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Annual report

Annual Report of the Treasury for the Year Ended 30 June 2008

Presented to the House of Representatives Pursuant to Section 39 of the Public Finance Act.

Previous annual reports are available from Archive of Annual Reports.

The Treasury

Chief Executive's Introduction

The 2007/08 year has been one in which the Treasury has extended itself on many levels.

In the provision of economic and financial advice to the Government, we have sought to increase our impact in several fundamental areas of our work, while also expanding our involvement into what, for the Treasury, are some relatively new areas.

In our Central Agency role, we have strengthened our collaboration with the State Services Commission (SSC) and the Department of the Prime Minister and Cabinet (DPMC) and intensified our focus on ways we can collectively improve State sector performance.

Across the Treasury, we have focused on building our relationships with stakeholders in the public, private and community sectors, using these connections to help us be a more informed, influential and effective organisation.

Highlights

The Treasury's advice and services over the past year covered our wide-ranging contribution to the Government's long-term economic and fiscal goals, as well as some more immediate responses to topical issues as they arose. While we have sought to ensure that our contribution was of high quality overall, a number of achievements stand out.

A particular highlight for the Treasury was our input into the Personal Tax Package in Budget 2008. The advice we provided was instrumental in helping the Minister determine the final size, shape and timing of the personal tax changes announced in the Budget. Our role in the delivery of the tax package was characterised not just by the hard work of staff in the months and weeks leading up to the Budget, but also by our longer-term advice and discussion of fiscal issues over recent years.

Another highlight has been our intensive analysis of New Zealand's productivity performance. The imperative for a much stronger trend of productivity going forward is the biggest economic challenge facing policy-makers and both the public and private sectors in New Zealand. During the year the Treasury took a long-term view about what matters for productivity and what New Zealanders can do to improve it. Through our analysis we identified five interlinked drivers of productivity – enterprise, innovation, skills, investment and natural resources – and published our work to help broaden public discussion on this important topic. Productivity remains a key area of focus for us.

With the pace and scale of Treaty of Waitangi settlements building over the past year, the Treasury has become more deeply involved in settlement processes. Working closely alongside the Office of Treaty Settlements and with other government agencies, the Treasury had a lead role from an early stage in the negotiations on the recent Central North Island forests collective settlement - the biggest Treaty settlement to date. We were brought in specifically to assist in working through the complex issues involved, and this has continued post the Central North Island forests collective settlement.

During 2007/08 we reached decisive conclusions about where our work over the next three to five years can have the most impact on achieving higher living standards for New Zealanders. Our four strategic results areas - international connections, long-term fiscal sustainability, natural resource management and skills - are areas where we aim to deliver a step-change in our performance as a strategic advisor to Government. I have been encouraged by the initial progress we have made on these strategic result areas to date, and will be expecting the Treasury to exemplify quality policy advice and thought leadership on these issues in the coming months and years.

The Treasury has also been considering how collectively the Central Agencies can have the most impact on the overall performance of the State sector. The Central Agencies have made a good start on several fronts. We have been working together to set clearer expectations of capability and performance for State sector leaders. There is greater cohesion in the way we engage with individual agencies, so that they receive more consistent and complementary input from us. We are jointly driving the six Development Goals for the State Services, which includes a goal focused on value for money. And we have used our collective strengths to address major cross-cutting issues such as housing affordability: during the year the Central Agencies worked with housing agencies to deliver a report to Ministers regarding the drivers of house prices to give the Government further hard evidence on which to make policy decisions. Over 2008/09 the Central Agencies will continue to focus on policy development, agency performance and public management systems.

An Outward-looking Treasury - Changing the Way we do Business

One of the transformations we seek to achieve is to be a much more outward-looking Treasury. Engaging and communicating widely with all sectors of New Zealand's economy is an important means for ensuring that the Treasury is a relevant and connected economic and financial policy advisor for the Government. It keeps us in touch with what is happening “on the ground” as well as in the data. While there is still some way to go until the Treasury is as outward-looking as we want to be at all levels of the organisation, we took considerable strides during 2007/08 and have started to see the benefits.

In particular, we have taken a stronger approach to communicating with stakeholders about the Treasury's position on matters of major significance. My own involvement over the past year has included speeches expressing the Treasury's views on topics ranging from climate change and fiscal policy choices to State sector performance, productivity performance and savings performance. Other Treasury staff are sharing the Treasury's thinking more widely by publishing papers, presenting at conferences and meeting people as part of their day-to-day work.

It is important for us to engage not just to deliver our thinking, but also to hear other people's ideas, and to develop and test our thinking. We have been engaging more across the public and private sectors to help us get a better understanding of what is wanted and needed in these areas. During the past year we have been meeting with leaders and influencers in business, academia and communities to get their feedback on the Treasury's work and to hear their views on the big issues affecting New Zealand.

The Year Ahead

We go into 2008/09 as an organisation well prepared to meet the challenges of the coming year and eager to make the most of opportunities to make a difference where it counts.

I would like to thank Treasury staff for their professionalism and commitment throughout the past 12 months and I look forward to the year ahead.

John Whitehead

Secretary to the Treasury

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
  • A stable and sustainable macroeconomic environment.

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

  • Economic role - concentrates on issues with regulatory or 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 with a significant fiscal focus - expensive policies and long-term trends, and financial management and standards (including financial probity issues).
  • Central Agency role - places more emphasis on helping the Government develop its overall strategy and manage significant issues that emerge.

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 contribution of New Zealand's collective skills base.
  • Internationalconnections - to achieve a sustained increase in the contribution of international connections to New Zealand's Gross Domestic Product (GDP).
  • Naturalresourcemanagement - to ensure the New Zealand economy uses natural resources sustainably and productively.
  • Long-term fiscal sustainability - to ensure decision-makers take action to meet 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, State-owned enterprises, 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 2007/08

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 six 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. The focus on results is also intended 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.

Treasury's outcomes.

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. New Zealand's primary economic challenge is to improve long-term productivity performance.

Overall, the New Zealand economy has performed well over the past decade, including in 2007/08, averaging 3.3% per annum growth in GDP since 2000. Compared to other benchmark economies, growth in real GDP per capita is still somewhat above average, although still not sufficient to have made appreciable inroads on our relatively low level of per-capita GDP, which remains around 14% below the OECD average.

Most of our growth (2.2% per annum) has come from increases in labour utilisation, with unemployment in 2007/08 dropping to its lowest level since the 1980s (3.6%). This “good news” masks a growing concern, however. Relatively little of New Zealand's economic growth has come from improvements in labour productivity (1.1% per annum since 2000). While our productivity growth was roughly on a par with Australia's over the 1990s, it has weakened since - partly due to the dampening effect of high employment growth.

New Zealand is a poor productivity performer by international standards. Given the limits to improving our labour utilisation further, New Zealand's future economic prosperity will increasingly depend on improving our productivity performance.

Improving long-term productivity performance will require sustained effort on multiple fronts. Recent Treasury work has highlighted policy challenges for New Zealand centring around five drivers of productivity: innovation, skills, enterprise, investment and natural resources. For a small open economy, international connections provide a key opportunity to improve performance across all of these drivers.

Increases in productivity come from investing in new capital, increasing skill levels, encouraging entrepreneurial activity and better natural resource management, and from using international connections to further each of those areas. Our strategic result areas were chosen to target these key drivers of productivity.

Monitoring Economic Performance

The key tool we use to monitor economic performance is the Economic Development Indicators report. The latest edition of this report was jointly published this year by the Treasury, Ministry of Economic Development and Statistics New Zealand (available at www.med.govt.nz/indicators). The Economic Development Indicators report provides a snapshot of New Zealand's overall economic performance relative to other OECD countries.[1] Key conclusions include:

  • overall, relatively low per-capita GDP but improving at a faster rate than the OECD average
  • relatively low labour productivity, improving at about the same rate as the OECD average
  • strong investment performance but relatively weak savings performance
  • high levels of innovation that are not fully reflected in productivity performance
  • relatively strong skills, but with apparent weaknesses in specific areas such as the “long tail” of low achievers.

This suggests a pattern of significant strengths in the New Zealand economy pocketed with areas in which we need to improve if we are to close the gap to other countries against which we benchmark ourselves.

Notes

  • [1]Page 7 of the Economic Development Indicators report. The report can be found at www.med.govt.nz/indicators

Overview of Progress in 2007/08

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

  • Developing a framework for public discussion and policy development on productivity issues.
  • In the internationalisation area, we contributed to the development of a Free Trade Agreement with China, the first such agreement that China has entered into, with significant economic benefits for New Zealand.
  • In the area of taxation policy, we provided high-quality comparative analysis of the merits of different options to assist the Government in formulating its personal tax package.
  • In the climate change area, we developed a conceptual framework to assist decision-making on international climate change issues, and led the development of the Emissions Trading Scheme.
  • In the innovation area, we contributed to the establishment of Fast Forward, a $700 million fund leveraging equal industry support and aimed at increasing innovation and investment in the food and pastoral industries.
RESULTS ACHIEVED IN 2007/08 (continued)
Overall result we are seeking The results we set for the year The results we achieved

Financial markets, investment and savings

   
The three- to five-year result we would like to see is for New Zealand to have efficient and effective regulatory settings for savings, investment and financial markets that give effect to government decisions, fit New Zealand circumstances and best support economic growth.

In 2007/08, we agreed to:

  • work with the Inland Revenue Department (IRD), Ministry of Economic Development (MED) and other agencies to achieve the effective implementation of government policies aimed at lifting the saving performance of New Zealanders
  • work with MED and others to advise the Government on policy changes to improve the development and performance of financial markets, and to implement any changes agreed by Government. 
  • Supported MED in organising the November 2007 Investment Forum held with private sector stakeholders, supported follow-up from the Forum (including the establishment of the Capital Markets Development Task Force), and with MED and the Reserve Bank of New Zealand (RBNZ), held a Capital Markets Development Workshop (to form links between academics in Australia and New Zealand and to consider areas for further development)
  • Contributed policy advice to Ministers, officials' briefings and submissions, stakeholder engagement and activities related to KiwiSaver implementation and evaluation
  • Provided advice, in some cases in conjunction with other departments, on financial system development and possible areas for further investigation, and published two policy perspectives papers in this area
  • Maintained progress on the Trans-Tasman Banking Council's work programme, focusing on achieving a seamless regulatory environment and cooperation on crisis management preparedness
  • Contributed to continued policy and legislative development of the regulatory framework for the non-bank sector as part of the Review of Financial Products and Providers
  • Led a cross-agency team set up to explore financial literacy

Competition and regulatory frameworks (includes labour market regulation)

   

The three- to five-year result we would like to see is effect given to government decisions and to work with Ministers and other agencies to ensure that competition and regulatory frameworks support a vibrant and dynamic business environment.  Regulatory regimes should be stable, consistent and predictable, giving investors and the public a high degree of confidence in the regulatory institutions, and should fit New Zealand's circumstances.

With respect to labour market performance, the three- to five-year result we would like to see is that New Zealand has efficient and effective labour market regulations that meet government objectives and best support economic growth.

In 2007/08, we agreed to:

  • contribute to the review of Parts IV and V of the Commerce Act 1986, with a focus on improving the transparency and predictability of the regime so that it supports innovation and investment
  • develop measures of performance of selected key sectors to assess whether the results achieved on the ground by regulatory frameworks are consistent with a high-performing economy - and to assess whether there is a need for policy change
  • continue to monitor developments in the labour market to ensure that outcomes are consistent with a high-performing economy.
  • Contributed substantially to the review of the Commerce Act 1986
  • Invested in better understanding New Zealand's key regulatory framework and making improvements to regulatory quality management system.  Along with MED,  we advised Government on options for improving the regulatory quality management system.  Ministers have consequently transferred the responsibility of coordinating this function to the Treasury for 2008/09
  • Commenced a wider piece of work examining what the elements of a high-performing regulatory management system might be
  • Provided advice (either as lead, or with other agencies) on and input into various policy issues including electricity market issues, the development of the National Policy Statement on Freshwater Management under the Resource Management Act (RMA), Fonterra’s capital restructuring and related competition and innovation issues, investment in broadband and Telecommunications Service Obligations (TSO) review
  • Provided advice to the Department of Labour and Ministers, in our second opinion capacity, on a range of regulatory proposals

Sustainable environment - including climate change

   

The three- to five-year result we would like to see is economic and environmental policy that promotes the sustainable management of New Zealand's natural resources in a way that allows resources to be put to their most productive use, and meets government decisions and environmental objectives at least economic cost.  As part of this, effective and predictable policies are needed to meet New Zealand's current climate change commitments, and help efficient adjustment to climate change to occur.

With respect to climate change in particular, the Treasury is working alongside other agencies to assist the Government in achieving maximisation of New Zealand's economic growth potential in an increasingly carbon constrained world.  Climate change is a complex policy issue with international and domestic dimensions.  It is important for the Treasury to prioritise and focus efforts where we will have the most impact.

In 2007/08, we agreed to:

  • continue to advise the Government on efficient and effective policies for addressing the causes of climate change, with a focus on broad market-based measures.  In doing this we would work with the Ministry for the Environment (MfE), MED and other agencies to ensure that policies to mitigate and adapt to climate change are consistent with a sustainable economy and environment.
  • Contributed to the development of the SSC-led review of the sustainability sector and to the work of the review itself
  • The Treasury developed its thinking on sustainability issues over 2007/08, culminating in the establishment of the Natural Resource Management strategic result area as a departmental priority.  This Natural Resource Management strategic result area was developed as a focus for 2008/09
  • The National Policy Statement on Freshwater Management incorporates key policy objectives recommended by the Treasury
  • The Treasury actively discussed the approach to policy relating to sustainability with relevant agencies, including MfE, Ministry of Agriculture (MAF) and MED
  • The Treasury contributed to the development of a common understanding among Central Agencies, and MfE itself, of the issues facing the Ministry, and what a well-performing Ministry would look like

Emissions trading

  • Hosted the Emissions Trading Group and seconded a number of staff into the group which developed emissions trading policy and legislation
  • Provided first and second opinion advice on a number of emissions trading and other domestic policy issues

International negotiations

  • Participated in a series of engagements with other agencies, including MfE and Ministry of Foreign Affairs and Trade (MFAT), in preparation for Bali negotiations
  • Attended the Bali negotiations and subsequently worked with other agencies to progress the Bali roadmap
  • Attended the Bonn negotiations and worked with other agencies to prepare for the Poznan negotiations

Kyoto liability

  • Calculated a carbon price for use in the Crown Financial Statements and contributed to reporting of New Zealand's Kyoto liability
  • Worked with MfE on strategic issues in respect of purchasing Kyoto credits

Skills

   

The three- to five-year result we would like to see in the area of skills is the implementation of government decisions, and improvements in outcomes from schooling, including lower rates of unqualified school leavers, more school leavers with at least NCEA Level 2 and improved transitions to further training and work.

To achieve this, regulatory, funding and governance systems in schools will need to work in tandem with professional practice and capability improvements.

The skills result is closely aligned to social mobility.  This was a new focus for the Treasury in 2007/08, and our three- to five-year result was to consider the link between issues related to social mobility and economic performance.

In 2007/08, we agreed to:

  • concentrate on outcomes at the secondary schooling level.  We had identified opportunities to work with the Ministry of Education (MOE) to improve student retention and achievement through policy change in the senior secondary school and transitions to employment, further training and tertiary education
  • define the importance of social mobility to economic growth.  Depending on the outcome of this work we would identify factors that impeded social mobility and the policy interventions to help overcome these.

Skills

  • In April, the Treasury released a paper on skills as part of a suite of papers on improving productivity.  The paper summarised current evidence on the relationship between skills and productivity and possible means to further improve New Zealand's skills base
  • Engaged in the development of the skills strategy and action plan

Reprioritisation

  • Completed an analysis of trends in education expenditure and student achievement

Realising youth potential

  • Worked closely with the MOE and other key agencies to provide advice on critical policy decisions to improve the retention and achievement of 15- to 19-year-olds in education and training

School property

  • Assisted the MOE to scope and commission a review of the financial management of school property
  • Provided regular progress reports on the review to joint Ministers

Final policy details for implementing the constrained tertiary baseline

  • Worked with education agencies on advice for Cabinet on detailed funding rules
  • Assessed relevance and performance of tertiary education system
  • Worked with education agencies on proposals for measuring the performance of the tertiary education system

Skills and Upskilling strategies

  • Engaged with other government agencies on both the Skills and Upskilling strategies

Social mobility

   
A new result area for the Treasury in 2007/08 is to consider the link between issues related to social mobility and economic performance.

In 2007/08, we agreed to:

  • define the importance of social mobility to economic growth.  Depending on the outcome of that work we would identify factors that impeded social mobility and the policy interventions to help overcome these.
  • Reported to Minister with assessment of social mobility from a growth perspective and a forward work programme
  • Ongoing social mobility research, engagement and policy analysis to be pursued as part of the Skills strategic result area

Taxation

   
The three- to five-year result we would like to see is for New Zealand to have efficient and effective tax policy settings that implement government decisions and raise required revenue in a way that minimises economic cost and best supports New Zealand's competitiveness, efficiency and economic performance.

In 2007/08, we agreed to:

  • work with IRD to support the introduction of the Government's business tax changes and any changes to the international tax regime
  • examine issues regarding the longer-term sustainability of the New Zealand tax system in light of international trends such as globalisation.
  • Provided advice on the 2008 Personal Tax Package
  • Working with IRD, completed:
    • implementation of business tax reforms
    • phase 1 of the tax simplification programme
    • issues paper on improving the neutrality of the GST rules
    • final package of proposals for phase 1 of the international tax review
    • policy development on life insurance taxation
    • policy development on stapled stock
    • rules for the taxation of general and limited partnerships for the purposes of facilitating private and venture capital in New Zealand
    • a review of the oil and gas tax rules
    • various tax base protection initiatives (eg, Associated Persons rules)
    • providing advice on double tax agreements with Australia, USA and Singapore
  • Provided input into Finance and Expenditure Committee (FEC) inquiry on monetary policy - housing tax issues
  • Provided advice on tax treatment of emissions trading units
  • Monitored the implementation of key government policies such as KiwiSaver and student loan administration
  • Monitored IRD Crown Revenue reporting in light of issues arising from the investigation into an error in tax revenue numbers

International economic relationships

   
The three- to five-year result we would like to see in international connections is twofold.  Firstly, we want domestic policy settings to give effect to government decisions and support international connections that are important for economic growth.  Secondly, in New Zealand's efforts to further our international connections, we want Ministers to have advice on policy priorities and efficient practical options to deepen the international connections most important for growth.

In 2007/08, we agreed to:

  • focus on encouraging those formulating domestic policy to apply a stronger “international” lens.  For example, the way we configure our domestic regulations will influence New Zealand's attractiveness as a destination for capital and skilled labour, and how easy it is for firms to move into exporting.
  • During the year we have focused on understanding which policy settings are most important from an international connections perspective and setting up the frameworks for future analysis and advice on using international connections to enhance economic growth
  • During the year we have continued to deepen our international connections by:
    • contributing to the negotiation of a Free Trade Agreement with China
    • ongoing active participation in Asia-Pacific Economic Cooperation (APEC) and East Asian Summit forums
    • successful Chairmanship of the APEC Economic Committee, including reorienting the Committee’s focus and making structural reform one of APEC’s key work streams
    • successful organisation of an APEC savings and annuities seminar in Singapore
  • Progressed single economic market issues with Australia and in particular obtained agreement in principle on pension portability between the two economies
  • Managed New Zealand’s interests in the World Bank, International Monetary Fund (IMF) and Asian Development Bank

Infrastructure, including: energy, telecommunications, transport

   

Over the next three to five years, the Treasury will undertake a variety of work related to infrastructure.  Sector-specific results, in addition to implementing government decisions, that the Treasury will help the Government to achieve are:

  • more effective planning, financing and allocation of land transport investment
  • a regulatory and institutional framework for telecommunications that meets government objectives and enhances the development of a dynamic sector.

In 2007/08, we agreed to:

  • focus on the institutional changes required to provide more effective planning, financing and allocation of roading investment, and continue to support the implementation of the Government's rail policy
  • support the implementation of government decisions to increase broadband uptake.
  • Provided advice on Vote Finance rail appropriations, and technical advice on the purchase of KiwiRail
  • Provided advice on upgrades to the Wellington rail system
  • Completed a report into progressing the Waterview Connection
  • Supported the Waterview Connection Procurement Steering Group investigation into progressing the Waterview Connection (as a private public partnership)
  • Completed review of the Public Sector Discount Rate, promulgating the results to Ministers, departments and the Treasury staff
  • Provided input into MED-led work (and direct advice to the Minister of Finance) on investment in broadband, and input into SSC-led work on public-sector-focused broadband demand aggregation initiatives
  • Provided advice on electricity market issues over the winter
  • Provided key advice on foreign ownership of infrastructure assets
  • Played an influential role in the design of the new Broadband Investment Fund, ensuring that it is consistent with international best practice and likely to promote strong future competition

Innovation

   
The three- to five-year result we would like to see is effective regulatory and institutional design to encourage research and development and firm investment in innovation in a way that efficiently supports economic growth and implements government decisions.

