The Budget Economic and Fiscal Update (BEFU) 2017 includes the Treasury's overall economic forecasts and forecast financial statements of the government. The Update includes the implications of government financial decisions and other information relevant to the fiscal and economic position.

There is Additional Information available here that is not included in the printed Update.

The Treasury has also produced a new plain English summary of its forecasts in BEFU Basics.

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An introduction to the Budget Economic and Fiscal Update

The Treasury is New Zealand's economics and finance ministry. We advise on the direction of New Zealand's economic policy with the aim of achieving a strong and sustainable economy, and raising New Zealand living standards. This includes reporting on the expenditure of government (fiscal) revenue, and assisting to ensure spending is fit for purpose and can improve outcomes for New Zealanders.

Sharing what we do

As the government's lead economic and financial adviser we are responsible for the Financial Statements of Government. This Budget Economic and Fiscal Update (BEFU) is part of a suite of documents we release regularly as required by the Public Finance Act 1989.

This update forms part of Budget 2017 and provides economic context for Budget decisions. It primarily outlines what the Treasury observes in our current economic and fiscal climate, what we might see in the future, and what risks we may face over the next four years - our forecast period. This gives an indication of what the economy is most-likely to do to inform decision-making.

Making it New Zealander-centric

Our advice is not just based on facts and figures. Improving outcomes means we need to understand which outcomes to improve, and what is important to New Zealanders. We use the Treasury's Living Standards Framework to recognise the different aspects of New Zealanders' living standards and well-being. Our framework is based on four areas:

  • financial and physical capital eg, housing, machinery, buildings, money
  • human capital eg, health, skills
  • social capital eg, institutions, trust
  • and natural capital eg, water, biodiversity.

We took this approach further and last year presented a living standards perspective that stretches over the next 40 years. He Tirohanga Mokopuna: 2016 Statement on the Long-term Fiscal Position, shares our take on long-term fiscal issues facing New Zealand. We know that sustainable government finances are a requirement to improving long-term living standards, and vice versa.

Understanding our path

The Treasury is in a unique position to focus on improving the way our economy can raise New Zealand living standards. Along with delivering first-rate economic and financial advice, we are committed to providing it in a way so New Zealanders understand how we work to achieve our goals. If you would like to know more about who we are and what we do, or want a simpler overview of the BEFU please go to our website at www.treasury.govt.nz

Statement of Responsibility

On the basis of the economic and fiscal information available to it, the Treasury has used its best professional judgement in supplying the Minister of Finance with this Economic and Fiscal Update. The Update incorporates the fiscal and economic implications of both government decisions and other circumstances as at 3 May 2017 that were communicated to me by the Minister of Finance in accordance with the requirements of the Public Finance Act 1989 and of other economic and fiscal information available to the Treasury as at 3 May 2017. This Update does not incorporate any decisions, circumstances or statements that the Minister of Finance has determined, in accordance with section 26V of the Public Finance Act 1989, should not be incorporated in this Update.

Gabriel Makhlouf
Secretary to the Treasury

17 May 2017

To enable the Treasury to prepare this Economic and Fiscal Update I have ensured the Secretary to the Treasury has been advised, in accordance with the requirements of the Public Finance Act 1989, of all government decisions and other circumstances as at 3 May 2017 of which I was aware and that had material economic or fiscal implications.

In accordance with section 26W of the Public Finance Act 1989, I accept responsibility for the integrity of the disclosures contained in the Update, responsibility for the consistency and completeness of the Update information with the requirements of Part 2 (Fiscal responsibility) of the Public Finance Act 1989 and responsibility for any decisions, circumstances or statements not incorporated in this Update in accordance with section 26V of the Public Finance Act 1989.

Hon Steven Joyce
Minister of Finance

17 May 2017

Executive Summary

Summary of the Treasury's economic and fiscal forecasts

June years 2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast

Economic

           
Real production GDP (annual average % change) 2.7 3.1 3.5 3.8 2.9 2.4
Unemployment rate (June quarter) 5.0 5.0 5.0 4.6 4.3 4.3
CPI inflation (annual % change , June quarter) 0.4 1.8 1.6 2.1 2.2 2.1
Current account balance (% of GDP)  (2.9)  (2.8)  (3.0)  (3.3)  (3.7)  (3.9)

Fiscal (% of GDP)

           
Core Crown revenue 30.1   30.0   29.7   29.5   29.7   29.8
Core Crown expenses   29.2   28.8   28.6   28.1   27.7   27.5
Total Crown Operating balance before gains and losses   0.7   0.6   1.0   1.4   2.0   2.2
Core Crown residual cash   (0.5)   0.0   (0.6)   (0.5)   0.5   0.4
Net core Crown debt   24.4   23.2   22.8   22.1   20.6   19.3
Net worth attributable to the Crown   35.3   37.2   37.5   37.9   39.2   40.9

Sources: Statistics New Zealand, the Treasury

Real GDP growth in the New Zealand economy is forecast to pick up slightly in 2017, supported by migration inflows, investment and a recovery in exports. Growth is then forecast to accelerate to a peak of 3.8% in 2019 as investment growth gains momentum and private consumption is supported by income gains associated with the Family Incomes Package. Slower population growth as net migration inflows subside, easing construction growth and rising interest rates contribute to a moderation in real GDP growth to 2.4% by 2021.

Unemployment is expected to remain around 5% over the year ahead, as robust employment growth is balanced by high labour force growth, before steadily declining to the long run unemployment rate of around 4 1/4. Underlying inflationary pressures are expected to rise as spare capacity in the economy is used up, stabilising CPI inflation around 2% from mid-2019. The terms of trade have recovered a little faster than expected in the Half Year Update and are expected to remain broadly flat at a relatively high level across the forecast period. The current account deficit widens but remains under 4% of GDP.

Nominal GDP growth averages 5.1% per year over the forecast, with the level of nominal GDP a cumulative $23.9 billion higher than in the Half Year Update in the five years to June 2021, in part reflecting a higher starting point.

The Crown's fiscal position has improved over the past five years with an operating balance before gains and losses (OBEGAL) surplus being recorded in both the previous two fiscal years. These steadily improving fiscal results are expected to continue, as a growing nominal economy is forecast to drive growth in tax revenue.

Budget 2017 sees the introduction of a Family Incomes Package that both reduces tax revenue and increases social assistance expenditure such as Working for Families, with the 2019 June year being the first full year of these changes. New operating spending averages $1.8 billion per year over the forecast period (compared to $1.5 billion previously forecast). Future operating allowances have also been increased with new operating spending set at $1.7 billion for Budget 2018, increasing by 2% for subsequent Budgets.

New capital spending was increased to $4.0 billion (compared to $3.0 billion previously forecast). The capital allowance for Budget 2018 has been set at $2.0 billion and $2.5 billion for Budgets 2019-21.

Net core Crown debt is expected to decline as a percentage of nominal GDP over the forecast period, to stand at 19.3% by 2020/21. Core Crown residual cash is broadly neutral over the forecast period, with cash deficits in the next two years mostly offset by cash surpluses at the end of the forecast period. Net core Crown debt, in nominal terms, increases in the first three years of the forecast before beginning to decline to $62.8 billion by 2020/21.

The economic outlook is subject to a range of risks and uncertainties, with global risks skewed to the downside while domestic risks are more balanced. The fiscal outlook will be affected if risks were to eventuate and have a material impact on the economy.

Finalisation Dates for the Update

Economic forecasts - 13 April

Tax revenue forecasts - 21 April

Fiscal forecasts - 3 May

Specific fiscal risks - 3 May

Text finalised - 19 May

Economic Outlook

Overview

  • Over 2016 the New Zealand economy grew 3.1% in real terms and 5.5% in nominal terms, underpinned by investment, private consumption (supported by strong migration inflows) and low interest rates. Gross Domestic Product (GDP) per capita grew 0.9% and the current account deficit narrowed to 2.7% of GDP.
  • Relative to the Half Year Update, growth was moderately weaker than expected as exports, residential investment and business investment grew at a slower pace than anticipated. Price developments worked in the opposite direction. Nominal GDP growth was stronger than forecast in the Half Year Update, supported by the higher-than-expected terms of trade.
  • Real GDP growth in the New Zealand economy is forecast to pick up slightly in 2017, supported by migration inflows, investment and a recovery in exports. Growth is then forecast to accelerate to a peak of 3.8% in 2019 as investment growth gains momentum and private consumption is supported by fiscal stimulus associated with the Family Incomes Package (see the Economic and fiscal impacts of the Family Incomes Package box on page 22).
  • Growth in the labour supply slows later in the forecast period as net migration inflows subside. Slower population growth, easing construction growth and rising interest rates contribute to a moderation in real GDP growth to 2.4% by 2021 with inflation near 2%.
  • Trading partner growth was steady in the second half of 2016, in part because faster growth in the US was offset by slower growth in Australia. The outlook for trading partner growth is broadly similar to the Half Year Update, although downside risks to inflation have decreased.
  • Nominal GDP growth averages 5.1% per year over the forecast, with the level of nominal GDP a cumulative $23.9 billion higher than in the Half Year Update in the five years to June 2021, in part reflecting a higher starting point.
  • The outlook is subject to a range of risks and uncertainties. As outlined in the Risks and Scenarios chapter, global risks are skewed to the downside while domestic risks are more balanced.
Table 1.1 - Economic forecasts (June years)
(Annual average % change, June years) 2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Private consumption 3.2 4.6 3.9 3.7 2.2 1.8
Public consumption 1.9 3.0 2.0 1.4 1.4 1.1
Total consumption 2.9 4.2 3.5 3.2 2.0 1.7
Residential investment 6.3 6.7 0.3 8.7 8.8 3.3
Business investment1 2.7 6.4 6.8 5.9 5.7 4.5
Total investment 3.6 6.5 5.1 6.6 6.5 4.2
Stock change2 -0.4 0.4 -0.4 0.1 0.2 0.1
Gross national expenditure 2.7 5.5 3.7 4.1 3.3 2.4
Exports 5.1 -0.6 3.4 3.3 2.7 2.9
Imports 1.3 6.3 3.7 4.5 4.2 2.9
GDP (expenditure measure) 3.7 3.5 3.4 3.8 2.8 2.4
GDP (production measure) 2.7 3.1 3.5 3.8 2.9 2.4
Real GDP per capita 0.7 0.9 1.4 1.8 1.3 1.1
Nominal GDP (expenditure measure) 4.2 6.2 4.8 5.4 5.0 4.2
GDP deflator 0.5 2.7 1.3 1.6 2.1 1.8
Potential GDP 2.7 3.2 3.3 3.0 2.9 2.6
Output gap (% deviation, June quarter)3 -0.5 -0.6 -0.1 0.5 0.3 0.0
Employment 2.3 5.1 2.5 2.0 1.8 1.3
Unemployment rate4 5.0 5.0 5.0 4.6 4.3 4.3
Participation rate5 69.7 70.4 70.3 70.0 69.9 69.8
Nominal wages6 2.1 1.2 2.6 2.3 2.2 2.1
CPI inflation7 0.4 1.8 1.6 2.1 2.2 2.1
Terms of trade8 -2.4 6.2 -0.2 0.0 0.4 0.2
House prices9 14.0 5.1 7.8 3.9 3.1 2.2
Current account balance            
     $billions -7.3 -7.4 -8.5 -9.7 -11.6 -12.7
     % of GDP -2.9 -2.8 -3.0 -3.3 -3.7 -3.9
Net International Investment Position
(% of GDP)
-64.4 -59.6 -59.9 -60.1 -60.9 -62.4
Household saving ratio (% of HHDI)10 -2.2 -0.7 -1.2 0.0 0.2 0.6
TWI11 73.6 76.1 76.6 76.9 76.7 74.7
90-day bank bill rate11 2.4 2.0 2.0 2.7 3.4 3.9
10-year bond rate11 2.7 3.1 3.6 4.0 4.2 4.3

Economic forecasts are presented on a June year basis for consistency with the fiscal forecasts. Longer time series for these variables are provided on page 135.

Notes:

  1. Business investment is the total of all investment types excluding residential building. Previous separations of market and non-market investment are no longer produced by Statistics New Zealand.
  2. Contribution to GDP growth.
  3. Estimated as the percentage difference between actual real GDP and potential real GDP.
  4. Percent of the labour force, June quarter, seasonally adjusted.
  5. Percent of the working-age population, June quarter, seasonally adjusted.
  6. Quarterly Employment Survey, average ordinary-time hourly earnings, annual percentage change.
  7. Annual percentage change.
  8. System of National Accounts (SNA) and merchandise basis.
  9. Quotable Value New Zealand (QVNZ) House Price Index, annual percentage change.
  10. Percent of household disposable income (HHDI), March years.
  11. Average for the June quarter.

Key economic forecast judgements and assumptions

  • Dairy prices are projected to fall slightly in the near term, and remain broadly stable over the medium term.
  • West Texas Intermediate (WTI) oil prices are assumed to rise from around US$52 per barrel in the March 2017 quarter to US$63 in the June 2021 quarter.
  • Net permanent and long-term migration inflows are assumed to decline from a peak of 72,500 per year in mid-2017 to Statistics New Zealand’s long-run assumption of 15,000 per year in 2022, outside of the forecast period.
  • Annual growth in the working-age population is assumed to average 2.0% per year over the forecast period, including the contribution of net migration.
  • Economy-wide multifactor productivity growth is assumed to average 0.7% per year over the 2018 to 2021 March years.[1]
  • Economy-wide labour productivity growth is assumed to average 1.4% per year over the 2018 to 2021 June years.[1]
  • Annual average growth in potential output is projected to average 3.0% over the forecast period.
  • The assumed neutral level of the 90-day interest rate is around 4.5% by the end of the forecast period.
  • The non-accelerating inflation rate of unemployment (NAIRU) is assumed to be around 4.25% at the end of the forecast period.
  • Increases in the tobacco excise tax in the March quarter each year are estimated to contribute 0.2 percentage points to annual Consumers Price Index (CPI) inflation for each of the next three years.

Notes

  • [1]Changes to the Household Labour Force Survey design in the June 2016 quarter have affected growth rates for employment and hours worked. These act to pull down productivity growth in the year to June 2017. See the Implications of changes to the Household Labour Force Survey box in the Half Year Update 2016 (page 15) for further explanation.

Recent Developments

Economic expansion has continued at a solid pace

Economic growth accelerated over the course of 2016, underpinned by migration inflows, construction activity, business investment and low interest rates. Real production GDP growth increased from 2.5% in 2015 to 3.1% over 2016, while on a per capita basis, GDP growth increased from 0.6% to 0.9%. Recent revisions from Statistics New Zealand have altered the level of GDP. See the GDP revisions and their implications box on page 9for more detail.

Migration is a key driver of growth, with fewer New Zealanders than usual leaving and more non-New Zealanders arriving. Rapid population growth supported an acceleration in private consumption growth to 4.2% at the end of 2016 - its highest rate since the global financial crisis (GFC). Both real residential investment and business investment growth rose over 2016.

Growth in real goods exports eased in late 2016, continuing a slowdown that has been underway since 2015. Real services exports growth also slowed over this period and, as a result, growth in total exports eased. The current account deficit remained around 3% of GDP over most of 2016 but narrowed to 2.7% in the December quarter as a recovery in export returns lifted the terms of trade.

Spare capacity remains in the labour market with an unemployment rate around 5% and low wage growth. Our estimate of the output gap averaged -0.6% in 2016. Food and oil price movements drove headline inflation above 2% in the March quarter 2017 for the first time since 2011. Inflation excluding food and fuel prices remains subdued, indicating underlying inflationary pressures remain soft. Monetary policy continues to remain accommodative.

Relative to the Half Year Update, near-term momentum in the economy has been a little weaker than anticipated, with real GDP growth weaker than forecast in the second half of 2016. Residential investment and house price growth slowed towards the end of the year (discussed further in the Recent developments in residential investmentbox, page 13). However, nominal GDP growth was higher than forecast, in line with an uplift in the terms of trade owing to rising dairy prices.

March quarter CPI inflation and labour market data were released after these forecasts were finalised. The outturns point to slightly more inflationary pressure and a tighter labour market than anticipated in the Budget Update outlook, but do not materially alter our view on underlying spare capacity in the economy in the near term.

As a small, open economy, New Zealand's growth is particularly affected by external flows of people, goods and services, which can turn around quickly. This means that there are risks and uncertainty attached to any set of forecasts. Likewise, relationships between economic variables, such as between household debt and consumption, may play out differently from those in these forecasts. The Risks and Scenarios chapter expands on such risks further.

GDP revisions and their implications

GDP is an important time series for compiling forecasts in the Economic and Fiscal Update,with forecasts of nominal GDP underpinning forecasts of tax revenue. In addition, a number of key metrics - such as net debt and the current account deficit - are often expressed as a percentage of GDP to assist with comparability over time.

GDP data and its sub-components are the subject of revisions by Statistics New Zealand as new information comes to hand. Annual GDP data (on a March year basis) are compiled using more comprehensive sources and methods than is the case for more timely quarterly data. As new annual data become available, changes are often made to earlier quarterly data.

When the Half Year Update forecasts were prepared, quarterly GDP data were available through to the June 2016 quarter. Subsequently, annual data for the year to March 2016, as well as quarterly data for the September and December 2016 quarters, have been published.

Nominal GDP revisions

Annual nominal GDP in the year to June 2016 has been revised higher by around $1.3 billion or 0.5% (Figure 1.1). Revisions of this magnitude are not unusual. The main factor behind the revision was a $2.0 billion increase to private consumption, largely relating to the consumption of services. Government consumption was revised up by a smaller amount while residential and other investment were revised down.

Figure 1.1 - Annual Nominal GDP
Figure 1.1 - Annual Nominal GDP.
Sources: Statistics New Zealand, the Treasury

Revisions to nominal GDP affect the base level from which economic activity expands. With the starting point now $1.3 billion higher, in the absence of other forecast changes we would expect the cumulative level of nominal GDP to be approximately $6.5 billion higher in the five years to June 2021. These changes generally do not influence forecasts of tax revenue as, while GDP is higher over history, the level of historical tax revenue is unchanged. This means that effective tax rates used when forecasting tax revenue will be lower.

Real GDP revisions

Revisions to both the expenditure and production measures of real GDP acted to move the two series - which conceptually should be the same but in practice differ owing to different data and estimation techniques - closer together. Real expenditure GDP for the year to June 2016 is now 0.4% higher than was apparent in the data available when the Half Year Update forecasts were prepared, while real production GDP is 0.7% lower.

As a consequence, despite a stronger outlook for real production GDP growth than was contained in the Half Year Update, the level of real production GDP remains below the Half Year Update level until the second half of 2019.

Data revisions can also influence views on the likely pace of future growth. When GDP for the September quarter 2016 was released, production GDP was thought to have grown 1.1% in the quarter and expenditure GDP by 1.4%. These have subsequently been revised down to 0.8% and 0.9% respectively. When combined with weaker-than-forecast growth in the December quarter this has changed our view of the extent of momentum in the economy.

The Economic Outlook

Real GDP growth expected to peak in early 2019

Continuing high inward migration, construction activity (including rebuild activity related to the Kaikōura earthquake), exports (particularly tourism) and low interest rates are expected to underpin real GDP growth of around 3% to 3.5% over the year ahead. Growth is expected to peak at 3.8% in 2019, as residential investment growth resumes after a temporary pause in 2017 and as the stimulatory impact of the Government's Family Incomes Package flows through the economy via higher household spending (see the Economic and fiscal impact of the Family Incomes Package box on page 21). Unemployment is broadly flat over the year ahead, as employment growth is balanced by high labour force growth, before the unemployment rate steadily declines. Underlying inflation picks up over the forecast period as spare capacity is used up, with headline inflation stabilising around 2% from mid-2019. The aggregate growth outlook for New Zealand is stronger than in the Half Year Update, but revisions to the starting point level of real production GDP mean the level of real GDP only surpasses the Half Year Update forecast in mid-2019.

Figure 1.2 - Real production GDP
Figure 1.2 - Real production GDP.
Sources: Statistics New Zealand, the Treasury

Stronger for longer migration…

Net migration has continued to outpace expectations, with annual net migration rising to 71,900 in the year to March 2017. Net migration is assumed to hold up at a higher level than forecast in the Half Year Update given New Zealand's relatively favourable economic conditions and the persistent strength of recent net inflows, peaking at 72,500 in mid-2017.

Thereafter, net migration inflows are assumed to ease. Flows of New Zealanders are assumed to return to their long run average net outflow in line with real wage differentials between New Zealand and Australia. Net inflows of non-New Zealanders are assumed to fall as New Zealand's attractiveness relative to other locations declines, and as some recent migrants leave (eg, students). Net migration is expected to add 212,000 people to the population over the next four and a half years, similar to the gain over the past four and a half years. Relative to the Half Year Update, net migration is assumed to decline more gradually (adding around 67,000 more people), with risks to the forecast present in both directions.

Figure 1.3 - Net migration
Figure 1.3 - Net migration.
Sources: Statistics New Zealand, the Treasury

Population growth is a key driver of economic growth. Average GDP per capita growth over the forecast period (1.3%) is similar to that forecast in the Half Year Update (1.4%), but the level of real GDP per capita is lower throughout, as revisions to history have led to a lower starting point (see the GDP revisions and their implications box on page 9). Scenario Two in the Risks and Scenarios chapter explores the implications should migration levels deviate significantly from those assumed.

…increases labour supply…

Unemployment is forecast to remain flat over the year ahead, as rapid labour force growth (from a combination of high working-age population growth and record-high participation rates) is balanced by robust employment growth (with 215,000 additional people employed over the forecast period), before steadily declining to the long run unemployment rate of 4.25%. Wage growth is relatively modest in the near term, reflecting some spare capacity in the labour market, past low inflation and relatively weak productivity growth, before picking up to over 2% in mid-2018 as price inflation picks up.

Figure 1.4 - Unemployment rate
Figure 1.4 - Unemployment rate.
Sources: Statistics New Zealand, the Treasury

Compared to the Half Year Update, employment growth is stronger over the forecast period. However, the labour force is forecast to increase at a faster rate, with higher participation rates and working-age population growth, meaning spare capacity in the economy is not used up as quickly as previously anticipated. This translates into a relatively higher unemployment rate and weaker wage growth over the remainder of the forecast period relative to the Half Year Update, and points to a softer near-term picture of non-tradables inflation.

…and drives private consumption…

Private consumption growth is expected to remain above its post GFC average over most of the forecast period, supported by population growth, low interest rates and higher farm incomes. The Family Incomes Package also provides a boost to household consumption, with households assumed to spend the majority of the boost to their incomes from this package (see the Economic and fiscal impacts of the Family Incomes Package box on page 21).

Figure 1.5 - Real private consumption
Figure 1.5 - Real private consumption.
Sources: Statistics New Zealand, the Treasury

In the latter half of the forecast period private consumption growth eases to around 2% per year as monetary conditions begin to tighten and household saving rises modestly, house price growth slows and as population growth eases with slower migration.

These forecasts assume households will continue their relatively cautious behaviour of recent years, keeping dissaving rates fairly close to zero, with consumption growth largely matched by income growth. The implications for the economic forecasts if households behave in a different manner are explored in Scenario Two in the Risks and Scenarios chapter.

Private consumption growth is stronger than expected at the Half Year Update over most of the forecast period. Data revisions post the Half Year Update have provided a higher starting point (see the GDP revisions and their implications box on page 9), and the Family Incomes Package increases household incomes and expenditure.

...while also adding to pent-up demand in the housing market

Rapid population growth and low interest rates increase demand for housing. In the near term, indicators including building consents suggest that real residential investment and house price growth will remain around current levels owing to a range of factors that are judged to be largely temporary. Factors explaining the recent slow-down in residential investment include the impact of tighter loan-to-value ratios, uncertainty around the Auckland Unitary Plan, capacity constraints in the construction sector (particularly for skilled labour) and tighter credit conditions (particularly for developers).

Figure 1.6 - Real residential investment
Figure 1.6 - Real residential investment.
Sources: Statistics New Zealand, the Treasury

Further out, most of the temporary headwinds are expected to subside and pent-up demand for housing returns to the fore (given rapid population growth and relatively low interest rates), resulting in a further pick up in residential investment. House price growth is anticipated to pick up once more in 2018 then ease from 2019 onwards as supply increases to meet demand.

The recent slow-down in residential investment growth explains much of the lower momentum in near-term growth in the forecasts. There is considerable uncertainty associated with the judgement that this slow-down will be temporary. See the Recent developments in residential development boxon page 13 for further discussion.

Housing market developments have been reflected in growing household debt, which reached a new high of 168% of household disposable income at the end of 2016. If income growth were to slow significantly or if interest rates were to rise sharply, debt servicing could become difficult for some households. This has the potential to constrain GDP growth as households adjust by reducing consumption and residential investment. See Scenario Two in the Risks and Scenarios chapter for further discussion.

Recent developments in residential investment

Residential investment fell to historically low levels after the GFC but has increased since late 2011, driven by population growth, low interest rates and the Canterbury rebuild. Residential investment slowed more rapidly than anticipated in the second half of 2016 and will likely fall slightly during 2017, largely as a result of temporary factors. However, demand created by population growth remains and is expected to drive a resumption in growth in 2018.

Strong growth over recent years fuelled by Canterbury rebuild…

Consents are the main indicator of future construction activity. Since 2011, the earthquake rebuild has seen consents in Canterbury increase more rapidly than in the rest of New Zealand, to be nearly double their previous peak in 2014, at around 700 dwellings a month. By 2015, consents had started trending down and are expected to decrease to 250-300 per month, as rebuild activity subsides and local population growth becomes the primary driver.

…and strong population growth…

Annual population growth has increased significantly since 2012, from 0.6% in 2012 to 2.1% in 2016. This growth has been underpinned by net migration and has resulted in strong demand for housing.

Figure 1.7 - Building consents (seasonally adjusted, 3-month moving average)
Figure 1.7 - Building consents (seasonally adjusted, 3-month moving average).
Source: Statistics New Zealand, the Treasury

LVR restrictions have slowed sales

Transfer costs from house sales, a component of residential investment, have slowed. In the December 2016 quarter an 8.4% fall in house sales meant that, overall, residential investment was fairly flat, growing only 0.1%. The introduction in October 2016 of loan-to-value ratio (LVR) restrictions, which increased the deposit required for investors to purchase housing, is one factor behind this slowdown. House sales are not expected to fall further.

...alongside uncertainty with the Auckland Unitary Plan (AUP)...

Consents began declining in Auckland in September 2016. The AUP is currently ‘operative in part', meaning parts are subject to change if appeals against it are successful. In the short term this has added uncertainty for developers, who may have postponed plans until there is more clarity. In February a key court decision went in favour of the Auckland Council, suggesting appeals could have little effect. Once fully operative, the AUP is expected to increase development activity in Auckland as it increases flexibility for developers.

…but fundamental driver of population growth likely to reassert itself

We expect many of the factors currently holding growth back to diminish, while some, such as increasing certainty around the AUP promote supply to meet demand from existing and future population growth. March 2017 quarter consents showed positive signs of a rebound. While below their 2016 peaks, consents in the March 2017 quarter grew 6.7% in Auckland and 5.2% across New Zealand as a whole.

Business investment grows…

Business investment accelerates over the forecast period, supported by low interest rates, rapid population growth and the Kaikōura earthquake rebuild. Population growth encourages businesses to invest in order to expand their operations and to match growth in employment with growth in capital. Some elements of business investment are closely related to residential investment (eg, infrastructure) and so the delayed residential investment compared to the Half Year Update contributes to the weakness in business investment early in the forecast period and the strength thereafter.

Government consumption growth is forecast to peak in the near term, and ease thereafter. The government consumption forecast has been updated to include recent developments such as the new operating allowances of $1.8 billion in Budget 2017 and $1.7 billion in subsequent budgets and the latest estimates for the Care and Support Workers Pay Equity Settlement Agreement.

Figure 1.8 - Real business investment
Figure 1.8 - Real business investment.
Sources: Statistics New Zealand, the Treasury
Figure 1.9 - Real government consumption
Figure 1.9 - Real government consumption.
Sources: Statistics New Zealand, the Treasury

…increasing productivity growth in the medium term

Productivity growth is expected to remain low in the near term, with rapid growth in the working-age population. Labour productivity growth is forecast to rise in the medium term as business investment picks up and net migration inflows begin to subside, and averages 1.4% over the final four years of the forecast period.

Growth in potential output is expected to slow over the medium term, as labour force growth declines owing to easing net migration inflows. In annual average terms, potential output growth slows from 3.3% in the near term to 2.6% by 2021, but is higher than in the Half Year Update given strongerlabour force growth.

Underlying inflationary pressures rise as spare capacity is used up, prompting higher interest rates

Inflation surpassed 2% in early 2017, above the mid-point of the Policy Targets Agreement target band for the first time since 2011. Inflation in the March 2017 quarter was largely driven by what are regarded as temporary price movements (eg, in petrol and food prices), with smaller changes to core inflation. After a period of volatility (where recent price increases drop out of the annual calculation), inflation is forecast to rise above 2% in 2019 as spare capacity is absorbed and capacity pressures build, supported by the stimulus of the Family Incomes Package. The output gap is forecast to close in mid-2018 and become positive thereafter.

Interest rates respond to restrain inflation and therefore keep overall inflation within the target range of 1% to 3%, rising from the September quarter in 2018 onwards.Short-term interest rates gradually lift to 3.9% by June 2021, which is still below their assumed long-run level of around 4.5%.Long-term interest rates are expected to rise gradually to 4.3% by 2021 as inflation in advanced economies begins to rise and global monetary policy settings are tightened, particularly in the US.

Figure 1.10 - Consumers price index
Figure 1.10 - Consumers price index.
Sources: Statistics New Zealand, the Treasury
Figure 1.11 - 90-day interest rates
Figure 1.11 - 90-day interest rates.
Sources: Reserve Bank of New Zealand, the Treasury

The recent strength in inflation was higher than anticipated in the Half Year Update and, owing to its temporary nature, feeds into the relatively high volatility of the CPI inflation track in the middle of the forecast period. A further key difference is the announcement of the Family Incomes Package, which is expected to lead to a modest increase in inflationary pressures through its impact on consumer spending and therefore demand. Overall, interest rates begin to rise two quarters earlier than forecast in the Half Year Update.

Growth among New Zealand's key trading partners remains stable…

The international outlook has become more positive since the Half Year Update, although it is still the subject of considerable uncertainty. Indicators of economic activity in recent quarters show the pace of growth has increased in many economies, including China, the US and the euro area. In addition, indicators of business and consumer sentiment have improved further and financial market volatility has remained low. Over the forecast period, trading partner growth is expected to remain broadly stable.

Growth slowed in Australia last year but this is expected to be temporary. Spare capacity remains in the labour market, and wage growth is subdued. The Australian housing market remains an area of risk (see the Risks and Scenarios chapter for further discussion). Further out, the outlook is for ongoing, moderate growth as Australia continues to transition from mining investment to other sources of demand.

Growth is expected to ease in China (as it transitions from investment- to consumption-led growth), and the UK (as uncertainty around Brexit hampers investment, and as inflation and the weaker pound erode consumer purchasing power), remain moderate in the euro area and Japan and grow more rapidly in other developed and newly industrialised economies. Growth in the US is expected to increase, supported by fiscal stimulus, although the details of such stimulus remain unclear.

Risks remain around the continued imbalances in the Chinese economy, future US economic, trade and fiscal policy, and the impact of Brexit. The extent of the potential impacts from these uncertainties and the precise channels through which they might impact on New Zealand are difficult to ascertain. Consequently they are treated as risks to the central forecast.

…with less downside risk to global interest rates and inflation

Absent any further shocks to the international economy, global inflation is thought to have troughed, and global monetary stimulus peaked. Our trading partners have seen comparable increases in inflation to New Zealand, being similarly affected by global petrol prices. The recent increase in global inflation reduces risks of deflation, and there are some signs of growing underlying inflationary pressures. Global inflation is expected to rise towards the end of the forecast period in line with falling global spare capacity. Likewise, interest rates are expected to rise as monetary conditions begin to normalise, global inflation increases and as central banks begin to unwind their balance sheets.

The terms of trade remain high…

The terms of trade increased sharply towards the end of 2016 as dairy prices recovered from their recent lows and import prices fell. After falling slightly as import prices recover in the near term, the terms of trade are expected to remain broadly flat across the forecast period at a relatively high level compared to history. Import prices are forecast to remain relatively muted, with oil prices growing only gradually with past investment in exploration and technological advancements boosting supply (although Organization of Petroleum Exporting Countries (OPEC) coordination represents a risk that oil prices will be higher than projected, depending on the response of US producers). Export prices are likewise expected to increase gradually over the forecast period.

Figure 1.12 - SNA goods terms of trade
Figure 1.12 - SNA goods terms of trade.
Sources: Statistics New Zealand, the Treasury

…supporting the New Zealand dollar…

The New Zealand dollar TWI has largely evolved as forecast in the Half Year Update, falling to 76.1 at the end of the March 2017 quarter. The TWI is expected to remain around current levels, supported by three factors: the New Zealand economy has continued to expand at a solid pace relative to other advanced economies; New Zealand interest rates are high compared to other advanced economies; and the terms of trade are high relative to historical averages (and the Half Year Update forecast).

Figure 1.13 - Trade Weighted Index (TWI)
Figure 1.13 - Trade Weighted Index (TWI).
Sources: Reserve Bank of New Zealand, the Treasury

…while exports fall and then bounce back…

Annual average growth in goods exports is expected to decline in the near term, reflecting observed recent weak agricultural production and quarterly falls in export volumes over the second half of 2016. Further out, goods export volumes are forecast to increase as the dairy sector recovers and as non-dairy exports (eg, horticulture and wine) steadily expand.

However, goods import volumes are expected to grow at a faster rate than goods exports, driven by domestic demand, leading to a steady but modest widening of the goods deficit as the goods term of trade remains fairly flat over the forecast period. This view is broadly similar to the outlook in the Half Year Update.

Figure 1.14 - Real goods exports
Figure 1.14 - Real goods exports.
Sources: Statistics New Zealand, the Treasury

…inbound tourism remains buoyant…

Services exports are expected to rise over the forecast period, supported in the near term by continued income growth across emerging Asian economies and growth in the number of routes flying to New Zealand. Further out, services export volume growth is expected to remain positive, reflecting solid growth in tourism, particularly from China. Tourist spending is expected to support construction activity throughout the forecast period, along with employment in this sector, as infrastructure and accommodation are expanded to cater for more overseas visitors.

Travel services imports are expected to maintain their recent strength owing to rising household incomes (through robust employment growth and higher wages) and the high New Zealand dollar. Overall, the services balance is forecast to remain fairly flat over the forecast period. This outlook is broadly similar to that in the Half Year Update.

Figure 1.15 - Real services exports
Figure 1.15 - Real services exports.
Sources: Statistics New Zealand, the Treasury

…and the current account deficit widens gradually

The current account deficit is expected to widen slightly over the forecast period, mainly owing to the deteriorating goods balance, alongside the declining income balance (as overseas interest rates begin to rise). Nonetheless, the current account deficit remains under 4% of GDP throughout the forecast period, significantly smaller than anticipated in the Half Year Update, largely owing to a slower deterioration in the goods balance. After a period of steady improvement the net international investment position is expected to remain broadly stable as a percentage of GDP over the forecast period. See the Current account forecasts and external balance box(page 19) for further discussion.

Figure 1.16 - Current account balance
Figure 1.16 - Current account balance.
Sources: Statistics New Zealand, the Treasury

Current account forecasts and external balance

New Zealand's current account deficits have narrowed from almost 8% of GDP during the mid-to-late 2000s to below 3% recently. At the same time, New Zealand's net external liability position has improved from over 80% of GDP to around 60%. Narrower deficits and lower net external liabilities suggest the New Zealand economy is less vulnerable to disruptive outflows of foreign capital than in the past.

The current account is the balance of trade (goods and services) and income flows (interest payments, dividends and reinvested earnings) between New Zealand residents and non-residents. It also represents the difference between national savings and investment.

Narrowing income deficits have driven improvement in the current account

Figure 1.17 shows that New Zealand has persistently run current account deficits and that this is primarily driven by the income balance, reflecting the stock of international liabilities (ie, borrowing from abroad and overseas investment in New Zealand that accrues returns to international investors, Figure 1.18). The narrowing of the current account deficit has occurred through the income balance, with income deficits narrowing from over 7% of GDP in 2008 to around 3%. The main drivers have been reduced outflows of investment income from foreign investment in New Zealand and reduced interest payments offshore as global interest rates have fallen and the level of external debt has stabilised.

Figure 1.17 - Current account and its components
Figure 1.17 - Current account and its components.
Sources: Statistics New Zealand, the Treasury
Figure 1.18 - Net international investment position
Figure 1.18 - Net international investment position.
Sources: Statistics New Zealand, the Treasury

From a savings-less-investment perspective, lower interest rates have reduced interest payments abroad and, as a result, have meant gross national income, and therefore savings, has been higher than otherwise. Investment as a share of GDP fell sharply in late 2008 and has been (and is forecast to continue) trending upwards, supported by low interest rates.

Recent narrow current account deficits likely reflect a mix of persistent factors (low global interest rates, greater drought tolerance, higher saving, improved access to China's tourism market) and cyclical factors (weak credit demand, high dairy and subsequently low oil prices). These factors have been incorporated into the outlook

Current account deficits forecast to widen slightly

Over the forecast period, a widening trade balance is the main driver of the widening current account deficit from 2.7% of GDP in the December 2016 quarter to 3.9% by the end of the forecast period. The income balance is forecast to remain broadly stable in the near term, and widen slightly as global interest rates rise. To the extent interest rates remain relatively low it is likely that these smaller deficits relative to the mid-2000s will be maintained.

Implications for Nominal GDP

Nominal GDP growth accelerates in the near term, in line with an increase in the terms of trade and inflation. In 2018, nominal GDP growth slows as migration inflows ease and as residential investment temporarily stalls. The resurgence of investment (both residential and business) towards the end of the forecast period and the stimulus from the Family Incomes Package helps support nominal GDP (see the Economic and fiscal impacts of the Family Incomes Package box on page 21 for more detail).

Figure 1.19 - Nominal expenditure GDP
Figure 1.19 - Nominal expenditure GDP.
Sources: Statistics New Zealand, the Treasury

The key differences in the nominal GDP outlook from the Half Year Update are chiefly driven by the recent higher-than-anticipated terms of trade, the altered profile of investment (a slight delay before resurgence, rather than growth earlier in the forecast period) and the stimulus from the Family Incomes Package. The forecast level of nominal GDP is higher than anticipated in the Half Year Update throughout the entire forecast period, albeit with a different growth profile. Nominal GDP is forecast to be a cumulative $23.9 billion higher than in the Half Year Update over the five years to June 2021. Some of this increase relates to historical revisions, with a net change owing purely to the different growth forecast of approximately $17.4 billion.

