additional capital buffers by requiring an additional 2% Tier 1 capital buffer above the 4% regulatory minimum, and
    • requiring the debt issuer to hedge and manage any foreign exchange risk.

    As at 30 June 2009, $5.7 billion wholesale securities had been guaranteed. No provision is made in these financial statements for losses under this scheme as these are considered remote.

    Dividends

    SOE dividends decreased by $246 million from 2007/08 (page 96), primarily owing to a reduction in dividends from Meridian Energy from those paid in previous years. The aggregate dividend reductions were owing to numerous factors including changes in economic and hydrological conditions.

    Net Foreign Exchange (Losses)/Gains

    Net foreign exchange gains were $21 million in 2008/09, compared with $7 million in 2007/08, as a result of movements in exchange rates affecting the value of New Zealand's shareholding in the Asian Development Bank and the World Bank (page 96). The increase in value of these investments is also reflected in Other Share Investments (page 98). NZDMO incurred net foreign exchange losses of $5 million in 2008/09, compared with net losses of $15 million in 2007/08 owing to movements in foreign exchange rates.

    Overview (continued)

    Goodwill

    Goodwill in relation to Air New Zealand ($258 million) has been tested for impairment at June 2009 based on a value in use discounted cash flow valuation. Cash flow forecasts were prepared for five years using the Air New Zealand Board reviewed business plans. Key assumptions include exchange rates, jet fuel costs, passenger load factors and route yields. These assumptions have been based on historical data and current market information. The cash flow forecasts are particularly sensitive to fluctuations in fuel prices and exchange rates and are extrapolated using an average growth rate of approximately 2%. The cash flow projections are discounted using post-tax discount rate scenarios of 8.8% to 9.6%. The valuation confirmed that there was no impairment required to the goodwill asset.

    Government Superannuation Fund (GSF) Unfunded Liabilities

    The Government operates a defined benefit superannuation plan for qualifying employees who are members of the GSF. The members' entitlements are defined in the Government Superannuation Fund Act 1956. Members make regular payments to GSF and in return, on retirement, receive a defined level of income. GSF is closed to employees who were not members at 1 July 1992.

    The GSF obligation has been calculated by the Government Actuary as at 30 June 2009. A Projected Unit Credit Method, based on balance-date membership data, is used for the valuation. This method requires the benefits payable from GSF in respect of past service to be estimated and then discounted back to the valuation date.

    GSF unfunded liability as at 30 June 2009 was $8,988 million (page 99), an increase of $732 million compared with 30 June 2008. This is primarily owing to:

    • an actuarial loss recognised in the year (page 92) of $695 million owing to movements in the economic assumptions used in calculating the liability
    • contributions made by the Crown against the liability (including taxation) during 2008/09 of $923 million, and
    • this has been partially offset by an increase in the additional current service costs and interest expenses (appropriated under Other Expenses to be Incurred by the Crown - GSF Unfunded Liability) (page 93) of $961 million.

    The Government expects to make a contribution of $648 million to GSF in the year ended 30 June 2010.

    In addition to its obligations to past and present employees, because GSF is liable to income tax under section HJ 1 of the Income Tax Act 2004, the Crown will be required to make additional contributions equivalent to the tax on future investment income. Additional detailed note disclosures required under NZ GAAP for this liability are included in the Financial Statements of the Government.

    International Financial Institutions

    Contributions of $274 million were made to the IMF for the Financial Transaction Plan lending programme in 2008/09 (page 94) compared with a contribution of $1 million in the 2007/08 year. This reflects the cyclical nature of the IMF lending programme and response by the IMF to the international financial crisis.

    Landcorp Protected Land Agreement

    The capital expenditure in relation to the Landcorp Protected Land Agreement for 2008/09 was $26 million (page 94) made up of the Crown's ongoing purchase of redeemable preference shares in payment for land transferred into the Protected Land Agreement in 2007/08 of $13 million and $13 million payment for the inclusion of a new farm agreement. Expenditure of $64 million in 2007/08 was for the initial purchase of redeemable preference shares in Landcorp.

    Maui Gas Contract

    The Crown's revenues from Maui Gas contracts have decreased by $26 million as a result of reduced gas drawn and the contract expiring on 30 June 2009. The decrease in revenues is offset by a reduction in Other Expenses Incurred by the Crown for Maui Gas Contracts of $29 million (page 96).

    National Provident Fund (NPF) Defined Benefit Plan (Annuitants) Scheme Provision

    The Government has guaranteed superannuation schemes managed by the National Provident Fund (NPF). As at 30 June 2009 the NPF's DBP Annuitants' Scheme was in a net deficit position of $947 million (2008: $907 million), represented by a gross estimated pension obligation of $994 million (2008: $1,020 million) with net investment assets valued at $47 million (2008: $113 million). No additional provision was required in the year for other pension schemes managed by NPF under the Government's guarantee under section 60 of the National Provident Fund Restructuring Act 1990.

    The increase in the Crown's liability for the NPF DBP(A) Scheme under Crown guarantee as at 30 June 2009 was primarily owing to:

    • the unwinding of the interest expense (appropriated under Other Expenses to be Incurred by the Crown - NPF Schemes - Liability under Crown Guarantee (page 93) of $71 million
    • payments made against the liability by the Crown during the year $9 million, and

    offset by:

    • the actuarial gain recognised for the year (page 96) of $22 million resulting from movements in the economic assumptions used in calculating the provision.

    Additional detailed note disclosures required under NZ GAAP are included in the Financial Statements of the Government for this liability.

    National Provident Fund (NPF) - Crown Liability for Scheme Deficiency

    The Crown is liable for the deficiency in the accounts of NPF schemes established pursuant to section 38A(6) of the National Provident Fund Act 1950, authorised by section 72 of the National Provident Fund Restructuring Act 1990. There was a call against this appropriation for 2008/09 of $34 million to 31 March 2009 and a provision of $7 million for the three months to 30 June 2009 (page 93). There was no expenditure in 2007/08.

    New Zealand Debt Management Office (NZDMO) Interest from Investments and Other Income

    NZDMO's interest from investments decreased by $373 million primarily owing to lower interest rates and changes in investment activity levels.

    NZDMO's other income decreased by $130 million primarily owing to reduced interest income on lending to Housing New Zealand Corporation as interest rates have fallen, and negative fair value revaluations on Crown lending to the Reserve Bank of New Zealand.

    Other Expenses - NZDMO

    Fair value adjustments on derivatives are disclosed as remeasurements within Other Expenses - NZDMO. These have decreased by $495 million from the 2007/08 year owing primarily to the impact of interest rate movements on the fair value of derivatives.

    Other Current Revenue

    Other current revenue has increased by $52 million in 2008/09. This primarily relates to gain on sale of investments and estimated recovery of government guarantee payments.

    Port Nicholson Block Settlement Trust Loan

    This loan of $15 million (page 94) to the Port Nicholson Block Settlement Trust was for the purchase of properties at Shelly Bay, Wellington.

    Reserve Bank Surplus

    The Reserve Bank's “notional surplus income” payable to the Crown decreased from $193 million to $168 million. The notional surplus income is calculated under section 158 of the Reserve Bank Act 1989. This calculation excludes unrealised gains and losses. As foreign currency loans do not mature on a regular basis, the amount of notional surplus income will vary from year to year, often quite substantially (page 96).

    Overview (continued)

    Rail Issues

    Acquisition of Toll NZ Ltd

    On 1 July 2008, negotiations were completed and an agreement was signed for the purchase of 100% of the shares in Toll NZ Ltd. Prior to the acquisition, assets and operations not integral to the rail operation were separated out of Toll NZ Ltd. On acquisition by the Government, the company was renamed KiwiRail Holdings Limited (KiwiRail). The cost of acquisition of the company was $690 million (page 94), settled in cash on 1 July 2008.

    On 1 October 2008, the Crown sold the shares in KiwiRail to the New Zealand Railway Corporation (NZRC). The transfer price was $388 million, based on the fair value of the assets and liabilities held by KiwiRail as at 1 October 2008. The valuation was performed by PricewaterhouseCoopers and completed in May 2009.

    Based on the fair value exercise as at 1 October 2008, it has been calculated that the fair value of the assets acquired and liabilities assumed through this purchase on acquisition (1 July) was $370 million. The difference of $320 million between the fair value ($370 million) and the cost of acquisition ($690 million) appears in the Other Expenses Incurred by the Crown - Loss on Acquisition of Toll NZ Ltd (page 93).