During 2007/08, we agreed to:

  • continue working with MED and the Ministry of Research, Science and Technology (MoRST) to advise the Government on policy options promoting more firm-led research and development activity supporting innovation in the economy.
  • Published policy perspectives paper on Innovation and Productivity
  • Provided ongoing advice on Crown Research Institute (CRI) ownership
  • Provided advice on international knowledge transfer options
  • Supported the six Innovation Chief Executive's group
  • Provided advice on design and set-up of the Fast Forward Fund, including funding and governance arrangements
  • Provided input to the evaluation of the Research and Development tax credit

Auckland's economic performance

     
The three- to five-year result we would like to see is increased confidence in the quality of infrastructure investment (including social infrastructure) in Auckland, to support the ongoing growth and development of Auckland as a world-class city and to help implement government decisions.

In 2007/08, we agreed to:

  • continue to work with Auckland authorities and other government agencies on issues related to Auckland's economic development, with a focus on ensuring that Auckland has an effective transport system.
  • Contributed to central government input into the development of One Plan for Auckland
  • Influenced the establishment and terms of reference of the Royal Commission on Auckland Governance

 

RESULTS ACHIEVED IN 2007/08 (continued)
Productivity

Note: The Treasury continues to measure and monitor economic growth and productivity, to inform our policy advice.  During 2007/08 some significant contributions to this area include papers and advice on New Zealand's recent productivity performance and, within this, changing patterns of labour composition.

Recognising the significant challenge in lifting New Zealand's productivity, this year the focus of our work has been on what drives productivity growth, and we intend to continue this focus in 2008/09.  To date, this focus has resulted in a series of policy perspectives papers on Putting Productivity First.  The series includes an overview paper and supporting papers on each of four key productivity drivers (skills, innovation, investment and enterprise).

Reflecting the change to our approach, and the actual focus of our effort, we report here on productivity rather than the broader area of measuring and monitoring economic growth which was outlined in the Statement of Intent 2007-2010.

 

RESULTS ACHIEVED IN 2007/08 (continued)
Overall result we are seeking The results we set for the year The results we achieved

Improving New Zealand's economic performance is a key focus of much of the Treasury's work, with productivity being a critical long-term driver.

Over the next three to five years, the Treasury's aim is to assist the Government in ensuring that there is a compelling agenda for key policy priorities to enhance New Zealand's productivity performance.  The Treasury works alongside other agencies, notably MED, to achieve these results.

During 2007/08, we agreed to:

  • focus on understanding what matters for productivity performance, working to ensure joined-up, effectively-conveyed advice to Ministers and on broader communications to inform the public debate in this area.
  • Published seven Policy Perspectives papers (launched with keynote speech by John Whitehead):
    • Putting Productivity First
    • Productivity Performance
    • Does Quality Matter in Labour Input? The Changing Pattern of Labour Composition in New Zealand
    • Investment, Productivity and the Cost of Capital: Understanding New Zealand’s “Capital Shallowness”
    • Enterprise and Productivity: Harnessing Competitive Forces
    • Innovation and Productivity: Using Bright Ideas to Work Smarter
    • Working Smarter: Driving Productivity Growth Through Skills

 

New Zealand Export Credit Office (NZECO)

Government approval of a wider range of products for NZECO has meant 2007/08 has been a year of expansion. The broader product range includes an expansion of the US surety bond guarantee, a contract bond guarantee and a working capital guarantee. Details of these products can be found on ECO's website www.nzeco.govt.nz

The expansion of the US surety bond guarantee has been implemented, and the other guarantees will be implemented early in 2008/09. ECO's staff also increased over to 2007/08 to administer these new products. ECO's deal activity in 2007/08 was far higher than in earlier years, due to the wider product range, higher staffing and investment in earlier years building up business relationships and informing potential clients about ECO's products.

Over 2007/08, the Treasury commissioned independent consultants to conduct a review of the organisational form of ECO. The consultants reported back to the Treasury in June 2008 and the Treasury will be advising Ministers on the future organisational form of NZECO early in 2008/09.

Key NZECO Performance Targets for 2007/08 Relating to Increased Exports Through Direct Provision of NZECO Products
Objective Criteria Actual 2007/08
All Products:    
Direct contact (face-to-face meetings) with exporters, financiers, industry
groups and marketing-related contacts with government agencies
230 174
Medium to Long-term Trade Credit Insurance:    
Number of indications[2] 36 26
Value of export transactions being considered for support
(aka value of indications)
NZ$330 million[3] NZ$185 million
Number of applications 12 4
Number of policies 10 8
New exposure NZ$76.7 million NZ$26.4 million
Number of assists[4] 4 0
Contract Bonds: US Bonding Support:    
Number of indications 5 11
Number of applications 3 11
Number of policies 2 0
New exposure NZ$15 million 0

Notes

  • [2]An “indication” is a transaction that is being actively pursued by the exporter and where negotiations are active and ongoing with the buyer.
  • [3]Based on average transaction size of $3.4 million for Financing Guarantees and Supplier Credits, and average transaction size of NZ$22.9 million for a buyer credit. The mix of transactions assumed is, of the 48 indications, 39 are a combination of Financing Guarantees and Supplier Credits and nine are Buyer Credits.
  • [4]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 MacroeconomicEnvironment

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 2007/08

Macroeconomic conditions were particularly challenging in 2007/08. This was primarily due to volatile international economic and financial market conditions, stemming initially from a meltdown of the US sub-prime mortgage market, and a sharp rise in international oil, food and other commodity prices that led to a marked rise in global inflation. These forces 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 slowed sharply in the first half of 2008. The current account deficit reduced broadly in line with expectations. However, inflation pressures have turned out to be higher and as a result monetary policy has continued to be restrictive. This environment formed the backdrop for the Treasury's advice on fiscal policy for Budget 2008. The Treasury provided macro and fiscal policy advice that took account of the extra uncertainty, and advice on decisions that would be consistent with the Government's long-term fiscal objectives, while also supporting macrostability. During the year, the IMF endorsed the past operation of fiscal policy and emphasised New Zealand is in a very strong position to let automatic stabilisers work in the event of a slowdown or to use fiscal policy more actively if a more severe slowdown were to occur.

A combination of a continuing high exchange rate and tight monetary conditions has seen continued questioning of some of the macroeconomic “rules of the game”, as well as the manner in which macroeconomic policy is operated, including the interaction of monetary and fiscal policy. The Treasury has played a key role in supporting and providing advice to the FEC inquiry set up to investigate the monetary policy framework.

In making fiscal policy decisions and setting a fiscal strategy the Government should consider how a sustainable fiscal position can be attained in the long term. Financial assets have continued to build in the New Zealand Superannuation Fund that helps prefund some of the fiscal pressures that will emerge as New Zealand's population starts to age. It is desirable that governments look to moderate spending growth across various areas of government to address long-term fiscal challenges. In this regard, the Treasury has been working with the Ministry of Health (MOH) and relevant Ministers to identify how health spending can be put on a more sustainable track without compromising the standard of health services. Looking forward the Treasury will assess the scope for addressing other areas of government spending and taxes in order to meet long-term fiscal challenges.

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, economic growth slowed markedly in the first half of 2008. This should be seen in the context of an economy that has had the longest period of economic growth since World War II. Inflation has remained above the Reserve Bank's target range of 1% to 3%, largely as a result of rising oil and food prices.

Despite the more difficult economic conditions, the Treasury's forecast performance improved over the year. Forecast variances for GDP and the Consumer Price Index (CPI) are smaller for the 2007/08 March year than historically. For tax revenue, the errors in Half Year Economic and Fiscal Update (HYEFU) 2007 and Budget Economic and Fiscal Update (BEFU) 2008 forecasts were lower than over the historic 1994 to 2007 period.

The fiscal position has remained strong and the Government looks on track to meet its long-term fiscal objective of maintaining debt at around 20% of GDP while continuing to make contributions to the New Zealand Superannuation Fund to help prepare for longer-term fiscal challenges.

Results Achieved in 2007/08
Overall result we are seeking The results we set for the year The results we achieved

Macroeconomic stability

   
A key focus over the next three to five years is on the existing macroeconomic imbalances, ensuring that the frameworks and tools available are the best possible for managing the required adjustment of these imbalances.

In 2007/08, we agreed to:

  • provide Ministers with advice that supports them in dealing with the current imbalances in the context of domestic and international forces impacting on macroeconomic developments
  • further deepen our understanding of the relationship between current imbalances and macroeconomic frameworks, and investigate any further viable options as appropriate.
  • Provided support to the FEC inquiry into the monetary policy framework
  • Built macroeconomic policy considerations into fiscal policy advice for Budget 2008
  • Provided regular briefing and analysis of external financial market turmoil
  • Organised and hosted the IMF Article IV visit to New Zealand, and oversaw finalisation and publication of the IMF's Article IV report on New Zealand
  • Provided macro and fiscal input into the annual visits of Moody's and Standard & Poor’s rating agencies which saw New Zealand’s sovereign ratings remain unchanged
  • Organised and hosted a joint Treasury/ Reserve Bank workshop “The business cycle, housing and role of policy” following on from the 2006 Macroeconomic Policy forum

Long-term fiscal policy

   
Over the next three to five years, the Treasury will provide advice that helps the Government to make further progress towards its long-term fiscal objectives, as well as ensuring that fiscal policy appropriately contributes to macrostability.  This includes advising Ministers on managing cyclical fluctuations and structural changes in the fiscal position.

In 2007/08, we agreed to:

  • advise Ministers on short- and medium-term fiscal policy settings
  • promote understanding of long-term fiscal issues among the public, Vote teams within the Treasury and policy teams within the broader public sector
  • support the development of options for managing long-term fiscal challenges, including in healthcare.

A particular focus in 2007/08 was on the sustainability of health spending and related policies.

  • Undertook engagements on long-term fiscal challenges with policy teams in the MOE, Tertiary Education Commission (TEC), IRD and MOH
  • The Treasury has worked with the the MOH on the long-term sustainability of health expenditure.  We appear to be gaining traction with promoting interest in the impact of an ageing population on the long-term sustainability of funding on the health sector.  The Treasury has received requests for presentations on these matters from other government agencies
  • Completed a survey of international approaches to long-term fiscal projections, which identified lessons for representing New Zealand's long-term fiscal position

Fiscal policy and strategy

   
Over the next three to five years, the Treasury's goal is to achieve fiscal decisions consistent with a strong fiscal position being maintained over the medium term, while contributing to macroeconomic stability and growth.

In 2007/08, we agreed to:

  • advise Ministers on short- and medium-term fiscal policy settings
  • promote understanding of long-term fiscal issues among the public, Vote teams within the Treasury and policy teams within the broader public sector
  • support the development of options for managing long-term fiscal challenges, including in healthcare.
  • Provided advice on the specification of the Government's debt objective
  • Published the 2007 Fiscal Strategy Report and Budget Speech
  • Provided fiscal and macro policy advice on Budget 2008 and the tax package.  Budget 2008 decisions were consistent with long-term fiscal objectives, while also supporting macrostability
  • The IMF endorsed the past operation of fiscal policy and emphasised New Zealand is in a very strong position to let automatic stabilisers work in the event of a slowdown or to use fiscal policy more actively if a more severe slowdown were to occur

Budget

   
Over the next three to five years, the Treasury's high-level results are that Budget decisions deliver better State sector performance, are consistent with meeting the Government's fiscal strategy and take account of short-term macro economic stability.  Budget management contributes to economic, macroeconomic performance and performance of the State sector.

In 2007/08, we agreed to:

  • ensure funding decisions were more explicitly linked to a clear set of government theme objectives
  • better understand baseline expenditure and performance information, ensuring baseline funding is focused on key performance priorities for Ministers.
  • Managed the Budget process for 2008
  • Provided advice to the Minister of Finance and Cabinet on the Budget strategy, including the theme packages, the capital package, the overall Budget and the fiscal and economic backdrop for the Budget and the options for managing Budget pressures
  • Completed the development and automation of the revised accountability documents, resulting from the formal Review of Accountability Documents (RoADs).  This included reshaping the Estimates documentation to provide better information to Ministers on actual vs forecast performance

Fiscal reporting

   
Over the next three to five years, Treasury's goal is to ensure that our key stakeholders find this reporting illuminates the Crown's actual and prospective fiscal performance and its impact on the economy.

In 2007/08, we agreed to:

  • maintain the quality of the Government's financial statements as New Zealand moves to implement the International Financial Reporting Standards (IFRS), while clearly communicating Crown financial performance.
  • Prepared Financial Statements of Government and Fiscal Forecasts in line with statutory requirements
  • Provided advice on accounting policy issues and representation on accounting standard setting boards
  • Made good progress on the preparation for the first NZ IFRS Financial Statements of Government in October 2008, including the establishment of opening balance sheets and other comparatives, and the development of NZ IFRS-compliant systems and processes
  • Made improvements to reporting formats and commentaries - reports in the media reflect a good level of understanding of fiscal indicators and the fiscal strategy

Forecasting

   

Our goal over the next three to five years is that key stakeholders, including the Minister of Finance, accept the Treasury's tax, expenditure and macroeconomic forecasts as the best possible for the decisions they need to make. 

In some areas of forecasting, particularly tax forecasting, the current pattern of forecast errors makes effective planning and Budget decision-making more difficult for the Government.  We need to improve the quality of our forecasts, and our communication of those forecasts.

In 2007/08, we agreed to:

  • improve the accuracy of our forecasts relative to previous performance
  • provide a coherent and integrated “story” derived from the forecasts that is easily accessible and readily applicable to the needs of stakeholders such as the Minister of Finance.
  • Forecast variances for GDP and the CPI are smaller for the 2007/08 March year than historically
  • For tax revenue, the variances in HYEFU 2007 and BEFU 2008 forecasts were lower than over the historic 1994 to 2007 period
  • 2007/08 tax receipts variances are overall smaller than historic levels for the last four forecasts
  • 2007/08 receipts and revenue are still subject to final auditing
  • Monthly Economic Indicator and Weekly Update reports have been provided to Ministers, and provided an integrated explanation of economic developments
  • Economic and Fiscal Forecasts have been provided in the HYEFU 2007 and BEFU 2008 updates, which provided overall commentary

Measuring Progress - Crown Debt and Related Financial Asset Management

New Zealand Debt Management Office's (NZDMO) 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 2007/08 was to continue managing the shift from predominantly debt management to a mix of debt and asset management, with foreign-currency hedging playing an increasingly important role in our business.

Reflecting the importance of NZDMO's growing asset portfolio, in 2007/08 we focused on improving our risk management practices and portfolio composition. See pages 38 and 39 for NZDMO's significant results for 2007/08.

The Treasury measures the performance of NZDMO in managing the Crown's debt, associated financial assets and overall net cash flows. Performance measures have been developed to assess the amount of return (value added) and risk incurred by these portfolios, as well as the cost per cash flow transaction settled. The value-added figure is derived from NZDMO's management reporting, which is calculated on a different basis from the financial statement reporting. 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 results areas over time. The trends demonstrate that while value added has increased, largely as a result of the strong fiscal position and improvements in the Crown's borrowing costs, risk has been maintained at a low level. 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.

The value-added result generated for the Crown has increased significantly over recent years owing to a combination of factors:

  • the Government's strong fiscal position providing opportunities to undertake increased cash management (or investment activity) and a decrease in the Government's cost of funds (as measured by widening swap spreads)
  • substantially increased foreign exchange risk management activity stemming from a greater number of Crown clients and the execution of flows arising from these relationships.

Market risk

Monthly VaR
Monthly VaR.

NZDMO measures market risk (interest rate and foreign exchange rate risk) using a statistical model, Value at Risk (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.  As indicated by the movement of VaR over the past four years, the market risk that NZDMO has taken on is well below this limit and has been decreasing over time.  Even though market conditions in the past year have been more volatile than the preceding year, the estimated VaR figures have continued to decrease.  This can be attributed to changes in NZDMO portfolio composition and improved risk reduction practices.

Input cost per transaction

Annual cost per cash flow settled
Annual cost per cash flow settled.

Changes to the overhead cost allocation and reporting format of the Treasury Budget information mean it is no longer possible to continue calculating NZDMO's cost per transaction on a basis consistent with previous years.  A new methodology will be developed in 2008/09.  As an interim measure, we have measured cost per transaction on an input basis for 2007/08, and have provided equivalent figures for 2006/07 for comparative purposes.  Cost per transaction continues to decline, primarily as a result of systems improvements, the closure of some borrowing facilities and changes in the composition of staff.

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 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.

We have chosen to focus initially on performance in the fiscally significant areas - eg, 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.

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.

Overview of Progress in 2007/08

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.

We identified the following as priorities for 2007/08:

  • In-depth analysis on areas that are fiscally or financially significant (eg, health and education) and on government agencies that made a key contribution to the growth outcome (eg, working with MfE).
  • Developing the Treasury's internal capability and frameworks to deliver space for our priority areas by streamlining our analysis in other areas of our work.
  • Agreeing a common framework for improving capital and asset management in the State sector and applying that framework to capital-intensive areas (eg, defence).
  • Developing a shared framework with Central Agencies for providing advice to Ministers on State sector remuneration.

We have made good progress in developing baseline performance information on key areas and agencies and have been able to use that information both in terms of shorter-term decision-making (eg, influential advice to Ministers on Budget initiatives in the context of a tight fiscal situation) and in a longer-term context (eg, helping create a debate with the health sector over long-term fiscal challenges). The in-depth performance analyses in the justice, health and education sectors and the benefit system were completed and the findings were reported to Ministers. We are now better placed to understand the drivers of performance - in priority areas, and more broadly - and what we need to do to influence them. We have a broader set of indicators of success in most areas although measuring our impact remains a challenge.

We have in place good systems and processes to manage policy and Vote analysis in areas that are not in our priority areas. We effectively managed our input into the Budget process across all our Vote responsibilities to the satisfaction of Ministers.

Cabinet agreed a new capital management approach and this is being implemented progressively across the public sector, starting with capital-intensive agencies. Over time, this should ensure better value from the capital asset base, in particular new capital investments. There should be fewer fiscal and operational “surprises”, more reliable fiscal projections, a more sustainable asset base and, over time, improved service delivery.

The budget parameters for major industrial relations and remuneration risks are informed and moderated by the Government's fiscal strategy, other spending priorities and labour market conditions. The Treasury, together with other Central Agencies, are providing Ministers with appropriate over-arching messaging and risk mitigation strategies for managing industrial relations and remuneration risks.

We have been responsive to changing priorities through the year and have reallocated resources to meet ministerial objectives. This was most noticeable in the Treaty area, and we have contributed to a number of Central Agency processes and initiatives. We have also made significant contributions to projects that have links to outcomes broader than that of State sector performance, including:

  • The Treasury has contributed to the Government's Treaty-related work, in particular leading work on the deed of settlement with the Central North Island iwi collective.
  • The Treasury has actively contributed to cross-agency advice to Ministers on a package of proposals to progress the Government's Schools Plus agenda.
  • The Treasury played a significant role in a multi-agency team drawn together to analyse housing market issues, in particular around affordability, and possible policy implications.

In the Statement of Intent 2007-2010 we highlighted how our effectiveness at creating opportunities to provide advice to Ministers that reflects the wider long-term fiscal challenges was an important measure of our success. During the 2007/08 year, our in-depth performance analyses of the justice, health and education sectors, and also regarding the benefit system, provided such opportunities. In particular, with these fiscally significant sectors, ensuring that Ministers understand the long-term implications of their decisions, and the trade-offs associated with their choices, makes an important contribution to the outcomes we can achieve. Similarly, the new capital asset management approach which was agreed during the course of the year, supports and encourages a longer-term perspective to investment and portfolio management decisions.

Results Achieved in 2007/08
Overall result we are seeking The results we set for the year The results we achieved

In-depth performance analysis - priority areas that are fiscally or financially significant

   
Over the next three to five years the result we are looking for is that the Treasury undertakes in-depth performance analysis in priority policy areas that are fiscally or financially significant.  In particular, we will focus on assessing and advising on improving the value for money of expenditure in priority areas of health, education, maintaining the revenue base, the benefit system and roading/transport.  These areas have been identified because they have the most pervasive impact on the long-term fiscal position. 