Forecasts of tax revenue are sensitive to changes in both the size and composition of nominal GDP, as well as other macroeconomic factors such as interest rates and judgements around the starting point for the tax forecasts. The Risks and Scenarios chapter discusses risks to the economic and tax outlook further.

Figure 1.20 - Nominal expenditure GDP
Figure 1.20 - Nominal expenditure GDP.
Sources: Statistics New Zealand, the Treasury

Economic and fiscal impacts of the Family Incomes Package

The Family Incomes Package comprises changes to tax and transfer settings that aim to improve work incentives, improve incomes for those in financial hardship, and start to simplify the tax and transfer system.

From 1 April 2018, the Family Incomes Package:

  • provides a tax reduction by increasing the $14,000 income tax threshold to $22,000, and the $48,000 threshold to $52,000
  • discontinues the Independent Earner Tax Credit
  • aligns the Family Tax Credit rates for children under 16 with those for children aged 16 to 18, increases the abatement rate to 25% and reduces the abatement threshold to $35,000
  • increases the Accommodation Supplement maxima to reflect 2016 rents, while re-allocating locations into different Accommodation Supplement areas to reflect rental costs, and
  • increases the Accommodation Benefit maximum payment by up to $20 per week.

The tax changes are expected to support long-run economic performance. The package as a whole is expected to benefit around 1.3 million families in New Zealand by, on average, $26 per week,[2] and lift around 20,000 families above the threshold of severe housing stress.[3]

Overall, the Family Incomes Package is estimated to have a modest positive long-run impact on GDP. The labour supply impact of the tax threshold changes is expected to be positive. However, this is offset by reduced labour supply induced by increases to the Accommodation Supplement and Family Tax Credit. Overall, the labour supply impact of the Family Incomes Package is expected to be broadly neutral.

Economic impacts

The impact of the Family Incomes Package on the economy is primarily through the consumption channel. Households are assumed to spend the majority of the tax reduction, reflecting a mixture of spending versus saving behaviours across the income spectrum. With households assumed to respond gradually to the changes and with tighter monetary policy (see below), around 60% of the additional income is expected to be spent within the forecast period. Estimates of the impact on labour supply are broadly neutral, given offsetting factors from tax reductions and increased assistance payments. However, stronger aggregate demand has a positive impact on the demand side of the labour market, which increases employment growth and lowers the unemployment rate by around 0.1 percentage points.

The stimulatory nature of the Family Incomes Package is forecast to result in a modest increase in inflationary pressures over the later years of the forecast period which leads to monetary policy tightening earlier than otherwise. There are some offsets to economic growth from higher imports, as consumption of goods and services increases. Investment growth is also a little weaker due to higher interest rates. Overall, the Family Incomes Package results in a cumulative $3.0 billion increase in nominal GDP across the five years to June 2021.

Fiscal impacts

The package costs $6.5 billion in total over the next four years. The components of the package are set out in Table 1.2. Over the years from 2018/19 to 2020/21, the average annual cost of the Family Incomes Package is $2.0 billion.

The tax component of the package costs around $1.9 billion per year. This is partially offset by reduced expenditure on main benefits. While payments to beneficiaries are unaffected, the amount of tax payable reduces and total benefit expenditure declines. This offset is included as a consequential impact. Working for Families tax credits and accommodation subsidies comprise most of the remaining cost.

The other main consequential change to expenditure is an increase in New Zealand Superannuation. Payment rates are linked to the after-tax average wage, which rises as a result of the tax changes.

The largest offsetting consequential impact is the increase to tax revenues from the economic impact of the Family Incomes Package. The Family Incomes Package is expected to increase consumption, so GST revenues are higher than would have otherwise been the case. Similarly, business profits are expected to increase due to higher spending by households, increasing corporate tax revenues. The increased number of people in employment also increases PAYE tax revenues. Finally, higher interest rates increase RWT revenues.

Table 1.2 - Cost by component of Family Incomes Package
($millions) 2017/18 2018/19 2019/20 2020/21
Reduction in tax revenue including IETC 486 1,896 1,895 1,976
Working for Families 97 373 318 310
Accommodation Supplement 87.6 361.6 380.3 399.7
Accommodation Benefit 6.3 19.5 19.5 19.8
Transitional Fund 1.1 0.5 0.4 0.3
Consequential impacts (74.3) (575.2) (760.9) (693.7)
Operating balance impact 603.6 2,075.3 1,852.3 2,012.0

Notes

  • [2]These figures exclude families who earn any New Zealand Superannuation or families made up of independent students.
  • [3]The Ministry of Social Development defines severe housing stress as where equivalised after housing costs income is less than $180 per week (adjusted to September 2016 figures using CPI index).

Fiscal Outlook

Overview

  • The Crown's fiscal position has improved over the past five years with an operating balance before gains and losses (OBEGAL) surplus being recorded in both the previous two fiscal years. The current year's results to 31 March continue to be ahead of previous forecast levels as tax revenue continues to be higher than expected in the Half Year Update.
  • These steadily improving fiscal results are expected to continue, reflecting a growing nominal economy which drives growth in tax revenue.
  • Budget 2017 sees the introduction of a Family Incomes Package that both reduces tax revenue and increases social assistance expenditure such as Working for Families, with the 2019 June year being the first full year of these changes. Page 21 to 22 provides an overview of the package.
  • New operating spending in Budget 2017 has increased since the 2017 Budget Policy Statement (BPS) was released in December 2016. New operating spending averages $1.8 billion per year over the next four years (compared to $1.5 billion previously forecast). Future operating allowances have also been increased with new operating spending set at $1.7 billion for Budget 2018, increasing by 2% each year onwards.
  • New capital spending was increased to $4.0 billion (compared to $3.0 billion in the BPS). The capital allowance for Budget 2018 has been set at $2.0 billion and $2.5 billion for Budgets 2019-21.
  • Direct costs relating to the Kaikōura earthquake are not expected to be significantly different to the $2 billion - $3 billion range discussed in the Half Year Update with the majority of costs (excluding Earthquake Commission (EQC) claims costs) being funded through budget allowances or from insurance proceeds.
  • While the 2016/17 OBEGAL surplus is expected to be similar to the previous year, surpluses are forecast to continue to rise across the forecast period, reaching $7.2 billion by 2020/21 (2.2% of GDP).
  • Core Crown expenditure, as a percentage of GDP, is expected to be 28.8% in 2016/17 before falling across the forecast period to be 27.5% in 2020/21.
  • Contributions to the New Zealand Superannuation Fund (NZS Fund) are forecast to resume in 2020/21 when net debt is forecast to fall below 20% of GDP, with $2.2 billion expected to be contributed in that year.
  • Capital spending (excluding contributions to the NZS Fund) by the core Crown is estimated to be $28.4 billion over the forecast period. This compares to capital spending of $18.4 billion in the previous five years (excluding the proceeds from the partial share sales), largely reflecting the increase in capital allowances and increased capital spending on transport and education assets.
  • Net core Crown debt is expected to decline as a percentage of nominal GDP over the forecast period, to stand at 19.3% by 2020/21. Core Crown residual cash is broadly neutral over the forecast period, with cash deficits in the next two years mostly offset by cash surpluses at the end of the forecast period. Net core Crown debt, in nominal terms, increases in the first three years of the forecast before beginning to decline to be $62.8 billion by 2020/21.
  • The Crown's net worth is expected to increase over the forecast period, reaching $133.0 billion by 2020/21, surpassing pre-2009 nominal levels. This growth is the result of continued forecast surpluses across the forecast period. While as a percentage of nominal GDP net worth also rises, it is not yet expected to regain its peak of 55.6% in 2007/08 by the end of the forecast period.
  • Total assets are forecast to grow by $38.6 billion to stand at $331.3 billion by 2020/21 largely reflecting the increased capital spend. Liabilities fall in nominal terms, with borrowings decreasing in the later part of the forecast period. Total liabilities are expected to stand at $192.6 billion at the end of 2020/21, with borrowings making up $109.9 billion of that balance.
  • OBEGAL is expected to be lower in most years than the recent Half Year Update with the cost of the Family Incomes Package and increases in operating expenses being partially offset by tax revenue from continued economic growth. The impact of the Family Incomes Package and increased capital spending means the net debt forecasts have also increased since the last forecast. Page 44 provides more detailed discussion on the comparison to the Half Year Update.
  • These forecasts are sensitive to a number of assumptions and should be read in conjunction with the Risks and Scenarios and Specific Fiscal Risks chapters.
Table 2.1 - Fiscal indicators
Year ending 30 June 2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast

$billions

           
Core Crown revenue 76.1 80.8 83.8 87.5 92.5 96.8
Core Crown expenses 73.9 77.5 80.5 83.5 86.2 89.2
Total Crown OBEGAL1  1.8 1.6 2.9 4.1 6.1 7.2
Core Crown residual cash  (1.3) 0.1  (1.8) (1.6) 1.7 1.4
Net core Crown debt2 61.9 62.3 64.1 65.7 64.2 62.8
Net worth attributable to the Crown 89.4 100.0 105.6 112.6 112.1 133.0

% of GDP

           
Core Crown revenue 30.1 30.0 29.7 29.5 29.7 29.8
Core Crown expenses 29.2 28.8 28.6 28.1 27.7 27.5
Total Crown OBEGAL1 0.7 0.6 1.0 1.4 2.0 2.2
Core Crown residual cash  (0.5) -  (0.6) (0.5) 0.5 0.4
Net core Crown debt2 24.4 23.2 22.8 22.1 20.6 19.3
Net worth attributable to the Crown 35.3 37.2 37.5 37.9 39.2 40.9

Notes:

  1. Operating balance before gains and losses.
  2. Net core Crown debt excluding the NZS Fund and advances.

Source: The Treasury

Key judgements and assumptions

The fiscal forecasts are based on assumptions and judgements developed from the best information available at the time they were prepared. Actual events are likely to differ from these assumptions and judgements, while uncertainty around the forecast assumptions and judgements increases over the forecast period. Key risks to these forecasts can be found in the Risks and Scenarios and Specific Fiscal Risks chapters.

The forecasts incorporate Government decisions and other circumstances known to the Government and advised to the Treasury up to 3 May 2017.

In addition to the key assumptions underpinning the economic forecasts (refer page 7), the following key judgements and assumptions supporting the fiscal forecasts were made:

  • Tax policy changes enacted and announced by the Government (refer pages 21 to 22) will take place as planned and will affect tax revenue and receipts.
  • Any future new spending or revenue reductions will be limited to the operating and capital allowances set by the Government. For further details of these allowances, see note 9 of the Forecast Financial Statements.
  • Departments will continue to spend less than the upper limits of approved spending (referred to as appropriations). A top-down adjustment is made to compensate for this. The adjustment will be higher at the front end of the forecast period as departments’ appropriations (and therefore expenses) tend to be higher in these years, reflecting the flexibility departments have around transferring underspends to later years.
  • The Government has committed $1.0 billion of funding to assist high growth councils facing financial constraints to finance roads and water infrastructure (referred to as the Housing Infrastructure Fund). The fund has been forecast to be allocated based on the timing outlined in initial bids received.
  • The Government and Auckland Council signed a Heads of Agreement for the City Rail Link (CRL). This agreement sets out the Crown’s in-principle agreement to fund 50% of the costs of the CRL and outlines arrangements for the establishment of a Special Purpose Vehicle to deliver the CRL. These fiscal forecasts assume the Government’s share of costs will be met from existing budget allowances.
  • The Government has committed to reinstating State Highway 1 between Picton and Christchurch. The forecasts assume the costs associated with the reinstatement will be capital expenditure and met from existing budget allowances.
  • Forecast returns on the large investment portfolios managed by the Accident Compensation Corporation (ACC) and the NZS Fund are based on their expectations of long-term benchmark rates of return for their respective portfolios.
  • Finance costs on new bond issuances are based on the five-year rate from the main economic forecasts and adjusted for differing maturities.
  • Significant valuations (eg, student loan portfolio, ACC claims liability and the Government Superannuation Fund retirement liability) are based on underlying assumptions (eg, discount rates, salary increases and inflation) made at the time the valuations were prepared.
  • No revaluations of property, plant and equipment are projected beyond the current year. Only valuations that have already been completed are included in these forecasts.
  • KiwiRail freight assets continue to be valued on a commercial basis (refer to the Specific Fiscal Risks chapter for risks to the valuation methodology).
  • Contributions to the NZS Fund are assumed to resume in the 2020/21 financial year. Table 2.2 sets out the estimated contribution to the fund if contributions were to start earlier (2017/18). For more information refer to the Treasury website for the NZS Fund model.
Table 2.2 - NZS Fund contributions
Year ending 30 June
$billions
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Estimated contribution1 1.8 1.8 1.9 1.9
Estimated contribution2 2.4 2.5 2.7 2.7
Forecast contribution - - - 2.2

Notes:

  1. Calculations of estimated contributions if they were to resume in 2017/18 (under the policy to lift the age of eligibility for New Zealand Superannuation (NZS) to 67 years by 2040/41).
  2. Calculations of estimated contributions if they were to resume in 2017/18 (under the current age of eligibility for NZS of 65 years).

Further information on the underlying economic assumptions used in these fiscal forecasts can be found on page 48.

Core Crown Tax Revenue

Tax revenue grows over the forecast period...

Core Crown tax revenue (Figure 2.1) is forecast to rise in each year of the forecast period in nominal terms while remaining fairly static as a percentage of nominal GDP. By 2020/21, core Crown tax revenue is expected to reach $89.9 billion, $19.5 billion higher than in 2015/16.

Figure 2.1 - Core Crown tax revenue
Figure 2.1 - Core Crown tax revenue.
Source: The Treasury

…mainly owing to nominal GDP growth...

The increase in core Crown tax revenue across the forecast period can be largely attributed to the growth in nominal GDP (Figure 2.2). The introduction of the Family Incomes Package is partly offset by other factors such as fiscal drag.

Figure 2.2 - Core Crown tax revenue and nominal GDP growth
Figure 2.2 - Core Crown tax revenue and nominal GDP growth.
Source: The Treasury

The tax elements of the Family Incomes Package (ie, personal income tax threshold adjustment and the abolition of the Independent Earner Tax Credit (IETC)), is expected to reduce core Crown tax revenue by $6.3 billion over the forecast period. The package takes effect from 1 April 2018, so the first full-year effect of the package will be seen in the 2019 June financial year.

As noted in the Economic Outlook chapter, in addition to the direct tax impact, the package will have some macroeconomic effects, mainly via domestic consumption as households are expected to spend much of the additional disposable income generated by the package.

This increase to spending will have an immediate effect on goods and services tax (GST) revenue, with subsequent effects on company income tax, through increased business profits, and pay-as-you earn (PAYE) income tax, through increased demand for labour. There is also expected to be some additional resident withholding tax (RWT) on interest, as interest rates are expected to be a little higher than they would have been in the absence of the package.

Altogether, these tax “clawback” effects are expected to total $1.5 billion across the forecast period.

Table 2.3 - Tax revenue impacts of the Family Incomes Package
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Gross reduction in tax revenue - 0.5 1.9 1.9 2.0 6.3
Macroeconomic impacts - - (0.4) (0.6) (0.5) (1.5)
Net reduction in tax revenue - 0.5 1.5 1.3 1.5 4.8

Source: The Treasury

Pages 21 to 22 provide a full explanation of the Family Incomes Package and consequential fiscal impacts.

…as nominal GDP continues to grow strongly

Nominal GDP is forecast to grow at an average rate of 5.1% per year over the forecast period. This is expected to cause tax revenue to grow by $19.8 billion over the same period, as shown in Table 2.4.

Table 2.4 - Composition of growth in core Crown tax revenue over the forecast period
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Change in core Crown tax compared with previous year owing to:            
Nominal GDP 4.4 3.6 4.2 4.0 3.6 19.8
Composition of GDP (0.4) (0.2) (0.2) (0.4) (0.6) (1.8)
Policy initiatives 0.2 (0.5) (1.0) 0.1 (0.1) (1.3)
Fiscal drag 0.1 0.2 0.3 0.2 0.2 1.0
Interest rates (0.2) (0.1) 0.1 0.4 0.4 0.6
Interest-bearing deposit base - 0.1 - 0.1 0.1 0.3
Other factors 0.1 (0.2) 0.1 0.5 0.4 0.9
Total increase in core Crown tax revenue 4.2 2.9 3.5 4.9 4.0 19.5
Plus: previous year's tax base 70.4 74.6 77.5 81.0 85.9 70.4
Core Crown tax revenue 74.6 77.5 81.0 85.9 89.9 89.9
Percentage of GDP 27.7% 27.5% 27.3% 27.5% 27.7%  

Source: The Treasury

Policy initiatives

In addition to the Family Incomes Package discussed above, all other policy initiatives that have a tax effect have been included in these forecasts. Other recenttax policy initiatives included in these forecasts are the Base Erosion/Profit Shifting initiatives and changes around the taxation of Employee Share Plans. A full table of tax policy initiatives since the Half Year Update can be found at http://www.treasury.govt.nz/budget/forecasts/befu2017

Composition of GDP

Although nominal GDP is forecast to grow at more than 5% per year on average, not all components of nominal GDP grow at the same rate. For instance, employees' compensation and domestic consumption respectively are both forecast to grow at a slower rate than nominal GDP. These are the principal economic drivers of two of the largest tax types: PAYE and GST. Collective GDP-compositional effects take $1.8 billion off tax revenue growth over the forecast period.

Fiscal drag

Owing to the progressive nature of the personal tax scale (ie, higher marginal tax rates applying at higher incomes), PAYE tends to grow at a faster rate than the underlying incomes on which PAYE is levied. This effect is colloquially known as fiscal drag and it adds $1.0 billion to tax revenue growth over the forecast period.

Interest-bearing deposit base and interest rates

RWT on interest depends mainly on the stock of interest-bearing deposits and the interest income earned on those deposits. The stock of deposits is expected to grow more or less steadily over the next five years, adding $0.3 billion to RWT over the forecast period. Interest rates are forecast to increase from recent lows, particularly through the latter half of the forecast period, and are forecast to add $0.6 billion to RWT.

Comparison with Inland Revenue forecasts

Inland Revenue has also prepared a set of tax forecasts which, like the Treasury's tax forecasts, were based on the Treasury's macroeconomic forecasts. The two sets of forecasts are relatively close to each other but differ slightly because of the different modelling approaches and assumptions and judgements made by the two agencies. This comparison can be found at http://www.treasury.govt.nz/budget/forecasts/befu2017

Tax Expenditure Statement

The Treasury prepares a Tax Expenditure Statement annually in conjunction with the Budget Update. The purpose of this statement is to provide additional transparency around policy-motivated expenditures made through the tax system. Tax expenditures impact on the Crown's operating balance by either reducing tax revenue (eg, through an exemption or a preferential tax rate) or by increasing expenditure (eg, Working for Families tax credits). The 2017 Tax Expenditure Statement is available on the Treasury website

http://www.treasury.govt.nz/budget/2017/taxexpenditure

Core Crown Expenses

Nominal core Crown expenses increase...

Core Crown expenses are expected to grow by $15.3 billion over the forecast period from $73.9 billion in 2015/16 to $89.2 billion in 2020/21, an increase of around $3 billion each year (Figure 2.3).

Figure 2.3 - Core Crown expenses
Figure 2.3 - Core Crown expenses.
Source: The Treasury

This nominal growth is largely attributable to budget decisions and new spending set aside for future budgets (Figure 2.4). In addition, social assistance spending is forecast to increase by $5.1 billion across the forecast period (refer to page 31 for further details) and the Care and Support Workers pay equity settlement adds just under $400 million per year to expenses.

Figure 2.4 - Increase in core Crown expenses relative to 2015/16 actuals
Figure 2.4 - Increase in core Crown expenses relative to 2015/16 actuals.
Source: The Treasury

...reflecting new budget spending...

Budget decisions made in Budget 2016 add around $1.9 billion of expenditure to 2016/17 while Budget 2017 decisions have added around $1.8 billion to core Crown expenses. In addition, spending set aside in future budgets increases spending by $5.2 billion by 2020/21.

Future operating allowances[4] are currently set at $1.7 billion for Budget 2018, increasing by 2% each subsequent Budget (Figure 2.5).

Figure 2.5 - Budget 2017 and future Budget operating allowances
Figure 2.5 - Budget 2017 and future Budget operating allowances.
Source: The Treasury

For forecasting purposes, the allowances are assumed to be all operating expenditure. However, these allowances can be used for a combination of revenue and expense initiatives when allocated, and are net of identified savings (discussed in the Summary of Initiatives).

...and increasing social assistance...

In addition to new budget spending, social assistance spending is expected toincrease by $5.1 billion across the forecast period, a 20.9% increase from the 2016 level. NZS payments account for $3.7 billion of this increase (Figure 2.6). NZS recipient numbers are forecast to increase from 690,600 in 2015/16 to 824,000 by the end of the forecast horizon. This increase in recipient numbers accounts for just under 67% of the increase in NZS costs, with the remaining increase largely owing to indexation of entitlements to wage growth (Figure 2.7). By the end of the forecast period, NZS is around 54% of the total social assistance spending compared to 50% in 2015/16.

Figure 2.6 - Social assistance spending
Figure 2.6 - Social assistance spending.
Source: The Treasury
Figure 2.7 - Growth of NZS expenses
Figure 2.7 - Growth of NZS expenses.
Source: The Treasury

Adding to the forecast growth in NZS payments, the Family Incomes Package is expected to increase social assistance expenditure by just over $0.5 billion per year by 2019/20 primarily through increases in Working for Families and the Accommodation Supplement (Table 2.5). Pages 21 to 22 provides an explanation of the Family Incomes Package and consequential fiscal impacts.

Table 2.5 - Social assistance expenditure impacts of the Family Incomes Package
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Working for Families - 0.1 0.4 0.3 0.3 1.1
Accommodation Supplement - 0.1 0.4 0.4 0.4 1.3
Consequential impacts on other benefits1 - - (0.2) (0.2) (0.2) (0.6)
Net increase in expenses - 0.2 0.6 0.5 0.5 1.8

Note:

  1. Other social assistance expenses are impacted by the change in tax settings. For example, NZS is set relative to the after-tax average wage.

Source: The Treasury

...while as a percentage of nominal GDP, core Crown expenses reduce

Core Crown expenses are expected to grow more slowly than the nominal economy, which sees core Crown expenses declining from 29.2% in 2015/16 to 27.5% of GDP at the end of the forecast period (Figure 2.3).

2017 Budget new operating spending

The purpose of this box is to explain how the new operating spending (including the Care and Support Workers Pay Equity Settlement) allocated in Budget 2017 is incorporated in the fiscal forecasts. Details on individual initiatives can be found in the Summary of Initiatives in Budget 2017 budget document.

The Budget 2017 net operating package totals $7.2 billion across the forecast period, an annual average increase of $1.8 billion. The package includes revenue initiatives that increase revenue by $0.3 billion and spending which increases expenditure by $7.5 billion (refer Table 2.6). In addition the Family Incomes Package adds $1.5 billion to expenses.

Table 2.6 - Impact of operating package
Year ending 30 June
$millions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Gross spending  146  1,707  1,986  1,946  2,029 7,826
Savings and revenue initiatives  (27)  (62)  (134)  (191)  (189) (615)
Budget 2017 net package 119  1,645  1,852  1,755  1,840 7,211
Care and Support Workers Pay Equity Settlement - 348 389 413 392 1,542
Total new spending 119 1,993 2,241 2,168 2,232   8,753
Increase in core Crown revenue  -    -    50  100  100 250
Increase in core Crown expenses 119 1,993  2,291  2,268  2,332 9,003
Reduction in OBEGAL  119  1,993  2,241  2,168  2,232 8,753

Source: The Treasury

The increase in core Crown expenses ($9.0 billion) is spread across a number of areas as outlined in Table 2.7 below. The core Crown expense tables in Chapter 6 outline the total core Crown expenditure on each of these areas after these increases.

Table 2.7 - Composition of the increase in core Crown expenses[5]
Year ending 30 June
$millions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Health  -   900 940  966  941 3,747
Law and order  5  211  284  322  389 1,211
Education (including tertiary)  (19)  254  308  302  359 1,204
Core government services  5  64  66  88  66 289
Economic and industrial services  18  104  128  125  150 525
Defence  -    47  112  115  122 396
Social security and welfare  -    124  133  101 89 447
Housing and community  29  51  45  45  43 213
Primary services  -    31  40  24  23 118
Heritage, culture and recreation  -    31  34  13  11 89
Environmental protection  21  18  16  10  11 76
Transport and communications  -    11  13  14  8 46
Other  56  9  6  -     -   71
Forecast new operating spending[6]  4    138  166  143  120 571
  119  1,993 2,291  2,268 2,332 9,003

Source: The Treasury

Notes

  • [4]New operating spending will be allocated to department baselines when budget decisions are made. As a result, the different functional expense areas, with the exception of social security and welfare and finance costs, remain flat across the forecast period (refer page 94). Therefore, comparisons across the forecast period will not necessarily reflect the expected spend at a functional level.
  • [5]The breakdown by functional classification above is based on a framework developed by the OECD so may be different to the classification by Vote in the Summary of Initiatives in Budget 2017.
  • [6]The amounts classified as “forecast new operating spending” represent centrally held contingencies that have yet to be allocated to a particular departmental baseline.

Operating Balance

The operating performance of the Crown strengthens…

OBEGAL is expected to be relatively unchanged, from 2015/16, in 2016/17 followed by steady growth in the remaining years of the forecasts rising to $7.2 billion by 2020/21.

Figure 2.8 shows the composition of OBEGAL from the different segments of the Government.

Figure 2.8 - Components of OBEGAL by segment
Figure 2.8 - Components of OBEGAL by segment.
Source: The Treasury

The core Crown segment is forecast to have an OBEGAL surplus that remains constant in the next two years before continuing to rise over the remainder of the forecast period, largely reflecting growth in tax revenue outpacing growth in nominal spending.

Crown entities' (CEs)[7]contribution to OBEGAL is expected to be a deficit of $1.5 billion in 2016/17 largely reflecting increased insurance expenses from the Canterbury earthquakes (by Southern Response) and new costs associated with the Kaikōura earthquakes (by EQC). For the remainder of the forecasts, the Crown entity sector is expected to be largely neutral with small surpluses and deficits.

State-owned Enterprises' (SOEs)[7] contribution to OBEGAL remains fairly stable with operating surpluses forecast averaging $0.7 billion throughout the forecast period.

...while investment returns contribute to the growth in net worth

The total Crown operating balance, inclusive of gains and losses, is forecast to be in surplus across all years of the forecast period with an initial peak in 2016/17 of $9.4 billion.

Gains and losses then return to long-term assumptions and operating balance follows the OBEGAL trend growing to $10.8 billion in 2020/21 (Figure 2.9).

Figure 2.9 - Components of operating balance
Figure 2.9 - Components of operating balance.
Source: The Treasury

The level of operating balance plays a significant part in increasing the Government's financial assets and contributing to growth in the Crown's net worth.

Following investment losses in 2015/16 the NZS Fund is forecasting gains on investments in the current year. Beyond 2016/17, investment gains assume a long-term rate of return.

In addition to investment gains, actuarial gains on the Crown's significant long-term liabilities such as ACC and Government Superannuation Fund (GSF) are forecast to be $2.8 billion in 2016/17. However, as future changes to discount rates and CPI are not forecast, they do not impact the operating balance beyond 2016/17.

While the Crown is forecast to be in surplus across the forecast period, net debt is forecast to continue to increase in the near future. Refer to page 41 for a discussion on the reason for the short-term increase in net debt.

Summary fiscal indicators

The Treasury calculates two summary fiscal indicators - the cyclically-adjusted balance and the fiscal impulse indicator - to help assess the Government's fiscal position. Further detail on these indicators can be found in the Additional Information section of the Budget Update, which is available on the Treasury website (www.treasury.govt.nz/budget/forecasts/befu2017).

Table 2.8 - Structural fiscal balance indicators
Year ending 30 June
% of GDP
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
OBEGAL 0.7 0.6 1.0 1.4 2.0 2.2
Cyclically-adjusted balance 1.3 1.4 1.3 1.2 1.8 2.2
Fiscal impulse [8] (0.3) - 0.4 0.5 (1.0) (0.6)

Source: The Treasury

Cyclically-adjusted balance

The cyclically-adjusted balance (CAB) is an estimate of the OBEGAL adjusted for the cyclical position of the economy. Cyclical factors (eg, higher tax receipts in an upturn or higher unemployment expenses in a downturn) are removed to assess the Government's underlying fiscal position. The CAB is in surplus across the entire forecast period, indicating the forecast OBEGAL surpluses are structural (ie, they are not due to cyclical economic conditions). The CAB is greater than the OBEGAL in 2016/17 and 2017/18 as the economy is estimated to have a degree of spare capacity and lower than the OBEGAL from 2018/19 when the economy is forecast to be operating above its potential level. Cyclically-adjusted surpluses are forecast to increase from 1.3% of GDP in 2017/18 to a peak of 2.2% of GDP by the end of the forecast period.

Fiscal impulse

The fiscal impulse is an estimate of discretionary changes in the fiscal position that have an impact on aggregate demand pressures in the economy. The fiscal impulse indicates that fiscal policy is forecast to have a mildly stimulatory impact on aggregate demand in the near-term. This stance turns mildly contractionary in 2019/20 and 2020/21. The positive impulses in 2017/18 and 2018/19 reflect the stimulatory impact of elevated capital spending relative to the Half Year Update, the Family Incomes Package, and timing effects of company tax receipts. This is somewhat offset by the ongoing decline in operating expenditure as a percentage of GDP that occurs across the forecast period, which also drives the negative impulses from 2019/20.

Figure 2.10 - Operating balance indicators
Figure 2.10 - Operating balance indicators.
Source: The Treasury

Notes

  • [7]See pages 89 to 92 for a list of CEs and SOEs.
  • [8]The fiscal impulse measure shown is the core Crown fiscal impulse plus Crown entities excluding EQC and Southern Response payments and receipts related to the Canterbury and Kaikōura earthquakes.

Core Crown Capital Spending

The Government is forecast to spend a net total of $23.5 billion on capital items (excluding contributions to the NZS Fund) in the next four years, which includes building and acquiring physical assets (eg, school buildings), advances (eg, student loans), providing capital to CEs (eg, the New Zealand Transport Agency (NZTA)) and future new capital spending. Recommencing contributions to the NZS Fund will add a further $2.2 billion in 2020/21, and including the current year's spending of $4.9 billion raises the total spend on capital items over the forecast period to $30.6 billion (Table 2.9).

In total, Budget 2017 has allocated around $4.0 billion in capital spending over the forecast period. This capital spending has been allocated over a number of spending areas and across a number of years (for a breakdown of the $4.0 billion refer to Figure 2.14). This has increased from the $3.0 billion that was set out in the 2017 BPS.

Table 2.9 - Net capital expenditure activity 2016/17 to 2020/21
Year ending 30 June
$billions
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Education 0.6 0.9 0.9 1.0 0.8 0.6 4.2
Defence 0.4 0.6 0.6 0.5 0.5 0.3 2.5
Corrections 0.1 0.1 0.2 0.2 0.1 0.1 0.7
IRD - 0.1 0.2 0.1 0.1 0.1 0.6
Other 0.9 0.9 1.3 0.6 0.6 0.5 3.9
Net purchase of physical assets 2.0 2.6 3.2 2.4 2.1 1.6 11.9
Student loans 0.2 0.2 0.2 0.1 0.1 - 0.6
Housing Infrastructure Fund - - - 0.2 0.2 0.2 0.6
Other 0.3 (0.1) 0.1 (0.1) (0.1) (0.1) (0.3)
Net advances 0.5 0.1 0.3 0.2 0.2 0.1 0.9
NZTA 1.1 1.1 1.5 1.2 1.3 1.2 6.3
City Rail Link - 0.2 0.1 0.3 0.4 0.4 1.4
Southern Response 0.3 0.3 0.4 0.1 - - 0.8
DHBs - 0.1 0.2 0.1 0.2 0.1 0.7
KiwiRail 0.2 0.2 0.2 0.2 - - 0.6
Other 0.5 0.2 0.5 0.6 0.2 0.1 1.6
Net investments 2.1 2.1 2.9 2.5 2.1 1.8 11.4
Future new capital spending - 0.2 0.4 1.3 1.6 2.0 5.5
Top-down capital adjustment - (0.1) (0.8) (0.2) (0.2) - (1.3)
Contribution to NZS Fund - - - - - 2.2 2.2
Net capital spending 4.6 4.9 6.0 6.2 5.8 7.7 30.6

Source: The Treasury

Net capital spending is expected to increase significantly in 2017/18 and 2018/19, with the largest capital spend in a number of years (Figure 2.11). The size of the forecast spend increases the risk that spending may be pushed into future periods as capacity constraints are tested.

Table 2.9 outlines the capital spending and funding from the core Crown that impacts net core Crown debt. It excludes capital spending undertaken by CEs and SOEs that is funded directly from their own resources. In addition to the capital spending in the table above, the Government has undertaken a number of capital projects through Public Private Partnerships (eg, Transmission Gully). Further detail on total Crown spending on infrastructure can be found in the Capital at a Glance document, which focusses on this broader (and therefore larger) infrastructure investment by the Crown.

Figure 2.11 sets out a history of capital expenditure over the past 10 years and includes the forecast capital activity to 2020/21. The graph excludes contributions to the NZS Fund and proceeds from the Government Share Offer programme in 2012-14 (a total of $4.6 billion) which were used to fund capital expenditure.

Figure 2.11 - Net capital spending history
Figure 2.11 - Net capital spending history.
Source: The Treasury

A net capital allowance of $2.0 billion is forecast for Budget 2018 with $2.5 billion for Budgets 2019-21. The Government's share of the cost of the CRL joint project with Auckland Council is assumed to be met from these allowances. Each capital allowance is assumed to be spread over four fiscal years reflecting the assumed profile of future spending. This profile is illustrated in Figure 2.12.

Figure 2.12 - Future capital allowances
Figure 2.12 - Future capital allowances.
Source: The Treasury

In addition to budget allowances, further capital spending is forecast to occur through the purchase of physical assets, investments in CEs and lending such as student loans.

Forecast net purchases of physical assets of $11.9 billion are forecast across the period and represent spending by core Crown agencies to maintain and expand their existing asset base. Over half of the spending ($6.7 billion) is expected to be on defence and education assets.

Net investments of $11.4 billion are forecast, and largely represent capital injections to CEs to fund their capital programmes. These investments average $2.2 billion a year across the forecast period. The largest capital injections across the forecast period are to NZTA for state highways ($6.3 billion). Net investments also include Crown support for Southern Response, which is expected to call the remaining uncalled capital facility as a result of their updated insurance liability valuation.

Net advances of $0.9 billion include issuance and repayment of student loans as well as the Housing Infrastructure Fund. Student loan repayments have been increasing over time so that, by the end of the forecast period, repayments are expected to match issuances. The forecasts assume that 60% of the Housing Infrastructure Fund will be allocated in the forecast period with the remaining 40% allocated in subsequent years.

Core Crown capital spending

Core Crown capital spending is expected to reach $28.4 billion over the five years of the forecast (excluding contributions to the NZS Fund and capital spending by Crown entities and SOEs). This compares to $18.4 billion spent over the previous five years. This spending includes cash paid by the Crown to directly acquire assets, capital funding provided to CEs to undertake their capital programmes as well as programmes such as the Housing Infrastructure Fund.

Figure 2.13 - Capital spending 2017-2021
Figure 2.13 - Capital spending 2017-2021.
Source: The Treasury

Budget 2017 allocated $4 billion of new capital spending which has been incorporated into the total capital spending above (Figure 2.14). Two-thirds of Budget 2017 spending has been allocated to transport and law and order projects.

Figure 2.14 - Budget 2017 capital spending
Figure 2.14  - Budget 2017 capital spending.
Source: The Treasury

The expected distribution of the core Crown capital spending is outlined in Figure 2.13 with nearly a third expected to be allocated to transport projects.

Transport spending is split between roading and rail and includes the Government's investment in CRL with the Auckland Council and the rebuild of the transport infrastructure damaged in the Kaikōura earthquakes. Education capital spending includes spending on school properties together with the issuance of student loans. Student loan repayments are forecast to increase over the forecast period, equalling student loans issued by 2020/21.

A portion of capital spending in future budgets has yet to be allocated to a particular sector. The fiscal forecasts assume that this future spending will be used to build or purchase new assets directly. However, the Government may instead chose to enter into a Public Private Partnership (PPP) for large capital projects. While the use of a PPP does not impact forecast core Crown net debt, it may delay cash payments to outside the forecast period.

The distribution of law and order spending is outlined in Figure 2.15 with a large portion of the spending allocated to increasing prison capacity.

Figure 2.15 - Law and order capital spending
Figure 2.15 - Law and order capital spending.
Source: The Treasury

Health spending includes the rebuild of Canterbury hospitals while other spending includes the Housing Infrastructure Fund, Crown support for Southern Response and investment in ultra-fast broadband.

Residual Cash and Net Core Crown Debt

[9]

Operating cash flows improve over time...

Net operating cash flows are forecast to be in surplus across the forecast period, rising in a similar trend to the OBEGAL forecast. By 2020/21, net operating cash flows are forecast to be $9.1 billion. Over the forecast period the Government is expected to generate cash flows from core Crown operations of $30.5 billion.

The increasing operating cash flows largely represent growth in tax receipts exceeding the growth in operating payments.

...outpacing capital spending near the end of the forecast period…

While operating cash flows are positive across the forecasts, capital expenditure is forecast to exceed operating cash flows until 2019/20, when core Crown residual cash returns to surplus (Figure 2.16).

Figure 2.16 - Core Crown residual cash
Figure 2.16 - Core Crown residual cash.
Source: The Treasury

Core Crown residual cash is broadly neutral over the forecast period, with cash deficits in the next two years mostly offset by cash surpluses at the end of the forecast period.

… leading to a decline in net core Crown debt...

Net core Crown debt as a share of nominal GDP is forecast to decrease, from 24.4% in 2015/16 (Figure 2.17) to 19.3% by 2020/21.

Figure 2.17 - Net core Crown debt
Source: The Treasury

In dollar terms, net core Crown debt is forecast to increase for the first three years as cash flows from operating activities are not expected to be sufficient to meet capital spending before starting to decline once residual cash returns to surplus. Net debt is forecast to be $62.8 billion in 2020/21.