    Summary
    $m
    Total purchase price of shares in Toll NZ Ltd (page 94) 690
    Less loss on acquisition of Toll NZ Ltd at 1 July 2008 (page 93) (320)
    Add Crown Rail Operator equity injection (page 94) 6
    Add gain on transfer to NZRC included in Other Current Revenue (page 96) 12
    NZRC increase in capital to fund purchase of Crown Rail Operator (page 94) 388

    Other rail expenditure

    During the year, the Crown restructured the funding arrangement with NZRC (trading as ONTRACK). The changes in Other Expenses Incurred by the Crown (page 93) from 2007/08 include:

    • an increase of $68 million for the purchase of non-commercial rail services
    • an increase of $26 million to increase transport growth on the rail network through the upgrade, renewal and maintenance of its fleet, terminals, systems and infrastructure
    • an increase of $6 million for the construction of a rail siding and associated works at the Wiri Inland Port
    • an increase of $5 million to reimburse NZRC for the transaction costs of purchasing Toll NZ Ltd
    • an increase of $83 million for the renewal and upgrades of the Auckland rail network “below track” infrastructure. This is a multi-year appropriation and the unspent balance is carried forward
    • an increase of $57 million for the electrification, upgrades and maintenance of the Auckland and Wellington metropolitan rail networks. This is a multi-year appropriation and the unspent balance is carried forward
    • a reduction of $21 million on upgrading the national rail network, and
    • a reduction of $7 million on the operating and maintenance costs of ONTRACK not recoverable through the National Rail Access Agreement.

    The restructured loan funding arrangement for capital expenditure in relation to Rail (page 94), resulted in total loan funding of $185 million in 2008/09, being an increase of $81 million from 2007/08. These loans were for the purchase of new locomotives, providing short-term capital, servicing contract buy-out obligations and refinancing debt.

    Taitokerau Forests Limited Loan Write Down

    The Crown agreed to write down the existing loans to Taitokerau Forests Limited in 2008/09 by $37 million as part of their loan renegotiations (page 93).

    Statement of Accounting Policies

    for the year ended 30 June 2009

    Measurement and recognition rules applied in the preparation of these non-departmental supplementary financial schedules are consistent with NZ GAAP and Crown accounting policies and are detailed in the Financial Statements of the Government except for:

    • The investment in State-Owned Enterprises and Crown entities is recognised in Vote Finance at the lower of historic cost and fair value. The net assets of these entities are consolidated in the Financial Statements of the Government and the Crown's investment is eliminated.

    The financial information reported in these schedules is consolidated into the Financial Statements of the Government, and therefore readers of these schedules should also refer to the Financial Statements of the Government for the year ended 30 June 2009.

    Subsequent Events

    A provision for the expected loss given default under the Retail Deposit Guarantee Scheme has been made applying the assumption that the Scheme will finish in October 2010, the policy position as at 30 June 2009. The policy decision to extend and amend the Retail Deposit Guarantee Scheme was subsequently announced on Tuesday 25 August 2009. As this represents a change in conditions that arose after the reporting period, it has not led to an adjustment of the provision. However the decision would be unlikely to significantly impact the amount of the provision.

    Schedule of Expenses

    for the year ended 30 June 2009

    The Schedule of Expenses summarises expenses that the Department administers on behalf of the Crown. Details of non-departmental expenditure and appropriations are provided on pages 93 and 94.

    Schedule of Expenses
    2008
    Actual
    $000
    2009
    Actual
    $000
    2009
    Supp. Estimates $000
    2,044 Non-departmental output classes 68,928 92,004
    2,049,665 Borrowing expenses 2,087,220 2,106,000
    1,367,116 Other expenses incurred by the Crown 2,659,771 1,896,846
    Remeasurements:
    1,097,504 -   Change in GSF unfunded liability - actuarial (gains)/losses 694,948 2,245,176
    (16,789) -   Change in Rugby World Cup provision 2,979 -
     6,581 -   Realised loss/(gain) on sale of assets - -
    15,690 -   SOE/CE impairments 55,560 257,950
    15,477 -   Foreign exchange losses/(gains) incurred by NZDMO 4,950 -
    - -   Taitokerau Forest Loan write down previously recognised as a remeasurement to fair value (37,000) -
    4,537,288 5,537,356 6,597,976

    Vote Crown Research Institutes

    1,347 Other expenses incurred by the Crown - 764
    1,347 - 764
    4,538,635 Total Non-departmental Expenses 5,537,356 6,598,740

    The Statement of Accounting Policies is an integral part of these supplementary financial schedules.

    Statement of Expenditure and Appropriations

    for the year ended 30 June 2009

    The Statement of Expenditure and Appropriations details expenditure and capital payments incurred against appropriations. The Department administers these appropriations on behalf of the Crown.

    Statement of Expenditure and Appropriations
    2008
    Actual
    $000
    2009
    Actual
    $000
    2009
    Supp.
    Estimates
    $000

    Vote Finance

    Non-departmental Output Classes

    352 Management of New Zealand House, London 416 1,000
    81 Management of Crown's Obligations for Geothermal Wells 88 351
    1,611 Guardians of New Zealand Superannuation  384 487
    - New Zealand Railways Corporation Support 68,000 90,000
    - Regulatory Responsibility Taskforce 40 166
    2,044 68,928 92,004

    Benefits and Other Unrequited Expenses

     - GSFA Subsidies to GSF Schemes - -
    - - -

    Borrowing Expenses

    2,049,665 Debt Servicing[14] 2,087,220 2,106,000
    2,049,665   2,087,220 2,106,000

    Other Expenses Incurred by the Crown

    23,000 Atihau-Whanganui Incorporation Ex-gratia Payment - -
    97,719 Auckland Rail Development 180,887 187,036
    500 Crown Contribution to Atihau-Whanganui Incorporation Negotiation Costs - -
    11,792 Crown Overseas Properties 14,537 16,200
    31 Crown Residual Liabilities 40 674
     - Geothermal Liabilities - 500
     - Government Superannuation Appeals Board 12 50
    21,000 Government Superannuation Fund and National Provident Fund Cost of Living Indexation - -
    15,591 Government Superannuation Fund Authority - Crown's Share of Expenses14 18,415 23,500
    1,027,253 Government Superannuation Fund Unfunded Liability14 960,808 968,610
    - Impairment of Loans to Taitokerau Forest Ltd - 1,700
     - Invercargill Airport Suspensory Loan - 300
    178 Kaingaroa Forest Road Easements - -
    - Loss on Acquisition of Toll NZ Ltd 320,462 330,000
    41,496 Maui Gas Contracts 12,236 13,218
    - National Rail Network Improvements 6,250 6,250
    - New Zealand Railways Corporation Transaction Costs of Purchasing Toll NZ Ltd 4,972 5,000
    - NZRC Wiri Inland Port Rail Link 6,000 6,000
    74,000 National Provident Fund Schemes - Liability under Crown Guarantee 14 71,000 71,000
    - National Provident Fund - Crown Liability for Scheme Deficiency 14 40,726 33,200
    12,800 ONTRACK Operating and Maintenance Costs 6,259 7,000
     - Payments in Respect of Guarantees and Indemnities 14 885,813 69,335
    - Rail Transport Upgrade and Growth 26,495 33,475
    - Taitokerau Forests Limited Loan Write Down 37,000 37,000
    26,928 Upgrade of Rail Network - -
    15 Unclaimed Money[15] 13 250
     7 Unclaimed Trust Money15 - 250
    5,231 Urban Rail Development 62,241 78,078
    548 Wellington Railway Station Expenses - -
    5,847 Wellington Regional Council Suspensory Loan 5,587 8,202
    3,180 Write-off of Capital Charge Receivable 18 18
    1,367,116 2,659,771 1,896,846

    Capital Expenditure

    195 Ag Research Equity Injection - -
    - Crown Rail Operator Equity Injection 6,774 6,774
    - Crown Rail Operators Loan 140,000 140,000
    - Hawkes Bay Airport Equity Injection - 8,000
    8,000 Industrial Research Limited Equity Injection 4,500 4,500
    691 International Financial Institutions 274,000 645,000
    - Invercargill Airport Suspensory Loan - 1,500
    64,200 Landcorp Protected Land Agreement 26,208 26,208
    2,103,000 New Zealand Superannuation Fund - Contributions 2,242,000 2,242,000
    - New Zealand Railways Corporation Increase in Capital for Purchase of Crown Rail Operator 388,294 690,000
    - New Zealand Railways Corporation Loans 45,000 55,000
    34,140 ONTRACK - Equity Injection - -
    70,000 ONTRACK - Loans - -
    - Port Nicholson Block Settlement Trust Loan 15,268 15,268
    -  Public Trust Capital Injection 20,000 20,000
    - Purchase of Toll NZ Ltd's Rail Business and Associated Costs 690,000 690,000
    - Reserve Bank of NZ Equity Injection 600,000 600,000
    - Taitokerau Forests - 1,700
    2,000 Timberlands West Coast Ltd Equity Injection 3,800 3,800
    784 Wellington Railway Station Upgrade - -
    11,334 Wellington Regional Council Suspensory Loan 11,330 13,408
    2,294,344   4,467,174 5,163,158
    5,713,169 Total Vote Finance 9,283,093 9,258,008
     

    Vote Crown Research Institutes

       
     

    Other Expenses Incurred by the Crown

       
    1,347 CRI Residual Liabilities - 764
    - CRI Non-excluded Liabilities - -
    1,347 Total Vote Crown Research Institutes - 764
    5,714,516 Total Non-departmental Expenditure and Appropriations 9,283,093 9,258,772

    The Statement of Accounting Policies is an integral part of these supplementary financial schedules.