In 2007/08, we agreed to:

  • work to ensure that health decision-makers take into account the long-term fiscal impacts of their current actions on policy and fiscal outcomes, and that their actions are informed by robust cost-effectiveness analysis.
  • Reported to the Minister of Finance on value-for-money and reprioritisation options, and budget setting parameters for Vote Health
  • Analysed drivers and trends in health expenditure, including LT models, as support for fiscal and budget advice
  • Engaged with MOH on performance and policy issues for the health sector
  • Delivered several presentations to sector groups on long-term expenditure challenges in health
 

In 2007/08, we agreed to:

  • work to ensure that education decision-makers take into account the long-term fiscal impacts of their current actions on policy and fiscal outcomes, and that their actions are informed by robust cost-effectiveness analysis.
  • This result is covered under the Economic Performance Outcome section
 

In 2007/08, we agreed to:

  • work to ensure that government expenditure on the benefit system provides value for money and is fiscally sustainable.
  • Reported to the Minister of Finance on value-for-money and reprioritisation options in the benefit system and engaged with MSD on its value-for-money exercise that includes work to identify the effectiveness of interventions
  • Developed an agreed improvement path for Vote Social Development performance information
  • Jointly reported to Ministers on a proposed response to the Retirement Commissioner's 2007 Review of Retirement Income Policy that will consider both the long-term costs of ageing and the effects of ageing on areas such as healthcare and the labour market
 

In 2007/08, we agreed to:

  • work, with the Ministry of Transport, to facilitate the smooth implementation of structural changes in the transport sector, including identification of indicators for monitoring ongoing performance of the sector.
  • The Land Transport Management Amendment Bill was introduced and passed.  This Bill establishes a new funding and planning system for land transport and a new Crown entity.  It is the culmination of the “next steps” review of the land transport sector, in which the Treasury was closely involved
  • Contributed to work relating to the commissioning of the Establishment Board for a new transport agency
  • Provided advice on foreign ownership of infrastructure assets
  • Setup the Waterview Procurement project

In-depth performance analysis - priority government agencies that make a key contribution to the growth outcome

   

Over the next three to five years the result we are looking for is that the Treasury undertakes in-depth performance analysis on priority government agencies that make a key contribution to the growth outcome - focusing on assessing and advising on the performance of agencies operating in areas most important for improving economic growth, and where we can make the greatest immediate gains.  The areas of focus are competition, climate change and skills.

 

In 2007/08, we agreed to:

  • work with MfE and other central agencies to review MfE's capability, with a view to improving the quality of policy related to climate change.
  • Contributed to the development of the SSC-led review of the sustainability sector and to the work of the review itself
  • The Treasury has actively discussed the approach to policy relating to sustainability with MfE, resulting in a useful increased understanding of policy issues by both agencies
  • The Treasury contributed to the development of a common understanding among Central Agencies, and MfE itself, of the issues facing the Ministry, and what a well-performing Ministry would look like
  • Engaged with SSC on key issues facing the new Chief Executive of MfE
 

In 2007/08, we agreed to:

  • work with MED on the frameworks for monitoring the performance of regulators, to ensure these adequately take into account competition and regulatory outcomes.
  • This result is covered under the Economic Performance Outcome section

Improving State sector capital and asset management

   
Over the next three to five years we will achieve measurable value-for-money gains both from the operation of existing assets and from new investments, and build stakeholder confidence in the current and future performance of the Crown's physical assets.  To achieve this, the Treasury will adopt a central leadership role - developing, promulgating and maintaining a proposed new framework for State sector capital and asset management, and monitoring and reporting on asset management performance in departments and Crown entities.

In 2007/08, we agreed to:

  • ensure agreement is reached between Central Agencies and other stakeholders on a common framework for improving capital and asset management in the State sector.  We would apply this framework in the asset-rich areas of justice, police, corrections and defence.

Capital Asset Management (CAM)

  • Achieved Cabinet approval for the key policy changes designed to strengthen CAM in the State sector
  • Secured the commitment of 15 capital-intensive agencies and sectors to a three-year implementation plan to achieve advanced CAM standards

Justice sector CAM

  • Engaged with the Department of Corrections and provided advice regarding the development of the capacity management model and Mt Eden development proposals
  • Engaged with the Ministry of Justice and provided advice regarding capital development of Auckland Courts
  • Provided advice to police on the Terms of Reference and consultancies in relation to the development of its Investment Model

Defence sector CAM

  • Provided advice (including quantifying fiscal risk) on long-term development plan and major projects
  • Ongoing assessment and review of the level of CAM capability within the defence sector

Tertiary sector CAM

  • Worked with education agencies on a proposed new capital pool for tertiary institutions
  • Worked with the TEC on a number of tertiary education institution capital bids

Streamlined analysis

   
To improve the efficiency of our work and allow a greater focus of resource on priority areas, the Treasury's efforts in other areas will be streamlined.  This means that, over the next three to five years, we will maintain an informed overview of streamlined areas to foresee and appropriately manage emerging fiscal, economic and policy risks.  Our level of engagement will reflect the level of risk involved.

In 2007/08, we agreed to:

  • develop the Treasury's internal capability and frameworks to deliver streamlined analysis in relevant areas with respect to fiscal management, policy analysis, financial management and probity, and State-owned enterprises (SOEs).

 

Responsiveness

  • Over the course of the year we started to embed systems that allowed us to tailor advice to reflect the significance of financial, economic and probity issues.  Substantive engagement and advice occurred on significant issues.  Various requests deemed low value were only proceeded with in instances where key stakeholders confirmed the request was high priority
  • Performance focus sessions were established to help build staff capability and help ensure consistency of decision-making across the Treasury
  • Adjusted portfolio of streamlined votes to reflect changes in risks and/or priority

Supporting financial management cycle

  • Processed 100% of October Baseline Update transactions to the required technical standard within the required timeframe
  • Completed analysis of Budget bids on time and supported the fiscal strategy overall.  Feedback from bilateral meetings is that the support provided from the Treasury ranged from very good (majority) to requiring improvement
  • Provided advice on marginal bids for the finalisation of the Budget and ensured 100% of decisions included into Budget forecasts
  • Supported updating of fiscal forecasts to the required technical standard within the required timeframes throughout the year

State sector remuneration and management

   

State sector wages represent a large proportion of the Government's total expenditure and are an important lever for supporting the Government's fiscal and economic strategies.

Over the next three to five years, the Treasury will work with Central Agencies to take a consistent and coordinated approach to addressing State sector remuneration pressures, based on a sound understanding of State sector labour market dynamics.  The overall aim is to ensure a strong correlation between the overall rate of State sector wage growth and associated productivity increases.

In 2007/08, we agreed to:

  • develop a shared framework with Central Agencies for providing advice to Ministers on State sector remuneration pressures.
  • Developed and applied a common framework for assessing remuneration pressures in the context of Budget 2008
  • Provided advice to Ministers on remuneration pressures as and when required
  • Provided quarterly reports to Ministers providing strategic overview of labour market context, emerging State sector wage pressures and messages to assist in the management of these
 

In 2007/08, we agreed to:

  • work on sector-specific issues to develop and maintain an “infrastructure for performance management” across the State sector
  • focus on improving the performance of Crown entities, given the significant contribution they make to the achievement of the Government's key objectives and priorities.
  • Completed restructure and reformat of the Budget and related accountability documents, in particular, SOIs and the Estimates, so that they are more concise, accessible and relevant, and better meet the needs of key users
  • Provided technical guidance, samples and templates to assist departments and entities to produce the revised documents for Budget 2008
  • Introduced six-monthly reporting to Cabinet on Crown entity performance

 

Central Agency Leadership

A high performing, trusted and accessible State sector, delivering the right things in the right way at the right prices.

Central Agencies (Department of the Prime Minister and Cabinet (DPMC); the Treasury; and State Services Commission (SSC)) share a mutual interest in a high-performing, trusted and accessible State sector. Central Agencies have a key leadership role to play in aligning the activities of the State services with Government's priorities and ensuring Ministers receive the best possible advice before making decisions.

An independent in-depth review of the Central Agencies was completed in 2006. While the review pointed to successes, Ministers agreed they needed more from Central Agencies, both jointly and separately, if Central Agencies were going to lift State sector performance.

To improve State sector performance, Central Agencies must:

  • provide effective leadership
  • focus on the things that matter
  • work together more effectively.

In 2007/08 the Central Agencies worked together in a number of areas including:

  • Cross-government policy issues - Central Agencies provided leadership and support to progress complex issues where the Government expected significant shifts in outcomes. These issues often cross agency and sector boundaries. For example:
    • Schools Plus - Collectively working in support of the MOE to align government agencies around delivering the Government's Schools Plus programme.
    • Effective Interventions - Continuing to work with and in support of the justice sector agencies to prepare improved outcomes from the criminal justice sector.
  • State services systems improvement - Central Agencies worked together to improve systems that would significantly assist the Government to deliver on priorities. For example:
    • Implementation of the Crown Entity Work Programme. This was a joint initiative to assist monitoring departments to improve their advice to Ministers through networking, identifying best practice and introducing a new Crown entities report for Ministers.
    • Collaborative development and implementation of “Election-year guidance for State servants”.
    • Shared Central Agency leadership of the State Services Development Goals. The Development Goals are a transformation agenda for the State service.
  • Central Agency organisational improvements - Each Central Agency is better aligned in their internal processes to more effectively carry out the shared Central Agency role. For example:
    • SSC and DPMC providing advice to the Treasury to inform their advice to the Minister of Finance on Budget initiatives.
    • The Treasury and DPMC working with SSC on advice to the Commissioner about the specific organisational requirements prior to appointment of new chief executives.
    • The Treasury and SSC working with DPMC to ensure the effort of government agencies is well aligned around the Government's policy priorities.
  • All three agencies inducting new staff together, opening up information systems, sharing staff and developing more integrated systems.

Feedback

Independent feedback was sought from stakeholders, in June-August 2008, to assess progress on the Central Agencies' joint leadership role. Interviews were held with Central Agency Ministers and 10 State sector chief executives and/or deputies.

Ministers

Ministers reported a satisfactory level of engagement, in line with and appropriate to their roles. Ministers noted that there had been some good attempts at developing a shared view of priority issues for improving State sector performance and examples of coordination and cooperation. However, Ministers thought there was still room for improvement.

State Sector Leaders

State sector leaders believed Central Agency leadership had improved over the last year. Historically, the Central Agencies did not have a shared view of performance, which meant other agencies received mixed messages. Respondents agreed that a lot of work had been done in this area and improvements have been made. This has led to an appetite for more collective alignment between the Central Agencies. Activities receiving positive comments include the State Services Development Goals, Lominger competency framework, public surveys, Value for Money and developing a shared view of performance. Most respondents (chief executives) felt that the Central Agencies support their agency to achieve the Government's objectives. They also felt the Central Agency link to senior Ministers is useful.

Respondents also felt there was still room for improvement. While there is some coordination, it doesn't always translate into a shared view, particularly around things like Statements of Intent and the Budget. State sector agencies are asking Central Agencies for more clarity on how the Central Agencies, collectively, will continue to add value to the wider State sector.

Organisational Development and Capability

The Stepping Up change programme was first launched in November 2006. It was a fundamental look at our strategic direction, and how we organise ourselves, how we operate and the systems and processes we needed to deliver on that strategic direction. Initial changes under this programme involved aligning the organisational structure and reporting lines with our short- and medium-term objectives. In tandem, “soft” changes were made to foster “stepped-up” performance, including lifting the strategic focus of the strategic leadership team, recasting our outputs and outcomes with a focus on results and impacts and taking a more proactive approach to engaging with stakeholders and customers.

During 2007/08 we continued implementing changes under Stepping Up, focusing particularly on building buy-in across the Treasury, and establishing and embedding the new systems and information flows that are necessary to support enhanced organisational performance. In particular, we targeted change in four key areas: external engagement, quality, management and leadership and strategic policy leadership. Having a champion to build and maintain the momentum of change was important, and a member of the senior leadership team role was assigned to each focus area.

The collective buy-in of staff and management is an integral part of the success of the Stepping Up programme. To establish wider support, senior leaders increased their visibility through a variety of fora to ensure effective two-way communication about the new strategic direction. Among other things, this included regular staff briefings, newsletters and informal brown bag lunches. Underpinning this we also invested in developing the management and leadership skills that are necessary to support a step-change in our management and leadership over the next year.

In 2007/08 we focused on improving our ability to align capability and resources with business requirements and strategic priorities. This focus relies on effective flows of relevant and timely information and effective and timely decision-making to ensure that any skill gaps, or any misalignment between resource levels and priorities, can be promptly identified and resolved.

We have continued our focus on being an employer of choice by ensuring our work environment, culture, policies and procedures are fair and equitable. This year the Treasury completed its Pay and Employment Equity Review, resulting in a small number of areas for improvement. Work to address these is underway and will continue over the coming year.

We commenced a review of the structure, form and function of our organisational performance group and, based on the findings of that review, changes will be implemented in 2008/09.

Leadership and Management Development

The Treasury invested significant effort to create developmental strategies designed to lift management and leadership capability. A number of programmes were created to support managers to develop in specific skills, such as improving staff engagement. Six managers participated in a generic management development programme (the Diploma in Frontline Management with NZIM). A number of other developmental strategies, not limited to just training workshops, will be developed in 2008/09 to augment the programmes that were created this year.

During 2007/08 we began rolling out the Lominger competency framework, starting with the development of role profiles for deputy secretaries and assistant secretaries. These role profiles will be used as a basis for assessing our performance over time. Senior managers received 360° feedback based on their performance relative to these competencies as a mechanism for establishing individual development plans. The 360° feedback process is being further cascaded to managers in 2008/09.

Embedding a Results Focus

We maintained our focus on results throughout the year with regular updates to senior management on key successes, challenges and the implications these had for our financial management and resource capability. A six-month review provided the opportunity to ensure that budgets and people were well-aligned to achieve our results. The results focus, and the behaviours and competencies we want to encourage as part of Stepping Up, were also integrated into the Treasury's performance management system.

In anticipation of the 2008/09 financial year, we refreshed our result plans. Reviewing and defining our results for each year is essential if we are to be clear on how we can add the most value and how we should prioritise our efforts to achieve the greatest effect. This year the process resulted in a much sharper focus on a smaller number of strategically important results; from over 20 priority results in 2007/08 to four strategic result areas for the next three to five years. These strategic result areas are: international connections, skills, natural resource management and long-term fiscal sustainability. These represent a subset of areas where the Treasury can and must have a bigger impact.

A Stronger Focus on the Needs of our Customers and Managing Stakeholders Relationships

The Treasury maintains a close relationship with the Minister of Finance (and Associate Ministers); meeting regularly and seeking feedback, formally and informally, throughout the year to ensure we meet their needs. Regular meetings are also held with ministerial office staff.

Maintaining effective relationships with other government and private sector stakeholders is essential given the Treasury's role. Our external engagement programme this year included attendance at a range of business and public sector events, informal discussions with business and voluntary sector stakeholders, and speaking at events on important issues such as climate change and savings. In addition, as noted in the secretary's introduction, John Whitehead has delivered speeches on key issues such as the long-term fiscal strategy, public sector performance and productivity.

This year we also engaged with a number of public and private sector stakeholders as we developed the strategic result areas. Seeking an external perspective on major issues facing the economy was a key part of the development and testing of our strategic result areas. The secretary, deputy secretaries and assistant secretaries met with a range of business people, public leaders and other prominent thinkers to gain a better understanding of the issues they see as most important for New Zealand, and their expectations of the Treasury’s focus in that context. This directly supports our objective of improving our external engagement and enhancing the Treasury’s relationship with key stakeholders in the public and private sectors. More broadly, engaging with external stakeholders in this way is an important part of our Stepping Up changes: to ensure an external perspective is brought to bear on all our major work.

This same proactive engagement with stakeholders takes place at many levels in the organisation. Staff continued to engage with relevant stakeholders as part of ongoing work to deliver on results.

Delivering the Best Products, Services and Advice we can

The Treasury Quality Standards for Policy Advice were revised during the year and the new standard was rolled out across the Treasury, through a programme of briefings, in-depth discussions and supporting material. The new Quality Standard has been incorporated into our policy development training course and included in performance workplans for policy staff. We are working with the Development Centre to further support policy managers and analysts in applying the Quality Standard and ensure they have the tools, resources and expertise they need to develop and deliver the best advice to Ministers that we can.

The revised Quality Standards were published in the Statement of Intent 2008-2013. We have agreed an approach to assessing our performance against the standards and anticipate using a mix of self-review and external assessment tools to gauge the quality of our policy advice.

During the year we have also conducted a comprehensive review of the way we manage Official Information Requests, following an error where inappropriate material was inadvertently released. This review has resulted in clearer and more robust systems and protocols for ensuring appropriate handling of requests made under the Official Information Act 1982.

Our People

The Treasury employed 324 fixed-term employees (FTEs) at the end of June 2008. This included 14.5 staff on secondment to other government agencies and Ministers' offices and three staff on secondment to international institutions.

We employed fewer part-time staff than over the last five years (35 in 2007/08 representing 10.5% of total staff) and there has been an increase in fixed-term employees (20 in 2007/08). The increase in fixed-term employees reflects the difficulty in recruiting permanent skilled staff; this was particularly the case in support roles.

Compared with 2006/07 there is an increase in the proportion of analysts, as compared to more senior positions. This reflects a deliberate recruitment strategy to attract more junior level staff.

Turnover reached 24.3% in 2007/08, compared with 18.9% and 15.4% for the two preceding years. This has resulted in a heavier demand for recruitment to fill vacant positions; however, few positions have remained vacant for any lengthy period.

Actual turnover varied across the organisation, being highest in the Organisational Performance Group (33.5%) and Group Support (32.4%).

The use of sick leave and annual leave are indicators of staff wellbeing and engagement, and these remained stable in 2007/08. The Treasury conducts an in-depth biennial staff climate survey, and this is scheduled for 2008/09.

Numbers and distribution of staff
As at 30 June 2008 2007 2006 2005

Staff Numbers

 
Full-time staff 298 278 270 288
Part-time staff 35 46 50 45
Total full-time equivalent 324 312 304 318

Gender Distribution - All Staff

 
Women 51% 50% 47% 48%
Men 49% 50% 53% 52%

Ethnicity Distribution - All Staff

 
NZ European 73% 72% 72% 70%
NZ Māori 6% 5% 5% 6%
Pacific Islander 2% 2% 2% 2%
Asian 5% 4% 4% 3%
Other European 10% 13% 13% 15%
Other ethnic groups 1% 1% 1% 1%
Undeclared 3% 3% 3% 3%
As at 30 June 2008[5] 2007 2006 2005
Management Staff (male/female) M F M F M F M F
Tier 1[6] 1 - 1 - 1 - 1 -
Tier 2[7] 4 1 4 1 4 1 4 1
Tier 3[8]  8 3 8 4 20 10 20 11
Tier 4[9] 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.

Staff experience
As at 30 June 2008 2007 2006 2005
Average length of service (years) 6.4 6.2 6.6 6.2
Proportion of staff staying more than 1 year 74% 82% 86% 84%

Given the tight labour market, the Development Centre also reviewed its technical programmes to ensure that if the Treasury cannot recruit the talent it needs, we can grow it effectively. This resulted in a broader programme of development for junior analysts, and a review of “core” skills training. In 2008/09, this will enable us to springboard off this more robust platform and create a more clearly defined “end-to-end” development pathway for economists and Vote analysts.

It is a reflection on the quality of the programmes being provided that a number of other departments are requesting that we either run our programmes with them or allow participants to attend courses we are running in-house.

Notes

  • [5]The figures for 2008 and 2007 include an additional management level that was introduced as part of the Stepping Up change programme.
  • [6]Tier 1 is the Chief Executive Officer.
  • [7]Tier 2 includes all Deputy Secretaries.
  • [8]Tier 3 includes all Assistant Secretaries and other Managers that report directly to Deputy Secretaries.
  • [9]Tier 4 includes all Managers that 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 2007/08 financial year.

Descriptions of the Treasury's six output classes follow, along with some significant highlights of the 2007/08 year.

Through introducing results specification to all areas of our work we are endeavouring to develop better measures of performance. Detailed service performance standards for all output classes can be found on page 43.

Policy Advice: State Sector Performance

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:

  • fiscal and financial management of all government agencies
  • specific agency or entity performance (including Crown entities, Crown companies, Crown financial institutions and SOEs)
  • in-depth performance analysis of priority agencies or sectors
  • the overall performance of the public management system including thematic and cross-cutting analysis, eg, CAM.

The Treasury is seeking to differentiate the level of advice and service routinely provided on, or to, different government agencies and sectors. Those agencies and sectors judged priorities will be a focus for the Treasury's advice and services. Priority agencies and sectors will be significant for State sector performance, fiscal management or economic performance.

For all departments and votes, the Treasury's advice and services will include:

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

For priority sectors and agencies, the Treasury's advice will extend 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.

Empirical and analytical research will also be undertaken as required to inform the above policy advice.

Significant Work Completed During 2007/08

  • Developed capability to understand the drivers of State sector performance and how to influence them.
  • Introduced a new CAM approach which is being progressively implemented, starting with the capital-intensive agencies, and which will deliver better value and performance over time.
  • Led the work on the deed of settlement signed with the Central North Island iwi collective.
  • Contributed to cross-agency advice to Ministers to progress the Government's Schools Plus agenda: helping to ensure that all young people are in education, skills development or structured learning, relevant to their needs and abilities, until the age of 18.
  • As part of a multi-agency team, analysed housing market issues and possible policy implications, in particular around affordability.
  • Together with other Central Agencies, provided Ministers with appropriate over-arching messaging and risk-mitigation strategies for managing industrial relations and remuneration risks.
  • Effectively managed our input into the Budget process across all our Vote responsibilities to the satisfaction of Ministers.
Performance Dimensions
Performance Dimensions* Performance
Outputs produced under this output expense related to reporting on the financial performance of SOEs,
CRIs and other Crown companies monitored by CCMAU will be undertaken in conjunction with CCMAU.
Achieved
Outputs produced in relation to Housing New Zealand Corporation will be undertaken in conjunction with
the Ministry of Housing.
Achieved

* General service performance standards are detailed on page 43.

