The Budget Economic and Fiscal Update (BEFU) 2010 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.

The Minister's Executive Summary, Budget Speech, Fiscal Strategy Report and this Budget Economic and Fiscal Update are published conjointly in the same printed publication.

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

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Information supporting the Budget Economic and Fiscal Update on this website that should be read in conjunction with the published document:

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 both of Government decisions and circumstances as at 4 May 2010 that were communicated to me, and of other economic and fiscal information available to the Treasury in accordance with the provisions of the Public Finance Act 1989.

John Whitehead - signature .

John Whitehead
Secretary to the Treasury

11 May 2010

This Economic and Fiscal Update has been prepared in accordance with the Public Finance Act 1989. I accept overall responsibility for the integrity of the disclosures contained in this Update, and the consistency and completeness of the Update information in accordance with the requirements of the Public Finance Act 1989.

To enable the Treasury to prepare this Update, I have ensured that the Secretary to the Treasury has been advised of all Government decisions and other circumstances as at 4 May 2010 of which I was aware and that had material economic or fiscal implications.

Bill English - Signature.

Hon Bill English
Minister of Finance

11 May 2010

Economic and Fiscal Update

Overview

The New Zealand economy is expected to continue its recovery from recession. After contracting in both the March 2009 and 2010 years, the economy is forecast to grow by around 3% per annum over the next four years. This recovery is expected to flow through to the fiscal position and drive a reduction in operating deficits.

However, the economy has suffered an ongoing loss of output compared to what was expected before the recession and the recovery is expected to be more gradual than previous upturns. With operating deficits remaining over the forecast period, net core Crown debt is expected to rise steadily. Medium-term projections in the Fiscal Strategy Report show the operating balance (before gains and losses) returns to surplus in the June 2016 year.

Uncertainty continues to surround the outlook, particularly the strength of the current recovery and whether imbalances in the economy that built up in the previous expansion will adjust. There are also growing risks associated with recent developments in Europe related to sovereign debt. Some of the key risks to the outlook are explored in alternative scenarios, with stronger or weaker outcomes possible.

Economic Outlook

The economy is expected to experience above-average growth over the next four years as it recovers gradually from recession. The forecast recovery is driven by stimulatory monetary conditions, a stronger global economy, an associated rise in export volumes and prices, and high confidence levels. The economy is also expected to be positively affected by significant tax reform in Budget 2010, including:

  • a reduction in personal income tax rates at existing income thresholds to 10.5%, 17.5%, 30% and 33% from 1 October 2010
  • a rise in GST from 12.5% to 15% on 1 October 2010, and
  • a cut in the tax rate for companies, portfolio investment entities and other savings vehicles from 30% to 28% and base-broadening measures from 1 April 2011.

These changes shift the burden of taxes to sources less harmful for growth. Personal income tax cuts are expected to raise the supply of labour by increasing the economic returns of working. They will also help encourage more saving. For businesses, the tax changes may help reorient investment towards more productive parts of the economy.

The nominal economy is forecast to grow strongly over the next two years as real growth recovers, the terms of trade strengthen and inflation is higher. Consumer price inflation is expected to temporarily spike over the next year as a result of changes in government policy, particularly the rise in GST. The strengthening nominal economy flows through to growing tax revenue, although taxes lag the recovery because of a build-up of corporate losses emanating from the recent recession.

Fiscal Outlook

The fiscal position has weakened significantly in recent years. Crown revenue has fallen owing to a combination of income tax cuts, the recession and a long-lasting impact on the economy from the global financial crisis. Previous spending decisions, which had been in place before the crisis, lifted Crown expenses. The recession added to this increase as a weaker labour market caused the number of Unemployment Benefit recipients to rise. As expenses rose and revenue fell, the Crown operating balance was in deficit in the June 2009 year for the first time in 15 years.

Operating deficits are expected to fall over the next four years owing largely to a recovery in tax revenue. Crown expenses are forecast to rise, boosted by higher benefit payments when GST rises, but trend down as a share of the economy as unemployment falls and the annual operating allowance remains at $1.1 billion (growing at 2% per annum after 2010/11). However, the operating balance is still expected to be in structural (ie, non-cyclical) deficit over the forecast period.

Ongoing operating deficits are expected to see a fall in net worth over the forecast period, as well as a rise in net debt to over 26% of Gross Domestic Product (GDP). Although debt levels would remain lower than most developed nations, New Zealand faces relatively high borrowing costs so the financing costs of any given level of debt are higher. As outlined in the Fiscal Strategy Report, the Government's long-term fiscal objective is for net debt to be brought back to a level no higher than 20% of GDP by the early 2020s.

Table 1.1 - Summary of the Treasury's economic and fiscal forecasts
  2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Economic (March years, %)            
Economic growth1 -1.4 -0.3 3.2 3.1 2.9 3.0
Consumer price inflation2 3.0 2.2 5.9 2.4 2.4 2.4
Unemployment rate3 5.0 7.1 6.2 5.5 5.1 4.6
Fiscal (June years, % of GDP)            
Operating balance4 -2.1 -3.7 -4.2 -2.5 -1.9 -1.3
Net debt5 9.3 14.1 19.6 23.0 25.3 26.5
Net worth6 54.0 50.9 43.9 39.8 37.0 34.8

Notes:

  1. Real production GDP, annual average percentage change
  2. Consumers Price Index, annual percentage change
  3. Percent of labour force, March quarter, seasonally adjusted.
  4. Total Crown operating balance before gains and losses
  5. Net core Crown debt excluding the New Zealand Superannuation Fund and advances
  6. Total Crown net worth

Sources: Statistics New Zealand, the Treasury

Economic Outlook

The economy is recovering from recession...

Figure 1.1 - Real production GDP
Figure 1.1 - Real production GDP.
Source:  Sources: Hall and McDermott (2009), Statistics
New Zealand, the Treasury

The New Zealand economy contracted throughout 2008 and early 2009 (Figure 1.1). The initial triggers of recession in early 2008 were domestic factors, including drought and tight monetary policy to combat growing inflation pressures at the time. This domestic-led recession was deepened by the global financial crisis, which escalated in mid-September 2008.

The impact of the global downturn on New Zealand, while significant, was smaller than for most developed nations. In the OECD, only Australia and Poland had smaller falls in real output from when the crisis began. New Zealand’s performance was supported by a sound financial system, growth in key trading partners China and Australia, strong commodity exports, falling emigration and monetary and fiscal stimulus. These factors also helped pull New Zealand out of recession in the June 2009 quarter. Although the beginning of the recovery in mid-2009 was subdued, it gathered strength in the December quarter with growth of 0.8%.

...but significant imbalances built up before the recession

Significant imbalances built up in the economy during the expansion in the 2000s. These imbalances, although closely related, can be broadly categorised as follows:

  • Strong domestic demand, including government expenditure, gradually increased pressure on available resources and resulted in persistently high inflation. Monetary policy tightened during this period, with higher interest rates encouraging the New Zealand dollar to appreciate.
  • Domestic demand was partially funded from high rates of borrowing, with household and agriculture debt rising sharply over much of the 2000s driven partly by increasing house and farm prices. However, house and farm prices rose well above fundamental determinants, such as income and farm returns.
  • The years leading up to recession featured a divergence of growth between sectors. The tradable sector, which includes primary, manufacturing and tourism industries, did not grow from early 2004 to the peak of the last economic upturn in late 2007. In contrast, non-tradable industries such as construction, retail and government administration grew strongly.
  • Relatively strong investment and a fall in national saving, led by households, contributed to a rise in the current account deficit to around 8% of GDP on average from 2004 to 2008, before it fell during the recession. The savings of foreigners were increasingly used to finance these deficits, which raised the net international liability position to over 90% of GDP by early 2009.

These imbalances were facilitated by easier global credit and low risk aversion, and were also apparent in other developed nations. Although New Zealand came through the recent global downturn relatively well, New Zealand's past and projected current account deficits, domestic indebtedness and its net international liability position are large relative to most developed nations, making the economy vulnerable to some types of shocks. With a gradual economic recovery expected to continue, the current account deficit is forecast to widen again from 2.6% of GDP to over 7% of GDP. Such deficits would mean a rise in the net international liability position to 100% of GDP by mid-2014 (Figure 1.2). However, there are a number of factors that support New Zealand's position. These include sound macroeconomic settings (eg, a flexible exchange rate and independent monetary policy), external debt that is largely denominated in local currency or hedged, relatively low public debt and a robust banking system.

Figure 1.2 - Current account balance and net international investment position
Figure 1.2 - Current account balance and net international investment position.
Source:  Statistics New Zealand, the Treasury

The recovery from recession is expected to be gradual...

After a fall of 1.4% in the March 2009 year and 0.3% in the March 2010 year, real output is expected to grow at around 3% per annum: 3.2% in the March 2011 year; 3.1% the next year; 2.9% in the March 2013 year; and 3.0% in the March 2014 year. These growth rates are higher than our estimate of potential growth over these four years of around 2.8% per annum.[1] The positive outlook is supported by the lagged impact of an easing in monetary conditions since mid-2008, a stronger global environment and associated higher demand for exports, high confidence levels, the hosting of the Rugby World Cup in late 2011 and the tax package.

The tax package in Budget 2010 has a significant impact on the economic outlook, although the exact impact will depend on the responses of numerous firms and individuals and is therefore uncertain. The tax package and its impacts are outlined on pages 68 to 70. At the economy-wide level, the main impacts are assumed to be:

  • The level of real output is expected to be 0.9% higher in the long run. By the June 2014 quarter, the economic forecasts incorporate a level of real outputthat is 0.4% higher than in the absence of the tax package. This impact takes time given the amount of spare capacity in the economy currently. Therefore, in the medium-term projections in the Fiscal Strategy Report, a further impact of 0.5% is expected by June 2017.
  • The tax package is also forecast to cause volatility in output growth in the second half of 2010. Real output is expected to grow strongly in the September quarter and fall slightly the next quarter as some consumer spending, particularly on durable goods, is brought forward before the increase in the GST rate on 1 October 2010.
  • The tax changes are expected to boost incomes, help encourage more saving and reorient investment towards more productive parts of the economy.

Notes

  • [1]Potential growth is an estimate of how fast the economy can grow without generating inflation pressure.

Table 1.2 - Economic forecasts

Table 1.2 - Economic forecasts
(Annual average % change,
March years)
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Private consumption -1.1 0.6 2.9 1.7 2.5 2.3
Public consumption 4.2 1.0 2.3 1.4 0.9 0.6
Total consumption 0.1 0.7 2.8 1.6 2.1 1.9
Residential investment -22.8 -9.9 22.0 13.5 7.3 4.3
Non-market investment 12.0 -2.8 -5.4 -3.6 3.8 4.6
Market investment -1.9 -10.4 6.2 10.3 4.7 3.0
Total investment -7.2 -9.2 10.5 11.4 5.6 3.5
Stock change2 0.0 -1.9 1.1 0.4 0.3 0.0
Gross national expenditure -1.6 -3.3 5.6 4.3 3.3 2.3
Exports -3.4 2.8 1.6 4.7 3.5 3.3
Imports -4.7 -9.9 9.0 8.9 5.0 1.5
GDP (expenditure measure) -1.0 0.4 3.4 3.0 2.7 3.0
GDP (production measure) -1.4 -0.3 3.2 3.1 2.9 3.0
Real GDP per capita -2.4 -1.5 2.0 2.1 2.0 2.1
Nominal GDP (expenditure basis) 1.7 1.7 7.0 6.3 4.8 5.1
GDP deflator 2.7 1.3 3.5 3.3 2.0 2.1
Output gap (% deviation, March year)3 0.2 -1.7 -0.6 -0.6 -0.8 -0.6
Employment 0.9 -1.6 0.2 2.0 2.1 2.0
Unemployment4 5.0 7.1 6.2 5.5 5.1 4.6
Nominal wages5 5.3 3.3 2.6 3.5 3.7 3.9
CPI inflation6 3.0 2.2 5.9 2.4 2.4 2.4
Merchandise terms of trade7 -0.7 -6.3 4.9 0.6 1.7 1.0
Current account balance            
  - $billion -14.6 -4.9 -8.9 -13.1 -15.7 -17.2
  - % of GDP -7.9 -2.6 -4.4 -6.1 -7.0 -7.3
TWI8 53.7 65.3 65.2 63.5 58.5 54.0
90-day bank bill rate8 3.7 2.7 4.3 5.2 5.4 5.7
10-year bond rate8 4.6 5.9 5.9 5.9 5.9 6.0

Notes:

  1. Forecasts finalised 16 April 2010
  2. Contribution to GDP growth
  3. Estimated as the percentage difference between actual real GDP and potential real GDP
  4. Household Labour Force Survey, percent of the labour force, March quarter, seasonally adjusted
  5. Quarterly Employment Survey, average ordinary-time hourly earnings, annual percentage change
  6. Annual percentage change
  7. System of National Accounts (SNA) basis, annual average percentage change
  8. Average for the March quarter, actual for 2010

A longer time series for these variables is provided on page 160.

Sources: Statistics New Zealand, Reserve Bank of New Zealand, the Treasury

...as the global economy strengthens...

A stronger global economy is an important driver of these forecasts. The global financial crisis in late 2008 led the world economy into its worst and most synchronised recession since World War II. Output in the economies of our top-12 trading partners is estimated to have fallen by 0.9% in the 2009 calendar year, including falls of 2.4% in the United States, 4.9% in the United Kingdom and 5.2% in Japan. However, the recovery in the global economy has taken hold more strongly than previously expected, and all our major trading partners have returned to growth, with emerging economies particularly robust.

The economies of our top-12 trading partners are expected to grow by a relatively strong 3.7% in each of 2010 and 2011, and an average of 3.5% in each of the subsequent three years. Fast-growing emerging economies, particularly China, helped lead the world out of recession, and will remain crucial drivers of the global economy. New Zealand will benefit as fast-growing countries are taking a larger share of our exports over time. There will also be indirect benefits as economic growth in Australia, New Zealand's largest trading partner, is boosted by demand for minerals from emerging markets.

Although the global outlook is stronger than previously expected, there is still an ongoing impact from the financial crisis. Weak recoveries are predicted in Europe, Japan and the United Kingdom, in contrast to high growth in emerging economies. There are also a number of potential threats to the sustainability of the global recovery, which are explored further in the Risks and Scenarios section from page 76. In particular, concerns over sovereign debt in the Euro area, which have reached crisis levels in Greece and threaten to spread further, have worsened significantly since the Budget forecasts were finalised.

...and boosts demand for New Zealand's exports

World spot prices for New Zealand's commodity exports have returned to the peaks of 2008. A stronger world economy, especially emerging economies, has contributed to the rebound in prices, particularly for dairy products. Some of this increase is expected to be temporary, but dairy prices will be underpinned by growing demand for protein in the developing world as incomes rise. Higher export prices relative to import prices are expected to see the merchandise terms of trade strengthen (Figure 1.3).

Figure 1.3 - Merchandise terms of trade (SNA)
Figure 1.3 - Merchandise terms of trade (SNA).
Source:  Statistics New Zealand, the Treasury

Growth in export volumes is forecast to rise as trading partner growth strengthens and the Rugby World Cup in late 2011 temporarily lifts services exports. Ongoing strong growth in exports over the rest of the forecast period reflects an assumed gradual depreciation of the New Zealand dollar. Already, a relatively low exchange rate against the Australian dollar has lifted prospects for service exports and non-commodity manufacturing. Changes in tax policy that help to shift resources to the tradable sector are also assumed to boost non-commodity exports slightly.

Inflation spikes temporarily because of a number of policy changes

A gradual tightening of monetary policy is expected over the forecast period, which sees 90-day interest rates rise from below 3% in the first half of 2010 to 4.8% in the September 2011 quarter and 5.8% by mid-2014. The output gap, the difference between actual and potential output, is estimated to close slowly from around -2% of GDP in the March 2010 year to almost zero by mid-2014. Underlying inflation pressures are thus expected to rise but stay relatively subdued.

Figure 1.4 - Consumers Price Index
Figure 1.4 - Consumers Price Index.
Source:  Statistics New Zealand, the Treasury

Including policy changes, however, Consumers Price Index (CPI) inflation is forecast to rise to 5.9% in the year to March 2011 (Figure 1.4):

  • The rise in tobacco excise taxes is expected to add 0.5% to the CPI between the June 2010 and March 2011 quarters.
  • The introduction of the Emissions Trading Scheme (ETS) on 1 July 2010 is assumed to add around 0.4% to the CPI in the year to March 2011. Unlike the other changes, the ETS impact was included in the Half Year Update 2009.
  • A rise in ACC levies for motorists on 1 July 2010 is expected to add 0.1% to the CPI in the September 2010 quarter.
  • The rise in GST is estimated to add 2.0% to the CPI in the December 2010 quarter.

The short-term spike is assumed to have only a small impact on inflation expectations and therefore a limited impact on monetary policy. This assumption relies on pre-tax wages not responding fully to the rise in prices caused by the higher GST rate, as the net effect of the GST increase and lower personal income taxes is to boost real after-tax wages. Annual inflation averages 2.4% in the rest of the forecast period, within the Reserve Bank's medium-term target range of 1% to 3%.

Consumer spending recovers as confidence strengthens and job growth returns...

Private consumption growth is expected to strengthen over the next year owing to higher incomes from the rising terms of trade, improved consumer confidence and a fall in unemployment. Tax changes are expected to impact positively on household incomes as the higher GST rate, in aggregate, is more than compensated by the reduction in personal income taxes and higher social assistance benefit payments.

Private consumption is not forecast to grow as strongly as in the mid-2000s. Negative influences include: an expected rise in interest rates on a high level of household debt; lower net migration inflows as departures recover with an improvement in global labour markets; weaker growth in house prices; and some rebuilding of balance sheets by households. As a proportion of disposable income, the rate of household dis-saving is expected to be 7.0% by March 2014 compared with 13.7% in the March 2009 year.

...as firms begin to hire and invest...

As the economy strengthens, firms are expected to raise employment. The tax changes also provide a boost to employment of around 10,000 people, as lower personal income taxes encourage higher labour force participation. This boost is assumed to happen gradually to reflect the slow growth in the demand for labour. With employment growth returning, the unemployment rate is forecast to fall steadily towards 4.5% of the labour force by mid-2014 (Figure 1.5). Since the Budget forecasts were finalised, the unemployment rate has already declined from a peak of 7.1% in the December 2009 quarter (revised down from 7.3%) to 6.0% in the March 2010 quarter. This compares with an expected fall to 7.1% in the Budgetforecasts. Although this measure of unemployment has been unusually volatile in recent quarters, the larger-than-expected fall, taken on its own, suggests the domestic recovery could be stronger than forecast.

Figure 1.5 - Unemployment rate
Figure 1.5 - Unemployment rate.
Sources: Statistics New Zealand, the Treasury

Residential investment is expected to rise sharply over the next two years, reflecting a catch-up from very low levels of building relative to population growth. Non-residential investment is also forecast to rebound strongly, given high levels of business confidence. Tax changes are assumed to boost overall investment slightly as the extra 10,000 workers anticipated require more capital to work with. The removal of housing depreciation and other tax changes are expected to shift the composition of investment, from residential to market investment, and lower house prices slightly from what they would have been in the absence of tax changes. However, there is much uncertainty about how large an impact these policy changes will have on investment and the housing market.

...but the level of output in the economy remains below pre-crisis trends

Potential output is still assumed to be lower compared to what was forecast prior to the global financial crisis. Real output is expected to be around 4.5% below the Budget 2008 forecast in the June 2012 quarter, which was the final period forecast at the time. This reflects the direct impact of the crisis, such as an increased cost of capital compared to pre-crisis levels and the resulting impact on business investment. It also reflects a re-evaluation of how sustainable growth had been in the previous expansion. In particular, economy-wide multifactor productivity growth is estimated by the Treasury to have averaged 0.4% per annum over the 2000s, down from 0.8% per annum in the 1990s.

Overall, a growing nominal economy boosts tax revenue

Growth in the nominal economy is forecast to rebound from 1.7% in the March 2010 year to 7.0% in the March 2011 year, before easing back gradually after that. Nominal output growth is expected to be driven by stronger real activity and higher prices, the latter reflecting the higher terms of trade and the stronger inflation profile. The rise in GST contributes to higher nominal output as nominal GDP is GST-inclusive. Nominal output growth is expected to flow through to higher core Crown tax revenue, but with a lag.

Core Crown tax revenue is forecast to fall by about 7% in the June 2010 year owing to:

  • subdued business profits in the early stages of the recovery
  • the recognition of $1.4 billion of company income tax in 2008/09, which was not repeated in 2009/10
  • previous personal and business tax cuts
  • a steep decline in interest rates in 2009 reducing interest withholding tax in 2010, and
  • a forecasting assumption that previously-incurred tax losses are being used to offset current profits, reducing the corporate tax burden.

Source deductions (mostly PAYE) are expected to fall in the June 2011 year, as the 1 October 2010 personal income tax cuts come into effect. They then rise in line with a recovering labour market, in part driven by higher participation as a result of these tax cuts. GST revenue is forecast to rise as consumer spending rebounds and the GST rate rises to 15%. Corporate tax is expected to increase once business profits recover and the tax-loss cycle has run its course. The cut in the company tax rate from 30% to 28% is not expected to noticeably reduce corporate tax as there are offsetting base-broadening measures. Refer to the box on pages 68 to 70 for the full details of the tax changes.

Table 1.3 - Movement in core Crown tax revenue
Year ended 30 June
$ billions
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast

Core Crown tax revenue

         
Budget 2009 Forecasts 51.6 51.8 54.6 58.4 -
  Forecast changes -0.4 2.5 2.6 2.0 -
Half Year Update 2009 Forecasts 51.2 54.3 57.2 60.4 63.8
  Forecast changes -0.5 0.4 1.4 1.9 2.4
  Policy changes 0.0 -0.8 -0.6 -0.8 -0.8
Budget 2010 Forecasts 50.7 53.9 58.0 61.5 65.4

Composition of Budget 2010 Forecasts:

         
  Source deductions 21.9 20.2 21.0 22.6 24.4
  Corporate tax 7.3 8.9 9.5 10.0 10.4
  GST 11.7 14.4 15.9 16.7 17.6
  Other taxes 9.8 10.4 11.6 12.2 13.0

Source: The Treasury

Inland Revenue also prepared a set of tax forecasts based on the Treasury's macroeconomic forecasts. The two forecasting teams compare forecasts to provide quality assurance for each other. The two sets of Budget 2010 forecasts are broadly similar to each other over the entire forecast period, with the difference in any given year not more than 1% of expected total tax revenue. The Treasury forecasts are lower than Inland Revenue's in the 2010 and 2011 June years but are higher in the 2013 and 2014 June years as the Treasury has incorporated a larger response to the economic recovery in its tax revenue forecasts than Inland Revenue.[2]

Notes

  • [2]For a detailed comparison of the Treasury and Inland Revenue forecasts of tax revenue, see Additional Information on the Treasury website.

Economic and Fiscal Impacts of the Tax Package

Budget 2010 introduces a number of changes to New Zealand's tax system. The details of these changes and the expected economic and fiscal implications are presented below. A statement of tax policy changes that materially affect the tax revenue forecasts is a requirement of the Public Finance Act.

Features of the Tax Package
  • The rates of personal income tax will reduce (effective from 1 October 2010) from 12.5% to 10.5% for income up to $14,000; from 21% to 17.5% for income between $14,001 and $48,000; from 33% to 30% for income between $48,001 and $70,000; and a reduction from 38% to 33% for income over $70,000.
  • The rate of GST will increase from 12.5% to 15% from 1 October 2010. Recipients of the main working-age benefits, student allowances, New Zealand Superannuation and Veterans Pensions will be compensated by a 2.02% increase in their payments from 1 October 2010. Annual indexation of these benefits will resume on 1 April 2011.
  • Working for Families (Family Tax Credit and Minimum Family Tax Credit), the main important forms of supplementary assistance (except Accommodation Support and Student Loan Living Costs), and the Government Superannuation Fund (GSF) and National Provident Fund (NPF) annuities that are subject to CPI adjustments, will be increased by 2.02% from 1 October 2010.
  • The company tax rate will be reduced to 28% from the 2011/12 income year.
  • The top Portfolio Investment Entity (PIE) tax rate and the tax rate for savings vehicles such as superannuation funds will be reduced to 28% from 1 October 2010 for PIEs that pay tax at investors' marginal tax rates and from the 2011/12 income year for other savings vehicles.
  • From the 2011/12 income year, tax depreciation will be set to 0% for all buildings with an estimated useful life of 50 years or more.
  • The 20% depreciation loading will be removed for assets purchased after 20 May 2010 (Budget day).
  • The 75% safe harbour in the inbound thin capitalisation rules applying to the New Zealand operations of foreign multinationals will be reduced to 60% from the 2011/12 income year.
  • Pre-existing imputation credits will be able to be attached to dividends at the current maximum 30:70 imputation ratio for a two-year transitional period.
  • Provisional tax will be reduced for taxpayers who pay provisional tax on the earlier year basis to reflect cuts in personal income tax rates and the company tax rate.
  • The current qualifying company and loss attributing qualifying companies (LAQCs) rules will be replaced with full flow-through treatment for income tax purposes (similar to the rules currently applying to limited partnerships) for income years starting on or after 1 April 2011.
  • Tax benefits relating to capital contributions made to fund the acquisition of capital assets will end. A capital contribution is a payment made to a supplier for the construction of an asset, for example, a payment to an electricity lines company to construct a line to a building. Either the tax cost of a depreciable asset will exclude capital contributions, or the capital contribution must be amortised as income over 10 years. This change is to apply for contributions made after 20 May 2010.
  • GST rule changes, including measures to address risks such as phoenix scheme fraud (where input tax credits are paid to a buyer of an asset but no GST output tax is collected due to insolvency or liquidation of the seller), will be introduced from 1 April 2011.
  • Indexation of the Working for Families tax credits abatement threshold will be removed.
  • Investment losses (such as losses from rental properties) will be excluded from the definition of income for the purposes of calculating Working for Families entitlements from 1 April 2011.
  • Changes will be introduced with effect from 1 April 2011 to address integrity concerns in relation to eligibility or abatement of certain social assistance programmes, including the treatment of trust distributions, income from non-locked in PIEs, income from non-resident spouses and certain fringe benefits.
  • The redundancy tax credit will be removed from 1 October 2010.
  • An additional $119.3 million over four years will be provided to Inland Revenue for compliance and enforcement.
Economic Impacts

The tax changes will affect the New Zealand economy through the multitude of decisions made by firms and households. As a result, there is significant uncertainty associated with the impact of such policy changes. The economic forecasts and medium-term projections, which feature in the Economic and Fiscal Update and Fiscal Strategy Report respectively, assume that in aggregate the tax package will increase the level of real GDP by 0.9% over seven years. By the June 2014 quarter, the economic forecasts incorporate a level of real GDP that is 0.4% higher than in the absence of the tax package, and this grows to 0.9% by the 2016/17 projection year.

The impact on the real economy is mainly through the tax package's effect on the labour market. Private sector hours worked are assumed to increase by 0.8% and the rate of labour force participation by 0.5%.[3] No explicit allowance is made for altered incentives to study, undergo training, seek career advancement or to move to or stay in New Zealand. The number of people employed is expected to grow by 174,000 over the forecast period to 2.326 million. The tax package contributes around 10,000 of the rise. The timing of such impacts is influenced by the current cyclically-weak state of the economy and labour market.

In addition to the impact that a change in available labour has on the potential output of an economy, policy changes are likely to also influence the level and composition of capital via their influence on the incentives to invest. On average, firms will pay more tax as the reduction in the company tax rate does not fully offset the impact of higher taxable income owing to the changed depreciation and thin capitalisation rules. As a result, combined company and dividend tax revenue forecasts are slightly higher than they would have been in the absence of the package. The tax package is expected to change the allocation of investment, including a shift from the housing sector to the non-housing sector and the overall impact on market investment from these two channels is assumed to be largely offsetting.

Despite this, investment is expected to be higher in the long run as a result of the tax package owing to the increase in labour and consequently GDP. This arises because of the need to provide the additional workers with capital to use. As a result, firms will increase investment.

The tax package is also likely to influence the composition of real GDP. Consumption is predicted to be higher because income gains from lower taxes are greater in aggregate than the GST increase. Incomes also increase owing to higher labour force participation and more hours worked. Market investment is higher owing to a shift from residential investment. Exports are higher as more investment will be in the tradable sector.

The Budget forecasts assume that the tax package will see house prices around 2% lower than would otherwise have been the case. Recent weakness in the housing market may have reflected people anticipating changes in this Budget.