    Notes

    • [14]These expenses or capital expenditures have permanent legislative authority.
    • [15]These expenses or capital expenditures have permanent legislative authority.

    Statement of Unappropriated Expenditure

    for the year ended 30 June 2009

    There were no items of unappropriated expenditure in Vote Finance in the year ended 30 June 2009.

    The Statement of Accounting Policies is an integral part of these supplementary financial schedules.

    Schedule of Revenue

    for the year ended 30 June 2009

    Schedule of Revenue
    2008
    Actual
    $000
    2009
    Actual
    $000
    2009
    Supp.
    Estimates
    $000

    Vote Finance

    1,437,103 Capital charge 1,560,582 1,556,757
    (60,000) Change in NPF DBP(A) Scheme provision under Crown Guarantee 22,000 (16,547)
    1,554 Contact Energy Ltd Crown margin interest 3,669 4,482
    - Crown Retail Deposit Guarantee Scheme 67,295 65,000
    - Crown Wholesale Funding Guarantee Facility 6,249 3,982
     - Dividends from Crown entities 10,301 10,301
    522,435 Dividends from SOEs 275,815 242,015
    2,751 Dividends - other 3,320 3,320
    10,000 Earthquake Commission guarantee fee 10,000 10,000
    46,547 Employers' superannuation contributions 38,652 40,000
    1,515 Export Credit Office 2,494 2,630
    760,013 Interest from investments 386,619 432,000
    20,442 Interest income - other 29,472 29,000
    259,444 Other income - NZDMO 128,570 692,000
    308,864 Other expenses - NZDMO (incl gains on derivatives) 803,654 906,000
    37,439 Maui Gas Contracts 11,018 12,000
    14,218 Rentals from Crown overseas properties 14,049 15,800
    193,000 Reserve Bank of New Zealand notional surplus 168,000 168,000
    7,815 Sale of goods and services 2,355 2,300
    6,869 Foreign exchange gains/(losses) 21,142 -
    4,759 Other current revenue 57,163 33,139
    347 Unclaimed money 582 500
    3,575,115   3,623,001 4,212,679

    Vote Crown Research Institutes

    887 Dividends from CRIs 9,303 2,654
    887   9,303 2,654
    3,576,002 Total Non-departmental Revenue 3,632,304 4,215,333

    The Statement of Accounting Policies is an integral part of these supplementary financial schedules.

    Schedule of Capital Receipts

    for the year ended 30 June 2009

    The Schedule of Capital Receipts details non-departmental capital receipts that the Department administers on behalf of the Crown.

    Schedule of Capital Receipts
    2008
    Actual
    $000
    2009
    Actual
    $000
    2009
    Supp.
    Estimates
    $000

    Vote Finance

    - Capital Withdrawals Crown cost 401,312 400,593
    31,547 Contact Energy Ltd Crown margin 31,549 31,549
    500 Loan repayments from other parties 500 500
    23,540 Sale of Wellington Railway Station to NZRC - -
    55,587 Total Capital Receipts 433,361 432,642

    The Statement of Accounting Policies is an integral part of these supplementary financial schedules.

    Schedule of Assets

    as at 30 June 2009

    The Schedule of Assets summarises the assets that the Department administers on behalf of the Crown.

    Schedule of Assets
    2008
    Actual
    $000
    2009
    Actual
    $000
    2009
    Supp.
    Estimates
    $000
    6,944,125 Cash and cash equivalents 9,455,325 5,505,554
    170,390 Accounts receivable  481,669 48,856
    6,896,419 Advances 6,938,367 7,927,122
    - Derivatives 457 389
    6,651,943 Marketable securities, deposits and derivatives in gain 6,161,488 10,167,000
    - Capital charge receivable 94 18
    1,218 Inventory - -
      31,271 Prepayments 32,092 -
    257,950 Intangibles and goodwill 257,950 -
    6,159,885 Investments in SOEs, CEs and CRIs 6,539,306 6,562,165
    154,890 Other share investments 175,964 154,890
    179,346 Other equity accounted investments 175,555 187,346
      99,717 Property, plant and equipment 122,508 121,783
      27,547,154 Total Non-departmental Assets 30,340,775 30,675,123

    The Statement of Accounting Policies is an integral part of these supplementary financial schedules.

    Schedule of Liabilities

    as at 30 June 2009

    The Schedule of Liabilities summarises the liabilities that the Department administers on behalf of the Crown.

    Schedule of Liabilities
    2008
    Actual
    $000
    2009
    Actual
    $000
    2009
    Supp.
    Estimates
    Voted
    $000
    3,957,620 Crown balances with Westpac 3,609,422 2,945,000
    58,898 Payables and accrued expenses 57,217 49,710
    32,951,881 Borrowings 43,351,822 43,047,000
    - Deferred revenue 154,897 72,320
    - Guarantee scheme payable/provision 830,657 -
    1,319 Insurance premiums received in advance 4,491 5,160
    8,256,661 Government Superannuation Fund unfunded liability 8,988,449 10,557,371
    907,453 NPF DBP(A) Scheme unfunded provision 947,203 977,800
    - NPF Crown liability for scheme deficiency s72 7,000 -
    17,004 Rugby World Cup provision 17,262 17,004
    46,150,836 Total Non-departmental Liabilities 57,968,420 57,671,365

    The Statement of Accounting Policies is an integral part of these supplementary financial schedules.

    Schedule of Commitments

    as at 30 June 2009

    Schedule of Commitments
    2008
    $000
    2009
    $000

    Operating Commitments

    By type
    1,658 Non-cancellable property lease 1,581
    400,698 Auckland rail development -
    28,224 National rail network upgrades -
    569,769 Urban rail development -
    469 Other non-cancellable operating commitments 306
    1,000,818   1,887
    By term
    325,335 Less than one year 194
    405,464 One to two years 194
    268,570 Two to five years 122
    1,449 More than five years 1,377
    1,000,818 Total Commitments 1,887

    All rail appropriations have now been transferred to Vote Transport from 1 July 2009.

    The Statement of Accounting Policies is an integral part of these supplementary financial schedules.

    Schedule of Contingent Liabilities

    as at 30 June 2009

    Schedule of Contingent Liabilities
    2008
    $000
    2009
    $000

    Quantifiable Contingent Liabilities

    18,776 Guarantees and indemnities 18,035
    2,164,386 Uncalled capital 2,462,076
    132 Legal proceedings and disputes 132
    1,764,561 Other contingent liabilities 1,916,958
    3,947,855   4,397,201

    Contingent liabilities are costs which the Crown will have to face if a particular event occurs. Typically, contingent liabilities consist of guarantees and indemnities, uncalled capital, legal disputes and claims. The contingent liabilities managed by the Department on behalf of the Crown are a mixture of operating and balance sheet risks and they vary greatly in magnitude and likelihood of realisation. In general, if a contingent liability were realised it would have a negative impact on the operating balance, net Crown debt and net worth. However, in the case of contingencies for uncalled capital, the negative impact would be restricted to net Crown debt.

    Where contingent liabilities have arisen as a consequence of legal action being taken against the Crown, the amount included is the amount claimed and thus the maximum potential cost. It does not represent either an admission that the claim is valid or an estimation of the possible amount of any award against the Crown.