Cost
  2007/08
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2006/07
Actual
$000
Expenses 12,492 13,206 17,590 16,434
Funded by:        
Revenue Crown 12,271 12,973 17,300 16,108
Other Revenue 221 233 290 326

Actual 2007/08 output class expenditure was $714,000 or 5% under Supplementary Estimates budgets. This output class belongs to a multi-output class appropriation.

The appropriation for this output class was decreased by $4,384,000 in the Supplementary Estimates. This decrease was largely due to changes in forecast assumptions, as a result of the 2007/08 Main Estimates being prepared prior to implementation of the Treasury's Stepping Up change programme.

 

Policy Advice: Economic Performance

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 advice the Treasury will provide includes:

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

The Treasury's advice will concentrate on those policy areas that are most significant and pervasive for New Zealand's economic performance. These are:

  • financial markets, investment and savings
  • competition and regulatory frameworks
  • sustainable environment, particularly climate change
  • skills acquisition and schooling outcomes
  • taxation
  • international connections
  • infrastructure: energy, telecommunications, transport
  • innovation
  • Auckland
  • labour market performance
  • social mobility.

In addition, the Treasury will:

  • continue to measure and monitor New Zealand's economic performance
  • undertake empirical and analytical research to inform policy advice.

Significant Work Completed During 2007/08

  • Published seven Policy Perspectives papers on productivity issues.
  • Provided key advice on the development of the 2008 Personal Tax Package.
  • Contributed to the development of a National Policy Statement on Freshwater Management with particular emphasis on providing more certainty in respect of competing demands on New Zealand's freshwater resources and facilitating opportunities to increase benefits from the use of freshwater resources, within constraints on availability and effects of discharges.
  • Developed our thinking on sustainability issues, culminating in the establishment of the Natural Resource Management strategic result area as a departmental priority from 2008/09.
  • Hosted the Emissions Trading Group which developed emission trading policy and legislation.
  • Provided advice on the design of the Broadband Investment Fund including the introduction of criteria to ensure that the possible benefits of competition are maximised.
  • Contributed to the development and implementation of the Land Transport Management Amendment Act 2008.
  • Provided advice on progressing the Waterview project as a private public partnership.
  • Developed our thinking on international connections, culminating in the establishment of the International Connections strategic result area as a departmental priority from 2008/09.
  • Developed our understanding of New Zealand's key regulatory framework and where to make improvements to the regulatory quality management system.
  • Contributed to the development and implementation of KiwiSaver.
Performance Dimensions
Performance Dimensions* Performance
Outputs produced under this output expense are to be undertaken in conjunction with Inland Revenue and
other relevant collection agencies where reports are produced on revenue policy issues.
Achieved

* General service performance standards are detailed on page 43.

Cost
  2007/08
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2006/07
Actual
$000
Expenses 16,002 15,447 13,320 13,726

Funded by:

       
Revenue Crown 15,709 15,175 13,102 13,454
Other Revenue 293 272 218 272

Actual 2007/08 output class expenditure was $555,000 or 4% over Supplementary Estimates budgets. This output class belongs to a multi-output class appropriation.

The appropriation for this output class was increased by $2,127,000 in the Supplementary Estimates due to an increase in demand for outputs such as carbon emissions trading and the Waterview Public Private Partnership. This increase is also a result of changes in forecast assumptions, as the 2007/08 Main Estimates were prepared prior to implementation of the Treasury's Stepping Up change programme.

Policy Advice and Management: Macroeconomic

This class of outputs involves the provision of policy advice and services related to helping the Government maintain a stable and sustainable macroeconomic environment. This includes advice on:

  • budget management, including management and delivery of the Budget process
  • forecasting, including macroeconomic, tax and fiscal forecasting
  • fiscal policy and strategy
  • long-term fiscal sustainability
  • macroeconomic stabilisation
  • fiscal reporting, including the application and development of current Generally Accepted Accounting Principles (GAAP), as it applies to the Crown.

Empirical and analytical research will also be undertaken to inform advice in the above areas.

Significant Work Completed During 2007/08

  • Provided support to the FEC inquiry into monetary policy.
  • Organised and hosted the IMF Article IV visit to New Zealand, and oversaw finalisation and publication of the IMF's Article IV report on New Zealand.
  • Provided macro and fiscal input into the annual visits of Moody's and Standard & Poor's rating agencies which saw New Zealand's sovereign ratings remain unchanged.
  • Managed the Budget process for 2008.
  • Provided advice to the Minister of Finance and Cabinet on the Budget strategy, including theme packages, the capital package, the overall Budget and the fiscal and economic backdrop for the Budget and the options for managing Budget pressures.
  • Completed the development and automation of the revised accountability documents, resulting from the formal RoADs. This included reshaping the Estimates documentation to provide better information to Ministers on actual vs forecast performance.
  • Prepared Financial Statements of the Government in line with statutory requirements.
  • Published the 2008 Fiscal Strategy Report and Budget Speech.
  • Provided Monthly Economic Indicator and Weekly Economic Update reports to Ministers.
  • Economic and Fiscal Forecasts prepared for the HYEFU 2007 and BEFU 2008 updates.
Performance Dimensions
Performance Dimensions* Performance

Under this output expense:

 

Quality

 
Outputs will meet the agreed standard for publication of parliamentary papers, as relevant. Achieved
Outputs will be prepared within the Budget timetable set by the Government and the statutory limits of the Public Finance Act 1989. Achieved
Crown Financial Statements will conform with GAAP and fairly reflect the operations, cash flows and financial position of the Crown. Achieved
The monitoring report on appropriations for the Auditor-General (the Controller function report) will be prepared and
forwarded to the Auditor-General on a monthly basis as required by the Public Finance Act 1989.
Achieved
Delegations for the management of foreign-exchange risks, Crown bank accounts and trust money will be managed to ensure that the
conditions of the delegations are not breached and that they permit financial activity to be authorised at an appropriate level.
Achieved
Management statements required under section 29 of the Public Finance Act 1989 will be signed within the time limits set out in that
Act and will be supported by analysis and reviews of departmental financial management.
Achieved

* General service performance standards are detailed on page 43.

Cost
  2007/08
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2006/07
Actual
$000
Expenses 12,586 12,614 11,439 10,899

Funded by:

       
Revenue Crown 12,334 12,397 11,248 10,683
Other Revenue 252 217 191 216

Actual 2007/08 output class expenditure was $28,000 or 0.2% under Supplementary Estimates budgets.

The appropriation for this output class was increased by $1,175,000 in the Supplementary Estimates largely due to changes in forecast assumptions, as a result of the 2007/08 Main Estimates being prepared prior to implementation of the Treasury's Stepping Up change programme.

Debt and Related Financial Asset Management

Management of Crown debt and related financial assets contributes to the Treasury's macroeconomic performance outcome by maximising the long-term net return on the Crown's financial asset and debt portfolios, within an appropriate risk management framework. Specific activities include:

  • developing and maintaining an appropriate framework for efficiently managing the portfolio and the risks associated with it
  • issuing domestic-currency debt to meet the Government's funding requirements
  • disbursing cash to departments and facilitating departmental cash management
  • advancing funds to government entities in accordance with government policy
  • providing capital market services and derivative transactions for departments and government entities
  • funding the Reserve Bank's foreign-exchange reserves
  • managing foreign-currency assets required to meet net foreign-currency interest and principal payments
  • maintaining hedges of foreign-currency debt that cannot be bought back from investors.

Significant Work Completed During 2007/08

  • Reflecting the importance of NZDMO's growing asset portfolio, in 2007/08 we focused on improving our risk management practices and portfolio composition. The results set out below demonstrate the success of a conservative approach in adding value to the portfolio even in challenging market conditions.
  • Issued $1.9 billion of government bonds for the year, including $245 million of infrastructure bonds.
  • Value-added result of $68 million for the tactical portfolio was a new record, set in volatile financial market conditions that required an increasingly flexible approach to debt issuance and asset management. The value-added figure is derived from NZDMO's management reporting, which is calculated on a different basis from the financial statement reporting.
  • In spite of the most difficult credit conditions for decades, NZDMO's conservative approach to risk management resulted in another year where no credit-related losses were realised.
  • Only five settlement errors were made during the year (compared with a target limit of eight), at minimal cost to NZDMO (just $45 in total).
  • No breaches of policy limits reflected improvements in NZDMO's risk management practices over the year.
  • Value at Risk continues to decline, even as the markets have experienced a significant increase in volatility, indicating improvements in portfolio composition and risk reduction practices.
  • Provided advice on 2008/09 domestic borrowing programme in conjunction with the 2008 Budget, and led successful engagement with ratings agencies.
  • Government security tender administration was successfully taken over from the Reserve Bank in April. Subsequent tenders have operated smoothly, with positive feedback from market participants.
  • Completed policy development and systems changes required to add NZD investments to NZDMO's cash management options, ready for implementation in 2008/09.
  • A range of measures was implemented to improve bond market liquidity, including moving to fortnightly tenders, and increasing the size of the bond lines (up to $4.5 billion). Plans were announced to introduce tap and reverse tap tenders during 2008/09.
Performance Dimensions
Performance Dimensions* Performance

Quality

 
The Secretary to the Treasury will monitor the operation of the New Zealand Debt Management Office with the assistance of an Advisory Board. 
Performance in portfolio management, debt issuance, capital market transactions and advice, transactional processing and compliance with risk
management policies will be reported regularly to the Secretary to the Treasury, the Advisory Board and the Minister (in the context of the Treasury's
regular reporting).
Achieved
Policies regarding the strategic objectives for domestic and foreign-currency debt, instruments and currencies for transactions, limits in respect of
market and credit risk utilisation, composition requirements for the liquidity asset portfolio and maturity profile requirements will be adhered to.
Achieved
Policies, delegations, limits, reporting and performance management requirements, procedural manuals, established processes and other controls for
managing internal operations will be adhered to.
Achieved
Issuance of domestic-currency debt will be transparent and predictable. Achieved

* General service performance standards are detailed on page 43.

Cost
  2007/08
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2006/07
Actual
$000
Expenses 8,080 8,614 7,255 6,966

Funded by:

       
Revenue Crown 7,921 8,466 7,127 6,817
Other Revenue 159 148 128 149

Actual 2007/08 output class expenditure was $534,000 or 6% under Supplementary Estimates budgets due to vacancies and cost savings.

The appropriation for this output class was increased by $1,359,000 in the Supplementary Estimates largely due to changes in forecast assumptions, as a result of 2007/08 Main Estimates being prepared prior to implementation of the Treasury's Stepping Up change programme.

Management of Liabilities, Claims Against the Crown and Crown Properties

This class of outputs involves managing a range of commercial, contractual, legal and Treaty of Waitangi-related claims against the Crown. Outputs contribute to minimising Crown financial risk within the bounds of government objectives. Specific outputs include:

  • management of commercial and contractual risks associated with the 1973 Maui Gas Contract, including the operation of the gas notification system with downstream gas users
  • management of contractual and commercial issues arising from completed asset sales and wind-up of the Crown's previous ownership interests in SOEs, Crown companies and other entities
  • advice on the management of historical claims under the Treaty of Waitangi and assistance with the Crown's negotiation of specific settlements
  • provision of legal title to land sold to SOEs and other Crown companies as a part of their sale and purchase agreements with the Crown
  • management of litigation against the former Building Industry Authority relating to weather-tight homes
  • management of New Zealand House, London.

Specific outputs often depend on the actions of third parties.

Significant Work Completed During 2007/08

  • 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 and on Board appointments.
  • Undertook ongoing management of day-to-day contractual obligations regarding the 1973 Maui Gas Contract. Specific work this year included resolution of allocation disputes.
  • Provided ongoing advice on debt restructuring options for Taitokerau Forests Limited.
  • Provided advice on the options for resolving claims from the Atihau Incorporation relating to resumption of leasehold properties.
  • Provided fiscal advice on claims and issues related to Treaty settlement policy, the Port Nicholson Block (PNBCT), Waikato River, Kurahaupo and the Central North Island claims.
Performance Dimensions
Performance Dimensions* Performance

Outputs produced under this output expense will:

 
  • Explore all opportunities to reach a satisfactory settlement of liabilities within parameters set by Ministers
Achieved
  • Meet the Treasury's policies and procedures for the employment of advisors and consultants
Achieved
  • Meet the Crown's contractual responsibilities and enforce the Crown's contractual rights.
Achieved
Cost
  2007/08
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2006/07
Actual
$000
Expenses 2,901 2,398 5,665 1,545

Funded by:

       
Revenue Crown 2,842 2,361 5,572 1,514
Other Revenue 59 37 93 31

Actual 2007/08 output class expenditure was $503,000 or 21% over Supplementary Estimates budgets largely owing to increased demand for fiscal advice on claims and issues related to Treaty settlement policy. This output class belongs to a multi-output class appropriation.

The appropriation for this output class was decreased by $3,267,000 in the Supplementary Estimates. This was largely due to $3 million for the management of litigation against the former Building Industry Authority relating to weather-tightness of homes not being required in 2007/08 and was transferred to 2008/09.

* General service performance standards are detailed on page 43.

New Zealand Export Credit Office

This class of outputs involves the provision of export credit insurance and managing and operating the 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 agreement. Specific outputs include:

  • provision of medium- to long-term export credit insurance via the NZECO in accordance with the delegation agreement with the Minister of Finance
  • management of the ongoing operation of the NZECO in accordance with the delegation agreement with the Minister of Finance
  • advice to the secretary via the NZECO Advisory Board on proposed transactions
  • review of the NZECO during 2007/08 to evaluate the NZECO's statutory form, and in particular to assess the merits of establishing NZECO as a separate Crown entity and also to reconsider the NZECO's product suite.

Significant Work Completed During 2007/08

  • Ministers approved new products for NZECO, which were implemented during 2007/08. These included an expansion of the US surety bond guarantee, a contract bond guarantee and a working capital guarantee.
  • Achieved revised 2007/08 operational targets as agreed with the Minister.
  • Over 2007/08, the Treasury commissioned independent consultants to conduct a review of the organisational form of NZECO. The consultants reported back to the Treasury in June 2008 and the Treasury will be advising Ministers on the future organisational form of NZECO early in 2008/09.
Performance Dimensions* Performance
Quality  
The Secretary to the Treasury will monitor the operation of the NZECO with the assistance of an Advisory Board.  The performance of the
NZECO will conform to international best practices as measured by the OECD Arrangement on Export Credits.
Achieved
The Treasury will commit the resourcing and support necessary to assist the NZECO in achieving the performance targets outlined in the
NZECO Statement of Intent 2007/08.
Achieved
Cost
  2007/08
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2006/07
Actual
$000
Expenses 1,209 1,574 1,265 888
Funded by:        
Revenue Crown 1,186 1,546 1,250 870
Other Revenue 23 28 15 18

Actual 2007/08 output class expenditure was $365,000 or 23% under Supplementary Estimates budgets largely owing to three US bond guarantees not being completed by year end. This output class belongs to a multi-output class appropriation.

The appropriation for this output class was increased by $309,000 in the Supplementary Estimates as new funding was required by the NZECO to increase the range of services to exporters.

* General service performance standards are detailed on page 43.

Service Performance Objectives: All Vote Finance Output Classes

Performance Dimensions
Performance Dimensions Performance

Quantity

 

The quantity and nature of advice and operational services will be supplied on the basis agreed between the Minister of Finance
and the Secretary to the Treasury (as amended from time to time) for 2007/08.  Reporting at least twice a year will enable the
Minister to assess actual performance in output delivery against those expectations.

Information on ministerial servicing performance, including ministerial correspondence (MCs), Official Information Act requests
(OIAs) and parliamentary questions (PQs) is provided on pages 44 and 45.

Achieved

Quality

 
All reports will comply with the Treasury's quality standards for analysis and advice, outlined on page 109. Achieved
The Treasury will implement suitable quality assurance control procedures to support the expectations for analysis and advice
delivered under this Vote.
Achieved
Managerial and peer (internal and external) review will be maintained to ensure that the quality standards are met. Achieved
The Minister will be formally requested, at least twice a year, to indicate his or her level of satisfaction with the overall quality of
the outputs produced.
Achieved

Timeliness

 
Timeframes will be agreed between the Minister and the Secretary to the Treasury for the financial year. Achieved
Advice will be delivered within the agreed and/or statutory timeframes so that Ministers have sufficient time to consider the issues
and take appropriate action.  Where agreed deadlines will not be met, extensions are to be formally requested.
Achieved
MCs, PQs, Cabinet agendas and OIAs will be responded to within agreed and/or statutory timeframes. See pages
44 & 45 for
performance information
The Department will respond within agreed timelines to requests for attendance at Parliament during debates and at Cabinet and
Select Committee meetings.
N/A*
Drafting instructions in the form of draft legislation will be provided to the Parliamentary Counsel Office within the timeframes agreed
with that Office.
Achieved
Reporting at least twice a year will enable the Minister to assess actual performance in the timeliness of output delivery against those
expectations.
Achieved

Coverage

 
A comprehensive range of services will be provided as agreed with the Minister.  These will include the capacity to react quickly and
provide support for the Minister in Cabinet Committees, including relevant briefings on significant issues and regular evaluation of the
impacts of policy on the Government's desired outcomes.
Achieved

* The Treasury has not measured this aspect of performance during 2007/08. This measure has not provided meaningful information on our performance and has been discontinued.

Ministerial Servicing Performance 2007/08

The Treasury undertook significant restructuring during 2007 which included a review of how the Ministerial Servicing Result was organised and managed. It was decided to defer appointments to the staff vacancies contributing to the Ministerial Servicing Result until after the review was completed. During this time the volume of correspondence greatly exceeded expected volumes which caused difficulties in meeting performance expectations. Following the successful implementation of review decisions, subsequent organisational improvements and increases in staff, performance relating to the Ministerial Servicing Result has been greatly improved in the latter part of the year.

2007/08

Target Timeframes

PQs MCs OIAs

Debt and Financial Asset Management

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

New Zealand Export Credit Office

     
Estimated 15-20 0-5 0-5
Actual draft replies 0 1 0
% answered by due date N/A 100% N/A
% first draft accepted N/A 100% N/A

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

     
Estimated 0-5 10-20 0-5
Actual draft replies 1 28 5
% answered by due date 100% 75% 100%
% first draft accepted 100% 100% 80%

Policy Advice and Management: Macroeconomic

     
Estimated 15-20 40-50 10-20
Actual draft replies 24 171 11
% answered by due date 100% 57% 64%
% first draft accepted 96% 93% 100%

Policy Advice: Economic Performance

     
Estimated 50-60 700-750 60-70
Actual draft replies 42 841 31
% answered by due date 100% 66% 71%
% first draft accepted 100% 97% 94%

Policy Advice: State Sector Performance

     
Estimated 60-80 270-300 40-50
Actual draft replies 39 329 18
% answered by due date 100% 84% 78%
% first draft accepted 92% 94% 94%

2007/08

Target Timeframes

PQs MCs OIAs

Ownership - Organisational Performance Group

     
Estimated 30-40 20-30 10-20
Actual draft replies 22 2 3
% answered by due date 100% 100% 100%
% first draft accepted 100% 100% 67%
Quality and Timeliness Indicators for Ministerial Servicing
  Measures
MCs

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 Ministerial correspondence will be delivered within agreed timeframes.

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

PQs

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.

OIAs

All Official Information Act 1982 (OIA) requests that the Treasury prepares for the Minister 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, OIA requests will accord with the provisions of the OIA.

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

All stated timeframes will be met.

The figures provided in the tables and charts above refer only to the OIA requests received by the Minister where the Treasury prepares replies to
those requests.  For 2008/09 the Treasury will also be reporting on OIA requests received directly by the Treasury.

Crown Company Monitoring Advisory Unit (CCMAU)

Executive Summary

During 2007/08, CCMAU has continued to take a leadership 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 contributes to the Government's economic transformation priority theme.

These companies and entities have faced a number of challenges and issues in the last year, and CCMAU has been at the forefront of assessing and advising shareholding Ministers on many of them.

CCMAU assisted Ministers in implementing a corporate social responsibility framework for SOEs. We also assisted Ministers to reinforce their ownership expectations for SOEs and CRIs, with the issue of revised Owner's Expectations Manuals for both SOEs and CRIs in October 2007. These are available publicly on CCMAU's website www.ccmau.govt.nz

We also implemented a set of non-financial performance indicators to enable the Government to measure the contribution CRIs make to the wider economy. Our Appointments and Governance team continued to identify skilled directors for Ministers to appoint to the boards of the companies and entities we monitor. Furthermore, we have cemented our relationship with Massey University's Graduate School of Business to provide our governance training programme.