The Government is aiming to reduce net debt to between 10% and 15% of GDP by 2025, after the current target of 20% of GDP by 2020 has been achieved.

...and gross debt begins to decline after 2016/17

Gross debt is expected to peak at $88.6 billion in 2016/17. Forecast maturities are then expected to exceed new debt being issued. Gross debt is forecast to be $78.9 billion in 2020/21 which is equivalent to 24.3% of nominal GDP (Figure 2.18).

Figure 2.18 - Gross debt
Figure 2.18 - Gross debt.
Source: The Treasury

The bond programme[10] is expected to raise funds of $34.0 billion over the forecast period, while $42.4 billion of existing debt will be repaid, providing net repayments of $8.4 billion (Table 2.10).

The issuance profile is relatively flat in order to reduce year-to-year volatility of bond programmes and ensure consistency of supply over this time.

In future the Government intends to maintain the amount of bonds issued at not less than 20% of GDP over time. The Fiscal Strategy Report (FSR) contains further information on the gross debt objective.

Table 2.10 - Net increase in government bonds
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Face value of government bonds issued (market) 8.0 7.0 7.0 7.0 6.0 35.0
Cash proceeds from government bond issue            
Cash proceeds from issue of market bonds 8.0 6.9 6.8 6.5 5.8 34.0
Repayment of market bonds (5.1) (11.6) (6.5) (7.3) (11.1) (41.6)
Net proceeds from market bonds 2.9 (4.7) 0.3 (0.8) (5.3) (7.6)
Repayment of non-market bonds (0.8) - (0.8)
Net repayment of non-market bonds (0.8) - (0.8)
Net cash proceeds from bond issuance 2.1 (4.7) 0.3 (0.8) (5.3) (8.4)

Source: The Treasury

Why net debt increases even when the Government has an operating surplus

OBEGAL surpluses are forecast across the forecast period. However, net core Crown debt is not forecast to reduce in nominal terms until 2019/20 (although as a percentage of GDP net debt does reduce). To explain why net core Crown debt is forecast to rise over the next few years Table 2.11 below illustrates how the Crown's OBEGAL impacts on the Crown's cash requirements and ultimately, net core Crown debt.

Core Crown taxation revenue combined with other core Crown revenue fund core Crown expenses, along with forecast surpluses and deficits of SOEs and CEs, resulting in a total OBEGAL surplus or deficit.

The surpluses and deficits of SOEs, Crown Entities and the NZS Fund are not available for the Government to allocate, and some items do not impact cash (eg, depreciation expense). Once these are removed, the core Crown operating cash flows are used to purchase assets, make advances (eg, student loans) or invest in entities such as NZTA to support their capital programmes.

Where the capital outflow exceeds operating cash flows (residual cash deficit), the Crown must increase debt to fund the shortfall. Where there is a residual cash surplus (ie, capital outflows are less than operating cash flows) the Crown reduces net core Crown debt.

Net core Crown cash flows from operations are forecast to be positive across the forecast period, reaching $9.1 billion by 2020/21. The increase in capital spending over the next few years results in net core Crown debt increasing until operating cash flows exceed capital spending in 2019/20.

Table 2.11 - Reconciliation between OBEGAL and net core Crown debt
Year ending 30 June
$billions
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Core Crown revenue 76.1 80.8 83.8 87.5 92.5 96.8
Core Crown expenses (73.9) (77.5) (80.5) (83.5) (86.2) (89.2)
Net surpluses/(deficits) of SOEs and CEs (0.4) (1.7) (0.4) 0.1 (0.2) (0.4)
Total Crown OBEGAL 1.8 1.6 2.9 4.1 6.1 7.2
Net retained surpluses of SOEs, CEs and NZS Fund 0.3 2.2 0.4 (0.1) 0.2 0.4
Non-cash items and working capital movements 1.2 1.2 0.9 0.7 1.2 1.5
Net core Crown cash flow from operations 3.3 5.0 4.2 4.7 7.5 9.1
Net purchase of physical assets (2.0) (2.7) (3.2) (2.4) (2.0) (1.6)
Advances and capital injections (2.6) (2.1) (3.2) (2.8) (2.4) (1.9)
Contribution to NZS Fund - (2.2)
Forecast for future new capital spending (0.2) (0.4) (1.3) (1.6) (2.0)
Top-down capital adjustment - 0.1 0.8 0.2 0.2
Net core Crown capital cash flows (4.6) (4.9) (6.0) (6.3) (5.8) (7.7)
Core Crown residual cash (deficit)/surplus (1.3) 0.1 (1.8) (1.6) 1.7 1.4
Opening net core Crown debt 60.6 61.9 62.3 64.1 65.7 64.2
Core Crown residual cash deficit/(surplus) 1.3 (0.1) 1.8 1.6 (1.7) (1.4)
Valuation changes in financial instruments - 0.5 - - 0.2 -
Closing net core Crown debt 61.9 62.3 64.1 65.7 64.2 62.8
As a percentage of GDP 24.4% 23.2% 22.8% 22.1% 20.6% 19.3%

Source: The Treasury

Notes

Total Crown Balance Sheet

Increasing operating balance surpluses result in a stronger balance sheet...

Net worth attributable to the Crown is forecast to grow in nominal terms across the forecast period largely owing to forecast operating balance surpluses to stand at $133.0 billion by 2020/21. As a share of nominal GDP net worth attributable to the Crown is expected to increase across the forecast period as operating balances outpace GDP growth. Net worth attributable to the Crown reaches 40.9% by 2020/21 (Figure 2.19).

Figure 2.19 - Net worth attributable to the Crown
Figure 2.19 - Net worth attributable to the Crown.
Source: The Treasury

...with assets increasing by $38.6 billion over the forecast period while liabilities reduce

Total assets are forecast to grow by $38.6 billion over the forecast period to $331.3 billion in 2020/21, made up of additional investments in assets, both physical and financial (Figure 2.20). At the same time, the Crown's liabilities decrease $4.6 billion and are estimated to be $192.6 billion in 2020/21.

Figure 2.20 - Total Crown assets
Figure 2.20 - Total Crown assets.
Source: The Treasury

The largest asset growth over the forecast period is in the social assets portfolio (just over 50% of the total Crown balance sheet). Social assets (eg, schools, hospitals and social housing) are expected to increase by $24.7 billion over the forecast period to be $174.1 billion in 2020/21 (Figure 2.21). This increase largely reflects growing capital spending.

Figure 2.21 - Social balance sheet
Figure 2.21 - Social balance sheet.
Source: The Treasury

Liabilities in relation to the social segment (eg, tax refunds, Emissions Trading Scheme (ETS) provision) remain fairly static. As a result, social net worth is expected to increase.

The financial asset portfolio (around 30% of the total Crown balance sheet) is expected to increase by $8.4 billion to be $96.3 billion in 2020/21, primarily reflecting investment growth in the large investment portfolios (NZS Fund and ACC).

On the liability side, borrowings in the financial sector are forecast to decrease by $11.5 billion by 2020/21, mostly as a result of the reduction in gross debt discussed earlier (page 40).

ACC's insurance liability is expected to continue to increase from $39.1 billion at the end of 2015/16 to $45.2 billion in 2020/21. By contrast, the GSF liability is forecast to fall to $8.5 billion by 2020/21, as pensions are paid out.

Overall, net worth in the financial sector increases by $19.9 billion across the forecast period (Figure 2.22).

Figure 2.22 - Financial balance sheet
Figure 2.22 - Financial balance sheet.
Source: The Treasury

The commercial asset portfolio (representing nearly 20% of the Crown's balance sheet) is expected to increase by $4.9 billion over the forecast period to be $60.2 billion in 2020/21, mostly as a result of growth in the Kiwibank[11] loan book (with a corresponding increase in liabilities as deposit balances are also forecast to rise). Commercial net worth remains fairly static (Figure 2.23).

Figure 2.23 - Commercial balance sheet
Figure 2.23 - Commercial balance sheet.
Source: The Treasury

The Crown's balance sheet remains sensitive to market movements...

Many of the assets and liabilities on the Crown's balance sheet are measured at fair value in order to show current estimates of what the Crown owns and owes. While the measurement at fair value is intended to reflect the value of these items, it can be volatile, resulting in fluctuations in the value of the assets and liabilities reflecting changes in the market and underlying assumptions.

The Risks and Scenarios chapter includes a section on balance sheet risks and should be read in conjunction with the fiscal forecasts.

Notes

  • [11]The sale of shares in Kiwibank to NZS Fund and ACC does not impact on the total Crown balance sheet as Kiwibank remained 100% owned by the Crown (through its government reporting entities) following the investment.

Comparison to the Half Year Update

The Half Year Update was published on 8 December 2016. Since then, there have been a number of developments that have significantly impacted the fiscal outlook. Table 2.12 below summarises the changes in the key fiscal indicators since then.

Table 2.12 - Key fiscal indicators compared to the Half Year Update
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast

Core Crown tax revenue

         
Budget Update 74.6 77.5 81.0 85.9 89.9
Half Year Update 74.2 78.0 82.0 85.8 89.9
Change 0.4 (0.5) (1.0) 0.1 -

Core Crown expenses

         
Budget Update 77.5 80.5 83.5 86.2 89.2
Half Year Update 78.3 80.1 82.4 85.2 87.8
Change (0.8) 0.4 1.1 1.0 1.4

OBEGAL (excluding minority interests)

         
Budget Update 1.6 2.9 4.1 6.1 7.2
Half Year Update 0.5 3.3 5.4 6.8 8.5
Change 1.1 (0.4) (1.3) (0.7) (1.3)

Core Crown residual cash

         
Budget Update 0.1 (1.8) (1.6) 1.7 1.4
Half Year Update (2.2) (2.1) 1.4 3.0 2.6
Change 2.3 0.3 (3.0) (1.3) (1.2)

Net core Crown debt

         
Budget Update 62.3 64.1 65.7 64.2 62.8
Half Year Update 64.4 66.4 65.0 62.1 59.6
Change (2.1) (2.3) 0.7 2.1 3.2

Net worth attributable to the Crown

         
Budget Update 100.0 105.6 112.6 122.1 133.0
Half Year Update 93.0 99.1 107.4 117.3 129.3
Change 7.0 6.5 5.2 4.8 3.7

Source: The Treasury

The Family Incomes Package has reduced tax revenue forecasts...

The dominant feature of the change in tax revenue forecasts since the Half Year Update is the Family Incomes Package. The income tax threshold adjustment and IETC abolition components of the package have removed $6.3 billion from the tax revenue forecasts. This is most noticeable in the source deductions and other persons tax lines in Table 2.13.

Figure 2.24 - Movement in core Crown tax revenue since the Half Year Update
Figure 2.24 - Movement in core Crown tax revenue since the Half Year Update.
Source: The Treasury

…but there is some offset from a stronger economic outlook…

Offsetting the impact of the Family Incomes Package is the more-positive outlook for nominal GDP, which adds $3.2 billion to tax revenue across the forecast period. This $3.2 billion is made up of:

  • a $1.7 billion increase to the tax forecasts as a direct result of macroeconomic forecast changes, plus
  • $1.5 billion that arises as an indirect result of the tax clawback on the Family Incomes Package discussed on page 27.

The upward influence of the macroeconomic forecast changes is most noticeable in the corporate tax forecasts, which were increased by $2.7 billion in total. Forecasts of operating surplus, which is the component of GDP that most-closely matches taxable corporate profits, are generally higher than in the Half-Year Update throughout the forecast period.

As mentioned in the Economic Outlook chapter, interest rates are now forecast to be higher than in the Half Year Update. This will have an effect on interest income earned on term deposits and other similar investments, which has increased the RWT on interest forecasts by $0.9 billion across the forecast period.

The forecasts of GST are overall mostly similar to the Half Year Update. Although the forecast for domestic consumption has been raised slightly, this is offset by the pause in residential investment growth mentioned in the Economic Outlook chapter. Continued high levels of inbound tourism are having a positive effect on GST revenue.

Table 2.13 - Reconciliation of the change in core Crown tax revenue
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Total
Change

Movement in core Crown tax owing to:

           
Source deductions - (0.1) (1.2) (1.3) (1.6) (4.2)
Other persons tax - (0.1) (0.2) - 0.2 (0.1)
Corporate tax 0.6 - 0.4 0.7 1.0 2.7
RWT 0.1 0.1 0.2 0.3 0.2 0.9
GST (0.2) (0.3) - 0.3 0.3 0.1
Other taxes (0.1) (0.1) (0.2) 0.1 (0.1) (0.4)
Total movement in core Crown tax revenue 0.4 (0.5) (1.0) 0.1 - (1.0)
Plus: Half Year Update's tax base 74.2 78.0 82.0 85.8 89.9  
Core Crown tax revenue at Budget Update 74.6 77.5 81.0 85.9 89.9  
As a % of GDP 27.7% 27.5% 27.3% 27.5% 27.7%  

Core Crown tax movements consist of:

           
Family Incomes Package - (0.5) (1.5) (1.3) (1.5) (4.8)
Other policy initiatives - - - 0.1 0.1 0.2
Forecast changes 0.4 - 0.5 1.3 1.4 3.6

Source: The Treasury

...while the OBEGAL outlook is lower…

With tax revenue overall lower than forecast in the Half Year Update, increases to the Budget 2017 operating package and future operating budget allowances, OBEGAL is expected to be lower from 2017/18 than what was forecast in the Half Year Update (Table 2.14).

Table 2.14 - Changes in OBEGAL since the Half Year Update
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
OBEGAL - 2016 Half Year Update 0.5 3.3 5.4 6.8 8.5
Changes in forecasts:          
       Family Incomes Package (including social assistance) - (0.6) (2.1) (1.8) (2.0)
       Budget 2017 new operating spend - (0.1) (0.4) (0.2) (0.4)
       Increase to future operating allowances - - (0.2) (0.4) (0.7)
       Core Crown tax revenue forecast changes 0.4 - 0.5 1.3 1.4
       Tax receivable impairment expense 0.3 0.3 0.3 0.3 0.3
       Other changes 0.4 - 0.6 0.1 0.1
Total changes since the Half Year Update 1.1 (0.4) (1.3) (0.7) (1.3)
OBEGAL - 2017 Budget Update 1.6 2.9 4.1 6.1 7.2

Source: The Treasury

Budget 2017 new operating spending has reduced OBEGAL by $1.1 billion across the forecast when compared to the Half Year Update (for more detail, refer to Tables 2.13 and 2.14). Overall, operating expenditure increased from an average of $1.5 billion to $1.8 billion each year and future budget operating allowances have increased from $1.5 billion signalled in the Half Year Update to $1.7 in Budget 2018 rising by 2% each year thereafter.

Reductions in tax receivable impairment expenses of just over $300 million per year reflect improved tax collection. This reduced expenditure is consistent with the March 2017 actual results.

...while net core Crown debt is higher at the end of the forecast period compared to the Half Year Update

Net core Crown debt is expected to be lower than the Half Year Update in the first two years of the forecast before increasing to be $3.2 billion higher by 2020/21 (Table 2.11).

The Family Incomes Package (as outlined on pages 21 to 22) has had the largest single impact on net core Crown debt since the Half Year Update. However, this has been partially offset by the forecast increase in tax receipts owing to the stronger economic outlook (Table 2.15).

Increases in Budget 2017 new operating spend, along with an increase in the operating allowances for future budgets have increased net core Crown debt.

Overall, changes to the timing and amount of capital spending have reduced net core Crown debt since the Half Year Update, particularly in the current year. While capital spending in Budget 2017 is larger than previously forecast, other factors have resulted in reductions in other capital spending across the forecast period. Some capital spending is now forecast to occur over a longer period of time (eg, some payments in relation to the Housing Infrastructure Fund are now expected to be outside the forecast period), while other spending has reduced (eg, the cost of EQC's Crown guarantee as costs for Canterbury and Kaikōura have been refined).

The NZS Fund contribution is expected to be $0.9 billion less than previously forecast in the Half Year Update (decreasing net debt) reflecting updated underlying assumptions, including the new government policy to lift the age of eligibility for NZS to 67 years by 2040/41.

Table 2.15 - Changes in net core Crown debt since the Half Year Update
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Net debt - 2016 Half Year Update 64.4 66.4 65.0 62.1 59.6
Changes in forecasts (cumulative):          
       Family Incomes Package (including social assistance) - 0.6 2.7 4.5 6.5
       Budget 2017 new operating spend - 0.1 0.5 0.7 1.1
       Budget 2017 new capital spend (0.1) 0.3 0.7 0.9 0.9
       Increase to future operating allowances - - 0.2 0.6 1.3
       Increase to future capital allowances - (0.1) (0.2) (0.1) 0.2
       Tax receipt forecasts (0.1) (0.5) (0.8) (2.0) (3.3)
Capital reforecasting (1.3) (1.8) (2.1) (1.9) (1.8)
       NZS Fund contributions - - - - (0.9)
       Other changes (0.6) (0.9) (0.3) (0.6) (0.8)
Total changes since the Half Year Update (2.1) (2.3) 0.7 2.1 3.2
Net debt - 2017 Budget Update 62.3 64.1 65.7 64.2 62.8

Source: The Treasury

Key Economic Assumptions Used in the Fiscal Forecasts

The fiscal forecasts are prepared on the basis of underlying economic forecasts. Such forecasts are critical for determining revenue and expense estimates. For example:

  • A nominal GDP forecast is needed in order to forecast tax revenue.
  • A forecast of CPI inflation is needed because social assistance benefits are generally indexed to inflation.
  • Forecasts of interest rates are needed to forecast finance costs, interest income and discount rates.

A summary of the key economic forecasts that are particularly relevant to the fiscal forecasts is provided in Table 2.16 below.

Table 2.16 - Summary of key economic forecasts used in fiscal forecasts
Year ending 30 June 2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Real GDP1 (ann avg % chg) 2.7 3.1 3.5 3.8 2.9 2.4
Nominal GDP2 ($m) 253,089 268,877 281,801 297,042 311,862 324,898
CPI (ann avg % chg) 0.3 1.4 1.7 1.9 2.2 2.2
Govt 10-year bonds (ann avg, %) 3.2 2.9 3.5 3.8 4.1 4.3
5-year bonds (ann avg, %) 2.6 2.4 2.9 3.3 3.7 3.9
90-day bill rate (ann avg, %) 2.7 2.1 2.0 2.4 3.2 3.7
Unemployment rate (ann avg, %) 5.2 5.1 5.0 4.8 4.4 4.3
Employment (ann avg % chg) 2.3 5.1 2.5 2.0 1.8 1.3

Notes:

  1. Production measure.
  2. Expenditure measure.

Source: The Treasury

Risks and Scenarios

Overview

  • In this chapter we discuss the risks and uncertainties surrounding the economic and fiscal forecasts. Fan charts are presented to help illustrate the range of potential outcomes and two alternative scenarios are presented to show how the economic and fiscal outlook might evolve under different assumptions and judgements. Specific Fiscal Risks are discussed in Chapter 4.
  • In a number of countries, political debate around policies to restrict trade has intensified, adding to uncertainty around the economic outlook. High levels of debt remain a threat to the sustainability of growth in China and growth in Japan and the euro area remains dependent on very stimulatory monetary conditions. In Australia, there are risks around the sustainability of growth in segments of the housing market. A significant weakening in the housing market could have broader implications including slower growth in consumption and employment. Ongoing softness in the Australian labour market may help sustain higher net migration inflows to New Zealand than assumed in the main forecasts.
  • An important assumption in these forecasts is that net migration inflows have passed their peak and will ease gradually. In Scenario One we consider the possibility that net migration does not decline and that capacity pressures in the construction sector are more intense than in the main forecast. As a consequence, domestic demand growth is stronger and inflation is higher, which leads to faster nominal GDP growth. This flows through to higher tax revenue and a stronger fiscal position.
  • In Scenario Two we consider the implications of a desire by households to reduce debt from current high levels. In this scenario, growth in private consumption and residential investment is more moderate, the unemployment rate is higher and inflation is relatively subdued. Nominal GDP and tax revenue are lower, leading to a weaker fiscal position.
  • The Crown's balance sheet is exposed to a number of risks beyond those associated with the operating balance. The Crown's financial position is exposed to risk through changes in the value of the Crown's assets or liabilities, and also through the potential impact of the Crown's fiscal obligations that arise from policy choices.

Risks and Uncertainties Affecting the Economic and Fiscal Outlook

The main forecasts are based on a range of assumptions about the evolution of some variables, including the exchange rate, the terms of trade and population growth (see Key judgements and assumptions, page 25) and judgements about how developments in one part of the economy will affect others. One way of showing the extent of uncertainty surrounding the main economic forecasts is to present confidence intervals based on historical forecast errors.

In this chapter we also consider the consequences that different judgements and assumptions may have for the forecasts and discuss possible outcomes based on events occurring that are not part of the main forecasts. We consider two alternative paths, or scenarios, for the economic outlook, to illustrate the sensitivity of fiscal outcomes to economic developments.[12]

Economic forecast uncertainty

Figure 3.1 shows a fan chart of nominal expenditure on GDP.[13] The width of the fan increases further into the forecast period, meaning our forecasts are less accurate the longer the forecast horizon. In other words, the further away from the present the more uncertain the future is. The outermost edges of the fan chart show that, 90% of the time, nominal GDP will be within +/-8% of the main forecast at the end of the forecast period (ie, five years). The boundaries of the darker, innermost fan show that, 70% of the time, nominal GDP will be within +/-5% of the main forecast at the end of the forecast period. Over the forecast period, the cumulative impact of nominal GDP outcomes that are persistently on the 70% percentile boundary is to raise/lower the main forecast by $50 billion.

Figure 3.1 - Fan chart of nominal expenditure on GDP
Figure 3.1 - Fan chart of nominal expenditure on GDP.
Sources: Statistics New Zealand, the Treasury

The cumulative impact on nominal GDP of the scenarios we consider in this chapter lie well within the 70th percentile of the fan. The box in this chapter reviewing recent scenarios of weaker terms of trade shows that even the most extreme terms of trade scenario produces nominal GDP outcomes that lie close to the 70th percentile. That is, a number of coincident shocks are needed to push economic outcomes significantly beyond the 70th percentile.

Fiscal forecast uncertainty

The amount of tax revenue that the Government receives in a given year is closely linked to the performance of the economy. For example, a fall in dairy export prices reduces farm incomes, which impacts on investment and consumption spending. Government tax revenue is affected through a number of channels including taxes on wages and salaries and corporate profits, and via indirect taxes on sales of goods and services.

Figure 3.2 shows the uncertainty surrounding the main tax revenue forecast based on historical tax forecast variances and the assumption of an even balance of risks around the main forecast.[14] The outermost shaded area captures the range of approximately +/- $7.6 billion in the June 2021 year, within which actual tax outturns are expected to fall 80% of the time.[15]The innermost shaded area captures the range of approximately +/- $4.0 billion in the June 2021 year, within which actual tax outturns are expected to fall 50% of the time.

Figure 3.2 - Fan chart of tax revenue
Figure 3.2 - Fan chart of tax revenue.
Source: The Treasury

Government expenses may also be impacted by economic developments. One channel is through changes in labour market conditions that affect the demand for working-age benefits. Another channel is through the indexation of a range of welfare benefits to wage and price movements. Government tax expenditures, including Working for Families, may also be affected by labour market conditions. Changes in net migration flows may also impact on the demand for central government services, particularly health and education. Over the longer-term, current policies imply population growth and population ageing will place increasing pressure on public expenditure, particularly in the areas of health and superannuation.[16]

Changes in the valuation of long-term liabilities, such as the ACC claims liability and the GSF retirement plan, caused by changes in inflation and long-term interest rates, may also affect the Crown operating balance.

One-off and unexpected expenditures can also have a large impact on the Crown's fiscal position. In recent years, earthquakes have demonstrated the inherent exposure of the Crown’s fiscal position to unexpected events. More generally, uncertainty is inherent in forecasting the fiscal impacts of new policy initiatives.

Notes

Key Risks to the Economic and Fiscal Outlook

There is a range of risks to global economic, financial and political stability that may have material impacts on the New Zealand economy should they materialise. In the US, the extent and timing of fiscal stimulus is unclear while political challenges in progressing policy initiatives more broadly are also contributing to uncertainty. In China, the recent policy-driven pickup in growth is adding to already high levels of debt, which present a risk to growth. In Europe, the ability of many economies to achieve sustainably higher rates of growth remains unclear. The impacts of slower growth in the UK, the potential negative impacts of ongoing political debate about the future of the European Union and rising geopolitical tensions in some regions are further sources of uncertainty. Overall, the balance of international risks is skewed towards weaker outcomes, particularly over the medium term, than are incorporated into the main forecasts.

Disruption to global trade

Recent political developments in the US and parts of Europe highlight a weakening in the base of public support for continued trade liberalisation. Political debate on protectionist policy actions has intensified. A rise in trade protection poses the risk of a significant slowdown in global trade volumes and in global GDP. These effects could be compounded by the negative effects of increased uncertainty on investment and productivity growth.

Fiscal policy in the US

In the US, the economic outlook has been buoyed by the prospect of stimulatory fiscal policy. However, the details remain unclear and the process of reaching political agreement on the policy changes is at an early stage. At the same time, spare capacity in the labour market is limited, raising the risk of higher inflation. Nonetheless, as noted earlier, our forecasts for US growth and inflation incorporate an easing in fiscal policy over the next two years that lifts growth by around 0.5% points. It is possible that fiscal policy stimulus is larger than has been incorporated into forecasts, which could lead to higher US growth that spills over to higher global growth. On the other hand, the size and composition of fiscal policy easing may be more modest and less stimulatory for growth than assumed. There is also uncertainty surrounding US trade and immigration policy and the reaction of authorities in other countries to any policy changes.

Financial stability in China

Growth in China has been supported by significant policy stimulus in recent quarters. The impact of this support is particularly apparent in the housing market, where residential investment has accelerated, supporting demand for steel and other inputs. In the short term, the Government may continue to provide more support than expected in the main forecast. However, the recent stimulus has added to already high levels of debt that, combined with significant excess capacity in some sectors, increases the potential for a sharp slowing. The negative impacts on commodity prices, trade and capital flows would lead to slower growth in China’s main trading partners, including Australia and elsewhere in the Asia-Pacific region.

New Zealand's terms of trade  

New Zealand's terms of trade rose strongly in the final quarter of 2016, underpinned by higher international dairy prices. Some of the recent rise in dairy prices appears to reflect the negative effects of temporary weather-related factors on domestic output and lower prices are anticipated in coming quarters. Nonetheless, in the main forecasts the terms of trade remain at an historically high level. However, the terms of trade would likely weaken if the international outlook deteriorated.

Recent terms of trade scenarios

The terms of trade, which comprises the ratio of export prices to import prices, are one of the major economic channels linking New Zealand to the rest of the world. Typically, trading partner growth and the terms of trade move in the same direction, reflecting the impact of changes in external demand on export prices. Over the past few years, the risks to trading partner growth, and hence the terms of trade, have been skewed to weaker growth. Reflecting this skew, a number of recent scenarios in the Treasury's Economic and Fiscal Updates have incorporated a weaker terms of trade than in the main forecasts.

Figure 3.3 overlays past scenarios of lower terms of trade onto the current terms of trade projection. The fan chart, which is based on past forecast errors, shows the scenarios have encompassed much of the range of terms of trade movements experienced over the past 16 years. The most extreme terms of trade scenario is on the boundary of the 80th and 90th percentile fans, which means we would expect that in only 5 to 10 out of 100 occasions the actual outcomes will be below the scenario. In the most extreme scenario, the reduction in nominal GDP over the  forecast  period is around $40 billion and tax revenue is proportionately lower. Falls in the terms of trade also affect fiscal expenditures, chiefly owing to higher welfare expenses associated with a rise in the unemployment rate as domestic demand growth slows and employment growth weakens. The combined impact of lower revenues and higher expenses weakens the operating balance and increases the net debt-to-GDP ratio. In the most extreme scenario modelled by the Treasury, the ratio of net debt-to-GDP is around 7 percentage points ($23 billion) higher than in the main forecasts.

Figure 3.3 - Recent terms of trade scenarios
Figure 3.3 - Recent terms of trade scenarios.
Sources: Statistics New Zealand, the Treasury

Although the terms of trade are close to their recent 40-year high, they remain susceptible to unexpected weakness, which has broader implications for the economic outlook. The terms of trade scenarios modelled by the Treasury help to illustrate the important role of building fiscal buffers to help manage such events.

The Australian economy and developments in the labour market

Growth in Australia continues to transition towards non-mining sectors, supported by substantial monetary policy accommodation. Low interest rates have enabled households to borrow more and contributed to increases in house prices. Meanwhile, household income growth has been moderate, reflecting low wage growth and modest increases in employment. Reflecting these developments, household debt-to-income ratios have risen to historically high levels, making households vulnerable to increases in interest rates or to decreases in expectations of future income.

In the housing market, investment in medium-to-high density housing has increased rapidly, raising the risk of a sharper than expected decline in housing market activity. This could prompt a slowdown in consumption and a correction in house prices that generates a period of slower growth and higher unemployment. Conditions in the Australian labour market are a major determinant of the strength and direction of trans-Tasman migration flows. To the extent that the labour market in Australia is weaker than expected in the main forecasts, net trans-Tasman flows are likely to continue to support higher net migration inflows than expected.

Net migration

Net migration cycles are frequent and difficult to predict. Gross inflows and outflows often change at the same time, and may be driven by political and economic developments both domestically and internationally.

The current net migration upswing is significantly larger than usual, which is adding to uncertainty around the economic outlook (Figure 3.4). Migration inflows are supporting consumption and housing demand and adding to the risk of increased non-residential construction activity and public infrastructure investment, including on education and transport networks.

Figure 3.4 - Net migration 1952-2016
Figure 3.4 - Net migration 1952-2016.
Source: Statistics New Zealand

Net migration inflows may prove to be higher than assumed in the main forecast if the relative attractiveness of living and working in other locations, particularly Australia, is weaker than expected. However, stronger growth internationally, or shifts in domestic factors, may lead to sharply lower migration and slower GDP growth than projected in the main forecast.

Household consumption, saving and the housing market

Households' views about the outlook for their own income and wealth are important determinants of the consumption growth forecast, as are households' expectations around future interest payments and the availability of credit. New Zealand house prices have risen strongly in recent years and household balance sheets are characterised by high levels of debt relative to income. An unexpected rise in interest rates may lead some households to conclude that they have borrowed too much. To reduce their debt and their exposure to further interest rate increases, these households may reduce their consumption, perhaps quite sharply. Potential sources of unexpectedly higher interest rates include higher offshore funding costs for banks from a faster pace of monetary policy normalisation in the US, or renewed concerns around financial stability in Europe.

Alternative Scenarios

The following scenarios show how the economy might evolve if some of the key judgements in the main forecast are altered. They illustrate two of the many ways that the economy may deviate from the main forecast. Scenario One illustrates the economic impacts of net migration inflows continuing at their present level. In this scenario, faster population growth raises economy-wide demand but capacity constraints, particularly in the construction sector, impede the overall pace of GDP growth and add to inflationary pressures. Faster real GDP growth and higher inflation leads to increases in nominal GDP, tax revenue and the fiscal surplus, which reduces net debt. Scenario Two shows how growth might slow if households choose to reduce the amount of debt they hold. In this scenario, increased household saving leads to weaker domestic demand, a higher unemployment rate and lower inflation. As a consequence, nominal GDP growth is weaker and the fiscal position not as strong.

Scenario One - Net migration inflows remain close to current levels leading to higher GDP and larger budget surpluses

This scenario illustrates the impact of higher migration on the economic and fiscal outlook when capacity constraints arise. In this scenario, net migration is assumed to remain around its current level of 70,000 per annum through to the end of the forecast period. We further suppose that there are limits on the pace at which capacity can continue to expand. This may be the case if it takes time to expand the skilled construction-related workforce and to increase the supply of materials.

The recent strength of net migration inflows reflects the relatively favourable labour market conditions prevailing in New Zealand. Migration may prove to be higher than assumed in the main forecast if the performance of foreign labour markets, and the Australian labour market in particular, are weaker than expected, or if the domestic demand for labour proves to be stronger than anticipated. In this scenario, the working-age population expands over 2.0% per year and is 2.1% higher (94,000) in 2021Q2 (Figure 3.5).

Figure 3.5 - Stronger growth in the working-age population
Figure 3.5 - Stronger growth in the working-age population.
Sources: Statistics New Zealand, the Treasury

This scenario also incorporates the March 2017 quarter inflation outturn and assumes June quarter 2017 inflation is higher than in the main forecast. This could be owing to the effects of poor weather at the start of the quarter or greater-than-expected capacity pressures in the non-tradables sector, including construction.

Construction activity has increased significantly in recent years and is now at a record high share of total activity. The demand for resources from the construction sector is contributing to capacity pressure. This is reflected in increasing prices for the construction of new dwellings.

In this scenario, stronger population growth drives faster growth in household consumption, residential investment and business investment. Stronger domestic demand is reflected in faster employment growth. However, in the construction sector, it becomes increasingly difficult to access labour and materials. As a consequence, there is additional upward price pressure on construction costs, which leads to higher headline inflation (Figure 3.6). The policy interest rate rises earlier and the exchange rate is higher as monetary policy seeks to stabilise inflation. Reflecting these conditions, growth in labour productivity, real wages and real GDP per capita is more moderate than in the main forecast.

Figure 3.6 - Inflation is higher
Figure 3.6 - Inflation is higher.
Sources: Statistics New Zealand, the Treasury

Overall, both real GDP growth and inflation are stronger over the forecast period. Consequently, nominal GDP growth is also stronger. Nominal GDP is around $21 billion higher over the four fiscal years from June 2017 to June 2021. This additional income generates core Crown tax revenue that is $6.8 billion higher than the main forecast.

In this scenario we assume that the Government's operating and capital allowances are unchanged from those in the main forecast (see Chapter 2 for details). Under these assumptions, OBEGAL surpluses increase in each fiscal year and reach $10.2 billion (3.0% of GDP) in 2021 (Table 3.1).

In practice, a significantly faster pace of population growth will have broad implications for a range of publically provided services including health, education and transport. However, as discussed in the 2016 Half-Year Fiscal and Economic Update, the effects on the Government's spending plans are difficult to isolate and the Government has a range of choices available to meet additional demand pressures.

Scenario Two - Higher household saving lowers domestic demand and weakens the fiscal position 

In this scenario we illustrate the implications for the economic and fiscal outlook from a desire by households to reduce balance sheet risk.

We assume that bank funding costs increase by around 50 basis points by the end of the year and that this leads households to reassess the affordability of their current debt obligations. Higher funding costs might occur if financial markets anticipated a faster pace of monetary policy normalisation in the US or if financial volatility increased due to renewed concerns about global growth.

In this scenario, the rise in bank funding costs, which is reflected in higher mortgage rates, causes households to lower their consumption and increase their saving as they seek to reduce their exposure to further interest rate increases, particularly those households servicing large debt (Figure 3.7). Higher interest rates also dampen household expectations of the outlook for the growth of house prices and their wealth, which lowers residential investment growth. Expectations of lower household demand and higher interest costs also reduce business investment. With weaker domestic demand, imports are also weaker. The policy interest rate is projected to be unchanged until mid-2019. In sum, real GDP growth is around 0.4 percentage points weaker in both the 2018 and 2019 June years than in the main forecast (Table 3.1). 

Figure 3.7 - Household saving is higher
Figure 3.7 - Household saving is higher.
Sources: Statistics New Zealand, the Treasury

In the labour market, this translates into lower employment growth, higher unemployment and slower wage growth (Figure 3.8). CPI inflation is lower by around 0.5 percentage points per year. Overall, nominal GDP is around $23 billion lower over the forecast period. Core Crown tax revenue is $7.5 billion lower. 

Figure 3.8 - The unemployment rate is higher 
Figure 3.8 - The unemployment rate is higher.
Sources: Statistics New Zealand, the Treasury

As in Scenario One, we assume that the Government's operating and capital allowances are unchanged from those in the main forecast (see Chapter 2 for details). Under these assumptions, OBEGAL surpluses are smaller but increase to $4.2 billion (1.3% of GDP) in 2021, and net debt is higher (Table 3.1).

Table 3.1 - Summary of economic and fiscal variables for main forecasts and scenarios
June years 2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast

Real GDP (aapc)

         
Main forecast 3.1 3.5 3.8 2.9 2.4
Scenario One: Higher migration 3.1 3.7 3.9 3.1 2.9
Scenario Two: Higher household saving 3.0 3.2 3.3 2.7 2.6

Nominal GDP

         
Main forecast (aapc) 6.2 4.8 5.4 5.0 4.2
     ($billions) 268.9 281.8 297.0 311.9 324.9
Scenario One: Higher migration (aapc) 6.3 5.5 5.9 5.6 5.1
     ($billions) 269.1 284.0 300.9 317.6 333.8
Scenario Two: Higher household saving (aapc) 6.2 4.2 4.4 4.2 4.2
     ($billions) 268.7 280.0 292.3 304.7 317.4

Operating balance before gains and losses

         
Main forecast (% of GDP) 0.6 1.0 1.4 2.0 2.2
      ($billions) 1.6 2.9 4.1 6.1 7.2
Scenario One: Higher migration (% of GDP) 0.6 1.2 1.8 2.5 3.0
     ($billions) 1.7 3.5 5.3 8.1 10.2
Scenario Two: Higher household saving (% of GDP) 0.6 0.8 0.8 1.1 1.3
     ($billions) 1.6 2.3 2.5 3.3 4.2

Net core Crown debt (% of GDP)

         
Main forecast 23.2 22.8 22.1 20.6 19.3
Scenario One: Higher migration 23.1 22.3 21.2 19.0 16.8
Scenario Two: Higher household saving 23.2 23.1 23.2 22.7 22.3

aapc = annual average % change

Source: The Treasury

Fiscal Sensitivities

Table 3.2 sets out some rules of thumb on the sensitivities of the fiscal position to small changes in specific variables. For example, if nominal GDP growth is one percentage point higher than forecast in each year up to June 2021, tax revenue would be around $4.6 billion higher than forecast in the June 2021 year as a result. The sensitivities are broadly symmetric and if nominal GDP growth is one percentage point lower than expected each year, tax revenue would be around $4.5 billion lower than forecast in the June 2021 year. The figures are indicative and can be influenced by the composition of growth as different types of activity have different effective tax rates.

A different interest rate path from the forecast would also impact the fiscal position owing to the effect on the portfolios of various government reporting entities, such as the NZS Fund, ACC and the Treasury's Debt Management Office (NZDMO). A one percentage point lower interest rate would result in interest income on funds managed by the NZDMO being $112 million lower in the June 2021 year. This would be more than offset by interest expenses $350 million lower in the June 2021 year. As above, the sensitivities are broadly symmetric.