The Budget forecasts include a much higher CPI inflation track than in the Half Year Update forecasts. This is predominantly owing to the increase in GST, but also the incorporation of the increase in tobacco excise taxes. Inflation is expected to peak at 5.9% in March 2011. This compares with 3.1% in the absence of the tax changes and is the result of a direct GST impact of 2.0%, a tobacco excise impact of 0.5% and a 0.3% impact owing to stronger domestic demand flowing from the tax changes and a small rise in inflation expectations (although these remain well-anchored).

Notes

Fiscal Impacts

Table 1.4 outlines the impact on the operating balance of the different parts of the tax package. The negative fiscal impact in the first few years is a transitional effect owing to the time required for revenue to accrue from some of the base-broadening measures. In the final year of the forecast period, the impact on the operating balance is positive, and the tax package is expected to be broadly fiscally neutral taking into account macroeconomic effects. The adjustment for macroeconomic effects includes the extra tax revenue the Government receives as a result of extra economic growth from the tax package; for example, higher levels of PAYE as more people are working. It also includes changes to benefit expenses resulting from stronger employment growth because of the labour market effects described above.

Table 1.4 - Fiscal impacts of tax changes in Budget 2010
$ million (rounded to nearest $5m) Increase (decrease) in operating balance
  2010/11 2011/12 2012/13 2013/14 4-yr total
Personal tax rate cuts (2,455) (3,685) (3,935) (4,255) (14,330)
Compensation for GST rate increase (420) (585) (610) (620) (2,235)
Company tax cut to 28% (20) (340) (450) (305) (1,115)
PIEs & savings vehicles capped at 28% (15) (40) (55) (60) (170)
Administration associated with tax package (10) (10)
Sub-total of negative impacts on operating balance (2,920) (4,650) (5,050) (5,240) (17,860)
GST rate increase1 2,040 2,840 2,985 3,160 11,025
Non-compensatory Working for Families changes 5 40 75 65 185
Depreciation measures 140 935 1,000 1,045 3,120
LAQC changes 70 65 55 190
Thin capitalisation 60% threshold 200 200 200 600
GST base changes 15 60 60 60 195
Tobacco excise rate increases 135 180 210 190 715
Increased audit and compliance activity (net revenue) 120 210 210 205 745
Sub-total of positive impacts on operating balance 2,455 4,535 4,805 4,980 16,775
Sub-total of estimated static impact (465) (115) (245) (260) (1,085)
Adjustment for macroeconomic effects 5 25 205 435 670
Total impact on operating balance (460) (90) (40) 175 (415)
  1. Includes the additional tax revenue generated from spending associated with the static net income gain for households resulting from the tax package

Fiscal Outlook

Core Crown revenue expected to recover as taxes respond to a stronger economy

Core Crown revenue is expected to increase from $56.4 billion in the June 2010 year (29.8% of GDP) to $72.9 billion in the June 2014 year (30.7% of GDP), primarily led by the increase in tax revenue described above (Figure 1.6). Tax revenue is forecast to rebound as the economy recovers, albeit with a lag because of recent weakness in tax revenue and a build-up of losses.

Figure 1.6 - Core Crown expenses and revenue
Figure 1.6 - Core Crown expenses and revenue.
Source: The Treasury

Core Crown expenses are expected to grow in absolute terms, but fall as a share of the economy...

Core Crown expenses, which represent the operating spending of the Government excluding State-Owned Enterprises and Crown entities, are forecast to rise from $64.8 billion in the June 2010 year to $77.0 billion in the June 2014 year. This rise is expected to be driven by:

  • Benefit payments are forecast to increase from $21.4 billion in the June 2010 year to $24.6 billion in the June 2014 year. The forecast increase in benefit payments over the next four years is owing to: growth in New Zealand Superannuation (NZS) recipient numbers of around 20,000 per annum (Figure 1.7), which on average adds an extra $320 million each year; indexation of social assistance benefit types increases expenses by around $1.7 billion over the next four years; offsetting some of the increase in benefit payments, a decline in Unemployment Benefit and Emergency Benefit recipient numbers from 79,000 to 60,000 as the unemployment rate falls from 7.0% in the June 2010 year to 4.6% in the June 2014 year.
  • Finance costs are forecast to increase from $2.4 billion in the June 2010 year to $4.5 billion in the June 2014 year owing to the flow-on impact to debt servicing costs from the forecast increase in debt.
  • The operating allowance for new spending allocated in Budget 2010 adds around $1.1 billion to expenses in the June 2011 year, primarily in the health and education sectors.[4] The operating allowance grows at 2% per annum thereafter (eg, $1.12 billion in the June 2012 year) and so adds a further $3.4 billion to expenses by the June 2014 year.
Figure 1.7 - NZS recipient numbers
Figure 1.7 - NZS recipient numbers.
Source: Ministry of Social Development

Although expenses rise in absolute terms, they decline as a share of the economy over time. This decline partly reflects the recovery in the economy. It also reflects the decision in Budget2009 to reduce annual operating allowances for new spending to $1.1 billion (growing at 2% per annum after 2010/11). Core Crown expenses are forecast to rise from 34.2% of GDP to 34.7% in the June 2011 year and then fall to 32.4% by the June 2014 year.

Notes

  • [4]For more details, see page 11 of the Executive Summary.

...operating deficits peak in the June 2011 year owing to one-off factors...

As the trend of expenses exceeding revenue continues, significant operating deficits are expected over the forecast period. The total Crown operating balance (before gains and losses) is expected to be in deficit by $6.9 billion this year (3.7% of GDP). Operating deficits are forecast to peak at $8.6 billion (4.2% of GDP) in the June 2011 year owing to:

  • the tax package is broadly fiscally neutral by the end of the forecast period, as outlined on page 70. However, it has a fiscal cost in the June 2011 year (eg, social assistance benefits are compensated for the rise in the GST rate)
  • underlying tax revenue is weaker in the early part of the forecast period (as previously mentioned), and
  • finance costs and some one-off expenditure, including a number of expenses that have been transferred from the current year into next (such as transport spending and Treaty of Waitangi settlements).

By the June 2014 year, operating deficits are expected to fall to $3.0 billion (1.3% of GDP) as a result of a rise in tax revenue (Figure 1.8). Compared to the Half Year Update, operating deficits are expected to be smaller, reflecting the stronger economic outlook. The reduction in operating deficits has also flowed through to improvements in the residual cash and net debt position.

Figure 1.8 - Total Crown operating balance before gains and losses
Figure 1.8 - Total Crown operating balance before gains and losses.
Source: The Treasury

The total Crown operating balance including gains and losses is also in deficit across the forecast period. The deficit is forecast to be smaller when gains and losses are included because Crown financial institutions such as the New Zealand Superannuation (NZS) Fund are forecasting, on average, to make gains over the forecast period.

The underlying nature of these deficits can be measured by the cyclically-adjusted, or structural, balance, which gauges how much of the operating balance before gains and losses reflects temporary cyclical factors rather than long-lasting factors. While the cyclically-adjusted deficit is estimated to fall from 4.0% of GDP in the June 2011 year to 1.1% in the June 2014 year, the fact it remains negative means that operating deficits are largely structural.[5]

Table 1.5 - Fiscal forecasts
Year ended 30 June  2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast

$ billion

           
Core Crown revenue 59.5 56.4 60.3 64.5 68.5 72.9
Core Crown expenses 64.0 64.8 70.7 71.5 74.2 77.0
Core Crown operating balancea -4.5 -8.4 -10.4 -7.0 -5.7 -4.2
Total Crown operating balancea -3.9 -6.9 -8.6 -5.4 -4.4 -3.0
Total Crown operating balance incl. gains & losses -10.5 -3.2 -7.1 -3.6 -2.4 -0.8
Residual cash -8.6 -9.1 -13.3 -9.7 -7.5 -6.0
Net debtb 17.1 26.6 40.0 49.6 57.1 63.0
Gross debtc 43.4 53.8 67.0 69.7 71.6 77.8
Net worth 99.5 96.5 89.4 85.8 83.5 82.6

% of GDP

           
Core Crown revenue 32.2 29.8 29.6 29.9 30.3 30.7
Core Crown expenses 34.7 34.2 34.7 33.1 32.9 32.4
Core Crown operating balancea -2.5 -4.4 -5.1 -3.2 -2.5 -1.8
Total Crown operating balancea -2.1 -3.7 -4.2 -2.5 -1.9 -1.3
Total Crown operating balance incl. gains & losses -5.7 -1.7 -3.5 -1.7 -1.1 -0.3
Residual cash -4.7 -4.8 -6.5 -4.5 -3.3 -2.5
Net debtb 9.3 14.1 19.6 23.0 25.3 26.5
Gross debtc 23.5 28.4 32.8 32.3 31.7 32.7
Net worth 54.0 50.9 43.9 39.8 37.0 34.8

Notes:

  1. Operating balance before gains and losses
  2. Net core Crown debt excluding the New Zealand Superannuation Fund and advances
  3. Gross sovereign-issued debt excluding Reserve Bank bills and settlement cash

A glossary and longer time series for these variables is provided on page 159.

Source: The Treasury

Notes

  • [5]For more details, see the Additional Information on the Treasury website.

…and cash deficits are met by increased borrowing and higher net debt

Residual cash deficits are expected to continue through the forecast period. The trend is similar to that for operating deficits, peaking in the June 2011 year at $13.3 billion before reducing to $6.0 billion in the June 2014 year. Overall, the cash deficits total $45.6 billion over the next five years.

The Government is expected to spend close to $21.2 billion on capital over the forecast period. The capital spending comprises around $8.7 billion to purchase physical assets primarily so that departments can maintain their current level of assets to deliver services. The Government is also expected to provide loans and capital injections of around $8.9 billion. Just over half of this funding is to State-Owned Enterprises and Crown entities and is generally used to purchase physical assets in the health, education, housing and transport sectors. The rest of the funding primarily relates to student loans.

In addition, the Government has set aside $3.6 billion for future new capital spending. The allowance for new capital spending is $1.39 billion for Budgets 2011 to 2014, which is a reduction from the Half Year Update owing to a portion transferring to the operating allowance.[6]

Table 1.6 - Reconciliation from operating balance to residual core Crown cash
Year ending 30 June
$billion
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
 5 Year Total 
Core Crown revenue 59.5 56.4 60.3 64.5 68.5 72.9  
Core Crown expenses (64.0) (64.8) (70.7) (71.5) (74.2) (77.0)  
Net surpluses/(deficits) of SOEs and CEs and core Crown
gains and losses
(6.0) 5.2 3.3 3.4 3.3 3.3  
Operating balance (10.5) (3.2) (7.1) (3.6) (2.4) (0.8)  
Net retained surpluses of SOEs, CEs and NZS Fund 5.7 (5.4) (3.4) (3.5) (3.4) (3.5)  
Non-cash items and working capital movements 2.8 3.7 2.2 1.5 2.2 2.6  
Net core Crown cash flow from operations (2.0) (4.9) (8.3) (5.6) (3.6) (1.7)  
Contribution to NZS Fund (2.2) (0.3)  
Net core Crown cash flow from operations after
contributions to NZS Fund
(4.2) (5.2) (8.3) (5.6) (3.6) (1.7) (24.4)
Purchase of physical assets (1.6) (2.1) (2.3) (1.7) (1.4) (1.2) (8.7)
Advances and capital injections (2.8) (1.8) (2.4) (1.7) (1.5) (1.5) (8.9)
Forecast for future new capital spending (0.3) (0.7) (1.0) (1.6) (3.6)
Core Crown residual cash (8.6) (9.1) (13.3) (9.7) (7.5) (6.0) (45.6)

Source: The Treasury

Cash deficits represent the amount the Government has to fund, either by raising debt or reducing financial assets. Over the forecast period as a whole, cash deficits are expected to raise net core Crown debt from $17.1 billion(9.3% of GDP) in the June 2009 year to $63.0 billion (26.5% of GDP) in the June 2014 year (Figure 1.9). This represents a large rise in net debt to its highest share of the economy since 1998. As a proportion of GDP, medium-term projections in the Fiscal Strategy Report show that net debt is expected to continue rising to a peak of 27.4% in the June 2015 year as the operating balance returns to surplus the following year. The Government’s long-term fiscal objective is for net debt to be brought back to a level no higher than 20% of GDP by the early 2020s, which will ensure New Zealand is well placed to deal with future shocks as well as the spending pressures associated with an ageing population. In the Fiscal Strategy Report, the net debt target of 20% of GDP is projected to be achieved in the June 2022 year.

Figure 1.9 - Net core Crown debt
Figure 1.9 - Net core Crown debt.
Source: The Treasury

The expected cash shortfall is forecast to be met by additional borrowing and the utilisation of financial assets held by the New Zealand Debt Management Office. The majority of the borrowing requirement will be met through bond issuance in the New Zealand domestic market (Table 1.7). Issuance total $52.2 billion over the forecast period (taking the current year into account), a reduction of $1.5 billion from the previous forecast. After meeting debt maturities, net bond issuances total $33.2 billion (including net non-market issuances to the Earthquake Commission).

Table 1.7 - Net increase in domestic bonds
Year ended 30 June
$billion
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Total
Issue of domestic bonds (market) 12.9 12.8 10.6 10.0 5.9 52.2
Repayment of domestic bonds (market) (4.2) (7.9) (7.9) (20.0)
Net increase in domestic bonds (market) 8.7 12.8 2.7 2.1 5.9 32.2
Issue of domestic bonds (non-market) 0.8 0.2 1.0 1.0 0.3 3.3
Repayment of domestic bonds (non-market) (0.7) (0.8) (0.8) (2.3)
Net increase in domestic bonds (non-market)  0.1 0.2 0.2 0.2 0.3 1.0
Net bond issuance 8.8 13.0 2.9 2.3 6.2 33.2

Source: The Treasury

Notes

  • [6]For more details, see page 13 of the Executive Summary.

Net worth declines because of continued operating deficits

Net worth is forecast to fall from $99.5 billion (54.0% of GDP) in the June 2009 year to $82.6 billion (34.8% of GDP) in the June 2014 year. The fall reflects the flow-on impact to assets and liabilities from the operating deficits expected over the forecast period. Although net worth declines, the Government is still expected to increase total assets by around $32 billion over the forecast period. As part of the overall increase in assets, the Government's holding of physical assets is expected to increase by around $13.9 billion. Overall, the Government is expected to buy around $34.2 billion and sell about $0.9 billion of physical assets over the next five years. The value of physical assets is expected to decline owing to depreciation by around $19.9 billion by the June 2014 year. A breakdown of net additions and depreciation by segment is shown in Figures 1.10 and 1.11. Generally, the increase in core Crown and Crown entities' physical assets is funded from either capital injections or operating funding provided from the Crown. The increase in SOEs' physical assets is expected to be driven by utilisation of operating surpluses or by raising debt. In addition, the forecasts set aside around $3.6 billion in funding for future capital investments over the forecast period.

Figure 1.10 - Net additions of physical assets over 5 years
Figure 1.10 - Net additions of physical assets over 5 years.
Source:  The Treasury
Figure 1.11 - Depreciation of physical assets over 5 years
Figure 1.11 - Depreciation of physical assets over 5 years.
Source:  The Treasury

Risks and Scenarios

Economic and fiscal forecasts always involve a significant amount of uncertainty. The first part of this section outlines the key risks to the outlook and the second part shows how some of the most significant risks could play out in two plausible alternative scenarios.

Economic Risks

Key risks continue to surround the global economy...

The extreme risks to the outlook have eased significantly since early 2009, when financial markets and the world economy had yet to trough after the global financial crisis. Financial markets have since recovered and the world economy has begun to recover. This recovery could prove to be stronger than incorporated in the main forecasts. A stronger recovery may occur if emerging economies, especially in Asia, maintain supportive monetary policy. Faster progress in restoring financial sector strength and rebuilding firm and household balance sheets, as asset prices recover, would lead to a quicker pace of recovery, assisted by higher credit growth. An earlier return of business and consumer confidence could also provide greater support to investment and consumption.

However, significant downside risks remain. In developed economies, these include: sovereign-debt issues emerging in parts of the Euro area, which have reached crisis levels in Greece and could worsen significantly and spread to other countries; private demand may fail to take over once public stimulus and stock rebuilding ends; credit may remain constrained; households and firms may undergo a more drastic deleveraging; and continuing weak housing and labour markets could slow the recovery in consumer spending. The probability of these risks occurring may be low, but any one of them could trigger lower growth in the world economy. At an extreme, the impact from the next shock could be larger than after the global financial crisis because the world economy is less well positioned now than it was beforehand.

...and commodity prices, drought and the impact of tax reform

The world spot price for New Zealand's commodity basket as a whole has risen substantially. Given this increase has been shared across a wider range of products than the previous peak in 2008, it may be less subject to correction. Nevertheless, there are still risks to export commodity prices. Upside risks are mainly around growing demand for commodities in emerging markets. Downside risks include a larger consumer reaction to high prices, if current high prices are only a reflection of temporary factors, or if commodity demand from China is not sustainable.

One of the temporary factors supporting dairy prices is recent drought conditions in New Zealand. Drought will likely lower agricultural production, particularly for dairy, and there is a risk this impact is larger than anticipated in the main forecasts.

The recovery in New Zealand is also subject to risks. Current high confidence levels could be signalling a stronger recovery, while recent weakness in actual consumer spending and in the housing market could portend a more subdued upturn. Once recovery is underway, there are also risks surrounding the rate of potential growth New Zealand can realistically achieve given the weakening of productivity growth over the 2000s. Recent cyclical volatility and policy changes have created additional uncertainty about longer-term trends.

As discussed on page 61, imbalances built up in the economy over the 2000s. An abrupt adjustment is possible if foreign investors react to a higher forecast current account deficit, triggering a sharp fall in the exchange rate, or if households curtail spending more sharply in the face of rising interest rates. House and farm prices are another source of risk. These asset prices remain very high, and the leverage built upon earlier price rises has not been unwound to any significant extent.

The introduction of the tax package also adds a degree of uncertainty not present a year ago, with the potential for significant changes in the behaviour of firms and households. A stronger or weaker than forecast growth response to the tax package could also contribute to the upside and downside scenarios.

Upside Scenario

The upside scenario outlined below incorporates a stronger economic recovery led by a faster domestic upturn. This scenario would be consistent with the tendency of recoveries to be strong and the tendency of forecasters to under-predict their strength.

The domestic economy could recover more strongly than in the main forecasts...

In the upside scenario, the economy rebounds more strongly than in the main forecast, led by higher domestic demand. In line with high levels of confidence in early 2010, consumer spending and both business and residential investment recover faster than in the main forecast. The labour market has already strengthened more quickly than expected in these forecasts. The economy is also assumed to be supported by slightly stronger growth in our trading partners, which would benefit from the same confidence-led recovery as New Zealand in this scenario. Stronger trading partner growth would provide more support for non-commodity export goods and service exports.

Economic growth in this scenario rebounds more quickly than in the main forecasts to 4.5% and 3.2% in the 2011 and 2012 March years respectively. Such growth would be expected to lower the unemployment rate more quickly to 4.8% in the March 2012 quarter, compared to 5.5% in the main forecasts. The larger-than-expected fall in unemployment in the March 2010 quarter provides support to this scenario. A key aspect of the upside scenario is that inflation is also likely to be higher than in the main forecasts as a result of stronger domestic demand. There may also be a greater impact on prices from policy changes than assumed in the main forecasts; for example, if inflation expectations are affected to a greater extent. Annual CPI inflation is 6.5% at March 2011 and 3.5% a year later in this scenario compared to 5.9% and 2.4% respectively in the main forecasts.

The nominal economy is larger in the upside scenario because of stronger real activity and higher inflation. Compared to the main forecasts, nominal GDP over the 2010 to 2014 June years is around $22 billion (2%) higher. The larger nominal economy results in higher tax revenue relative to the main forecast, reflecting higher personal and corporate income taxes owing to higher incomes, more GST results from stronger domestic demand and a larger increase in tax on interest income as interest rates rise by more.

Table 1.8 - Key economic and fiscal features of the upside scenario
(Annual average % change,
Year ended 31 March)
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast

Real GDP components:

           
Private consumption -1.1 0.6 3.8 2.0 1.9 1.9
Residential investment -22.8 -9.9 23.2 12.8 6.5 3.2
Market investment -1.9 -10.2 12.0 10.0 1.4 1.2
Gross national expenditure -1.6 -3.2 7.2 4.5 2.4 1.7
Exports of goods and services -3.4 2.8 2.4 6.2 3.7 2.7
Imports of goods and services -4.7 -9.9 10.8 10.7 4.1 0.5
GDP (production measure) -1.4 -0.2 4.5 3.2 2.5 2.5
Unemployment rate1 5.0 7.1 5.8 4.8 4.6 4.4
90-day bank bill rate2 3.7 2.7 4.3 5.4 6.1 6.4
TWI2 53.7 65.3 65.9 64.0 58.6 53.8
CPI3 3.0 2.2 6.5 3.5 2.9 2.7
Current account balance (% GDP) -7.9 -2.6 -4.4 -6.1 -7.3 -7.5
Nominal GDP level (deviation from main forecast, $billion) 0.0 0.1 3.0 5.6 5.9 5.7

(% of GDP, Year ended 30 June)

           
Operating balance before gains and losses -2.1 -3.6 -3.7 -1.7 -1.2 -0.5
Net core Crown debt 9.3 14.0 18.8 21.3 22.9 23.5

Notes:

  1. Percent of labour force, March quarter, seasonally adjusted
  2. Average for March quarter, actual for 2010
  3. Annual percentage change, March quarter

Sources: Statistics New Zealand, Reserve Bank of New Zealand, the Treasury

…but not by enough to return operating balances to surplus in the forecast horizon

Government expenses are only slightly lower than in the main forecasts. While there are fewer people on the unemployment benefit in this scenario, higher inflation adjustments for benefits and the impact of higher inflation and wage growth on superannuation payments would see overall benefit payments rise. This is offset by lower debt-servicing costs as a result of lower debt levels.

With higher tax revenue, the operating deficit would be slightly smaller than in the main forecast at 3.7% in the June 2011 year and would fall more quickly over the following three years. With smaller deficits in the upside scenario, net core Crown debt would be expected to rise by less than in the main forecasts, rising to a peak of 23.5% in the June 2014 year. However, operating deficits remain over the forecast period in this scenario and net debt continues to rise, despite the stronger economic recovery.

Downside Scenario

The downside scenario centres on risks to the global recovery. It considers a more subdued recovery in the world and domestic economy as a result of lingering impacts from the global financial crisis on, for example, confidence and credit availability.

Table 1.9 - Key economic and fiscal features of the downside scenario
(Annual average % change,
Year ended 31 March)
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast

Real GDP components:

           
Private consumption -1.1 0.6 2.5 0.7 2.1 2.2
Residential investment -22.8 -9.9 21.2 10.4 7.6 5.9
Market investment -1.9 -10.4 4.2 3.9 7.2 5.5
Gross national expenditure -1.6 -3.3 5.0 2.4 3.4 2.7
Exports of goods and services -3.4 2.8 1.2 4.0 3.3 3.9
Imports of goods and services -4.7 -9.9 8.1 5.8 4.2 2.0
GDP (production measure) -1.4 -0.3 2.8 2.0 3.3 3.4
Unemployment rate1 5.0 7.1 6.3 6.2 5.8 5.0
90-day bank bill rate2 3.7 2.7 4.3 4.6 5.0 5.6
TWI2 53.7 65.3 63.8 61.1 55.9 51.6
CPI3 3.0 2.2 5.8 1.9 2.0 2.3
Current account balance (% GDP) -7.9 -2.6 -4.5 -6.4 -7.3 -7.9
Nominal GDP level (deviation from main forecast, $billion) 0.0 0.0 -1.1 -5.4 -7.0 -7.0

(% of GDP, Year ended 30 June)

           
Operating balance before gains and losses -2.1 -3.7 -4.4 -3.3 -3.0 -2.3
Net core Crown debt 9.3 14.1 20.0 24.6 27.9 30.1

Notes:

  1. Percent of labour force, March quarter, seasonally adjusted
  2. Average for March quarter, actual for 2010
  3. Annual percentage change, March quarter

Sources: Statistics New Zealand, Reserve Bank of New Zealand, the Treasury

A weaker global economy would impact on New Zealand's trade and earnings...

In the downside scenario, recent signs of a rebound in world growth prove to be premature as renewed weakness takes hold in late 2010. Trading partner growth is assumed to be 2.8% in 2010 and 3.0% in 2011 compared to 3.7% in each year in the main forecasts. The level of GDP in our trading partners is around 2% lower at the end of the forecast period compared to the main forecasts. A number of factors could drive such a downside scenario, including the economic risks discussed above. For example, an escalation and spread of the sovereign-debt crisis in Greece would require significant adjustment by the economies directly affected and knock-on effects for others, or unanticipated shocks could slow growth in emerging Asia. It is important to note that, although significant, this downside scenario as modelled is not on the scale of the global financial crisis.

The main effect of the downside scenario on the New Zealand economy is lower terms of trade. Weaker global demand is assumed to flow through to significantly lower prices for New Zealand’s exports compared to the main forecast. This reduces incomes in the domestic economy and hampers the recovery in New Zealand. A tightening of global credit conditions also contributes to a more subdued upturn by raising the cost of credit and reducing domestic investment. Lower confidence and weaker credit growth lead to a fall in house prices in real terms of more than 7% in the year to March 2011.

The largest impact on the New Zealand economy is felt in the March 2012 year when growth eases again to 2.0%, down from 2.8% in the March 2011 year. Economic growth is slightly higher in the subsequent two years as interest rates are lowered, the exchange rate declines more rapidly and world growth recovers slightly. Nevertheless, the unemployment rate would be expected to remain above 6% for an extra 5 quarters compared with the main forecasts. A combination of weaker terms of trade, weaker real activity and subdued inflation results in lower nominal GDP compared to the main forecast. Under the downside scenario, the level of nominal GDP is predicted to be around $22 billion (2%) lower than in the main forecast over the 2010 to 2014 fiscal years.

…and lower tax revenue while raising operating deficits and net debt

Tax revenue is lower in the downside scenario than in the main forecasts because weaker incomes and domestic demand flow through to income tax and GST revenue. More people would receive benefits in the downside scenario, but the adjustments to benefit rates because of inflation would be lower. The operating deficit under the downside scenario in the June 2011 year is 4.4% of GDP and declines more slowly to 2.3% of GDP by 2014. Larger deficits relative to the main predictions mean borrowing would be higher under the downside scenario and would result in net debt peaking at around 30% of GDP by the June 2014 year. Such a scenario illustrates an outlook similar to that in Budget 2009. Those forecasts, made near the trough of the world economic downturn, foresaw a rise in projected net core Crown debt to around 30% of GDP in the June 2013 year.

Fiscal Sensitivities

The scenarios set out alternative paths for the fiscal position based on plausible economic drivers. In contrast, Table 1.10 provides some “rules of thumb” on the sensitivities of the fiscal position to changes in specific variables without identifying the drivers of change.

Table 1.10 - Fiscal sensitivity analysis
Year ended 30 June
($ million)
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast

1% lower nominal GDP growth per annum on

         
Tax revenue (525) (1,090) (1,750) (2,465) (3,255)

Revenue impact of a 1% decrease in growth of

         
Wages and salaries (255) (460) (710) (1,005) (1,350)
Taxable business profits (125) (265) (415) (575) (745)

One percentage point lower interest rates

         
Interest income (42) (158) (118) (89) (24)
Expenses (33) (253) (371) (470) (538)
Impact of interest rates on the operating balance (9) 95 253 381 514

Source: The Treasury

Finalisation Dates and Assumptions for the Forecasts

Economic and fiscal forecasts - finalisation dates
Economic forecasts 16 April
Tax revenue forecasts 23 April
Fiscal forecasts 4 May
Text finalised 11 May
Economic Forecast Assumptions

Policy - The tax reform package in Budget 2010 has a significant impact on the economy over the forecast period. Details of this impact are in a separate box on pages 68 to 70. Of other policy changes, the Emissions Trading Scheme (ETS) is assumed to raise the Consumers Price Index (CPI) by about 0.4% in the June 2011 year as the ETS impacts on the price of stationary energy (eg, coal, gas and geothermal) and fuel prices, with a further impact of about 0.4% in the 2013 calendar year as the transition phase ends. A further impact on the CPI is expected from higher ACC levies on motorists estimated at 0.1% in the September 2010 quarter.

Trading partner growth - The global outlook has continued to be revised upwards. After an estimated contraction of 0.9% in 2009, the economies of New Zealand's top-12 trading partners are expected to grow 3.7% in each of 2010 and 2011 before averaging 3.5% per annum in the final three years of the forecast period. These are slightly higher in the near term than growth rates in Consensus Forecasts forApril 2010.

Global inflation and interest rates - Inflation declined dramatically in 2009 from the previous year in most economies. The outlook is for global inflation to rise as the recovery in the world economy progresses. In this inflation environment, interest rates are expected to be gradually normalised over the forecast period.