It is a testament to the skill and standing of our staff that, when they leave CCMAU, they often move into responsible positions elsewhere. Whilst we have lost some experienced staff to the private sector this year, we were able to recruit a number of new staff with relevant skills and experience to ensure Ministers' expectations continued to be met.

The opportunity continues to exist for CCMAU to enhance its ownership monitoring role, building on current expertise to more effectively address the Government's wider ownership objectives.

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:

  • Monitoring - reporting on business plans, company reports, performance against targets and sectoral trends.
  • Ownership advice - advising on strategic issues, investment and diversification opportunities, restructuring issues and the impact of policy decisions.
  • Ministerial servicing - managing issues and drafting replies to correspondence, parliamentary questions and Official Information Act requests.
  • Governance - identifying and screening potential directors, managing appointment processes and promoting best-practice corporate governance of Crown companies and entities.

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
Implement a set of indicators to measure CRIs' engagement with industry, the ways in which they apply their research findings and the impact those activities are having on New Zealand's economy, environment and society. The CRIs reported on the “research application indicators” for the first time.  Some minor changes were made for ongoing reporting.
Administration of CRI Capability Fund. This is an ongoing activity which includes annual collection and validation of CRI data.
Articulate shareholders' best-practice governance expectations and circulate them to boards. Revised Owner's Expectations Manual for CRIs was released in October 2007.
Expect New Zealand Venture Investment Fund Ltd (NZVIF) to complete the allocation of its $100 million under the Venture Investment Fund (VIF) programme and to continue implementation of the new Seed Co-investment Fund (SCIF) programme. NZVIF continued to implement the SCIF programme.  The target of $100 million was not reached as private sector raising of matching funds proved challenging.
Energy, land and environment sector and Communications, services and infrastructure sector
Proposed Activity Progress
Ensure SOE strategies are developed, and significant investments made, with SOEs fully informed of shareholder expectations. CCMAU evaluated various business cases for new investments and provided advice to Ministers on them.
Complete long-term ownership policy reviews of Genesis Power Ltd (Genesis) and Kordia Group Ltd (Kordia). Completed.
Resolve review of organisational options for AgriQuality Ltd (AgriQuality) and Asure New Zealand Ltd (Asure). Completed, with the organisations merging to become AsureQuality Ltd on 1 October 2007.
Oversee Kordia and TVNZ's roles in the introduction of digital terrestrial television (DTT) in New Zealand. The DTT platform, which covers 75% of New Zealand's population (in nine cities), was launched in April 2008.
Create an environment where each SOE will perform at a level that fulfils their requirement under the SOE Act 1986 to operate as a successful business, including to be: as profitable and as efficient as comparable businesses not owned by the Crown; a good employer; and an organisation that exhibits a sense of social responsibility.

Published on CCMAU's website the results of private sector equity analysts' assessment of the value and projected performance of Genesis, Meridian Energy Ltd (Meridian) and Mighty River Power Ltd (Mighty River Power).

Implemented a corporate social responsibility framework for SOEs, as agreed by Cabinet.

Articulate shareholders' best-practice governance expectations and circulate them to boards. Revised Owner's Expectations Manual for SOEs was released in October 2007.
Appointments and governance
Proposed Activity Progress
Focus on core appointments activity. Individual appointments and reappointments for SOEs, CRIs and other entities completed.
Expand initiatives to support directors after appointment. In partnership with our new governance training provider, Massey University's Graduate School of Business, ran three core programmes for aspiring and recently-appointed directors.  Also held a series of professional director updates for serving Crown directors, including a full-day programme on corporate social responsibility.
Review current director fees' levels against market benchmarks. Completed.
Articulate shareholders' best-practice governance expectations and circulate them to boards. Revised Owner's Expectations Manuals for SOEs and CRIs were released in October 2007.
Maintain strong relationships with other (national and international) agencies that have monitoring/appointment and governance functions. CCMAU has continued its “lead agency” role in the International Network of Government Ownership Agencies (INGOA) including the organisation of the INGOA conference, which was held in London, England during September 2007.
Use our expertise to help with board appointment processes and governance expectations for non-commercial government entities. CCMAU has assisted other agencies with board nominations from time to time.

Maintaining and Developing Capability

CCMAU's reputation and ability to meet the expectations of Ministers and key stakeholders is very dependent on the skill and experience of its staff and their ability to manage relationships with a wide range of contacts. During the year we continued to pay attention to making CCMAU a desirable place to work and to provide staff with the training and resources necessary to do their jobs well.

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

  2007/08 2006/07 2005/06 2004/05
Women (FTEs) 8 8 6 6
Men (FTEs) 11 12 14 14
Total staff (FTEs) 19 20 20 20
Staff satisfaction index Survey deferred 69.5% 72.7% 69.7%
Staff turnover 31% 29% 15% 30%
Average length of service (years) 3.79 3.80 3.49 2.74

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 for Crown Research Institutes (CRIs), Minister for Economic Development and Minister of Research, Science and Technology.

This output involves the provision of policy and ownership monitoring advice on nine CRIs, NZVIF and Research & Education Advanced Network New Zealand Ltd (REANNZ) and the provision of advice on the performance of the CRI Capability Fund, and includes:

  • advising the Minister for CRIs, the Minister for Economic Development and the Minister of Research, Science and Technology on the strategic direction of CRIs, NZVIF and REANNZ, respectively and the commercial and fiscal risks associated with Crown ownership
  • providing advice which assists the Minister for CRIs, the Minister for Economic Development and the Minister of Research, Science and Technology to set ownership objectives and targets for CRIs, NZVIF and REANNZ
  • monitoring and advising the Minister for CRIs, the Minister for Economic Development and the Minister of Research, Science and Technology of CRIs', NZVIF's and REANNZ's performance against these objectives and targets
  • providing policy advice on, and managing issues arising out of the ownership of, CRIs, NZVIF and REANNZ, including residual implementation issues
  • managing, on behalf of the responsible Ministers, the appointment of CRI, NZVIF and REANNZ directors and monitoring the performance of those directors and boards
  • assisting the 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 companies to contribute to the efficient management of the Crown's assets and liabilities.

The CRIs, NZVIF and REANNZ 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 2007/08

  • Completed the 2007/08 strategic planning round which included analysing and reporting on each company's draft Statement of Corporate Intent/Statement of Intent 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 2008 Operating Framework for CRIs.
  • Provided a briefing to the incoming Minister of Research, Science and Technology.
  • Completed and issued the revised Owner's Expectations Manual for CRIs.
  • 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 inaugural INGOA conference in London, England. INGOA is an international best-practice sharing network of organisations with a similar role to that of CCMAU.
  • Hosted three core training programmes for recently appointed or aspiring directors.
  • Hosted four professional director updates for existing Crown directors (a series of three workshops on conflicts of interest; and a one-day study tour on corporate social responsibility).
  • Hosted two workshops on the roles and powers of Select Committees (for both Crown company and entity directors).
  • Hosted a one‐day induction seminar for new CRI directors.
  • 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 2007/08 CRI appointment round
    • a review of the directors' fees methodology for the Crown companies; and the implementation of associated changes in January 2008.
Performance Dimensions
Performance Dimensions* Performance

Quality

 
The Minister for CRIs, the Minister for Economic Development or the Minister of Research, Science and Technology will expect advice to demonstrate a sound
knowledge of the Crown company or fund's business, the environment within which the company or fund operates and the consequences of shareholder or
CRI/NZVIF/REANNZ or fund actions.
Achieved

Timeliness

 
PQs, MCs and OIAs will be responded to within agreed and statutory timeframes. Achieved

* General service performance standards are detailed on page 53.

Quantity
2007/08 PQs MCs OIAs
Estimated CRI 60-100 30-50 4-8
Actual draft replies 23 21 2
% answered by due date 100% 100% 100%
Cost
  2007/08
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2006/07
Actual
$000
Expenses 1,062 1,073 1,073 1,029

Funded by:

       
Revenue Crown 1,042 1,052 1,052 1,007
Other Revenue 20 21 21 22

Actual 2007/08 output class expenditure was $11,000 or 1% under Supplementary Estimates budgets.

 

Vote State-Owned Enterprises

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

This output involves the provision of policy and ownership monitoring advice on SOEs, Crown entity companies and Crown entities covered by Vote SOEs (collectively referred to below as “SOEs”). This 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 for 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
  • 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 2007/08

  • Completed the 2007/08 SOE business planning round, which involves analysing and reporting on each company's draft Statement of Corporate Intent and business plan so that shareholding Ministers are able to provide informed feedback to boards. The 2008/09 SOE business planning round was also substantially completed by 30 June 2008.
  • Completed quarterly performance reports for the June, September, December and March quarters, which were presented to Cabinet.
  • Completed and issued the revised Owner's Expectations Manual for SOEs.
  • Completed long-term hold owner's reviews for Kordia and Genesis.
  • Managed various company issues and provided advice to Ministers on such issues.
  • Published on CCMAU's website, the results of private sector equity analysts' assessment of the value and projected performance of Genesis, Meridian and Mighty River Power.
  • Following a review of the corporate social responsibility (CSR) obligations of SOEs, implemented a CSR framework as agreed by Cabinet in October 2007.
  • Completed the amalgamation of Asure with AgriQuality, to create AsureQuality Ltd (on 1 October 2007).
  • Continued to take a “lead agency” role in the International Network of Government Ownership Agencies (INGOA), including organising and Chairing the inaugural INGOA conference in London, England. INGOA is an international best-practice sharing network of organisations with a similar role to that of CCMAU.
  • Hosted three core training programmes for recently appointed or aspiring directors.
  • Hosted four professional director updates for existing Crown directors (a series of three workshops on conflicts of interest; and a one-day study tour on corporate social responsibility).
  • Hosted two workshops on the roles and powers of Select Committees (for both Crown company and entity directors).
  • Hosted a one‐day induction seminar for new SOE directors.
  • 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 2007/08 appointment rounds
    • a review of the directors' fees methodology for the Crown companies; and the implementation of associated changes in January 2008.
Performance Dimensions
Performance Dimensions* Performance

Quality

 
The Minister for SOEs and other responsible Ministers will expect advice to demonstrate a sound knowledge of the Crown company's business,
the environment within which the company operates and the consequences of shareholder or company actions.
Achieved

Timeliness

 
PQs, MCs and OIAs will be responded to within agreed and statutory timeframes. Materially achieved[10]

* General service performance standards are detailed on page 53.

Quantity
2007/08 PQs MCs OIAs
Estimated SOE 100-140 160-180 12-20
Actual draft replies 59 132 22
% answered by due date 100% 99% 82%
Cost
  2007/08
Actual
$000
Supp. Estimates
- Voted
$000
Main Estimates
$000
2006/07
Actual
$000
Expenses 2,639 2,668 2,466 2,582

Funded by:

       
Revenue Crown 2,588 2,602 2,400 2,526
Other Revenue 51 66 66 56

Actual 2007/08 output class expenditure was $29,000 or 1% under Supplementary Estimates budgets.

The appropriation for this output class was increased by $202,000 in the Supplementary Estimates. A transfer of this amount was made from Vote Finance to Vote SOE to enable CCMAU to deliver its agreed outputs following unavoidable cost increases.

Service Performance Standards: All CCMAU Output Classes

Performance Dimensions
Performance Dimensions Performance

Quantity

 
The quantity and nature of advice and operational services will be supplied on the basis agreed between the Minister for SOEs, the Minister for CRIs
and the Executive Director of CCMAU (as amended from time to time) for 2007/08.
Achieved
Half-yearly and end-of-year reporting will enable the Ministers to assess actual performance in output delivery against those expectations. Achieved

Quality

 
All reports will comply with the generic Treasury quality standards for analysis and advice outlined on page 109.  Output quality will be assessed as follows: Achieved
  • The Ministers will expect CCMAU to implement suitable quality control procedures to support the expectations for analysis and advice delivered
    under the relevant Votes.
Achieved
  • Managerial and peer (internal and external, where appropriate) review will be maintained to ensure that the quality standards are met.
Achieved
  • The Ministers will be formally requested, on a half-yearly basis, to indicate their level of satisfaction with the overall quality of the outputs produced.
Achieved

Timeliness

 
Timeframes will be agreed between the Ministers and the Executive Director of CCMAU for the financial year. Achieved
Advice will be delivered within the agreed and/or statutory timeframes so that the Ministers have sufficient time to consider the issues and take appropriate
action.  Where agreed deadlines will not be met, extensions are to be formally requested.
Materially achieved
MCs, PQs, Cabinet agendas and OIAs will be responded to within agreed and/or statutory timeframes. See pages 50 & 52 for
performance information
CCMAU will respond appropriately to requests for attendance at Parliament during debates and at Cabinet and Select Committee meetings. Achieved
Half-yearly and end-of year reporting will enable the Ministers to assess actual performance in the timeliness of output delivery against those expectations. Achieved

Coverage

 
A comprehensive range of services will be provided as agreed with the Minister for CRIs and the Minister for SOEs.  These will include the capacity to react
quickly and provide support for the Minister in Cabinet committees, including relevant briefings on significant issues and regular evaluation of the impacts of
shareholder decisions and company actions on the Government's desired outcomes.
Achieved

Notes

  • [10]Overall, the timeliness (as judged against the standards for Ministerial servicing set out in the Output Plan Agreement) has been close to expectations. Where draft replies have been late (one piece of Ministerial correspondence out of 132 and four out of 22 OIAs were late), these have only exceeded the agreed deadlines by a few days.

Financial Statements

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 2008.
  • The supplementary schedules fairly reflect the assets, liabilities, contingencies and commitments managed by the Treasury on behalf of the Crown as at 30 June 2008 and revenues and expenses managed by the Treasury on behalf of the Crown for the year ended on that date.
John Whitehead
Secretary to the Treasury
 
John Matheson
Chief Financial Officer
(countersigned)
Philip Combes
Treasurer - NZDMO
(countersigned)
15 September 2008 15 September 2008 15 September 2008

Financial Statements - Departmental

for the year ended 30 June 2008

Overview of Departmental Financial Results

Statement of Financial Performance

Statement of Movements in Taxpayers' Funds

Statement of Financial Position

Statement of Cash Flows

Statement of Commitments

Statement of Contingent Liabilities and Contingent Assets

Departmental Capital Expenditure

Statement of Departmental Expenses and Capital Expenditure Against Appropriations

Notes to the Financial Statements

Overview of Departmental Financial Results

for the year ended 30 June 2008

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

 

 

 

 

 

 

 

 

 

Overview of Departmental Financial Results for the year ended 30 June 2008

2007
Actual

$000

 

2008
Actual

$000

2008
Supp.
Estimates

$000

 

Revenue

   
52,979 Crown 55,893 56,572
 

Expenses

   
35,539 Personnel 38,489 38,150
2,276 Consultants 1,968 2,709
 

Current Assets

   
460 Accounts receivable 1,650 424
 

Non-Current Assets

   
5,054 Property, plant and equipment 4,734 5,254
509 Intangible assets 571 753
 

Current Liabilities

   
3,501 Creditors and other payables 5,085 4,150
 

Taxpayers' Funds

   
7,840 General funds 7,240 7,240

Significant Movements Between 2007 and 2008

Revenue Crown for departmental outputs increased by $2.9 million, mainly due to increased funding for the Export Credit Office in 2007/08 of $0.8 million and an underspend of $2.0 million recorded for 2006/07.

Personnel expenses increased by $3.0 million in 2007/08 mainly due to increased success in filling vacancies and market movements in salaries.

Accounts receivable have increased by $1.2 million in 2007/08 due to the inclusion of the expenditure recovery for the Central North Island project.

Property, plant and equipment decreased by $0.3 million in 2007/08 mainly due to delays in replacing computer hardware during 2007/08.

Creditors and other payables have increased by $1.6 million in 2007/08 mainly due to the inclusion of accruals in relation to the Central North Island project.

General taxpayers' funds decreased by $0.6 million due to a capital repayment to the Crown during 2007/08. The Treasury is repaying capital provided for the 2005 office accommodation refit.

Significant Variances Between Actuals and Supplementary Estimates Budget

Consultants expense is $0.7 million below budget largely due to planned Export Credit Office US bond guarantees not being completed in 2007/08 ($0.3 million) and the Supplementary Estimates consultancy budget including some expenditure that was subsequently classified as process management services.

Accounts receivable were $1.2 million over budget due to expenditure recovery for the Central North Island Project which was not forecast in the 2007/08 budget.

Property, plant and equipment is $0.5 million below budget due to delays in planned computer hardware replacements in 2007/08.

Intangible assets are $0.2 million below budget primarily due to planned software purchases being delayed during 2007/08.

Statement of Financial Performance

for the year ended 30 June 2008

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 2008. Total Expenses equals Total Departmental Output Classes Expenditure and Appropriations in the Statement of Expenditure and Appropriations on page 64.

Statement of Financial Performance for the year ended 30 June 2008

2007
Actual

$000

  Notes

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp. Estimates

$000

 

Revenue

       
52,979 Revenue Crown 2 55,893 59,051 56,572
1,090 Revenue other 3 1,078 1,022 1,022
54,069     56,971 60,073 57,594
 

Expenses

       
35,539 Personnel 4 38,489 36,926 38,150
14,258 Operating 5 14,612 16,829 14,792
2,276 Consultants   1,968 4,225 2,709
1,323 Depreciation 7 1,185 1,347 1,213
56 Amortisation 8 148 174 158
617 Capital charge 6 569 572 572
54,069     56,971 60,073 57,594
-

Net Surplus

  - - -

Explanations of significant variances against budget are detailed in the Overview of Departmental Financial Results on page 56.

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

Statement of Movements in Taxpayers' Funds

for the year ended 30 June 2008

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 for the year ended 30 June 2008

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp. Estimates

$000

8,387 Taxpayers' funds at the beginning of the year 7,840 7,840 7,840
 

Movements during the year

     
53 Net surplus - - -
8,440

Total Recognised Revenue and Expenses for the Year

- - -
- Capital contributions from the Crown - - -
(600) Capital withdrawal repaid to the Crown (600) (600) (600)
7,840

Taxpayers' Funds at the End of the Year

7,240 7,240 7,240

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

Statement of Financial Position

as at 30 June 2008

The Statement of Financial Position reports the total assets and liabilities of the Department, including CCMAU, as at 30 June 2008. Taxpayers' funds are represented by the difference between the assets and liabilities.

Statement of Financial Position as at 30 June 2008

2007
Actual

$000

  Notes

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp. Estimates

$000

 

Taxpayers' Funds

       
7,840 General funds   7,240 7,240 7,240
7,840

Total Taxpayers' Funds

  7,240 7,240 7,240
 

Represented by:

       
 
Assets
       
 

Current Assets

       
3,896 Cash and bank balances   3,614 2,612 2,949
406 Prepayments   505 444 468
460 Accounts receivable   1,650 408 424
5,671 Debtor - Crown   6,244 6,696 6,696
10,433     12,013 10,160 10,537
 

Non-Current Assets

       
5,054 Property, plant and equipment 7 4,734 5,019 5,254
509 Intangible assets 8 571 752 753
5,563     5,305 5,771 6,007
15,996

Total Assets

  17,318 15,931 16,544
 

Less:

       
 
Liabilities
       
 

Current Liabilities

       
3,501 Creditors and other payables 9 5,085 4,300 4,150
4,337 Provision for employee entitlements 10 4,768 4,088 4,764
15 Provision for onerous contracts 11 - - -
21 Finance lease liability 12 2 2 2
7,874     9,855 8,390 8,916
 

Non-Current Liabilities

       
280 Provision for employee entitlements 10 223 301 388
2 Finance lease liability 12 - - -
282     223 301 388
8,156

Total Liabilities

  10,078 8,691 9,304
7,840

Net Assets

  7,240 7,240 7,240

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

Statement of Cash Flows

for the year ended 30 June 2008

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 57.