Table 3.2 - Fiscal sensitivity analysis
Years ended 30 June
($millions)
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast

Impact on tax revenue of a 1 percentage point increase in growth of

         
Nominal GDP 745 1,570 2,475 3,515 4,635
Wages and salaries 320 670 1,020 1,440 1,890
Taxable business profits 150 350 580 840 1,120

Impact of 1% lower interest rates on

         
Interest income1 -71 -118 -102 -102 -112
Interest expenses1 13 -58 -188 -273 -351
Net impact on operating balance -84 -60 86 171 238

Note:

  1. Funds managed by the Treasury's NZDMO only.

Source: The Treasury

The interest rate impacts in the table above represent the impact of lower interest rates on the financial assets and debt managed by NZDMO. While the majority of the Government's debt is managed by NZDMO, other government reporting entities hold financial assets and liabilities that are also sensitive to changes in interest rates. For example, at 30 June 2016, a 1.0% increase in NZ interest rates would have reduced the total Crown operating balance by $896 million while a 1.0% decrease would have increased the total Crown operating balance by $926 million.

The forecast financial position is based on a number of judgements and assumptions about the future. To inform these judgements and assumptions we rely on market information. Some additional assumptions include those around foreign exchange rates, share prices, the carbon price and property prices. Where the actual outcome differs from our assumptions, the Crown's actual financial position is likely to differ from the forecasts. For example, foreign currency-denominated financial assets and liabilities are converted into New Zealand dollars at the reporting date, the Government's listed share investments are reported on market prices and property owned by the Crown is valued using market information. Changes in these variables can also have flow-on effects on the Crown's operating balance. For example, a strengthening of share prices may result in higher returns from the Government's direct share investments.

Balance Sheet Risks

The balance sheet is exposed to a number of risks beyond those associated with the operating balance. The Crown's financial position is exposed to risk through changes in the value of the Crown's assets or liabilities, and also through the potential impact of the Crown's explicit and implicit obligations (including a strong expectation that the Crown would respond to an event) as a result of policy settings.

Main sources of balance sheet risk

A large source of balance sheet risk can be attributed to changes in the value of the Crown's assets and liabilities owing to movements in market variables such as interest rates, exchange rates and equity prices. As noted above, these changes can also have an impact on the Crown's operating balance.

Three areas of the balance sheet are particularly susceptible to market risk:

  • Financial assets held by the Crown financial institutions (CFIs) are sensitive to financial market volatility. CFIs tend to diversify their portfolios across a range of financial assets to manage exposures to specific market risks.
  • Insurance and retirement liabilities and provisions are prone to market volatility through their actuarial valuations, which are sensitive to assumptions about variables such as interest and inflation rates.
  • Physical assets such as land, buildings, state highways and military equipment are susceptible to valuation movements through changes in property market conditions, interest rates and changes in the costs of construction.

Other sources of balance sheet risk

  • Business risk: a number of entities owned by the Crown, including commercial and social entities, have their financial performance and valuations impacted by the broader commercial environment.
  • Funding risk: the New Zealand Government remains amongst the highest-rated sovereigns globally, with the top Aaa foreign-currency rating from Moody's and AA foreign-currency ratings from Standard & Poor's and Fitch. Ratings outlooks are stable from all three agencies.
  • In the case of an increase in global risk aversion and in the absence of a marked improvement in the external position, New Zealand could face increased funding pressure in the future. All else being equal, deterioration in the ratings outlook could raise debt-servicing costs and lessen the funding capability for the Crown.
  • Liquidity risk: with respect to its ability to raise cash to meet its obligations. This risk is relatively small and managed by each agency to meet its specific liquidity risk requirements and by the Treasury's NZDMO to manage the Crown's liquidity requirements.
  • Contingent liabilities: relating to natural disasters and financial system stress. The Specific Fiscal Risks chapter discusses contingent assets and liabilities in greater detail.

Managing risk 

While the Crown's exposure to risks is sometimes unavoidable, the Crown's general approach is to identify, measure and treat these risks where practicable. However, it may not be possible to reduce all risks. Maintaining debt at prudent levels and sustaining healthy levels of net worth can help to manage residual risks and increase the Crown's resilience to unanticipated events. A prudent and sustainable balance sheet helps to absorb the impact of risk through the balance sheet so that the wider economy need not adjust immediately at a greater economic cost.

In March 2018, the Treasury will publish its four-yearly Investment Statement, which provides information on the shape and health of the Crown's portfolio of assets and liabilities.

Specific Fiscal Risks

The Statement of Specific Fiscal Risks is required by the Public Finance Act 1989. It sets out, to the fullest extent possible, all government decisions and other circumstances known to the Government that may have a material effect on the fiscal and economic outlook, but are not certain enough in timing or amount to include in the fiscal forecasts. The risks disclosed in this chapter reflect those that are known at the date of the finalisation of the fiscal forecasts. Although the process for disclosure of specific fiscal risks involves a number of parties, including government departments, the Treasury and the Minister of Finance, there remains a possibility that not every significant risk is identified. Disclosure of known risks is also subject to specific requirements and materiality thresholds.

Overview

Specific fiscal risks can be positive or negative and can affect revenue or spending or assets and liabilities. The links between external events and spending are indirect because new policies that change spending and revenue usually require a decision by the Government and approval from Parliament. The approach taken in this chapter is to disclose those potential policy decisions and key areas of uncertainty that may have a material effect on the fiscal outlook.

Established practice is that the Government sets aside operating and capital allowances for future budgets to manage uncertainty and cost pressures. These allowances are included in the fiscal forecasts. Future policy decisions affecting operating expenses or capital expenditure are met either from within these allowances or through reprioritisation.

Future policy decisions are risks to the fiscal forecasts only to the extent that they cannot be managed from within:

  • for operating expenditure, existing baselines or the allowance in the fiscal forecasts for forecast new operating expenses, or
  • for capital, the existing Crown balance sheet or the allowance in the fiscal forecasts, for forecast new capital expenditure.

Notwithstanding this, known material policy risks are identified as specific fiscal risks, even though the Government has more control in managing such risks through reprioritisation, the existing Crown balance sheet and the budget allowances. This is done to ensure a prudent approach to the disclosure of risks, improve transparency and not pre-judge future decisions by governments.

The Specific Fiscal Risks are categorised by ministerial portfolio. The summary table also classifies each risk into:

  • Potential policy decisions affecting revenue: For example, changes to tax policy or ACC levies could reduce or increase government income.
  • Potential policy decisions affecting expenses (expected to be funded from reprioritisation or the budget operating allowance): Costs of policy proposals could increase or decrease expenses depending on decisions taken, and they are risks to the fiscal forecasts only to the extent that they cannot be managed within existing baselines or the budget operating allowances.
  • Potential capital decisions (expected to be funded from the existing Crown balance sheet or the budget capital allowance): Capital investment decisions are risks to the fiscal forecasts only to the extent that they cannot be managed within the existing Crown balance sheet or the budget capital allowance.

A range of generic risks to the fiscal forecasts exist but are not separately disclosed as specific fiscal risks:

  • Risks from changes to economic assumptions; the most significant economic risks have been identified in Chapter 3.
  • Business risks and volatility in the returns from and valuation of the Crown's investments relating to the broader economic and commercial environment.
  • General cost pressures, such as those associated with demographic changes (eg, an ageing population).
  • Potential risks from changes in demand for government services or transfer payments owing to underlying structural factors (such as changes in demand for Jobseeker Support).
  • The costs of future individual natural disasters, biosecurity incursions and other major events, as they usually occur infrequently and their occurrence, nature and timing cannot be predicted. Once a disaster does occur, a number of choices arise about how to respond and when potential liabilities are recognised (eg, through setting aside an allocation of funding). Specific risks are disclosed at this point based on the range of possible responses.

The final part of the chapter contains a current list of contingent liabilities and contingent assets. Contingent liabilities are costs that the Crown will have to face if a particular event occurs or are present liabilities that are unable to be measured. Typically, contingent liabilities consist of guarantees and indemnities, legal disputes and claims on uncalled capital. The largest quantified contingent liabilities are to international financial organisations and mostly relate to uncalled capital and promissory notes. Contingent assets are possible assets that have arisen from past events but the value of the asset, or whether it will eventuate, will not be confirmed until a particular event occurs.

Criteria and Rules for Inclusion in the Fiscal Forecasts or Disclosure as Specific Fiscal Risks

The Public Finance Act 1989 requires that the Statement of Specific Fiscal Risks sets out all government decisions, contingent liabilities or contractual obligations known to the Government and subject to specific requirements that may have a material effect on the economic or fiscal outlook.

The criteria and rules set out below are used to determine if government decisions or other circumstances should be incorporated into the fiscal forecasts, disclosed as specific fiscal risks or, in some circumstances, excluded from disclosure.

Criteria for Including Matters in the Fiscal Forecasts

Matters are incorporated into the fiscal forecasts provided they meet the following criteria:

  • The matter can be quantified for particular years with reasonable certainty.
  • A decision has been taken, or a decision has not yet been taken but it is reasonably probable[17] the matter will be approved, or it is reasonably probable the situation will occur.

Additionally, any other matters may be incorporated into the forecasts if the Secretary to the Treasury considers, using best professional judgement, that the matters may have a material effect on the fiscal and economic outlook and are certain enough to include in the fiscal forecasts.

Rules for the disclosure of specific fiscal risks 

Matters are disclosed as specific fiscal risks if:

  • the likely impact is more than $100 million over five years, and either
  • a decision has not yet been taken but it is reasonably possible[18] (but not probable) that the matter will be approved or the situation will occur, or
  • it is reasonably probable that the matter will be approved or the situation will occur, but the matter cannot be quantified or assigned to particular years with reasonable certainty.

Additionally, any other matters may be disclosed as specific fiscal risks if the Secretary to the Treasury considers, using best professional judgement, that the matters may have a material effect (more than $100 million over five years) on the fiscal and economic outlook but are not certain enough to include in the fiscal forecasts.

Exclusions from Disclosure

Matters are excluded from disclosure as specific fiscal risks if they fail to meet the materiality criterion (ie, are less than $100 million over five years) or if they are unlikely[19] to be approved or occur within the forecasting period.

Additionally, the Minister of Finance may determine, under section 26V of the Public Finance Act 1989, that a matter be included in the fiscal forecasts or a specific fiscal risk not be disclosed, if such disclosure would be likely to:

  • prejudice the substantial economic interests of New Zealand
  • prejudice the security or defence of New Zealand or international relations of the Government
  • compromise the Crown in a material way in negotiation, litigation or commercial activity, or
  • result in a material loss of value to the Crown.

If possible, the Minister of Finance should avoid withholding the matter, either by making a decision on it before the forecasts are finalised, or by disclosing it without quantifying the risk.

Notes

  • [17]For these purposes “reasonably probable” is taken to mean that the matter is more likely than not to be approved within the forecast period (by considering, for example, whether there is a better than 50% chance of the matter occurring or being approved).
  • [18]For these purposes “reasonably possible” is taken to mean that the matter might be approved within the forecast period (by considering, for example, whether there is a 20% to 50% chance of the matter occurring or being approved).
  • [19]For these purposes “unlikely” is taken to mean that the matter will probably not be approved within the forecast period (by considering, for example, whether there is a less than 20% chance of the matter occurring or being approved).

Statement of Specific Fiscal Risks

Summary Table

The matters listed below are disclosed as specific fiscal risks because they meet the rules for disclosure outlined before this Statement. Full descriptions of the risks listed below are set out in the next section. Where quantification is possible, this is included in the description of the risk.

The table below is ordered by portfolio and includes the title of the risk, its status and the type of risk. The status of the risk describes whether the risk is changed or unchanged since the 2016 Half Year Economic and Fiscal Update or reflects a new matter. The type of risk highlights whether the risk impacts on revenue, operating expenses or capital expenditure. Cross-portfolio risks to the fiscal forecasts are outlined in a separate table.

Specific fiscal risks as at 3 May 2017
Specific fiscal risk by portfolio Status [20] Type of risk

ACC

   
ACC Levies Unchanged Revenue
Non-earners Account Unchanged Expenses
Work-related Gradual Process Disease and Infection Unchanged Expenses

Building and Construction

   
Housing Infrastructure Fund Changed Capital and Expenses

Children

   
Investing in Children Transformation Unchanged Expenses

Corrections

   
Additional Capacity to Address Prison Population Unchanged Expenses and Capital

Defence

   
Operating and Capital Costs Unchanged Expenses and Capital
Disposal of NZDF Assets Unchanged Expenses

Earthquake Commission

   
EQC Unchanged Expenses

Economic Development

   
New Zealand Screen Production Grant New Expenses

Education

   
School and ECE Funding Review Unchanged Expenses

Finance

   
Crown Overseas Properties Unchanged Capital
Goodwill on Acquisition Unchanged Expenses

Greater Christchurch Regeneration

   
Christchurch Central Recovery Plan - Anchor Projects Unchanged Expenses
Residential Red Zone Unchanged Expenses
Southern Response Earthquake Services Support Unchanged Expenses

Internal Affairs

   
Fire Services Levy  Changed Revenue

Primary Industries

   
Investment in Water Infrastructure Unchanged Capital

Revenue

   
Cash Held in Tax Pools Unchanged Capital
Potential Tax Policy Changes Unchanged Revenue
Student Loans Unchanged Expenses
Transformation and Technology Renewal Unchanged Expenses

Social Housing

   
Divestment and Development of Housing Unchanged Capital
Social Housing Reform Unchanged Expenses
Tamaki Regeneration Project Unchanged Expenses

Transport

   
Auckland City Rail Link Unchanged Capital
Auckland Transport Alignment Plan Unchanged Capital
Rail Network Valuation Approach New Revenue and Expenses
Southern Transport Corridor Reinstatement New Capital
Support for KiwiRail Unchanged Capital

Treaty Negotiations

   
Government Response to Wai 262 Unchanged Expenses
Relativity Clause Unchanged Expenses
Treaty Settlement Forecasts Unchanged Expenses
Cross-portfolio Specific Fiscal Risks Status Type of risk
Agency Capital Intentions Unchanged Capital
Budget Operating Initiatives Unchanged Expenses
Pay Equity and Caregiver Employment Conditions Unchanged Expenses
State Sector Employment Agreements Unchanged Expenses
Services Funded by Third Parties Unchanged Revenue
Unexpected Maintenance for Crown-owned buildings Unchanged Capital

Notes

  • [20]Unchanged - risks where the nature and/or scale of the risk has not changed substantively since the previous Economic and Fiscal Update.

Specific Fiscal Risks by Portfolio

ACC

ACC Levies (Unchanged)

Indicative future levy rates for the Work, Earners and Motor Vehicle accounts have been included in the forecasts. However, final levy decisions are made by the Government and may differ from the forecast levy path. In addition, revenue from the levies set for these accounts may be more or less than is required to cover the cost of claims. If factors such as claims experience, ACC performance and economic assumptions (particularly discount rates and unemployment rates) turn out differently from what has been forecast, ACC's levy revenue, claims costs and liability may also differ from forecast. Any variance will have a corresponding impact on the operating balance.

Non-earners Account (Unchanged)

The amount of funding provided by the Crown (and included in the fiscal forecasts) for the Non-earners Account may be more or less than is required to cover the cost of claims. If factors such as claims experience, ACC performance and economic assumptions (particularly discount rates) turn out differently from what has been forecast, any such variance will have a corresponding fiscal impact.

Work-related Gradual Process Disease and Infection (Unchanged)

Under current legislation, the Government incurs an obligation for Work-related Gradual Process Disease and Infection claims when the claim is made, and an expense is recognised at this point. The liability for commercial accident and sickness insurance contracts would usually be recognised when exposure to conditions that will give rise to a claim occurs. An amendment to legislation would be required to recognise claims at the same time as for commercial contracts. An initial adjustment to the liability and an expense of about $1.0 billion to $1.5 billion would need to be reported if such an amendment were to be enacted.

Building and Construction

Housing Infrastructure Fund (Changed)

In June 2016, Cabinet agreed to establish a $1 billion Housing Infrastructure Fund (HIF) to which high-growth, financially constrained councils can apply to help finance roading and water infrastructure needed to unlock residential development. In principle recommendations for Ministers on which projects to fund through the HIF are expected by late June 2017, with final negotiations on amounts and terms of the loans continuing with councils until end-2017 and payments to be disbursed subsequent to that. Uncertainty created by these processes creates additional fiscal risks that need to be managed in relation to:

  • the value of the bids that meet the criteria
  • the split between capital and operating spending
  • whether or not the full amount of the fund will be repaid to the Crown, and
  • the timing of repayments of those amounts that are to be repaid.

Children

Investing in Children Transformation (Unchanged)

The new Ministry for Vulnerable Children, Oranga Tamariki, was established on 1 April 2017 with a new operating model to be implemented over the next few years and an expanded focus and target group, and new obligations from associated legislation. To the extent that the costs associated with the new Ministry cannot be funded from an amount the Government has set aside in a tagged contingency or from reprioritisation, additional funding is likely to be required.

Corrections

Additional Capacity to Address Prison Population (Unchanged)

The fiscal forecasts include provision for the Government's agreed investment to create additional prison capacity to accommodate prison population growth over the next 10 years. It is likely that the Department of Corrections will require additional funding relating to the direct costs of accommodating prison population increases, as they arise, which would impact on the operating and capital balance. There is also a risk that growth in the prison population is different from what is included in the forecasts and additional funding is required.

Defence

Operating and Capital Costs (Unchanged)

In 2016, the Government reconsidered New Zealand Defence Force (NZDF) capability and funding requirements through the Defence White Paper 2016. It is expected that changes to NZDF operating and capital funding will be made over the forecast period to achieve the Defence White Paper settings. However, the precise quantum and timing of these changes will be dependent on a range of business cases that will be considered by Cabinet in the future.

Disposal of NZDF Assets (Unchanged)

The Government is considering the potential to dispose of a number of NZDF assets. Depending on market conditions, the timing of disposal and sale price received could have either a positive or negative impact on the Government's overall financial position. NZDF is also completing an analysis of inventory that is surplus to requirements and is over and above the existing provision for obsolescence. The existing provision is also being reviewed to ensure that all items comprising the provision are still relevant.

Earthquake Commission

EQC (Unchanged)

EQC's independent actuary undertakes half-yearly valuations of the total earthquake liability to the Crown. This includes settled and yet-to-settle claims and reinsurance recoveries. Based on these valuations, a profile of the claims yet to settle is included in the fiscal forecasts. There still remains some risk that EQC's remaining settlement expenditure relating to the Canterbury and Kaikōura earthquakes will be different (higher or lower) than forecast.

Economic Development

New Zealand Screen Production Grant (New)

The New Zealand Screen Production Grant is a demand-driven, uncapped programme. New Zealand is attracting a much larger number of international productions. Based on the current rising trend, there is a risk that demand for the Screen Production Grant will exceed what is included in the fiscal forecasts.

Education

School and ECE Funding Review (Unchanged)

The Government is currently engaging the sector on a review of education funding, across schooling and early childhood education (ECE). There is potential for fiscal costs but this depends on policy decisions that are yet to be made. Any funding changes would not be implemented until 2020.

Finance

Crown Overseas Properties (Unchanged)

The Government holds New Zealand House in London on a long-term lease from the Crown Estate (UK). Depending on the outcome of ongoing discussions with the Crown Estate, an upgrade to the building may be required. Should a decision be taken to refurbish the property, a rough-order cost estimate for this upgrade is $100 million over the forecast period.

Goodwill on Acquisition (Unchanged)

As at 30 June 2016, the Government had goodwill on acquisition of a number of sub-entities totalling $602 million. Under New Zealand accounting standards (PBE IPSAS 26), such goodwill items are required to be assessed annually for impairment. If there is any indication that the goodwill may be impaired, the recoverable amount of the cash generating units to which the goodwill is allocated is required to be estimated. If the recoverable amount is less than the carrying amount of those units, the units and the goodwill allocated to them are regarded as impaired and the Government is required to recognise impairment losses in the operating statement. Such assessments will be conducted at the end of the financial year, and the fiscal forecasts currently make no allowance for such impairment losses.

Greater Christchurch Regeneration

Christchurch Central-Recovery Plan - Anchor Projects (Unchanged)

The Crown is partially funding the construction of Anchor Projects as part of the Christchurch Central Recovery Plan. The funding for the construction of Anchor Projects will vary from project to project, dependent on final scope, ownership decisions, implementation and project costs, and will to some extent eventually be recovered. Projects are progressing through the decision-making process and construction costs will become increasingly clear during the procurement phase. The quantum and timing of Crown contribution may differ from that included in the fiscal forecasts.

Residential Red Zone (Unchanged)

Some recoveries from EQC and private insurers remain outstanding and there is a risk that final recoveries may be greater or less than forecast. In addition, potential costs or potential revenues or recoveries associated with the future use of residential red zone are uncertain. The future value may change depending on any future alternate uses of the land. The fiscal impact of this is not yet certain.

Southern Response Earthquake Services Support (Unchanged)

The ultimate cost to the Crown of settling earthquake claims remains subject to significant uncertainty. Forecasts assume that the actual cost to settle claims will align with the actuary's central estimate of the claims provision. There is a risk that the actual cost could vary from this estimate which is sensitive to its underlying assumptions such as damage estimates, legal challenges, reinsurance recoveries and the forecast profile of claims settlement. The Crown's financial position may be adversely impacted as these assumptions are modified over time. Because the net claims liability is large, small percentage changes in the liability can have a material impact on costs and forecasts.

Internal Affairs

Fire Services Levy (Changed)

The Government has announced it will unify the Fire Services into Fire and Emergency New Zealand and signalled that this change will cost approximately $303 million which will be funded through a Crown contribution, a repayable capital loan and levy increases. The increase in levies required to meet the increase expenditure on Fire Services, and to contribute to repaying the repayable capital injection has been approved for the year 2017/18. Any future levy increases beyond 2017/18 will need to be approved by Cabinet and are not yet included in the fiscal forecasts.

Primary Industries

Investment in Water Infrastructure (Unchanged)

To date, a total of $183 million has been appropriated for the Crown-owned company, Crown Irrigation Investments Limited, to manage the Crown's investment in irrigation infrastructure. The Government will consider providing further capital up to $217 million in future budgets as schemes reach the “investment-ready” stage.

Revenue

Cash Held in Tax Pools (Unchanged)

Funds held in tax pools are recognised as a Crown asset. There is a risk that funds held in these pools, over and above a taxpayer's provisional tax liability, may be withdrawn by that taxpayer, resulting in a reduction in the Crown's available cash reserves.

Potential Tax Policy Changes (Unchanged)

Some of the items on the tax policy work programme could each have a significant positive impact on operating revenue: work on Base Erosion and Profit Shifting proposals including interest limitation rules, transfer pricing and permanent establishment avoidance, and the taxation of foreign hybrid instruments and entities. Some of the expected impact has been included in the fiscal forecasts but the impacts of the final policies may differ from the amounts included.

Student Loans (Unchanged)

The value of student loans is sensitive to assumptions such as the borrower's future income and general economic factors such as interest rates, unemployment levels, salary inflation and the CPI. As new lending occurs, an initial write-down to fair value will be made, and an expense will be incurred, reflecting the cost the Crown incurs in making an interest free loan and the risk that borrowers may not repay their loans. However, the assumptions made at the time of lending are volatile and are subject to change.

Transformation and Technology Renewal (Unchanged)

The Business Transformation programme agreed by Cabinet is reflected in forecasts. There are risks that the expected implementation costs, revenue gains and operating cost savings may differ from forecasts. This includes a risk that, during the transition between systems, Inland Revenue discovers historic procedural issues. In addition, the Government is considering possible policy changes affecting the way Inland Revenue manages its processes and data. Any changes to procedures or policy could materially impact the programme's cost, and the additional revenue collected.

Social Housing

Divestment and Development of Housing (Unchanged)

The forecasts include divestments and redevelopments of housing property as part of Housing New Zealand Corporation's (HNZC) asset management strategy. Proceeds from property divestments will be used to help fund investment in redeveloping and growing HNZC's stock. Market conditions impact on the proceeds of sale and the cost of acquisitions and development. Given these uncertainties, there is a risk that there will be variations from the fiscal forecasts.

Social Housing Reform (Unchanged)

The Government is progressing the Social Housing Reform Programme (SHRP). The SHRP aims to improve the housing and associated services provided to those in housing need, to build the social housing market and to fully recognise the costs of social housing. Specific Fiscal Risks associated with the SHRP are as follows:

  • Existing and additional social housing places may require funding above the current Income Related Rent Subsidy (IRRS) appropriation cap.
  • The development of a more diverse and competitive social housing market may adversely affect HNZC's financial position.
  • Proceeds from social housing transfers are likely to differ from book value.

Tamaki Regeneration Project (Unchanged)

Proceeds from housing sales in Tamaki over the next 10 to 15 years may be less than the forecasted loss on houses sold. Over this period 7,500 new houses are planned to be built in Tamaki in place of about 2,500 existing houses.

Transport

Auckland City Rail Link (Unchanged)

The Government has committed to fund 50% of the costs associated with the City Rail Link project, which is estimated to cost $3.4 billion. Based on this estimate, the Government's contribution to this project will be around $1.7 billion, of which the first $436 million has been appropriated. There is a risk that the timing and amount of the government contribution towards the project could be different from what is included in the forecasts.

Auckland Transport Alignment Plan (Unchanged)

The Government and Auckland Council released the final report for the Auckland Transport Alignment Project in August 2016. This report identified a funding gap of $4 billion over the next 30 years. The Government and Auckland Council are considering options to address this funding gap.

Rail Network Valuation Approach (New)

KiwiRail operates both freight and passenger transport services. The valuation approach for the assets used for these different activities is outlined in Budget 2017Additional Information- accounting policies.

The freight business of KiwiRail is predominantly commercially focused and therefore for financial reporting purposes assets relating to the freight business are fair valued on a net realisable value basis.

In order for the freight infrastructure to continue to be valued on this basis, KiwiRail needs to meet certain criteria set out in the Accounting Standards Framework. Consistent with prior years, there is a likelihood of continued Crown support and a risk that KiwiRail no longer meets the criteria for valuing freight infrastructure on a net realisable value basis and may need to change to a depreciated replacement cost basis.

The impact of this change would increase the value of assets by around $4 billion, with an estimated $1 billion to $2 billion impacting OBEGAL reflecting the reversal of previous impairments of freight infrastructure assets recorded through the Statement of Financial Performance.

Southern Transport Corridor Reinstatement (New)

There is risk that the costs of reinstating the South Island Transport Corridor (Picton-Christchurch) will cost more than what is currently included in the fiscal forecasts. In addition, a portion of the costs of the reinstatement currently classified as capital expenditure in the fiscal forecasts may be reclassified as operating expenditure, adversely impacting the operating balance (currently estimated to be up to $700 million, spread across a number of years). The classification between capital and operating expenditure has no impact on net core Crown debt.

Support for KiwiRail (Unchanged)

The Government in Budgets 2010 to 2017 supported KiwiRail Holdings Limited (KiwiRail) with an investment of around $2 billion in the New Zealand freight rail system. Further Crown investment into KiwiRail is likely to be required from 2019/20. A review of KiwiRail's structure and funding arrangements will be undertaken in 2017/18, to inform future funding decisions.

Treaty Negotiations

Government Response to Wai 262 (Unchanged)

The Waitangi Tribunal's report on the Wai 262 claim focuses on the protection of Māori culture and identity, with a particular focus on mātauranga Māori and associated taonga. The Tribunal’s recommendations are directed towards a number of government agencies individually, as groups and across sectors. The Government has yet to respond to the Tribunal’s report and recommendations.

Relativity Clause (Unchanged)

The Deeds of Settlement negotiated with Waikato-Tainui and Ngāi Tahu include a relativity mechanism. Now that the total redress amount for all historical Treaty settlements exceeds $1.0 billion in 1994 present-value terms, the mechanism provides that the Crown is liable to make payments to maintain the real value of Ngāi Tahu's and Waikato-Tainui's settlements as a proportion of all Treaty settlements. The agreed relativity proportions are 17% for Waikato-Tainui and approximately 16% for Ngāi Tahu. There is a risk that the timing and amount of the expense for the relativity payments may differ from that included in the fiscal forecasts. There is also uncertainty on how various disputes concerning the interpretation of the mechanism will be resolved.

Treaty Settlement Forecasts (Unchanged)

The fiscal forecasts include provision for the cost of future Treaty settlements. Given settlements are finalised through negotiations there is a risk that the timing and amount of the settlements could be different from the profile included in the fiscal forecasts.

Cross-portfolio Specific Fiscal Risks

Agency Capital Intentions (Unchanged)

Future budgets may well include new capital investments other than those identified in other specific fiscal risks. Such investments are most likely to be developed by the 25 investment-intensive agencies that are required to identify their capital spending intentions over the next 10 years based on current policy settings and certain demographic and inflation assumptions. The Government expects that these intentions will be managed back through a range of measures such as prioritisation, improvements in asset performance, alternative methods of service delivery and changes to policy settings. New investments are risks to the fiscal forecasts only to the extent they cannot be managed through existing balance sheets, or the provision in the fiscal forecasts for forecast new capital spending.

Budget Operating Initiatives (Unchanged)

Future budgets may well include new operating initiatives for new policies or to address cost pressures other than those identified in other specific fiscal risks. Such new operating initiatives are risks to the fiscal forecasts only to the extent they cannot be managed through reprioritisation or from within the existing provision in the fiscal forecasts for forecast new operating spending. The Government's stated intention is that all new operating initiatives will be managed through these mechanisms.

Pay Equity and Caregiver Employment Conditions (Unchanged)

There are several cases and funding claims mainly from workers in the social sectors (including health, education and welfare) relating to the interpretation, and application, of the Equal Pay Act 1972, the Minimum Wage Act 1983 and the Government's policy of paying certain family members through its Funded Care Policy. Such claims within State-funded sectors may involve significant costs to the Crown.

In relation to pay equity, Ministers have accepted the recommendations of the Joint Working Group on Pay Equity applying to all sectors in the economy. While the forecasts include the cost of the settlement reached in the TerraNova pay equity claim in April 2017, they do not include the cost of other claims; therefore, the bulk of the risk remains. In relation to other claims, and in the lead-up to legislative change, there is an agreement with the Council of Trade Unions to address claims in the State sector by applying new pay equity principles in bargaining.

Services Funded by Third Parties (Unchanged)

A wide range of government services are funded through third party fees and charges. Demand for these services can vary with a direct effect on revenue received. There is a risk the Government may need to provide additional funding if revenue collected is lower than the total costs of providing the service. There is also a risk that changes will be required to the way government services are delivered, which could result in costs to the Crown.

State Sector Employment Agreements (Unchanged)

A number of large collective agreements are due to be renegotiated over the forecast period. As well as direct fiscal implications from any changes to remuneration, the renegotiation of these agreements can have flow-on effects to remuneration in other sectors. The Government has signalled an expectation of restraint given its current fiscal stance and that agreements will be managed within the current fiscal forecasts.

Unexpected Maintenance for Crown-owned buildings (Unchanged)

There is a possibility that the Crown will incur costs when unexpected maintenance is required for the buildings it owns (for example, earthquake strengthening some of the buildings that do not meet modern building standards and maintenance for buildings with weathertight issues). The likelihood, timing and fiscal impact of any repairs are uncertain.

Risks Removed Since the 2016 Half Year Update

The following risks have been removed since the 2016 Half Year Economic and Fiscal Update.

 
Expired risks Reason
Income Tax and Family Assistance Changes Risk has materialised.
Kaikōura Earthquakes All major expenses are now in the forecasts or are covered by other specific fiscal risks. 
Parliamentary Office Accommodation Funding approved through Budget 2017 for the design and consent process has reduced the materiality of this risk below the threshold for publication. Furthermore, Parliamentary Services now has the right to extend the lease lowering the likelihood of the risk materialising over the forecast period.
Regional State Highways No longer a material risk as the Government has fulfilled its commitment to funding these projects.

Contingent Liabilities and Contingent Assets

Contingent liabilities are possible costs that have arisen from past events, but the amount of the liability, or whether it will eventuate, will not be confirmed until a particular event occurs or present liabilities that are unable to be measured with sufficient reliability to be recorded in the financial statements (unquantifiable liabilities).

Typically, contingent liabilities consist of guarantees and indemnities, uncalled capital and legal disputes and claims. The contingent liabilities facing the Crown are a mixture of operating and balance sheet risks, and they can vary greatly in magnitude and likelihood of realisation.

In general, if a contingent liability were realised, or the amount becomes sufficiently reliable to record as a liability, it would reduce the operating balance and net worth and increase net core Crown debt. In the case of some contingencies (eg, uncalled capital) the negative impact would be restricted to net core Crown debt because the cost would be offset by the acquisition of capital.

Where contingent liabilities have arisen as a consequence of legal action being taken against the Crown, the amount shown 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 amount of any award against the Crown.

Contingent assets are possible assets that have arisen from past events but the amount of the asset, or whether it will eventuate, will not be confirmed until a particular event occurs.

Only contingent liabilities and contingent assets involving amounts of over $100 million are separately disclosed. Quantifiable contingencies less than $100 million are aggregated in the “other quantifiable” total.

Some contingencies of the Crown are not able to be quantified. We have disclosed all unquantifiable contingent liabilities and unquantifiable contingent assets that are not expected to be remote.[21]

The contingencies have been stated as at 31 March 2017, being the latest set of reported contingencies.

Notes

  • [21]“Remote” is defined as being an item with less than a 10% chance of occurring.

Quantifiable Contingent Liabilities and Contingent Assets

Contingent liabilities
  Status [22] 31 March 2017
($millions)

Uncalled capital

   
Asian Development Bank Unchanged 3,006
International Monetary Fund - promissory notes Unchanged 2,172
International Bank for Reconstruction and Development Unchanged 1,584
International Monetary Fund - arrangements to borrow Unchanged 545
Asian Infrastructure Investment Bank Unchanged 528
Other uncalled capital Unchanged 18
    7,853

Guarantees and indemnities

   
New Zealand Export Credit Office guarantees Unchanged 145
The Body Laid Bare Exhibition indemnity New 438
Other guarantees and indemnities Unchanged 85
    668

Legal proceedings and disputes

   
Legal tax proceedings Unchanged 150
Other legal proceedings and disputes Unchanged 120
    270

Other quantifiable contingent liabilities

   
Unclaimed monies Unchanged 149
Christchurch Engine Centre Partnership Agreement New 111
Other quantifiable contingent liabilities Changed 43
    303
Total quantifiable contingent liabilities   9,094
Contingent assets
Legal proceedings and disputes Status[22] 31 March 2017
($millions)
Other contingent assets Unchanged 98
Total quantifiable contingent assets   98

Notes

  • [22]Status of contingent liabilities or assets when compared to the Half Year Update published on 8 December 2016

Unquantifiable Contingent Liabilities and Contingent Assets

Contingent liabilities
  Status

Indemnities

 
Air New Zealand Unchanged
Contact Energy Limited Unchanged
Earthquake Commission (EQC) Unchanged
Genesis Energy Limited Unchanged
Housing New Zealand Corporation Unchanged
Justices of the Peace, Community Magistrates and Disputes Tribunal Referees Unchanged
Maui Contracts Unchanged
Maui Partners Unchanged
New Zealand Aluminium Smelter and Comalco Unchanged
New Zealand Local Authorities Unchanged
New Zealand Railways Corporation Unchanged
Persons exercising investigating powers Unchanged
Synfuels-Waitara Outfall Indemnity Unchanged
Westpac New Zealand Limited Unchanged

Legal claims and proceedings

 
Accident Compensation Corporation (ACC) litigation Unchanged
Ministry for Primary Industries - Kiwifruit vine disease Unchanged
Treaty of Waitangi claims Unchanged

Other unquantifiable contingent liabilities

 
Criminal Proceeds (Recovery) Act 2009 Unchanged
Environmental liabilities Unchanged
Treaty of Waitangi claims - settlement relativity payments Unchanged
Holidays Act 2003 and other relevant legislation Unchanged

The following unquantifiable contingent liabilities were removed: Kiwibank and Air New Zealand litigation.

Description of Contingent Liabilities

Quantifiable contingent liabilities over $100 million

Uncalled capital

As part of the Crown's commitment to a multilateral approach to ensure global financial and economic stability, New Zealand, as a member country of these organisations, contributes capital by subscribing to shares in certain institutions.

The capital (when called) is typically used to raise additional funding for loans to other member countries or, in the case of the quota contributions, to directly finance lending to members. For New Zealand and other donor countries, capital contributions comprise both “paid in” capital and “callable capital or promissory notes”.

The Crown's uncalled capital subscriptions over $100 million are as follows:

 
Uncalled capital 31 March 2017
$millions
30 June 2016
$millions
Asian Development Bank 3,006 3,051
International Monetary Fund - promissory notes 2,172 2,205
International Bank for Reconstruction and Development 1,584 1,558
International Monetary Fund - arrangements to borrow 545 559
Asian Infrastructure Investment Bank 528 519

Southern Response Earthquake Services Limited

The Crown Support Deed agreed with Southern Response Earthquake Services Limited includes:

  • $500 million of uncalled ordinary shares under an amended Crown Support Deed dated 30 January 2013. This capital facility was extended with an additional $250 million during 2015/16.

As at 31 March 2017, $358 million of the uncalled ordinary shares have been called (with all but $93 million paid at that date). At 31 March 2017, the company forecast that its cash needs will exceed existing Crown support arrangements by $134 million. On 10 April 2017 the Crown provided an additional $250 million of support for Southern Response. Uncalled shares of $250 million will be added to the capital facility and will provide for the forecast shortfall.

The above capital subscriptions have an impact on the core Crown net debt; however, as Southern Response is part of the Crown there would be no impact on the total Crown operating balance.

Guarantees and indemnities

Guarantees are legally binding promises made by the Crown to assume responsibility for a debt, or performance of an obligation of another party, should that party default. Guarantees generally relate to the payment of money but may require the performance of obligations.

Indemnities are legally binding promises where the Crown undertakes to accept the risk of loss or damage that another party may suffer and to hold the other party harmless against loss caused by a specific stated event(s).

New Zealand Export Credit Office guarantees

The New Zealand Export Credit Office provides a range of guarantee products to assist New Zealand exporters manage risk and capitalise on trade opportunities around the globe. The obligations to third parties are guaranteed by the Crown and are intended to extend the capacity of facilities in the private sector.

$145 million at 31 March 2017 ($211 million at 30 June 2016)

The total value of other quantifiable contingencies is $10 million (June 2016: $36 million).