    The majority of the quantified contingent liabilities shown above arise from the uncalled capital element of the Crown's investments in the Asian Development Bank and the World Bank, and promissory notes issued in favour of the IMF.

    Significant increases in contingent liabilities are owing to exchange rate fluctuations and from the sales of NZECO products (2009: $154 million, 2008: $37 million). This was partially offset by encashment of promissory notes, equivalent to payments made to the IMF under the Financial Transactions Plan.

    The Crown's exposure to the Retail Deposit Guarantee Scheme and Wholesale Funding Guarantee Facility is detailed in the Supplementary Financial Schedules - Overview on pages 86 and 87.

    Unquantifiable Contingent Liabilities

    The Treasury also administers a number of contingent liabilities which cannot be quantified. These arise primarily from institutional guarantees and indemnities. Readers are referred to the Financial Statements of the Government for further details.

    The Statement of Accounting Policies is an integral part of these supplementary financial schedules.

    Statement of Trust Monies

    as at 30 June 2009

    Statement of Trust Monies
    2008
    $000
      2009
    $000
    941 Balance at the beginning of the year 1,720
    769 Contribution 208
    (68) Distribution (311)
    78 Interest earned on trust money 102
    - Unclaimed money returned to the Crown -
    1,720 Balance at the End of the Year 1,719

    The Trust Account is established pursuant to section 67 of the Public Finance Act 1989, for the purposes of depositing money paid to the Crown under section 77 of the Trustee Act 1956.

    The source of funds is principally estates of deceased persons where the beneficiaries cannot be traced. Funds are retained in the Trust Account for six years, and are then transferred to the Crown as unclaimed money.

    Details of funds held in the Trust Account are gazetted annually.

    The Statement of Accounting Policies is an integral part of these supplementary financial schedules.

    New Zealand Debt Management Office (NZDMO)

    NZDMO is part of the New Zealand Treasury and is responsible for the efficient management of the Crown's debt and associated assets within an appropriate risk management framework. NZDMO's strategic objective is to maximise the long‐term economic return on the Crown's financial assets and debt in the context of the Government's fiscal strategy, particularly its aversion to risk.

    NZDMO's major responsibilities involve:

    • financing the Crown's borrowing requirement and managing a portfolio of assets and liabilities
    • disbursing cash to departments
    • advancing funds to government entities in accordance with government policy, and
    • providing capital markets services and derivative transactions for departments and Crown entities.

    NZDMO managed $22.8 billion of assets, $47 billion of liabilities, $0.5 billion of revenue and $1.3 billion of expenses on behalf of the Crown for the year ended 30 June 2009. Further information on NZDMO's performance in managing the Crown's sovereign‐issued debt and related financial assets is provided in the Vote Finance Output Class Performance section of this report on pages 36 and 37.

    To facilitate a greater level of transparency regarding NZDMO operations, the following supplementary financial schedules report the activity of NZDMO as though it were a stand‐alone entity. Cross‐holdings or other financial positions between NZDMO and other government entities are not eliminated. The financial information reported in these schedules is consolidated into the Crown financial statements.

    Schedule of Assets and Liabilities

    as at 30 June 2009

    2008   2009
    Carrying Value
    $m
    Fair Value
    $m
      Carrying Value
    $m
    Fair Value
    $m
       

    Assets

       
       

    Cash, cash equivalents and receivables

       
    6,903 6,903 Crown settlement account 8,320 8,320
    18 18 Foreign cash and cash equivalents[16] 1,105 1,105
    99 99 Debtors and receivables 396 396
       

    Advances

       
    3,539 3,539 RBNZ 3,170 3,170
    1,287 1,287 Crown Financing Agency 1,401 1,401
    1,809 1,809 Housing New Zealand 1,813 1,813
    221 221 New Zealand Railways Corporation 399 399
    40 40 Non-Crown 65 65
       

    Financial assets

       
    5,004 5,004 Marketable securities 3,424 3,424
    748 748 External deposits 442 442
    680 680 Derivatives in gain 1,842 1,842
    188 188 IMF reserve position 454 454
    20,536 20,536 Total Assets 22,831 22,831
       

    Liabilities

       
       

    Overdrafts and payables

       
    3,958 3,958 Crown balances with Westpac 3,609 3,609
    - - Creditors and payables 5 5
       

    Financial liabilities

       
    1,487 1,487 Treasury bills - market 7,442 7,442
    154 154 Treasury bills - non-market 5 5
    19,459 19,455 Government bonds - market[17] 22,486 22,871
    7,487 7,433 Government bonds - non-market 7,144 7,349
    1,482 1,591 Inflation-indexed bonds - market 1,552 1,707
    445 475 Inflation-indexed bonds - non-market 466 510
    423 422 Kiwi bonds 491 494
    689 689 Foreign currency debt 993 993
    70 70 Collateral 889 889
    790 790 Derivatives in loss 1,333 1,333
    77 77 Departmental deposits 117 117
    304 304 IMF allocation 336 336
    81 81 Immigration investor policy bonds 96 96
    4 4 Other 2 2
    36,910 36,990 Total Liabilities 46,966 47,758
    (16,374) (16,454) Net Assets/(Liabilities) (24,135) (24,927)

    Notes

    • [16]Foreign cash and cash equivalents include cash equivalent deposits of $1,044 million at June 2009. Previously, similar deposits to those now categorised as cash equivalents were included with external deposits. The value of the equivalent deposits included in external deposits at June 2008 was $261 million. The June 2008 figures have not been restated.
    • [17]Government bonds – market includes $395 million of infrastructure bonds at June 2009 (June 2008: $295 million).

    Schedule of Revenues and Expenses

    for the year ended 30 June 2009

    Schedule of Revenues and Expenses
    2008
    $m
      2009
    $m
     

    Revenue

     
     

    Cash, cash equivalents  and receivables

     
    339 Crown settlement account 110
    - Foreign cash and cash equivalents 3
     

    Advances

     
    164 RBNZ (56)
    104 Crown Financing Agency 136
    152 Housing New Zealand 109
    17 New Zealand Railways Corporation 16
    (3) Non-Crown (2)
     

    Financial assets

     
    224 Marketable securities 215
    41 External deposits 16
    2 IMF reserve position 1
    1,040 Total Revenue 548
     

    Expenses

     
    149 Treasury bills - market 142
    13 Treasury bills - non-market 46
    1,258 Government bonds - market 1,325
    457 Government bonds - non-market 429
    111 Inflation-indexed bonds - market 141
    33 Inflation-indexed bonds - non-market 42
    26 Kiwi bonds 33
    85 Foreign currency debt 71
    12 Collateral 1
    (426) Derivatives[18] (968)
    10 IMF allocation 5
    2 Immigration investor policy bonds 3
    17 Other 19
    1,747 Total Expenses 1,289
    (15) Net FX Gains/(Losses) (5)
    (722) Net Revenue/(Expenses) (746)

    Classes and categories of financial instruments

    NZDMO designates its financial assets and liabilities under the following IFRS categories:

    2008
    $m
      2009
    $m
    Amortised
    Cost[19]
    Held
    for
    Trading
    Fair Value
    Through
    Profit or Loss
    Carrying
    Value
      Amortised
    Cost[19]
    Held
    for
    Trading
    Fair Value
    Through
    Profit or Loss
    Carrying
    Value
           

    Financial Assets

           
           

    Cash, cash equivalents and receivables

           
    6,903 - - 6,903 Crown settlement account 8,320 - - 8,320
    18 - - 18 Foreign cash and cash equivalents 61 - 1,044 1,105
    99 - - 99 Debtors and receivables 396 - - 396
           

    Advances

           
    - - 3,539 3,539 RBNZ - - 3,170 3,170
    - - 1,287 1,287 Crown Financing Agency - - 1,401 1,401
    1,158 - 651 1,809 Housing New Zealand 979 - 834 1,813
    - - 221 221 New Zealand Railways Corporation - - 399 399
    40 - - 40 Non-Crown 65 - - 65
           

    Financial assets

           
    - - 5,004 5,004 Marketable securities - - 3,424 3,424
    - - 748 748 External deposits - - 442 442
    - 680 - 680 Derivatives in gain - 1,842 - 1,842
    188 - - 188 IMF reserve position 454 - - 454
    8,406 680 11,450 20,536 Total Financial Assets by Designation 10,275 1,842 10,714 22,831
           