Statement of Cash Flows for the year ended 30 June 2008

2007
Actual

$000

  Notes

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp. Estimates

$000

 

Cash Flows from Operating Activities

       
 

Cash was provided from:

       
53,061 Supply of outputs to the Crown   55,320 58,713 55,547
1,102 Supply of outputs to third parties   1,050 1,022 1,026
54,163     56,370 59,735 56,573
 

Cash was disbursed to:

       
35,148 Personnel   37,930 36,800 36,992
16,468 Operating   16,524 20,495 17,620
617 Capital charge   569 572 572
81 Goods and services tax (net)   (41) - (85)
52,314     54,982 57,867 55,099
1,849

Net Cash Flows from Operating Activities

13 1,388 1,868 1,474
 

Cash Flows from Investing Activities

       
 

Cash was provided from:

       
- Sale of property, plant and equipment   1 - -
- Sale of intangible assets   - - -
 

Cash was disbursed to:

       
(223) Purchase of property, plant and equipment   (861) (1,002) (1,419)
(312) Purchase of intangible assets   (210) (320) (402)
(535)

Net Cash Flows from Investing Activities

  (1,070) (1,322) (1,821)
 

Cash Flows from Financing Activities

       
 

Cash was provided from:

       
- Capital contribution   - - -
 

Cash was disbursed to:

       
(600) Capital withdrawal   (600) (600) (600)
(600)

Net Cash Flows from Financing Activities

  (600) (600) (600)
714 Net movement in cash and bank balances   (282) (54) (947)
3,182 Cash and bank balances at the beginning of the year   3,896 2,666 3,896
3,896

Cash and Bank Balances at the End of the Year

  3,614 2,612 2,949

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

Statement of Commitments

as at 30 June 2008

Statement of Commitments as at 30 June 2008

2007
Actual

$000

 

2008
Actual

$000

 

Capital Commitments

 
- Property, plant and equipment 576
 

Non-Cancellable Operating Lease Commitments

 
3,386 Not later than one year 3,474
13,463 Later than one year and not later than five years 13,796
16,940 Later than five years 13,875
33,789

Total Non-Cancellable Operating Lease Commitments

31,145
 

Other Non-Cancellable Commitments

 
670 Not later than one year 575
158 Later than one year and not later than five years 34
34 Later than five years -
862

Total Other Non-Cancellable Commitments

609
34,651

Total Commitments

32,330

Capital Commitments

The Department is replacing personal computers with mobile computers (tablets). A commitment has been entered into for the purchase of these over the coming 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. The Department also had a non-cancellable lease over office space in Boulcott Street, Wellington which expired in March 2008.

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 2008

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.

Quantifiable Contingent Liabilities

As at 30 June 2008, the Department had no quantifiable departmental contingent assets and liabilities (30 June 2007:nil).

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

Departmental Capital Expenditure

for the year ended 30 June 2008

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

Departmental Capital Expenditure for the year ended 30 June 2008
 

2002
Actual

$000

2003
Actual

$000

2004
Actual

$000

2005
Actual

$000

2006
Actual

$000

2007
Actual

$000

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp. Estimates

$000

Property, Plant and Equipment                  
Computer hardware 734 897 912 610 873 160 800 802 1,308
Furniture and fittings - - 32 884 126 3 7 - 40
Leasehold improvements - - 2,664 1,927 433 33 39 - 40
Leased equipment - - - - 56 - - - -
Office machinery and electrical equipment - 15 52 - 5 27 21 200 26
Total Property, Plant and Equipment 734 912 3,660 3,421 1,493 223 867 1,002 1,414
Intangibles                  
Computer software -internally generated - - - - - 295 195 200 229
Computer software - other 634 9 16 - 278 17 15 120 173
Total Intangibles 634 9 16 - 278 312 210 320 402
Total Capital Expenditure 1,368 921 3,676 3,421 1,771 535 1,077 1,322 1,816

Statement of Departmental Expenses and Capital Expenditure Against Appropriations

for the year ended 30 June 2008

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 57.

A new output class structure was formulated for Vote Finance in 2007/08. The 2006/07 actual comparatives have been restated to reflect the new structure.

Statement of Departmental Expenses and Capital Expenditure Against Appropriations for the year ended 30 June 2008

2007
Actual

$000

 

2008
Actual

$000

2008
Main  Estimates

$000

2008
Supp.  Estimates

$000

 

Vote Finance: Departmental Output Classes

     
6,966 Debt and Related Financial Asset Management 8,080 7,255 8,614
10,899 Policy Advice and Management: Macroeconomic 12,586 11,439 12,614
  Policy Advice and Management: Economic and State Sector Performance
(Multi-output class appropriation)
     
1,545 Management of liabilities, Claims against the Crown,
Contractual Liabilities and Crown Properties
2,901 5,665 2,398
888 New Zealand Export Credit Office 1,209 1,265 1,574
13,726 Policy Advice: Economic Performance 16,002 13,320 15,447
16,434 Policy Advice: State Sector Performance 12,492 17,590 13,206
32,593   32,604 37,840 32,625
50,458

Total Vote Finance: Departmental Output Classes

53,270 56,534 53,853
 

Vote Crown Research Institutes: Departmental Output Classes

     
1,029 Crown Company Monitoring Advice to the Minister for
Crown Research Institutes, the Minister for Economic Development
and the Minister of Research, Science and Technology
1,062 1,073 1,073
 

Vote State-Owned Enterprises: Departmental Output Classes

     
2,582 Crown Company Monitoring Advice to the Minister for
State-Owned Enterprises and Other Responsible Ministers
2,639 2,466 2,668
54,069

Total Departmental Output Classes Expenditure and Appropriation

56,971 60,073 57,594
 

Capital Expenditure

     
223 Property, plant and equipment 867 1,002 1,414
312 Intangibles 209 320 402
535

Total Departmental Capital Expenditure

1,076 1,322 1,816

There was no unappropriated expenditure incurred during 2007/08 (2006/07: nil).

Notes to the Financial Statements

for the year ended 30 June 2008

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 2008. The financial statements were authorised for issue by the Chief Executive of the Department on 15 September 2008.

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.

This is the first set of financial statements prepared using NZ IFRS. The comparatives for the year ended 30 June 2007 have been restated to NZ IFRS accordingly. Reconciliations of equity for the year ended 30 June 2007 under NZ IFRS to the balances reported in the 30 June 2007 financial statements are detailed in Note 19.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements and in preparing an opening NZ IFRS Statement of Financial Position as at 1 July 2006 for the purposes of the transition to NZ IFRS.

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

Standards, amendments and interpretations issued but not yet effective that have not been early adopted, and which are relevant to the Department are:

  • NZ IAS 1 Presentation of Financial Statements (revised 2007) replaces NZ IAS 1 Presentation of Financial Statements (issued 2004) and is effective for reporting periods beginning on or after 1 January 2009. The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and to introduce a statement of comprehensive income. The Department expects it will apply the revised standard for the first time for the year ended 30 June 2010.
  • NZ IAS 23 Borrowing Costs (revised 2007) replaces NZ IAS 23 Borrowing Costs (issued 2004) and is effective for reporting periods commencing on or after 1 January 2009. The revised standard requires all borrowing costs to be capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. The Department intends to adopt this standard for the year ending 30 June 2010.

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.

SSRSS revenue

The State Services Commission reimburses the Department for its contributions to the State Sector Retirement Superannuation Scheme.

Rental income

Lease receipts under an operating sub-lease are 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.

Leases

Operating lease

The Department leases office premises. Substantially all the risks and benefits of ownership are retained by the lessor, and therefore these leases are classified as operating leases.

Finance lease

The CCMAU leases computer equipment. Substantially all the risks and benefits of ownership belong to the leasee and therefore this lease is classified as a finance lease. The obligation under this lease is capitalised at present value of the minimum lease payments. The capitalised values are amortised over the period in which CCMAU expects to receive benefits from their use.

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 equivalent

Cash includes cash on hand and funds on deposit 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 changes.

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 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.

for the year ended 30 June 2008

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:  
Safes
Shelving
Other
15 years
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
Leased equipment: 5 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.

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 fair value.

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 6.45% and a salary inflation factor of 2.75% 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 (GST)

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, the IRD is included as part of receivables or payables in the Statement of Financial Position.

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

Commitments and contingencies are disclosed exclusive of GST.

Income tax

Good practice 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 Statement of Intent for the year ended 30 June 2008, 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 Department has derived the cost of outputs/results using a cost allocation system. From 1 July 2007, the Treasury adopted a standard cost allocation method which is outlined below.

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.

Change in cost accounting policies

On 1 July 2007, the Treasury's cost allocation policy changed from an actual cost allocation policy to a standard costing methodology. This change was made to more adequately reflect the new Stepping Up/Results-based performance measurement and reporting model. This does not materially affect the costs of the individual outputs/results.

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

Other revenue

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp.  Estimates

$000

48 Rental income 32 34 34
981 State sector retirement superannuation scheme 1,026 972 972
61 Miscellaneous 20 16 16
1,090   1,078 1,022 1,022

4 - Personnel costs

Personnel costs

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp.  Estimates

$000

33,771 Salaries and wages 36,708 35,012 36,239
1,416 Employer contributions to defined contribution plans 1,466 1,405 1,381
137 Increase in employee entitlements 77 265 283
215 Other 238 244 247
35,539   38,489 36,926 38,150

5 - Operating expenses

Operating expenses

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp.  Estimates

$000

2,918 Lease of premises 2,973 2,957 2,972
 

Fees to KPMG for audit of the Department and NZDMO

     
235  - GAAP 255 275 259
85  - NZ IFRS 25 10 22
 

Fees to Office of Auditor-General for audit of the
Crown Financial Statements

     
232  - GAAP 160 140 140
319  - NZ IFRS 114 130 112
42 Fees for other services to Department and NZDMO auditors
(KPMG)
71 35 43
- Provisions for onerous lease 3 - 3
2 Finance charges on finance lease 1 1 1
2,706 Process management services 2,412 5,629 2,221
1,360 Transport and travel 1,252 1,525 1,500
956 Training and development 929 993 1,065
875 Information costs 879 961 846
555 Data processing costs 875 670 671
28 Furniture/office equipment purchases 48 13 24
3,945 Other operating costs 4,615 3,490 4,913
14,258   14,612 16,829 14,792

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 2008 was 7.5% (30 June 2007: 7.5%).

7 - Property, plant and equipment

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

Property, plant and equipment

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp.  Estimates

$000

 

Computer Hardware

     
 

Cost

     
4,407 Opening balance as at 1 July 4,048 4,604 4,048
160 Additions 800 802 1,307
(519) Disposals (254) (201) (350)
4,048 Closing balance as at 30 June 4,594 5,205 5,005
 

Accumulated depreciation

     
3,253 Opening balance as at 1 July 3,404 3,649 3,404
663 Depreciation 521 688 547
(512) Disposals (252) (201) (350)
3,404 Closing balance as at 30 June 3,673 4,136 3,601
644 Carrying amounts 921 1,069 1,404
 

Furniture and Fittings

     
 

Cost

     
1,089 Opening balance as at 1 July 1,078 1,100 1,078
3 Additions 7 - 40
(14) Disposals - - -
1,078 Closing balance as at 30 June 1,085 1,100 1,118
 

Accumulated depreciation

     
364 Opening balance as at 1 July 558 572 558
209 Depreciation 209 209 209
(15) Disposals - - -
558 Closing balance as at 30 June 767 781 767
520 Carrying amounts 318 319 351
 

Leasehold Improvements

     
 

Cost

     
5,025 Opening balance as at 1 July 5,058 5,058 5,058
33 Additions 39 1 40
- Disposals - - -
5,058 Closing balance as at 30 June 5,097 5,059 5,098
 

Accumulated depreciation

     
814 Opening balance as at 1 July 1,228 1,228 1,228
414 Depreciation 414 414 415
- Disposals - - -
1,228 Closing balance as at 30 June 1,642 1,642 1,643
3,830 Carrying amounts 3,455 3,417 3,455
 

Leased Equipment

     
 

Cost

     
56 Opening balance as at 1 July 56 56 56
- Additions - - -
- Disposals - - -
56 Closing balance as at 30 June 56 56 56
 

Accumulated depreciation

     
17 Opening balance as at 1 July 36 36 36
19 Depreciation 18 18 18
- Disposals - - -
36 Closing balance as at 30 June 54 54 54
20 Carrying amounts 2 2 2
 

Office Machinery and Electrical Equipment

     
 

Cost

     
647 Opening balance as at 1 July 674 664 674
27 Additions 21 200 26
- Disposals (13) - -
674 Closing balance as at 30 June 682 864 700
 

Accumulated depreciation

     
616 Opening balance as at 1 July 634 634 634
18 Depreciation 23 18 24
- Disposals (13) - -
634 Closing balance as at 30 June 644 652 658
40 Carrying amounts 38 212 42
5,054 Total Property, Plant and Equipment 4,734 5,019 5,254

The 30 June 2008 actual cost balance includes $23,638 of work in progress (30 June 2007: nil) for leasehold improvements which have not been depreciated.

8 - Intangible assets

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

Intangible assets

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp.  Estimates

$000

 

Computer Software - Internally Generated

     
 

Cost

     
224 Opening balance as at 1 July 519 620 519
295 Additions 195 200 229
- Disposals - - -
519 Closing balance as at 30 June 714 820 748
 

Accumulated amortisation

     
50 Opening balance as at 1 July 64 50 64
14 Amortisation 107 129 109
- Disposals - - -
64 Closing balance as at 30 June 171 179 173
455 Carrying amounts 543 641 575
 

Computer Software - Acquired

     
 

Cost

     
1,145 Opening balance as at 1 July 1,162 1,167 1,162
17 Additions 15 119 173
- Disposals - (200) -
1,162 Closing balance as at 30 June 1,177 1,086 1,335
 

Accumulated amortisation

     
1,066 Opening balance as at 1 July 1,108 1,130 1,108
42 Amortisation 41 45 49
- Disposals - (200) -
1,108 Closing balance as at 30 June 1,149 975 1,157
54 Carrying amounts 28 111 178
509 Total Intangible Assets 571 752 753

The 30 June 2008 actual cost balance includes $45,752 of work in progress (30 June 2007: $359,494) for computer software - internally generated which has not been depreciated.

9 - Creditors and other payables

Creditors and other payables

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp.  Estimates

$000

1,493 Creditors 2,426 1,500 1,500
18 Creditors for property, plant and equipment 22 - -
- Receipts in advance 65 - -
1,625 Accrued expenses 2,164 2,350 2,200
365 GST payable 408 450 450
3,501 Total Creditors and Other Payables 5,085 4,300 4,150

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

Provision for employee entitlements

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp.  Estimates

$000

1,307 Retirement, resigning and long service leave 1,346 1,347 1,520
2,505 Annual leave 2,559 2,200 2,750
87 Sick leave 71 87 87
374 Accrued salaries 409 405 445
139 Accrued performance payments 212 150 150
205 Accrued other entitlements 394 200 200
4,617   4,991 4,389 5,152
 

Represented by:

     
4,337 Current 4,768 4,088 4,764
280 Non-current (relating to retirement and long service leave) 223 301 388
4,617   4,991 4,389 5,152

11 - Provision for onerous contracts

Provision for onerous contracts

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp.  Estimates

$000

42 Balance at the beginning of the year 15 15 15
- Additional provisions made - - -
- Unused provision reversed - - -
(27) Amount utilised (15) (15) (15)
- Effect of discounting - - -
 

Represented by:

     
15 Current - - -
- Non-current - - -
15   - - -

The Department had a non-cancellable lease at Level 14, 47 Boulcott Street in Wellington until March 2008. Owing to the change in its activities, the Department no longer occupied Level 14 at the Boulcott Street premises. These premises were sub-leased. Owing to market conditions, the rental income was lower than the rental expense being incurred. The net obligation under the lease agreement was provided for as an onerous lease and this liability was incurred prior to March 2008.

12 - Finance leases

Finance leases

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp.  Estimates

$000

 

Analysis of Finance Lease Liabilities

     
22 Payable no later than one year 2 2 2
2 One to two years - - -
- Two to five years - - -
(1) Less future finance charges - - -
23   2 2 2
 

Represented by:

     
21 Current 2 2 2
2 Non-current - - -
23   2 2 2

The effective interest rate for the life of the finance lease is 6.5%. The finance lease is secured over the assets to which it relates. The ownership of these assets passes to the Department at the conclusion of the lease term. The Minister of Finance, pursuant to section 47 of the Public Finance Act 1989, has approved this finance lease.

13 - 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 57 to arrive at the net cash flows from operating activities disclosed in the Statement of Cash Flows on page 60.

Reconciliation of the net surplus to the net cash flows from operating activities

2007
Actual

$000

 

2008
Actual

$000

2008
Main Estimates

$000

2008
Supp.  Estimates

$000

-

Net Surplus from Statement of Financial Performance

-

-

-

 

Non-cash items:

     
1,379 Depreciation and amortisation 1,333 1,521 1,371
 

Add/(less) working capital movements:

     
38 Decrease/(increase) in advances and prepayments (99) - (62)
(52) (Increase)/decrease in accounts receivable (1,190) - 36
82 Decrease/(increase) in debtor - Crown (573) (338) (1,025)
179 Increase/(decrease) in payables, accrued expenses and provisions 1,994 579 1,066
245 Increase/(decrease) in other current liabilities (19) 108 (19)
(29) (Decrease)/increase in non-current liabilities (59) (2) 106
 

Investing activity items:

     
7 Net loss/(gain) on sale of property, plant and equipment 1 - 1
1,849

Net Cash Flows from Operating Activities

1,388 1,868 1,474

14 - 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 payables and accrued expenses.

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 and the finance lease) will be settled in less than six months from balance date.

15 - 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 the entity at arm's length in the same circumstances are not disclosed.

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

2007
Actual

$000

 

2008
Actual

$000

2,271 Salaries and other short-term employee benefits 2,341
1 Post-employment benefits 19
1 Other long-term benefits 1
2,273

Total Key Management Personnel Compensation

2,361

16 - Events subsequent to balance date

There were no events subsequent to balance date that required adjustment to the financial statements or disclosure (2007: none).

17 - Capital management

The Department's capital is its equity (or taxpayers' funds). Equity is represented by net assets. The Department manages it 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.

18 - Explanation of major variances against budget - see department overview

19 - Explanation of transition to NZ IFRS

Transition to NZ IFRS

The Department's financial statements for the year ended 30 June 2008 are the first financial statements that comply with NZ IFRS. The Department has applied NZ IFRS 1 First-time Adoption of NZ IFRS (NZ IFRS 1) in preparing these financial statements. The Department's transition date is 1 July 2006. The Department prepared its opening NZ IFRS balance sheet at that date. The reporting date of these financial statements is 30 June 2008. The Department's NZ IFRS adoption date is 1 July 2007.

Reconciliation of equity

Reconciliation of equity
  Note

Previous
NZ GAAP
1 July 2006

($000)

Effect on
Transition to
NZ IFRS
1 July 2006

($000)

NZ IFRS
1 July 2006

($000)

Previous
NZ GAAP
30 June 2007

($000)

Effect on
Transition to
NZ IFRS
30 June 2007

($000)

NZ IFRS
30 June 2007

($000)

Taxpayers' Funds

             
General funds a,b 8,527 (140) 8,387 7,927 (87) 7,840

Represented by:

             

Assets

             

Current assets

             
Cash and bank balances   3,182   3,182 3,896   3,896
Prepayments   444   444 406   406
Accounts receivable   408   408 460   460
Debtor - Crown   5,753   5,753 5,671   5,671

Non-current assets

             
Property, plant and equipment a 6,414 (254) 6,160 5,563 (510) 5,053
Intangible assets a - 254 254 - 510 510

Total Assets

  16,201 - 16,201 15,996 - 15,996

Less:

             

Liabilities

             

Current liabilities

             
Creditors and other payables   3,312   3,312 3,501   3,501
Provision for employee entitlements b 4,005 140 4,145 4,250 87 4,337
Provision for onerous contracts   25   25 15   15
Finance lease liability   18   18 21   21

Non-current liabilities

             
Provision for employee entitlements   276   276 280   280
Provision for onerous contracts   17   17 -   -
Finance lease liability   21   21 2   2
Total Liabilities   7,674 140 7,814 8,069 87 8,156

a  Property, plant and equipment and intangible assets

Computer software was classified as property, plant and equipment under previous NZ GAAP. Computer software has been reclassified as an intangible asset on transition to NZ IFRS.

b  Provision for employee entitlements - sick leave

Sick leave was not recognised as a liability under previous NZ GAAP. NZ IAS 19 requires the Department to recognise employees' 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 future absences.

Reconcilation of surplus

The following table shows the changes in the Ministry's surplus, resulting from the transactions from previous NZ GAAP to NZ IFRS for the year ended 30 June 2007.

Reconcilation of surplus
  Note

Previous
NZ GAAP
30 June 2007

($000)

Effect on
Transition to
NZ IFRS
30 June 2007

($000)

NZ IFRS
30 June 2007

($000)

Revenue

       
Revenue Crown   52,979 - 52,979
Revenue other   1,090 - 1,090
    54,069 - 54,069

Expenses

       
Personnel   35,539 - 35,539
Operating   14,258 - 14,258
Consultants   2,276 - 2,276
Depreciation a 1,379 (56) 1,323
Amortisation a - 56 56
Capital charge   617 - 617
    54,069 - 54,069

Net Surplus

  - - -

a  Depreciation and amortisation

Computer software was depreciated as part of property, plant and equipment under previous NZ GAAP. Under NZ IFRS computer software is classified as an intangible asset and amortised.

Supplementary Financial Schedules - Non-Departmental

for the year ended 30 June 2008

Overview

Statement of Accounting Policies

Subsequent Events Schedule of Expenses

Statement of Expenditure and Appropriations

Statement of Unappropriated Expenditure

Schedule of Revenue

Schedule of Capital Receipts

Schedule of Assets

Schedule of Liabilities

Schedule of Commitments

Schedule of Contingent Liabilities

Statement of Trust Monies

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 96 and 97.