The Body Laid Bare Exhibition indemnity

From March to July 2017, the Auckland Art Gallery Toi o Tāmaki is hosting the exhibition The Body Laid Bare: Masterpieces from the Tate Gallery. The exhibition is indemnified under the Government Indemnity of Touring Exhibition Scheme from 7 February 2017 to 28 July 2017 to cover the period of transit and display of these valuable works of art.

$438 million at 31 March 2017 ($0 at 30 June 2016)

Legal proceedings and disputes

Legal tax proceedings

When a taxpayer disagrees with an assessment issued following the dispute process, the taxpayer may challenge that decision by filing proceedings with the Taxation Review Authority or the High Court. This contingent liability represents the maximum liability Inland Revenue has in respect of these cases.

$150 million at 31 March 2017 ($172 million at 30 June 2016)

Other quantifiable contingent liabilities

Unclaimed monies

Under the Unclaimed Money Act 1971, entities (eg, financial institutions, insurance companies) hand over money not claimed after six years to Inland Revenue. The funds are repaid to the entitled owner on proof of identification.

$149 million at 31 March ($133 million at 30 June 2016)

Christchurch Engine Centre (CEC) Partnership Agreement

The Air New Zealand Group has a partnership agreement with Pratt and Whitney in which it holds a 49% interest in the CEC. By the nature of the agreement, joint and several liability exists between the two parties.

$111 million at 31 March 2017 ($68 million at 30 June 2016)

Unquantifiable contingent liabilities

This part of the Statement provides details of those contingent liabilities of the Crown that are not quantified, excluding those that are considered remote, reported by the following categories:

a) Indemnities

b) Legal claims and proceedings, and

c) Other contingent liabilities.

a) Indemnities

A number of these indemnities are provided to organisations within the Crown's control. If these indemnities were to crystallise, the Crown would compensate the individual entity for the loss and there would likely be an adverse impact on core Crown expenses and net core Crown debt.

 
Party indemnified Instrument of indemnification Actions indemnified
Air New Zealand Deed of indemnity issued 24 September 2001 Claims arising from acts of war and terrorism that cannot be met from insurance, up to a limit of US$1 billion in respect of any one claim.
Contact Energy Limited The Crown and Contact Energy signed a number of documents to settle in full Contact's outstanding land rights and geothermal asset rights at Wairakei  The documents contained two reciprocal indemnities between the Crown and Contact Energy to address the risk of certain losses to the respective parties' assets arising from the negligence or fault of the other party.
Earthquake Commission (EQC) Section 16 of the Earthquake Commission Act 1993 As set out in the Earthquake Commission Act 1993, the Crown shall fund any deficiency in EQC's assets to cover its financial liabilities on such terms and conditions that the Minister of Finance determines.

Genesis Energy Limited

 

Deed between Genesis Power Limited and the Crown The agreement sees the Crown compensate Genesis in the event that Genesis has less gas than it requires for the long-term supply of gas to cover Huntly power station's minimum needs.
  Genesis acquisition of Tekapo A & B power stations Indemnity against any damage to bed of lakes and rivers subject to operating easements.
Housing New Zealand Limited (HNZL) The Crown has provided a warranty in respect of title to the assets transferred to HNZL

The Crown indemnified HNZL against:

  • any breach of the warranty provided, and
  • any third party claims that are a result of acts or omissions prior to 1 November 1992.

The Crown also indemnified the directors and officers of HNZL against any liability consequent upon the assets not complying with statutory requirements, provided it is taking steps to rectify any non-compliance.

Justices of the Peace, Community Magistrates and Disputes Tribunal Referee

Section 4F of the Justices of the Peace Act 1957

Section 50 of the District Courts Act 2016

Section 58 of the Disputes Tribunal Act 1988

Damages or costs awarded against them as a result of them exceeding their jurisdiction, provided a High Court Judge certifies that they have exceeded their jurisdiction in good faith and ought to be indemnified.
Maui Contracts Contracts in respect of which the Crown purchases gas from Maui Mining companies and sells gas downstream to Contact Energy Limited, Vector Gas Limited and Methanex Waitara Valley Limited The contracts provide for invoices to be re-opened in certain circumstances within two years of their issue date as a result of revisions to indices.  These revisions may result in the Crown refunding monies or receiving monies from those parties.
Maui Partners Confidentiality agreements with the Maui Partners in relation to the provision of gas reserves information Any losses arising from a breach of the deed.
New Zealand Aluminium Smelter and Comalco The Minister of Finance signed indemnities in November 2003 and February 2004 in respect of aluminium dross currently stored at another site in Invercargill The indemnity relates to costs incurred in removing the dross and disposing of it at another site if required to do so by an appropriate authority.
New Zealand Local Authorities

Section 39 of the Civil Defence Emergency Management Act 2002

Civil Defence Emergency Management Plan

The Guide to the National Civil Defence Emergency Management Plan (“the Guide”) states that, with the approval of the Minister, the Government will reimburse local authorities, in whole or in part, for certain types of response and recovery costs incurred as a result of a local or national emergency.  The Guide is approved and issued by the Director of Civil Defence Emergency Management.
New Zealand Railways Corporation The Minister of Finance signed the indemnity on 1 September 2004 The directors of New Zealand Railways Corporation against all liabilities in connection with the Corporation taking ownership and/or responsibility for the national rail network and any associated assets and liabilities.
  Section 10 of the Finance Act 1990 Guarantees all loan and swap obligations of the New Zealand Railways Corporation.
Persons exercising investigating powers Section 63 of the Corporations (Investigation and Management) Act 1989 Indemnifies the Financial Markets Authority (formerly Securities Commission), the Registrar and Deputy Registrar of Companies, members of advising committees within the Act, every statutory manager of a corporation and persons appointed pursuant to sections 17 to 19 of the Act, in the exercise of investigating powers, unless the power has been exercised in bad faith.
Synfuels-Waitara Outfall Indemnity 1990 sale of the Synfuels plant and operations to New Zealand Liquid Fuels Investment Limited (NZLFI) The Crown transferred to NZLFI the benefit and obligation of a Deed of Indemnity between the Crown and Borthwick-CWS Limited (and subsequent owners) in respect of the Waitara effluent transfer line which was laid across the Waitara meat processing plant site.  The Crown has the benefit of a counter indemnity from NZLFI which has since been transferred to Methanex Motunui Limited.
Westpac New Zealand Limited The Domestic Transaction Banking Services Master

The Crown Transactional Banking Services Agreement with Westpac New Zealand Limited dated 24 September 2015. The Crown has indemnified Westpac New Zealand Limited:

  • for all amounts paid by Westpac New Zealand under letters of credit issued on behalf of the Crown, and
  • against certain cost, damages and losses to third parties resulting from:
    • unauthorised, forged or fraudulent payment instructions
    • unauthorised or incorrect direct debit instructions, or
    • cheques mistakenly drawn in favour of a third party rather than drawn in favour of the Crown.

b)  Legal claims and proceedings

There are numerous legal actions that have been brought against the Crown. However, in the majority of these actions it is considered a remote possibility that the Crown would lose the case. Based on these factors, not all legal actions are individually disclosed. The claims that are disclosed individually, while they cannot be quantified, have the potential to exceed $20 million in costs and not considered to be remote.

Accident Compensation Corporation (ACC) litigation

Litigation involving ACC arises almost exclusively from challenges to operational decisions made by ACC through the statutory review and appeal process. No accrual has been made for contingent liabilities which could arise, as these disputes are issue-based and ACC's active management of litigation means that it will be either settling or defending, depending on the merits of the issue in dispute. ACC's Board believes the resolution of outstanding appeals will not have any material effect on the financial statements of ACC.

Ministry for Primary Industries - Kiwifruit vine disease

In November 2014, 42 growers filed a claim against the Ministry for Primary Industries (MPI) alleging MPI is legally liable for damages they have suffered from a biosecurity incursion of the kiwifruit vine disease Psa-V in New Zealand. Included in the proceedings are approximately 210 grower claims represented by the first plaintiff, Strathboss Kiwifruit Limited. The total losses have not been quantified, but previous media reports claim they are in the vicinity of $380 million (and cite total industry losses of $885 million). As Strathboss Kiwifruit Limited is required to prove MPI owes a duty of care to the growers before losses will be assessed, MPI is unable to quantify the first plaintiff's claim. The Ministry is defending the claim.

Treaty of Waitangi claims

Under the Treaty of Waitangi Act 1975, any Māori may lodge certain claims relating to land or actions counter to the principles of the Treaty with the Waitangi Tribunal. Where the Tribunal finds a claim is well founded, it may recommend to the Crown that action be taken to compensate those affected. The Tribunal can make recommendations that are binding on the Crown with respect to land which has been transferred by the Crown to an SOE or tertiary institution, or is subject to the Crown Forest Assets Act 1989.

On occasion, Māori claimants pursue the resolution of particular claims against the Crown through higher courts. Failure to successfully defend such actions may result in a liability for historical Treaty grievances in excess of that currently anticipated.

c)  Other unquantifiable contingent liabilities

Criminal Proceeds (Recovery) Act 2009

The Ministry of Justice is responsible for administering the Criminal Proceeds (Recovery) Act 2009. The Act requires the Crown to give an undertaking as to damages or costs in relation to asset restraining orders. In the event that the Crown is found liable, payment may be required.

Environmental liabilities

Under common law and various statutes, the Crown may have responsibility to remedy adverse effects on the environment arising from Crown activities.  Entities managing significant Crown properties have implemented systems to identify, monitor and assess potential contaminated sites.

In accordance with PBE IPSAS 19:  Provisions, Contingent Liabilities and Contingent Assets any contaminated sites for which costs can be reliably measured have been included in the statement of financial position as provisions.

Treaty of Waitangi claims - Settlement Relativity Payments - see page 73

Holidays Act 2003 and other relevant legislation

A number of entities have commenced a review of payroll calculations over the past six years in order to ensure compliance with the Holidays Act 2003 and other relevant legislation. Where possible, provision has been made in these financial statements for obligations arising from that review. To the extent that an obligation cannot reasonably be quantified at 31 March 2017, a contingent liability exists.

Description of Contingent Assets

Quantifiable contingent assets over $100 million

There are no contingent assets over $100 million at 31 March 2017.

Forecast Financial Statements

These forecasts have been prepared in accordance with the Public Finance Act 1989.

They are based on the accounting policies and assumptions that follow. As with all such assumptions, there is a degree of uncertainty surrounding them. This uncertainty increases as the forecast horizon extends. The Risks and Scenarios and Specific Fiscal Risks chapters discuss the risks to the fiscal forecast in more detail.

The forecasts have been prepared in accordance with the Statement of Responsibility and reflect the judgements and information known at the time they were prepared. They reflect all government decisions and circumstances communicated to 3 May 2017.

The finalisation dates and key assumptions that underpin the preparation of the Forecast Financial Statements are outlined in the Fiscal Outlook chapter (pages 23 to 48).

Statement of Accounting Policies

Significant Accounting Policies

The Forecast Financial Statements have been prepared in accordance with the accounting policies that are expected to be used in the comparable audited actual Financial Statements of the Government. They comply with generally accepted accounting practice (GAAP) as required by the Public Finance Act 1989 and have been prepared in accordance with Public Benefit EntityFinancial Reporting Standard 42: Prospective Financial Statements.

All forecasts use the accrual basis of accounting. Forecasts have been prepared for the consolidated Financial Statements of the Government reporting entity, which includes all entities controlled by the Government (as defined by applicable financial reporting standards).

The specific accounting policies are included within the 2017 Budget Economic and Fiscal Update Additional Information document which can be found on the Treasury's website at www.treasury.govt.nz/budget/forecasts/befu2017

Forecast Policies

The Forecast Financial Statements have been prepared on the basis of the Treasury's best professional judgement. Actual financial results for the periods covered are likely to vary from the information presented in these forecasts. Factors that may lead to a material difference between information in these Forecast Financial Statements and the actual reported results in future years are set out in the Specific Fiscal Riskschapter on pages 61 to 86.

Key forecast assumptions are set out on pages 25 to 26.

Reporting and Forecast Period

The reporting periods for these Forecast Financial Statements are the years ended 30 June 2017 to 30 June 2021. The “2016 Actual” figures reported in the statements are the audited results reported in the Financial Statements of the Government for the year ended 30 June 2016. The “2017 Previous Budget” figures are the original forecasts to 30 June 2017 as presented in the 2016 Budget.

Government Reporting Entity as at 3 May 2017

These Forecast Financial Statements are for the government reporting entity as specified in Part 3 of the Public Finance Act 1989. This comprises Ministers of the Crown and the following entities (classified in the three institutional components used for segmental reporting):

Core Crown Segment

Departments

  • Crown Law Office
  • Department of Conservation
  • Department of Corrections
  • Department of Internal Affairs
  • Department of the Prime Minister and Cabinet
  • Education Review Office
  • Government Communications Security Bureau
  • Inland Revenue Department
  • Land Information New Zealand
  • Ministry for Culture and Heritage
  • Ministry for Pacific Peoples
  • Ministry for Primary Industries
  • Ministry for the Environment
  • Ministry for Vulnerable Children, Oranga Tamariki
  • Ministry for Women
  • Ministry of Business, Innovation, and Employment
  • Ministry of Defence
  • Ministry of Education
  • Ministry of Foreign Affairs and Trade
  • Ministry of Health
  • Ministry of Justice
  • Ministry of Māori Development
  • Ministry of Social Development
  • Ministry of Transport
  • New Zealand Customs Service
  • New Zealand Defence Force
  • New Zealand Police
  • New Zealand Security Intelligence Service
  • Office of the Clerk of the House of Representatives
  • Parliamentary Counsel Office
  • Parliamentary Service
  • Serious Fraud Office
  • State Services Commission
  • Statistics New Zealand
  • The Treasury

Offices of Parliament

  • Controller and Auditor-General
  • Office of the Ombudsman
  • Parliamentary Commissioner for the Environment

Others

  • New Zealand Superannuation Fund
  • Reserve Bank of New Zealand

State-owned Enterprises Segment

State-owned Enterprises

  • Airways Corporation of New Zealand Limited
  • Animal Control Products Limited
  • AsureQuality Limited
  • Electricity Corporation of New Zealand Limited
  • KiwiRail Holdings Limited
  • Kordia Group Limited
  • Landcorp Farming Limited
  • Meteorological Service of New Zealand Limited
  • New Zealand Post Limited
  • New Zealand Railways Corporation
  • Quotable Value Limited
  • Solid Energy New Zealand Limited
  • Transpower New Zealand Limited

Mixed ownership model companies (Public Finance Act Schedule 5) 

  • Genesis Energy Limited
  • Mercury NZ Limited
  • Meridian Energy Limited

Others

  • Air New Zealand Limited

Crown entities Segment

Crown entities

  • Accident Compensation Corporation
  • Accreditation Council
  • Arts Council of New Zealand Toi Aotearoa
  • Broadcasting Commission
  • Broadcasting Standards Authority
  • Callaghan Innovation
  • Careers New Zealand
  • Children's Commissioner
  • Civil Aviation Authority of New Zealand
  • Commerce Commission
  • Crown Irrigation Investments Limited
  • Crown Research Institutes (7)
  • District Health Boards (20)
  • Drug Free Sport New Zealand
  • Earthquake Commission
  • Education New Zealand
  • Electoral Commission
  • Electricity Authority
  • Energy Efficiency and Conservation Authority
  • Environmental Protection Authority
  • External Reporting Board
  • Families Commission
  • Financial Markets Authority
  • Government Superannuation Fund Authority
  • Guardians of New Zealand Superannuation
  • Health and Disability Commissioner
  • Health Promotion Agency
  • Health Quality and Safety Commission
  • Health Research Council of New Zealand
  • Heritage New Zealand Pouhere Taonga
  • Housing New Zealand Corporation
  • Human Rights Commission
  • Independent Police Conduct Authority
  • Law Commission
  • Maritime New Zealand
  • Museum of New Zealand Te Papa Tongarewa Board
  • New Zealand Antarctic Institute
  • New Zealand Artificial Limb Service
  • New Zealand Blood Service
  • New Zealand Film Commission
  • New Zealand Fire Service Commission
  • New Zealand Lotteries Commission
  • New Zealand Productivity Commission
  • New Zealand Qualifications Authority
  • New Zealand Symphony Orchestra
  • New Zealand Tourism Board
  • New Zealand Trade and Enterprise
  • New Zealand Transport Agency
  • New Zealand Venture Investment Fund Limited
  • New Zealand Walking Access Commission
  • Office of Film and Literature Classification
  • Pharmaceutical Management Agency
  • Privacy Commissioner
  • Public Trust
  • Radio New Zealand Limited
  • Real Estate Agents Authority
  • Retirement Commissioner
  • School Boards of Trustees (2,408)
  • Social Workers Registration Board
  • Sport and Recreation New Zealand
  • Takeovers Panel
  • Te Reo Whakapuaki Irirangi (Māori Broadcasting Funding Agency)
  • Te Taura Whiri i te Reo Māori (Māori Language Commission)
  • Television New Zealand Limited
  • Tertiary Education Commission
  • Tertiary Education Institutions (28)
  • Transport Accident Investigation Commission
  • WorkSafe New Zealand

Organisations listed in schedule 4 of the Public Finance Act 1989

  • Agricultural and Marketing Research and Development Trust
  • Asia New Zealand Foundation
  • Fish and Game Councils (12)
  • Game Animal Council
  • Leadership Development Centre Trust
  • Māori Trustee
  • National Pacific Radio Trust
  • New Zealand Fish and Game Council
  • New Zealand Game Bird Habitat Trust Board
  • New Zealand Government Property Corporation
  • New Zealand Lottery Grants Board
  • Ngāi Tahu Ancillary Claims Trust
  • Pacific Co-operation Foundation
  • Pacific Island Business Development Trust
  • Reserves Boards (22)
  • Sentencing Council
  • Te Ariki Trust

Non-listed companies in which the Crown is majority or sole shareholder (Public Finance Act Schedule 4A)

  • Crown Asset Management Limited
  • Crown Fibre Holdings Limited
  • Education Payroll Limited
  • Fairway Resolution Limited
  • Health Benefits Limited (ceased operating)
  • ōtākaro Limited
  • Research and Education Advanced Network New Zealand Limited
  • Southern Response Earthquake Services Limited
  • Tāmaki Redevelopment Company Limited
  • The Network for Learning Limited

Legal entities created by Treaty of Waitangi settlement Acts (Public Finance Act Schedule 6)

  • Te Urewera

Others

  • Education Council of Aotearoa New Zealand
  • Regenerate Christchurch

Subsidiaries of SOEs, Crown entities and other government entities are consolidated by their parents and are not listed separately in this table.

Forecast Statement of Financial Performance for the years ending 30 June

  Note 2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Revenue

               
Taxation revenue 1 69,668 71,221 73,987 76,872 80,413 85,180 89,221
Other sovereign revenue 1 4,643 4,593 4,897 5,057 5,452 5,849 6,064
Total Revenue Levied through the Crown's Sovereign Power   74,311 75,814 78,884 81,929 85,865 91,029 95,285
Sales of goods and services   16,364 17,259 16,687 16,994 17,711 18,177 18,566
Interest revenue and dividends 2 3,603 4,267 3,638 3,724 3,878 4,108 4,362
Other revenue   3,881 3,615 3,687 3,700 3,765 3,826 3,874
Total revenue earned through the Crown's operations   23,848 25,141 24,012 24,418 25,354 26,111 26,802
Total revenue (excluding gains)   98,159 100,955 102,896 106,347 111,219 117,140 122,087

Expenses

               
Transfer payments and subsidies 3 24,312 25,395 25,504 26,462 27,652 28,443 29,386
Personnel expenses 4 21,763 22,144 22,221 23,003 23,160 23,264 23,561
Depreciation and amortisation 5 4,875 5,200 5,096 5,306 5,482 5,545 5,668
Other operating expenses 6 35,869 38,666 38,488 40,257 40,368 40,435 40,706
Finance costs 7 4,336 4,566 4,297 4,224 4,115 4,374 4,489
Insurance expenses 8 4,725 4,239 5,458 4,546 4,551 5,403 5,755
Forecast new operating spending 9 534 230 293 1,971 3,647 5,383
Top-down expense adjustment 9 (1,025) (450) (1,000) (545) (500) (500)
Total expenses (excluding losses)   95,880 99,719 100,844 103,091 106,754 110,611 114,448
Minority interest share of operating balance   before gains/(losses)   (448) (517) (431) (398) (414) (444) (471)
Operating balance before gains/(losses) (excluding minority interests)   1,831 719 1,621 2,858 4,051 6,085 7,168
Net gains/(losses) on financial instruments 10 1,117 2,111 4,850 2,538 2,781 3,092 3,399
Net gains/(losses) on non-financial instruments 11 (8,636) (54) 2,694 (88) (76) (35) (45)
Less minority interest share of net gains/losses   12 (4) (24) (26) (7) (6) (7)
Total gains/(losses)   (7,507) 2,053 7,520 2,424 2,698 3,051 3,347
Net surplus/(deficit) from associates and joint ventures   307 286 297 214 247 315 309
Operating balance (excluding minority interests) 12 (5,369) 3,058 9,438 5,496 6,996 9,451 10,824

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Analysis of Expenses by Functional Classification for the years ending 30 June

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Total Crown expenses

             

By functional classification

             
Social security and welfare 28,901 30,120 30,658 31,577 32,496 34,068 35,324
Health 15,160 15,567 15,726 16,389 16,430 16,462 16,378
Education 13,809 14,235 14,203 14,741 14,882 14,931 15,153
Core government services 3,950 4,874 3,957 4,572 4,213 4,034 3,888
Law and order 3,894 4,062 4,255 4,435 4,537 4,590 4,671
Transport and communications 9,400 9,641 9,340 9,637 9,952 10,141 10,615
Economic and industrial services 7,428 7,551 8,475 7,949 8,416 8,549 8,630
Defence 2,013 2,149 2,137 2,286 2,351 2,362 2,372
Heritage, culture and recreation 2,210 2,401 2,512 2,391 2,409 2,399 2,398
Primary services 1,852 1,961 1,949 1,986 1,970 1,975 2,034
Housing and community development 1,600 1,694 1,987 1,954 1,979 1,938 1,970
Environmental protection 580 719 891 1,012 926 982 984
GSF pension expenses 286 231 233 239 251 263 263
Other 461 439 444 406 401 396 396
Finance costs 4,336 4,566 4,297 4,224 4,115 4,374 4,489
Forecast new operating spending 534 230 293 1,971 3,647 5,383
Top-down expense adjustment (1,025) (450) (1,000) (545) (500) (500)
Total Crown expenses excluding losses 95,880 99,719 100,844 103,091 106,754 110,611 114,448

Below is an analysis of core Crown expenses by functional classification. Core Crown expenses include expenses incurred by Ministers, Departments, Offices of Parliament, the NZS Fund and the Reserve Bank, but not Crown entities and SOEs.

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Core Crown expenses

             

By functional classification1

             
Social security and welfare 24,081 25,224 25,412 26,247 27,414 28,199 29,104
Health 15,626 16,214 16,202 17,096 17,225 17,234 17,193
Education 13,158 13,478 13,441 13,985 14,134 14,188 14,413
Core government services 4,102 4,943 4,135 4,843 4,351 4,280 4,144
Law and order 3,648 3,811 3,985 4,119 4,178 4,222 4,278
Transport and communications 2,178 2,358 2,233 2,329 2,344 2,364 2,456
Economic and industrial services 2,107 2,493 2,777 3,001 2,970 2,932 2,948
Defence 2,026 2,177 2,144 2,294 2,360 2,370 2,380
Heritage, culture and recreation 787 855 861 885 875 841 814
Primary services 749 709 715 730 667 653 638
Housing and community development 558 568 640 530 557 519 540
Environmental protection 587 716 893 1,015 929 984 987
GSF pension expenses 271 212 214 220 232 243 243
Other 461 439 444 406 401 396 396
Finance costs 3,590 3,682 3,588 3,493 3,403 3,662 3,806
Forecast new operating spending 534 230 293 1,971 3,647 5,383
Top-down expense adjustment (1,025) (450) (1,000) (545) (500) (500)
Total core Crown expenses excluding losses 73,929 77,388 77,464 80,486 83,466 86,234 89,223
  1. The classifications of the functions of the Government reflect current approved baselines. Forecast new operating spending is shown as a separate line item in the above analysis and will be allocated to functions of the Government once decisions are made in future Budgets.

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Comprehensive Revenue and Expense for the years ending 30 June

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
Operating Balance (including minority interest) (4,933) 3,579 9,893 5,920 7,417 9,901 11,302

Other comprehensive revenue and expense

             
Revaluation of physical assets 8,865 1,156
Net change in hedging instruments entered into for cash flow hedges (248) 22 113 8 (5) 4 3
Foreign currency translation differences for foreign operations (15) (18)
Valuation gains/(losses) on investments available for sale taken to reserves (14) 9 6 6 7 7 8
Other movements 34 13 2 17 39 40 46
Total other comprehensive revenue and expense 8,622 44 1,259 31 41 51 57
Total comprehensive revenue and expense 3,689 3,623 11,152 5,951 7,458 9,952 11,359

Attributable to:

             
 - minority interest 777 529 474 429 422 452 479
 - the Crown 2,912 3,094 10,678 5,522 7,036 9,500 10,880
Total comprehensive revenue and expense 3,689 3,623 11,152 5,951 7,458 9,952 11,359

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Changes in Net Worth for the years ending 30 June

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
Opening net worth 92,236 89,302 95,521 105,923 111,442 118,390 127,829
Operating balance (including minority interest) (4,933) 3,579 9,893 5,920 7,417 9,901 11,302
Net revaluations 8,865 1,156
Transfers to/(from) reserves (136) 40 139 28 29 34 41
(Gains)/losses transferred to the Statement of Financial Performance (56) 6 (11) (1) 2 7 7
Other movements (51) (2) (25) 4 10 10 9
Comprehensive income 3,689 3,623 11,152 5,951 7,458 9,952 11,359
Transactions with minority interest (404) (500) (750) (432) (510) (513) (517)
Closing net worth 95,521 92,425 105,923 111,442 118,390 127,829 138,671

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Cash Flows for the years ending 30 June

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Cash Flows from Operations

             

Cash was provided from

             
Taxation receipts 69,027 70,058 72,913 75,563 79,188 83,982 87,924
Other sovereign receipts 4,685 4,154 4,375 4,484 4,624 5,119 5,243
Sales of goods and services 17,074 17,327 16,808 17,473 18,198 18,677 19,022
Interest and dividend receipts 3,430 3,504 3,360 3,285 3,423 3,719 4,024
Other operating receipts 4,131 3,590 3,757 3,172 3,690 3,717 3,762
Total cash provided from operations 98,347 98,633 101,213 103,977 109,123 115,214 119,975

Cash was disbursed to

             
Transfer payments and subsidies 24,338 25,384 25,492 26,512 27,691 28,512 29,468
Personnel and operating payments 61,160 63,751 64,081 66,838 66,656 66,926 67,178
Interest payments 4,333 4,682 4,884 4,813 4,778 4,829 4,962
Forecast new operating spending 534 230 293 1,972 3,648 5,383
Top-down expense adjustment (1,025) (450) (1,000) (545) (500) (500)
Total cash disbursed to operations 89,831 93,326 94,237 97,456 100,552 103,415 106,491
Net cash flows from operations 8,516 5,307 6,976 6,521 8,571 11,799 13,484

Cash Flows from Investing Activities

             

Cash was provided from/(disbursed to)

             
Net (purchase)/sale of physical assets (6,198) (7,971) (7,347) (8,429) (7,478) (6,497) (5,546)
Net (purchase)/sale of shares and other securities 1,410 (3,881) (1,291) 5,389 587 (1,528) 733
Net (purchase)/sale of intangible assets (687) (837) (772) (814) (627) (576) (523)
Net (issue)/repayment of advances (1,702) (1,504) (657) (1,196) (1,171) (1,055) (956)
Net acquisition of investments in associates 113 57 (76) (15) (289) (322) (117)
Forecast new capital spending (587) (170) (446) (1,303) (1,644) (2,024)
Top-down capital adjustment 625 125 840 150 240
Net cash flows from investing activities (7,064) (14,098) (10,188) (4,671) (10,131) (11,382) (8,433)
Net cash flows from operating and investing activities 1,452 (8,791) (3,212) 1,850 (1,560) 417 5,051

Cash Flows from Financing Activities

             

Cash was provided from/(disbursed to)

             
Issues of circulating currency 378 175 46 170 176 181 186
Net issue/(repayment) of government bonds2 6,250 7,893 2,959 (4,729) 378 (763) (5,221)
Net issue/(repayment) of foreign-currency borrowings 2,210 (957) (2,136) (940) (10) 7 1
Net issue/(repayment) of other New Zealand dollar borrowings (5,961) 2,360 4,943 2,627 1,688 984 781
Dividends paid to minority interests1 (509) (546) (651) (492) (509) (513) (517)
Net cash flows from financing activities 2,368 8,925 5,161 (3,364) 1,723 (104) (4,770)
Net movement in cash 3,820 134 1,949 (1,514) 163 313 281
Opening cash balance 11,982 15,036 15,617 17,495 15,984 16,147 16,460
Foreign-exchange gains/(losses) on opening cash (185) (2) (71) 3
Closing cash balance 15,617 15,168 17,495 15,984 16,147 16,460 16,741
  1. Excludes transactions with ACC and NZS Fund.
  2. Further information on the proceeds and repayments of government bonds is available in note 23.

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Cash Flows (continued)
for the years ending 30 June
  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Reconciliation Between the Net Cash Flows from Operations and the Operating Balance

             
Net Cash Flows from Operations 8,516 5,307 6,976 6,521 8,571 11,799 13,484

Items included in the operating balance but not in net cash flows from operations

             

Gains/(losses)

             
Net gains/(losses) on financial instruments 1,117 2,111 4,850 2,538 2,781 3,092 3,399
Net gains/(losses) on non-financial instruments (8,636) (54) 2,694 (88) (76) (35) (45)
Minority interest share of net gains/(losses) 12 (4) (24) (26) (7) (6) (7)
Total gains/(losses) (7,507) 2,053 7,520 2,424 2,698 3,051 3,347

Other Non-cash Items in Operating Balance

             
Depreciation and amortisation (4,875) (5,200) (5,096) (5,306) (5,482) (5,545) (5,668)
Cost of concessionary lending (747) (842) (779) (801) (821) (757) (742)
Impairment on financial assets (excluding receivables) (169) (126) 33 (126) (130) (131) (132)
Decrease/(increase) in defined benefit retirement plan liabilities 420 505 491 548 506 481 473
Decrease/(increase) in insurance liabilities (597) 44 (513) 145 (793) (1,582) (1,790)
Other (85) (229) (139) (184) (168) (127) (162)
Total other non-cash Items (6,053) (5,848) (6,003) (5,724) (6,888) (7,661) (8,021)

Movements in Working Capital

             
Increase/(decrease) in receivables (532) 188 675 496 1,121 814 957
Increase/(decrease) in accrued interest 169 879 866 1,028 1,118 844 812
Increase/(decrease) in inventories 115 (116) (128) (11) 23 4 14
Increase/(decrease) in prepayments 70 (14) (30) (7) 8 (1) 31
Decrease/(increase) in deferred revenue (66) 3 112 (20) (34) (13) (28)
Decrease/(increase) in payables/provisions (81) 606 (550) 789 379 614 228
Total movements in working capital (325) 1,546 945 2,275 2,615 2,262 2,014
Operating balance (excluding minority interests) (5,369) 3,058 9,438 5,496 6,996 9,451 10,824

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Financial Position as at 30 June

  Note 2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Assets

               
Cash and cash equivalents 13 15,617 15,168 17,495 15,984 16,147 16,460 16,741
Receivables 13 16,789 17,484 16,640 17,452 18,619 19,483 20,493
Marketable securities, deposits and derivatives in gain 13 53,398 53,289 50,770 45,514 45,701 48,081 45,815
Share investments 13 24,217 26,617 28,611 30,140 31,802 33,694 38,301
Advances 13 28,234 28,779 28,393 29,805 31,212 32,546 33,596
Inventory   1,110 863 981 970 993 997 1,011
Other assets   2,914 2,301 2,390 2,352 2,405 2,418 2,463
Property, plant and equipment 15 134,499 131,100 138,172 142,577 145,847 147,839 148,595
Equity accounted investments1   12,705 12,451 14,366 14,618 15,177 15,794 16,374
Intangible assets and goodwill 16 3,196 3,643 3,419 3,713 3,772 3,752 3,654
Forecast for new capital spending 9 618 170 616 1,918 3,562 5,586
Top-down capital adjustment 9 (725) (125) (965) (1,115) (1,355) (1,355)
Total assets   292,679 291,588 301,282 302,776 312,478 323,271 331,274

Liabilities

               
Issued currency   5,715 6,074 5,761 5,932 6,107 6,288 6,474
Payables 18 12,029 12,282 12,735 12,479 12,743 12,796 12,920
Deferred revenue   2,178 2,127 2,066 2,086 2,120 2,133 2,161
Borrowings   113,956 121,698 114,592 111,500 113,894 114,332 109,891
Insurance liabilities 19 42,126 39,281 41,364 41,219 42,011 43,593 45,383
Retirement plan liabilities 20 12,442 10,782 10,465 9,917 9,411 8,930 8,457
Provisions 21 8,712 6,919 8,376 8,201 7,802 7,370 7,317
Total liabilities   197,158 199,163 195,359 191,334 194,088 195,442 192,603
Total assets less total liabilities   95,521 92,425 105,923 111,442 118,390 127,829 138,671

Net Worth

               
Taxpayers' funds   13,932 20,087 23,527 29,141 36,300 46,120 57,167
Property, plant and equipment revaluation reserve   75,626 66,623 76,627 76,526 76,401 76,071 75,894
Other reserves   (192) (69) (110) (101) (99) (89) (79)
Total net worth attributable to the Crown   89,366 86,641 100,044 105,566 112,602 122,102 132,982
Net worth attributable to minority interest   6,155 5,784 5,879 5,876 5,788 5,727 5,689
Total net worth 22 95,521 92,425 105,923 111,442 118,390 127,829 138,671
  1. Tertiary education institutions constitute most of the equity accounted investments.

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Borrowings as at 30 June

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Borrowings

             
Government bonds 65,046 71,308 64,533 59,591 59,757 58,854 53,507
Treasury bills 3,799 3,809 3,928 4,096 4,016 3,933 3,854
Government retail stock 201 190 205 205 205 205 205
Settlement deposits with Reserve Bank 6,878 7,657 7,183 7,183 7,183 7,183 7,183
Derivatives in loss 4,577 3,531 3,335 2,800 2,467 2,308 2,141
Finance lease liabilities 1,631 2,406 2,239 2,559 2,664 2,447 2,156
Other borrowings 31,824 32,797 33,169 35,066 37,602 39,402 40,845
Total borrowings 113,956 121,698 114,592 111,500 113,894 114,332 109,891
Sovereign-guaranteed debt 84,043 90,594 83,535 78,805 79,389 78,520 73,247
Non sovereign-guaranteed debt 29,913 31,104 31,057 32,695 34,505 35,812 36,644
Total borrowings 113,956 121,698 114,592 111,500 113,894 114,332 109,891

Net Debt:

             
Core Crown borrowings1 95,037 102,812 97,118 92,565 92,993 92,425 87,398
Add back NZS Fund holdings of sovereign-issued debt and NZS Fund borrowings (1,754) (1,651) (1,894) (1,908) (1,920) (1,931) (1,933)
Gross sovereign-issued debt2 93,283 101,161 95,224 90,657 91,073 90,494 85,465
Less core Crown financial assets3 75,793 80,236 78,946 74,344 75,561 79,161 80,251
Net core Crown debt 17,490 20,925 16,278 16,313 15,512 11,333 5,214
Add back core Crown advances 14,612 14,572 12,171 12,312 12,340 12,349 12,229
Net core Crown debt (incl. NZS Fund)4 32,102 35,497 28,449 28,625 27,852 23,682 17,443
Add back NZS Fund holdings of core Crown financial assets and NZS Fund financial assets5 29,778 30,837 33,828 35,486 37,892 40,472 45,381
Net core Crown debt (excl. NZS Fund and advances)6 61,880 66,334 62,277 64,111 65,744 64,154 62,824

Gross Debt:

             
Gross sovereign-issued debt2 93,283 101,161 95,224 90,657 91,073 90,494 85,465
Less Reserve Bank settlement cash and Reserve Bank bills (7,955) (8,881) (8,179) (8,179) (8,179) (8,179) (8,179)
Add back changes to DMO borrowing owing to settlement cash7 1,600 1,600 1,600 1,600 1,600 1,600 1,600
Gross sovereign-issued debt excluding Reserve Bank settlement cash and Reserve Bank bills4 86,928 93,880 88,645 84,078 84,494 83,915 78,886

Notes on borrowings

Total borrowings can be split into sovereign-guaranteed and non-sovereign-guaranteed debt. This split reflects the fact that borrowings by SOEs and Crown entities are not explicitly guaranteed by the Crown. No debt of SOEs and Crown entities is currently guaranteed by the Crown.

  1. Core Crown borrowings in this instance include unsettled purchases of securities (classified as accounts payable in the Statement of Financial Position).
  2. Gross sovereign-issued debt (GSID) represents debt issued by the sovereign (the core Crown) and includes any government stock held by the other Crown reporting entities.
  3. Core Crown financial assets exclude receivables.
  4. Net core Crown debt represents GSID less financial assets. This can provide information about the sustainability of the Government's accounts, and is used by some international agencies when determining the creditworthiness of a country.
  5. Adding back the NZS Fund assets provides the financial liabilities less financial assets of the core Crown, excluding those assets set aside to meet part of the future cost of New Zealand Superannuation.
  6. Net core Crown debt (excluding NZS Fund and advances) excludes financial assets which are held for public policy rather than treasury management purposes.
  7. The Reserve Bank has used $1.6 billion of settlement cash to purchase reserves that were to have been funded by the NZDMO borrowing. Therefore, the impact of settlement cash on GSID is adjusted by this amount.

The accompanying notes and accounting policies are an integral part of these Statements.

Statement of Actual Commitments

  As at
31 Mar 2017
$m
As at
30 June 2016
$m

Capital Commitments

   
State highways 5,657 5,398
Specialist military equipment 542 235
Land and buildings 2,315 2,200
Other property, plant and equipment 2,246 2,578
Other capital commitments 235 246
Tertiary education institutions 533 533
Total capital commitments 11,528 11,190

Operating Commitments

   
Non-cancellable accommodation leases 3,293 3,197
Other non-cancellable leases 2,450 2,411
Tertiary education institutions 730 730
Total operating commitments 6,473 6,338
Total commitments 18,001 17,528

Total Commitments by Segment

   
Core Crown 5,848 5,102
Crown entities 8,631 8,392
State-owned Enterprises 4,648 4,826
Inter-segment eliminations (1,126) (792)
Total commitments 18,001 17,528

The accompanying notes and accounting policies are an integral part of these Statements.