Oil prices - The average price of West Texas Intermediate (WTI) oil on a quarterly basis rose to US$79/barrel in the March 2010 quarter. Based on the average futures prices for WTI oil in early April 2010, the price of oil is assumed to rise to around US$91/barrel by the end of the forecast period. At this point, the oil price assumption is approximately 5% above that assumed in the Half Year Update.

Figure 1.12 - WTI oil prices
Figure 1.12 - WTI oil prices.
Sources: Datastream, the Treasury

Terms of trade - The merchandise terms of trade, as measured in the System of National Accounts (SNA), are estimated to rise over the forecast period to be around 10% higher in the June 2014 quarter than in the December 2009 quarter. This is around 2% higher than in the Half Year Update 2009.

Monetary conditions - The New Zealand dollar exchange rate is assumed to remain at its March 2010 quarter level of 65.3 on the Trade Weighted Index (TWI) throughout 2010. The TWI is then assumed to depreciate gradually from early 2011 to 53.2 at the end of the forecast period. Ninety-day interest rates are expected to rise to 3.3% in the September quarter of 2010 and 4.8% a year later and continue to increase to 5.8% by the end of the forecast period.

External migration - The net inflow of permanent and long-term migrants is assumed to decrease to 10,000 per annum by early 2012, down from 21,000 in the year to March 2010.

Fiscal Forecast Assumptions

The fiscal forecasts are based on assumptions and judgements developed from the best information available on 4 May 2010, when the forecasts were finalised. Actual events are likely to differ from some of these assumptions and judgements. Furthermore, uncertainty around the forecast assumptions and judgements increases over the forecast period. Significant tax reform in Budget 2010 adds additional uncertainty to the economic and 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.
  • An unemployment forecast is needed to underpin the projected number of Unemployment Benefit recipients.
  • 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 the table below (on a June-year-end basis to align with the Government's balance date).

Table 1.11 - Summary of key economic forecasts used in fiscal forecasts
  2009/10 2010/11 2011/12 2012/13 2013/14
June years Half Year
Forecasts
Budget
Forecasts
Budget
Forecasts
Budget
Forecasts
Budget
Forecasts
Budget
Forecasts
Real GDP (P) (ann avg % chg) 0.7 0.9 3.3 3.1 2.9 3.1
Nominal GDP (E) ($m) 184,466 189,526 203,876 215,722 225,820 237,609
CPI (annual avg % change) 2.1 2.1 4.8 3.1 2.4 2.5
Govt 10-year bonds (ann avg %) 5.8 5.9 5.9 5.9 5.9 6.0
5-year bonds (ann avg %) 5.0 5.1 5.5 5.7 5.8 5.9
90-day bill rate (ann avg %) 2.9 2.8 3.9 5.1 5.4 5.6
Unemployment rate (ann avg %) 6.9 7.0 6.4 5.6 5.1 4.6
Employment (ann avg % change) -1.9 -1.7 0.9 2.1 2.0 2.1
Current account (% of GDP) -3.6 -3.2 -5.0 -6.3 -7.1 -7.2

In addition there are also a number of other key assumptions that are critical in the preparation of the fiscal forecasts.

Government decisions

Incorporate government decisions up to 4 May 2010.

Tax package

Estimated second-round macroeconomic effects of the tax package have been incorporated into the tax, benefit and debt servicing forecasts.  There is uncertainty associated with the full impact of the policy changes on the fiscal position, so there is a risk there could be additional impacts not captured in the fiscal forecasts.

Operating allowance

Net $1.1 billion in 2010/11, growing by the rate of 2% per annum for subsequent Budgets.

Capital allowance

$1.39 billion in Budget 2011, 2012, 2013 and 2014 allocated as follows over the forecast period:

 
$billions 09/10 10/11 11/12 12/13 13/14
Contingency - 0.12 0.02 - 0.33
Budget 11 - 0.16  0.56 0.30 0.26
Budget 12 - - 0.16 0.56 0.30
Budget 13 -   - 0.16 0.56
Budget 14 -     - 0.16
Total - 0.28 0.74 1.02 1.61
Investment rate of returns

Incorporate the actual results to 28 February 2010.  Beyond the June 2010 year, gains on financial instruments are based on long-term benchmark rate of returns for each portfolio.

Finance cost on new bond issuances

Based on 5-year rate from the central economic forecasts and adjusted for differing maturity.

Top-down adjustment

Top-down adjustment to operating and capital as follows:

 
$billions 09/10 10/11 11/12 12/13 13/14
Operating 0.46 0.41 0.06 0.06 0.06
Capital 0.13 0.30 - - -
Total 0.59 0.71 0.06 0.06 0.06
Borrowing requirements

The forecast cash deficits will be met by reducing financial assets and issuing debt.

Property, plant and equipment

For the purposes of the forecast financial statements, no revaluations of property, plant and equipment are projected beyond the current year.  Valuations as recorded for the 2009 annual financial statements and any additional valuations that have occurred up to 28 February 2010 are included in these forecasts.  A number of revaluation exercises are currently underway and are planned to be completed in time for the 2010 annual financial statements (published in early October).  The results of these valuations are, therefore, not reported in these forecast financial statements.

Student loans

The carrying value of student loans is based on a valuation model adapted to reflect current student loans policy.  As such, the carrying value over the forecast period is sensitive to changes in a number of underlying assumptions, including future income levels, repayment behaviour and macroeconomic factors such as inflation and discount rates used to determine the effective interest rate for new borrowers.  Any change in these assumptions would affect the present fiscal forecast.

Government Superannuation Fund and ACC liabilities

The Government Superannuation Fund and ACC liabilities included in these forecasts have been valued as at 28 February 2010 and 31 December 2009 respectively, with the ACC valuation being adjusted for the 31 March 2010 discount rate.  Both liabilities are valued by projecting future cash payments, and discounting them to present value.  These valuations rely on historical data to predict future trends and use economic assumptions such as inflation and discount rates.  Any change in actual payments or economic assumptions would affect the present fiscal forecast.  For example, if the discount rate decreases, the value of the liabilities would increase.

The Government Superannuation Fund's assets are offset against the gross liability and have been updated to reflect market values at 28 February 2010.  The value of assets over the forecast period reflects long-run rate of return assumptions appropriate to the forecast portfolio mix.

Emissions Trading Scheme (ETS)

The forecasts have been prepared in accordance with current government ETS policies and the effects of these policies over commitment period 1 (CP1) (2008 to 2012). Details of current climate change policies are listed at:

 www.mfe.govt.nz/issues/climate/policies-initiatives

The carbon price assumption is constant at €10.75 with an exchange rate of 0.5298 (a carbon price of NZ$20.29). The forecast assumes a 67% uptake of post-1989 foresters into the ETS over CP1.

Beyond 2012, ETS net revenues have been modelled as neutral (revenues equal expenses), as New Zealand currently has no international commitments beyond this period.  Net revenue (the value of credits received after free allocation of credits to participating industries and after meeting future emissions liabilities) is assumed to be recycled back to the public through fiscally equivalent, unspecified tax reductions or spending increases.

Kyoto position

The Kyoto position included in fiscal forecasts reflects the Government's obligation for CP1, which is for the period 2008 to 2012.  Base case projections beyond 2012 do not incorporate a quantitative estimate of any net emissions position that may eventuate from New Zealand's obligations under future international climate change agreements.

NZS Fund contributions

A $250 million contribution in 2009/10 and no contribution is assumed in the forecast period beyond the 2010 fiscal year.

Fiscal Risks

Introduction

This chapter describes the fiscal risks to the Government, including specific fiscal risks, and contingent liabilities, and notes charges against the fiscal forecasts.

Legislative Requirements

The Public Finance Act 1989 (PFA) requires an Economic and Fiscal Update to incorporate, to the fullest extent possible consistent with the limits on disclosure requirements set out below, all government decisions and other circumstances that may have a material effect on the fiscal and economic outlook. If the fiscal implications of government decisions and other circumstances can be quantified for particular years with reasonable certainty, these fiscal implications must be included in the forecast financial statements. If the fiscal implications of government decisions and other circumstances cannot be quantified for particular years with reasonable certainty, those government decisions or other circumstances must be disclosed in the statement of specific fiscal risks.

The PFA requires the Minister of Finance and the Secretary to the Treasury to sign a statement of responsibility for each Economic and Fiscal Update that:

  • the Minister of Finance has communicated to the Secretary to the Treasury before the Economic and Fiscal Update is finalised, all policy decisions with material economic or fiscal implications that the Government has made, and all other circumstances with material economic or fiscal implications of which the Minister is aware, and
  • the Secretary to the Treasury has incorporated in the Economic and Fiscal Update the fiscal and economic implications of those decisions and other circumstances, using the Treasury’s best professional judgement (on the basis of the economic and fiscal information available to the Treasury on the day before the Economic and Fiscal Update was finalised).

The PFA also requires the statement of specific fiscal risks of the Government to disclose the rules used to determine what is and what is not a specific fiscal risk.

The PFA requires that the fiscal forecasts must be prepared in accordance with generally accepted accounting practice (GAAP).

FRS-42 Prospective Financial Statements provides GAAP guidance for preparing fiscal forecasts. The general principle of the standard is that forecasts should be prepared using the best information that is reasonable and supportable. To ensure the accuracy of the fiscal forecasts the forecast assumptions:

  • are based on the best information that is available at the time the forecasts are prepared (eg, latest economic conditions)
  • are consistent with the current plans of the Government (eg, include current policies and other policies the Government is considering), and
  • have a reasonable and supportable basis (eg, events are probable and measurable).

There will always be an element of judgement surrounding the assumptions that are made in preparing the fiscal forecasts. To provide a more comprehensive picture of the fiscal position FRS-42 also requires disclosure of factors that may lead to a material difference between the forecasts and the actual results. This includes matters such as new policies the Government may be considering and sensitivity around key assumptions (eg, economic conditions).

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

All government decisions and other circumstances that may have a material effect on the fiscal and economic outlook are considered against the criteria and rules set out below to determine if they are to 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 all of the following criteria:

  • The quantum is more than $10 million in any one year.
  • 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[7] 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 his or her 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 cost is more than $10 million in any one year, and either
  • a decision has not yet been taken, but it is reasonably possible[8] (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 for 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 his or her best professional judgement, that the matters may have a material effect (more than $10 million in any one year) 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 criteria (ie, are less than $10 million in every year), or if it is unlikely[9] they will be approved or occur within the forecasting period.

Additionally, the Minister of Finance may determine that an item 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.

Furthermore, the Minister of Finance has to determine that there is no reasonable or prudent way the Government can avoid this prejudice, compromise or material loss by making a decision on the fiscal risk before the finalisation of the forecasts, or by disclosing the forecast item or fiscal risk without reference to its fiscal implications.

Notes

  • [7]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).
  • [8]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).
  • [9]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).

Information Relating to all Disclosed Risks

Allowances for additional operating and capital spending in future Budgets are incorporated into the fiscal forecasts. From Budget 2011 the operating allowance is set at $1.12 billion per Budget (grown forward at 2% per annum) and the capital allowance is $1.39 billion per Budget from 2011 to 2014.

The risks outlined in this chapter, should they eventuate, would only have an effect on the operating balance and/or net debt to the extent that they were not funded from within the allowances, by reprioritising existing expenditure or through third-party revenue.

Policy options for many risks require further development, and the quantum of the risk is often uncertain. Consequently, the final cost or saving may differ from the amounts disclosed in this chapter.

Charges Against the Fiscal Forecasts

The PFA requires that if the fiscal implications of government decisions and other circumstances can be quantified for particular years with reasonable certainty, these fiscal implications must be included in the forecast financial statements. This applies irrespective of whether or not a decision has been taken by the Government to provide additional funding for the matter.

Based on the criteria outlined in pages 86 and 87, none of the risks outlined in this chapter are considered probable enough to be included as charges against the fiscal forecasts.

Specific Fiscal Risks

The matters listed below are disclosed as specific fiscal risks as they meet the rules for disclosure outlined on pages 86 and 87 above.

Quantified and unquantified risks are listed separately. Within each list the risks have been categorised as new or changed/unchanged since the last Economic and Fiscal Update.

Risks are unquantified if the amount of the risk is unknown, or if the matter is partially disclosed as an unquantified risk (as full disclosure would be likely to prejudice New Zealand's substantial economic interests, security, defence or international relations; or compromise the Crown in a material way in negotiation, litigation or commercial activity; or result in a material loss of value to the Crown).

Fuller descriptions of the risks listed below are included on pages 94 to 103.

Quantified Risks

If they were to eventuate the risks outlined in these tables would, to the extent that they cannot be funded from future budget allowances, by reprioritising existing expenditure or through third-party revenue, impact the Government's forecast financial position (as indicated in the table below).

A negative fiscal impact means an increase in net debt and possibly a decrease in the operating balance.

Quantified Risks
Quantified risks as at 4 May 2010 Impact on fiscal position Value of risk

New risks

   
Economic Development - Venture Investment Fund underwrite Negative $40m
Justice - Auckland Courthouse Capital Programme Negative $160m
Ministerial Services - Rugby World Cup Visits Programme Negative $4m per annum and $12m one-off
Transport - Support for New Zealand Railways Corporation (KiwiRail) Business Strategy Negative $500m

Changed risks

   
Communications - Broadband Investment Negative $1b capital
Corrections - Community Probation and Psychological Services Negative $24m capital and $30m operating
Corrections - Prison Construction Negative $412m capital and $63m operating
Education, Social  Development, Health and Revenue - Medical Training Places Negative $12m operating per annum
Immigration - Immigration New Zealand Change Programme Negative $63m over 4 years
Justice - Review of the Legal Aid System Negative $274m
Police - Digital Radio Network Phase 2 Negative $150m

Unchanged risks

   
Defence Force - Future Operationally Deployed Forces Activity Negative $30m operating
Defence Force - Sale of Skyhawks and Aermacchi Trainers Positive $130m
Education - Broadband Investment: Schools Negative $150m to $235m
Finance - Crown Overseas Properties Negative Preliminary cost estimates total $150m over the period 2009/10 to 2013/14
Health - Additional WellChild Visits Negative $15.4m per annum
Immigration - Re-development of Mangere Refugee Centre Negative $5m operating and $25m capital

Unquantified Risks

If they were to eventuate the risks outlined in these tables would, to the extent that they cannot be funded from future budget allowances, by reprioritising existing expenditure or through third-party revenue, impact the Government's forecast financial position (as indicated in the table below).

A negative fiscal impact means an increase in net debt and possibly a decrease in the operating balance.

Unquantified Risks
Unquantified risks as at 4 May 2010 Impact on fiscal position

New risks

 
ACC - Levies and Non-Earners' Account Positive or Negative
Broadcasting - Digital Switchover Negative
Climate Change - Finance for Developing Countries Negative
Finance - Electricity Reforms Negative
Housing - State Housing Tenancy Management Negative
Research, Science and Technology - Research Infrastructure Negative
Revenue - Review Tax Treatment of Fitout of Commercial and Industrial Buildings Positive or Negative
Revenue - Reviews Stemming from Budget 2010 Tax Changes Positive or Negative
Transport - Changes to Penalties for Driving Offences Negative

Changed risks

 
Economic Development - Large Budget Screen Production Fund Negative
Education - Additional Funding for School Property Negative
Health - Caregiver Employment Conditions Negative
Health - H1N1 Pandemic Negative
Health - Payment of Family Caregivers Negative

Unchanged risks

 
Climate Change - ETS and International Climate Change Obligations Positive or Negative
Defence Force - Defence Review Negative
Education - School Operational Grants Negative
Education - Additional Funding for Defective School Buildings Negative
Education - Early Childhood Education Participation Negative
Finance - Crown Retail Deposit Guarantee Scheme Negative
Finance - Government Commitments to International Financial Institutions Negative
Finance - New Zealand Post Equity Injection to Fund Expansion Negative
Health - District Health Board Deficits Negative
Housing - Hobsonville Urban Development Negative
Housing - Weathertight Homes Negative
Revenue - Cash Held in Tax Pools Negative
Revenue - Charitable Giving Negative
Revenue - Child Support - Shared Care Negative
Revenue - Imputation Negative
Revenue - International Tax Review Negative
Revenue - Redesigning Business Processes at Inland Revenue Positive
Revenue - Potential Tax Policy Changes Positive or Negative
Revenue - Tax Issues Relating to Auckland Governance Reform Positive or Negative
Transport - Tauranga Eastern Corridor Negative
Risk to Third-Party Revenue Negative
State Sector Employment Agreements Negative
Reviews of the Delivery of Public Services Positive

Risks Removed Since the 2009 Half Year Economic and Fiscal Update

The following risks have been removed since the 2009 Half Year Economic and Fiscal Update:

 
Expired risks Reason
ACC - Levy increases 2010/11 levies are now finalised and their effect is included in the forecasts
Customs - Joint Border Management System Replacement Systems development is being funded in Budget 2010
Defence Force - Project Protector Warranty Issues Project Protector mediation now complete and full and final warranty payments confirmed
Education - Early Childhood Education Ratio Changes No longer likely
Education - School Staffing Entitlements Decision taken in Budget 2010
Education - Demand for Tertiary Education Decision taken in Budget 2010
Education - Early Childhood Education Funding Decision taken in Budget 2010
Education - Integrated School property Decision taken in Budget 2010
Education - Te Whare Wānangao Awanuiārangi Decision taken in Budget 2010
Education - Trades Academies No longer meets $10m threshold for disclosure
Finance - New Zealand Superannuation  Fund No longer likely
Health - Funding Increase for Subsidised Medicines No longer likely
Health - National systems development programme Programme no longer running, no further funding sought
Housing - Tamaki No longer likely
Justice  - Greater Auckland Service Delivery Strategy Included in Budget 2010 contingencies for Audio Visual Links and Criminal Procedure Simplification
Justice - Family Court Professional Services Funded as an initiative in the Justice Allocation in Budget 2010
Revenue - Goods and Services Tax - Business to Business Transactions Revenue increases have been incorporated within baselines
Revenue - KiwiSaver Has been included in the fiscal forecast assumptions
Revenue - Mutual Recognition and the Australian Tax Review No longer likely
Revenue - Possible Structural Tax Changes This risk is superseded by the Budget 2010 tax package
Revenue - Reducing Compliance Costs for Small- and Medium-sized Enterprises No longer likely
Revenue - Reinstatement of Deferred Tax Cuts This risk is superseded by the Budget 2010 tax package
Revenue - Revenue Implications of Recommendations from the Capital Market Development Taskforce Recommendations have been published, risk now incorporated in "Potential Tax Changes" risk
Revenue - Tax Treatment of Social Assistance Programmes This risk is superseded by the Budget 2010 tax package
Social Development - Increasing the Abatement-Free Income Threshold The Government has agreed to increase the abatement-free threshold as part of the Future Focus package of benefit reforms
State Services - KiwiSaver Contribution Covered by generic risk and included in forecasts
Tourism - Investment in Tourism Infrastructure No longer likely
Transport - NZRC Operating Support and Loans Superseded by KiwiRail risk

Statement of Specific Fiscal Risks

ACC - Levies and Non-Earners' Account (new, unquantified risk)

Changes in tax settings and ACC's financial performance affect the Crown's levy income and liability for claims. The lag between half-yearly liability valuation and annual decisions on levies means that future levy rates may differ from current levels, with either a positive or negative impact on revenue.

Broadcasting - Digital Switchover (new, unquantified risk)

The Government is planning to announce a date for digital switchover (DSO) when take-up of digital TV reaches 75% or 2012, whichever is the earlier. Depending on the date chosen for DSO, and the level of any direct support that the Government chooses to provide to assist smooth transition and thereby ensure that maximum potential economic benefit is realised, there may be a negative impact on the operating balance.

Climate Change - ETS and International Climate Change Obligations (unchanged, unquantified risk)

There is uncertainty in the level of fiscal impact associated with the Kyoto obligation over the 2008-2012 first commitment period. The net impact of variables including carbon prices, levels of net emissions, the uptake of post-1989 foresters and allocation levels to emitters are highly uncertain and could change the Government's costs significantly. A review of the Emissions Trading Scheme (ETS) in 2011 may also have fiscal implications. The Government may need to purchase emission units to meet its obligations under the Climate Change Response Act 2002 and the Kyoto protocol, with a corresponding impact on net debt.

After the first commitment period, no rights or obligations are forecast in the Government's accounts for any post-2012 international climate change agreement, given the Government has yet to ratify any such agreement and the high levels of uncertainty around its potential nature and size. Also, the effect of the ETS, which transfers the impact of the world price of carbon through the economy, will mitigate the fiscal impact of such an agreement. Any agreement entered into will need to be recognised at the time, alongside forecast ETS revenues and expenses.

Climate Change - Finance for Developing Countries (new, unquantified risk)

There is an international expectation that developed countries, including New Zealand, contribute finance to developing countries to support adaptation and mitigation. Globally, contributions are likely to be in the order of tens to hundreds of US billions of dollars per year from this year onward. Following the Copenhagen climate change negotiations in 2009, New Zealand associated with the Copenhagen Accord. In the Accord, developing countries committed to contribute finance to developing countries to support mitigation and adaptation, collectively approaching US$30 billion over 2010-2012 and US$100 billion per annum by 2020. New Zealand's contribution as a portion of this finance is currently uncertain.

Communications - Broadband Investment (changed, quantified risk)

The Government has committed to spend $1.5 billion on a new broadband network delivering “ultra fast” broadband services. Of this amount, $290 million has been appropriated through Budget 2009 and $258 million through Budget 2010. The timing and amount of further funding has not yet been determined.

Corrections - Community Probation and Psychological Services (changed, quantified risk)

The 2009-2017 Criminal Justice Forecast predicts a significant increase in the number of sentences and orders served in the community over the forecast period. The Department of Corrections estimates that this would require an additional 497 Probation Officers, Programme Facilitators and Psychologists over the forecast period based on current levels of service delivery. This size of this risk has decreased since the last Economic and Fiscal Update because the Department is able to absorb part of the increase within baselines. The Department now estimates that it will require an additional $30 million operating by 2013/14 and additional capital funding of $24 million.

Corrections - Prison Construction (changed, quantified risk)

The Government is considering options to address forecast growth in the prison population. Under current policy settings, the Department of Corrections faces prison capacity demands over the next 10 years. The Department has developed a plan to respond to this demand by increasing prison capacity and replacing capacity that is at the end of its life. The first stage of this plan (a new prison at Wiri and expansion of Mt Eden Prison) received funding in Budget 2010. If the Government chooses to fund the remainder of this plan, it would cost up to an additional $412 million capital over the next 10 years and $63 million operating per annum by 2018/19. These figures are subject to change depending on the procurement methods chosen by the Government.

Defence Force - Defence Review (unchanged, unquantified risk)

The Government has approved terms of reference for a Defence Review and subsequent Defence White Paper. This process is expected to be completed by 30 September 2010. Included in the Defence Review is an examination of financial management procedures to meet the long-term defence funding requirements. The Defence Review is likely to present a range of options with different funding implications.

Defence Force - Future Operationally Deployed Forces Activity (unchanged, quantified risk)

There are currently over 400 New Zealand Defence Force personnel deployed overseas on peace-keeping and United Nations missions. Maintaining existing deployment levels would result in an increased annual operating balance impact of some $30 million from 2011/12 subject to any decisions to change existing deployments. The forthcoming White Paper on Defence expected to be completed by 30 September 2010 will consider future funding requirements for a range of operational commitments in the context of Government's wider policy priorities and fiscal position.

Defence Force - Sale of Skyhawks and Aermacchi Trainers (unchanged, quantified risk)

New Zealand's application to sell the former Air Combat Force aircraft has been approved by the US Congress and now depends on the successful conclusion of commercial negotiations. Should the sale proceed, at a contract value of US$110 million, the net proceeds from the sale are expected to be around NZ$130 million.

Economic Development - Large Budget Screen Production Fund (changed, unquantified risk)

The Large Budget Screen Production Fund is a fund to assist film production companies. The appropriation is set at $36 million, however the Fund is a demand-driven programme and actual costs are dependent upon the number of productions. In any given year, the number of productions underway can vary and associated costs can vary.

Economic Development - Venture Investment Fund Underwrite (new, quantified risk)

The Government has agreed in principle to provide a four-year $40 million underwrite to the New Zealand Venture Investment Fund (NZVIF) to allow NZVIF to continue to engage with prospective venture capital fund managers. Approval of the underwrite is subject to further advice from officials.

Education - Broadband Investment: Schools (unchanged, quantified risk)

Government has signalled an investment of $150 million into Vote Communications to support the introduction of ultra-fast broadband into schools. The capital cost of upgrading school internal networks for all state and state-integrated schools has been estimated at $235 million. Further work is being undertaken to refine this cost in the coming year.

Education - School Operational Grants (unchanged, unquantified risk)

The Government has historically increased school operating grants in each Budget. Any funding for school operations grants would depend on the circumstances and the ability of the proposal to be funded within existing baselines.

Education - Additional Funding for Defective School Buildings (unchanged, unquantified risk)

As in other areas of the building sector, the school property portfolio has a portion of the building stock built between 1995 and 2005, which is subject to the “leaky buildings” (defective building) issues as a result of poor design, inappropriate materials, poor workmanship and deficient building project oversight.

Education - Additional Funding for School Property (changed, unquantified risk)

The Ministry of Education advises an additional $154 million may be required for new schools over the next three financial years to meet demographic changes. The Ministry also advises that there is a risk of further increases around the annual property portfolio revaluation which will require increased depreciation funding.

Education - Early Childhood Education Participation (unchanged, unquantified risk)

The Government is considering ways in which early childhood education participation of groups that are currently under-represented might be increased. Any costs would depend on the option chosen and the ability of the proposal to be funded within existing baselines. Currently, the Ministry's Performance Improvement Actions expect increased participation amongst under-represented groups. This is to be funded from savings from the Budget 2009 forecast Early Childhood Education expenditure. However, the Ministry has yet to realise the necessary savings. Because the final costs for a package depend on behavioural changes, this risk is unquantifiable at present, and may vary from costs agreed in Budget 2010.

Education, Social Development, Health and Revenue - Medical Training Places (changed, quantified risk)

The Government has considered funding 200 additional medical training places over five years. Sixty additional medical places were funded in Budget 2009, with a further twenty in Budget 2010. Proceeding with the remaining 120 places would require additional funding, although final costs would depend on the option chosen and the ability of the proposal to be funded within existing baselines. The estimated impact would be $12 million operating per annum by the end of 2014/15, and this grows beyond the forecast period.

Finance - Crown Overseas Properties (unchanged, quantified risk)

The Government holds New Zealand House in London on a long-term lease from the Crown Estate (UK). Depending on the Government's future intentions for this building, an upgrade may be required. Preliminary cost estimates for this upgrade total $150 million over the period 2010/11 to 2013/14.

Finance - Crown Retail Deposit Guarantee Scheme (unchanged, unquantified risk)

The Government operates an opt-in Retail Deposit Guarantee Scheme over financial institution deposits. The objective of the scheme is to ensure ongoing retail depositor confidence in New Zealand’s financial system, given the international financial market turbulence. A total of 73 financial institutions have been approved under the scheme. These are listed on the Treasury website. Deposits totalling $133 billion are under guarantee. The Crown also continually updates the likelihood of further default actions triggering the guarantee and assesses the expected loss given default. Based on these assessments, the Crown has provided for $881 million as at 31 March for future payments under this scheme after expected recoveries. The policy decision to extend and amend the Retail Deposit Guarantee Scheme to 31 December 2011 was announced on Tuesday 25 August 2009 and as at 30 April 2009, 4 financial institutions had been approved under the extended guarantee. This reflects the significant uncertainty as to the value that can be realised from an entity’s assets following an event of default. Except as provided on the Treasury website, further information on the Retail Deposit Guarantee Scheme cannot be provided due to commercial sensitivity.

Finance - Electricity Reforms (new, unquantified risk)

In December 2009, the Government announced a series of measures related to improving the operation of the electricity market, including reconfiguring State-Owned Enterprises' assets (virtual and physical asset swaps), a liquid hedge market, and measures to improve security of supply. Some details of these measures are yet to be decided; for example, the timing for the SOE asset reconfiguration. Given this, the impact of the reforms on the individual SOEs cannot currently be estimated. While some aspects of the measures, such as the physical asset swaps between Meridian and Genesis, should be fiscally neutral for the Crown as owner of the SOEs, other aspects may not be, but this cannot currently be quantified. There are also implementation costs associated with the reforms, estimated to be between $6 million and $12 million.

Finance - Government Commitments to International Financial Institutions (unchanged, unquantified risk)

The forecast level of government commitments to international financial institutions is subject to change, depending on the Government's response to any changed financial plans on the part of these institutions.