The Department administered $4,616 million of expenses, $3,653 million of revenue, $56 million of capital receipts, $27,547 million of assets and $46,151 million of liabilities on behalf of the Crown for the year ended 30 June 2008.

The financial information reported in these schedules is consolidated into the Crown financial statements, and therefore readers of these schedules should also refer to the Crown financial statements for the year ended 30 June 2008.

Overview

These are the first schedules prepared using the New Zealand equivalents to NZ IFRS. The comparatives for the year ended 30 June 2007 have been restated to NZ IFRS except for the comparative figures in the Statement of Expenditure and Appropriations. Adjustments to revenue and expenditure due to remeasurement under NZ IFRS are detailed in the Schedule of Expenses.

Amortisation of Air New Zealand Goodwill

The amortisation of Air New Zealand Goodwill is not permitted under NZ IFRS. Therefore no appropriation was incurred in 2007/08. In addition, the expense incurred from 1 July 2006 (being the date of transition by the Crown) is reversed under NZ IFRS and the increase is reflected in the value of Intangibles and goodwill (page 90).

Atihau-Whanganui Incorporation Ex-Gratia Payment

In June 2007/08, the Crown agreed to an ex-gratia payment of $23 million to Atihau-Whanganui Incorporation. This payment was for settlement of all its claims in respect of the Vested Lands and the Mäori Vested Lands Administration Act 1954. As negotiations were concluded earlier than anticipated, no appropriation had been included in the 2007/08 Supplementary Estimates. This is a one-off transaction. (Refer Statement of Unappropriated Expenditure.)

Borrowing Costs and Other Expenses - NZDMO

Borrowing costs currently shown under old GAAP for the 2006/07 year would be restated to $2,082 million if disclosed under NZ IFRS, ie, a reduction of $348 million. This NZ IFRS adjustment is due to the exclusion of losses on derivatives. All fair value adjustments on derivatives are now disclosed as remeasurements within Other expenses - NZDMO. Other expenses - NZDMO has decreased by $365 million from the 2006/07 year primarily due to the impact of interest rate movements on the fair value of derivatives and non-derivatives.

Dividends

SOE dividends decreased by $81 million from 2006/07 (page 88), primarily due to a reduction in dividends from Meridian Energy and Air New Zealand from those paid in previous years. These dividend reductions were due to changes in economic conditions. Crown entity dividends decreased by $15 million, as Television New Zealand incurred a financial loss for the year ended 2006/07 and did not declare a final dividend (payable 2007/08).

Foreign-Exchange (Losses)/Gains

Foreign-exchange gains were $7 million in 2007/08, compared with losses of $36 million in 2006/07, 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 88). The increase in value of these investments is also reflected in Other share investments (page 90). In contrast, NZDMO incurred foreign-exchange losses of $15 million in 2007/08, compared with gains of $17 million in 2006/07 due to movements in foreign exchange rates.

Government Superannuation Fund (GSF) Unfunded Liabilities

Under NZ IFRS, the subsidy paid to GSF schemes is no longer appropriated under GSFA - Subsidies to GSF schemes. Increases in the GSF liability due to additional current service costs and interest expenses are appropriated under Other expenses to be incurred by the Crown - GSF unfunded liability (page 85) while actuarial gains and losses are disclosed as a remeasurement (page 84) GSF unfunded liability - actuarial (gains)/losses. The GSF unfunded liability as at 30 June 2008 was $8,257 million (page 91), an increase of $1,096 million compared with 30 June 2007. The primary reason for the increase was actuarial losses due to movements in the economic assumptions used in calculating the liability.

International Financial Institutions

There were no capital contributions to or returns of capital from the International Monetary Fund (IMF) in 2007/08 (page 89) compared with returns of $100 million in the 2006/07 year. This reflects the cyclical nature of the IMF lending programme.

Maui Gas Contract

The Crown's revenues from Maui Gas Contracts have decreased by $14 million as the gas drawn reduces as the contract nears expiry. In addition, the revaluation of the Crown's margin and reduction in sales of prepaid gas has decreased both Other current revenue and Sales of goods and services by $6 million (page 88). The decrease in revenues is offset by a reduction in Other expenses incurred by the Crown for Maui Gas Contracts of $15 million (page 85).

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

The Crown's liability for the NPF DBP(A) Scheme under Crown guarantee as at 30 June 2008 is $907 million (page 91), an increase of $136 million compared with 30 June 2007. The primary reason for the increase was movements in the economic assumptions used in calculating the provision and a reduction in fund assets due to payments of benefits. Increases in the NPF liability due to unwinding of the interest expense are appropriated under Other expenses to be incurred by the Crown - National Provident Fund schemes - Liability under Crown guarantee (page 85) while other changes due to economic assumptions are disclosed as a remeasurement, refer change in NPF DBP(A) Scheme provision under Crown guarantee (page 84).

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

NZDMO's interest from investments increased by $222 million due to higher average holdings in cash and investment securities than during the 2006/07 year. NZDMO's other income increased by $157 million primarily due to increased interest income from greater lending to Housing New Zealand Corporation and the Crown Financing Agency (CFA) and positive fair value revaluations on Crown lending to the Reserve Bank of New Zealand and the Crown Financing Agency.

Reserve Bank Surplus

The Reserve Bank's “notional surplus income” payable to the Crown decreased from $410 million to $193 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 88).

Rugby World Cup

The Crown agreed to underwrite the 2011 Rugby World Cup in 2005/06. The estimated net present value of this cost has decreased by $17 million due to the reforecast of costs ($20 million), offset by changes in discount rate and the time value of money (page 88). This change was primarily due to the decision to fund the upgrade of Eden Park via the MED.

Rail Issues

During the year, the Crown planned to purchase Toll NZ Ltd's rail business and associated costs for up to $690 million. However, this purchase occurred in the 2008/09 year. The Crown also provided ONTRACK equity injections of $34 million for the purchase of rail land and the Wellington Railway Station. This sale is reflected in the decrease in Property, plant and equipment on page 90.

Statement of Accounting Policies

for the year ended 30 June 2008

Measurement and recognition rules applied in the preparation of these non-departmental supplementary financial schedules are consistent with NZ GAAP and Crown accounting policies.

The financial information reported in these schedules is consolidated into the Crown financial statements, and therefore readers of these schedules should also refer to the Crown financial statements for the year ended 30 June 2008.

Subsequent Events

On 1 July 2008, negotiations were completed and an agreement was signed for the purchase of 100% of the shares in Toll (New Zealand) Limited. Prior to the acquisition, assets and operations not integral to the rail operation were separated out of Toll (New Zealand) Limited. On acquisition by the Government, the company was renamed KiwiRail Limited.

Ownership of the rail business is intended to place the Government in a better position to integrate rail planning and funding with its wider transport policy, and to ensure capital investment for improving the rolling stock.

The cost of acquisition of the company was $690 million, settled in cash on 1 July. The assets acquired and liabilities assumed as a result of this purchase will be consolidated into the Financial Statements of Government from 1 July 2008, and the process to identify and value these individual items in accordance with NZ IFRS 3 has begun. Until this task is completed, an estimation of the full financial effect of this acquisition is not available.

Schedule of Expenses

for the year ended 30 June 2008

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 85 and 86.

Schedule of Expenses for the year ended 30 June 2008
2007
Actual
$000
  2008
Actual
$000
2008
Supp. Estimates
$000
5,874 Non-departmental output classes 2,044 2,888
975,542 Benefits and other unrequited expenses  - -
2,429,985 Borrowing expenses 2,049,665  2,152,000
262,728 Other expenses incurred by the Crown 1,367,116  1,283,587
 

Remeasurements:

   
579,073 - NZ IFRS adjustments to revenue received  - -
(401,450) - NZ IFRS adjustments expense appropriations  - -
(1,133,059) - Change in GSF unfunded liability - actuarial (gains)/losses 1,097,504 906,380
(33,563) - Change in NPF DBP(A) Scheme provision under Crown guarantee 60,000 -
- - Realised loss/(gain) on sale of assets  6,581 -
3,337 - SOE/CE impairments 15,690 -
230 - Other changes - revision of assets  - -
(230) - Derivative losses/(gains) 171 -
(16,829) - Foreign-exchange losses/(gains) incurred by NZDMO 15,477 -
2,671,638   4,614,248 4,344,855
 

Vote Crown Research Institutes

   
134 Other expenses incurred by the Crown 1,347 2,111
134   1,347 2,111
 2,671,772

Total Non-Departmental Expenses

4,615,595 4,346,966

The Crown's accounting policies are an integral part of these supplementary financial schedules.

Statement of Expenditure and Appropriations

for the year ended 30 June 2008

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 for the year ended 30 June 2008
2007
Actual
$000
  2008
Actual
$000
2008
Supp. Estimates $000
 

Vote Finance

   
 

Non-Departmental Output Classes

   
3,866 GSF Authority  - -
1,511 Guardians of New Zealand Superannuation 1,611  1,612
402 Management of Crown Overseas Properties, London 352  925
 95 Management of residual geothermal liabilities 81  351
5,874   2,044  2,888
 

Benefits and Other Unrequited Expenses

   
975,542 GSFA subsidies to GSF schemes  - -
975,542   - -
 

Borrowing Expenses

   
2,429,985 Debt servicing[11] 2,049,665  2,152,000
2,429,985   2,049,665  2,152,000
 

Other Expenses Incurred by the Crown

   
 46,900 Amortisation of Air New Zealand goodwill  - -
 - Atihau-Whanganui Incorporation ex-gratia payment 23,000 -
 97,897 Auckland rail development 97,719 77,290
 - Crown contribution to Atihau-Whanganui Incorporation
negotiation costs
500  500
 12,263 Crown overseas properties 11,792 15,800
211 Crown residual liabilities 31  475
 - Geothermal liabilities  -  500
5 Government Superannuation Appeals Board  - 50
 - Government Superannuation Fund and
National Provident Fund cost of living indexation
21,000 33,200
6,893 Government Superannuation Fund Authority
- Crown's share of expenses11
15,591 15,000
 - Government Superannuation Fund unfunded liability11 1,027,253  1,003,617
 - Invercargill Airport suspensory loan  -  300
 - Kaingaroa Forest road easements 178  400
 56,625 Maui Gas Contracts 41,496 42,873
 - National Provident Fund schemes
- Liability under Crown guarantee11
74,000 -
406 New Zealand Cricket compensation  - -
8,400 ONTRACK operating and maintenance costs 12,800 12,800
639 Overlander support  - -
 31,926 Upgrade of rail network 26,928 58,680
 14 Unclaimed money11 15  250
 - Unclaimed trust money11  7  250
 - Urban rail development 5,231  6,390
549 Wellington Railway Station expenses 548  1,162
 - Wellington Regional Council loan 5,847 14,050
- Write-off of capital charge receivable 3,180 -
262,728   1,367,116  1,283,587

The Crown's accounting policies are an integral part of these supplementary financial schedules.

for the year ended 30 June 2008

Statement of Expenditure and Appropriations (continued) for the year ended 30 June 2008
2007
Actual
$000
  2008
Actual
$000
2008
Supp. Estimates Voted
$000
 

Capital Expenditure

   
 - Ag Research equity injection 195  195
 - Industrial Research Limited equity injection 8,000  8,000
 - International financial institutions[12] 691  1,000
 - Landcorp Protected Land Agreement  64,200 65,408
 - ONTRACK - equity injection  34,140 42,750
 80,000 ONTRACK - loans  70,000 110,000
 2,049,000 New Zealand Superannuation Fund - contributions 2,103,000  2,103,000
 - Purchase of Toll NZ Ltd's rail business and associated costs - 690,000
 20,000 Rugby World Cup -  -
 - Suspensory loan to Invercargill Airport -  1,500
 600 Taitokerau Forests -  1,360
 - Timberlands West Coast Ltd equity injection 2,000  2,000
3,669 Wellington Railway Station upgrade 784  1,003
3,858 Wellington Regional Council loan  11,334 24,742
 2,157,127   2,294,344  3,050,958
 5,831,256

Total Vote Finance

5,713,169  6,489,433
 

Vote Crown Research Institutes

   
 

Other Expenses Incurred by the Crown

   
 134 CRI residual liabilities 1,347  2,111
 134

Total Vote Crown Research Institutes

1,347  2,111
 5,831,390

Total Non-Departmental Expenditure and Appropriations

5,714,516  6,491,544

The Crown's accounting policies are an integral part of these supplementary financial schedules.

Notes

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

Statement of Unappropriated Expenditure

for the year ended 30 June 2008

Vote Finance, Other Expenses Incurred by the Crown

Atihau-Whanganui Incorporation ex-gratia payment: $23 million in 2007/08 only

An ex-gratia payment to Atihau-Whanganui Incorporation in settlement of all its claims in respect of the Vested Lands and the Mäori Vested Lands Administration Act 1954.

Negotiations were successfully completed in June 2008, which was earlier than anticipated. Consequently, this ex-gratia payment to Atihau-Whanganui Incorporation was unappropriated expenditure because there was no existing appropriation for it.

Write-off of Capital Charge Receivable: $3.180 million in 2007/08 only

This unappropriated expense results from a government decision in June 2008, after the 2007/08 Supplementary Estimates had been finalised, to write off the capital charge incurred to 30 June 2008 on the government funding invested in the Government Shared Network.

This capital charge was recorded as a long-term receivable in Vote Finance. Upon write off an expense was incurred, which was unappropriated.

Vote Finance, Non-Departmental Capital Expenditure

Landcorp Protected Land Agreement: $64.2 million in 2007/08 only

Purchase (including by reinvesting cash dividends) of redeemable preference shares in Landcorp under the Protected Land Agreement.

Early in 2007/08 the Government agreed to compensate Landcorp in relation to protected land through a combination of equity and reduced dividends, and approved the use of imprest supply to provide $52.2 million in equity. The terms of the Protected Land Agreement that was entered into provided for the Crown compensation to Landcorp to be by way of a combination of a capital injection and diverting dividends, with Landcorp issuing redeemable preference shares to the Crown in return for both.

The Treasury subsequently received advice that under NZ GAAP because the redeemable preference shares become repayable in certain circumstances, they are debt rather than equity. Therefore, the $52.2 million payment that had been made to Landcorp was outside the scope of the approval to use imprest supply and requires validation in the Appropriation (2007/08 Financial Review) Bill.

Diverting dividends differs from reducing dividends in that it involves the Crown reinvesting dividends that have been declared by Landcorp and in return receiving redeemable preference shares. No approval under imprest supply was in place for the reinvestment of a $12 million dividend Landcorp declared to the Crown in October 2007, so this also requires validation in the Appropriation (2007/08 Financial Review) Bill.

Subsequent to the expenditure for which validation is being sought, an appropriation was included in the 2007/08 Supplementary Estimates and the 2008/09 Estimates authorising future Crown dividend reinvestments in redeemable preference shares in Landcorp.

The Crown's accounting policies are an integral part of these supplementary financial schedules.

Schedule of Revenue

for the year ended 30 June 2008

             Vote Finance        Vote Crown Research Institutes
Schedule of Revenue for the year ended 30 June 2008
2007
Actual
$000
  2008
Actual
$000
2008
Supp. Estimates
$000
 

Vote Finance

   
1,404,573 Capital charge 1,437,103  1,438,378
3,606 Contact Energy Ltd Crown margin interest 1,554  1,574
 14,525 Dividends from Crown entities  - -
603,685 Dividends from SOEs 522,435  523,892
2,681 Dividends - other 2,751  2,819
 10,000 Earthquake Commission guarantee fee 10,000 10,000
 52,043 Employers' superannuation contributions 46,547 55,560
147 Export Credit Office 1,515  1,602
537,930 Interest from investments 760,013  829,000
 13,880 Interest income - other 20,442 19,000
102,809 Other income - NZDMO 259,444  151,000
(57,150) Other expenses - NZDMO (incl gains on derivatives) 308,864 333,050
 50,939 Maui Gas Contracts 37,439 39,000
 14,991 Rentals from Crown overseas properties 14,218 17,000
410,000 Reserve Bank of New Zealand notional surplus 193,000  193,000
(2,747) Rugby World Cup provision remeasurement 16,789 -
 10,504 Sale of goods and services 7,815  7,500
(36,434) Foreign-exchange gains/(losses) 7,040 -
5,944 Other current revenue 4,759  600
1,431 Unclaimed money 347  500
3,143,357   3,652,075 3,623,475
 

Vote Crown Research Institutes

803 Dividends from CRIs 887  1,482
803   887  1,482
3,143,160

Total Non-Departmental Revenue

3,652,962 3,624,957

The Crown's accounting policies are an integral part of these supplementary financial schedules.

Schedule of Capital Receipts

for the year ended 30 June 2008

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

                  2008
Actual
$000             Vote Finance  
Schedule of Capital Receipts for the year ended 30 June 2008
2007
Actual
$000
  2008
Actual
$000
2008
Supp. Estimates
$000
 

Vote Finance

   
58,242 Contact Energy Ltd Crown margin 31,547 38,692
500 Loan repayments from other parties 500  500
100,000 Return of capital from the International Monetary Fund  - -
- Sale of Wellington Railway Station to NZ Railways Corporation 23,540 30,000
158,742

Total Capital Receipts

55,587 69,192

The Crown's accounting policies are an integral part of these supplementary financial schedules.

 

Schedule of Assets

as at 30 June 2008

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

            2008
Actual
$000
Schedule of Assets as at 30 June 2008
2007
Actual
$000
  2008
Actual
$000
2008
Supp. Estimates
$000
3,182,224  Cash and cash equivalents 6,944,125  5,740,939
 29,898  Accounts receivable  170,390 92,412
6,889,950  Advances 6,896,419  6,678,000
6,989,904  Marketable securities, deposits and derivatives in gain 6,651,943  6,872,297
5,238  Inventory 1,218  1,365
 18,912  Prepayments   31,271   -
  257,950  Intangibles and goodwill 257,950  257,950
6,130,719  Investments in SOEs, CEs and CRIs 6,159,885  6,897,682
  147,159  Other share investments 154,890  147,159
  172,853  Other equity accounted investments 179,346  172,853
  135,458  Property, plant and equipment   99,717 94,968
 23,960,265  Total Non-Departmental Assets   27,547,154   26,955,625

The Crown's accounting policies are an integral part of these supplementary financial schedules.

 

Schedule of Liabilities

as at 30 June 2008

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

                                                                  2008
Actual
$0002008
Actual
$000
Schedule of Liabilities as at 30 June 2008
2007
Actual
$000
  2008
Actual
$000
2008
Supp. Estimates Voted
$000
4,051,909 Crown balances with Westpac 3,957,620 2,397,000
31,682 Payables and accrued expenses 58,898 43,683
32,364,546 Borrowings 32,951,881 32,903,000
485 Insurance liabilities 1,319 300
7,160,300 Government Superannuation Fund unfunded liability 8,256,661 8,140,968
771,453 NPF DBP(A) Scheme unfunded provision 907,453 779,653
34,645 Rugby World Cup provision 17,004 14,645
 44,415,020

Total Non-Departmental Liabilities

46,150,836 44,279,249

The Crown's accounting policies are an integral part of these supplementary financial schedules.

 

Schedule of Commitments

as at 30 June 2008

Schedule of Commitments as at 30 June 2008
2007
$000
  2008
$000
 

Operating Commitments

 
 

By type

 
1,700 Non-cancellable property lease 1,658
498,417 Auckland rail development 400,698
52,160 National rail network upgrades 28,224
550,000 Urban rail development 569,769
625 Other non-cancellable operating commitments 469
1,102,902   1,000,818
 

By term

 
277,358 Less than one year 325,335
275,198 One to two years 405,464
548,855 Two to five years 268,570
1,491 More than five years 1,449
1,102,902   1,000,818
 

Capital Commitments

 
1,003 Wellington Railway Station  -
1,003    -
1,103,905

Total Commitments

1,000,818

The Crown's accounting policies are an integral part of these supplementary financial schedules.

Schedule of Contingent Liabilities

as at 30 June 2008

Schedule of Contingent Liabilities as at 30 June 2008
2007
$000
  2008
$000
 

Quantifiable Contingent Liabilities

 
21,623 Guarantees and indemnities 18,776
2,063,868 Uncalled capital 2,164,386
132 Legal proceedings and disputes 132
1,439,314 Other contingent liabilities 1,764,561
3,524,937   3,947,855

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.

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 Crown financial statements for further details.

The Crown's accounting policies are an integral part of these supplementary financial schedules.

Statement of Trust Monies

as at 30 June 2008

Statement of Trust Monies as at 30 June 2008
2007
$000
  2008
$000
849 Balance at the beginning of the year 941
293 Contribution 769
(32) Distribution (68)
35 Revenue 78
(204) Unclaimed money returned to the Crown -
941

Balance at End of the Year

1,720

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. During the financial year ended 30 June 2008, no claims were made and interest of $77,585 was earned from trust money on term deposit.

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

The Crown's accounting policies are an integral part of these supplementary financial schedules.