Statement of Actual Contingent Liabilities and Assets

  As at
31 Mar 2017
$m
As at
30 June 2016
$m

Quantifiable Contingent Liabilities

   
Uncalled capital 7,853 7,910
Guarantees and indemnities 668 288
Legal proceedings and disputes 270 221
Other contingent liabilities 303 314
Total quantifiable contingent liabilities 9,094 8,733

Total Quantifiable Contingent Liabilities by Segment

   
Core Crown 8,939 8,593
Crown entities 11 40
State-owned Enterprises 144 100
Inter-segment eliminations
Total quantifiable contingent liabilities 9,094 8,733

Quantifiable Contingent Assets by Segment

   
Core Crown 51 51
Crown entities 1 1
State-owned Enterprises 46 21
Total quantifiable contingent assets 98 73

More information on contingent liabilities (quantified and unquantified) is outlined in the Specific Fiscal Risks chapter.

The accompanying notes and accounting policies are an integral part of these Statements.

Notes to the Forecast Financial Statements

NOTE 1: Sovereign Revenue (Accrual)
  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Taxation Revenue (accrual)

             

Individuals

             
Source deductions 27,019 27,778 28,445 29,498 29,802 31,321 32,666
Other persons 5,786 5,865 6,245 6,497 6,726 6,968 7,332
Refunds (1,739) (1,712) (1,598) (1,686) (1,624) (1,528) (1,611)
Fringe benefit tax 502 547 530 554 580 604 624
Total individuals 31,568 32,478 33,622 34,863 35,484 37,365 39,011

Corporate Tax

             
Gross companies tax 10,566 10,645 11,720 12,110 13,245 14,144 14,922
Refunds (238) (207) (202) (206) (232) (247) (263)
Non-resident withholding tax 734 504 593 589 653 740 801
Foreign-source dividend w/holding payments (8) 2 (10)
Total corporate tax 11,054 10,944 12,101 12,493 13,666 14,637 15,460

Other Direct Income Tax

             
Resident w/holding tax on interest income 1,667 1,629 1,485 1,519 1,725 2,325 2,897
Resident w/holding tax on dividend income 626 604 684 685 719 747 775
Total other direct income tax 2,293 2,233 2,169 2,204 2,444 3,072 3,672
Total direct income tax 44,915 45,655 47,892 49,560 51,594 55,074 58,143

Goods and Services Tax

             
Gross goods and services tax 29,366 29,855 30,812 32,354 33,999 35,696 37,348
Refunds (11,158) (10,801) (11,365) (11,774) (12,110) (12,717) (13,573)
Total goods and services tax 18,208 19,054 19,447 20,580 21,889 22,979 23,775

Other Indirect Taxation

             
Road user charges 1,381 1,361 1,431 1,437 1,483 1,536 1,582
Petroleum fuels excise – domestic production 1,185 1,176 1,148 1,215 1,240 1,257 1,267
Alcohol excise – domestic production 671 666 679 712 731 756 780
Tobacco excise – domestic production 362 345 358 366 380 393 408
Petroleum fuels excise – imports1 691 660 736 685 699 709 714
Alcohol excise – imports1 276 265 291 291 299 309 319
Tobacco excise – imports1 1,348 1,342 1,318 1,349 1,403 1,458 1,516
Other customs duty 127 175 148 148 148 148 148
Gaming duties 220 220 240 231 236 240 245
Motor vehicle fees 214 225 237 235 239 241 244
Approved issuer levy and cheque duty 42 46 31 33 42 50 50
Energy resources levies 28 31 31 30 30 30 30
Total other indirect taxation 6,545 6,512 6,648 6,732 6,930 7,127 7,303
Total indirect taxation 24,753 25,566 26,095 27,312 28,819 30,106 31,078
Total taxation revenue 69,668 71,221 73,987 76,872 80,413 85,180 89,221

Other Sovereign Revenue (accrual)

             
ACC levies 2,819 2,668 2,806 2,689 2,853 3,225 3,401
Fire Service levies 372 363 387 518 520 523 527
EQC levies 280 290 281 329 436 440 445
Child support and working for families penalties 278 274 260 261 260 260 261
Court fines 100 111 103 96 96 96 96
Other miscellaneous items 794 887 1,060 1,164 1,287 1,305 1,334
Total other sovereign revenue 4,643 4,593 4,897 5,057 5,452 5,849 6,064
Total sovereign revenue 74,311 75,814 78,884 81,929 85,865 91,029 95,285
  1. Customs excise-equivalent duty.
NOTE 1 (continued): Sovereign Receipts (Cash)
  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Taxation Receipts (cash)

             

Individuals

             
Source deductions 26,851 27,664 28,300 29,485 29,650 31,160 32,499
Other persons 6,170 6,196 6,574 6,868 7,112 7,397 7,658
Refunds (2,540) (2,438) (2,520) (2,526) (2,551) (2,509) (2,545)
Fringe benefit tax 506 546 530 554 580 604 624
Total individuals 30,987 31,968 32,884 34,381 34,791 36,652 38,236

Corporate Tax

             
Gross companies tax 11,287 10,739 12,134 11,989 13,455 14,437 15,213
Refunds (905) (613) (630) (676) (727) (780) (833)
Non-resident withholding tax 636 504 569 589 653 740 801
Foreign-source dividend w/holding payments (5) 2 3
Total corporate tax 11,013 10,632 12,076 11,902 13,381 14,397 15,181

Other Direct Income Tax

             
Resident w/holding tax on interest income 1,727 1,628 1,485 1,519 1,725 2,325 2,897
Resident w/holding tax on dividend income 620 604 684 685 719 747 775
Total other direct income tax 2,347 2,232 2,169 2,204 2,444 3,072 3,672
Total direct income tax 44,347 44,832 47,129 48,487 50,616 54,121 57,089

Goods and Services Tax

             
Gross goods and services tax 28,962 29,283 30,344 31,974 33,597 35,297 36,951
Refunds (10,973) (10,551) (11,205) (11,614) (11,950) (12,557) (13,413)
Total goods and services tax 17,989 18,732 19,139 20,360 21,647 22,740 23,538

Other Indirect Taxation

             
Road user charges 1,379 1,361 1,431 1,437 1,483 1,536 1,582
Petroleum fuels excise – domestic production 1,187 1,176 1,148 1,215 1,240 1,257 1,267
Alcohol excise – domestic production 667 666 679 712 731 756 780
Tobacco excise – domestic production 370 345 348 366 380 393 408
Customs duty 2,553 2,424 2,500 2,457 2,544 2,618 2,691
Gaming duties 220 220 240 231 236 240 245
Motor vehicle fees 240 225 237 235 239 241 244
Approved issuer levy and cheque duty 47 46 31 33 42 50 50
Energy resources levies 28 31 31 30 30 30 30
Total other indirect taxation 6,691 6,494 6,645 6,716 6,925 7,121 7,297
Total indirect taxation 24,680 25,226 25,784 27,076 28,572 29,861 30,835
Total taxation receipts 69,027 70,058 72,913 75,563 79,188 83,982 87,924

Other Sovereign Receipts (cash)

             
ACC levies 3,137 2,602 2,752 2,679 2,710 3,212 3,333
Fire Service levies 371 362 381 486 497 519 518
EQC levies 282 289 280 355 448 453 457
Child support and working for families penalties 211 212 212 212 211 210 210
Court fines 129 152 120 119 119 119 119
Other miscellaneous items 555 537 630 633 639 606 606
Total other sovereign receipts 4,685 4,154 4,375 4,484 4,624 5,119 5,243
Total sovereign receipts 73,712 74,212 77,288 80,047 83,812 89,101 93,167

NOTE 2: Interest Revenue and Dividends

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By type

             
Interest revenue 2,788 3,431 2,797 2,807 2,910 3,084 3,293
Dividends 815 836 841 917 968 1,024 1,069
Total interest revenue and dividends 3,603 4,267 3,638 3,724 3,878 4,108 4,362

By source

             
Core Crown 2,389 3,254 2,647 2,471 2,565 2,725 2,938
Crown entities 1,484 1,411 1,450 1,408 1,435 1,470 1,466
State-owned Enterprises 997 1,114 964 987 1,039 1,088 1,138
Inter-segment eliminations (1,267) (1,512) (1,423) (1,142) (1,161) (1,175) (1,180)
Total interest revenue and dividends 3,603 4,267 3,638 3,724 3,878 4,108 4,362

NOTE 3: Transfer Payments and Subsidies

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
New Zealand superannuation 12,267 12,912 13,044 13,671 14,357 15,164 15,924
Family tax credit 1,793 1,797 1,763 1,823 2,089 2,024 2,037
Jobseeker support and emergency benefit 1,671 1,677 1,695 1,663 1,599 1,529 1,520
Supported living payment 1,523 1,515 1,530 1,531 1,538 1,558 1,571
Accommodation assistance 1,164 1,149 1,129 1,218 1,488 1,497 1,515
Sole parent support 1,153 1,199 1,164 1,117 1,098 1,111 1,120
Income related rents 755 827 848 900 985 1,048 1,105
KiwiSaver subsidies 698 738 781 810 849 888 930
Other working for families tax credits 559 645 610 603 599 594 589
Official development assistance 534 592 539 644 586 586 586
Student allowances 486 510 477 505 517 519 526
Disability assistance 377 376 377 379 381 382 384
Other social assistance benefits 1,332 1,458 1,547 1,598 1,566 1,543 1,579
Total transfer payments and subsidies 24,312 25,395 25,504 26,462 27,652 28,443 29,386

NOTE 4: Personnel Expenses

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By source

             
Core Crown 6,666 6,899 6,908 7,243 7,203 7,162 7,156
Crown entities 12,205 12,413 12,479 12,926 13,007 13,035 13,211
State-owned Enterprises 2,921 2,855 2,867 2,868 2,984 3,101 3,228
Inter-segment eliminations (29) (23) (33) (34) (34) (34) (34)
Total personnel expenses 21,763 22,144 22,221 23,003 23,160 23,264 23,561

NOTE 5: Depreciation and Amortisation

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By source

             
Core Crown 1,529 1,586 1,629 1,744 1,799 1,870 1,926
Crown entities 1,686 1,929 1,764 1,816 1,880 1,896 1,932
State-owned Enterprises 1,660 1,685 1,703 1,746 1,803 1,779 1,810
Inter-segment eliminations
Total depreciation and amortisation 4,875 5,200 5,096 5,306 5,482 5,545 5,668

NOTE 6: Other Operating Expenses

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By source

             
Core Crown 37,832 40,316 40,054 42,250 41,981 41,949 42,064
Crown entities 18,613 19,023 19,749 19,982 19,843 19,656 19,713
State-owned Enterprises 8,464 9,332 8,661 9,172 9,640 9,976 10,356
Inter-segment eliminations (29,040) (30,005) (29,976) (31,147) (31,096) (31,146) (31,427)
Total other operating expenses 35,869 38,666 38,488 40,257 40,368 40,435 40,706

NOTE 7: Finance Costs

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By type

             
Interest on financial liabilities 4,297 4,502 4,264 4,185 4,081 4,349 4,467
Interest unwind on provisions 39 64 33 39 34 25 22
Total finance costs 4,336 4,566 4,297 4,224 4,115 4,374 4,489

By source

             
Core Crown 3,590 3,682 3,588 3,493 3,403 3,662 3,806
Crown entities 215 209 146 98 93 89 91
State-owned Enterprises 1,154 1,276 1,135 1,123 1,112 1,129 1,105
Inter-segment eliminations (623) (601) (572) (490) (493) (506) (513)
Total finance costs 4,336 4,566 4,297 4,224 4,115 4,374 4,489

NOTE 8: Insurance Expenses

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By entity

             
ACC 4,166 4,251 4,574 4,613 4,378 5,193 5,545
EQC 337 34 573 (28) 183 200 200
Southern Response 200 (56) 300 (49) (20)
Other (incl. inter-segment eliminations) 22 10 11 10 10 10 10
Total insurance expenses 4,725 4,239 5,458 4,546 4,551 5,403 5,755

NOTE 9: Forecast New Spending and Top-down Expense Adjustment

  2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Forecast New Operating Spending

         
Unallocated contingencies 230 293 334 330 356
Forecast new spending for Budget 2018 1,637 1,583 1,524
Forecast new spending for Budget 2019 1,734 1,734
Forecast new spending for Budget 2020 1,769
Total forecast new operating spending 230 293 1,971 3,647 5,383
Operating top-down adjustment (450) (1,000) (545) (500) (500)

Unallocated contingencies represent expenses included in Budget 2017 and previous Budgets that have yet to be allocated. Forecast new spending indicates the expected spending increases from future Budgets.

The forecast for new operating spending for Budget 2018 is $1.7 billion. It has been assumed that some of the allowances will be used to fund current commitments. Therefore the spending above represents the remaining allowances as at the forecast finalisation date of 3 May 2017, with only the unallocated portion of the allowance included in this note.

 
  2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
Post-2021
Forecast
$m
Total
Forecast
$m

Forecast New Capital Spending (annual)

             
Unallocated contingencies 170 346 731 465 245 1,957
Forecast new spending for Budget 2018 -   100 472 401 400 200 1,573
Forecast new spending for Budget 2019 100 678 545 750 2,073
Forecast new spending for Budget 2020 100 734 1,239 2,073
Forecast new spending for Budget 2021 100 2,400 2,500
Total forecast new capital spending 170 446 1,303 1,644 2,024 4,589 10,176
Forecast new capital spending (cumulative) 170 616 1,918 3,562 5,586    
Capital top-down adjustment (cumulative) (125) (965) (1,115) (1,355) (1,355)    

Unallocated contingencies represent capital spending from Budget 2017 and previous Budgets that has yet to be allocated. Forecast new spending indicates the expected capital spending increases from future Budgets.

The forecast for new capital spending for Budget 2018 is $2.0 billion. Budgets 2019 and 2020 are $2.5 billion.It has been assumed that some of these allowances will be used to fund current Government commitments. Therefore the spending above represents the remaining allowances as at the forecast finalisation date of 3 May 2017, with only the unallocated portion of the allowance included in this note.

NOTE 10: Net Gains and Losses on Financial Instruments

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By source

             
Core Crown 299 1,971 3,984 2,308 2,558 2,822 3,090
Crown entities 1,793 294 205 214 274 341 389
State-owned Enterprises (51) 30 122 128 68 64 65
Inter-segment eliminations (924) (184) 539 (112) (119) (135) (145)
Net gains/(losses) on financial instruments 1,117 2,111 4,850 2,538 2,781 3,092 3,399

NOTE 11: Net Gains and Losses on Non-Financial Instruments

NOTE 11: Net Gains and Losses on Non-Financial Instruments
  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By type

             
Actuarial gains/(losses) on ACC outstanding claims (5,099) 1,276
Actuarial gains/(losses) on GSF liability (2,028) 1,486
Gains/(losses) on the Emissions Trading Scheme (1,503) 63
Other (6) (54) (131) (88) (76) (35) (45)
Net gains/(losses) on non-financial instruments (8,636) (54) 2,694 (88) (76) (35) (45)

By source

             
Core Crown (3,558) (3) 1,506 (8) (1) (1) (1)
Crown entities (5,093) (51) 1,226 (80) (75) (34) (42)
State-owned Enterprises 57 (33)
Inter-segment eliminations (42) (5) (2)
Net gains/(losses) on non-financial instruments (8,636) (54) 2,694 (88) (76) (35) (45)

NOTE 12: Operating Balance (excluding Minority Interests)

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By source

             
Core Crown (912) 3,217 8,919 5,676 6,683 9,197 10,774
Crown entities (3,480) 178 138 (41) 410 288 72
State-owned Enterprises 720 767 654 699 731 836 857
Inter-segment eliminations (1,697) (1,104) (273) (838) (828) (870) (879)
Total operating balance (5,369) 3,058 9,438 5,496 6,996 9,451 10,824

NOTE 13: Financial Assets (including receivables)

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Cash and cash equivalents

15,617 15,168 17,495 15,984 16,147 16,460 16,741
Tax receivables 9,161 9,263 9,513 10,098 10,613 11,092 11,686
Trade and other receivables 7,628 8,221 7,127 7,354 8,006 8,391 8,807
Student loans (refer note 14) 8,982 9,260 9,178 9,210 9,156 9,025 8,814
Kiwibank mortgages 16,689 17,753 17,698 18,902 20,153 21,404 22,655
Long-term deposits 4,791 4,875 3,287 3,257 3,335 3,330 3,267
IMF financial assets 1,897 2,299 1,806 1,806 1,806 1,806 1,806
Other advances 2,563 1,766 1,517 1,693 1,903 2,117 2,127
Share investments 24,217 26,617 28,611 30,140 31,802 33,694 38,301
Derivatives in gain 5,888 2,758 4,696 4,313 4,261 4,200 4,229
Other marketable securities 40,822 43,357 40,981 36,138 36,299 38,745 36,513
Total financial assets (including receivables) 138,255 141,337 141,909 138,895 143,481 150,264 154,946

Financial Assets by Entity

             
NZDMO 22,258 23,832 21,359 14,701 13,219 13,838 9,811
Reserve Bank of New Zealand 20,079 21,487 20,100 19,755 20,249 20,476 20,704
NZS Fund 30,561 32,759 34,598 36,557 38,997 41,616 46,577
Other core Crown 23,609 22,311 24,275 24,451 24,392 24,869 26,208
Intra-segment eliminations (8,493) (7,575) (9,015) (8,096) (7,643) (7,389) (8,076)
Total core Crown segment 88,014 92,814 91,317 87,368 89,214 93,410 95,224
ACC portfolio 37,840 38,067 39,442 40,072 41,217 42,508 43,847
EQC portfolio 1,996 670 688
Other Crown entities 10,660 8,404 10,260 9,366 9,196 9,371 9,475
Intra-segment eliminations (3,011) (2,246) (3,135) (2,561) (2,037) (1,859) (1,585)
Total Crown entities segment 47,485 44,895 47,255 46,877 48,376 50,020 51,737
Total state-owned enterprises segment 24,237 24,167 24,834 25,964 27,370 28,801 30,379
Inter-segment eliminations (21,481) (20,539) (21,497) (21,314) (21,479) (21,967) (22,394)
Total financial assets (including receivables) 138,255 141,337 141,909 138,895 143,481 150,264 154,946

NOTE 14: Student Loans

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
Nominal value (including accrued interest) 15,340 15,709 15,665 15,963 16,182 16,334 16,432
Opening book value 8,864 9,097 8,982 9,178 9,210 9,156 9,025
Net new lending (excluding fees) 1,512 1,580 1,493 1,533 1,544 1,557 1,579
New lending - establishment fee 10 11 10 10 10 10 11
Less initial write-down to fair value (659) (689) (670) (676) (680) (685) (695)
Repayments made during the year (1,208) (1,247) (1,277) (1,336) (1,427) (1,504) (1,584)
Interest unwind 603 608 590 601 599 591 578
Impairment (140) (100) 50 (100) (100) (100) (100)
Other movements
Closing book value 8,982 9,260 9,178 9,210 9,156 9,025 8,814

NOTE 15: Property, Plant and Equipment

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Net Carrying Value1

             

By class of asset

             
Land 44,959 40,046 45,221 45,330 45,465 45,410 45,050
Buildings 31,490 31,070 32,861 33,771 34,617 35,005 35,409
State highways 22,347 23,686 23,861 26,056 27,793 29,521 30,865
Electricity generation assets 15,719 14,398 15,477 15,232 14,983 14,730 14,436
Electricity distribution network (cost) 4,073 4,313 4,098 4,226 4,296 4,368 4,420
Aircraft (excluding military) 3,860 4,744 4,433 5,092 5,516 5,491 5,437
Specialist military equipment 3,070 3,319 3,093 3,357 3,421 3,412 3,232
Specified cultural and heritage assets 3,035 3,007 3,030 3,033 3,039 3,052 3,070
Rail network 959 1,194 1,007 1,136 1,274 1,413 1,543
Other plant and equipment (cost) 4,987 5,323 5,091 5,344 5,443 5,437 5,133
Total property, plant and equipment 134,499 131,100 138,172 142,577 145,847 147,839 148,595

By source

             
Core Crown 35,697 34,734 36,729 38,308 39,124 39,411 39,341
Crown entities 66,769 64,898 69,211 71,640 73,982 76,024 77,339
State-owned Enterprises 32,033 31,468 32,232 32,629 32,741 32,404 31,915
Inter-segment eliminations    -     -     -     -     -     -     - 
Total property, plant and equipment 134,499 131,100 138,172 142,577 145,847 147,839 148,595

Land breakdown by usage

             
Housing 15,632 13,066 15,743 15,751 15,728 15,559 15,497
State highway corridor land 9,757 9,343 9,828 9,782 9,757 9,707 9,657
Conservation land 5,691 5,515 5,688 5,700 5,710 5,721 5,732
Rail network 3,354 3,316 3,323 3,311 3,303 3,301 3,299
Schools 4,770 3,433 4,798 4,833 4,972 5,044 5,071
Commercial (SOEs) excluding Rail 1,306 1,675 1,234 1,259 1,275 1,292 1,309
Other 4,449 3,698 4,607 4,694 4,720 4,786 4,485
Total land 44,959 40,046 45,221 45,330 45,465 45,410 45,050
  1. Using a revaluation methodology unless otherwise stated.
  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Schedule of Movements

             

Cost or Valuation

             
Opening balance 138,681 145,209 149,806 156,678 165,479 173,332 179,954
Additions2 7,608 9,421 8,826 9,573 8,638 7,571 6,538
Disposals (1,747) (1,722) (1,794) (594) (626) (785) (934)
Net revaluations 6,371    -  (61)    -     -     -     - 
Other1 (1,107) (106) (99) (178) (159) (164) (96)
Total cost or valuation 149,806 152,802 156,678 165,479 173,332 179,954 185,462

Accumulated Depreciation and Impairment

             
Opening balance 14,123 18,208 15,307 18,506 22,902 27,485 32,115
Eliminated on disposal (399) (962) (1,203) (128) (93) (95) (101)
Eliminated on revaluation (2,475)    -  (47) (46) (38) (27) (20)
Impairment losses charged to operating balance 288    -     -     -     -     -     - 
Depreciation expense 3,912 4,456 4,444 4,563 4,714 4,751 4,874
Other1 (142)    -  5 7    -  1 (1)
Total accumulated depreciation and impairment 15,307 21,702 18,506 22,902 27,485 32,115 36,867
Total property, plant and equipment 134,499 131,100 138,172 142,577 145,847 147,839 148,595
  1. Other mainly includes transfers to/from other asset categories.
  2. These additions do not include any purchases which may result from the allocation of the forecast for new capital spending (separately disclosed in the Statement of Financial Position).

NOTE 16: Intangible Assets and Goodwill

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By type

             
Goodwill 602 600 601 601 601 601 601
Other intangible assets 2,594 3,043 2,818 3,112 3,171 3,151 3,053
Total intangible assets and goodwill 3,196 3,643 3,419 3,713 3,772 3,752 3,654

By source

             
Core Crown 1,351 1,601 1,523 1,696 1,759 1,755 1,670
Crown entities 544 690 563 645 637 619 598
State-owned Enterprises 1,301 1,352 1,333 1,372 1,376 1,378 1,386
Inter-segment eliminations    -     -     -     -     -     -     - 
Total intangible assets and goodwill 3,196 3,643 3,419 3,713 3,772 3,752 3,654

NOTE 17: NZ Superannuation Fund

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
Revenue 752 800 759 858 923 992 1,066
Less current tax expense 512 610 1,106 708 761 818 878
Less other expenses 138 170 168 184 190 200 212
Add gains/(losses) (76) 1,927 4,081 2,280 2,439 2,611 2,795
Operating balance 26 1,947 3,566 2,246 2,411 2,585 2,771
Opening net worth 29,522 29,042 29,527 33,090 35,365 37,809 40,432
Gross contribution from the Crown 2,152
Operating balance 26 1,947 3,566 2,246 2,411 2,585 2,771
Other movements in reserves (21) 17 (3) 29 33 38 44
Closing net worth 29,527 31,006 33,090 35,365 37,809 40,432 45,399

Comprising:

             
Financial assets 30,561 32,759 34,598 36,557 38,997 41,616 46,577
Financial liabilities (2,580) (2,827) (3,224) (2,970) (3,031) (3,096) (3,164)
Net other assets 1,546 1,074 1,716 1,778 1,843 1,912 1,986
Closing net worth 29,527 31,006 33,090 35,365 37,809 40,432 45,399

NOTE 18: Payables

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By type

             
Accounts payable 7,508 7,409 8,169 7,905 8,151 8,187 8,292
Taxes repayable 4,521 4,873 4,566 4,574 4,592 4,609 4,628
Total payables 12,029 12,282 12,735 12,479 12,743 12,796 12,920

By source

             
Core Crown 8,158 8,804 8,556 8,181 8,232 8,357 8,494
Crown entities 5,734 4,902 5,984 5,971 6,023 5,978 5,870
State-owned Enterprises 5,128 5,020 5,352 5,411 5,519 5,565 5,601
Inter-segment eliminations (6,991) (6,444) (7,157) (7,084) (7,031) (7,104) (7,045)
Total payables 12,029 12,282 12,735 12,479 12,743 12,796 12,920

NOTE 19: Insurance Liabilities

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

By entity

             
ACC 39,106 38,250 39,379 40,707 41,783 43,364 45,150
EQC 2,485 750 1,644 295 177 177 177
Southern Response 807 215 622 166
Other (incl. inter-segment eliminations) (272) 66 (281) 51 51 52 56
Total insurance liabilities 42,126 39,281 41,364 41,219 42,011 43,593 45,383

ACC liability

Calculation information

PwC NZ has prepared an independent actuarial estimate of the ACC outstanding claims liability as at 31 December 2016. This estimate includes the expected future payments relating to accidents that occurred prior to balance date (whether or not the associated claims have been reported to, or accepted by, ACC) and also the expected future administrative expenses of managing these claims. The assumptions underpinning this valuation form the basis of the five-year forecast of the outstanding claims liability.

The key economic variables that impact on changes to the valuation are the long-term Labour Cost Index (LCI), average weekly earnings and the discount rate. Discount rates were derived from the yield curve for New Zealand Government bonds. For these forecast statements, the claims liability has been updated for the latest discount rates as at 31 March 2017. The equivalent single effective discount rate, taking into account ACC's projected future cash flow patterns, is 4.03% and allows for a long-term discount rate of 4.75% from 2047.

Other key variables in each valuation are the forecast increases in claim costs over and above the economic variables above, and the assumed rate at which long-term claimants will leave the scheme over the period. This assessment is largely based on scheme history.

Presentation approach

ACC has available to it a portfolio of assets that offset the claims liability. The assets below (less cross-holdings of NZ Government stock) are included as assets in the Statement of Financial Position.

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Gross ACC Liability

             
Opening gross liability 32,518 36,976 39,106 39,379 40,707 41,783 43,364
Net change 6,588 1,274 273 1,328 1,076 1,581 1,786
Closing gross liability 39,106 38,250 39,379 40,707 41,783 43,364 45,150

Less Net Assets Available to ACC

             
Opening net asset value 34,021 36,375 37,241 38,312 39,148 40,300 41,598
Net change 3,220 1,139 1,071 836 1,152 1,298 1,335
Closing net asset value 37,241 37,514 38,312 39,148 40,300 41,598 42,933

Net ACC Reserves (Net Liability)

             
Opening reserves position 1,503 (601) (1,865) (1,067) (1,559) (1,483) (1,766)
Net change (3,368) (135) 798 (492) 76 (283) (451)
Closing reserves position (net liability)/net asset (1,865) (736) (1,067) (1,559) (1,483) (1,766) (2,217)

EQC liability

Calculation information

Melville Jessup Weaver prepared an independent actuarial estimate of the EQC outstanding claims liability at 30 June 2016 by estimating the projected ultimate claims costs then deducting the payments made in relation to those claims on or before that date. Each component of the claims liability was split into separate groups depending upon the Canterbury earthquake event grouping or other "business as usual" claims. These event groups were further split into sub-claim valuation groups being land claims, building claims or contents claims. The assumptions underpinning the 30 June 2016 valuation form the basis of the five-year forecast of the outstanding claims liability.

Critical assumptions used in projecting the ultimate costs include apportionment of costs across earthquake events, the profile of claims settlement, claims inflation rate per annum, risk margins and claims handling costs.

There is a high level of uncertainty associated with the valuation of the outstanding claims liability, reinsurance recoveries and unexpired risk liability. Some of the key uncertainties are: a complex land claims environment, complexity of the remaining dwelling claims and the expectation that some claims will need to be reopened to rectify outstanding issues.

Presentation approach

EQC reinsurance recoveries are included in receivables in the Statement of Financial Position.

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

EQC Liability

             
Opening gross liability 2,965 1,908 2,485 1,644 295 177 177
Net change (480) (1,158) (841) (1,349) (118)
Closing gross liability 2,485 750 1,644 295 177 177 177

Less Reinsurance Receivable

             
Opening reinsurance receivable 962 390 515 185 10
Net change (447) (245) (330) (175) (10)
Closing reinsurance receivable 515 145 185 10

Net EQC Liability

             
Opening net position (2,003) (1,518) (1,970) (1,459) (285) (177) (177)
Net change 33 913 511 1,174 108
Closing net position (net liability) (1,970) (605) (1,459) (285) (177) (177) (177)

NOTE 20: Retirement Plan Liabilities

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
Government Superannuation Fund 12,441 10,792 10,464 9,916 9,410 8,929 8,456
Other funds 1 (10) 1 1 1 1 1
Total retirement plan liabilities 12,442 10,782 10,465 9,917 9,411 8,930 8,457

The net liability of the Government Superannuation Fund (GSF) was calculated by GSF's actuary as at 31 January 2017. The liability arises from closed schemes for past and present public sector employees as set out in the Government Superannuation Fund Act 1956. A Projected Unit Credit method was used to calculate the liability as at 31 January 2017, based on membership data as at 30 June 2016 with adjustments for cash flows to 31 January 2017. The funding method requires the benefits payable from GSF in respect of past service to be calculated and then discounted back to the valuation date.

For these Forecast Financial Statements, the net GSF liability was updated for the latest discount rates derived from the market yield curve for New Zealand Government bonds as at 31 January 2017.

Other principal long-term financial assumptions were an inflation rate, as measured by the Consumers Price Index (CPI), of 1.74% for the 21 years to 30 June 2037, then increasing gradually each year to 2.0% in the year ended 30 June 2048 and remaining at 2.0% p.a. for all years after that. In addition an annual salary growth rate, before any promotional effects, of 2.5% (unchanged from 30 September 2016).

The 2016/17 projected decrease in the net GSF liability is $1,977 million, reflecting a decrease in the GSF liability of $1,844 million and an increase in the GSF net assets of $133 million.

The decrease in the GSF liability of $1,844 million includes an actuarial gain between 1 July 2016 and 31 January 2017, of $1,372 million, owing to movements in the discount rates partly offset by the impact of movements in CPI rates. The remaining $472 million reduction is owing to the current service cost and interest unwind (increases the liability) offset by the slightly lower than expected benefits to members (reduced the liability).

The increase in the value of the net assets of GSF of $133 million includes a gain of $113 million reflecting the updated market value of assets at 31 January 2017. The balance of $20 million is the total of the expected investment returns and contributions received, offset by the benefits paid to members.

The changes in the projected net GSF liability from 2016/17 onwards reflect the net of the expected current service cost, interest cost, investment returns and contributions.

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

GSF Liability

             
Opening GSF liability 14,932 15,249 16,406 14,562 14,036 13,550 13,085
Net projected change 1,474 (482) (1,844) (526) (486) (465) (459)
Closing GSF liability 16,406 14,767 14,562 14,036 13,550 13,085 12,626

Less Net Assets Available to GSF

             
Opening net asset value 4,087 3,952 3,965 4,098 4,120 4,140 4,156
Investment valuation changes 38 212 307 200 201 202 203
Contribution and other income less pension payments (160) (189) (174) (178) (181) (186) (189)
Closing net asset value 3,965 3,975 4,098 4,120 4,140 4,156 4,170

Net GSF Liability

             
Opening unfunded liability 10,845 11,297 12,441 10,464 9,916 9,410 8,929
Net projected change 1,596 (505) (1,977) (548) (506) (481) (473)
Closing unfunded liability 12,441 10,792 10,464 9,916 9,410 8,929 8,456

NOTE 21: Provisions

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
Provision for employee entitlements 3,604 3,492 3,505 3,551 3,575 3,568 3,659
Provision for ETS credits 2,250 1,169 2,082 2,023 1,795 1,535 1,248
Provision for National Provident Fund guarantee 918 797 873 816 758 700 642
Other provisions 1,940 1,461 1,916 1,811 1,674 1,567 1,768
Total provisions 8,712 6,919 8,376 8,201 7,802 7,370 7,317

By source

             
Core Crown 6,633 4,174 6,330 5,818 5,261 4,759 4,642
Crown entities 2,139 2,118 2,211 2,258 2,385 2,480 2,508
State-owned Enterprises 1,271 934 1,000 955 877 720 717
Inter-segment eliminations (1,331) (307) (1,165) (830) (721) (589) (550)
Total provisions 8,712 6,919 8,376 8,201 7,802 7,370 7,317

Provision for ETS credits

The Emissions Trading Scheme (ETS) was established to assist New Zealand in meeting its international climate change obligations and to reduce New Zealand's net emissions of greenhouse gases to below business-as-usual levels. The ETS creates a limited number of tradable New Zealand Units (NZUs) which the Government can allocate.

The allocation of NZUs creates a provision if allocated for free; the provision is reduced, and revenue recognised, as NZUs are surrendered to the Crown by emitters.

The prices for NZUs used to calculate the ETS provision are assumed to remain constant over the forecast period and are based on market prices during the last week of March 2017.

The ETS impact on the fiscal forecast is as follows:

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
Revenue 271 350 430 529 646 698 727
Expenses (163) (216) (325) (470) (418) (438) (440)
Gains/(losses) (1,503)    -  63    -     -     -     -  
Operating balance (1,395) 134 168 59 228 260 287

NOTE 22: Changes in Net Worth

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
Taxpayers' funds 13,932 20,087 23,527 29,141 36,300 46,120 57,167
Property, plant and equipment revaluation reserve 75,626 66,623 76,627 76,526 76,401 76,071 75,894
Investment revaluation reserve 86 108 91 97 104 111 119
Intangible asset reserve 8 8 8 8 8 8
Cash flow hedge reserve (227) (89) (132) (129) (134) (131) (129)
Foreign currency translation reserve (59) (88) (77) (77) (77) (77) (77)
Net worth attributable to minority interests 6,155 5,784 5,879 5,876 5,788 5,727 5,689
Total net worth 95,521 92,425 105,923 111,442 118,390 127,829 138,671

Taxpayers' funds

             
Opening taxpayers' funds 19,354 16,807 13,932 23,527 29,141 36,300 46,120
Operating balance excluding minority interest (5,369) 3,058 9,438 5,496 6,996 9,451 10,824
Transfers from/(to) other reserves (106) 222 155 119 163 369 223
Other movements 53 2 (1)
Closing taxpayers' funds 13,932 20,087 23,527 29,141 36,300 46,120 57,167

Property, Plant and Equipment Revaluation Reserve

             
Opening revaluation reserve 67,107 66,831 75,626 76,627 76,526 76,401 76,071
Net revaluations 8,413 1,156
Transfers from/(to) other reserves 106 (208) (155) (101) (125) (330) (177)
Closing property, plant and equipment revaluation reserve 75,626 66,623 76,627 76,526 76,401 76,071 75,894

NOTE 23: Core Crown Residual Cash

  2016
Actual
$m
2017
Previous
Budget
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m

Core Crown Cash Flows from Operations

             
Tax receipts 69,750 71,177 74,380 77,133 80,538 85,447 89,495
Other sovereign receipts 835 846 889 892 898 865 866
Interest, profits and dividends 1,699 2,030 1,840 1,382 1,376 1,548 1,755
Sale of goods and services and other receipts 2,026 2,313 2,104 2,555 2,181 2,189 2,140
Transfer payments and subsidies (24,338) (25,384) (25,493) (26,512) (27,691) (28,512) (29,468)
Personnel and operating costs (43,103) (45,728) (45,339) (48,424) (47,815) (47,530) (47,288)
Interest payments (3,604) (3,819) (3,592) (3,507) (3,378) (3,389) (3,515)
Forecast for future new operating spending (534) (230) (293) (1,972) (3,648) (5,383)
Top-down expense adjustment 1,025 450 1,000 545 500 500
Net core Crown operating cash flows 3,265 1,926 5,009 4,226 4,682 7,470 9,102

Core Crown Capital Cash Flows

             
Net purchase of physical assets (1,971) (3,430) (2,703) (3,196) (2,348) (2,056) (1,620)
Net increase in advances (468) (616) (84) (325) (208) (193) (89)
Net purchase of investments (2,148) (2,080) (2,106) (2,888) (2,523) (2,114) (1,768)
Contribution to NZS Fund (2,152)
Government share offer programme
Forecast for future new capital spending (587) (170) (446) (1,303) (1,644) (2,024)
Top-down capital adjustment 625 125 840 150 240
Net core Crown capital cash flows (4,587) (6,088) (4,938) (6,015) (6,232) (5,767) (7,653)
Residual cash (deficit)/surplus (1,322) (4,162) 71 (1,789) (1,550) 1,703 1,449

The residual cash (deficit)/surplus is funded or invested as follows:

             

Debt Programme Cash Flows

             
Market:              
    Issue of government bonds 8,079 7,893 8,014 6,874 6,833 6,527 5,838
    Repayment of government bonds (1,779) (5,055) (11,602) (6,455) (7,290) (11,059)
    Net issue/(repayment) of short-term borrowing1 (3,513) 400 60 200
Total market debt cash flows 2,787 8,293 3,019 (4,528) 378 (763) (5,221)
Non-market:              
    Repayment of government bonds (139) (665) (833)
    Net issue/(repayment) of short-term borrowing (100)
Total non-market debt cash flows (239) (665) (833)
Total debt programme cash flows 2,548 7,628 2,186 (4,528) 378 (763) (5,221)

Other Borrowing Cash Flows

             
Net (repayment)/issue of other New Zealand dollar borrowing (3,546) 559 2,500 1,034 9 (23) (27)
Net (repayment)/issue of foreign currency borrowing 3,176 (590) (1,870) (971) (14) 6
Total other borrowing cash flows (370) (31) 630 63 (5) (17) (27)
Investing Cash Flows              
Net sale/(purchase) of marketable securities and deposits 685 (3,603) 497 6,087 1,003 (1,102) 3,614
Issues of circulating currency 378 175 46 170 176 181 186
Decrease/(increase) in cash (1,919) (7) (3,430) (3) (2) (2) (1)
Total investing cash flows (856) (3,435) (2,887) 6,254 1,177 (923) 3,799
Residual cash deficit/(surplus) funding/(investing) 1,322 4,162 (71) 1,789 1,550 (1,703) (1,449)
  1. Short-term borrowing consists of Treasury Bills and may include Euro-Commercial Paper.