    Financial Liabilities

           
    3,958 - - 3,958 Crown balances with Westpac 3,609 - - 3,609
    - - - - Creditors and payables 5 - - 5
    - - 1,487 1,487 Treasury bills - market 7,294 - 148 7,442
    154 - - 154 Treasury bills - non-market 5 - - 5
    13,812 - 5,647 19,459 Government bonds - market 17,709 - 4,777 22,486
    7,487 - - 7,487 Government bonds - non-market 7,144 - - 7,144
    1,482 - - 1,482 Inflation-indexed bonds - market 1,552 - - 1,552
    445 - - 445 Inflation-indexed bonds - non-market 466 - - 466
    423 - - 423 Kiwi bonds 491 - - 491
    - - 689 689 Foreign currency debt - - 993 993
    - - 70 70 Collateral - - 889 889
    - 790 - 790 Derivatives in loss - 1,333 - 1,333
    - - 77 77 Departmental deposits - - 117 117
    304 - - 304 IMF allocation 336 - - 336
    81 - - 81 Immigration investor policy bonds 96 - - 96
    4 - - 4 Other 2 - - 2
    28,150 790 7,970 36,910 Total Financial Liabilities by Designation 38,709 1,333 6,924 46,966

    Derivatives

    As at 30 June 2009, the value of derivatives was as follows:

    2008   2009

    Carrying
    Value in
    Gain

    $m

    Carrying
    Value in
    Loss

    $m

    Net
    Carrying
    Value

    $m

    Notional
    Value

    $m

     

    Carrying
    Value in
    Gain

    $m

    Carrying
    Value in
    Loss

    $m

    Net
    Carrying
    Value

    $m

    Notional
    Value

    $m

           

    Derivatives

           
    179 (231) (52) 18,323 Foreign exchange contracts 1,043 (960) 83 19,930
    320 (402) (82) 4,174 Cross currency swaps 144 (259) (115) 4,763
    181 (157) 24 10,309 Interest rate swaps 655 (114) 541 9,976
    - - - 154 Futures - - - -
    680 (790) (110) 32,960 Total Derivatives 1,842 (1,333) 509 34,669

    Notes

    • [18]Net derivatives includes both net interest (receipts and payments) and fair value movements on all derivatives, including both derivatives in gain and derivatives in loss at balance date. Net derivatives may be a net revenue or net expense result for a reporting period. The net result is reported under expenses for reasons of consistency. FX gains/losses on these derivatives are reported as part of the overall Net FX Gains/(Losses) line.
    • [19]NZDMO's amortised cost assets are all designated as loans and receivables.

    Risk Management

    NZDMO operates within a risk management framework that is approved by the Minister of Finance. The framework specifies NZDMO's policies for managing market risk, credit risk, liquidity risk, funding risk and operational risk.

    The risk management framework is subject to continuous improvement as information technology and analytical techniques advance. NZDMO's risk management framework and practices are subject to regular audit review, and are also reviewed periodically by the NZDMO Advisory Board, by the Controller and Auditor-General and by external experts commissioned by NZDMO.

    The risk management framework sets out the governance framework for NZDMO's operations, including the legislative provisions governing NZDMO's borrowing and investment activities. Internal operations are governed by an established risk culture, body of policies, ethical guidelines, defined responsibilities and formal delegations, segregated duties and reporting and performance management requirements.

    Funding Risk

    Funding risk refers to the inability to raise funds at an acceptable price and tenor.

    NZDMO's funding policy is designed to spread refinancing risk over time, and to diversify funding sources by maintaining access to a range of funding markets. To manage interest rate risk and lower the cost of the New Zealand-dollar portfolio, NZDMO maintains a mix of fixed‐rate and floating‐rate debt, and uses interest rate swaps. Inflation‐indexed debt makes up a component of the portfolio and is issued when it is cost‐effective to do so.

    Bonds are issued into benchmark lines to improve liquidity in the domestic bond market and, consequently, reduce the Crown's cost of borrowing. NZDMO limits the tranche size of each maturity of marketable bonds issued in New Zealand dollars. Benchmark size trades off between improving liquidity and managing refinancing risk, and it is reviewed regularly.

    Liquidity Risk

    Liquidity risk is defined as not being able to meet expected and unexpected cash flow needs. The objective of NZDMO's liquidity policy is to ensure that NZDMO can meet all cash obligations as they fall due. To manage liquidity risk in its foreign currency portfolios, liquid assets are required to be held in each currency to cover cash flow obligations over one-day, two-day and six-week intervals. For New Zealand-dollar liquidity risk, NZDMO has established cash management arrangements with the Reserve Bank of New Zealand to support effective management of overall Crown cash flows.

    Liquidity Management
    As at 30 June 2009

    Contractual
    Cash Flows

    $m

    0-12
    Months

    $m

    1-2 Years

    $m

    2-5 Years

    $m

    5-10 Years

    $m

    > 10 Years

    $m

    Overdrafts and Payables

               
    Crown balances with Westpac 3,609 3,609 - - - -
    Creditors and payables 5 5 - - - -

    Financial Liabilities

               
    Treasury bills - market 7,500 7,500 - - - -
    Treasury bills - non-market 5 5 - - - -
    Government bonds - market 28,371 5,432 1,089 10,710 10,132 1,008
    Government bonds - non-market 8,772 2,002 332 3,652 2,755 31
    Inflation-indexed bonds - market 2,074 72 72 215 1,715 -
    Inflation-indexed bonds - non-market 619 21 21 64 513 -
    Kiwi bonds 500 413 87 - - -
    Foreign currency debt 1,063 196 105 551 211 -
    Collateral 889 889 - - - -
    Departmental deposits 117 117 - - - -
    IMF allocation 336 336 - - - -
    Immigration investor policy bonds 96 1 6 89 - -
    Other 7 6 1 - - -
    Total Non-derivative Liabilities 53,963 20,604 1,713 15,281 15,326 1,039

    Derivative Inflows[20]

               
    Foreign exchange contracts 19,930 19,633 152 145 - -
    Foreign exchange options - - - - - -
    Cross currency swaps 6,007 454 192 2,363 2,998 -
    Interest rate swaps 2,571 520 463 956 632 -
    Total Derivative Inflows 28,508 20,607 807 3,464 3,630 -

    Derivative Outflows[20]

               
    Foreign exchange contracts 19,840 19,561 147 132 - -
    Foreign exchange options - - - - - -
    Cross currency swaps 5,755 363 81 2,185 3,126 -
    Interest rate swaps 2,000 251 304 838 607 -
    Total Derivative Outflows 27,595 20,175 532 3,155 3,733 -

    Notes

    • [20]Derivative flows include both derivatives in gain and derivatives in loss.

    Credit Risk

    Credit risk is defined as the risk of loss in portfolio value owing to the downgrade or default of an institution or security issuer.

    NZDMO is exposed to credit loss when the issuer of a debt instrument defaults on interest or principal payments, or when a counterparty in a transaction such as a swap agreement defaults on an obligation. Credit-related loss in the value of the portfolio also occurs when the market value of a debt instrument falls owing to an increase in credit risk.

    Financial instruments that subject NZDMO to credit risk include bank balances, advances, investments, interest rate swaps, currency swaps and foreign exchange forward contracts.

    NZDMO manages credit risk through the credit screening of counterparties, use of credit exposure limits and counterparty collateral obligations. Credit exposures are maintained only with highly rated institutions for which the probability of default is low. To diversify credit exposure, NZDMO limits its exposure to any one institution. The creditworthiness of counterparties is continuously monitored. Credit risk is further controlled by incorporating credit support annexes into master swap agreements with swap and foreign exchange counterparties.

    NZDMO lending to government entities, and to entities to which NZDMO is exposed as a matter of government policy, is not managed under the credit policy.