Finance - New Zealand Post Equity Injection to Fund Expansion (unchanged, unquantified risk)

A decision to fund New Zealand Post's business expansion through equity injection or other form of financial support is currently being sought.

Health - Additional WellChild Visits (unchanged, quantified risk)

The Government is considering providing funding for three additional WellChild visits during the first nine weeks of a baby's life. The initiative has not been funded in Budget 2009 or Budget 2010, and has been deferred for consideration in future Budgets. If approved, the indicative cost of this initiative would be $15 million operating in 2011/12 and outyears.

Health - Caregiver Employment Conditions (changed, unquantified risk)

The Employment Court has made a judgement in favour of two third-party employed caregivers regarding their sleepover employment conditions. Although the third-party employer is appealing the decision, an unsuccessful result would require consideration of the repercussions for the Crown.

Health - District Health Board Deficits (unchanged, unquantified risk)

Several District Health Boards (DHBs) have projected operating deficits in 2010/11. The Government has stated that it does not view projected DHB operating deficits as acceptable, and the Ministry of Health is working with DHBs to develop financial recovery plans. The Government has set aside funding in Vote Health to meet deficit requirements in 2010/11, anticipating that the DHB deficit position will improve in future years.

Health - H1N1 Pandemic (changed, unquantified risk)

In the event of a second wave H1N1 pandemic, there may be fiscal impacts as a result of an increase in demand for Tamiflu and antibiotics, and an increase in the utilisation of medical facilities.

Health - Payment of Family Caregivers (changed, unquantified risk)

The Human Rights Tribunal has declared that the Ministry of Health's policy of not employing family members to provide care to disabled relatives is in breach of S19 of the New Zealand Bill of Rights. An appeal has been lodged in the High Court.

Housing - Hobsonville Urban Development (unchanged, unquantified risk)

The Government has commenced the development of an integrated urban community at Hobsonville within an area known as the Buckley precinct. Funding was provided in Budget 2008 for this precinct, as well as any other costs that will be incurred concurrently in order to enable broader site works and whole of project infrastructure. Additional capital funding may be required for the subsequent precincts in future Budgets. This would increase net debt until 2013 when the development will begin providing a return to the Crown. This risk is unquantified as disclosure could compromise the Government in negotiations with potential private sector partners.

Housing - State Housing Tenancy Management (new, unquantified risk)

The Government is considering changing tenancy management practices for state house tenants, with the aim of increasing the proportion of houses that are occupied by high needs tenants. This is likely to result in higher costs to the Crown for the Income Related Rent subsidy paid to the Housing New Zealand Corporation and the Accommodation Supplement. The changes could also increase public expectations that all high needs applicants are housed, which could lead to pressure to increase the size of the state housing portfolio.

Housing - Weathertight Homes (unchanged, unquantified risk)

The Government is considering options to facilitate assistance to homeowners to repair homes affected by the weathertightness issues that occurred as a result of changes to building regulations and industry practices in the late 1990s and early 2000s.

Immigration - Immigration New Zealand Change Programme (changed, quantified  risk)

The Immigration New Zealand Change Programme proposes an integrated approach to upgrading immigration services. Work is underway and further work is proposed, particularly a significant upgrade of existing ICT systems. Were the ICT component to proceed, estimated Crown capital costs are up to $62 million over four years from 2010/11 to 2013/14. Ongoing costs of the project would be funded from fees.

Immigration - Re-development of Mangere Refugee Centre (unchanged, quantified risk)

The existing refugee facilities at Mangere may need refurbishment. Initial estimated costs of the refurbishment are $5 million operating and $25 million capital.

Justice - Auckland Courthouse Capital Programme (new, quantified risk)

Forecast level of demand for court services under current policy settings indicates there may be a need for additional courthouse capacity in the greater Auckland region. If additional funding is provided, the overall estimated cost will be up to $160 million with $20 million in 2011/12, $25 million in 2012/13 and $115 million in 2013/14. The Minister of Finance has yet to fully consider the quantum of this risk.

Justice - Review of the Legal Aid System (changed, quantified risk)

The Government has already taken a number of steps to improve the administration of the legal aid system. The Government is developing further options for delivering legal aid services in a sustainable and affordable way. Final costs will depend on the further decisions that are expected to be taken in early 2011.

Ministerial Services - Rugby World Cup Visits Programme (new, quantified risk)

It is expected that the costs of the guest of government and state functions programme will be higher than usual during the year of the Rugby World Cup. It is currently estimated that, beyond the annual budget of $4 million, a further $12 million will be spent on showcasing New Zealand to a wide range of overseas visitors coming to New Zealand in connection with the event. These costs include official events, accommodation and hospitality for the guests of government.

Police - Digital Radio Network Phase 2 (changed, quantified risk)

The Government has previously funded the partial implementation of a Digital Radio Network in Wellington, Auckland and Christchurch, to be completed by December 2010. Police are still considering options for the further rollout of a National Digital Radio Network, possibly beginning in the 2011/12 fiscal year. Earlier estimates suggested costs of up to $150 million, comprising $28 million in capital in 2011/12, rising to $38 million in 2013/14; and $7 million of operating in 2011/12, rising to $18 million in 2013/14.

Research, Science and Technology - Research Infrastructure (new, unquantified risk)

The Government is considering a five year Research Infrastructure Strategy for Vote Research, Science and Technology. Current planning indicates this will cost $130 million to $200 million over five years. Any costs that are not able to be funded within baselines will decrease the operating allowance.

Revenue - Cash Held in Tax Pools (unchanged, unquantified risk)

Funds held in tax pools are recognised as an asset to the Crown. There is a risk that funds held in these pools, over and above a customer's provisional tax liability, may be withdrawn, resulting in an unquantified cash loss to the Crown.

Revenue - Charitable Giving (unchanged, unquantified risk)

Officials are investigating possible tax incentives for charitable giving, including gift aid and changes in the tax treatment of cultural gifts.

Revenue - Child Support - Shared Care (unchanged, unquantified risk)

A Government discussion document will be released on shared care in the child support formula, including taking into account the incomes of both parents and the costs of children. Any changes would have administrative costs for Inland Revenue and could have further costs to Government from reduced offsets to benefits.

Revenue - Imputation (unchanged, unquantified risk)

Aspects of the current imputation system are being reviewed. This includes whether companies should be able to stream imputation credits, and the refundability of imputation credits, particularly to charities.

Revenue - International Tax Review (unchanged, unquantified risk)

A number of proposals will be considered, and possibly progressed, as part of Phase II of the international tax review. Since all these proposals involve exempting income in particular circumstances, they may, if progressed, have a negative impact on tax revenue.

Revenue - Redesigning Business Processes at Inland Revenue (unchanged, unquantified risk)

The Government is investigating options to redesign business processes at Inland Revenue, which could include both policy and administrative options to simplify customer interactions in the Pay As You Earn and Personal Tax Summary systems. Any changes could impact tax revenue collections or have material administrative costs to implement.

Revenue - Potential Tax Policy Changes (unchanged, unquantified risk)

The Government is considering changes to various tax policies as indicated in the 18 month tax policy work programme. Measures on the current work programme are expected to be revenue neutral in aggregate. Measures enacted to date, and included in revenue forecasts, have increased tax revenue by around $50 million per annum. The remaining items are expected to be revenue negative up to the same extent. Because it is unclear exactly what additional policy changes, if any, will be made at this stage, these further changes have not been included in revenue forecasts. The work programme will be revised as soon as possible after the Budget.

Revenue - Review Tax Treatment of Fitout of Commercial and Industrial Buildings (new, unquantified risk)

The Government has announced a review of the appropriate tax treatment for “fitouts” of commercial and industrial buildings in light of Inland Revenue's interpretation statement IS10/01 on the treatment of residential building fitout. Depending on the outcome of that review, there could be a fiscal gain or loss over the forecast period.

Revenue - Reviews Stemming from Budget 2010 Tax Changes (new, unquantified risk)

The tax changes announced in Budget 2010 include commencing consultation on the exact nature of policy changes that will be legislated later in 2010 for enactment from 1 April 2011. To the extent that consultation leads to enacted legislation that is different from what is currently expected, the revenue implications of policy changes may be different from what is forecast.

Revenue - Tax Issues Relating to Auckland Governance Reform (unchanged, unquantified risk)

New entities are likely to emerge from the reform of local governance in Auckland. Some of these new entities could have tax liabilities different to the tax liabilities of existing entities, which would impact on the total tax paid by Auckland local government entities beyond the 1 November 2010 transition date. Depending on the shape of entities adopted, the changes could decrease tax revenue.

Reviews of the Delivery of Public Services (unchanged, unquantified risk)

The Government has announced its intention to deliver more public services, more effectively, for fewer resources. The Government may undertake one or a number of value-for-money in-depth reviews over the next 12 months. The Government has also agreed to the implementation of a number of Performance Improvement Actions (PIAs). Reviews and PIAs may identify areas of expenditure that are not efficient, effective or aligned to government policy, or could be delivered differently. Reviews and PIAs may recommend, or result in, changes to service delivery and/or free up resources for reprioritisation within the vote (or within the organisation) or be returned to the centre to meet pressures in other areas. Reviews of government activities that result in improved cost-effectiveness are likely to have a positive impact on the fiscal position.

Risk to Third-Party Revenue (unchanged, unquantified risk)

A wide range of government activities are funded through third-party fees and charges. With a decrease in economic activity, there is a risk that decreases in third-party revenue streams will require changes to service delivery with transitional costs to the Crown. For example, decreases in Customs revenue or in levies on building activity may mean that some activities are temporarily unable to be fully cost-recovered and the Government will need to transition out of an activity or temporarily subsidise that activity.

State Sector Employment Agreements (unchanged, unquantified risk)

A number of large collective agreements are due to be renegotiated in the short to medium term. 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 for restraint given the current economic environment and conditions in the private sector.

Transport - Changes to Penalties for Driving Offences (new, unquantified risk)

The Government is considering changes to driving offences, in particular increasing penalties for driving offences causing injury or death. Final costs will depend on options chosen and may increase costs in Votes Courts, Justice, Attorney-General, Police, and Corrections.

Transport - Support for New Zealand Railways Corporation (KiwiRail) Business Strategy (new, quantified risk)

The Government has agreed in principle to support a 10-year strategy for the New Zealand Railways Corporation (NZRC, trading as KiwiRail Group) to achieve a commercially viable rail network. A total of $750 million in capital over the next three years is forecasted as the Crown contribution towards the strategy, but its disbursement will be dependent on the approval of suitable business cases and demonstrable progress towards objectives. Budget 2010 has provided $250 million in capital as the first tranche of Crown funding for this strategy. If this funding results in progress towards the desired service improvements and revenue uplift, and if subsequent business cases can justify further investment, up to $500 million in additional capital may be required over the next two Budgets. Budget 2010 also provides for the refinancing of $170 million of NZRC debt to the Crown. In addition to this, NZRC has $220 million in debt to the Crown maturing over the period 2011/12 to 2014/15, which the Crown may also need to refinance.

Transport - Tauranga Eastern Corridor (unchanged, unquantified risk)

The Crown may be asked to provide a loan to the New Zealand Transport Agency to advance the construction of the Tauranga Eastern Corridor Roading Project. It is intended that the loan will be repaid by toll revenue from the road.

Contingent Liabilities and Contingent Assets

Contingent liabilities are costs that the Crown will have to face if a particular event occurs. Typically, contingent liabilities consist of guarantees and indemnities, legal disputes and claims, and uncalled capital. 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 it would reduce the operating balance and increase net debt. However, in the case of contingencies for uncalled capital, the negative impact would be restricted to net debt.

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 potential assets dependent on a particular event occurring.

Only contingent liabilities and contingent assets involving amounts of over $10 million are separately disclosed. Contingent liabilities and assets below $10 million are included in either the “other quantifiable contingent liabilities” total or the “other quantifiable contingent assets” total.

Contingent liabilities and contingent assets have been stated as at 31 March 2010, being the latest set of contingencies reported.

Quantifiable Contingent Liabilities and Contingent Assets

Quantifiable Contingent Liabilities and Contingent Assets
Guarantees and indemnities Status [10] ($ million)
Air New Zealand - letters of credit and performance bonds Changed 61
Cook Islands - Asian Development Bank loans Changed 14
Indemnification of receivers and managers - Terralink Limited Unchanged 10
Ministry of Transport - funding guarantee Unchanged 10

Guarantees and indemnities of SOEs and Crown entities

Changed 8
Other guarantees and indemnities Changed 13
    116

Uncalled capital

   
Asian Development Bank Changed 1,080
Bank for International Settlements Changed 26
European Bank for Reconstruction and Development Changed 14
International Bank for Reconstruction and Development Changed 1,156

Other

Changed

7

    2,283

Legal proceedings and disputes

   
Health legal claims Unchanged 15
Inland Revenue legal proceedings and disputes - tax Changed 267
Kapiti West link road Changed 14
Other legal claims Changed 46
    342

Other quantifiable contingent liabilities

   
Air New Zealand partnership Changed 61
Crown Health Financing Agency Changed 26
Inland Revenue - unclaimed monies Changed 50
International finance organisations Changed 1,532
Kyoto Protocol units Changed 1,747
New Zealand Export Credit Office - export guarantees Changed 145
Reserve Bank - demonetised currency Unchanged 23
Other quantifiable contingent liabilities of SOEs and Crown entities Changed 37
Other quantifiable contingent liabilities Changed 31
    3,652
Total quantifiable contingent liabilities   6,393

Quantifiable contingent assets

   
Inland Revenue - legal proceedings and disputes Changed 199

Ministry of Education - suspensory loans

Changed

66

Other quantifiable contingent assets Changed 9
Total quantifiable contingent assets   274

Notes

  • [10]Relative to reporting in the 15 December 2009 Budget Policy Statement 2010.

Unquantifiable Contingent Liabilities

 
  Status [11]

Guarantees and indemnities

 
Airways Corporation of New Zealand Limited Unchanged
AsureQuality Limited Unchanged
At Work Insurance Limited Unchanged
Bona Vacantia property Unchanged
Building Industry Authority Unchanged
Contact Energy Limited Unchanged
Crown Retail Deposit Guarantee Scheme Unchanged
Earthquake Commission (EQC) Unchanged
Electricity Corporation of New Zealand Limited (ECNZ) Unchanged
Ministry of Fisheries - indemnity provided for delivery of registry services Unchanged
Genesis Power Limited - supply of gas Unchanged
Genesis Power Limited - contractor claims New
Genesis Power Limited - financial guarantees Unchanged
Genesis Power Limited - letters of credit and performance bonds Unchanged
Housing New Zealand Corporation (HNZC) Unchanged
Indemnities against acts of war and terrorism Unchanged
Justices of the Peace, Community Magistrates and Disputes Tribunal Referees Unchanged
Landcorp Farming Limited Unchanged
Maui Partners Unchanged
National Provident Fund Unchanged
New Zealand Railways Corporation (NZRC) Unchanged
Persons exercising investigating powers Unchanged
Public Trust Unchanged
Reserve Bank of New Zealand Unchanged
Synfuels-Waitara outfall indemnity Unchanged
Tainui Corporation Unchanged

Other unquantifiable contingent liabilities

 
Abuse claims Unchanged
Accident Compensation Corporation (ACC) litigations Changed
Air New Zealand litigation Changed
Environmental liabilities Unchanged
Kordia Group Limited Unchanged
Maui contracts Unchanged
Rugby New Zealand 2011 Limited - joint venture arrangements Unchanged
Television New Zealand Limited Unchanged
Treaty of Waitangi claims Unchanged
Treaty of Waitangi claims - settlement relativity payments Unchanged
Westpac Banking Corporation Unchanged

Other contingencies

 
Foreshore and seabed Unchanged

Notes

  • [11]The following unquantified contingent liability was removed: Geothermal carbon tax indemnity.

Statement of Contingent Liabilities and Contingent Assets

Quantifiable contingent liabilities

Guarantees and indemnities

Guarantees and indemnities are disclosed in accordance with NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets. In addition, guarantees given under section 65ZD of the Public Finance Act 1989 are disclosed in accordance with section 26Q(3)(b)(i)(B) of the same Act.

Air New Zealand - letters of credit and performance bonds

The letters of credit are primarily given in relation to passenger charges, airport landing charges and indemnities provided to financial institutions on limits provided on staff credit cards. The performance bonds are primarily given in respect to engineering contracts.

$61 million at 31 March 2010 ($32 million at 31 October 2009)

Cook Islands - Asian Development Bank (ADB) loans 

Before 1992, the New Zealand Government guaranteed the Cook Islands' borrowing from the ADB. These guarantees have first call on New Zealand's Official Development Assistance.

$14 million at 31 March 2010 ($15 million at 31 October 2009)

Indemnification of receivers and managers - Terralink Limited

The Crown has issued a Deed of Receivership indemnity to the appointed receivers of Terralink Limited against claims arising from the conduct of the receivership.

$10 million at 31 March 2010 ($10 million at 31 October 2009)

Ministry of Transport - funding guarantee 

The Minister of Finance has issued a guarantee of $10 million to the Transport Accident Investigation Commission. The guarantee allows the Commission to assure payment to suppliers of specialist salvage equipment in the event of the Commission initiating an urgent investigation of any future significant transport accident.

$10 million at 31 March 2010 ($10 million at 31 October 2009)

Legal proceedings and disputes

The amounts under quantifiable contingent liabilities for legal proceedings and disputes are shown exclusive of any interest and costs that may be claimed if these cases were decided against the Crown.

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 possible amount of any award against the Crown.

Health legal claims

Claims against the Crown in respect of alleged negligence for failing to screen blood for Hepatitis C when screening had first become available, resulting in people allegedly contracting Hepatitis C through contaminated blood and blood products.

$15 million at 31 March 2010 ($15 million at 31 October 2009)

Inland Revenue legal proceedings and disputes - tax

Legal proceedings and disputes tax represents the outstanding debt of those tax assessments raised, against which an objection has been lodged and legal action is proceeding. 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.

The reduction in contingent liabilities is owing to the dispute with a number of financial institutions regarding the tax treatment of certain structured finance transactions, which has now been settled.

$267 million at 31 March 2010 ($1,655 million at 31 October 2009)

Kapiti West link road

Court action has been filed against New Zealand Transport Agency to have the land held for the Kapiti West link road released for sale. The maximum liability is $14 million.

$14 million at 31 March 2010 ($25 million at 31 October 2009)

Other quantifiable contingent liabilities

Air New Zealand partnership

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

$61 million at 31 March 2010 ($68 million at 31 October 2009)

Crown Health Financing Agency

The agency is subject to potential legal claims plus associated legal fees in respect of the actions of the former Area Health Boards. The agency is defending those claims that have resulted in litigation and will defend any of the others that result in litigation. The agency does not accept liability for the claims.

$26 million at 31 March 2010 ($28 million at 31 October 2009)

Inland Revenue - unclaimed monies

Under the Unclaimed Monies Act 1971, companies (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.

$50 million at 31 March 2010 ($46 million at 31 October 2009)

International finance organisations[12]

The Crown has lodged promissory notes with the International Monetary Fund. Payment of the notes depends upon the operation of the rules of the organisation.

$1,532 million at 31 March 2010 ($1,561 million at 31 October 2009)

Kyoto Protocol units

During the first commitment period the Net Kyoto Position of the Crown estimates that 89.1 million tonnes of carbon credits will be generated by carbon removals via forests. To the extent that these forests are harvested in subsequent commitment periods there will be an associated liability generated that will need to be repaid.

The New Zealand Emissions Trading Scheme transfers a portion of the potential future liability to forest owners. As at 31 March 2010, approximately three million tonnes has been transferred to forest owners in the form of New Zealand units. The Crown's contingent liability is calculated as the remaining credits the Crown is potentially liable for (86.1 million tonnes) multiplied by the carbon price of $20.29 as at 31 March 2010.

$1,747 million at 31 March 2010 ($1,871 million at 31 October 2009)

New Zealand Export Credit Office - export guarantees

The New Zealand Export Credit Office (NZECO) provides a range of guarantee products to assist New Zealand exporters. These NZECO guarantees are recorded by the Crown as contingent liabilities. The amount of future liabilities arising from these guarantees is expected to be minor.

$145 million at 31 March 2010 ($175 million at 31 October 2009)

Reserve Bank - demonetised currency

The Crown has a contingent liability for the face value of the demonetised currency issued which has yet to be repatriated.

$23 million at 31 March 2010 ($23 million at 31 October 2009)

Notes

  • [12]On 13 April 2010 the Minister of Finance announced that New Zealand had agreed to make available to the International Monetary Fund up to US$1 billion (NZ$1.3 billion approximately) to support the international financial system in the event of a significant crisis.

Unquantifiable contingent liabilities

Accounting standard NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires that contingent liabilities be disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Disclosure of remote contingent liabilities is only required if knowledge of the transaction or event is necessary to achieve the objectives of general purpose financial reporting. This part of the statement provides details of those contingent liabilities of the Crown that cannot be quantified (remote contingent liabilities are excluded).

Guarantees and indemnities

Airways Corporation of New Zealand Limited

The Crown has indemnified Airways Corporation of New Zealand Limited as contained in Airways' contract with New Zealand Defence Force for the provision of air traffic control services. The indemnity relates to any claim brought against Airways by third parties arising from military flight operations undertaken by the Royal New Zealand Air Force.

AsureQuality Limited

The Crown has indemnified the directors of AsureQuality Limited in the event that they incur any personal liability for redundancies arising from any agreement by international trading partners that allows post-mortem meat inspection by parties other than the Ministry of Agriculture and Forestry, or its sub contractor.

At Work Insurance Limited

The Crown has indemnified the liquidators of At Work Insurance Limited (Deloitte Touche Tohmatsu) against various employment-related claims.

Bona Vacantia property

P&O NZ Limited sought a declaratory judgement that property disclaimed by a liquidator is bona vacantia. A settlement has been reached, which includes a Crown indemnity in favour of New Zealand Aluminium Smelters and Comalco in relation to aluminium dross disposed of in their landfill, for costs that may be incurred in removing the dross and disposing of it at another site if they are required to do so by an appropriate authority. The Minister of Finance signed the indemnity on 24 November 2003. In February 2004, a similar indemnity was signed in respect of aluminium dross currently stored at another site in Invercargill.

Building Industry Authority

The Building Industry Authority (BIA) is a joint defendant in a number of claims before the courts and the Weathertight Homes Resolution Service relating to the BIA's previous role as regulator of the building industry. The BIA has been disestablished and absorbed into the Department of Building and Housing and, to prevent conflicts of interest, the Treasury was given responsibility for managing weathertight claims against the BIA on behalf of the Crown from 1 July 2005.

Contact Energy Limited

The Crown and Contact Energy signed a number of documents to settle in full Contact Energy's outstanding land rights and geothermal asset rights at Wairakei. Those 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.

Crown Retail Deposit Guarantee Scheme

On 12 October 2008, the Minister of Finance initiated an opt-in Retail Deposit Guarantee Scheme. The objective of this scheme is to ensure ongoing retail depositor confidence in New Zealand’s financial system given the international financial market turbulence.

As at 31 March 2010, 73 financial institutions had joined the scheme and deposits totalling $132.5 billion had been guaranteed. This is the maximum exposure and does not include any offset resulting from the recovery of the remaining assets of the financial institution in the event the guarantee is called upon. The Crown assesses the potential loss to be associated with the entities that hold significant deposits (ie, greater than $5 billion) as being remote.

For other entities within the scheme (ie, entities that hold deposits less than $5 billion) a provision has been made to provide for losses that are considered more likely than not to occur. The Crown continually updates both the likelihood of further default actions triggering the guarantee and the expected loss given default. Based on these assessments, the Crown has provided for a net expected loss given default of $881 million as at 31 March 2010 ($899 million at 31 October 2009) being the cost of future payments under the scheme after expected recoveries.

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

Earthquake Commission (EQC) 

The Crown is liable to meet any deficiency in the EQC's assets in meeting the Commission's financial liabilities (section 16 of the Earthquake Commission Act 1993). In the event of a major natural disaster the Crown may be called upon to meet any financial shortfall incurred by the Commission.

Electricity Corporation of New Zealand Limited (ECNZ) 

The Deed of Assumption and Release between ECNZ, Contact Energy Limited and the Crown provides that Contact Energy stands in the place of ECNZ for those assets transferred to Contact Energy from ECNZ. As a result of the split of ECNZ, Ministers have transferred the benefits of the Deed to ECNZ's successors - Meridian Energy Limited, Mighty River Power Limited, and Genesis Power Limited.

The liability is open-ended and is of significant commercial value. Directors are unlikely to forego the indemnity without substantial compensation.

As a result of the 1999 split of ECNZ into three new companies the Crown has signed a Deed of Indemnity that has indemnified ECNZ in relation to all ECNZ's pre-split liabilities and any liabilities that arise out of the split itself. This indemnity is provided to ECNZ to ensure that directors can be satisfied as to the ongoing solvency of ECNZ following the split and to enable most of ECNZ's surplus funds to be distributed to the Crown. In addition, the Crown has indemnified ECNZ against any liability that might arise under its debt and swap arrangements as a result of ECNZ entering into the Agreements for Sale and Purchase on 22 December 1998.

In addition, the Crown has guaranteed ECNZ's existing hedge contract obligations, which remain with ECNZ after the split. The principal purpose of the guarantee is to provide sufficient credit support to ECNZ under the hedge contracts so as to avoid providing hedge counterparties reasonable grounds upon which to terminate their hedge contracts as a result of the split. In light of the expected future medium-term spot price of electricity, it is expected that most payment flows under the hedge contracts will be from the hedge counterparties to ECNZ, which will then be passed to the new SOEs. All hedges have now expired, although some are in litigation regarding errors in how payments were made.

Ministry of Fisheries - indemnity provided for delivery of registry services

The Crown has indemnified Commercial Fisheries Services Limited against claims made by third parties arising from Commercial Fisheries Services undertaking registry services under contract to the Chief Executive of the Ministry of Fisheries. This indemnity provided under the Fisheries Act 1983 and 1996, expires on 30 September 2010.

Genesis Power Limited - supply of gas

The Crown has entered into a deed with Genesis Energy to share a specified and limited amount of risk around the sufficiency of Genesis Energy's long-term supply of gas to cover the Huntly e3p's (a 385 MW combined cycle gas turbine power station) minimum needs. The agreement sees the Crown compensate Genesis Energy in the event it has less gas than it needs.

Genesis Power Limited - contractor claims

A subcontractor to the Kupe Alliance has presented several claims relating to the construction of the Kupe project. These claims have been disputed by the Kupe operator. There can be no assurances that such claims will not have an adverse impact on Genesis Energy's business, financial condition or results of operations.

Genesis Power Limited - financial guarantees

The company issued financial guarantees to the alliance contractor and other agents of the Kupe joint venture for the full and faithful performance of its subsidiaries in their capacities as joint venture partners, to the extent of their several liabilities under the development agreement.

The company issued a financial guarantee to Energy Clearing House Limited for the full and faithful performance of its subsidiary Energy Online Limited, to the extent of its liabilities for its retail electricity purchases.

These guarantees may give rise to liabilities in the company if the subsidiaries do not meet their obligations under the terms of the respective arrangements.

Genesis Power Limited - letters of credit and performance bonds

The company, as a participant in the electricity market, issued letters of credit to the Energy Clearing House Limited under the markets' security requirements. These letters of credit are issued as part of normal trading conditions and are to ensure there is no significant credit risk exposure to any one market participant.

The company has also issued letters of credit and performance bonds to certain suppliers and service providers under normal trading conditions. The liabilities covered by these arrangements are already provided for in the statement of financial position, and therefore not expected to create any adverse effects on the financial results presented. These are not material to the financial statements.

Housing New Zealand Corporation (HNZC)

HNZC is liable to the owners (ANZ National Bank Limited, Ichthus Limited and Westpac Banking Corporation) of mortgages sold by HNZC during 1992 to 1999 for credit losses they may incur from specified limited aspects of their ownership of those mortgages with the Crown standing behind this obligation.

The Crown has provided a warranty in respect of title to the assets transferred to Housing New Zealand Limited (HNZL) (HNZL was incorporated into the HNZC Group as a subsidiary in 2001 as part of a legislated consolidation of government housing functions) and has indemnified HNZL against any breach of this warranty. In addition, the Crown has indemnified HNZL against any third-party claims that are a result of acts or omissions prior to 1 November 1992. It has 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.

Indemnities against acts of war and terrorism

The Crown has indemnified Air New Zealand against 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.

Justices of the Peace, Community Magistrates and Disputes Tribunal Referees

Section 197 of the Summary Proceedings Act 1957 requires the Crown to indemnify Justices of the Peace and Community Magistrates against 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.

Section 58 of the Disputes Tribunal Act 1988 confers a similar indemnity on Disputes Tribunal Referees.