New Zealand Debt Management Office (NZDMO)

Schedule of Assets and Liabilities

Schedule of Revenues and Expenses

Risk Management

Funding Risk

Liquidity Risk

Credit Risk

Operational Risk

Market Risk

NZDMO, established in 1988, 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
  • providing capital markets services and derivative transactions for departments and Crown entities.

NZDMO managed $20.5 billion of assets, $36.9 billion of liabilities, $1.0 billion of revenue and $1.7 billion of expenses on behalf of the Crown for the year ended 30 June 2008. Further information on NZDMO's performance in managing the Crown's Sovereign‐issued debt and related financial assets is provided in the Output Performance - Vote Finance section of this report on pages 38 and 39.

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 2008

Schedule of Assets and Liabilities as at 30 June 2008
2007   2008
Carrying Value
$m
Fair Value
$m
  Carrying Value
$m
Fair Value
$m
   

Assets

   
   

Cash and receivables

   
3,150 3,150 Crown settlement account 6,903 6,903
9 9 Foreign bank accounts 18 18
19 19 Debtors and receivables 99 99
   

Advances

   
3,950 3,950 RBNZ 3,539 3,539
1,105 1,105 Crown Financing Agency 1,287 1,287
1,655 1,654 Housing New Zealand 1,809 1,809
148 148 OnTrack 221 221
32 32 Non-Crown 40 40
   

Financial assets

   
4,464 4,464 Marketable securities 5,004 5,004
1,064 1,064 External deposits 748 748
1,211 1,211 Derivatives in gain 680 680
183 183 IMF reserve position 188 188
16,990 16,989 Total Assets 20,536 20,536
   

Liabilities

   
   

Overdrafts and payables

   
4,052 4,052 Crown balances with Westpac 3,958 3,958
5 5 Creditors and payables - -
   

Financial liabilities

   
2,098 2,098 Treasury bills - market 1,487 1,487
184 184 Treasury bills - non-market 154 154
17,461 17,149 Government bonds - market[13] 19,459 19,455
7,356 7,128 Government bonds - non-market 7,487 7,433
1,439 1,582 Inflation-indexed bonds - market 1,482 1,591
432 473 Inflation-indexed bonds - non-market 445 475
364 361 Kiwibonds 423 422
1,229 1,229 Foreign currency debt 689 689
495 495 Collateral 70 70
807 807 Derivatives in loss 790 790
177 177 Departmental deposits 77 77
280 280 IMF allocation 304 304
36 36 Immigration investor policy bonds 81 81
7 8 Other 4 4
36,422 36,064 Total Liabilities 36,910 36,990
(19,432) (19,075) Net Assets/(Liabilities) (16,374) (16,454)

Notes

  • [13]Government bonds – market includes $295 million of Infrastructure bonds at June 2008 (June 2007: $50 million).

Schedule of Revenues and Expenses

for the year ended 30 June 2008

Schedule of Revenues and Expenses for the year ended 30 June 2008
2007
$m
  2008
$m
 

Revenue

 
 

Cash and receivables

 
66 Crown settlement account 339
 

Advances

 
185 RBNZ 164
41 Crown Financing Agency 104
115 Housing New Zealand 152
4 OnTrack 17
(31) Non-Crown (3)
 

Financial assets

 
228 Marketable securities 224
42 External deposits 41
5 IMF reserve position 2
655 Total Revenue 1,040
 

Expenses

 
199 Treasury bills - market 149
11 Treasury bills - non-market 13
939 Government bonds - market 1,258
463 Government bonds - non-market 457
116 Inflation-indexed bonds - market 111
35 Inflation-indexed bonds - non-market 33
23 Kiwibonds 26
48 Foreign currency debt 85
14 Collateral 12
265 Derivatives[14] (426)
13 IMF allocation 10
- Immigration investor policy bonds 2
13 Other 17
2,139 Total Expenses 1,747
16 Net FX Gains/(Losses) (15)
(1,468) Net Revenue/(Expenses) (722)

Classes and categories of financial instruments

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

Classes and categories of financial instruments
2007
$m
  2008
$m
Amortised
Cost[15] 
Held for
Trading
Fair Value
Through
Profit or Loss
Carrying
Value
  Amortised
Cost15
Held for
Trading
Fair Value
Through
Profit or Loss
Carrying
Value
       

Financial Assets

       
       

Cash and receivables

       
3,150 - - 3,150 Crown settlement account 6,903 - - 6,903
9 - - 9 Foreign bank accounts 18 - - 18
19 - - 19 Debtors and receivables 99 - - 99
       

Advances

       
- - 3,950 3,950 RBNZ - - 3,539 3,539
- - 1,105 1,105 Crown Financing Agency - - 1,287 1,287
1,248 - 407 1,655 Housing New Zealand 1,158 - 651 1,809
- - 148 148 OnTrack - - 221 221
32 - - 32 Non-Crown 40 - - 40
       

Financial assets

       
- - 4,464 4,464 Marketable securities - - 5,004 5,004
- - 1,064 1,064 External deposits - - 748 748
- 1,211 - 1,211 Derivatives in gain - 680 - 680
183 - - 183 IMF reserve position 188 - - 188
4,641 1,211 11,138 16,990 Total Financial Assets by Designation 8,406 680 11,450 20,536
       

Financial Liabilities

       
4,052 - - 4,052 Crown balances with Westpac 3,958 - - 3,958
5 - - 5 Creditors and payables - - - -
- - 2,098 2,098 Treasury bills - market - - 1,487 1,487
184 - - 184 Treasury bills - non-market 154 - - 154
13,265 - 4,196 17,461 Government bonds - market 13,812 - 5,647 19,459
7,356 - - 7,356 Government bonds - non-market 7,487 - - 7,487
1,439 - - 1,439 Inflation-indexed bonds - market 1,482 - - 1,482
432 - - 432 Inflation-indexed bonds - non-market 445 - - 445
364 - - 364 Kiwibonds 423 - - 423
- - 1,229 1,229 Foreign currency debt - - 689 689
- - 495 495 Collateral - - 70 70
- 807 - 807 Derivatives in loss - 790 - 790
- - 177 177 Departmental deposits - - 77 77
280 - - 280 IMF allocation 304 - - 304
36 - - 36 Immigration investor policy bonds 81 - - 81
7 - - 7 Other 4 - - 4
27,420 807 8,195 36,422 Total Financial Liabilities by Designation 28,150 790 7,970 36,910

Derivatives

As at 30 June 2008, the value of derivatives was as follows:

Derivatives
2007   2008

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

       
539 (296) 243 23,050 Foreign exchange contracts 179 (231) (52) 18,323
545 (230) 315 5,312 Cross currency swaps 320 (402) (82) 4,174
127 (281) (154) 9,213 Interest rate swaps 181 (157) 24 10,309
- - - 241 Futures - - - 154
1,211 (807) 404 37,816 Total Derivatives 680 (790) (110) 32,960

Notes

  • [14]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.
  • [15]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 has been in place since NZDMO was established, and has been subject to continuous improvement as information technology and analytical techniques have advanced. 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 and codes of conduct, defined responsibilities and accountabilities, formal delegations, segregated duties and reporting and performance management requirements.

Funding Risk

Funding risk refers to the risk that maturing debt is refinanced at an unacceptable yield.

To manage the refinancing risk associated with New Zealand‐dollar borrowing, NZDMO establishes a relatively even maturity profile for debt across the yield curve. 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 market and, consequently, reduce the Crown's cost of borrowing. A range of measures was implemented in 2007/08 to improve bond market liquidity, including moving from monthly to fortnightly bond tenders and increasing the size of bond lines. Plans were announced to introduce tap tenders and reverse tap tenders during 2008/09.

Liquidity Risk

Liquidity risk refers to the risk of having insufficient cash available to meet NZDMO's obligations as they fall due. To manage liquidity risk in its foreign currency portfolios, NZDMO monitors all obligations falling due over rolling six‐week and 12‐week horizons, and holds readily liquefiable assets against these obligations. 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

Liquidity Management
As at 30 June 2008

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 3,958 3,958

Financial Liabilities

           
Treasury bills - market 1,500 1,500
Treasury bills - non-market 155 155
Government bonds - market 24,440 3,831 5,004 8,557 7,048
Government bonds - non-market 9,358 1,519 1,619 3,612 2,608
Inflation-indexed bonds - market 2,057 69 69 206 1,713
Inflation-indexed bonds - non-market 615 21 21 61 512
Kiwibonds 434 397 37 -
Foreign currency debt 789 36 36 520 197
Collateral 70 70
Departmental deposits 77 77
IMF allocation 304 304
Immigration investor policy bonds 83 3 80
Other 4 2 - 1 1
Total Non-Derivative Liabilities 43,844 11,942 6,786 13,037 12,079

Derivative Inflows[16]

           
Foreign exchange contracts 18,322 17,703 409 210
Foreign exchange options
Cross currency swaps 5,528 945 450 1,409 2,724
Interest rate swaps 2,862 613 480 1,009 760
Total Derivative Inflows 26,712 19,261 1,339 2,628 3,484

Derivative Outflows10

           
Foreign exchange contracts 18,332 17,742 389 201
Foreign exchange options
Cross currency swaps 5,138 928 367 1,259 2,584
Interest rate swaps 2,830 647 449 989 745
Total Derivative Outflows 26,300 19,317 1,205 2,449 3,329

Notes

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

Credit Risk

Credit risk refers to the risk of a counterparty to a financial transaction failing to discharge an obligation.

Credit losses arise when the issuer of a financial obligation that NZDMO holds as an asset is downgraded or defaults. Credit losses may also arise, for example, when NZDMO is required to find a transaction counterparty to replace one that is no longer of acceptable credit quality. In finding a suitable replacement, NZDMO would incur transaction costs and potentially suffer a loss in the market value of the original transaction.

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.

Credit Risk Management

2007

$m

Credit Risk Management

2008

$m

16,990 Total NZDMO financial assets 20,536
 

Less:

 
10,148 Crown-related balances 13,909
6,842 Total Credit Exposure for Financial Assets 6,627

Concentration of Credit Exposure as at 30 June 2008

Concentration of Credit Exposure as at 30 June 2008 - by Credit Rating
By Credit Rating

AAA

$m

AA

$m

A

$m

Other

$m

Non-Rated

$m

Credit Exposure

$m

Foreign bank accounts 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
Concentration of Credit Exposure as at 30 June 2008 - by Industry
By Industry

Sovereign Issuers

$m

Supra-national

$m

NZ Banking Sector

$m

Foreign Banking
Sector

$m

Other

$m

Credit Exposure

$m

Foreign bank accounts 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
Concentration of Credit Exposure as at 30 June 2008 - by Geographical Area
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 bank accounts 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

Concentration of Credit Exposure as at 30 June 2007

Concentration of Credit Exposure as at 30 June 2007 - by Credit Rating
By Credit Rating

AAA

$m

AA

$m

A

$m

Other

$m

Non-Rated

$m

Credit Exposure

$m

Foreign bank accounts 1 8 - -   - 9
Debtors and receivables
Advances to non-Crown 32 32
Marketable securities 3,150 1,300 4,450
External deposits 553 510 1 1,064
Derivatives in gain 47 1,043 11 3 1,104
IMF reserve position 183 183
Total Credit Exposure by Credit Rating 3,751 2,861 11 1 218 6,842
Concentration of Credit Exposure as at 30 June 2007 - by Industry
By Industry

Sovereign Issuers

$m

Supra-National

$m

NZ Banking Sector

$m

Foreign Banking Sector

$m

Other

$m

Credit Exposure

$m

Foreign bank accounts 1 8 9
Debtors and receivables
Advances to non-Crown 32 32
Marketable securities 1,009 189 1,905 1,347 4,450
External deposits 554 400 110 1,064
Derivatives in gain 459 595 50 1,104
IMF reserve position 183 183
Total Credit Exposure by Industry 1,564 372 859 2,618 1,429 6,842
Concentration of Credit Exposure as at 30 June 2007 - by Geographical Area
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 bank accounts 1 - - 8 9
Debtors and receivables
Advances to non-Crown 32 32
Marketable securities 118 2,362 1,684 189 97 4,450
External deposits 553 110 1 400 1,064
Derivatives in gain 132 293 217 461 1 1,104
IMF reserve position 183 183
Total Credit Exposure by Geographical Area 804 2,765 1 1,909 893 372 98 6,842

Operational Risk

Operational risk refers to the risk of loss due 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, poor strategic decisions, the breakdown of key relationships and disasters.

Operational risks are managed in a number of ways. Operational risk policies span, for instance, transaction processing, legal and regulatory issues, ethical standards, physical and systems security and business continuity. Independent experts provide additional support in managing operational risk.

Market Risk

Market risk refers to the risk of loss due to adverse movements in interest rates or foreign exchange rates.

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 the 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 a modified historic cost basis.

Foreign Currency Risk Management

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

Foreign Currency Risk Management
As at 30 June 2008

NZD

$m

USD

$m

Yen

$m

Euro

$m

AUD

$m

Other

$m

Carrying Value

$m

Cash and Receivables

             
Crown settlement account 6,903 6,903
Foreign bank accounts 2 1 7 1 7 18
Debtors and receivables 99 99

Advances

             
RBNZ 1,968 1,571 3,539
Crown Financing Agency 1,287 1,287
Housing New Zealand 1,809 1,809
OnTrack 221 221
Non-Crown 40 40

Financial Assets

             
Marketable securities 4,144 366 422 72 5,004
External deposits 408 31 83 156 70 748
Derivatives in gain (666) (830) 51 793 321 1,011 680
IMF reserve position 11 78 19 61 19 188
Total Financial Assets 9,704 5,770 102 2,881 900 1,179 20,536

Overdrafts and Payables

             
Crown balances with Westpac 3,958 3,958
Creditors and payables

Financial Liabilities

             
NZD Government Securities 30,937 - - - - - 30,937
Foreign currency debt 401 271 17 689
Collateral 70 70
Derivatives in loss (8,765) 5,036 (201) 2,696 897 1,127 790
Departmental deposits 65 - 7 5 77
IMF allocation 134 33 104 33 304
Immigration investor policy bonds 81 81
Other 4 4
Total Financial Liabilities 26,215 5,706 103 2,807 902 1,177 36,910
Net Currency Holdings (16,511) 64 (1) 74 (2) 2 (16,374)

Audit Report

To the readers of the Treasury's Financial Statements and Statement of Service Performance for the year ended 30 June 2008

The Auditor-General is the auditor of the Treasury (the Department). The Auditor-General has appointed me, Andrew Dinsdale, using the staff and resources of KPMG, to carry out the audit on his behalf. 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 2008.

Unqualified Opinion

In our opinion:

  • The financial statements of the Department on pages 55 to 79:
    • comply with generally accepted accounting practice in New Zealand; and
    • fairly reflect:
    • the Department's financial position as at 30 June 2008; and
    • the results of its operations and cash flows for the year ended on that date.
  • The statement of service performance of the Department on pages 31 to 45 and 49 to 53:
    • 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 outlined 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 outlined in the statement of forecast service performance adopted at the start of the financial year.
  • The schedules of non-departmental activities on pages 80 to 105 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 2008.

The audit was completed on 15 September 2008, 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 to 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 performance did 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 to 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 to the Treasury and the Auditor

The Secretary to 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 2008 and the results of its operations and cash flows for the year ended on that date. 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. In addition, the schedules of non-departmental activities 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 2008. The Secretary to the Treasury's responsibilities arise from sections 45A, 45B and 45(1)(f) 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.

Andrew Dinsdale

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 2008 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 15 September 2008 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.

 

Annexes

Quality Standards for Analysis and Advice

The Treasury reviewed and revised its quality standards for policy analysis and advice during the year. The new standards, which were published in the Statement of Intent 2008-2013, are being implemented in the 2008/09 financial year.

Quality Standards for Analysis and Advice
Quality Characteristic Description
Purpose The objective for the advice is clearly stated; it answers any financial and economic issues raised by the Minister and it demonstrates a clear understanding of the desired outcome(s) of the Government and/or the Minister.
Problem definition Any public policy problem, including the underlying causes, size and materiality of issues, is identified and supported by data or other evidence.
Context It is clear where the advice stands in the context of the wider policy process, including what has already been undertaken and what is expected to occur in the future.  CCMAU's advice is undertaken in the context of the Government's ownership expectations for SOEs and/or CRIs.
Logic An appropriate analytical framework is used.  Assumptions behind the advice are explicit and the argument is logical and supported by facts.
Accuracy All material facts are present and accurate.  Known gaps that could significantly affect the conclusions are identified and the range of uncertainty stated.  Forecasts are credible at the time they are produced and take into account all relevant information.
Options A range of options is presented that provides clearly differentiated choices and these are rigorously
evaluated against the analytical framework.  Costs, benefits, consequences and risks/opportunities of the options are assessed as part of the analysis.  Where it is not appropriate to use a range of options the
reasons are clearly stated.
Recommendations Recommendations are clear, logical and action oriented and can stand alone from the rest of the advice.  They are sufficient to enable a decision to be made on the proposal or to move to the next decision/action point.
Consultation Evidence of thorough and timely consultation with other government departments and interested parties is presented, and their views, including objections, incorporated as appropriate.
Practicality Issues of implementation, technical feasibility, practicality and timing are considered and advice accurately identifies compliance, transitional, political, legislative, revenue, expense and administrative implications
and costs (quantified where possible).
Communication Guidance is provided on how communications arising from decisions on the advice should be handled, including an assessment of key stakeholders who should be informed and how.
Presentation

Material is presented to suit the target audience and:

  • is concise and structured in a way that assists others to understand the aim of the advice, key features of the information, analysis and recommendations and their key implications
  • uses appropriate language and style
  • uses empirical evidence
  • avoids clichés and technical jargon (or where the latter is not possible, it is used appropriately for a general audience)
  • is consistent with departmental and Cabinet Office presentation requirements. 

Note: All aspects of the standards may not apply to specific pieces of policy advice, given considerations of urgency or the particular nature of the advice to be provided. For instance, much of our work is second opinion advice on other departments' proposals often undertaken under tight time pressures.

Research and Policy Publications

for the year ended 30 June 2008

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 2007/08 include:

Research and Policy Publications for the year ended 30 June 2008
Publishing Date and
Paper Number
Working Papers 2007/08
June 2008 (WP: 08/02) Roles of Fiscal Policy in New Zealand
April 2008 (WP: 08/01) Does Quality Matter in Labour Input?  The Changing Pattern of Labour Composition in New Zealand
July 2007 (WP: 07/06) The Challenge of Structural Change in APEC Economies
July 2007 (WP: 07/05) The Risks and Opportunities from Globalisation

Publishing Date and
Paper Number

Policy Perspectives Papers 2007/08

October 2007 (PP: 07/02) Investor Protection and the New Zealand Stock Market
October 2007 (PP: 07/01) New Zealand Financial Markets, Saving and Investment

Publishing Date and
Paper Number

Productivity Papers 2007/08

April 2008 (TPRP: 08/01) Putting Productivity First
April 2008 (TPRP: 08/02) New Zealand's Productivity Performance
April 2008 (TPRP: 08/03) Investment, Productivity and the Cost of Capital: Understanding New Zealand's ‘Capital Shallowness'
April 2008 (TPRP: 08/04) Enterprise and Productivity: Harnessing Competitive Forces
April 2008 (TPRP: 08/05) Innovation and Productivity: Using Bright Ideas to Work Smarter
April 2008 (TPRP: 08/06) Working Smarter: Driving Productivity Growth Through Skills

Legislation

as at 30 June 2008

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

Crown Research Institutes:

  • AgResearch Ltd (AgResearch)
  • 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)
  • New Zealand Institute for Crop & Food Research Ltd (Crop and Food Research)
  • The Horticulture and Food Research Institute New Zealand Ltd (HortResearch)

Other:

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

Crown entity:

  • Public Trust (Public Trust)

Becoming Carbon Neutral by 2012

The Carbon Neutral Public Service programme aims to demonstrate government leadership on sustainability by reducing the Government’s environmental impact.

The Treasury is one of six government agencies leading the way on the Carbon Neutral Public Service programme, with the aim of becoming carbon neutral by 2012.

This programme focuses on:

  1. measuring the greenhouse gas emissions from each agency’s activities
  2. reducing those emissions
  3. offsetting remaining emissions by undertaking New Zealand-based projects to remove an equivalent amount of carbon dioxide from the atmosphere or prevent it being released.

The Treasury has already made significant reductions in its emissions from energy consumption and waste through a number of targeted initiatives since 2004.  Between 2003 and 2007, its emissions from gas consumption decreased by a third, from electricity consumption by almost half and from waste by over three-quarters.

During 2007/08 the Treasury implemented several initiatives to further reduce its carbon emissions.  These included:

  • encouraging staff to switch off lights, computers and other office equipment when not in use
  • progressively replacing desktop computers with laptops that use 50% less power
  • including environmental sustainability clauses in new agreements for the supply of computers and printers
  • using biodegradable food packaging in the staff cafeteria.

More information about the Carbon Neutral Public Service programme, the initiatives we have implemented or plan for the future and reports on our progress is provided on the Treasury website.
http://www.treasury.govt.nz/abouttreasury/carbonneutrality