NOTE 24: Net earthquake expenses (operating and capital)

These net earthquake costs are the latest estimates of the net impact on the Crown of the earthquakes. These estimates reflect the known costs under current policy settings. They do not include future decisions the Government may take regarding the rebuild.

The forecasts assume that any additional costs to the Crown will be met within budget allowances.

  2011-16
Actual
$m
2017
Forecast
$m
2018
Forecast
$m
2019
Forecast
$m
2020
Forecast
$m
2021
Forecast
$m
Outside
forecast
period
$m
Total
Budget
Update
$m
Total
Half Year
Update
$m

Expenses by source

                 
Core Crown recovery costs 6,867 1,301 660 383 269 62 98 9,640 9,357
SOEs and CEs recovery costs 7,433 (16) 89 110 117 44 41 7,818 7,824
Total Crown earthquake expenses 14,300 1,285 749 493 386 106 139 17,458 17,181

Operating and Capital expenses

                 
Operating expenditure (OBEGAL) 12,084 331 74 124 124 56 6 12,799 12,660
Capital expenditure 2,216 954 675 369 262 50 133 4,659 4,521
Total Crown earthquake expenses 14,300 1,285 749 493 386 106 139 17,458 17,181
Total Cash payments1 11,570 3,038 1,131 547 439 135 140 17,000 16,593

Note:

  1. Some expenses are non-cash (eg, asset write-offs and impairments) and therefore do not have a cash element to them.

Further information on Canterbury earthquake expenses can be found in the Additional Information published on the Treasury website.

Forecast Statement of Segments

Statement of Financial Performance for the year ended 30 June 2016
  Core Crown
2016
Actual
$m
Crown entities
2016
Actual
$m
State-owned
Enterprises
2016
Actual
$m
Inter-segment
eliminations
2016
Actual
$m
Total Crown
2016
Actual
$m

Revenue

         
Taxation revenue 70,445 (777) 69,668
Other sovereign revenue 1,116 4,712 (1,185) 4,643
Revenue from core Crown funding 26,197 113 (26,310)
Sales of goods and services 1,453 1,938 13,538 (565) 16,364
Interest revenue and dividends 2,389 1,484 997 (1,267) 3,603
Other revenue 718 2,807 729 (373) 3,881
Total revenue (excluding gains) 76,121 37,138 15,377 (30,477) 98,159

Expenses

         
Social assistance and official development assistance 24,312 24,312
Personnel expenses 6,666 12,205 2,921 (29) 21,763
Other operating expenses 39,361 20,299 10,124 (29,040) 40,744
Interest expenses 3,590 215 1,154 (623) 4,336
Insurance expenses 4,705 9 11 4,725
Forecast for future new spending and top-down adjustment
Total expenses (excluding losses) 73,929 37,424 14,208 (29,681) 95,880
Minority interest share of operating balance before gains/(losses) 14 (474) 12 (448)
Operating balance before gains/(losses) 2,192 (272) 695 (784) 1,831
Total gains/(losses) (3,259) (3,300) 6 (954) (7,507)
Net surplus/(deficit) from associates and joint ventures 155 92 19 41 307
Operating balance (912) (3,480) 720 (1,697) (5,369)

Expenses by functional classification

         
Social security and welfare 24,081 5,360 (540) 28,901
Health 15,626 13,347 (13,813) 15,160
Education 13,158 10,160 (9,509) 13,809
Transport and communications 2,178 2,658 7,059 (2,495) 9,400
Other 15,296 5,684 5,995 (2,701) 24,274
Finance costs 3,590 215 1,154 (623) 4,336
Forecast for future new spending and top-down adjustment
Total expenses (excluding losses) 73,929 37,424 14,208 (29,681) 95,880
Statement of Financial Position as at 30 June 2016
  Core Crown
2016
Actual
$m
Crown entities
2016
Actual
$m
State-owned
Enterprises
2016
Actual
$m
Inter-segment
eliminations
2016
Actual
$m
Total Crown
2016
Actual
$m

Assets

         
Cash and cash equivalents 11,859 2,774 1,516 (532) 15,617
Receivables 12,242 5,757 1,754 (2,964) 16,789
Other financial assets 63,913 38,954 20,967 (17,985) 105,849
Property, plant and equipment 35,697 66,769 32,033 134,499
Equity accounted investments 38,376 10,819 228 (36,718) 12,705
Intangible assets and goodwill 1,351 544 1,301 3,196
Inventory and other assets 1,732 1,251 1,120 (79) 4,024
Forecast for new capital spending and top-down adjustment
Total assets 165,170 126,868 58,919 (58,278) 292,679

Liabilities

         
Borrowings 95,036 5,961 29,813 (16,854) 113,956
Other liabilities 33,515 50,615 7,848 (8,776) 83,202
Total liabilities 128,551 56,576 37,661 (25,630) 197,158
Total assets less total liabilities 36,619 70,292 21,258 (32,648) 95,521

Net worth

         
Taxpayers' funds 15,915 30,966 3,890 (36,839) 13,932
Reserves 20,704 39,178 11,022 4,530 75,434
Net worth attributable to minority interest 148 6,346 (339) 6,155
Total net worth 36,619 70,292 21,258 (32,648) 95,521

Forecast Statement of Segments (2017)

Statement of Financial Performance for the year ended 30 June 2017
  Core Crown
2017
Forecast
$m
Crown entities
2017
Forecast
$m
State-owned
Enterprises
2017
Forecast
$m
Inter-segment
eliminations
2017
Forecast
$m
Total Crown
2017
Forecast
$m

Revenue

         
Taxation revenue 74,598 (611) 73,987
Other sovereign revenue 1,366 4,844 (1,313) 4,897
Revenue from core Crown funding 27,156 99 (27,255)
Sales of goods and services 1,613 2,215 13,427 (568) 16,687
Interest revenue and dividends 2,647 1,450 964 (1,423) 3,638
Other revenue 547 2,463 918 (241) 3,687
Total revenue (excluding gains) 80,771 38,128 15,408 (31,411) 102,896

Expenses

         
Social assistance and official development assistance 25,504 25,504
Personnel expenses 6,908 12,479 2,867 (33) 22,221
Other operating expenses 41,683 21,513 10,364 (29,976) 43,584
Interest expenses 3,588 146 1,135 (572) 4,297
Insurance expenses 1 5,450 6 1 5,458
Forecast for future new spending and top-down adjustment (220) (220)
Total expenses (excluding losses) 77,464 39,588 14,372 (30,580) 100,844
Minority interest share of operating balance before gains/(losses) (6) (452) 27 (431)
Operating balance before gains/(losses) 3,307 (1,466) 584 (804) 1,621
Total gains/(losses) 5,490 1,431 65 534 7,520
Net surplus/(deficit) from associates and joint ventures 122 173 5 (3) 297
Operating balance 8,919 138 654 (273) 9,438

Expenses by functional classification

         
Social security and welfare 25,412 5,794 (548) 30,658
Health 16,202 13,887 (14,363) 15,726
Education 13,441 10,331 (9,569) 14,203
Transport and communications 2,233 2,685 6,928 (2,506) 9,340
Other 16,808 6,745 6,309 (3,022) 26,840
Finance costs 3,588 146 1,135 (572) 4,297
Forecast for future new spending and top-down adjustment (220) (220)
Total expenses (excluding losses) 77,464 39,588 14,372 (30,580) 100,844
Statement of Financial Position as at 30 June 2017
  Core Crown
2017
Forecast
$m
Crown entities
2017
Forecast
$m
State-owned
Enterprises
2017
Forecast
$m
Inter-segment
eliminations
2017
Forecast
$m
Total Crown
2017
Forecast
$m

Assets

         
Cash and cash equivalents 13,883 2,379 1,608 (375) 17,495
Receivables 12,371 5,541 1,636 (2,908) 16,640
Other financial assets 65,063 39,335 21,590 (18,214) 107,774
Property, plant and equipment 36,729 69,211 32,232 138,172
Equity accounted investments 43,051 12,205 277 (41,167) 14,366
Intangible assets and goodwill 1,523 563 1,333 3,419
Inventory and other assets 1,624 736 1,037 (26) 3,371
Forecast for new capital spending and top-down adjustment 45 45
Total assets 174,289 129,970 59,713 (62,690) 301,282

Liabilities

         
Borrowings 97,118 4,279 30,519 (17,324) 114,592
Other liabilities 31,634 50,123 7,725 (8,715) 80,767
Total liabilities 128,752 54,402 38,244 (26,039) 195,359
Total assets less total liabilities 45,537 75,568 21,469 (36,651) 105,923

Net worth

         
Taxpayers' funds 24,837 35,452 4,207 (40,969) 23,527
Reserves 20,700 40,116 11,101 4,600 76,517
Net worth attributable to minority interest 6,161 (282) 5,879
Total net worth 45,537 75,568 21,469 (36,651) 105,923

Forecast Statement of Segments (2018)

Statement of Financial Performance for the year ended 30 June 2018
  Core Crown
2018
Forecast
$m
Crown entities
2018
Forecast
$m
State-owned
Enterprises
2018
Forecast
$m
Inter-segment
eliminations
2018
Forecast
$m
Total Crown
2018
Forecast
$m

Revenue

         
Taxation revenue 77,536 (664) 76,872
Other sovereign revenue 1,461 5,021 (1,425) 5,057
Revenue from core Crown funding 28,001 89 (28,090)
Sales of goods and services 1,649 1,973 13,945 (573) 16,994
Interest revenue and dividends 2,471 1,408 987 (1,142) 3,724
Other revenue 643 2,677 903 (523) 3,700
Total revenue (excluding gains) 83,760 39,080 15,924 (32,417) 106,347

Expenses

         
Social assistance and official development assistance 26,462 26,462
Personnel expenses 7,243 12,926 2,868 (34) 23,003
Other operating expenses 43,994 21,798 10,918 (31,147) 45,563
Interest expenses 3,493 98 1,123 (490) 4,224
Insurance expenses 1 4,540 6 (1) 4,546
Forecast for future new spending and top-down adjustment (707) (707)
Total expenses (excluding losses) 80,486 39,362 14,915 (31,672) 103,091
Minority interest share of operating balance before gains/(losses) (418) 20 (398)
Operating balance before gains/(losses) 3,274 (282) 591 (725) 2,858
Total gains/(losses) 2,300 134 102 (112) 2,424
Net surplus/(deficit) from associates and joint ventures 102 107 6 (1) 214
Operating balance 5,676 (41) 699 (838) 5,496

Expenses by functional classification

         
Social security and welfare 26,247 5,895 (565) 31,577
Health 17,096 14,246 (14,953) 16,389
Education 13,985 10,598 (9,842) 14,741
Transport and communications 2,329 2,677 7,202 (2,571) 9,637
Other 18,043 5,848 6,590 (3,251) 27,230
Finance costs 3,493 98 1,123 (490) 4,224
Forecast for future new spending and top-down adjustment (707) (707)
Total expenses (excluding losses) 80,486 39,362 14,915 (31,672) 103,091
Statement of Financial Position as at 30 June 2018
  Core Crown
2018
Forecast
$m
Crown entities
2018
Forecast
$m
State-owned
Enterprises
2018
Forecast
$m
Inter-segment
eliminations
2018
Forecast
$m
Total Crown
2018
Forecast
$m

Assets

         
Cash and cash equivalents 13,478 1,531 1,348 (373) 15,984
Receivables 13,021 5,012 1,681 (2,262) 17,452
Other financial assets 60,869 40,334 22,935 (18,679) 105,459
Property, plant and equipment 38,308 71,640 32,629 142,577
Equity accounted investments 45,517 12,361 278 (43,538) 14,618
Intangible assets and goodwill 1,696 645 1,372 3,713
Inventory and other assets 1,617 691 1,039 (25) 3,322
Forecast for new capital spending and top-down adjustment (349) (349)
Total assets 174,157 132,214 61,282 (64,877) 302,776

Liabilities

         
Borrowings 92,566 4,887 31,847 (17,800) 111,500
Other liabilities 30,346 49,683 7,780 (7,975) 79,834
Total liabilities 122,912 54,570 39,627 (25,775) 191,334
Total assets less total liabilities 51,245 77,644 21,655 (39,102) 111,442

Net worth

         
Taxpayers' funds 30,514 37,643 4,406 (43,422) 29,141
Reserves 20,731 40,001 11,096 4,597 76,425
Net worth attributable to minority interest 6,153 (277) 5,876
Total net worth 51,245 77,644 21,655 (39,102) 111,442

Forecast Statement of Segments (2019)

Statement of Financial Performance for the year ended 30 June 2019
  Core Crown
2019
Forecast
$m
Crown entities
2019
Forecast
$m
State-owned
Enterprises
2019
Forecast
$m
Inter-segment
eliminations
2019
Forecast
$m
Total Crown
2019
Forecast
$m

Revenue

         
Taxation revenue 81,046 (633) 80,413
Other sovereign revenue 1,583 5,376 (1,507) 5,452
Revenue from core Crown funding 28,010 89 (28,099)
Sales of goods and services 1,688 2,043 14,559 (579) 17,711
Interest revenue and dividends 2,565 1,435 1,039 (1,161) 3,878
Other revenue 604 2,577 954 (370) 3,765
Total revenue (excluding gains) 87,486 39,441 16,641 (32,349) 111,219

Expenses

         
Social assistance and official development assistance 27,652 27,652
Personnel expenses 7,203 13,007 2,984 (34) 23,160
Other operating expenses 43,780 21,723 11,443 (31,096) 45,850
Interest expenses 3,403 93 1,112 (493) 4,115
Insurance expenses 2 4,544 6 (1) 4,551
Forecast for future new spending and top-down adjustment 1,426 1,426
Total expenses (excluding losses) 83,466 39,367 15,545 (31,624) 106,754
Minority interest share of operating balance before gains/(losses) (435) 21 (414)
Operating balance before gains/(losses) 4,020 74 661 (704) 4,051
Total gains/(losses) 2,557 199 61 (119) 2,698
Net surplus/(deficit) from associates and joint ventures 106 137 9 (5) 247
Operating balance 6,683 410 731 (828) 6,996

Expenses by functional classification

         
Social security and welfare 27,414 5,663 (581) 32,496
Health 17,225 14,261 (15,056) 16,430
Education 14,134 10,640 (9,892) 14,882
Transport and communications 2,344 2,633 7,536 (2,561) 9,952
Other 17,520 6,077 6,897 (3,041) 27,453
Finance costs 3,403 93 1,112 (493) 4,115
Forecast for future new spending and top-down adjustment 1,426 1,426
Total expenses (excluding losses) 83,466 39,367 15,545 (31,624) 106,754
Statement of Financial Position as at 30 June 2019
  Core Crown
2019
Forecast
$m
Crown entities
2019
Forecast
$m
State-owned
Enterprises
2019
Forecast
$m
Inter-segment
eliminations
2019
Forecast
$m
Total Crown
2019
Forecast
$m

Assets

         
Cash and cash equivalents 13,676 1,483 1,358 (370) 16,147
Receivables 13,651 5,377 1,744 (2,153) 18,619
Other financial assets 61,887 41,516 24,268 (18,956) 108,715
Property, plant and equipment 39,124 73,982 32,741 145,847
Equity accounted investments 47,896 12,597 279 (45,595) 15,177
Intangible assets and goodwill 1,759 637 1,376 3,772
Inventory and other assets 1,649 726 1,049 (26) 3,398
Forecast for new capital spending and top-down adjustment 803 803
Total assets 180,445 136,318 62,815 (67,100) 312,478

Liabilities

         
Borrowings 92,992 5,826 33,147 (18,071) 113,894
Other liabilities 29,481 50,653 7,873 (7,813) 80,194
Total liabilities 122,473 56,479 41,020 (25,884) 194,088
Total assets less total liabilities 57,972 79,839 21,795 (41,216) 118,390

Net worth

         
Taxpayers' funds 37,197 39,997 4,639 (45,533) 36,300
Reserves 20,775 39,842 11,096 4,589 76,302
Net worth attributable to minority interest 6,060 (272) 5,788
Total net worth 57,972 79,839 21,795 (41,216) 118,390

Forecast Statement of Segments (2020)

Statement of Financial Performance for the year ended 30 June 2020
  Core Crown
2020
Forecast
$m
Crown entities
2020
Forecast
$m
State-owned
Enterprises
2020
Forecast
$m
Inter-segment
eliminations
2020
Forecast
$m
Total Crown
2020
Forecast
$m

Revenue

         
Taxation revenue 85,875 (695) 85,180
Other sovereign revenue 1,601 5,750 (1,502) 5,849
Revenue from core Crown funding 28,019 89 (28,108)
Sales of goods and services 1,699 2,022 15,043 (587) 18,177
Interest revenue and dividends 2,725 1,470 1,088 (1,175) 4,108
Other revenue 606 2,588 1,005 (373) 3,826
Total revenue (excluding gains) 92,506 39,849 17,225 (32,440) 117,140

Expenses

         
Social assistance and official development assistance 28,443 28,443
Personnel expenses 7,162 13,035 3,101 (34) 23,264
Other operating expenses 43,819 21,552 11,755 (31,146) 45,980
Interest expenses 3,662 89 1,129 (506) 4,374
Insurance expenses 1 5,396 6 5,403
Forecast for future new spending and top-down adjustment 3,147 3,147
Total expenses (excluding losses) 86,234 40,072 15,991 (31,686) 110,611
Minority interest share of operating balance before gains/(losses) (465) 21 (444)
Operating balance before gains/(losses) 6,272 (223) 769 (733) 6,085
Total gains/(losses) 2,821 307 58 (135) 3,051
Net surplus/(deficit) from associates and joint ventures 104 204 9 (2) 315
Operating balance 9,197 288 836 (870) 9,451

Expenses by functional classification

         
Social security and welfare 28,199 6,468 (599) 34,068
Health 17,234 14,267 (15,039) 16,462
Education 14,188 10,626 (9,883) 14,931
Transport and communications 2,364 2,594 7,783 (2,600) 10,141
Other 17,440 6,028 7,079 (3,059) 27,488
Finance costs 3,662 89 1,129 (506) 4,374
Forecast for future new spending and top-down adjustment 3,147 3,147
Total expenses (excluding losses) 86,234 40,072 15,991 (31,686) 110,611
Statement of Financial Position as at 30 June 2020
  Core Crown
2020
Forecast
$m
Crown entities
2020
Forecast
$m
State-owned
Enterprises
2020
Forecast
$m
Inter-segment
eliminations
2020
Forecast
$m
Total Crown
2020
Forecast
$m

Assets

         
Cash and cash equivalents 13,891 1,529 1,410 (370) 16,460
Receivables 14,249 5,619 1,785 (2,170) 19,483
Other financial assets 65,270 42,872 25,606 (19,427) 114,321
Property, plant and equipment 39,411 76,024 32,404 147,839
Equity accounted investments 49,990 12,808 280 (47,284) 15,794
Intangible assets and goodwill 1,755 619 1,378 3,752
Inventory and other assets 1,644 741 1,056 (26) 3,415
Forecast for new capital spending and top-down adjustment 2,207 2,207
Total assets 188,417 140,212 63,919 (69,277) 323,271

Liabilities

         
Borrowings 92,424 6,114 34,326 (18,532) 114,332
Other liabilities 28,777 52,285 7,801 (7,753) 81,110
Total liabilities 121,201 58,399 42,127 (26,285) 195,442
Total assets less total liabilities 67,216 81,813 21,792 (42,992) 127,829

Net worth

         
Taxpayers' funds 46,394 42,337 4,702 (47,313) 46,120
Reserves 20,822 39,476 11,096 4,588 75,982
Net worth attributable to minority interest 5,994 (267) 5,727
Total net worth 67,216 81,813 21,792 (42,992) 127,829

Forecast Statement of Segments (2021)

Statement of Financial Performance for the year ended 30 June 2021
  Core Crown
2021
Forecast
$m
Crown entities
2021
Forecast
$m
State-owned
Enterprises
2021
Forecast
$m
Inter-segment
eliminations
2021
Forecast
$m
Total Crown
2021
Forecast
$m
Revenue          
Taxation revenue 89,939 (718) 89,221
Other sovereign revenue 1,631 5,935 (1,502) 6,064
Revenue from core Crown funding 28,255 90 (28,345)
Sales of goods and services 1,690 2,005 15,477 (606) 18,566
Interest revenue and dividends 2,938 1,466 1,138 (1,180) 4,362
Other revenue 605 2,564 1,080 (375) 3,874
Total revenue (excluding gains) 96,803 40,225 17,785 (32,726) 122,087
Expenses          
Social assistance and official development assistance 29,386 29,386
Personnel expenses 7,156 13,211 3,228 (34) 23,561
Other operating expenses 43,990 21,645 12,166 (31,427) 46,374
Interest expenses 3,806 91 1,105 (513) 4,489
Insurance expenses 2 5,748 6 (1) 5,755
Forecast for future new spending and top-down adjustment 4,883 4,883
Total expenses (excluding losses) 89,223 40,695 16,505 (31,975) 114,448
Minority interest share of operating balance before gains/(losses) (2) (492) 23 (471)
Operating balance before gains/(losses) 7,580 (472) 788 (728) 7,168
Total gains/(losses) 3,089 347 58 (147) 3,347
Net surplus/(deficit) from associates and joint ventures 105 197 11 (4) 309
Operating balance 10,774 72 857 (879) 10,824
Expenses by functional classification          
Social security and welfare 29,104 6,837 (617) 35,324
Health 17,193 14,215 (15,030) 16,378
Education 14,413 10,770 (10,030) 15,153
Transport and communications 2,456 2,699 8,162 (2,702) 10,615
Other 17,368 6,083 7,238 (3,083) 27,606
Finance costs 3,806 91 1,105 (513) 4,489
Forecast for future new spending and top-down adjustment 4,883 4,883
Total expenses (excluding losses) 89,223 40,695 16,505 (31,975) 114,448
Statement of Financial Position as at 30 June 2021
  Core Crown
2021
Forecast
$m
Crown entities
2021
Forecast
$m
State-owned
Enterprises
2021
Forecast
$m
Inter-segment
eliminations
2021
Forecast
$m
Total Crown
2021
Forecast
$m

Assets

         
Cash and cash equivalents 13,709 1,817 1,580 (365) 16,741
Receivables 14,971 5,839 1,845 (2,162) 20,493
Other financial assets 66,544 44,081 26,954 (19,867) 117,712
Property, plant and equipment 39,341 77,339 31,915 148,595
Equity accounted investments 51,784 13,006 281 (48,697) 16,374
Intangible assets and goodwill 1,670 598 1,386 3,654
Inventory and other assets 1,673 772 1,054 (25) 3,474
Forecast for new capital spending and top-down adjustment 4,231 4,231
Total assets 193,923 143,452 65,015 (71,116) 331,274

Liabilities

         
Borrowings 87,396 6,154 35,298 (18,957) 109,891
Other liabilities 28,485 53,993 7,887 (7,653) 82,712
Total liabilities 115,881 60,147 43,185 (26,610) 192,603
Total assets less total liabilities 78,042 83,305 21,830 (44,506) 138,671

Net worth

         
Taxpayers' funds 57,167 44,045 4,780 (48,825) 57,167
Reserves 20,875 39,260 11,098 4,582 75,815
Net worth attributable to minority interest 5,952 (263) 5,689
Total net worth 78,042 83,305 21,830 (44,506) 138,671

Core Crown Expense Tables

($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Social security and welfare 21,956 22,459 23,026 23,523 24,081 25,412 26,247 27,414 28,199 29,104
Health 14,160 14,498 14,898 15,058 15,626 16,202 17,096 17,225 17,234 17,193
Education 11,654 12,504 12,300 12,879 13,158 13,441 13,985 14,134 14,188 14,413
Core government services 5,428 4,294 4,502 4,134 4,102 4,135 4,843 4,351 4,280 4,144
Law and order 3,338 3,394 3,463 3,515 3,648 3,985 4,119 4,178 4,222 4,278
Transport and communications 2,232 2,255 2,237 2,291 2,178 2,233 2,329 2,344 2,364 2,456
Economic and industrial services 2,073 1,978 2,058 2,228 2,107 2,777 3,001 2,970 2,932 2,948
Defence 1,736 1,804 1,811 1,961 2,026 2,144 2,294 2,360 2,370 2,380
Heritage, culture and recreation 863 804 842 778 787 861 885 875 841 814
Primary services 648 659 676 667 749 715 730 667 653 638
Housing and community development ( 46) 283 347 320 558 640 530 557 519 540
Environmental protection 769 530 533 723 587 893 1,015 929 984 987
GSF pension expenses 192 278 282 358 271 214 220 232 243 243
Other 425 603 579 145 461 444 406 401 396 396
Finance costs 3,511 3,619 3,620 3,783 3,590 3,588 3,493 3,403 3,662 3,806
Forecast new operating spending  ..   ..   ..   ..   ..  230 293 1,971 3,647 5,383
Top-down expense adjustment  ..   ..   ..   ..   ..  ( 450) ( 1,000) ( 545) ( 500) ( 500)
Core Crown expenses 68,939 69,962 71,174 72,363 73,929 77,464 80,486 83,466 86,234 89,223
  1. The classifications of the functions of the Government reflect current approved baselines. Forecast new operating spending is shown as a separate line item in the above analysis and will be allocated to functions of the Government once decisions are made in future Budgets.

Source: The Treasury

Table 6.1 - Social security and welfare expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Welfare benefits (see below) 20,375 20,789 21,187 21,680 22,441 23,426 24,226 25,392 26,182 27,057
Social rehabilitation and compensation 81 107 173 142 151 220 241 249 260 279
Departmental expenses 1,122 1,168 1,204 1,319 1,339 1,436 1,596 1,572 1,534 1,529
Other non-departmental expenses1 378 395 462 382 150 330 184 201 223 239
Social security and welfare expenses 21,956 22,459 23,026 23,523 24,081 25,412 26,247 27,414 28,199 29,104
  1. From 2016 some non-departmental expenses spending has been reclassified to community services in Housing and community development expenses.

Source: The Treasury

Table 6.2 - Welfare benefit expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
New Zealand Superannuation 9,584 10,235 10,913 11,591 12,267 13,044 13,671 14,357 15,164 15,924
Jobseeker Support and Emergency Benefit1 ..  ..  1,691 1,684 1,671 1,695 1,663 1,599 1,529 1,520
Supported living payment1 ..  ..  1,422 1,515 1,523 1,530 1,531 1,538 1,558 1,571
Sole parent support1 ..  ..  1,222 1,186 1,153 1,164 1,117 1,098 1,111 1,120
Domestic Purposes Benefit1 1,811 1,738 63 ..  ..  ..  ..  ..  ..  .. 
Invalid's Benefit1 1,325 1,330 52 ..  ..  ..  ..  ..  ..  .. 
Sickness Benefit1 775 782 29 ..  ..  ..  ..  ..  ..  .. 
Unemployment Benefit1 883 812 29 ..  ..  ..  ..  ..  ..  .. 
Family Tax Credit 2,071 2,018 1,965 1,854 1,793 1,763 1,823 2,089 2,024 2,037
Other working for families tax credits 599 575 567 549 559 610 603 599 594 589
Accommodation Assistance 1,195 1,177 1,146 1,129 1,164 1,129 1,218 1,488 1,497 1,515
Income-Related Rents 580 611 660 703 755 848 900 985 1,048 1,105
Disability Assistance 401 384 379 377 377 377 379 381 382 384
Benefits paid in Australia 37 22 19 15 40 ..  ..  ..  ..  .. 
Paid Parental Leave 158 165 165 180 217 282 338 352 361 371
Childcare Assistance 188 186 186 183 182 197 197 200 204 207
Veterans Support Entitlement2 128 123 119 115 107 97 91 85 80 75
Veteran's Pension 177 171 165 178 186 175 162 151 142 132
Other benefits 463 460 395 421 447 515 533 470 488 507
Benefit expenses 20,375 20,789 21,187 21,680 22,441 23,426 24,226 25,392 26,182 27,057

Source: The Treasury

 
Beneficiary numbers
(Thousands)
2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
New Zealand Superannuation 585 612 640 665 691 717 742 769 796 824
Jobseeker Support and Emergency Benefit1 ..  ..  138 133 130 131 128 121 113 110
Supported living payment1 ..  ..  96 98 98 97 97 97 97 96
Sole parent support1 ..  ..  78 72 67 64 62 60 60 59
Domestic Purposes Benefit1 114 109 ..  ..  ..  ..  ..  ..  ..  .. 
Invalid's Benefit1 87 87 ..  ..  ..  ..  ..  ..  ..  .. 
Sickness Benefit1 60 60 ..  ..  ..  ..  ..  ..  ..  .. 
Unemployment Benefit1 73 67 ..  ..  ..  ..  ..  ..  ..  .. 
Accommodation Assistance 311 305 297 292 292 290 292 298 294 294
  1. From July 2013, changes to the benefit system and existing benefit categories took place. Three new categories of benefit; Supported living payment, Sole parent support and Jobseeker support; have replaced the following existing categories: Domestic Purposes Benefit, Invalid's Benefit, Unemployment Benefit, Sickness Benefit and Widow's Benefit. Owing to the changes, there is no historical data for the new benefit categories and no forecast data for the previous categories beyond July 2013.
  2. From 2015, War Disablement Pensions have been renamed Veterans Support Entitlements.

Source: Ministry of Social Development

Table 6.3 - Health expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Departmental outputs 186 171 183 190 188 196 196 192 192 192
Health services purchasing (see below) 13,018 13,348 13,648 13,937 14,361 14,852 15,402 15,376 15,378 15,374
Other non-departmental outputs1 119 234 330 312 356 372 773 858 893 875
Health payments to ACC 744 715 694 587 694 668 697 770 742 724
Other expenses2 93 30 43 32 27 114 28 29 29 28
Health expenses 14,160 14,498 14,898 15,058 15,626 16,202 17,096 17,225 17,234 17,193
  1. Other non-departmental output expenses from the 2018 forecast year includes the Care and Support Workers pay equity settlement.
  2. The increase in other expenses in the 2017 forecast year relates to a one off restructuring of District Health Board balance sheets. These expenses are offset by additional revenue for the New Zealand Debt Management Office (excluded from these tables) and therefore have no impact on OBEGAL.

Source: The Treasury

Table 6.4 - Health services purchasing
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Payments to District Health Boards 11,542 11,946 12,165 12,414 12,822 13,283 13,789 13,784 13,785 13,780
National disability support services 1,029 1,028 1,087 1,126 1,167 1,183 1,208 1,208 1,208 1,208
Public health services purchasing 447 374 396 397 372 386 405 384 385 386
Health services purchasing 13,018 13,348 13,648 13,937 14,361 14,852 15,402 15,376 15,378 15,374

Source: The Treasury

Table 6.5 - Education expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Early childhood education 1,355 1,436 1,545 1,644 1,735 1,835 1,871 1,956 2,052 2,120
Primary and secondary schools (see below) 5,443 5,590 5,550 5,773 6,044 6,190 6,449 6,500 6,478 6,626
Tertiary funding (see below) 3,795 4,370 4,027 4,272 4,235 4,097 4,320 4,345 4,356 4,373
Departmental expenses 988 1,039 1,107 1,129 1,112 1,224 1,260 1,258 1,239 1,236
Other education expenses 73 69 71 61 32 95 85 75 63 58
Education expenses 11,654 12,504 12,300 12,879 13,158 13,441 13,985 14,134 14,188 14,413

Source: The Treasury

 
Number of places provided1 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Early childhood education 166,430 174,853 185,336 195,817 204,853 213,096 222,587 232,997 243,017 252,155
  1. Full-time equivalent based on 1,000 funded child hours per calendar year. Note that historical place numbers have been revised so may differ from previous published Economic and Fiscal Update numbers.

Source: The Ministry of Education

Table 6.6 - Primary and secondary schools
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Primary 2,771 2,845 2,812 2,920 3,033 3,120 3,282 3,311 3,298 3,375
Secondary 2,085 2,148 2,146 2,229 2,329 2,374 2,457 2,482 2,479 2,544
School transport 172 175 177 186 185 184 195 190 190 190
Special needs support 323 332 322 336 396 413 418 419 413 419
Professional development 85 84 87 98 96 94 91 92 92 92
Schooling improvement 7 6 6 4 5 5 6 6 6 6
Primary and secondary education expenses 5,443 5,590 5,550 5,773 6,044 6,190 6,449 6,500 6,478 6,626

Source: The Treasury

 
Number of places provided1 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Primary 489,799 493,025 497,765 507,132 517,782 524,647 531,348 535,108 535,798 533,484
Secondary 271,078 267,627 266,734 265,557 264,189 270,883 271,131 273,667 277,012 284,099
  1. These are snapshots based as at 1 July for primary year levels (years 1 to 8) and 1 March for secondary year levels (years 9 to 13). These numbers exclude special school rolls, health camps, hospital schools and home schooling (prior published tables included special school rolls). These estimates include a new entrant adjustment to make provision for the number of new entrants likely to be enrolled between 1 March and 10 October. Actual numbers have been restated to include this adjustment so may differ from previous published Economic and Fiscal Update numbers.

Source: The Ministry of Education

Table 6.7 - Tertiary funding
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Tuition 2,306 2,322 2,383 2,406 2,463 2,466 2,482 2,487 2,491 2,493
Other tertiary funding 430 432 463 484 487 534 557 561 561 559
Student allowances 644 596 539 511 486 477 505 517 519 526
Student loans 415 1,020 642 871 799 620 776 780 785 795
Tertiary education expenses 3,795 4,370 4,027 4,272 4,235 4,097 4,320 4,345 4,356 4,373

Source: The Treasury

 
Number of places provided1 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Estimated funded places 244,059 242,357 237,938 233,551 232,330 235,090 234,314 230,737 230,837 230,937
  1. Tertiary places are the number of equivalent full time (EFT) students in: student achievement component; adult and community education; and youth guarantee programmes. Note that historical place numbers have been revised so may differ from previous published Economic and Fiscal Update numbers. Place numbers are based on calendar years rather than fiscal years.

Source: Tertiary Education Commission

Table 6.8 - Core government service expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Official development assistance 510 437 533 513 534 539 644 586 586 586
Indemnity and guarantee expenses 59 27 29 38 30 20 18 16 16 16
Departmental expenses 1,518 1,576 1,635 1,740 1,845 1,865 2,273 2,063 1,997 1,837
Non-departmental expenses1,2 524 330 689 481 379 315 361 427 418 453
Tax receivable write-down and impairments 1,003 925 1,069 873 680 750 800 800 800 800
Science expenses 116 115 118 121 118 91 96 104 112 112
Other expenses1 1,698 884 429 368 516 555 651 355 351 340
Core government service expenses 5,428 4,294 4,502 4,134 4,102 4,135 4,843 4,351 4,280 4,144
  1. Non-departmental expenses and other expenses include costs associated with the Canterbury and Kaikōura earthquakes.
  2. From 2017 onwards, biological research has been reclassified from Primary services to non-departmental expenses within Core government services.

Source: The Treasury

Table 6.9 - Law and order expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Police 1,394 1,408 1,416 1,456 1,498 1,553 1,604 1,642 1,669 1,695
Ministry of Justice 375 404 433 451 468 482 520 527 511 517
Department of Corrections 988 972 1,001 1,024 1,068 1,160 1,241 1,243 1,259 1,270
NZ Customs Service 126 140 150 161 153 175 180 177 180 183
Other departments 103 98 86 100 83 117 138 143 146 145
Department expenses 2,986 3,022 3,086 3,192 3,270 3,487 3,683 3,732 3,765 3,810
Non-departmental outputs 315 317 327 320 359 456 415 421 433 443
Other expenses 37 55 50 3 19 42 21 25 24 25
Law and order expenses 3,338 3,394 3,463 3,515 3,648 3,985 4,119 4,178 4,222 4,278

Source: The Treasury

Table 6.10 - Transport and communication expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
New Zealand Transport Agency 1,744 1,819 1,880 1,992 1,982 2,020 2,067 2,119 2,141 2,238
Departmental outputs 60 40 45 43 45 54 57 58 57 57
Other non-departmental expenses 62 213 227 114 106 82 119 130 130 124
Rail funding 305 153 56 93 3 3 3 3 3 3
Other expenses 61 30 29 49 42 74 83 34 33 34
Transport and communication expenses 2,232 2,255 2,237 2,291 2,178 2,233 2,329 2,344 2,364 2,456

Source: The Treasury

Table 6.11 - Economic and industrial services expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Departmental outputs 346 350 372 391 389 461 407 406 394 387
Employment initiatives1 206 192 141 75 3 4 4 4 4 4
Non-departmental outputs2 614 618 660 742 798 1,257 1,414 1,373 1,389 1,382
KiwiSaver (includes housing deposit subsidy) 698 740 828 888 763 856 912 955 994 1,036
Other expenses 209 78 57 132 154 199 264 232 151 139
Economic and industrial services expenses 2,073 1,978 2,058 2,228 2,107 2,777 3,001 2,970 2,932 2,948
  1. From 2016 some of the employment initiatives spending has been reclassified to other non-departmental expenses in Housing and community development expenses.
  2. From 2017 onwards, spending on new investment and research fund initiatives is included in non-departmental outputs.

Source: The Treasury

Table 6.12 - Defence expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
NZDF core expenses 1,678 1,747 1,768 1,879 1,986 2,096 2,195 2,255 2,258 2,275
Other expenses 58 57 43 82 40 48 99 105 112 105
Defence expenses 1,736 1,804 1,811 1,961 2,026 2,144 2,294 2,360 2,370 2,380

Source: The Treasury

Table 6.13 - Heritage, culture and recreation expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Departmental outputs 172 270 286 280 274 285 309 311 302 288
Non-departmental outputs 444 442 471 468 477 514 504 505 501 500
Other expenses 247 92 85 30 36 62 72 59 38 26
Heritage, culture and recreation expenses 863 804 842 778 787 861 885 875 841 814

Source: The Treasury

Table 6.14 - Primary service expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Departmental expenses 348 347 365 384 424 471 492 465 466 467
Non-departmental outputs 134 137 135 114 100 101 104 104 105 54
Biological research1 102 105 92 91 95 ..  ..  ..  ..  .. 
Other expenses 64 70 84 78 130 143 134 98 82 117
Primary service expenses 648 659 676 667 749 715 730 667 653 638
  1. From 2017 onwards, biological research has been reclassified from Primary services to non-departmental expenses within Core government services.