Landcorp Farming Limited 

The Protected Land Agreement provides that the Crown will pay Landcorp any accumulated capital costs and accumulated losses or Landcorp will pay the Crown any accumulated profit, attributed to a Protected Land property that is required to be transferred to the Crown or that the Crown releases for sale. The Crown will also be liable to pay Landcorp, at the time of sale or transfer of any property deemed to be Protected Land, the amount of any outstanding equity payments on the initial value of the property.

Maui Partners 

The Crown has entered into confidentiality agreements with the Maui Partners in relation to the provision of gas reserves information. The deed contains an indemnity against any losses arising from a breach of the deed.

National Provident Fund

The National Provident Fund (NPF) has been indemnified for certain potential tax liabilities. Under the NPF Restructuring Act 1990, the Crown guarantees:

  • the benefits payable by all NPF schemes (section 60)
  • investments and interest thereon deposited with the NPF Board prior to 1 April 1991 (section 61), and
  • payment to certain NPF defined contribution schemes where application of the 4% minimum earnings rate causes any deficiency or increased deficiencies in reserves to arise (section 72).

A provision has been made in these financial statements in respect of the actuarially assessed deficit in the DBP Annuitants' Scheme.

New Zealand Railways Corporation (NZRC) 

The Crown has indemnified the directors of NZRC against any liability arising from the surrender of the licence and lease of the Auckland rail corridor.

The Crown has further indemnified the directors of NZRC against all liabilities in connection with the corporation taking ownership and/or responsibility for the national rail network and any associated assets and liabilities on 1 September 2004.

On 5 July 2009 the Crown further indemnified the directors of NZRC, and the directors of its subsidiaries, to the same extent that statutory entities can indemnify their members under the Crown Entities Act 2004. This indemnity was given on the grounds that there is no express power in the New Zealand Railways Corporation Act 1981 for New Zealand Railways Corporation to grant its own indemnities.

Section 10 of the Finance Act 1990 guarantees all loan and swap obligations of the NZRC.

Persons exercising investigating powers 

Section 63 of the Corporations (Investigation and Management) Act 1989 indemnifies the 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.

Public Trust

Section 52 of the Public Trust Act 2001 provides for the Crown to meet any deficiency in the Public Trust's Common Fund in meeting lawful claims on the Fund. This is a permanent (legislated) liability. On 7 November 2008 the Minister of Finance guaranteed interest payable on estates whose money constitutes the Common Fund.

Reserve Bank of New Zealand

Section 21(2) of the Reserve Bank of New Zealand Act 1989 requires the Crown to pay the Reserve Bank the amount of any exchange losses incurred by the bank as a result of dealing in foreign exchange under sections 17 and 18 of the Act. This is a permanent (legislated) liability.

Synfuels-Waitara outfall indemnity

As part of the 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 that was laid across the Waitara meat processing plant site.

The Crown has the benefit of a counter indemnity from NZLFI that has since been transferred to Methanex Motunui Limited.

Tainui Corporation

Several leases of Tainui land at Huntly and Meremere have been transferred from ECNZ to Genesis Power Limited. The Crown has provided guarantees to Tainui Corporation relating to Genesis Power's obligations under the lease agreements.

Other unquantifiable contingent liabilities

Abuse claims

There is ongoing legal action against the Crown in relation to historical abuse claims. At this stage the number of claimants and outcome of these cases are uncertain.

Accident Compensation Corporation (ACC) litigations

There are legal actions against ACC in existence, arising in the main from challenges to operational decisions made by ACC. In addition, there is an appeal litigation in progress as a consequence of ACC clients appealing a review officer's decision to the District Court. While an estimate of the financial effect of existing legal actions and outstanding appeals cannot be made, ACC believes the resolution of these will not have a materially adverse effect on the financial statements.

Air New Zealand litigation

Air New Zealand has been named in five class actions. One, in Australia, claims travel agents' commission on fuel surcharges and two (one in Australia and the other in the United States) make allegations against more than 30 airlines, of anti-competitive conduct in relation to pricing in the air cargo business. The other two class actions (in the United States and Canada) allege that Air New Zealand together with many other airlines conspired in respect of fares and surcharges on trans-Pacific routes. All class actions are being defended.

The allegations made in relation to the air cargo business are also the subject of investigations by regulators in a number of jurisdictions including New Zealand, the United States and the European Union. A formal Statement of Objections was issued by the European Commission in 2007 to 25 airlines including Air New Zealand. Air New Zealand has responded to this Statement of Objections. On 15 December 2008 the New Zealand Commerce Commission filed proceedings against 13 airlines including Air New Zealand alleging breaches of the Commerce Act 1986. Air New Zealand is defending each of these proceedings.

In the event that a court determined, or it was agreed with a regulator, that Air New Zealand had breached relevant laws, the company would have potential liability for pecuniary penalties and to third-party damages under the laws of the relevant jurisdictions.

Environmental liabilities

Under common law and various statutes, the Crown may have responsibility to remedy adverse effects on the environment arising from Crown activities.

Departments managing significant Crown properties have implemented systems to identify, monitor and assess potential contaminated sites.

In accordance with NZ IAS 37 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.

Kordia Group Limited

As part of its contractual obligations with clients, Kordia Group Limited has an undertaking to provide services at a certain level and should this not be achieved, Kordia Group Limited may be liable for contract penalties. It is not possible to quantify what these may be until an event has occurred. The company does not expect any liabilities to occur as a result of these contractual obligations.

The company makes advances to its subsidiary companies. The company's loan facility comprises a syndicated revolving cash advance facility between three banks, committed to a maximum amount of $135 million (31 October 2009: $136 million). The facility is supported by a negative pledge by the Company and its guaranteeing subsidiaries over their assets and undertakings. Under the negative pledge, each guaranteeing subsidiary may be liable for indebtedness incurred by the company and other guaranteeing subsidiaries. The company considers the negative pledge to be an insurance contract. Such contracts and cross guarantees are treated as a contingent liability and only recognised as a liability if a payment is probable.

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 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.

Rugby New Zealand 2011 Limited - joint venture arrangement

The Crown has agreed in joint venture arrangements with the New Zealand Rugby Union (NZRU) to an uncapped underwrite of the costs of hosting the 2011 Rugby World Cup, on a loss sharing basis (Crown 67%, NZRU 33%). A provision for the forecast losses has been made in the Government's financial statements.

The Crown has agreed to reimburse New Zealand income tax that might be incurred by the joint venture entity (Rugby New Zealand 2011 Limited) or the NZRU in relation to the joint venture entity, and has also agreed to reimburse the NZRU for New Zealand withholding tax that might be incurred on certain payments made in relation to the tournament.

The Crown has further agreed to review its level of support to the tournament if the actual tax revenue arising from the tournament exceeds forecasts.

Television New Zealand Limited

The company is subject to a number of legal claims. Given the stage of proceedings and uncertainty as to outcomes of the cases, no estimate of the financial effect can be made and no provision for any potential liability has been made in the financial statements.

Treaty of Waitangi claims

Under the Treaty of Waitangi Act 1975, any Māori may lodge 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 that has been transferred by the Crown to an SOE or tertiary institution, or is subject to the Crown Forest Assets Act 1989.

Treaty of Waitangi claims - settlement relativity payments

The Deeds of Settlement negotiated with Waikato-Tainui and Ngāi Tahu include a relativity mechanism. The mechanism provides that, where the total redress amount for all historical Treaty settlements exceeds $1 billion in 1994 present-value terms, 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. The non-quantifiable contingent liability relates to the risk that total settlement redress, including binding recommendations from the Waitangi Tribunal, will trigger these relativity payments.

Westpac Banking Corporation

Under the Domestic Transaction Banking Services Master Agreement with Westpac Banking Corporation, dated 30 November 2004, the Crown has indemnified Westpac:

  • in relation to letters of credit issued on behalf of the Crown, and
  • for costs and expenses incurred by reason of third-party claims against Westpac relating to indirect instructions, direct debits, third-party cheques, departmental credit card merchant agreements, use of online banking products and IRD processing arrangements.

Other contingencies

Foreshore and seabed

The Foreshore and Seabed Act 2004 (FSA):

  • vests the full legal and beneficial ownership of the public foreshore and seabed in the Crown
  • provides for the recognition and protection of ongoing customary rights with respect to the public foreshore and seabed
  • enables applications to the High Court to investigate if previously held common law rights have been adversely impacted, and if so, providing for those affected either to participate in the administration of a foreshore and seabed reserve or else enter into formal discussions on redress, and
  • provides for general rights of public access and recreation in, on, over and across the public foreshore and seabed and general rights of navigation within the foreshore and seabed.

The public foreshore and seabed means the marine area that is bounded on the landward side by the line of mean high water springs; and on the seaward side by the outer limits of the territorial sea, but does not include land subject to a specified freehold interest (refer section 5 of the FSA).

The FSA provides for the Crown to hold the public foreshore and seabed, as its absolute owner, on behalf of the public of New Zealand. Because of the complex nature of the Crown's ownership interest in the public foreshore and seabed and because we are unable to obtain a reliable valuation of the Crown's interest, the public foreshore and seabed has not been recognised as an asset in these financial statements.

Quantifiable contingent assets

Contingent assets are potential assets dependent on a particular event occurring. As at 31 March 2010, the Crown held quantifiable contingent assets totalling $274 million ($1,563 million at 31 October 2009).

The major components being:

Inland Revenue - legal proceedings and disputes

Legal proceedings and disputes are contingent assets in relation to Inland Revenue pending assessments. Contingent assets arise where Inland Revenue has advised a taxpayer of a proposed adjustment to their tax assessment. There has been no amended assessment issued at this point or revenue recognised so these are recorded as legal proceedings and disputes - tax. The taxpayer has the right to dispute this adjustment and a disputes resolution process is entered into. Inland Revenue quantifies a contingent asset based on the likely outcome of the disputes process based on experience and similar prior cases.

The reduction in contingent assets is owing to potential interest receivable on the dispute with a number of financial institutions regarding the tax treatment of certain structured finance transactions, which has now been settled.

$199 million at 31 March 2010 ($1,488 million at 31 October 2009)

Ministry of Education - suspensory loans

Suspensory loans issued by the Minister of Education to integrated schools.

$66 million at 31 March 2010 ($69 million at 31 October 2009)

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 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 4 May 2010.

The finalisation dates and key assumptions that underpin the preparation of the Forecast Financial Statements are outlined on pages 81 to 84.

Statement of Accounting Policies

Significant Accounting Policies

These 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.

These Forecast Financial Statements comply with generally accepted accounting practice (GAAP) as required by the Public Finance Act 1989 and have been prepared in accordance with Financial 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 reproduced in full on Treasury's website at http://www.treasury.govt.nz/publications/guidance/reporting/accounting.

Changes in Accounting Policies

All policies have been applied on a consistent basis during the forecast period. There have been no changes in accounting policies during the period.

Forecast Policies

These Forecast Financial Statements have been prepared on the basis of Treasury's best professional judgment.

Actual financial results for the periods covered are likely to vary from the information presented. 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 chapter on Fiscal Risks on pages 85 to 118.

Key forecast assumptions used are set out on pages 81 to 84.

Government Reporting Entity as at 4 May 2010

These forecast financial statements are for the Government reporting entity as specified in Part III of the Public Finance Act 1989. This comprises Ministers of the Crown and the following entities:

Departments

Agriculture and Forestry
Archives New Zealand
Building and Housing
Conservation
Corrections
Crown Law Office
Culture and Heritage
Defence
Economic Development
Education
Education Review Office
Environment
Fisheries
Foreign Affairs and Trade
Government Communications Security Bureau
Health
Inland Revenue
Internal Affairs
Justice
Labour
Land Information New Zealand
Māori Development
National Library of New Zealand
New Zealand Customs Service
New Zealand Defence Force
New Zealand Food Safety Authority
New Zealand Police
New Zealand Security Intelligence Service
Office of the Clerk
Pacific Island Affairs
Parliamentary Counsel Office
Parliamentary Service
Prime Minister and Cabinet
Research, Science and Technology
Serious Fraud Office
Social Development
State Services Commission
Statistics
Transport
Treasury
Women's Affairs

State-owned enterprises

Airways Corporation of New Zealand Limited
Animal Control Products Limited
AsureQuality Limited
Electricity Corporation of New Zealand Limited
Genesis Power Limited
Kordia Group Limited
Landcorp Farming Limited
Learning Media Limited
Meridian Energy Limited
Meteorological Service of New Zealand Limited
Mighty River Power Limited
New Zealand Post Limited
New Zealand Railways Corporation*
Quotable Value Limited
Solid Energy New Zealand Limited
Terralink Limited (in liquidation)
Timberlands West Coast Limited
Transpower New Zealand Limited

Air New Zealand Limited (included for disclosure purposes as if it were an SOE)

*Includes KiwiRail Holdings

Others

New Zealand Superannuation Fund
Reserve Bank of New Zealand

Offices of Parliament

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

Organisations named or described in Schedule 4 of the Public Finance Act 1989

Agriculture and Marketing Research and Development Trust
Asia New Zealand Foundation
Auckland Transition Agency
Crown Fibre Holdings Limited
Fish and game councils (12)
Leadership Development Centre Trust
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
Research and Education Advanced Network New Zealand Limited
Reserves boards (24)
Road Safety Trust
Sentencing Council
The Māori Trustee

Crown entities

Accident Compensation Corporation
Accounting Standards Review Board
Alcohol Advisory Council of New Zealand
Arts Council of New Zealand Toi Aotearoa
Broadcasting Commission
Broadcasting Standards Authority
Career Services
Charities Commission
Children's Commissioner
Civil Aviation Authority of New Zealand
Commerce Commission
Crown Health Financing Agency
Crown research institutes (8)
District health boards (20)
Drug Free Sport New Zealand
Earthquake Commission
Electoral Commission
Electricity Commission
Energy Efficiency and Conservation Authority
Environmental Risk Management Authority
Families Commission
Foundation for Research, Science and Technology
Government Superannuation Fund Authority
Guardians of New Zealand Superannuation
Health and Disability Commissioner
Health Research Council of New Zealand
Health Sponsorship Council
Housing New Zealand Corporation
Human Rights Commission
Independent Police Conduct Authority
Law Commission
Legal Services Agency
Maritime New Zealand
Mental Health Commission
Museum of New Zealand Te Papa Tongarewa Board
New Zealand Antarctic Institute
New Zealand Artificial Limb Board
New Zealand Blood Service
New Zealand Film Commission
New Zealand Fire Service Commission
New Zealand Historic Places Trust (Pouhere Taonga)
New Zealand Lotteries Commission
New Zealand Qualifications Authority
New Zealand Symphony Orchestra
New Zealand Teachers Council
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 (2,451)
Securities Commission
Social Workers Registration Board
Sport and Recreation New Zealand
Standards Council
Takeovers Panel
Te Reo Whakapuaki Irirangi (Te Māngai Pāho)
Te Taura Whiri i te Reo Māori (Māori Language Commission)
Television New Zealand Limited
Tertiary Education Commission
Tertiary education institutions (31)
Testing Laboratory Registration Council
Transport Accident Investigation Commission

Crown entity subsidiaries are consolidated by their parents and not listed separately in this table

Forecast Statement of Financial Performance for the years ending 30 June

Forecast Statement of Financial Performance for the years ending 30 June
  Note 2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Revenue

               
Taxation revenue 1 54,145 51,052 50,234 53,457 57,441 60,911 64,698
Other sovereign revenue 1 4,118 4,860 4,663 5,759 6,052 6,499 7,027
Total revenue levied through the Crown's sovereign power   58,263 55,912 54,897 59,216 63,493 67,410 71,725
Sales of goods and services   15,356 16,049 14,335 15,399 16,540 17,145 18,024
Interest revenue and dividends 2 3,419 3,159 3,294 4,063 4,421 4,644 4,672
Other revenue   2,890 2,814 3,154 3,103 3,048 3,146 3,252
Total revenue earned through the Crown's operations   21,665 22,022 20,783 22,565 24,009 24,935 25,948
Total revenue (excluding gains)   79,928 77,934 75,680 81,781 87,502 92,345 97,673

Expenses

               
Transfer payments and subsidies 3 19,962 21,175 21,400 22,628 23,273 23,959 24,595
Personnel expenses 4 18,064 18,324 18,710 19,109 19,410 19,726 19,886
Depreciation and amortisation 5 4,305 4,126 4,144 4,428 4,663 4,791 4,884
Other operating expenses 5 34,116 34,855 32,102 35,927 34,334 34,812 35,938
Interest expenses 6 3,492 3,349 3,571 4,612 5,387 5,934 6,135
Insurance expenses 7 3,882 3,890 3,135 3,725 4,292 4,762 5,154
Forecast new operating spending 8 254 394 1,609 2,815 4,179
Top-down expense adjustment 8 (300) (455) (410) (60) (60) (60)
Total expenses (excluding losses)   83,821 85,673 82,607 90,413 92,908 96,739 100,711
Operating balance before gains/(losses)   (3,893) (7,739) (6,927) (8,632) (5,406) (4,394) (3,038)
Net gains/(losses) on financial instruments 9 (2,634) 1,416 3,916 1,250 1,471 1,626 1,841
Net gains/(losses) on non-financial instruments 10 (4,167) 205 (201) 181 187 197 202
Total gains/(losses)   (6,801) 1,621 3,715 1,431 1,658 1,823 2,043
Net surplus from associates and joint ventures   212 390 37 135 170 170 168
Operating balance from continuing activities   (10,482) (5,728) (3,175) (7,066) (3,578) (2,401) (827)
Gain/(loss) from discontinued operations   2 (1) (4) (1) (1) (1) (1)
Operating balance (including minority interest)   (10,480) (5,729) (3,179) (7,067) (3,579) (2,402) (828)
Attributable to minority interest   (25)
Operating balance 11 (10,505) (5,729) (3,179) (7,067) (3,579) (2,402) (828)

The accompanying Notes and Accounting policies are an integral part of these Statements.

Forecast Statement of Financial Performance - Functional Expense Analysis for the years ending 30 June

Forecast Statement of Financial Performance - Functional Expense Analysis for the years ending 30 June
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Total Crown Expenses

             

By functional classification

             
Social security and welfare 23,273 25,073 24,412 26,127 27,537 28,831 29,937
GSF pension expenses 655 370 377 363 444 541 556
Health 12,042 12,815 12,723 13,379 13,313 13,284 13,270
Education 12,465 12,147 12,642 12,861 12,894 12,902 12,993
Core government services 5,137 3,582 3,652 3,922 3,950 3,946 3,977
Law and order 3,250 3,515 3,486 3,746 3,718 3,745 3,754
Defence 1,712 1,761 1,783 1,862 1,809 1,806 1,806
Transport and communications 9,023 8,868 8,014 8,184 8,214 8,421 8,839
Economic and industrial services 7,695 8,246 7,457 8,114 8,313 8,415 8,717
Primary services 1,487 1,510 1,512 1,742 1,735 1,743 1,724
Heritage, culture and recreation 2,397 2,806 2,289 3,344 2,778 3,090 3,244
Housing and community development 1,075 1,115 1,052 1,102 1,084 1,105 1,104
Other 118 562 92 1,071 183 221 536
Finance costs 3,492 3,349 3,571 4,612 5,387 5,934 6,135
Forecast new operating spending 254 394 1,609 2,815 4,179
Top-down expense adjustment (300) (455) (410) (60) (60) (60)
Total Crown expenses excluding losses 83,821 85,673 82,607 90,413 92,908 96,739 100,711

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 State-owned enterprises.

Forecast Statement of Financial Performance (continued) - Functional Expense Analysis for the years ending 30 June
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Core Crown Expenses

             

By functional classification

             
Social security and welfare 19,382 21,139 21,234 22,120 22,953 23,775 24,694
GSF pension expenses 655 370 368 357 437 534 550
Health 12,368 13,397 13,137 14,043 13,941 13,945 13,769
Education 11,455 11,284 11,779 11,992 11,999 11,986 12,029
Core government services 5,293 3,620 3,793 3,979 4,028 4,022 4,051
Law and order 3,089 3,267 3,276 3,537 3,497 3,518 3,519
Defence 1,757 1,810 1,832 1,912 1,859 1,856 1,856
Transport and communications 2,663 2,253 2,453 2,417 2,131 2,080 2,087
Economic and industrial services 2,960 2,673 2,959 2,828 2,592 2,466 2,478
Primary services 534 611 522 757 733 738 717
Heritage, culture and recreation 1,002 1,507 1,076 2,037 1,385 1,672 1,780
Housing and community development 297 365 344 370 327 316 302
Other 118 562 109 1,088 200 238 553
Finance costs 2,429 2,470 2,364 3,230 3,833 4,323 4,545
Forecast new operating spending 254 394 1,609 2,815 4,179
Top-down expense adjustment (300) (455) (410) (60) (60) (60)
Total core Crown expenses excluding losses 64,002 65,282 64,791 70,651 71,464 74,224 77,049

The accompanying Notes and Accounting policies are an integral part of these Statements.

Forecast Statement of Cash Flows for the years ending 30 June

Forecast Statement of Cash Flows for the years ending 30 June
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Cash Flows From Operations

             

Cash was provided from

             
Taxation receipts 51,119 50,268 50,267 52,681 56,607 60,068 63,878
Other sovereign receipts 3,716 4,290 4,282 4,792 5,004 5,126 5,196
Sales of goods and services 16,592 16,472 14,497 15,173 16,259 16,871 17,756
Interest and dividend receipts 2,792 2,697 3,220 3,592 3,909 4,130 4,164
Other operating receipts 2,204 2,734 2,973 2,960 2,848 2,910 3,011
Total cash provided from operations 76,423 76,461 75,239 79,198 84,627 89,105 94,005

Cash was disbursed to

             
Transfer payments and subsidies 19,673 21,159 21,450 22,642 23,416 24,130 24,755
Personnel and operating payments 50,391 54,128 51,586 54,693 53,940 53,655 54,891
Interest payments 2,880 3,042 2,966 3,979 5,232 5,914 6,190
Forecast new operating spending 254 394 1,609 2,815 4,179
Top-down expense adjustment (300) (455) (410) (60) (60) (60)
Total cash disbursed to operations 72,944 78,283 75,547 81,298 84,137 86,454 89,955
Net cash flows from operations 3,479 (1,822) (308) (2,100) 490 2,651 4,050

Cash Flows From Investing Activities

             

Cash was provided from/(disbursed to)

             
Net purchase of physical assets (5,437) (7,679) (6,610) (7,842) (7,050) (5,897) (5,297)
Net purchase of shares and other securities (2,338) 3,887 (1,717) (1,088) 6,161 4,275 (1,139)
Net purchase of intangible assets (433) (350) (368) (513) (426) (290) (227)
Net repayment/(issues) of advances (1,129) (651) (360) (1,426) (754) (631) (716)
Net acquisition of investments in associates (399) (46) (9) (468) 7 (9) (5)
Forecast new capital spending (72) (282) (742) (1,024) (1,606)
Top-down capital adjustment 100 125 300
Net cash flows from investing activities (9,736) (4,811) (8,939) (11,319) (2,804) (3,576) (8,990)
Net cash flows from operating and investing activities (6,257) (6,633) (9,247) (13,419) (2,314) (925) (4,940)

Cash Flows From Financing Activities

             

Cash was provided from/(disbursed to)

             
Issues of circulating currency 475 181 34 104 106 109 112
Net issue/(repayment) of Government stock1 2,344 3,870 7,762 11,718 1,420 620 4,274
Net issue/(repayment) of foreign-currency borrowings (1,836) (3,708) (754) (5,320) (1,011) (793) (912)
Net issue/(repayment) of other New Zealand dollar borrowings 7,752 5,968 2,203 6,898 1,819 988 1,548
Net cash flows from financing activities 8,735 6,311 9,245 13,400 2,334 924 5,022
Net movement in cash 2,478 (322) (2) (19) 20 (1) 82
Opening cash balance 3,804 5,353 6,268 6,143 6,126 6,148 6,149
Foreign-exchange gains/(losses) on opening cash (14) 11 (123) 2 2 2 2
Closing cash balance 6,268 5,042 6,143 6,126 6,148 6,149 6,233
  1. Net issues of Government stock is after elimination of holdings by entities such as NZS Fund, ACC and EQC. Further information on the proceeds and repayments of Government stock ("domestic bonds") is available in note 22.

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
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Reconciliation Between the Net Cash Flows from
Operations and the Operating Balance
             
Net Cash Flows from Operations 3,479 (1,822) (308) (2,100) 490 2,651 4,050
Items included in the operating balance but not in
net cash flows from operations
             

Gains/(losses)

             
Net gains/(losses) on financial instruments (2,634) 1,416 3,916 1,250 1,471 1,626 1,841
Net gains/(losses) on non-financial instruments (4,167) 205 (201) 181 187 197 202
Total gains/(losses) (6,801) 1,621 3,715 1,431 1,658 1,823 2,043

Other Non-cash Items in Operating Balance

             
Depreciation and amortisation (4,305) (4,126) (4,144) (4,428) (4,663) (4,791) (4,884)
Write-down on initial recognition of financial assets (630) (578) (867) (896) (911) (919) (924)
Impairment on financial assets (excl receivables) (851) 3 (1) 5 4 4 4
Decrease/(increase) in defined benefit retirement plan liabilities (41) 274 243 337 259 168 153
Decrease/(increase) in insurance liabilities (1,592) (1,209) (957) (1,329) (1,719) (2,067) (2,284)
Other 212 390 37 135 170 170 168
Total other non-cash Items (7,207) (5,246) (5,689) (6,176) (6,860) (7,435) (7,767)

Movements in Working Capital

             
Increase/(decrease) in receivables 461 305 (805) 225 276 68 157
Increase/(decrease) in accrued interest 16 155 (530) (162) 357 493 562
Increase/(decrease) in inventories 118 67 95 51 47 41 57
Increase/(decrease) in prepayments 31 8 (49) (7) (2) 3
Decrease/(increase) in deferred revenue (134) 5 95 109 68 29 21
Decrease/(increase) in payables (468) (822) 297 (438) 387 (72) 46
Total movements in working capital 24 (282) (897) (222) 1,133 559 846
Operating balance (10,505) (5,729) (3,179) (7,067) (3,579) (2,402) (828)

The accompanying Notes and Accounting policies are an integral part of these Statements.

Forecast Statement of Comprehensive Income for the years ending 30 June

Forecast Statement of Comprehensive Income for the years ending 30 June
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Revaluation of physical assets 4,235 (1) 323
Effective portion of changes in the fair value of cash flow hedges 333 (18) (205) 5 2 1 1
Net change in fair value of cash flow hedges transferred to operating balance (1) (1)
Net change in fair value of cash flow hedges transferred to the hedged item (153) 3 (3)
Foreign currency translation differences for foreign operations 15 24
Valuation gain/(losses) on investments available for sale taken to reserves 22 (3) 5 1 6 9 10
Other movements (1) (1) (1) (1)
Other comprehensive income for the year 4,452 (20) 143 4 8 9 10
Operating balance (including minority interest) (10,480) (5,729) (3,179) (7,067) (3,579) (2,402) (828)
Total Comprehensive Income (6,028) (5,749) (3,036) (7,063) (3,571) (2,393) (818)
Attributable to:              
 - minority interest 34
 - the Crown (6,062) (5,749) (3,036) (7,063) (3,571) (2,393) (818)
Total Comprehensive Income (6,028) (5,749) (3,036) (7,063) (3,571) (2,393) (818)

The accompanying Notes and Accounting policies are an integral part of these Statements.

Forecast Statement of Financial Position as at 30 June

Forecast Statement of Financial Position as at 30 June
  Note 2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Assets

               
Cash and cash equivalents 12 6,268 5,042 6,143 6,126 6,148 6,149 6,233
Receivables 12 14,619 14,093 13,813 14,038 14,314 14,381 14,538
Marketable securities, deposits and derivatives in gain 12 45,708 49,683 45,465 46,220 40,400 36,234 38,069
Share investments 12 11,160 11,867 15,675 17,771 20,020 22,431 24,957
Advances 12 15,604 17,268 17,967 20,411 22,644 22,960 23,185
Inventory   1,082 1,165 1,177 1,228 1,274 1,315 1,372
Other assets   1,630 1,836 1,518 1,488 1,473 1,465 1,461
Property, plant & equipment 14 110,135 110,251 113,634 117,742 120,738 122,523 124,014
Equity accounted investments1   8,777 9,197 8,925 9,440 9,498 9,551 9,597
Intangible assets and goodwill 15 2,168 2,133 2,320 2,596 2,743 2,681 2,577
Forecast for new capital spending   72 282 1,025 2,049 3,655
Top-down capital adjustment   (375) (125) (425) (425) (425) (425)
Total assets   217,151 222,232 226,512 236,917 239,852 241,314 249,233

Liabilities

               
Issued currency   4,005 4,220 4,147 4,251 4,357 4,466 4,578
Payables 17 9,139 10,296 8,950 10,001 9,586 9,610 10,050
Deferred revenue   1,426 1,213 1,331 1,222 1,154 1,125 1,103
Borrowings   61,953 76,423 73,643 89,416 94,785 96,434 102,396
Insurance liabilities 18 26,567 25,345 27,305 28,635 30,354 32,421 34,704
Retirement plan liabilities 19 8,993 10,307 9,158 8,821 8,563 8,395 8,242
Provisions 20 5,553 4,479 5,499 5,155 5,208 5,411 5,526
Total liabilities   117,636 132,283 130,033 147,501 154,007 157,862 166,599
Total assets less total liabilities   99,515 89,949 96,479 89,416 85,845 83,452 82,634

Net Worth

               
Taxpayer funds 21 36,382 31,803 34,027 26,983 23,429 21,050 20,246
Property, plant and equipment revaluation reserve 21 62,612 57,723 62,110 62,086 62,061 62,037 62,013
Other reserves 21 74 41 (105) (100) (92) (82) (72)
Total net worth attributable to the Crown   99,068 89,567 96,032 88,969 85,398 83,005 82,187
Net worth attributable to minority interest   447 382 447 447 447 447 447
Total net worth   99,515 89,949 96,479 89,416 85,845 83,452 82,634
  1. Tertiary education institutions constitute most equity accounted investments.