    2008
    $m

    Credit Risk Management

    2009
    $m

    20,536 Total NZDMO financial assets 22,831
      Less:  
    13,909 Crown-related balances 15,297
    6,627 Total Credit Exposure for Financial Assets 7,534

    Concentration of Credit Exposure as at 30 June 2009

    By Credit Rating

    AAA
    $m

    AA
    $m

    A
    $m

    Other
    $m

    Non-rated
    $m

    Credit
    Exposure
    $m

    Foreign cash and cash equivalents 1,043 60 2 - - 1,105
    Debtors and receivables - 396 - - - 396
    Advances to non-Crown 16 - - - 49 65
    Marketable securities 2,461 963 - - - 3,424
    External deposits - 442 - - - 442
    Derivatives in gain 83 1,202 353 - 10 1,648
    IMF reserve position - - - - 454 454
    Total Credit Exposure by Credit Rating 3,603 3,063 355 - 513 7,534
    By Industry

    Sovereign
    Issuers
    $m

    Supra-
    National
    $m

    NZ Banking
    Sector
    $m

    Foreign
    Banking
    Sector
    $m

    Other
    $m

    Credit
    Exposure
    $m

    Foreign cash and cash equivalents 1,045 - 58 2 - 1,105
    Debtors and receivables - - 396 - - 396
    Advances to non-Crown 16 - - - 49 65
    Marketable securities 1,320 498 520 630 456 3,424
    External deposits - - 442 - - 442
    Derivatives in gain - - 1,153 401 94 1,648
    IMF reserve position - 454 - - - 454
    Total Credit Exposure by Industry 2,381 952 2,569 1,033 599 7,534
    By Geographical Area

    United
    States
    of America
    $m

    Europe
    $m

    Japan
    $m

    Australia
    $m

    New
    Zealand
    $m

    Supra-
    National
    $m

    Other
    $m

    Credit
    Exposure
    $m

    Foreign cash and cash equivalents 1,042 - 3 2 58 - - 1,105
    Debtors and receivables - - - - 396 - - 396
    Advances to non-Crown - - - - 65 - - 65
    Marketable securities 127 1,371 231 609 520 498 68 3,424
    External deposits - - - - 442 - - 442
    Derivatives in gain 247 225 - 12 1,163 - 1 1,648
    IMF reserve position - - - - - 454 - 454
    Total Credit Exposure by
    Geographical Area
    1,416 1,596 234 623 2,644 952 69 7,534

    Concentration of Credit Exposure as at 30 June 2008

    By Credit Rating

    AAA
    $m

    AA
    $m

    A
    $m

    Other
    $m

    Non-Rated
    $m

    Credit
    Exposure
    $m

    Foreign cash and cash equivalents 1 17 - - - 18
    Debtors and receivables - 99 - - - 99
    Advances to non-Crown - - - - 40 40
    Marketable securities 3,807 1,054 143 - - 5,004
    External deposits 261 487 - - - 748
    Derivatives in gain 54 458 11 - 7 530
    IMF reserve position - - - - 188 188
    Total Credit Exposure by Credit Rating 4,123 2,115 154 - 235 6,627
    By Industry

    Sovereign
    Issuers
    $m

    Supra-
    national
    $m

    NZ Banking
    Sector
    $m

    Foreign
    Banking
    Sector
    $m

    Other
    $m

    Credit
    Exposure
    $m

    Foreign cash and cash equivalents 1 - - 17 - 18
    Debtors and receivables - - 50 49 - 99
    Advances to non-Crown - - - - 40 40
    Marketable securities 728 326 - 1,721 2,229 5,004
    External deposits 261 - 259 228 - 748
    Derivatives in gain - - 155 315 60 530
    IMF reserve position - 188 - - - 188
    Total Credit Exposure by Industry 990 514 464 2,330 2,329 6,627
    By Geographical Area

    United
    States
    of America
    $m

    Europe
    $m

    Japan
    $m

    Australia
    $m

    New
    Zealand
    $m

    Supra-
    national
    $m

    Other
    $m

    Credit
    Exposure
    $m

    Foreign cash and cash equivalents 1 - - 17 - - - 18
    Debtors and receivables - - - 49 50 - - 99
    Advances to non-Crown - - - - 40 - - 40
    Marketable securities 383 2,639 - 1,656 - 326 - 5,004
    External deposits 261 75 1 - 259 - 152 748
    Derivatives in gain 131 131 - 106 161 - 1 530
    IMF reserve position - - - - - 188 - 188
    Total Credit Exposure by
    Geographical Area
    776 2,845 1 1,828 510 514 153 6,627

    Operational Risk

    Operational risk refers to the risk of loss owing to an event that could impact on NZDMO's ability to produce its outputs to the quality, quantity and cost specified. Risk events include resource failures or constraints, control and security breaches or failures, transaction errors, compliance breaches, the breakdown of key relationships and disasters.

    NZDMO's generic objectives in respect of operational risk are to:

    • mitigate the financial and reputational loss arising from operational failure by effectively managing operational risks where it is cost-effective to do so, and
    • establish a culture of continuous improvement of operational policies and practices.

    Operational risks in NZDMO are managed in a number of ways. Controls include general Treasury policies, NZDMO-specific policies, reporting and performance management requirements, delegations and systems access restrictions. They are supported by close communications and regular management meetings that, in turn, reinforce a strong team ethic. Independent experts, such as external auditors, provide additional support in managing operational risk.

    Market Risk

    Market risk is defined as the impact of changes in interest rates or exchange rates on portfolio value.

    The objective of NZDMO’s market risk management is to limit this risk within parameters that allow for the achievement of its other financial objectives, including earning a satisfactory rate of return on liquid assets and adding value in its foreign currency execution activities.

    NZDMO has implemented an asset and liability matching (ALM) policy to manage risk within its portfolios. The intent of this policy is to minimise the currency and interest rate risks to NZDMO's revenues and balance sheet, by matching the characteristics of its assets to those of its liabilities, where practicable. The range of instruments used to minimise exposure to market risk includes debt instruments, financial assets, foreign exchange contracts, currency swaps, interest rate swaps and futures contracts.

    NZDMO is exposed to market risk when assets and liabilities are imperfectly matched. It is managed through the use of Value at Risk (VaR) limits and stop-loss limits.

    The VaR limit is expressed over daily, monthly and annual time horizons at 95% confidence level and reflects the risk tolerance of the Government in respect of NZDMO's activities. NZDMO uses back‐testing to evaluate the performance of the VaR model, and stress‐testing is carried out to understand how extreme or unusual events would impact on the portfolio. Monthly, quarterly and annual stop‐loss limits are in place to protect NZDMO from further losses once actual losses reach a certain point.

    Because NZDMO's liabilities exceed its assets, it also incurs market risk associated with the net volume of outstanding government debt. Fluctuations in the net market value of New Zealand-dollar debt as a result of interest rate movements are not actively managed, and unmatched debt is accounted for on an amortised cost basis.

    Foreign Currency Risk Management

    NZDMO's net foreign currency debt position is kept close to zero, as indicated in the schedules below.

    As at 30 June 2009 NZD
    $m
    USD
    $m
    Yen
    $m
    Euro
    $m
    AUD
    $m
    Other
    $m
    Carrying Value
    $m

    Cash, Cash Equivalents and Receivables

                 
    Crown settlement account 8,320 - - - - - 8,320
    Foreign cash and cash equivalents - 1,043 4 17 17 24 1,105
    Debtors and receivables 396 - - - - - 396

    Advances

                 
    RBNZ - 1,963 - 1,207 - - 3,170
    Crown Financing Agency 1,401 - - - - - 1,401
    Housing New Zealand 1,813 - - - - - 1,813
    New Zealand Railways Corporation 399 - - - - - 399
    Non-Crown 65 - - - - - 65

    Financial Assets

                 
    Marketable securities 1,492 792 231 341 483 85 3,424
    External deposits 226 13 20 29 97 57 442
    Derivatives in gain 12,112 (6,626) (377) (1,124) (891) (1,252) 1,842
    IMF reserve position 7 197 49 152 - 49 454
    Total Financial Assets 26,231 (2,618) (73) 622 (294) (1,037) 22,831

    Overdrafts and Payables

                 
    Crown balances with Westpac 3,609 - - - - - 3,609
    Creditors and payables 5 - - - - - 5

    Financial Liabilities

                 
    NZD government securities 39,586 - - - - - 39,586
    Foreign currency debt - 623 353 - - 17 993
    Collateral - 889 - - - - 889
    Derivatives in loss 7,060 (4,306) (464) 436 (295) (1,098) 1,333
    Departmental deposits - 27 - 74 11 5 117
    IMF allocation - 148 37 114 - 37 336
    Immigration investor policy bonds 96 - - - - - 96
    Other 2 - - - - - 2
    Total Financial Liabilities 50,358 (2,619) (74) 624 (284) (1,039) 46,966
    Net Currency Holdings (24,127) 1 1 (2) (10) 2 (24,135)

    Audit Report

    To the readers of the Treasury's Financial Statements and Statement of Service Performance for the year ended 30 June 2009

    The Auditor-General is the auditor of The Treasury (the Department). The Auditor-General has appointed me, Godfrey Boyce, using the staff and resources of KPMG, to carry out the audit of The Treasury, for the year ended 30 June 2009. The audit covers the financial statements, statement of service performance and schedules of non-departmental activities included in the annual report of the Department for the year ended 30 June 2009.