Source: The Treasury

Table 6.15 - Housing and community development expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Financial assistance package1 (407) (60) ..  ..  ..  ..  ..  ..  ..  .. 
Housing subsidies 22 5 5 5 5 6 2 2 2 2
Community Services2 ..  ..  ..  ..  189 192 183 181 178 179
Departmental outputs 98 89 100 113 171 195 153 141 137 134
Other non-departmental expenses 113 117 138 117 114 208 168 209 178 204
Warm up New Zealand 84 76 49 37 22 ..  ..  ..  ..  .. 
Other expenses 44 56 55 48 57 39 24 24 24 21
Housing and community development expenses (46) 283 347 320 558 640 530 557 519 540
  1. Financial assistance package for 2012 and 2013 actual includes the impact of a revised estimate of the weathertight homes financial assistance package provision.
  2. For 2016 onwards, community services have been reclassified from non-departmental expenses in Social security and welfare expenses and employment initiatives in Economic expenses.

Source: The Treasury

Table 6.16 - Environmental protection expenses
($millions) 2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Emissions Trading Scheme 334 55 46 133 163 325 470 418 438 440
Departmental outputs 342 335 362 360 383 414 401 398 406 408
Non-departmental outputs 46 88 48 41 1 45 91 66 94 92
Other expenses 47 52 77 189 40 109 53 47 46 47
Environmental protection expenses 769 530 533 723 587 893 1,015 929 984 987

Source: The Treasury

Glossary of Terms

Accruals basis of accounting

An accounting basis where revenue is recognised when earned and expenses when the obligations they relate to are incurred. This contrasts to cash accounting, where income is recognised when the cash is received and expenses when cash to settle an obligation is paid out.

Appropriations

Appropriations are legal authorities granted by Parliament to the Crown or an Office of Parliament to use public resources. Most appropriations are set out in Appropriation Acts.

Baselines

The level of funding approved for any given area of spending (eg, Vote Education).

Commercial portfolio

Consists of assets and liabilities held by companies with commercial objectives, predominantly State-owned Enterprises.

Consumers Price Index (CPI)

Statistics New Zealand's official index to measure the rate of change in prices of goods and services purchased by households.

Contingent assets

Income that the Crown will realise if a particular uncertain event occurs, or a present asset is unable to be measured with sufficient reliability to be recorded in the financial statements (unquantified contingent assets). Contingent assets typically comprise loans with specific events that trigger repayment and IRD pending assessments (where there is a proposed adjustment to a tax assessment).

Contingent liabilities

Costs that the Crown will have to face if a particular uncertain event occurs, or present liabilities that are unable to be measured with sufficient reliability to be recorded in the financial statements (unquantified contingent liabilities). Contingent liabilities typically comprise guarantees and indemnities, legal disputes and claims, and uncalled capital.

Core Crown

A reporting segment consisting of the Crown, departments, Offices of Parliament, the NZS Fund and the Reserve Bank. For a list of all entities included in this segment, refer to the Government Reporting Entity (pages 89 to 92).

Core Crown expenses

The day-to-day spending (eg, public servants' salaries, welfare benefit payments, finance costs and maintaining national defence etc) that does not build or purchase physical assets by the core Crown. This is an accrual measure of expenses and includes non-cash items such as depreciation on physical assets.

Core Crown revenue

Consists primarily of tax revenue collected by the Government but also includes investment income, sales of goods and services and other revenue of the core Crown.

Corporate tax

The sum of net company tax, non-resident withholding tax (NRWT) and foreign-source dividend withholding payments (FDWP).

Current account (Balance of Payments)

The current account records the value of New Zealand's transactions with the rest of the world in goods, services, income and transfers. The current account balance is the sum of all current account credits less all current account debits. When the sum of debits is greater than the sum of credits there is a current account deficit. The current account balance is commonly expressed as a percentage of nominal GDP.

Cyclically-adjusted balance (CAB) or structural balance

An estimate of the fiscal balance (operating balance before gains and losses) adjusted for fluctuations of actual GDP around trend GDP. CAB provides a picture of the underlying fiscal position and the effects of policy decisions.

Demographic changes

Changes to the structure of the population such as the age, gender or ethnic composition.

Domestic bond programme

The amount and timing of government bonds expected to be issued or redeemed.

Excise duties

A tax levied on the domestic production of alcohol, tobacco and light petroleum products (CNG, LPG and petrol).

Financial assets

Any asset that is cash, an equity instrument of another entity (shares), a contractual right to receive cash or shares (taxes receivable and ACC levies) or a right to exchange a financial asset or liability on favourable terms (derivatives in gain).

Financial liabilities

Any liability that is a contractual obligation to pay cash (government stock, accounts payable) or a right to exchange a financial asset or liability on unfavourable terms (derivatives in loss).

Financial portfolio

Consists of the assets and liabilities held by the Crown to finance or pre-fund government expenditure.

Fiscal drag

The additional personal income tax generated as an individual's average tax rate increases as their income increases.

Fiscal impulse

A summary measure of how changes in the fiscal position affect aggregate demand in the economy. To isolate discretionary changes, the fiscal impulse is calculated on a cyclically-adjusted basis and excludes net interest payments. To better capture the role of capital spending, the indicator is derived from cash flow information.

Fiscal intentions (short-term)

Indications of the Government's intentions for operating expenses, operating revenues and the impact of its intentions on the operating balance, debt and net worth over (at least) the next three years. These intentions are required under the Public Finance Act 1989 (PFA).

Fiscal objectives (long-term)

The Government's long-term goals for operating expenses, operating revenue, the operating balance, debt and net worth, as required by the PFA. The objectives must be consistent with the defined principles of responsible fiscal management as outlined in the PFA and must cover a period of (at least) 10 years.

Forecast new capital spending (Capital allowance)

An amount provided in the forecasts to represent the balance sheet impact of capital initiatives expected to be introduced over the forecast period.

Forecast new operating spending (Operating allowance)

An amount included in the forecasts to provide for the operating balance (revenue and expenditure) impact of policy initiatives, changes to demographics and other forecasting changes expected to occur over the forecast period.

Gains and losses

Gains and losses typically arise from the revaluation of assets and liabilities, such as investments in financial assets and long-term liabilities for ACC and GSF. These valuation changes are reported directly as a movement in net worth (eg, asset revaluation reserves) or indirectly through the Statement of Financial Performance.

GDP deflator

An index of changes in the general price level in the economy. It is calculated as the ratio of nominal GDP to real GDP.

Generally accepted accounting practice (GAAP)

GAAP refers to the rules and concepts used to prepare and present financial statements. GAAP is an independent set of rules and frameworks that govern the recognition, measurement and disclosure of financial elements, such as assets, liabilities, revenues and expenses.

Government Finance Statistics (GFS)

A statistical framework for government reporting developed by IMF to aid comparability of results between countries. This differs from the GAAP framework that is used for reporting by the Government in New Zealand.

Gross debt

GSID (refer below) excluding settlement cash and bank bills.

Gross domestic product (GDP)

A measure of the value-added of all goods and services produced in New Zealand. Changes in GDP measure growth or contraction in economic activity or output. GDP can be measured on either an expenditure or production basis and in either real or nominal terms. (See following definitions.)

Gross domestic product (expenditure)

The sum of total expenditure on final goods and services in the economy, including exports but minus imports. Expenditure GDP is calculated in both real and nominal terms.

Gross domestic product (nominal)

The value-added of goods and services produced in the economy expressed in current prices.

Gross domestic product (production)

The value-added of goods and services produced in New Zealand, after deducting the cost of goods and services used in the production process. Production GDP is calculated only in real terms.

Gross domestic product (real)

The value-added of goods and services produced in the economy expressed in the prices of a base period. The current base period is 2009/10.

Gross national expenditure (GNE)

A measure of total expenditure on final goods and services by New Zealand residents.

Gross sovereign-issued debt (GSID)

Represents debt issued by the sovereign (the core Crown) and includes government stock held by the NZS Fund, ACC and EQC.

Insurance liabilities

The gross obligation for the future cost of claims incurred prior to balance date represented in today's dollars (present value). The net liability is the gross liability less the asset reserves held to meet those claims.

Inter-segment eliminations

The amounts of transactions between different segments (core Crown, Crown entities and SOEs) that are eliminated to determine total Crown results.

Labour force participation rate

The percentage of the working-age population in work or actively looking for and available for work.

Labour productivity

Output per unit of labour input (where labour inputs might be measured as hours worked or the number of people employed).

Line-by-line consolidation

A term used to refer to the general approach to the presentation of the Financial Statements of the Government. It means that the individual line items for revenues, expenses, assets and liabilities in the Financial Statements of the Government include all departments, Offices of Parliament, the Reserve Bank, SOEs, Crown entities and other entities controlled by the Government.

Loan-to-value ratio (LVR)

A measure of how much a bank lends against residential property, compared to the value of that property. The Reserve Bank introduced LVR restrictions in October 2013 and revised them in November 2015 and October 2016. Investor loans with a LVR of more than 60% can make up no more than 5% of a bank's total new lending within this category. Non-investor loans with an LVR of more than 80% can make up no more than 10% of a bank's total lending in that category. LVR restrictions apply to new loans, and not retrospectively to existing loans (except new ‘top-up' lending on existing loans).

Marketable securities

Assets held with financial institutions. These assets are held for both cash flow and investment purposes. Examples are bonds, commercial papers and debentures.

Minority interest

Minority interest refers to shareholders of Government reporting entities outside the Crown. Current examples include those who hold shares in the mixed ownership companies.

Monetary conditions

Aggregate monetary conditions measure the degree to which short-term interest rates and the exchange rate either support or restrict economic growth.

Monetary policy

The policies that the Reserve Bank uses to regulate the supply of money in New Zealand. The Reserve Bank implements its monetary policy decisions by adjusting its Official Cash Rate (OCR) in an effort to maintain stability in the rate of CPI inflation within a defined target range.

Tightening monetary policy means raising the OCR in order to moderate aggregate demand pressures and reduce inflationary pressures. Easing monetary policy has the reverse effect.

National saving

National disposable income less private and public consumption spending. Income excludes gains and losses on capital. Gross saving includes depreciation.

Net core Crown cash flow from operations

The cash impact of core Crown operating results. It is represented by the operating balance (before gains and losses) less retained items (eg, net surplus of SOEs, Crown entities and NZS Fund net revenue) less non-cash items (eg, depreciation).

Net core Crown debt

Net core Crown debt provides information about the sustainability of the Government's accounts, and is used by some international rating agencies when determining the creditworthiness of a country. It represents gross debt less core Crown financial assets (excluding advances and financial assets held by the NZS Fund). Advances and financial assets held by the NZS Fund are excluded as these assets are less liquid and/or they are made for public policy reasons rather than for the purposes associated with government financing.

Net international investment position (NIIP)

The net value of New Zealand's international assets and liabilities at a point in time.

Net worth

Total assets less total liabilities of all Government reporting entities. The change in net worth in any given forecast year is largely driven by the operating balance and property, plant and equipment revaluations.

Net worth attributable to the Crown

Represents the Crown's share of total assets and liabilities and excludes minority interests' share of those assets and liabilities.

Operating balance

Represents OBEGAL (refer below) plus gains and less losses. The operating balance includes gains and losses not reported directly as a movement against net worth. The impact of gains and losses on the operating balance can be subject to short-term market volatility and revaluations of long-term liabilities.

Operating balance before gains and losses (OBEGAL)

Represents total Crown revenue less total Crown expenses excluding minority interest share. OBEGAL can provide a more useful measure of underlying stewardship than the operating balance as short-term market fluctuations are not included in the calculation.

Output gap

The difference between actual and potential GDP. (See Potential output.)

Outputs

Outputs are the goods and services commissioned by Ministers from public, non-governmental and private sector producers. Outputs may include the supply of policy advice, enforcement of regulations (such as speed limits in transport), provision of a range of services (in health, education, etc), negotiation and management of contracts and administration of benefits.

Potential output

The level of output an economy can sustain without an acceleration of inflation.

Productivity

The amount of output (eg, GDP) per unit of input.

Projections

Projections relate to the period beyond the five-year forecast period and are based on long-run economic and fiscal assumptions. For example, the projections assume no economic cycle and constant long-run interest, inflation and unemployment rates.

Residual cash

The level of money the Government has available to repay debt or, alternatively, needs to borrow in any given year. Residual cash is alternatively termed “Cash available/(shortfall to be funded)”.

Residual cash is equal to net core Crown cash flow from operations excluding NZS Fund activity less core Crown capital payments (eg, purchase of assets, loans to others).

Settlement cash

This is the amount of money deposited with the Reserve Bank by registered banks. It is a liquidity mechanism used to settle wholesale obligations between registered banks and provides the basis for settling most of the retail banking transactions that occur every working day between businesses and individuals.

Social portfolio

Consists of the assets and liabilities held primarily to provide public services or to protect assets for future generations.

Specific fiscal risks

All government decisions or other circumstances known to the Government which may have a material impact on the fiscal and economic outlook, but are not certain enough in timing or amount to include in the fiscal forecasts.

System of National Accounts (SNA)

A set of macroeconomic accounts for government reporting, developed by the international community, to facilitate international comparisons of national economic statistics. This differs from the GAAP framework that is used for reporting by the Government in New Zealand.

Tax revenue

The accrual, rather than the cash (“tax receipts”) measure of taxation. It is a measure of tax due at a given point in time, regardless of whether or not it has actually been paid.

Terms of trade

The terms of trade measure the volume of imports that can be funded by a fixed volume of exports, and are calculated as the ratio of the total export price index to the total import price index. New Zealand's headline terms of trade series is derived from export and import price indices from Statistics New Zealand's quarterly Overseas Trade Indices. The Treasury forecasts the terms of trade on an SNA basis, using implicit export and import price indices derived from quarterly national accounts data.

Top-down adjustment

An adjustment to expenditure forecasts to reflect the extent to which departments use appropriations (upper spending limits) when preparing their forecasts. As appropriations apply to the core Crown only, no adjustment is required to SOE or Crown entity forecasts.

Total borrowings

Represents the Government's total debt obligations to external parties and can be split into sovereign-guaranteed debt and non-sovereign-guaranteed debt. Non-sovereign-guaranteed debt represents the debt obligations of SOEs and Crown entities that are not guaranteed by the Crown.

Total Crown

Includes the core Crown (defined above) plus Crown entities and SOEs as defined by the Government Reporting Entity on pages 89 to 92.

Tradable/non-tradable output

The tradable sector is that part of the economy particularly exposed to foreign competition either through exports or import substitution. It includes agriculture, forestry and fishing, mining, and manufacturing industries. Non-tradable output includes the construction industry, rental, hiring and real estate services, public administration and safety, and health care and social assistance. Other industries may be classified as either tradable or non-tradable depending on whether their direct or indirect outputs are exposed to foreign competition.

Trade-weighted index (TWI)

A measure of movements in the NZ dollar against the currencies of our major trading partners. Since December 2014, the TWI has been based on 17 currencies, weighted according to each country's direct bilateral trade in goods and services with New Zealand. Together these countries account for more than 80% of New Zealand's foreign trade.

Votes

When Parliament considers legislation relating to appropriations, the appropriations are grouped within “Votes”. Generally, a Vote groups similar or related appropriations together (eg, Vote Health includes all health- related appropriations administered by the Ministry of Health).

Time Series of Fiscal and Economic Indicators

Fiscal Indicators

June years 2007
 Actual
2008
 Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
$millions                              

Revenue and expenses

                             
Core Crown tax revenue 53,477 56,747 54,681 50,744 51,557 55,081 58,651 61,563 66,636 70,445 74,598 77,536 81,046 85,875 89,939
Core Crown revenue 57,971 61,575 59,191 55,757 57,199 60,428 63,805 67,093 72,213 76,121 80,771 83,760 87,486 92,506 96,803
Core Crown expenses 53,764 56,753 63,711 63,554 70,099 68,939 69,962 71,174 72,363 73,929 77,464 80,486 83,466 86,234 89,223

Surpluses

                             
Total Crown OBEGAL 5,860 5,637 (3,893) (6,315) (18,396) (9,240) (4,414) (2,802) 414 1,831 1,621 2,858 4,051 6,085 7,168
Total Crown operating balance 8,023 2,384 (10,505) (4,509) (13,360) (14,897) 6,925 2,939 5,771 (5,369) 9,438 5,496 6,996 9,451 10,824

Cash position

                             
Core Crown residual cash 2,793 2,057 (8,639) (9,000) (13,343) (10,644) (5,742) (4,109) (1,827) (1,322) 71 (1,789) (1,550) 1,703 1,449

Debt

                             
Gross debt1 30,647 31,390 43,356 53,591 72,420 79,635 77,984 81,956 86,125 86,928 88,645 84,078 84,494 83,915 78,886
Gross debt incl RB settlement cash and bank bills 36,805 37,745 50,973 58,891 77,290 84,168 84,286 88,468 93,156 93,283 95,224 90,657 91,073 90,494 85,465
Net core Crown debt (incl NZS Fund)2 1,620 (2,676) 5,633 12,549 23,969 33,475 34,428 34,174 30,862 32,102 28,449 28,625 27,852 23,682 17,443
Net core Crown debt2 13,196 10,258 17,119 26,738 40,128 50,671 55,835 59,931 60,631 61,880 62,277 64,111 65,744 64,154 62,824

Net worth

                             
Total Crown net worth 96,827 105,514 99,515 94,988 80,887 59,780 70,011 80,697 98,236 95,521 105,923 111,442 118,390 127,829 138,671
Total net worth attributable to the Crown 96,531 105,132 99,068 94,586 80,579 59,348 68,071 75,486 86,454 89,366 100,044 105,566 112,602 122,102 132,982
Nominal expenditure GDP (revised actuals) 175,456 189,001 189,500 196,736 205,817 215,109 218,715 236,177 242,980 253,089 268,877 281,801 297,042 311,862 324,898
% GDP                              

Revenue and expenses

                             
Core Crown tax revenue 30.5 30.0 28.9 25.8 25.0 25.6 26.8 26.1 27.4 27.8 27.7 27.5 27.3 27.5 27.7
Core Crown revenue 33.0 32.6 31.2 28.3 27.8 28.1 29.2 28.4 29.7 30.1 30.0 29.7 29.5 29.7 29.8
Core Crown expenses 30.6 30.0 33.6 32.3 34.1 32.0 32.0 30.1 29.8 29.2 28.8 28.6 28.1 27.7 27.5

Surpluses

                             
Total Crown OBEGAL 3.3 3.0 (2.1) (3.2) (8.9) (4.3) (2.0) (1.2) 0.2 0.7 0.6 1.0 1.4 2.0 2.2
Total Crown operating balance 4.6 1.3 (5.5) (2.3) (6.5) (6.9) 3.2 1.2 2.4 (2.1) 3.5 2.0 2.4 3.0 3.3

Cash position

                             
Core Crown residual cash 1.6 1.1 (4.6) (4.6) (6.5) (4.9) (2.6) (1.7) (0.8) (0.5) 0.0 (0.6) (0.5) 0.5 0.4

Debt

                             
Gross debt1 17.5 16.6 22.9 27.2 35.2 37.0 35.7 34.7 35.4 34.3 33.0 29.8 28.4 26.9 24.3
Gross debt incl RB settlement cash and bank bills 21.0 20.0 26.9 29.9 37.6 39.1 38.5 37.5 38.3 36.9 35.4 32.2 30.7 29.0 26.3
Net core Crown debt (incl NZS Fund)2 0.9 (1.4) 3.0 6.4 11.6 15.6 15.7 14.5 12.7 12.7 10.6 10.2 9.4 7.6 5.4
Net core Crown debt2 7.5 5.4 9.0 13.6 19.5 23.6 25.5 25.4 25.0 24.4 23.2 22.8 22.1 20.6 19.3

Net worth

                             
Total Crown net worth 55.2 55.8 52.5 48.3 39.3 27.8 32.0 34.2 40.4 37.7 39.4 39.5 39.9 41.0 42.7
Total net worth attributable to the Crown 55.0 55.6 52.3 48.1 39.2 27.6 31.1 32.0 35.6 35.3 37.2 37.5 37.9 39.2 40.9
  1. Excludes Reserve Bank settlement cash and bank bills.
  2. Excludes advances.

Economic Indicators

June Years 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Annual average % change  Actual  Actual  Actual  Actual  Actual  Actual  Actual  Actual  Actual  Actual Forecast Forecast Forecast Forecast Forecast
Private consumption 3.7 2.9 -1.0 2.3 2.0 3.5 2.4 3.3 3.1 3.2 4.6 3.9 3.7 2.2 1.8
Public consumption 4.2 4.3 3.3 -0.4 2.5 0.7 0.0 2.9 3.1 1.9 3.0 2.0 1.4 1.4 1.1
TOTAL CONSUMPTION 3.8 3.2 0.1 1.6 2.2 2.8 1.8 3.2 3.1 2.9 4.2 3.5 3.2 2.0 1.7
Residential investment                2.5 -3.8 -22.0 -2.5 -3.1 10.2 18.0 13.6 5.6 6.3 6.7 0.3 8.7 8.8 3.3
Business investment                 1.9 10.4 -8.7 -8.0 8.2 5.9 1.0 8.8 5.2 2.7 6.4 6.8 5.9 5.7 4.5
TOTAL INVESTMENT 2.1 6.5 -12.0 -6.8 5.6 6.8 4.7 10.0 5.3 3.6 6.5 5.1 6.6 6.5 4.2
Stock change (contribution to growth) -0.5 0.9 -1.4 0.9 -0.1 0.1 -0.3 0.4 -0.1 -0.4 0.4 -0.4 0.1 0.2 0.1
GROSS NATIONAL EXPENDITURE 2.8 4.8 -4.2 0.7 2.7 3.9 2.2 4.6 3.3 2.7 5.5 3.7 4.1 3.3 2.4
Exports 4.0 3.5 -2.9 4.8 2.2 2.1 3.0 0.1 5.7 5.1 -0.6 3.4 3.3 2.7 2.9
Imports 1.7 11.6 -12.0 -1.0 11.4 4.4 2.6 9.0 6.6 1.3 6.3 3.7 4.5 4.2 2.9
EXPENDITURE ON GDP 3.5 2.4 -1.3 2.7 0.2 3.3 2.3 2.1 3.2 3.7 3.5 3.4 3.8 2.8 2.4
GDP (production measure) 3.1 2.2 -1.7 0.8 1.1 2.7 2.2 2.5 3.3 2.7 3.1 3.5 3.8 2.9 2.4
 - annual % change 3.3 0.5 -2.0 2.6 0.9 2.6 2.6 2.7 2.4 3.5 3.2 3.7 3.5 2.6 2.3
Real GDP per capita 2.0 1.3 -2.6 -0.3 0.2 2.0 1.6 1.3 1.5 0.7 0.9 1.4 1.8 1.3 1.1
Nominal GDP (expenditure basis) 6.6 7.7 0.3 3.8 4.6 4.5 1.7 8.0 2.9 4.2 6.2 4.8 5.4 5.0 4.2
GDP deflator 3.0 5.2 1.6 1.1 4.4 1.2 -0.6 5.7 -0.3 0.5 2.7 1.3 1.6 2.1 1.8
Output gap (% deviation, June year average) 1.8 2.2 -0.9 -1.3 -1.9 -1.3 -1.2 -1.2 -0.5 -0.5 -0.7 -0.4 0.4 0.4 0.1
Employment 1.6 1.3 -0.2 -1.3 1.5 0.9 0.2 3.2 3.2 2.3 5.1 2.5 2.0 1.8 1.3
Unemployment (% June quarter s.a.)          3.6 3.8 5.7 6.5 6.0 6.3 6.0 5.2 5.5 5.0 5.0 5.0 4.6 4.3 4.3
Wages (average ordinary-time hourly, ann % change)         4.4 5.4 4.7 1.1 3.0 2.9 2.1 2.6 2.8 2.1 1.2 2.6 2.3 2.2 2.1
CPI inflation (ann % change)      2.0 4.0 1.9 1.7 5.3 1.0 0.7 1.6 0.4 0.4 1.8 1.6 2.1 2.2 2.1
Merchandise terms of trade (SNA basis)       0.2 10.0 -4.3 -3.0 9.7 -1.7 -3.8 16.4 -4.8 -2.4 6.2 -0.2 0.0 0.4 0.2
House prices (ann % change) 13.7 -4.4 -3.2 3.4 0.4 4.2 9.1 6.9 11.1 14.0 5.1 7.8 3.9 3.1 2.2
Current account balance - $billion           -12.2 -13.4 -9.4 -3.5 -6.0 -7.7 -7.9 -6.0 -8.9 -7.3 -7.4 -8.5 -9.7 -11.6 -12.7
Current account balance - % of GDP           -6.9 -7.1 -4.9 -1.8 -2.9 -3.6 -3.6 -2.5 -3.7 -2.9 -2.8 -3.0 -3.3 -3.7 -3.9
TWI (June quarter)                           75.7 73.0 62.3 68.6 70.8 72.4 76.3 81.5 76.2 73.6 76.1 76.6 76.9 76.7 74.7
90-day bank bill rate (June quarter)        8.1 8.8 2.9 2.9 2.7 2.6 2.6 3.4 3.5 2.4 2.0 2.0 2.7 3.4 3.9
10-year bond rate (June quarter)            6.3 6.4 5.6 5.7 5.3 3.7 3.5 4.4 3.6 2.7 3.1 3.6 4.0 4.2 4.3

Data for 2017 and subsequently are forecasts. Data for 2016 and prior years are those that were available when the forecasts were finalised.

Additional Information

The following information forms part of the Budget Economic and Fiscal Update 2017 (Budget Update) released by the Treasury on 25 May 2017. This information provides further details on the Budget Update and should be read in conjunction with the published document. The additional information includes:

  • Detailed economic forecast information - tables providing breakdowns of the economic forecasts.
  • Treasury and Inland Revenue tax forecasts - detailed tax revenue and receipts tables comparing Treasury's forecasts with Inland Revenue's forecasts.
  • Tax Policy changes - details of material changes to tax revenue since the Budget Update as a result of policy initiatives.
  • Additional fiscal indicators - estimates of the cyclically-adjusted balance and fiscal impulse.
  • Government Finance Statistics (GFS) for central government - fiscal tables presented under a GFS presentation framework to help with cross-country comparisons.
  • Accounting policies - outline of the specific Crown accounting policies.
  • Canterbury earthquake expenses - the latest estimates of the net impact on the Crown of the Canterbury earthquakes.

Detailed Economic Forecast Information

This section includes tables with additional detail on the economic forecasts in the Budget Update.

The economic numbers and forecasts in this section were finalised on 13 April 2017.

Table 1 Real Gross Domestic Product

Table 2 Consumers Price Index and exchange rates

Table 3 Expenditure ongross domestic product and gross domestic product (income) in current prices

Table 4 Labour market indicators

Table 5 Exports - SNA basis

Table 6 Imports - SNA basis

Table 7 Balance of payments - Current account

Table 1 - Real Gross Domestic Product

Production based chain volume series expressed in 2009/10 prices

Seasonally adjusted

  $ million Quarterly
% change
Annual
% change
Annual average
% change
2014Q1 53,444 1.5 3.0 2.5
2014Q2 53,849 0.8 2.7 2.5
2014Q3 54,446 1.1 3.4 2.6
2014Q4 55,031 1.1 4.5 3.4
2015Q1 55,098 0.1 3.1 3.4
2015Q2 55,136 0.1 2.4 3.3
2015Q3 55,678 1.0 2.3 3.0
2015Q4 56,238 1.0 2.2 2.5
2016Q1 56,644 0.7 2.8 2.4
2016Q2 57,074 0.8 3.5 2.7
2016Q3 57,510 0.8 3.3 3.0
2016Q4 57,743 0.4 2.7 3.1
2017Q1 58,378 1.1 3.1 3.1
2017Q2 58,904 0.9 3.2 3.1
2017Q3 59,370 0.8 3.2 3.0
2017Q4 59,892 0.9 3.7 3.3
2018Q1 60,448 0.9 3.5 3.4
2018Q2 61,080 1.0 3.7 3.5
2018Q3 61,687 1.0 3.9 3.7
2018Q4 62,261 0.9 4.0 3.8
2019Q1 62,723 0.7 3.8 3.8
2019Q2 63,213 0.8 3.5 3.8
2019Q3 63,651 0.7 3.2 3.6
2019Q4 64,078 0.7 2.9 3.3
2020Q1 64,489 0.6 2.8 3.1
2020Q2 64,872 0.6 2.6 2.9
2020Q3 65,249 0.6 2.5 2.7
2020Q4 65,616 0.6 2.4 2.6
2021Q1 65,979 0.6 2.3 2.5
2021Q2 66,337 0.5 2.3 2.4

Source: Statistics New Zealand, the Treasury

Table 2 - Consumers Price Index and Exchange Rates

  Consumers Price Index Exchange rates
  Index Quarterly
% change
Annual
% change
TWI USD
2014Q1 1192 0.3 1.5 80.0 0.84
2014Q2 1195 0.3 1.6 81.5 0.86
2014Q3 1199 0.3 1.0 80.1 0.84
2014Q4 1197 -0.2 0.8 77.5 0.78
2015Q1 1195 -0.2 0.3 77.9 0.75
2015Q2 1200 0.4 0.4 76.2 0.73
2015Q3 1204 0.3 0.4 69.8 0.65
2015Q4 1198 -0.5 0.1 72.1 0.67
2016Q1 1200 0.2 0.4 72.2 0.66
2016Q2 1205 0.4 0.4 73.6 0.69
2016Q3 1209 0.3 0.4 77.0 0.72
2016Q4 1214 0.4 1.3 77.6 0.71
2017Q1 1223 0.8 2.0 78.0 0.71
2017Q2 1227 0.3 1.8 76.1 0.69
2017Q3 1234 0.5 2.1 76.6 0.69
2017Q4 1235 0.1 1.7 76.6 0.69
2018Q1 1239 0.4 1.3 76.6 0.69
2018Q2 1246 0.6 1.6 76.6 0.69
2018Q3 1255 0.7 1.7 76.7 0.69
2018Q4 1257 0.2 1.8 76.8 0.69
2019Q1 1263 0.5 1.9 76.9 0.69
2019Q2 1273 0.7 2.1 76.9 0.69
2019Q3 1282 0.8 2.2 76.9 0.69
2019Q4 1286 0.2 2.3 76.9 0.69
2020Q1 1292 0.5 2.3 76.8 0.69
2020Q2 1301 0.7 2.2 76.7 0.69
2020Q3 1311 0.7 2.2 76.4 0.69
2020Q4 1314 0.2 2.2 76.0 0.69
2021Q1 1320 0.5 2.1 75.4 0.68
2021Q2 1329 0.7 2.1 74.7 0.68

Source: RBNZ, Statistics New Zealand, the Treasury

Table 3 - Expenditure on Gross Domestic Product and Gross Domestic Product (income) in current prices

  2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Year ended June $million %volume %price $million %volume %price $million %volume %price $million %volume %price $million %volume %price $million
Consumption:                                
- Private 146,138 4.6 0.6 153,731 3.9 1.4 162,064 3.7 1.4 170,459 2.2 1.8 177,419 1.8 1.7 183,741
- Public 47,200 3.0 1.9 49,542 2.0 2.2 51,657 1.4 2.1 53,470 1.4 2.2 55,384 1.1 2.2 57,258
Gross Fixed Capital Formation:                                
- Residential 17,690 6.7 6.1 20,023 0.3 4.1 20,915 8.7 2.7 23,365 8.8 2.8 26,139 3.3 3.1 27,848
- Business * 40,498 6.4 -0.8 42,750 6.8 -0.2 45,546 5.9 0.5 48,477 5.7 1.1 51,829 4.5 1.2 54,800
- Total all sectors 58,188 6.5 1.3 62,773 5.1 0.8 66,462 6.6 1.4 71,842 6.5 1.9 77,968 4.2 1.8 82,648
Change in Stocks -413     1,048     293     648     1,173     1,465
Gross National Expenditure 251,171 5.5 0.7 266,878 3.7 1.3 280,475 4.1 1.5 296,419 3.3 1.9 311,944 2.4 1.8 325,113
Exports 70,779 -0.6 0.4 70,598 3.4 2.2 74,619 3.3 0.9 77,797 2.7 1.4 81,038 2.9 2.5 85,487
Imports 68,725 6.3 -5.5 69,072 3.7 2.4 73,341 4.5 0.7 77,180 4.2 0.9 81,121 2.9 2.7 85,702
Expenditure on GDP 253,089 3.5 2.7 268,877 3.4 1.3 281,801 3.8 1.6 297,042 2.8 2.1 311,862 2.4 1.8 324,898
Statistical Discrepancy 1,423     1,424     1,425     1,427     1,428     1,429
Gross Domestic Product 254,512     270,301     283,226     298,469     313,290     326,327
Compensation of employees 110,721     117,030     122,352     127,692     132,821     137,316
Operating Surplus, net:                                 
- Agriculture 3,126     4,117     4,337     4,540     4,727     4,916
- Other 69,099     73,770     77,397     83,031     88,534     93,067
- Total all sectors 72,224     77,887     81,734     87,571     93,262     97,983
Consumption of fixed capital 36,226     38,038     39,939     41,936     44,033     46,235
Indirect Taxes 34,503     36,509     38,363     40,432     42,337     43,957
Less subsidies 837     837     837     837     837     837
Gross Domestic Product 254,512     270,301     283,226     298,469     313,290     326,327

* Central government investment data is currently suppressed in the national accounts. Therefore the usual distinction between market and non-market investment cannot be made.

Note: GDP Income measure has been converted from March years to June years by Treasury

Source: Statistics New Zealand, the Treasury

Table 4 - Labour Market Indicators

Annual Average Percentage Change
Year ended June
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Real GDP (production basis) 2.7 3.1 3.5 3.8 2.9 2.4
Working Age Population 2.4 2.7 2.4 2.1 1.7 1.3
Labour Force 2.1 5.0 2.4 1.7 1.4 1.2
Employment 2.3 5.1 2.5 2.0 1.8 1.3
Labour Productivity* -0.3 -2.3 1.3 1.9 1.1 1.1
CPI (annual percentage change) 0.4 1.8 1.6 2.1 2.2 2.1
Average Ordinary Time Hourly Wages 2.2 1.4 2.3 2.5 2.2 2.1
Average Weekly Earnings 2.6 1.6 2.0 2.3 2.2 2.0
Real Wages 1.9 0.0 0.7 0.6 0.0 0.0
Compensation of Employees 4.7 5.7 4.5 4.4 4.0 3.4
Unit Labour Costs (Hours worked basis) 2.5 3.8 1.1 0.6 1.1 1.0
Real Unit Labour Costs 2.2 2.3 -0.6 -1.3 -1.1 -1.1

* Hours worked basis

Number (000's)            
As at June Quarter 2016 2017 2018 2019 2020 2021
  Actual Forecast Forecast Forecast Forecast Forecast
Total Population 4,693 4,798 4,896 4,981 5,051 5,105
     Natural Increase 28 33 32 33 33 34
     Net Migration 69 72 67 52 36 20
     Annual Change 97 105 98 85 70 54
Working Age Population 3,714 3,806 3,895 3,970 4,032 4,081
     Annual Change 99 92 89 75 62 49
Not in the labour force (s.a.) 1,125 1,127 1,157 1,191 1,215 1,234
     Annual Change 1 2 30 34 24 19
Labour Force (s.a.) 2,589 2,679 2,737 2,779 2,817 2,847
     Annual Change 98 90 58 42 38 30
Total Employment (s.a.) 2,459 2,544 2,601 2,651 2,695 2,725
     Annual Change 105 85 58 50 44 30
Unemployment (s.a.) 131 135 136 127 122 122
     Annual Change -6 4 0 -8 -6 0
Participation Rate (%, s.a.) 69.7 70.4 70.3 70.0 69.9 69.8
Unemployment Rate (%, s.a.) 5.0 5.0 5.0 4.6 4.3 4.3

s.a. - seasonally adjusted

Source: Statistics New Zealand, the Treasury

Table 5 - Exports - SNA basis

Breakdown of Exports

Year ended June Dairy Products Meat and Meat Products Non-Commodity*
  %volume %price $million %volume %price $million %volume %price $million
2013 14.6 -13.1 12,477 14.4 -9.8 5,721 -1.3 -6.4 12,841
2014 -2.9 37.5 16,763 1.7 3.6 6,028 1.4 1.3 13,187
2015 4.3 -23.3 13,387 1.2 10.9 6,766 4.9 -4.1 13,275
2016 4.7 -11.8 12,354 6.8 -0.1 7,225 -1.3 3.0 13,478
2017 1.0 6.4 13,236 -10.9 -8.0 5,911 -0.7 -1.3 13,225
2018 2.6 6.5 14,518 0.5 -1.2 5,872 4.5 1.0 13,960
2019 5.6 -0.2 15,300 1.3 0.1 5,949 3.3 0.8 14,533
2020 4.5 0.4 16,050 1.6 0.4 6,069 3.5 1.5 15,279
2021 4.5 1.9 17,093 1.9 1.9 6,307 5.3 3.4 16,635
Year ended June Total Goods** Services Total Exports
  %volume %price $million %volume %price $million %volume %price $million
2013 5.3 -7.4 46,084 -3.5 0.5 16,306 3.0 -5.5 62,389
2014 -0.2 12.0 51,538 0.6 1.5 16,652 0.1 9.1 68,190
2015 3.4 -8.7 48,653 13.2 1.2 19,076 5.7 -6.0 67,729
2016 3.0 -1.6 49,268 10.2 2.4 21,512 5.1 -0.6 70,779
2017 -0.8 -0.3 48,710 0.5 1.2 21,887 -0.6 0.4 70,598
2018 2.4 2.3 51,088 5.2 2.2 23,536 3.4 2.2 74,619
2019 3.2 0.6 53,006 3.5 1.8 24,795 3.3 0.9 77,797
2020 3.1 1.1 55,202 2.0 2.1 25,839 2.7 1.4 81,038
2021 3.6 2.7 58,754 1.3 2.1 26,737 2.9 2.5 85,487

* Consis