The accompanying Notes and Accounting policies are an integral part of these Statements.

Forecast Statement of Borrowings as at 30 June

Forecast Statement of Borrowings as at 30 June
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Borrowings

             
Government stock 21,164 25,629 28,881 41,328 43,616 45,233 50,720
Treasury bills 7,432 9,550 9,043 9,509 9,493 9,490 9,483
Government retail stock 491 581 337 337 337 337 337
Settlement deposits with Reserve Bank 6,908 9,432 7,602 7,602 7,602 7,602 7,602
Derivatives in loss 2,158 3,237 1,798 1,369 1,303 1,162 1,091
Finance lease liabilities 1,002 1,247 1,000 1,037 1,294 1,190 1,438
Other borrowings 22,798 26,747 24,982 28,234 31,140 31,420 31,725
Total borrowings 61,953 76,423 73,643 89,416 94,785 96,434 102,396
Total sovereign-guaranteed debt 44,448 58,076 52,833 65,890 68,324 69,927 75,627
Total non sovereign-guaranteed debt 17,505 18,347 20,810 23,526 26,461 26,507 26,769
Total borrowings 61,953 76,423 73,643 89,416 94,785 96,434 102,396

Net debt:

             
Core Crown borrowings1 50,545 64,116 59,935 73,196 75,948 77,863 83,990
Add back NZS Fund holdings of sovereign-issued debt and
NZS Fund borrowings
428 (559) 71 (31) (21) (22) (16)
Gross sovereign-issued debt2 50,973 63,557 60,006 73,165 75,927 77,841 83,974
Less core Crown financial assets3 55,769 61,467 59,584 61,317 55,891 52,105 54,112
Net core Crown debt (incl. NZS Fund)4 (4,796) 2,090 422 11,848 20,036 25,736 29,862
Add back NZS Fund holdings of core Crown financial assets
and NZS Fund financial assets5
11,486 13,258 15,250 16,575 17,741 19,087 20,477
Net core Crown debt (excl. NZS Fund)4 6,690 15,348 15,672 28,423 37,777 44,823 50,339
Advances 10,429 11,971 10,970 11,542 11,861 12,231 12,675
Net core Crown debt (excl. NZS Fund and advances)6 17,119 27,319 26,642 39,965 49,638 57,054 63,014

Gross debt:

             
Gross sovereign-issued debt2 50,973 63,557 60,006 73,165 75,927 77,841 83,974
Less Reserve Bank settlement cash and bank bills (9,217) (14,184) (7,796) (7,796) (7,796) (7,796) (7,796)
Add back changes to DMO borrowing due 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 bank bills4
43,356 50,973 53,810 66,969 69,731 71,645 77,778

Notes on Borrowings

Total Borrowings can be split into sovereign-guaranteed and non-sovereign-guaranteed debt. This split reflects the fact that borrowings by State-owned enterprises and Crown entities are not explicitly guaranteed by the Crown. Sovereign-guaranteed debt excludes Kiwibank deposits guaranteed under the retail deposit guarantee scheme. No other debt of State-owned enterprises and Crown entities is currently guaranteed by the Crown.

  1. Core Crown borrowings in this instance includes 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 Government stock held by the New Zealand Superannuation Fund (NZS Fund), ACC and EQC.
  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 credit-worthiness 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 NZ Debt Management Office 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 March 2010

Statement of Actual Commitments as at 31 March 2010
  As at
31 March 2010
$m
As at
30 June 2009
$m

Capital Commitments

   
Specialist military equipment 486 699
Land and buildings 685 699
Other property, plant and equipment 6,735 4,859
Other capital commitments 427 429
Tertiary Education Institutions 245 245
Total capital commitments 8,578 6,931

Operating Commitments

   
Non-cancellable accommodation leases 2,654 2,366
Other non-cancellable leases 2,442 2,630
Non-cancellable contracts for the supply of goods and services 2,208 2,256
Other operating commitments 8,753 9,731
Tertiary Education Institutions 335 335
Total operating commitments 16,392 17,318
Total commitments 24,970 24,249

Total Commitments by Segment

   
Core Crown 11,610 20,300
Crown entities 13,769 15,972
State-owned enterprises 5,865 5,706
Inter-segment eliminations (6,274) (17,729)
Total commitments  24,970 24,249

Statement of Actual Contingent Liabilities and Assets as at 31 March 2010

Statement of Actual Contingent Liabilities and Assets as at 31 March 2010
  As at
31 March 2010
$m
As at
30 June 2009
$m

Quantifiable Contingent Liabilities

   
Guarantees and indemnities 116 96
Uncalled capital 2,283 2,506
Legal proceedings and disputes 342 1,754
Other contingent liabilities 3,652 4,133
Total quantifiable contingent liabilities 6,393 8,489

Total Quantifiable Contingent Liabilities by Segment

   
Core Crown 6,184 8,287
Crown entities 80 90
State-owned enterprises 129 112
Inter-segment eliminations
Total quantifiable contingent liabilities 6,393 8,489

Quantifiable Contingent Assets by Segment

   
Core Crown 271 1,579
Crown entities 3 3
Total quantifiable contingent assets 274 1,582

The accompanying Notes and Accounting policies are an integral part of these Statements.

More information on contingent liabilities (quantified and unquantified) is outlined on pages 104 to 118 of the Fiscal Risks chapter.

Notes to the Forecast Financial Statements

NOTE 1:  Revenue Collected Through the Crown's Sovereign Power
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Taxation Revenue (accrual)

             

Individuals

             
Source deductions 22,587 21,699 21,884 20,174 21,012 22,543 24,376
Other persons 4,408 4,387 4,261 4,403 4,865 5,019 5,156
Refunds (1,636) (1,651) (1,979) (1,484) (1,609) (1,609) (1,620)
Fringe benefit tax 500 487 459 430 439 466 499
Total individuals 25,859 24,922 24,625 23,523 24,707 26,419 28,411

Corporate Tax

             
Gross companies tax 8,245 7,077 6,334 8,214 8,701 9,040 9,372
Refunds (430) (345) (399) (376) (361) (386) (412)
Non-resident withholding tax 1,451 1,107 1,009 628 714 754 790
Foreign-source dividend w/holding payments 10 13 (1) 8 8 8 8
Total corporate tax 9,276 7,852 6,943 8,474 9,062 9,416 9,758

Other Direct Income Tax

             
Resident w/holding tax on interest income 2,571 2,049 1,812 1,465 1,928 2,310 2,583
Resident w/holding tax on dividend income 65 211 142 240 252 325 503
Estate and gift duties 1 2 2 1 1 1 1
Total other direct income tax 2,637 2,262 1,956 1,706 2,181 2,636 3,087
Total direct income tax 37,772 35,036 33,524 33,703 35,950 38,471 41,256

Goods and Services Tax

             
Gross goods and services tax 20,551 21,121 19,131 23,968 27,102 29,300 31,441
Refunds (9,000) (9,960) (7,425) (9,524) (11,209) (12,606) (13,881)
Total goods and services tax 11,551 11,161 11,706 14,444 15,893 16,694 17,560

Other Indirect Taxation

             
Road user charges 868 885 894 955 1,002 1,048 1,105
Petroleum fuels excise - domestic production 781 802 849 907 972 990 1,020
Alcohol excise - domestic production 616 657 636 657 702 726 750
Tobacco excise - domestic production 172 172 188 209 223 232 232
Petroleum fuels excise - imports1 514 564 600 645 657 678
Alcohol excise - imports1 213 234 242 258 267 276
Tobacco excise - imports1 891 916 1,020 1,089 1,131 1,133
Other customs duty 262 1,818 219 198 178 160 144
Gaming duties 215 224 229 228 230 232 235
Motor vehicle fees 171 167 170 175 180 186 192
Energy resources levies 39 38 37 38 38 36 36
Approved issuer levy and cheque duty 80 92 68 81 81 81 81
Total other indirect taxation 4,822 4,855 5,004 5,310 5,598 5,746 5,882
Total indirect taxation 16,373 16,016 16,710 19,754 21,491 22,440 23,442
Total taxation revenue 54,145 51,052 50,234 53,457 57,441 60,911 64,698

Other Sovereign Revenue (accrual)

             
ACC levies 2,880 3,226 3,201 3,823 4,009 4,132 4,264
Fire Service levies 299 307 304 309 322 333 345
EQC levies 86 88 88 87 88 89 89
Other miscellaneous items 853 1,239 1,070 1,540 1,633 1,945 2,329
Total other sovereign revenue 4,118 4,860 4,663 5,759 6,052 6,499 7,027
Total sovereign revenue 58,263 55,912 54,897 59,216 63,493 67,410 71,725
  1. Customs excise-equivalent duty.
NOTE 1 (continued):  Receipts Collected Through the Crown's Sovereign Power
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Taxation Receipts (cash)

             

Individuals

             
Source deductions 22,567 21,630 21,832 20,314 20,945 22,475 24,310
Other persons 4,988 4,983 4,745 4,875 5,488 5,670 5,899
Refunds (2,488) (2,393) (2,739) (2,255) (2,482) (2,524) (2,599)
Fringe benefit tax 506 487 476 433 430 453 490
Total individuals 25,573 24,707 24,314 23,367 24,381 26,074 28,100

Corporate Tax

             
Gross companies tax 7,742 7,801 8,488 9,051 9,612 10,004 10,331
Refunds (2,013) (1,379) (1,716) (1,314) (1,448) (1,518) (1,557)
Non-resident withholding tax 1,437 1,106 892 627 713 753 789
Foreign-source dividend w/holding payments (2) 13 8 8 8 8 8
Total corporate tax 7,164 7,541 7,672 8,372 8,885 9,247 9,571

Other Direct Income Tax

             
Resident w/holding tax on interest income 2,593 2,051 1,778 1,463 1,926 2,308 2,581
Resident w/holding tax on dividend income 97 210 126 240 252 325 503
Estate and gift duties 2 2 2 1 1 1 1
Total other direct income tax 2,692 2,263 1,906 1,704 2,179 2,634 3,085
Total direct income tax 35,429 34,511 33,892 33,443 35,445 37,955 40,756

Goods and Services Tax

             
Gross goods and services tax 19,715 20,252 18,785 23,052 26,373 28,573 30,721
Refunds (8,894) (9,360) (7,425) (9,124) (10,809) (12,206) (13,481)
Total goods and services tax 10,821 10,892 11,360 13,928 15,564 16,367 17,240

Other Indirect Taxation

             
Petroleum fuels excise 786 802 849 907 972 990 1,020
Tobacco excise 170 172 188 209 223 232 232
Customs duty 1,957 1,818 1,933 2,060 2,170 2,215 2,231
Road user charges 864 885 894 955 1,002 1,048 1,105
Alcohol excise 587 657 636 657 702 726 750
Gaming duties 227 224 227 228 230 232 235
Motor vehicle fees 165 167 170 175 180 186 192
Energy resources levies 36 38 43 38 38 36 36
Approved issuer levy and cheque duty 77 102 75 81 81 81 81
Total other indirect taxation 4,869 4,865 5,015 5,310 5,598 5,746 5,882
Total indirect taxation 15,690 15,757 16,375 19,238 21,162 22,113 23,122
Total Taxation Receipts 51,119 50,268 50,267 52,681 56,607 60,068 63,878

Other Sovereign Receipts (cash)

             
ACC levies 2,792 3,170 3,274 3,761 3,930 4,059 4,106
Fire Service levies 300 308 304 309 322 333 345
EQC levies 87 88 88 87 88 89 89
Other miscellaneous items 537 724 616 635 664 645 656
Total other sovereign receipts 3,716 4,290 4,282 4,792 5,004 5,126 5,196
Total sovereign receipts 54,835 54,558 54,549 57,473 61,611 65,194 69,074
NOTE 2: Interest Revenue and Dividends
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
By type              
Interest revenue 3,000 2,765 2,876 3,482 3,761 3,879 3,812
Dividends 419 394 418 581 660 765 860
Total interest revenue and dividends 3,419 3,159 3,294 4,063 4,421 4,644 4,672
By source              
Core Crown 1,872 2,076 2,225 2,487 2,697 2,952 2,972
Crown entities 1,248 832 1,012 939 1,081 1,291 1,413
State-owned enterprises 1,193 927 1,465 1,550 1,686 1,688 1,692
Inter-segment eliminations (894) (676) (1,408) (913) (1,043) (1,287) (1,405)
Total interest revenue and dividends 3,419 3,159 3,294 4,063 4,421 4,644 4,672
NOTE 3:  Transfer Payments and Subsidies
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
New Zealand superannuation 7,744 8,246 8,287 8,822 9,560 10,149 10,781
Domestic purposes benefit 1,530 1,647 1,694 1,756 1,847 1,890 1,938
Unemployment benefit 586 1,078 939 969 931 849 774
Invalids benefit 1,260 1,297 1,302 1,319 1,374 1,394 1,417
Family tax credit 2,062 2,158 2,200 2,239 2,226 2,296 2,181
Accommodation supplement 989 1,166 1,158 1,221 1,237 1,240 1,251
Sickness benefit 613 692 714 760 796 814 832
Student allowances 444 462 589 656 626 576 552
Disability allowances 390 417 412 421 436 450 465
Other social assistance benefits 2,605 2,632 2,576 2,801 2,677 2,714 2,782
Total social assistance grants 18,223 19,795 19,871 20,964 21,710 22,372 22,973

Subsidies

             
KiwiSaver subsidies 1,281 919 1,045 1,179 1,054 1,028 1,063

Other transfer payments

             
Official development assistance 458 461 484 485 509 559 559
Total transfer payments and subsidies 19,962 21,175 21,400 22,628 23,273 23,959 24,595
NOTE 4:  Personnel Expenses
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Core Crown 6,037 5,924 5,953 6,076 6,149 6,244 6,275
Crown entities 9,592 9,902 10,316 10,516 10,664 10,833 10,883
State-owned enterprises 2,447 2,501 2,449 2,526 2,606 2,658 2,737
Inter-segment eliminations (12) (3) (8) (9) (9) (9) (9)
Total personnel expenses 18,064 18,324 18,710 19,109 19,410 19,726 19,886
NOTE 5:  Depreciation, Amortisation and Other Operating Expenses
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Core Crown 35,293 35,487 35,259 38,677 36,599 36,876 37,268
Crown entities 17,332 17,172 17,589 17,903 17,859 17,912 18,095
State-owned enterprises 10,172 11,506 9,416 10,237 10,959 11,279 11,904
Inter-segment eliminations (24,376) (25,184) (26,018) (26,462) (26,420) (26,464) (26,445)
Total depreciation, amortisation and
other operating expenses
38,421 38,981 36,246 40,355 38,997 39,603 40,822
NOTE 6:  Interest Expenses
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
By type              
Interest on financial liabilities 3,404 3,233 3,494 4,537 5,313 5,861 6,063
Interest unwind on provisions 88 116 77 75 74 73 72
Total interest expenses 3,492 3,349 3,571 4,612 5,387 5,934 6,135
By source              
Core Crown 2,429 2,470 2,364 3,230 3,833 4,323 4,545
Crown entities 185 140 163 181 203 219 222
State-owned enterprises 1,392 1,198 1,588 1,733 1,931 2,032 2,083
Inter-segment eliminations (514) (459) (544) (532) (580) (640) (715)
Total interest expenses 3,492 3,349 3,571 4,612 5,387 5,934 6,135
NOTE 7:  Insurance Expenses
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
By entity              
ACC 3,762 3,834 3,058 3,668 4,234 4,703 5,094
Earthquake Commission 88 39 59 39 40 40 41
Other 32 17 18 18 18 19 19
Total insurance expenses 3,882 3,890 3,135 3,725 4,292 4,762 5,154
NOTE 8:  Forecast New Operating Spending and Top-Down Adjustment
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Forecast new spending up to Budget 2011 254 394 489 555 759
Forecast for future new spending 1,120 2,260 3,420
Total forecast new operating spending 254 394 1,609 2,815 4,179
Top-down expense adjustment (300) (455) (410) (60) (60) (60)

Forecast new spending up to Budget 2011 represents expenses included in Budget 2010 that has yet to be allocated. Included in these amounts is a portion of spending transferred from the Budget 2011, 2012 and 2013 capital allowance to be used to help contribute to fix leaky homes.

Forecast for future new spending indicates the expected spending increases from the operating allowances planned for future budgets.

NOTE 9:  Gains and Losses on Financial Instruments
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
By source              
Core Crown (1,616) 1,256 3,048 1,231 1,239 1,284 1,366
Crown entities (669) 117 1,173 209 456 589 727
State-owned enterprises (138) 140 (88) (11) (44) (65) (62)
Inter-segment eliminations (211) (97) (217) (179) (180) (182) (190)
Net gains/(losses) on financial instruments (2,634) 1,416 3,916 1,250 1,471 1,626 1,841
NOTE 10:  Gains and Losses on Non-Financial Instruments
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
By type              
Actuarial gains/(losses) on GSF liability (695) (12) (408)
Actuarial gains/(losses) on ACC outstanding claims (4,491) 219
Other 1,019 217 (12) 181 187 197 202
Net gains/(losses) on non-financial instruments (4,167) 205 (201) 181 187 197 202
By source              
Core Crown 125 39 (544) 21 12 12 11
Crown entities (4,475) (12) 198 (17) (14) (10) (10)
State-owned enterprises 200 178 145 177 188 195 201
Inter-segment eliminations (17) 1
Net gains/(losses) on non-financial instruments (4,167) 205 (201) 181 187 197 202
NOTE 11: Source of Operating Balance
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Core Crown (5,862) (7,119) (5,910) (9,082) (5,663) (4,315) (2,735)
Crown entities (4,727) 328 2,773 1,423 1,413 1,461 1,478
State-owned enterprises 911 1,351 959 1,014 1,136 1,126 1,197
Inter-segment eliminations (827) (289) (1,001) (422) (465) (674) (768)
Total operating balance (10,505) (5,729) (3,179) (7,067) (3,579) (2,402) (828)
NOTE 12: Financial Assets
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Cash and cash equivalents 6,268 5,042 6,143 6,126 6,148 6,149 6,233
Tax receivables 7,649 7,378 6,690 6,288 6,063 5,869 5,618
Trade and other receivables 6,970 6,715 7,123 7,750 8,251 8,512 8,920
Student loans (refer note 13) 6,553 7,658 6,874 7,300 7,688 8,007 8,259
Kiwibank mortgages 8,492 8,843 10,411 12,411 14,411 14,411 14,411
Long-term deposits 3,136 2,635 2,158 2,240 2,337 2,390 2,650
IMF financial assets 454 901 2,546 2,546 2,547 2,547 2,548
Other advances 559 767 682 700 545 542 515
Share investments 11,160 11,867 15,675 17,771 20,020 22,431 24,957
Derivatives in gain 3,745 1,176 2,362 1,771 1,546 1,268 998
Other marketable securities 38,373 44,971 38,399 39,663 33,970 30,029 31,873
Total financial assets 93,359 97,953 99,063 104,566 103,526 102,155 106,982

Financial assets by entity

             
NZDMO 22,831 15,593 24,608 24,360 16,406 10,637 10,892
Reserve Bank of New Zealand 22,372 28,661 18,705 18,928 18,653 18,280 18,201
NZ Superannuation Fund 12,877 13,340 15,490 16,452 17,637 18,886 20,251
Other core Crown 17,399 17,470 16,480 16,777 16,974 17,212 17,302
Intra-segment eliminations (9,866) (4,722) (7,265) (6,845) (5,469) (4,786) (4,660)
Total core Crown segment 65,613 70,342 68,018 69,672 64,201 60,229 61,986
ACC portfolio 14,281 14,543 16,652 18,897 21,485 24,389 27,548
EQC portfolio 5,639 6,148 6,049 6,424 6,833 7,323 7,813
Other Crown entities 6,929 6,288 6,533 6,352 6,358 6,321 6,391
Intra-segment eliminations (1,521) (1,425) (1,450) (1,482) (1,492) (1,503) (1,515)
Total Crown entities segment 25,328 25,554 27,784 30,191 33,184 36,530 40,237
Total State-owned enterprises segment 14,702 14,451 16,861 18,987 21,143 21,285 21,714
Inter-segment eliminations (12,284) (12,394) (13,600) (14,284) (15,002) (15,889) (16,955)
Total financial assets 93,359 97,953 99,063 104,566 103,526 102,155 106,982
NOTE 13: Student Loans
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Nominal value (including accrued interest) 10,259 11,110 11,152 12,050 12,901 13,671 14,365
Opening book value 6,741 7,131 6,553 6,874 7,300 7,688 8,007
Amount borrowed in current year 1,350 1,478 1,543 1,616 1,648 1,664 1,676
Less initial write down to fair value (532) (573) (754) (772) (787) (795) (800)
Repayments made during the year (710) (794) (751) (826) (912) (1,016) (1,111)
Interest unwind 465 516 473 506 536 563 585
(Impairment)/reversal of impairment (779) (110) (201) (110) (110) (110) (110)
Other movements 18 10 11 12 13 13 12
Closing book value 6,553 7,658 6,874 7,300 7,688 8,007 8,259
NOTE 14: Property, Plant and Equipment
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
By Class of asset              

Net Carrying Value

             
Land (valuation) 16,289 17,348 16,434 16,570 16,648 16,768 16,893
Buildings (valuation) 23,719 23,179 24,832 25,831 26,176 26,298 26,131
Electricity distribution network (cost) 2,046 2,572 2,288 2,887 3,357 3,640 3,804
Electricity generation assets (valuation) 11,664 12,221 11,953 12,333 12,688 12,670 12,774
Aircraft (excluding military) (valuation) 1,952 2,344 2,173 2,347 2,821 3,112 3,541
State highways (valuation) 24,067 22,628 24,925 25,596 26,386 27,132 27,921
Rail network (valuation) 12,506 12,720 12,776 13,224 13,530 13,613 13,711
Specialist military equipment (valuation) 3,927 3,464 3,841 3,835 3,789 3,629 3,357
Specified cultural and heritage assets (valuation) 8,582 7,990 8,624 8,645 8,684 8,717 8,741
Other plant and equipment (cost) 5,383 5,785 5,788 6,474 6,659 6,944 7,141
Total property, plant and equipment 110,135 110,251 113,634 117,742 120,738 122,523 124,014
By source              
Core Crown 30,487 29,740 31,206 31,877 31,990 31,822 31,447
Crown entities 46,553 45,757 48,085 49,453 50,575 51,599 52,417
State-owned enterprises 33,095 34,754 34,343 36,412 38,173 39,102 40,150
Inter-segment eliminations    -     -     -     -     -     -     - 
Total property, plant and equipment 110,135 110,251 113,634 117,742 120,738 122,523 124,014
NOTE 15: Intangible Assets and Goodwill
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
By type              
Net Kyoto position1 207 231 231 231 231 231
Goodwill 461 183 457 457 457 457 457
Other intangible assets 1,500 1,950 1,632 1,908 2,055 1,993 1,889
Total intangible assets and goodwill 2,168 2,133 2,320 2,596 2,743 2,681 2,577
By source              
Core Crown 1,135 1,036 1,199 1,327 1,352 1,325 1,287
Crown entities 425 404 433 503 565 545 500
State-owned enterprises 607 693 688 766 826 811 790
Inter-segment eliminations 1    -     -     -     -     -     - 
Total intangible assets and goodwill 2,168 2,133 2,320 2,596 2,743 2,681 2,577
  1. The New Zealand Government has committed under the Kyoto Protocol to ensuring that New Zealand's average net emissions of greenhouse gases over 2008-2012 (the first commitment period of the Kyoto Protocol or CP1) is reduced to 1990 levels or to take responsibility for the difference. New Zealand can meet its commitment through emissions reductions and use of the Kyoto Protocol flexibility mechanisms such as Joint Implementation, the Clean Development Mechanism, and offsetting increased emissions against carbon removed by forests. The position will crystallise when the first Kyoto commitment period is settled up post-2012. These financial statements report on the New Zealand Government's obligations for the first commitment period, but not for future commitment periods which are currently being negotiated.

A full copy of the Net Position Report 2010 can be found on the Ministry for the Environment's website: www.mfe.govt.nz

NOTE 16: NZ Superannuation Fund
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Revenue 383 397 400 520 550 605 649
Less current tax expense 4 141 310 337 366 398
Less other expenses (323) 461 457 135 154 169 187
Add gains/(losses) (3,495) 1,129 2,317 978 1,079 1,157 1,260
Operating balance (2,793) 1,065 2,119 1,053 1,138 1,227 1,324
Opening net worth 14,212 13,275 13,688 16,066 17,124 18,268 19,504
Gross contribution from the Crown 2,242 250 250
Operating balance (2,793) 1,065 2,119 1,053 1,138 1,227 1,324
Other movements in reserves 27 9 5 6 9 10
Closing net worth 13,688 14,590 16,066 17,124 18,268 19,504 20,838
Comprising:              
Financial assets 12,877 13,340 15,490 16,452 17,637 18,886 20,251
Net other assets 811 1,250 576 672 631 618 587
Closing net worth 13,688 14,590 16,066 17,124 18,268 19,504 20,838
NOTE 17: Payables
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
By type              
Accounts payable 5,380 5,845 5,191 6,242 5,827 5,851 6,291
Taxes repayable 3,759 4,451 3,759 3,759 3,759 3,759 3,759
Total payables 9,139 10,296 8,950 10,001 9,586 9,610 10,050
By source              
Core Crown 6,885 7,373 6,330 7,011 6,455 6,499 6,863
Crown entities 3,968 3,457 3,606 3,680 3,729 3,747 3,769
State-owned enterprises 4,324 4,715 4,466 4,876 5,093 5,129 5,241
Inter-segment eliminations (6,038) (5,249) (5,452) (5,566) (5,691) (5,765) (5,823)
Total payables 9,139 10,296 8,950 10,001 9,586 9,610 10,050
NOTE 18:  Insurance Liabilities
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
By entity              
ACC liability 26,446 25,171 27,169 28,483 30,191 32,247 34,523
EQC property damage claims 87 91 86 86 86 86 86
Other insurance liabilities 34 83 50 66 77 88 95
Total insurance liabilities 26,567 25,345 27,305 28,635 30,354 32,421 34,704

ACC liability

Calculation information

PricewaterhouseCoopers Actuarial Pty Ltd have prepared an independent actuarial estimate of the ACC outstanding claims liability as at 31 December 2009. 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 estimate has been updated as at 31 March 2010 to reflect the expected impact of the Accident Compensation Amendment Act 2010 on those expected future payments.

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 market yield curve at 31 March 2010 and then blended to the long-term discount rate of 6% (30 June 2009 long-term discount rate 6%). 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

The projected outstanding claims liability is included within total liabilities. ACC has available to it a portfolio of assets that partially offset the claims liability. The assets (less cross holdings of NZ Government stock) are included in the asset portion of the Crown's overall statement of financial position.