    Unqualified Opinion

    In our opinion:

    • The financial statements of the Department on pages 63 to 84:
      • comply with generally accepted accounting practice in New Zealand; and
      • fairly reflect:
      • the Department's financial position as at 30 June 2009;
      • the results of its operations and cash flows for the year ended on that date;
      • its expenses and capital expenditure incurred against each appropriation administered by the Department and each class of outputs included in each output expense appropriation for the year ended 30 June 2009; and
      • its unappropriated expenses and capital expenditure for the year ended 30 June 2009.
      • The schedules of non-departmental activities on pages 92 to 102 and 104 to 113 fairly reflect the assets, liabilities, revenues, expenses, contingencies, commitments and trust monies managed by the Department on behalf of the Crown for the year ended 30 June 2009.
      • The statement of service performance tables of the Department on pages 34 to 51 and 58 to 61:
      • complies with generally accepted accounting practice in New Zealand; and
      • fairly reflects for each class of outputs:
      • its standards of delivery performance achieved, as compared with the forecast standards included in the statement of forecast service performance adopted at the start of the financial year; and
      • its actual revenue earned and output expenses incurred, as compared with the forecast revenues and output expenses included in the statement of forecast service performance adopted at the start of the financial year.

    The audit was completed on 30 September 2009, and is the date at which our opinion is expressed.

    The basis of our opinion is explained below. In addition, we outline the responsibilities of the Secretary of the Treasury and the Auditor, and explain our independence.

    Basis of Opinion

    We carried out the audit in accordance with the Auditor-General's Auditing Standards, which incorporate the New Zealand Auditing Standards.

    We planned and performed the audit to obtain all the information and explanations we considered necessary in order to obtain reasonable assurance that the financial statements and statement of service performancedid not have material misstatements, whether caused by fraud or error.

    Material misstatements are differences or omissions of amounts and disclosures that would affect a reader's overall understanding of the financial statements and statement of service performance. If we had found material misstatements that were not corrected, we would have referred to them in our opinion.

    The audit involved performing procedures to test the information presented in the financial statements and statement of service performance. We assessed the results of those procedures in forming our opinion.

    Audit procedures generally include:

    • determining whether significant financial and management controls are working and can be relied on to produce complete and accurate data;
    • verifying samples of transactions and account balances;
    • performing analyses to identify anomalies in the reported data;
    • reviewing significant estimates and judgements made by the Secretary of the Treasury;
    • confirming year-end balances;
    • determining whether accounting policies are appropriate and consistently applied; and
    • determining whether all financial statement and statement of service performance disclosures are adequate.

    We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements and statement of service performance.

    We evaluated the overall adequacy of the presentation of information in the financial statements and statement of service performance. We obtained all the information and explanations we required to support our opinion above.

    Responsibilities of the Secretary of the Treasury and the Auditor

    The Secretary of the Treasury is responsible for preparing the financial statements and statement of service performance in accordance with generally accepted accounting practice in New Zealand. The financial statements must fairly reflect the financial position of the Department as at 30 June 2009 and the results of its operations and cash flows for the year ended on that date.

    The financial statements must also fairly reflect the expenses and capital expenditure incurred against each appropriation administered by the Department and each class of outputs included in each output expense appropriation for the year ended 30 June 2009. The financial statements must also fairly reflect the Department's unappropriated expenses and capital expenditure for the year ended on that date.

    In addition, the Secretary of the Treasury is responsible for preparing schedules of non-departmental activities, in accordance with the Treasury Instructions 2008 that must fairly reflect the assets, liabilities, revenues, expenses, contingencies, commitments and trust monies managed by the Department on behalf of the Crown for the year ended 30 June 2009.

    The statement of service performance must fairly reflect, for each class of outputs, the Department's standards of delivery performance achieved and revenue earned and expenses incurred, as compared with the forecast standards, revenue and expenses adopted at the start of the financial year. The Secretary of the Treasury's responsibilities arise from sections 45A and 45B of the Public Finance Act 1989.

    We are responsible for expressing an independent opinion on the financial statements and statement of service performance and reporting that opinion to you. This responsibility arises from section 15 of the Public Audit Act 2001 and section 45D(2) of the Public Finance Act 1989.

    Independence

    When carrying out the audit we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the Institute of Chartered Accountants of New Zealand.

    In addition to the audit we have carried out assignments in the areas of general accounting and advisory, which are compatible with independence requirements. Other than the audit and these assignments, we have no relationship with or interests in the Department.

     

    Godfrey Boyce
    KPMG
    On behalf of the Auditor-General
    Wellington, New Zealand

     

    Matters Relating to the Electronic Presentation of the Audited Financial Statements

    This audit report relates to the financial statements of The Treasury for the year ended 30 June 2009 included on The Treasury’s website.  The Secretary to the Treasury is responsible for the maintenance and integrity of The Treasury’s website.  We have not been engaged to report on the integrity of The Treasury’s website.  We accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. 

    The audit report refers only to the financial statements named above.  It does not provide an opinion on any other information which may have been hyperlinked to or from the financial statements.  If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited financial statements and related audit report dated 30 September 2009 to confirm the information included in the audited financial statements presented on this website.

    Legislation in New Zealand governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

    Quality Standards for Policy Advice

    Quality policy advice is fit for purpose

    This Quality Standard for Policy Advice sets out the characteristics or dimensions of policy advice that will best enable it to promote well-informed high-quality decision-making by Ministers. However the quality dimensions below are not a checklist and not all dimensions will be equally important in every case - judgements are required at the outset about how to apply and balance the quality dimensions to ensure a particular piece of advice is fit for purpose in achieving the result sought.

    When undertaking a piece of work, explicit consideration needs to be given to the following:

    • What point are Ministers at in their decision-making process? Can the Treasury add value? What are our opportunities to have an impact?
    • What result are we seeking by providing a piece of advice?
    • How should the quality dimensions below be applied and balanced to achieve this result?
    • What is the relative priority of this piece of work?
    • What level of investment is warranted?
    Dimensions of quality policy advice
    Analytically rigorous
    (Analysis)
    Set in a wider strategic context
    (Applied analysis)
    Customer focused and persuasive
    (Advice)

    Relevant frameworks

    Appropriate analytical frameworks are used, and:

    • knowledge is up-to-date and informed by recent thinking and literature in the field
    • assumptions behind the frameworks used are explicit and consideration has been given to how they will be expected to play out in the real world (a world which includes information and transaction costs, market failure, government failure, etc), and
    • consideration has been given to less traditional frameworks and whether they would add innovative or useful perspectives.

    Strategic

    • Advice is set in the context of the Treasury’s results and informed by a strategic view about what is important.
    • We are explicit about the relative importance and materiality of the issue, in fiscal, economic and strategic terms.
    • Connections across policy issues are made, ensuring that Ministers receive a whole-of-government perspective.
    • Advice considers the long-term implications of decisions and provides a perspective that goes beyond immediate impacts.
    • We frame issues and help set the agenda.

    Clear

    Advice is compellingly presented. It is:

    • brief and concise – key messages should be readily apparent to the reader
    • easy to read – has a clear and logical structure, avoids technical jargon and uses visual devices such as charts and tables where possible
    • pitched to suit the target audience – uses appropriate language, style and level of detail, and
    • framed in terms of how it fits with previous advice and communications with the Minister.

    Robust reasoning and logic

    Advice has a clear purpose, problem definition, evaluation of options against criteria and assessment of risks and opportunities. We come to a conclusion and give action-oriented recommendations.

    Practical

    Issues of implementation, technical feasibility, practicality and timing are considered and advice accurately identifies compliance, transitional, legislative, revenue and administrative implications and costs.

    Timely

    Reports should meet Ministers' need for advice that helps in the decision-making process (even if it means, at times, that advice is not fully developed) and indicate when a decision is required.

    Evidence-based

    Analysis is supported by relevant evidence:

    • Empirical methods are sound, data gaps are identified and the level of confidence/certainty in our empirical base is explicit.
    • We draw on New Zealand experience of current and past policy interventions and, where relevant, the experience of other countries.
    • We give our best judgement despite data imperfections; we acknowledge information limitations and advise within them.

    Public sector consultation

    Ministers receive advice that enables them to engage with their colleagues on a fully informed basis because:

    • thorough and timely consultation with other government departments has occurred and points of difference, and the reasons for these, are set out, and
    • where possible, advice is developed in conjunction with relevant government agencies.