 
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Gross ACC liability

             
Opening gross liability 20,374 23,958 26,446 27,169 28,483 30,191 32,247
Net change 6,072 1,213 723 1,314 1,708 2,056 2,276
Closing gross liability 26,446 25,171 27,169 28,483 30,191 32,247 34,523

Less net assets available to ACC

             
Opening net asset value 12,397 13,135 13,695 16,607 18,889 21,496 24,377
Net change 1,298 1,253 2,912 2,282 2,607 2,881 3,127
Closing net asset value 13,695 14,388 16,607 18,889 21,496 24,377 27,504

Net ACC reserves (net liability)

             
Opening reserves position (7,977) (10,823) (12,751) (10,562) (9,594) (8,695) (7,870)
Net change (4,774) 40 2,189 968 899 825 851
Closing reserves position (net liability) (12,751) (10,783) (10,562) (9,594) (8,695) (7,870) (7,019)
NOTE 19: Retirement Plan Liabilities
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Government Superannuation Fund (GSF) 8,988 10,307 9,154 8,817 8,558 8,390 8,238
Other funds 5 4 4 5 5 4
Total retirement plan liabilities 8,993 10,307 9,158 8,821 8,563 8,395 8,242

The net liability of the Government Superannuation Fund (GSF) liabilities has been calculated by the Government Actuary as~at 28 February 2010. 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 is used to calculate the liability as at 28 February 2010, based on membership data as at that date. 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.

The net GSF liability at this valuation was calculated using discount rates derived from the market yield curve as at the balance date and then blended to the long-term discount rate of 6.00% (long-term rate unchanged from 30 June 2009). Other principal long-term financial assumptions were an inflation rate, as measured by the increase in the Consumer Price Index, of 2.25% to 2020, reducing to 2.00% over the five years to 2025 (unchanged from 30 June 2009) and an annual salary growth rate, before any promotional effects, of 3.00% (unchanged from 30 June 2009).

The 2009/10 projected movement in the net GSF liability is $166 million, reflecting an increase in the GSF liability of $412 million offset by an increase in the GSF assets of $246 million.

The increase in the GSF liability of $412 million includes an actuarial loss, between 1 July 2009 and 28 February 2010, of $626 million of which $401 million resulted from changes in the short to medium discount rate assumptions and $225 million was due to experience adjustments. The projected change of $401 million is offset by changes in the current service cost, interest cost and benefits paid to members, to give an overall net projected change of $412 million.

The increase in the value of the net assets of GSF of $246 million includes an actuarial gain, from 1 July 2009 to 28 February 2010, of $217 million. The balance of $29 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 2010/11 onwards reflect the net of the expected current service cost, interest cost, investment returns and contributions.

 
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

GSF net defined benefit retirement liability

             

GSF liability

             
Opening GSF liability 11,831 13,115 11,792 12,204 11,884 11,636 11,473
Net projected change (39) (282) 412 (320) (248) (163) (152)
Closing GSF liability 11,792 12,833 12,204 11,884 11,636 11,473 11,321

Less net assets available to GSF

             
Opening net asset value 3,574 2,559 2,804 3,050 3,067 3,078 3,083
Investment valuation changes (583) 121 385 151 151 152 152
Contribution and other income less pension payments (187) (153) (139) (134) (140) (147) (152)
Closing net asset value 2,804 2,527 3,050 3,067 3,078 3,083 3,083

Net GSF liability

             
Opening unfunded liability 8,257 10,557 8,988 9,154 8,817 8,558 8,390
Net projected change 731 (250) 166 (337) (259) (168) (152)
Closing unfunded liability 8,988 10,307 9,154 8,817 8,558 8,390 8,238
NOTE 20:  Provisions
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Provision for ETS credits 17 173 93 722 719 821 821
Provision for future retail deposit guarantee scheme payments 831 875
Provision for National Provident Fund guarantee 954 919 922 883 843 802 761
Provision for employee entitlements 2,580 2,369 2,522 2,516 2,552 2,565 2,575
Other provisions 1,171 1,018 1,087 1,034 1,094 1,223 1,369
Total provisions 5,553 4,479 5,499 5,155 5,208 5,411 5,526
By source              
Core Crown 3,081 2,231 3,059 2,788 2,821 2,912 2,909
Crown entities 1,598 1,496 1,612 1,563 1,589 1,603 1,614
State-owned enterprises 919 798 876 862 875 985 1,101
Inter-segment eliminations (45) (46) (48) (58) (77) (89) (98)
Total provisions 5,553 4,479 5,499 5,155 5,208 5,411 5,526

Provision for ETS credits

The Emissions Trading Scheme (ETS) was established to encourage reduction in greenhouse gas emissions. The ETS creates a limited number of tradable units (the NZ Unit) which the Government can allocate freely or sell to entities. The allocation of NZ Units creates a provision (and an expense if allocated for free). The provision is reduced, and revenue recognised, as NZ Units are surrendered to the Crown by emitters. Emitters can also use international Kyoto units to settle their emission obligation, which will occur where emissions exceed the number of allocated NZ units.

Details of current climate change policies are listed at: www.mfe.govt.nz/issues/climate/policies-initiatives

 
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
The ETS impact on the fiscal forecast is as follows:              
Revenue 321 7 378 378 579 827
Expenses 17 471 100 1,007 375 681 827
OBEGAL (17) (150) (93) (629) 3 (102)
Provision for ETS credits 17 173 93 722 719 821 821
NOTE 21: Net Worth attributable to the Crown
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Taxpayers funds 36,382 31,803 34,027 26,983 23,429 21,050 20,246
Property, plant and equipment revaluation reserve 62,612 57,723 62,110 62,086 62,061 62,037 62,013
Investment revaluation reserve 56 80 61 62 68 77 87
Cash flow hedge reserve 18 (98) (190) (186) (184) (183) (183)
Foreign currency translation reserve 59 24 24 24 24 24
Total net worth attributable to the Crown 99,068 89,567 96,032 88,969 85,398 83,005 82,187

Taxpayers Funds

             
Opening taxpayers funds 46,700 37,534 36,382 34,027 26,983 23,429 21,050
Operating balance excluding minority interest (10,505) (5,729) (3,179) (7,067) (3,579) (2,402) (828)
Transfers from/(to) other reserves 187 (2) 824 23 25 23 24
Closing taxpayers funds 36,382 31,803 34,027 26,983 23,429 21,050 20,246

Property, Plant and Equipment Revaluation Reserve

             
Opening revaluation reserve 58,566 57,723 62,612 62,110 62,086 62,061 62,037
Net revaluations 4,235 (1) 323
Transfers from/(to) other reserves (189) 1 (825) (24) (25) (24) (24)
Closing property, plant and equipment revaluation reserve 62,612 57,723 62,110 62,086 62,061 62,037 62,013

Investment Revaluation Reserve

             
Opening investment revaluation reserve 34 83 56 61 62 68 77
Valuation gain/(losses) on investments available for sale taken to reserves 22 (3) 5 1 6 9 10
Closing investment revaluation reserve 56 80 61 62 68 77 87

Cash Flow Hedge Reserve

             
Opening cash flow hedge reserve (151) (83) 18 (190) (186) (184) (183)
Transfer into reserve 322 (18) (205) 5 2 1 1
Transfer to the statement of financial performance (1) (1)
Transfer to initial carrying value of hedged item (153) 3 (3)
Closing cash flow hedge reserve 18 (98) (190) (186) (184) (183) (183)

Foreign Currency Translation Reserve

             
Opening foreign currency translation reserve (17) 59 24 24 24 24
Movement arising from translation of foreign operations 17 24
Closing foreign currency translation reserve 59 24 24 24 24 24
NOTE 22:  Reconciliation of core Crown operating cash flows to residual core Crown cash
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Core Crown Cash Flows from Operations

             
Total tax receipts 51,362 50,742 50,668 53,348 57,468 61,038 64,960
Total other sovereign receipts 489 678 566 582 610 592 603
Interest, profits and dividends 1,441 1,338 1,791 1,572 1,746 1,941 1,911
Sale of goods & services and other receipts 2,288 1,943 2,936 2,214 2,094 2,068 2,098
Transfer payments and subsidies (19,953) (24,211) (21,713) (22,726) (23,484) (24,183) (24,982)
Personnel and operating costs (35,394) (35,049) (37,660) (40,498) (38,963) (38,166) (37,806)
Finance costs (2,200) (2,159) (1,946) (2,847) (3,494) (4,122) (4,351)
Forecast for future new operating spending (254) (394) (1,609) (2,815) (4,179)
Top-down expense adjustment 300 455 410 60 60 60
Net cash flows from core Crown operations (1,967) (6,672) (4,903) (8,339) (5,572) (3,587) (1,686)
Net purchase of physical assets (1,625) (2,375) (2,143) (2,258) (1,690) (1,385) (1,157)
Net increase in advances (860) (953) (974) (905) (690) (687) (728)
Net purchase of investments (1,944) (1,643) (924) (1,843) (972) (816) (806)
Contribution to NZ Superannuation Fund (2,243) (250) (250)
Forecast for future new capital spending (72) (282) (742) (1,024) (1,606)
Top-down capital adjustment 100 125 300
Residual cash (8,639) (11,865) (9,069) (13,327) (9,666) (7,499) (5,983)

Financed by:

             
Other net sale/(purchase) of marketable securities and deposits (512) 4,579 (994) (286) 6,909 5,216 (354)
Total operating and investing activities (9,151) (7,286) (10,063) (13,613) (2,757) (2,283) (6,337)

Used in:

             
Net (repayment)/issue of other New Zealand dollar borrowing 9,359 6,056 1,987 5,815 780 679 958
Net (repayment)/issue of foreign currency borrowing (1,973) (3,783) (799) (5,320) (1,011) (793) (912)
Issues of circulating currency 475 181 34 104 106 109 112
Decrease/(increase) in cash (1,761) (116) 20 14
    6,100 2,338 1,242 613 (125) (5) 158
Net cash inflow/(outflow) to be offset by domestic bonds (3,051) (4,948) (8,821) (13,000) (2,882) (2,288) (6,179)

Gross Cash Proceeds from Domestic Bonds

             
Domestic bonds (market) 5,775 8,919 12,869 12,776 10,555 9,987 5,913
Domestic bonds (non-market) 541 948 805 224 1,025 1,002 266
Total gross cash proceeds from domestic bonds 6,316 9,867 13,674 13,000 11,580 10,989 6,179
Repayment of domestic bonds (market) (2,750) (4,247) (4,197) (7,902) (7,937)
Repayment of domestic bonds (non-market) (515) (672) (656) (796) (764)
Net cash proceeds from domestic bonds 3,051 4,948 8,821 13,000 2,882 2,288 6,179

Forecast Statement of Segments

Statement of Financial Performance for the year ended 30 June 2009
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2009
Actual
$m
2009
Actual
$m
2009
Actual
$m
2009
Actual
$m
2009
Actual
$m

Revenue

         
Taxation revenue 54,681 (536) 54,145
Other sovereign revenue 808 4,417 (1,107) 4,118
Sales of goods and services 1,237 13,901 12,592 (12,374) 15,356
Interest revenue and dividends 1,872 1,248 1,193 (894) 3,419
Other revenue 884 11,763 1,117 (10,874) 2,890
Total Revenue (excluding gains) 59,482 31,329 14,902 (25,785) 79,928

Expenses

         
Social assistance and official development assistance 20,244 (282) 19,962
Personnel expenses 6,037 9,592 2,447 (12) 18,064
Other operating expenses 35,292 21,184 10,201 (24,374) 42,303
Interest expenses 2,429 185 1,392 (514) 3,492
Forecast for future new spending and top down adjustment
Total Expenses (excluding losses) 64,002 30,961 14,040 (25,182) 83,821
Operating Balance before gains/(losses) (4,520) 368 862 (603) (3,893)
Total gains/(losses) (1,494) (5,144) 61 (224) (6,801)
Net surplus/(deficit) from associates and joint ventures 155 49 8 212
Gain/(loss) from discontinued operations (3) 5 2
Attributable to minority interest in Air NZ (25) (25)
Operating Balance (5,862) (4,727) 911 (827) (10,505)

Expenses by functional classification

         
Social security and welfare 19,382 4,727 (836) 23,273
Health 12,368 10,839 (11,165) 12,042
Education 11,455 8,757 22 (7,769) 12,465
Transport and communications 2,663 2,032 6,767 (2,439) 9,023
Other 15,705 4,421 5,859 (2,459) 23,526
Finance costs 2,429 185 1,392 (514) 3,492
Forecast for future new spending and top down adjustment
Total Crown Expenses (excluding losses) 64,002 30,961 14,040 (25,182) 83,821

Statement of Financial Position as at 30 June 2009

Statement of Financial Position as at 30 June 2009
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2009
Actual
$m
2009
Actual
$m
2009
Actual
$m
2009
Actual
$m
2009
Actual
$m

Assets

         
Cash and cash equivalents 3,375 2,526 583 (216) 6,268
Receivables 10,243 4,725 1,846 (2,195) 14,619
Other financial assets 51,995 18,072 12,273 (9,868) 72,472
Property, plant & equipment 30,487 46,553 33,095 110,135
Equity accounted investments 27,536 7,468 257 (26,484) 8,777
Intangible assets and goodwill 1,135 425 607 1 2,168
Other assets 1,429 306 1,000 (23) 2,712
Forecast for new capital spending and top down adjustment
Total Assets 126,200 80,075 49,661 (38,785) 217,151

Liabilities

         
Borrowings 49,889 4,939 16,963 (9,838) 61,953
Other liabilities 23,242 32,358 6,239 (6,156) 55,683
Total Liabilities 73,131 37,297 23,202 (15,994) 117,636
Total Assets less Total Liabilities 53,069 42,778 26,459 (22,791) 99,515

Net Worth

         
Taxpayer funds 36,766 16,460 8,898 (25,742) 36,382
Reserves 16,303 26,318 17,008 3,057 62,686
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 53,069 42,778 26,459 (22,791) 99,515

Statement of Financial Performance for the year ended 30 June 2010

Statement of Financial Performance for the year ended 30 June 2010
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2010
Forecast
$m
2010
Forecast
$m
2010
Forecast
$m
2010
Forecast
$m
2010
Forecast
$m

Revenue

         
Taxation revenue 50,652 (418) 50,234
Other sovereign revenue 1,024 4,798 (1,159) 4,663
Sales of goods and services 1,417 14,086 11,900 (13,068) 14,335
Interest revenue and dividends 2,225 1,012 1,465 (1,408) 3,294
Other revenue 1,088 12,641 993 (11,568) 3,154
Total Revenue (excluding gains) 56,406 32,537 14,358 (27,621) 75,680

Expenses

         
Social assistance and official development assistance 21,670 (270) 21,400
Personnel expenses 5,953 10,316 2,449 (8) 18,710
Other operating expenses 35,259 20,707 9,433 (26,018) 39,381
Interest expenses 2,364 163 1,588 (544) 3,571
Forecast for future new spending and top down adjustment (455) (455)
Total Expenses (excluding losses) 64,791 31,186 13,470 (26,840) 82,607
Operating Balance before gains/(losses) (8,385) 1,351 888 (781) (6,927)
Total gains/(losses) 2,505 1,371 57 (218) 3,715
Net surplus/(deficit) from associates and joint ventures (27) 51 15 (2) 37
Gain/(loss) from discontinued operations (3) (1) (4)
Attributable to minority interest in Air NZ
Operating Balance (5,910) 2,773 959 (1,001) (3,179)

Expenses by functional classification

         
Social security and welfare 21,234 4,019 (841) 24,412
Health 13,137 11,148 (11,562) 12,723
Education 11,779 9,158 23 (8,318) 12,642
Transport and communications 2,453 2,086 5,996 (2,521) 8,014
Other 14,279 4,612 5,863 (3,054) 21,700
Finance costs 2,364 163 1,588 (544) 3,571
Forecast for future new spending and top down adjustment (455) (455)
Total Crown Expenses (excluding losses) 64,791 31,186 13,470 (26,840) 82,607

Statement of Financial Position as at 30 June 2010

Statement of Financial Position as at 30 June 2010
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2010
Forecast
$m
2010
Forecast
$m
2010
Forecast
$m
2010
Forecast
$m
2010
Forecast
$m

Assets

         
Cash and cash equivalents 2,809 2,685 857 (208) 6,143
Receivables 8,437 4,904 2,075 (1,603) 13,813
Other financial assets 56,772 20,195 13,929 (11,789) 79,107
Property, plant & equipment 31,206 48,085 34,344 (1) 113,634
Equity accounted investments 28,534 7,521 289 (27,419) 8,925
Intangible assets and goodwill 1,199 433 688 2,320
Other assets 1,423 310 990 (28) 2,695
Forecast for new capital spending and top down adjustment (125) (125)
Total Assets 130,255 84,133 53,172 (41,048) 226,512

Liabilities

         
Borrowings 59,933 4,923 20,527 (11,740) 73,643
Other liabilities 23,049 32,710 6,175 (5,544) 56,390
Total Liabilities 82,982 37,633 26,702 (17,284) 130,033
Total Assets less Total Liabilities 47,273 46,500 26,470 (23,764) 96,479

Net Worth

         
Taxpayer funds 31,652 20,084 9,039 (26,748) 34,027
Reserves 15,621 26,416 16,878 3,090 62,005
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 47,273 46,500 26,470 (23,764) 96,479

Statement of Financial Performance for the year ended 30 June 2011

Statement of Financial Performance for the year ended 30 June 2011
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2011
Forecast
$m
2011
Forecast
$m
2011
Forecast
$m
2011
Forecast
$m
2011
Forecast
$m

Revenue

         
Taxation revenue 53,912 (455) 53,457
Other sovereign revenue 1,491 5,411 (1,143) 5,759
Sales of goods and services 1,481 14,057 12,849 (12,988) 15,399
Interest revenue and dividends 2,487 939 1,550 (913) 4,063
Other revenue 889 13,081 933 (11,800) 3,103
Total Revenue (excluding gains) 60,260 33,488 15,332 (27,299) 81,781

Expenses

         
Social assistance and official development assistance 22,684 (56) 22,628
Personnel expenses 6,076 10,516 2,526 (9) 19,109
Other operating expenses 38,677 21,611 10,253 (26,461) 44,080
Interest expenses 3,230 181 1,733 (532) 4,612
Forecast for future new spending and top down adjustment (16) (16)
Total Expenses (excluding losses) 70,651 32,308 14,512 (27,058) 90,413
Operating Balance before gains/(losses) (10,391) 1,180 820 (241) (8,632)
Total gains/(losses) 1,253 191 166 (179) 1,431
Net surplus/(deficit) from associates and joint ventures 56 52 28 (1) 135
Gain/(loss) from discontinued operations (1) (1)
Attributable to minority interest in Air NZ
Operating Balance (9,082) 1,423 1,014 (422) (7,067)

Expenses by functional classification

         
Social security and welfare 22,120 4,657 (650) 26,127
Health 14,043 11,469 (12,133) 13,379
Education 11,992 9,256 23 (8,410) 12,861
Transport and communications 2,417 2,079 6,076 (2,388) 8,184
Other 16,865 4,666 6,680 (2,945) 25,266
Finance costs 3,230 181 1,733 (532) 4,612
Forecast for future new spending and top down adjustment (16) (16)
Total Crown Expenses (excluding losses) 70,651 32,308 14,512 (27,058) 90,413

Statement of Financial Position as at 30 June 2011

Statement of Financial Position as at 30 June 2011
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2011
Forecast
$m
2011
Forecast
$m
2011
Forecast
$m
2011
Forecast
$m
2011
Forecast
$m

Assets

         
Cash and cash equivalents 2,826 2,670 838 (208) 6,126
Receivables 8,357 5,033 2,229 (1,581) 14,038
Other financial assets 58,489 22,488 15,920 (12,495) 84,402
Property, plant & equipment 31,877 49,453 36,411 1 117,742
Equity accounted investments 30,351 8,028 312 (29,251) 9,440
Intangible assets and goodwill 1,327 503 766 -   2,596
Other assets 1,435 301 1,009 (29) 2,716
Forecast for new capital spending and top down adjustment (143) (143)
Total Assets 134,519 88,476 57,485 (43,563) 236,917

Liabilities

         
Borrowings 73,196 4,988 23,646 (12,414) 89,416
Other liabilities 23,127 34,049 6,570 (5,661) 58,085
Total Liabilities 96,323 39,037 30,216 (18,075) 147,501
Total Assets less Total Liabilities 38,196 49,439 27,269 (25,488) 89,416

Net Worth

         
Taxpayer funds 22,570 23,037 9,835 (28,459) 26,983
Reserves 15,626 26,402 16,881 3,077 61,986
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 38,196 49,439 27,269 (25,488) 89,416

Statement of Financial Performance for the year ended 30 June 2012

Statement of Financial Performance for the year ended 30 June 2012
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2012
Forecast
$m
2012
Forecast
$m
2012
Forecast
$m
2012
Forecast
$m
2012
Forecast
$m

Revenue

         
Taxation revenue 57,977 (536) 57,441
Other sovereign revenue 1,584 5,654 (1,186) 6,052
Sales of goods and services 1,480 14,066 13,898 (12,904) 16,540
Interest revenue and dividends 2,697 1,081 1,686 (1,043) 4,421
Other revenue 731 13,118 888 (11,689) 3,048
Total Revenue (excluding gains) 64,469 33,919 16,472 (27,358) 87,502

Expenses

         
Social assistance and official development assistance 23,336 (63) 23,273
Personnel expenses 6,149 10,664 2,606 (9) 19,410
Other operating expenses 36,597 22,134 10,975 (26,417) 43,289
Interest expenses 3,833 203 1,931 (580) 5,387
Forecast for future new spending and top down adjustment 1,549 1,549
Total Expenses (excluding losses) 71,464 33,001 15,512 (27,069) 92,908
Operating Balance before gains/(losses) (6,995) 918 960 (289) (5,406)
Total gains/(losses) 1,251 443 145 (181) 1,658
Net surplus/(deficit) from associates and joint ventures 81 52 32 5 170
Gain/(loss) from discontinued operations (1) (1)
Attributable to minority interest in Air NZ
Operating Balance (5,663) 1,413 1,136 (465) (3,579)

Expenses by functional classification

         
Social security and welfare 22,953 5,261 (677) 27,537
Health 13,941 11,458 (12,086) 13,313
Education 11,999 9,311 23 (8,439) 12,894
Transport and communications 2,131 2,075 6,326 (2,318) 8,214
Other 15,058 4,693 7,232 (2,969) 24,014
Finance costs 3,833 203 1,931 (580) 5,387
Forecast for future new spending and top down adjustment 1,549 1,549
Total Crown Expenses (excluding losses) 71,464 33,001 15,512 (27,069) 92,908

Statement of Financial Position as at 30 June 2012

Statement of Financial Position as at 30 June 2012
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2012
Forecast
$m
2012
Forecast
$m
2012
Forecast
$m
2012
Forecast
$m
2012
Forecast
$m

Assets

         
Cash and cash equivalents 2,864 2,638 855 (209) 6,148
Receivables 8,310 5,202 2,421 (1,619) 14,314
Other financial assets 53,027 25,344 17,867 (13,174) 83,064
Property, plant & equipment 31,990 50,575 38,173 120,738
Equity accounted investments 31,289 8,079 337 (30,207) 9,498
Intangible assets and goodwill 1,352 565 826 2,743
Other assets 1,439 302 1,035 (29) 2,747
Forecast for new capital spending and top down adjustment 600 600
Total Assets 130,871 92,705 61,514 (45,238) 239,852

Liabilities

         
Borrowings 75,947 5,143 26,846 (13,151) 94,785
Other liabilities 22,384 35,836 6,805 (5,803) 59,222
Total Liabilities 98,331 40,979 33,651 (18,954) 154,007
Total Assets less Total Liabilities 32,540 51,726 27,863 (26,284) 85,845

Net Worth

         
Taxpayer funds 16,908 25,349 10,429 (29,257) 23,429
Reserves 15,632 26,377 16,881 3,079 61,969
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 32,540 51,726 27,863 (26,284) 85,845

Statement of Financial Performance for the year ended 30 June 2013

Statement of Financial Performance for the year ended 30 June 2013
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2013
Forecast
$m
2013
Forecast
$m
2013
Forecast
$m
2013
Forecast
$m
2013
Forecast
$m

Revenue

         
Taxation revenue 61,518 (607) 60,911
Other sovereign revenue 1,896 5,846 (1,243) 6,499
Sales of goods and services 1,433 14,083 14,526 (12,897) 17,145
Interest revenue and dividends 2,952 1,291 1,688 (1,287) 4,644
Other revenue 731 13,316 734 (11,635) 3,146
Total Revenue (excluding gains) 68,530 34,536 16,948 (27,669) 92,345

Expenses

         
Social assistance and official development assistance 24,024 (65) 23,959
Personnel expenses 6,244 10,833 2,658 (9) 19,726
Other operating expenses 36,878 22,656 11,296 (26,465) 44,365
Interest expenses 4,323 219 2,032 (640) 5,934
Forecast for future new spending and top down adjustment 2,755 2,755
Total Expenses (excluding losses) 74,224 33,708 15,986 (27,179) 96,739
Operating Balance before gains/(losses) (5,694) 828 962 (490) (4,394)
Total gains/(losses) 1,296 579 130 (182) 1,823
Net surplus/(deficit) from associates and joint ventures 83 54 35 (2) 170
Gain/(loss) from discontinued operations (1) (1)
Attributable to minority interest in Air NZ -  
Operating Balance (4,315) 1,461 1,126 (674) (2,402)

Expenses by functional classification

         
Social security and welfare 23,775 5,757 (701) 28,831
Health 13,945 11,460 (12,121) 13,284
Education 11,986 9,359 23 (8,466) 12,902
Transport and communications 2,080 2,194 6,439 (2,292) 8,421
Other 15,360 4,719 7,492 (2,959) 24,612
Finance costs 4,323 219 2,032 (640) 5,934
Forecast for future new spending and top down adjustment 2,755 2,755
Total Crown Expenses (excluding losses) 74,224 33,708 15,986 (27,179) 96,739

Statement of Financial Position as at 30 June 2013

Statement of Financial Position as at 30 June 2013
  Core Crown Crown Entities State-owned
Enterprises

Inter-segment
eliminations

Total Crown
  2013
Forecast
$m
2013
Forecast
$m
2013
Forecast
$m
2013
Forecast
$m
2013
Forecast
$m

Assets

         
Cash and cash equivalents 2,928 2,574 855 (208) 6,149
Receivables 8,124 5,372 2,543 (1,658) 14,381
Other financial assets 49,177 28,584 17,887 (14,023) 81,625
Property, plant & equipment 31,822 51,599 39,103 (1) 122,523
Equity accounted investments 32,066 8,131 362 (31,008) 9,551
Intangible assets and goodwill 1,325 545 811 2,681
Other assets 1,459 304 1,046 (29) 2,780
Forecast for new capital spending and top down adjustment 1,624 1,624
Total Assets 128,525 97,109 62,607 (46,927) 241,314

Liabilities

         
Borrowings 77,861 5,247 27,358 (14,032) 96,434
Other liabilities 22,430 37,935 6,950 (5,887) 61,428
Total Liabilities 100,291 43,182 34,308 (19,919) 157,862
Total Assets less Total Liabilities 28,234 53,927 28,299 (27,008) 83,452

Net Worth

         
Taxpayer funds 12,593 27,573 10,864 (29,980) 21,050
Reserves 15,641 26,354 16,882 3,078 61,955
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 28,234 53,927 28,299 (27,008) 83,452

Statement of Financial Performance for the year ended 30 June 2014

Statement of Financial Performance for the year ended 30 June 2014
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2014
Forecast
$m
2014
Forecast
$m
2014
Forecast
$m
2014
Forecast
$m
2014
Forecast
$m

Revenue

         
Taxation revenue 65,410 (712) 64,698
Other sovereign revenue 2,280 6,051 (1,304) 7,027
Sales of goods and services 1,463 14,140 15,353 (12,932) 18,024
Interest revenue and dividends 2,972 1,413 1,692 (1,405) 4,672
Other revenue 731 13,438 721 (11,638) 3,252
Total Revenue (excluding gains) 72,856 35,042 17,766 (27,991) 97,673

Expenses

         
Social assistance and official development assistance 24,840 (245) 24,595
Personnel expenses 6,275 10,883 2,737 (9) 19,886
Other operating expenses 37,270 23,231 11,921 (26,446) 45,976
Interest expenses 4,545 222 2,083 (715) 6,135
Forecast for future new spending and top down adjustment 4,119 4,119
Total Expenses (excluding losses) 77,049 34,336 16,741 (27,415) 100,711
Operating Balance before gains/(losses) (4,193) 706 1,025 (576) (3,038)
Total gains/(losses) 1,377 717 139 (190) 2,043
Net surplus/(deficit) from associates and joint ventures 81 55 34 (2) 168
Gain/(loss) from discontinued operations (1) (1)
Attributable to minority interest in Air NZ
Operating Balance (2,735) 1,478 1,197 (768) (828)

Expenses by functional classification

         
Social security and welfare 24,694 6,144 (901) 29,937
Health 13,769 11,481 (11,980) 13,270
Education 12,029 9,469 23 (8,528) 12,993
Transport and communications 2,087 2,265 6,791 (2,304) 8,839
Other 15,806 4,755 7,844 (2,987) 25,418
Finance costs 4,545 222 2,083 (715) 6,135
Forecast for future new spending and top down adjustment 4,119 4,119
Total Crown Expenses (excluding losses) 77,049 34,336 16,741 (27,415) 100,711