    Politically aware

    Advice:

    • demonstrates awareness of the wider environment and political situation
    • is based on a clear understanding of the desired outcomes of the Minister/ Government
    • relates to the perspectives of Ministers, even if suggesting something that tests those perspectives, and
    • recognises choices and constraints Ministers face, and includes a range of options to address these.

    Free and frank

    Our advice is honest, impartial and politically neutral - we have a duty to alert Ministers to the possible consequences of following particular policies, whether or not such advice accords with Ministers' views. Good free and frank advice is offered with an understanding of its political context and the constraints within which the Minister is operating.

    Perspectives of wider stakeholders

    We understand and advise Ministers on the perspective of groups outside the public sector, consult with key stakeholders and provide advice on communications where appropriate.

    Solution focused

    We are proactive, anticipating, as well as responding to, Ministers' needs. Advice suggests a clear way forward (“Here is what you can do” as well as “Here is a problem”) and includes a range of practical options (first best advice, but also second and third).

    Quality involves continuous improvement

    At the end:

    • Did we achieve the result we were seeking?
    • Were our judgements about what would be fit for purpose correct?
    • What would we do differently next time?
    • How can we capture and share this learning?

    Research and Policy Publications

    for the year ended 30 June 2009

    The Treasury's research and policy publications contain work in progress on a variety of economic, financial, trade and social issues. Our aim in publishing is to make papers available to a wider audience, and to inform and encourage public debate. All papers can be viewed on our website: www.treasury.govt.nz/publications/research-policy

    Papers added during 2008/09 include:

    Publishing Date and Paper Number Working Papers 2008/09
    January 2009 (WP: 09/01) Multi-Product Exporters and Product Turnover Behaviour of New Zealand Exporters
    Publishing Date and Paper Number Policy Perspectives Papers 2008/09
    January 2009 (PP: 09/01) Spending Through the Tax System: Tax Expenditures
    Publishing Date and Paper Number Productivity Papers 2008/09
    January 2009 (TPRP: 09/01) International Connections and Productivity: Making Globalisation Work for New Zealand

    Legislation

    as at 30 June 2009

    Budget legislation administered by the Treasury during the year:

    • Appropriation Act(s)
    • Imprest Supply Act(s)

    Other legislation administered by the Treasury:

    • Bank of New Zealand Act 1988
    • Crown Entities Act 2004 (Part 4)
    • Crown Forests Assets Act 1989
    • Crown Research Institutes Act 1992
    • Export Guarantee Act 1964
    • Farm and Fishing Vessel Ownership Savings Schemes Closure Act 1998
    • Finance Acts (various)
    • Government Superannuation Fund Act 1956
    • Hawkes Bay Earthquake Act 1931
    • Institute of Chartered Accountants of New Zealand Act 1996
    • International Finance Agreements Act 1961
    • KiwiSaver Act 2006 (section 177 jointly with MED)
    • National Expenditure Adjustment Act 1932
    • National Provident Fund Restructuring Act 1990
    • New Zealand Council Planning Dissolution Act 1991
    • New Zealand Government Property Corporation Act 1953
    • New Zealand Railways Corporation Act 1981
    • New Zealand Railways Corporation Restructuring Act 1990
    • New Zealand Railways Staff Welfare Society Dissolution Act 1999
    • New Zealand Superannuation and Retirement Income Act 2001 (various provisions)
    • Overseas Investment Act 2005
    • Post Office Bank Act 1987
    • Public Audit Act 2001
    • Public Finance Act 1989
    • Radio New Zealand Act (No 2) 1995
    • Rural Banking and Finance Corporation of New Zealand Act 1989
    • Southland Electricity Act 1993
    • State Insurance Act 1990
    • State-Owned Enterprises Act 1986
    • State-Owned Enterprises (AgriQuality Limited and Asure New Zealand Limited) Act 2007
    • Superannuation Schemes Act 1989
    • Tourist Hotel Corporation of New Zealand Act 1989
    • Treasurer (Statutory References) Act 1997

    Delegated legislation administered by the Treasury:

    • Bank of New Zealand Order 1989
    • Cityline (NZ) Vesting Order 1992
    • Crown Entities (Financial Powers) Regulations 2005
    • Crown Entities (Financial Powers) Amendment Regulations 2006
    • Crown Research Institutes Act Commencement Order 1998
    • Export Guarantee Amendment Act Commencement Order 1990
    • Finance Act Order (various)
    • Government Superannuation Orders and Regulations (various)
    • Institute of Chartered Accountants of New Zealand Act Commencement Order 2002
    • International Finance Agreements Amendment Act Commencement Order 1978
    • International Finance Agreements Amendment Act Commencement Order 1993
    • New Zealand Superannuation (Political Commitment) Order 2003
    • New Zealand Superannuation (Political Commitment) Order 2004
    • National Provident Fund (Approval Restructuring Proposal) Order 1991
    • National Provident Fund (Approval of Amendments to Restructuring Proposal) Order 1993
    • National Savings Investment Account Regulations (various)
    • New Zealand Railways Corporation Restructuring Act Orders (various)
    • New Zealand Staff Welfare Society Dissolution Act Commencement Order 1999
    • Overseas Investment Act Commencement Order 2005
    • Overseas Investment Regulations 2005
    • Overseas Investment Amendment Regulations (various)
    • Post Office Bank Amendment Act Orders (various)
    • Public Audit (West Coast Development Trust) Order 2002
    • Public Finance Act Orders (various)
    • Public Finance (Departmental Guarantees and Indemnities) Regulations 2007
    • Rural Banking and Finance Corporation of New Zealand Act Commencement Order 1989
    • Social Security (Rates of Benefits and Allowances) Order (various)
    • Southland Electricity Act Commencement Order 1994
    • State Insurance Act (Vesting) Order 1990
    • State-Owned Enterprises Act Orders (various)
    • Tourist Hotel Corporation of New Zealand Act Commencement Order 1990
    • Tower Corporation Act Commencement Order 1990

    Monitoring of Crown Agencies

    The Treasury has sole monitoring responsibility for the following:

    • Earthquake Commission (EQC)
    • National Provident Fund (NPF)
    • New Zealand Superannuation Fund (NZSF)
    • Government Superannuation Fund (GSF)
    • Air New Zealand Ltd

    CCMAU has sole monitoring responsibility for the following:

    • New Zealand Lotteries Commission (Lotteries)
    • Pacific Forum Line Ltd (PFL)

    CCMAU has a lead monitoring role with support from the Treasury for the following:

    State-Owned Enterprises:

    • Airways Corporation of New Zealand Ltd (Airways)
    • Animal Control Products Ltd (ACP)
    • AsureQuality Ltd (AsureQuality)
    • Electricity Corporation of New Zealand Ltd (ECNZ) (the residual company)
    • Genesis Power Ltd (Genesis)
    • Kordia Group Ltd (Kordia)
    • Landcorp Farming Ltd (Landcorp)
    • Learning Media Ltd (LML)
    • Meridian Energy Ltd (Meridian)
    • Meteorological Service of New Zealand Ltd (MetService)
    • Mighty River Power Ltd (Mighty River Power)
    • New Zealand Post Ltd (NZ Post)
    • New Zealand Railways Corporation (KiwiRail Group)
    • Quotable Value Ltd (Quotable Value)
    • Solid Energy New Zealand Ltd (Solid Energy)
    • Timberlands West Coast Ltd (Timberlands)
    • Transpower New Zealand Ltd (Transpower)

    Other Crown companies:

    • New Zealand Fast Forward Fund Ltd (NZFF Fund)
    • New Zealand Venture Investment Fund Ltd (NZVIF)
    • Radio New Zealand Ltd (RNZ)
    • Research and Education Advanced Network New Zealand Ltd (REANNZ)
    • Television New Zealand Ltd (TVNZ)

    Crown Research Institutes:

    • AgResearch Ltd (AgResearch)
    • Industrial Research Ltd (IRL)
    • Institute of Environmental Science & Research Ltd (ESR)
    • Institute of Geological & Nuclear Sciences Ltd (GNS Science)
    • Landcare Research New Zealand Ltd (Landcare Research)
    • National Institute of Water & Atmospheric Research Ltd (NIWA)
    • New Zealand Forest Research Institute Ltd (Scion)
    • The New Zealand Institute for Plant & Food Research Ltd (Plant & Food Research)

    Other:

    • Christchurch International Airport Ltd (CIAL)
    • Dunedin International Airport Ltd (DIAL)
    • Invercargill Airport Ltd (IAL)

    Crown entity:

    • Public Trust (Public Trust)