Statement of Financial Position as at 30 June 2014

Statement of Financial Position as at 30 June 2014
  Core Crown Crown Entities State-owned
Enterprises
Inter-segment
eliminations
Total Crown
  2014
Forecast
$m
2014
Forecast
$m
2014
Forecast
$m
2014
Forecast
$m
2014
Forecast
$m

Assets

         
Cash and cash equivalents 2,933 2,639 869 (208) 6,233
Receivables 7,877 5,636 2,718 (1,693) 14,538
Other financial assets 51,176 31,962 18,127 (15,054) 86,211
Property, plant & equipment 31,447 52,417 40,150 -   124,014
Equity accounted investments 32,817 8,182 387 (31,789) 9,597
Intangible assets and goodwill 1,286 500 790 1 2,577
Other assets 1,452 304 1,106 (29) 2,833
Forecast for new capital spending and top down adjustment 3,230 3,230
Total Assets 132,218 101,640 64,147 (48,772) 249,233

Liabilities

         
Borrowings 83,989 5,273 28,252 (15,118) 102,396
Other liabilities 22,721 40,253 7,185 (5,956) 64,203
Total Liabilities 106,710 45,526 35,437 (21,074) 166,599
Total Assets less Total Liabilities 25,508 56,114 28,710 (27,698) 82,634

Net Worth

         
Taxpayer funds 9,857 29,784 11,275 (30,670) 20,246
Reserves 15,651 26,330 16,882 3,078 61,941
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 25,508 56,114 28,710 (27,698) 82,634

Core Crown Expense Tables

[13]

Core Crown Expense Tables
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Social security and welfare 14,682 15,598 16,768 17,877 19,382 21,234 22,120 22,953 23,775 24,694
GSF 718 761 645 690 655 368 357 437 534 550
Health 8,813 9,547 10,355 11,297 12,368 13,137 14,043 13,941 13,945 13,769
Education 7,930 9,914 9,269 9,551 11,455 11,779 11,992 11,999 11,986 12,029
Core government services 2,567 2,507 4,816 3,371 5,293 3,793 3,979 4,028 4,022 4,051
Law and order 1,977 2,235 2,699 2,894 3,089 3,276 3,537 3,497 3,518 3,519
Defence 1,275 1,383 1,517 1,562 1,757 1,832 1,912 1,859 1,856 1,856
Transport and communications 1,635 1,818 2,405 2,244 2,663 2,453 2,417 2,131 2,080 2,087
Economic and industrial services 1,444 1,592 1,595 2,889 2,960 2,959 2,828 2,592 2,466 2,478
Primary services 394 467 438 541 534 522 757 733 738 717
Heritage, culture and recreation 991 891 844 1,107 1,002 1,076 2,037 1,385 1,672 1,780
Housing and community development 163 202 255 260 297 344 370 327 316 302
Other 32 49 68 254 118 109 1,088 200 238 553
Finance costs 2,274 2,356 2,329 2,460 2,429 2,364 3,230 3,833 4,323 4,545
Forecast for future new spending  ..   ..   ..   ..   ..   ..  394 1,609 2,815 4,179
Top- down expense adjustment  ..   ..   ..   ..   ..  ( 455) ( 410) ( 60) ( 60) ( 60)
Core Crown expenses 44,895 49,320 54,003 56,997 64,002 64,791 70,651 71,464 74,224 77,049

Source: The Treasury

Notes

  • [13]Historical data contained in the expense tables have been restated on a NZ IFRS basis for material changes.
Table 4.1 - Social security and welfare expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Welfare benefits 13,326 14,246 15,435 16,288 17,366 19,025 20,047 20,817 21,538 22,160
Social rehabilitation & compensation 152 145 163 199 336 329 120 133 141 314
Departmental expenses 781 858 845 850 1,092 1,147 1,165 1,124 1,110 1,109
Child support impairment 136 151 183 193 205 346 401 471 558 668
Other non-departmental expenses 287 198 142 347 383 387 387 408 428 443
Social security and welfare expenses 14,682 15,598 16,768 17,877 19,382 21,234 22,120 22,953 23,775 24,694

Source: The Treasury

Table 4.2 - New Zealand superannuation and welfare benefit expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
New Zealand Superannuation 6,083 6,414 6,810 7,348 7,744 8,287 8,822 9,560 10,149 10,781
Domestic Purposes Benefit 1,547 1,493 1,468 1,478 1,530 1,694 1,756 1,847 1,890 1,938
Unemployment Benefit 831 712 613 458 586 939 969 931 849 774
Invalids Benefit 1,026 1,073 1,132 1,216 1,260 1,302 1,319 1,374 1,394 1,417
Family Tax Credit 846 1,285 1,699 1,897 2,062 2,200 2,239 2,226 2,296 2,181
Accommodation Supplement 750 843 877 891 989 1,158 1,221 1,237 1,240 1,251
Sickness Benefit 510 541 573 582 613 714 760 796 814 832
Disability Allowance 267 261 270 278 390 412 421 436 450 465
Income Related Rents 370 395 434 465 512 528 563 613 662 717
In Work Tax Credit ..  70 461 563 584 604 597 568 577 585
Child Tax Credit 141 154 44 11 6 4 3 3 2 2
Special Benefit 175 162 106 71 ..  ..  ..  ..  ..  .. 
Benefits paid in Australia 91 80 71 58 50 45 39 37 21 18
Paid Parental Leave 76 96 122 135 143 154 163 171 181 192
Childcare Assistance 79 110 139 150 159 178 190 190 187 184
War Disablement Pensions 107 113 122 134 125 137 135 135 131 126
Veteran's Pension 119 128 143 161 176 179 180 184 184 183
Other benefits 308 316 351 392 437 490 670 509 511 514
Benefit expenses 13,326 14,246 15,435 16,288 17,366 19,025 20,047 20,817 21,538 22,160

Source: The Treasury

Table 4.3 - Beneficiary numbers
(Thousands) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
New Zealand Superannuation 469 482 495 508 522 540 557 577 600 622
Domestic Purposes Benefit 109 106 100 97 101 110 113 113 113 114
Unemployment Benefit 78 64 52 37 48 79 80 74 67 60
Accommodation Supplement 243 249 251 245 267 312 325 325 323 321
Invalids Benefit 74 76 78 82 86 88 88 88 88 88
Sickness Benefit 45 47 48 48 50 58 62 62 62 62

Source: Ministry of Social Development

Table 4.4 - GSF pension expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Pension expenses 718 761 645 690 655 368 357 437 534 550
Core Crown GSF 718 761 645 690 655 368 357 437 534 550

Source: The Treasury

Table 4.5 - Health expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Departmental outputs 157 174 180 206 206 205 212 208 208 208
Health service purchasing 8,113 8,805 9,614 10,503 11,354 12,089 12,779 12,689 12,668 12,651
Other non-departmental outputs 160 135 99 97 98 106 123 121 118 112
Health payments to ACC 356 372 425 463 667 692 873 868 897 743
Other expenses 27 61 37 28 43 45 56 55 54 55
Health expenses 8,813 9,547 10,355 11,297 12,368 13,137 14,043 13,941 13,945 13,769

Source: The Treasury

Table 4.6 - Health service purchasing
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Payments to District Health Boards 7,262 7,814 8,547 9,312 10,038 10,663 11,291 11,258 11,244 11,257
National Disability Support Services 620 699 755 834 889 932 970 960 955 955
Public Health Service Purchasing 231 292 312 357 427 494 518 471 469 439
Health service purchasing 8,113 8,805 9,614 10,503 11,354 12,089 12,779 12,689 12,668 12,651

Source: The Treasury

Table 4.7 - Education expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Early childhood education 444 555 617 860 1,030 1,176 1,283 1,317 1,367 1,397
Primary and secondary schools 3,934 4,153 4,325 4,552 4,936 5,206 5,271 5,333 5,370 5,402
Tertiary funding 2,496 4,047 3,322 3,266 4,564 4,465 4,365 4,318 4,252 4,235
Departmental expenses 737 821 875 828 888 929 1,011 981 959 959
Other education expenses 319 338 130 45 37 3 62 50 38 36
Education expenses 7,930 9,914 9,269 9,551 11,455 11,779 11,992 11,999 11,986 12,029
Places 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Early childhood education1 113,009 115,903 123,196 133,863 141,768 148,757 156,818 161,780 165,396 165,728
  1. Full-time equivalent based on 1,000 funded child hours per year. From 2004, these have been restated and are now snapshots based as at 1 July

Sources: Ministry of Education, The Treasury

Table 4.8 - Primary and secondary education expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Primary 1,964 2,062 2,141 2,262 2,484 2,638 2,676 2,729 2,761 2,786
Secondary 1,524 1,618 1,682 1,761 1,898 1,995 2,021 2,023 2,021 2,020
School transport 109 118 125 131 152 159 161 167 173 180
Special needs support 231 245 263 278 290 303 308 314 314 316
Professional Development 95 101 104 108 101 99 91 86 87 86
Schooling Improvement 11 9 10 12 11 12 14 14 14 14
Primary and secondary education expenses 3,934 4,153 4,325 4,552 4,936 5,206 5,271 5,333 5,370 5,402
Places 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Primary1 482,570 480,586 477,967 475,820 474,630 476,890 478,594 484,766 491,244 498,767
Secondary1 274,245 275,869 277,619 277,582 280,062 280,254 279,929 278,240 278,789 278,695
  1. From 1999, these have been restated and are now snapshots based as at 1 July for primary year-levels (years 1 to 8) and 1 March for secondary year-levels (years 9 to 15). These numbers include special school rolls but exclude health camps, hospital schools and home schooling.

Sources: Ministry of Education, The Treasury

Table 4.9 - Tertiary education expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Tuition 1,647 1,865 1,962 2,172 2,287 2,415 2,396 2,357 2,354 2,356
Other tertiary funding 68 110 339 358 522 506 431 438 417 417
Tertiary student allowances 359 354 382 386 444 589 656 626 576 552
Initial fair value change in student loans ..  1,415 ..  ..  ..  ..  ..  ..  ..  .. 
Student loans 422 303 639 350 1,311 955 882 897 905 910
Tertiary education expenses 2,496 4,047 3,322 3,266 4,564 4,465 4,365 4,318 4,252 4,235
Places (year) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
EFT students1 242,986 226,891 230,319 229,276 234,434 239,717 240,086 240,086 240,086 240,086
  1. Tertiary EFTS numbers from 2000 to 2008 include all delivered EFTS. EFTS numbers from 2009 onwards have been estimated on the basis of funded EFTS. Note that historical EFTS numbers have been revised so will differ from previous published EFU numbers. EFTS numbers are based on calendar years rather than fiscal years.

Sources: Ministry of Education, The Treasury

Table 4.10 - Core Government service expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Official development assistance 297 330 330 362 458 484 485 509 559 559
Indemnity and guarantee expenses ..  ..  ..  ..  992 62 60 59 58 58
Departmental expenses 1,570 1,403 1,402 1,557 1,668 1,616 1,633 1,632 1,589 1,601
Non-Departmental Expenses ..  ..  237 277 117 297 244 265 279 298
Tax receivable write-down and impairments 350 338 2,479 701 1,654 987 1,154 1,170 1,159 1,159
Science expenses 170 157 163 168 179 190 183 183 184 184
Other expenses 180 279 205 306 225 157 220 210 194 192
Core Government service expenses 2,567 2,507 4,816 3,371 5,293 3,793 3,979 4,028 4,022 4,051

Source: The Treasury

Table 4.11 - Law and order expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Police 896 976 1,086 1,198 1,326 1,343 1,395 1,393 1,397 1,397
Ministry of Justice 257 299 454 367 379 395 412 402 399 399
Department of Corrections 483 572 662 787 829 917 996 985 1,006 1,007
Customs1 11 12 12 12 12 15 123 137 144 145
Other departments 61 64 48 79 80 95 92 87 84 84
Department expenses 1,708 1,923 2,262 2,443 2,626 2,765 3,018 3,004 3,030 3,032
Non-departmental outputs 218 262 354 326 380 421 415 382 377 376
Other expenses 51 50 83 125 83 90 104 111 111 111
Law and order expenses 1,977 2,235 2,699 2,894 3,089 3,276 3,537 3,497 3,518 3,519
  1. Previously the majority of Customs spending was classified as Core Government Services.

Source: The Treasury

Table 4.12 - Defence expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
NZDF Core expenses 1,203 1,306 1,459 1,517 1,697 1,771 1,842 1,804 1,799 1,799
Other expenses 72 77 58 45 60 61 70 55 57 57
Defence expenses 1,275 1,383 1,517 1,562 1,757 1,832 1,912 1,859 1,856 1,856

Source: The Treasury

Table 4.13 - Transport and communication expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
New Zealand Transport Agency1 1,346 1,482 1,874 1,966 1,562 1,779 1,716 1,719 1,845 1,908
Departmental outputs 97 101 113 137 83 67 63 63 63 63
Other non-departmental expenses 79 109 221 104 170 121 114 93 88 88
Asset impairments 47 47 47 ..  320 ..  ..  ..  ..  .. 
Rail funding 63 77 142 24 507 455 499 231 59 3
Other expenses 3 2 8 13 21 31 25 25 25 25
Transport and communication expenses 1,635 1,818 2,405 2,244 2,663 2,453 2,417 2,131 2,080 2,087
  1. Since 2008/09 funding has been provided to New Zealand Transport Agency. From 2004/05 to 2007/08 funding was received by Land Transport NZ. Prior to this, funding was received by Transfund.
    Prior to 2008/09 all NZTA funding was recognised as operating expenditure. However from 2008/09 some funding is now classified as capital resulting in a reduction to operating expenditure.

Source: The Treasury

Table 4.14 - Economic and industrial services expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Departmental outputs 508 549 546 603 389 411 422 405 402 407
Employment initiatives 224 202 207 186 185 229 205 166 165 166
Non-departmental outputs 549 751 873 822 809 954 786 742 680 644
Reserve Electricity Generation ..  26 16 81 20 22 27 26 17 17
Flood relief 52 8 ..  ..  ..  ..  ..  ..  ..  .. 
KiwiSaver ..  ..  ..  1,102 1,281 1,045 1,179 1,054 1,028 1,063
Research & Development tax credits ..  ..  ..  37 154 ..  ..  ..  ..  .. 
Other expenses 111 56 (47) 58 122 298 209 199 174 181
Economic and industrial services expenses 1,444 1,592 1,595 2,889 2,960 2,959 2,828 2,592 2,466 2,478

Source: The Treasury

Table 4.15 - Employment initiatives
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Training incentive allowance 36 32 29 27 30 23 20 16 15 15
Community employment projects 6 ..  ..  ..  ..  ..  ..  ..  ..  .. 
Subsidised work 102 84 88 67 63 114 94 59 59 59
Employment support for disabled 74 82 86 88 88 88 87 87 87 88
Other employment assistance schemes 6 4 4 4 4 4 4 4 4 4
Employment initiatives 224 202 207 186 185 229 205 166 165 166

Source: The Treasury

Table 4.16 - Primary service expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Departmental expenses 272 350 342 354 360 362 385 375 375 374
Non-departmental outputs 114 97 80 109 89 143 180 166 171 151
Biological research ..  ..  ..  ..  ..  ..  172 173 173 173
Other expenses 8 20 16 78 85 17 20 19 19 19
Primary service expenses 394 467 438 541 534 522 757 733 738 717

Source: The Treasury

Table 4.17 - Heritage, culture and recreation expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Community grants 6 7 7 7 8 8 8 7 7 7
Kyoto protocol 310 42 ..  ..  ..  ..  ..  ..  ..  .. 
Emmission Trading Scheme ..  ..  ..  ..  17 100 1,007 375 681 827
Departmental outputs 292 322 357 392 426 427 427 418 420 413
Non-departmental outputs 317 351 411 469 467 403 445 454 490 438
Other expenses 66 169 69 239 84 138 150 131 74 95
Heritage, culture and recreation expenses 991 891 844 1,107 1,002 1,076 2,037 1,385 1,672 1,780

Source: The Treasury

Table 4.18 - Housing and community development expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Housing subsidies 31 23 25 28 37 49 71 65 57 50
Departmental outputs 100 117 134 141 148 148 166 139 137 137
Other non-departmental expenses 32 62 96 91 112 147 133 123 122 115
Housing and community development expenses 163 202 255 260 297 344 370 327 316 302

Source: The Treasury

Glossary of Terms

ACC insurance liability

The ACC insurance liability is the gross liability of the future cost of ACC claims incurred prior to balance date. The net ACC liability is the gross liability less the asset reserves held to meet these claims.

Baselines

The level of funding approved for any given spending area (eg, Vote Education). All amounts within baselines are included in the forecasts.

Consumers Price Index (CPI)

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

Contingent assets

Contingent assets are potential assets dependent on an uncertain event occurring.

Contingent liability

Contingent liabilities are costs, which the Crown will have to face if a particular uncertain and not probable event occurs. Typically, contingent liabilities consist of guarantees and indemnities, legal disputes and claims, and uncalled capital.

Core Crown

The core Crown represents the revenues, expenses, assets and liabilities of the Crown, departments, Offices of Parliament, the Reserve Bank, and the NZS Fund.

Core Crown revenue

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

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 physical assets for the Crown. This is an accrual measure of expenses and includes items such as depreciation on physical assets.

Corporate tax

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

Current account (Balance of Payments)

A measure of the flows of income between New Zealand and the rest of the world. A net inflow to New Zealand represents a current account surplus, a net outflow a deficit. The current account balance is commonly expressed as a percentage of GDP.

Cyclically adjusted or structural fiscal balance

An estimate of the fiscal balance (e.g. operating balance [before gains and losses]) adjusted for short-term fluctuations of actual GDP around trend GDP. The estimate provides a picture of the underlying trend fiscal position and helps measure the effects of policy decisions. Because it is based on a number of assumptions and is sensitive to new information, the estimate is subject to some uncertainty.

Demographic changes

Changes to the structure of the population such as the age, gender or ethnic make-up.

Domestic bond programme

The amount and timing of additional government debt expected to be issued in the next financial year.

Excise duties

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

Financial assets

Cash or shares (equity), a right to receive cash or shares (equity), or a right to exchange a financial asset or liability on favourable terms.

Fiscal impulse

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

Fiscal intentions (short-term)

Under the Public Finance Act 1989, the Government is required to explicitly indicate its intentions for operating expenses and operating revenues, and the impact of its intentions on the operating balance, debt and net worth over (at least) the next three years.

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 Public Finance Act 1989. The objectives must be consistent with the defined principles of responsible fiscal management as outlined in the Act and must cover a period of (at least) ten years.

Forecast new capital spending

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

An amount included in the forecasts to provide for the operating balance impact of policy initiatives and 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. Gains and losses are reported directly as a movement in net worth (eg, asset revaluation reserves) or indirectly through the Statement of Financial Performance. The impact of gains and losses on the operating balance can be volatile, the operating balance (before gains and losses) indicator can provide a more useful measure of underlying stewardship.

Gross domestic product (GDP)

A measure of the value 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 as the actual dollar value of goods and services measured at today's prices (nominal GDP), or excluding the effects of price changes over time (real GDP).

Gross domestic product (expenditure)

This is the sum of total final expenditures on goods and services in the economy.

Gross national expenditure (GNE)

Measures total expenditure on goods and services by New Zealand residents.

Gross sovereign-issued debt (GSID)

This includes all debt issued by the sovereign (the core Crown). It therefore includes Government stock held within the Crown (e.g. by the NZS Fund, ACC and EQC).

Labour force participation rate

Measures the percentage of the working-age population in work or actively looking for and available for work.

Labour productivity

Measures output per input of labour (where labour inputs might be measured as hours worked or people).

Line-by-line consolidation

This is a term used to refer to the general approach to the presentation of the Crown financial statements. It means that the individual line items for revenues, expenses, assets and liabilities in the Crown financial statements include all departments, Offices of Parliament, the Reserve Bank, SOEs, Crown entities, and other entities controlled by the Government.

Marketable securities

Assets held with financial institutions. These assets are held for both cash flow and investment purposes, and include any funds the Government has invested in the International Monetary Fund.

Monetary conditions

Aggregate monetary conditions measure the degree to which short-term interest rates and the trade-weighted exchange rate are either tightening or easing monetary policy.

Monetary policy

The Reserve Bank implements its monetary policy decisions by adjusting its official cash rate (OCR) in an effort to maintain stability in the general level of prices within a defined annual CPI target range.

Tightening monetary policy means raising the level of the OCR in order to moderate aggregate demand pressures and to reduce inflationary pressures, while easing monetary policy has the reverse effect.

Net core Crown cash flow from operations

Operating balance (before gains and losses) less retained items (eg, net surplus of SOEs, CEs and NZS Fund net revenue) less non-cash items (eg, depreciation).

Net core Crown debt

Represents GSID 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 they are made for public policy reasons rather than for the purposes associated with government financing. 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

Net core Crown debt (incl NZS Fund)

Represents net core Crown debt plus the financial assets of the NZS Fund.

Net international investor position

The net international investment position measures the net value of New Zealand's international assets and liabilities at a point in time.

Net worth

Total assets less total liabilities (also referred to as the Crown balance). The change in net worth in any given forecast year is largely driven by the operating balance.

Net worth excluding social assets

Net worth excluding social assets provides the government with an idea of how its assets that earn a financial return match its liabilities. The measure consists of the financial assets of the core Crown and Crown Entities, all the assets of State-Owned Enterprises (excluding the physical assets of KiwiRail), and total liabilities.

NZ IFRS

New Zealand equivalents to InternationalFinancial Reporting Standards. These standards are approved by the Accounting Standards Review Board in New Zealand and are based on the requirements of the international financial reporting standards issued by the International Accounting Standards Board adjusted where appropriate for entities that are not profit oriented.

Operating balance

The operating balance is the residual of revenues less expenses plus surpluses from state-owned enterprises and Crown entities. It includes gains and losses not reported directly as a movement against net worth.

Operating balance before gains and losses

The operating balance (before gains and losses) is the operating balance excluding gains and losses. The impact of gains and losses on the operating balance can be volatile so the operating balance (before gains and losses) indicator (because it excludes gains and losses) can provide a more useful measure of underlying stewardship.

Productivity

The amount of output (e.g. GDP) per unit of input.

Projections

Projections of the key fiscal indicators beyond the five-year forecast period. The projections 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.

Public Private Partnership (PPP)

No single widely accepted definition for the term PPP exists. However, most descriptions characterise a PPP as an arrangement between a public sector entity to deliver a public sector asset (normally infrastructure or a public facility) and/or service. In this way, PPP arrangements offer an alternative to traditional public sector procurement methods used to accomplish a public duty or responsibility.

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 commitments (eg, contributions to NZS Fund, 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 corporate and individuals.

Specific fiscal risks

These are a category of Government decisions or circumstances which may have a material impact on the fiscal position (excluding contingent liabilities). They are not included in the main forecasts because their fiscal impact cannot be reasonably quantified, the likelihood of realisation is uncertain and/or the timing is uncertain.

System of National Accounts (SNA)

SNA is a comprehensive, consistent and flexible set of macroeconomic accounts to meet the needs of government and private sector analysts, policy-makers, and decision-takers.

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.

Tradable / non-tradable

There is no official definition of the tradable sector. In this document the tradable sector is the part of the economy particularly exposed to foreign competition. It includes primary, manufacturing and tourism industries. Non-tradable output is estimated as a residual with total real GDP.

Top-down adjustment

An adjustment to expenditure forecasts to reflect the extent to which departments use appropriations (upper spending limits) for their expenditure forecasts. As appropriations apply to the core Crown only, no adjustment is required to SOE or Crown Entity forecasts.

Total borrowings

Total borrowings represents the Government's debt obligations to external parties. Total borrowings 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 explicitly guaranteed by the Crown.

Trade weighted index (TWI)

A measure of movements in the New Zealand dollar against the currencies of our major trading partners. The currencies comprise the US dollar, the Australian dollar, the Japanese yen, the euro and the UK pound.

Unit labour costs

The wages and other costs associated with employment per unit of output.

Year ended

Graphs and tables use different expressions of the timeframe. For example, 2009/10 or 2010 will generally mean “year ended 30 June” unless otherwise stated.

Time Series of Fiscal and Economic Indicators

Fiscal Indicators
June Years  1998
 Actual
1999
 Actual
2000
 Actual
2001
 Actual
2002
 Actual
2003
 Actual
2004
 Actual
2005
 Actual
2006
 Actual
2007
 Actual
2008
 Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast

$ millions

                                 

Revenue and Expenses

                                 
Core Crown revenue 34,242 32,880 34,946 37,842 39,945 43,440 46,219 51,045 55,735 58,211 61,819 59,482 56,406 60,260 64,469 68,530 72,856
Core Crown expenses 32,982 33,939 34,829 36,559 37,513 39,897 41,882 44,895 49,320 54,003 56,997 64,002 64,791 70,651 71,464 74,224 77,049

Surpluses

                                 
Total Crown OBEGAL 2,345 128 594 1,422 2,471 4,366 5,573 7,075 7,091 5,860 5,637 (3,893) (6,927) (8,632) (5,406) (4,394) (3,038)
Total Crown operating balance 2,048 1,705 1,405 1,208 2,286 1,621 7,309 5,931 9,542 8,023 2,384 (10,505) (3,179) (7,067) (3,579) (2,402) (828)

Cash Position

                                 
Core Crown residual cash 484 2,048 (386) 349 216 1,217 520 3,104 2,985 2,877 2,057 (8,639) (9,069) (13,327) (9,666) (7,499) (5,983)

Debt

                                 
GSID1 38,475 37,307 36,580 37,194 36,650 36,617 36,017 35,478 33,903 30,647 31,390 43,356 53,810 66,969 69,731 71,645 77,778
Net core Crown debt (incl NZS Fund)2 30,472 25,923 25,895 24,908 24,773 22,647 19,902 13,324 6,302 1,620 (2,676) 5,633 11,392 23,390 31,897 37,967 42,537
Net core Crown debt2 30,472 25,923 25,895 24,908 25,388 24,531 23,858 19,879 16,163 13,380 10,258 17,119 26,642 39,965 49,638 57,054 63,014

Net Worth

                                 
Total Crown net worth 14,579 10,121 12,605 15,450 22,825 28,012 39,595 54,240 83,971 96,827 105,514 99,515 96,479 89,416 85,845 83,452 82,634
NZS Fund net worth ..  ..  ..  ..  615 1,884 3,956 6,555 9,861 12,973 14,212 13,688 16,066 17,124 18,268 19,504 20,838

% GDP

                                 

Revenue and Expenses

                                 
Core Crown revenue 33.3 31.0 31.1 31.6 31.4 32.3 31.9 33.1 34.5 33.9 33.9 32.2 29.8 29.6 29.9 30.3 30.7
Core Crown expenses 32.1 32.0 31.0 30.6 29.5 29.7 28.9 29.1 30.5 31.5 31.2 34.7 34.2 34.7 33.1 32.9 32.4

Surpluses

                                 
Total Crown OBEGAL 2.3 0.1 0.5 1.2 1.9 3.3 3.8 4.6 4.4 3.4 3.1 (2.1) (3.7) (4.2) (2.5) (1.9) (1.3)
Total Crown operating balance 2.0 1.6 1.3 1.0 1.8 1.2 5.0 3.8 5.9 4.7 1.3 (5.7) (1.7) (3.5) (1.7) (1.1) (0.3)

Cash Position

                                 
Core Crown residual cash 0.5 1.9 (0.3) 0.3 0.2 0.9 0.4 2.0 1.8 1.7 1.1 (4.7) (4.8) (6.5) (4.5) (3.3) (2.5)

Debt

                                 
GSID1 37.4 35.2 32.6 31.1 28.8 27.3 24.9 23.0 21.0 17.9 17.2 23.5 28.4 32.8 32.3 31.7 32.7
Net core Crown debt (incl NZS Fund)2 29.6 24.5 23.1 20.8 19.5 16.9 13.7 8.6 3.9 0.9 (1.5) 3.1 6.0 11.5 14.8 16.8 17.9
Net core Crown debt2 29.6 24.5 23.1 20.8 20.0 18.3 16.5 12.9 10.0 7.8 5.6 9.3 14.1 19.6 23.0 25.3 26.5

Net Worth

                                 
Total Crown net worth 14.2 9.6 11.2 12.9 18.0 20.9 27.3 35.2 52.0 56.4 57.8 54.0 50.9 43.9 39.8 37.0 34.8
NZS Fund net worth ..  ..  ..  ..  0.5 1.4 2.7 4.3 6.1 7.6 7.8 7.4 8.5 8.4 8.5 8.6 8.8
  1. Excludes Reserve Bank settlement cash and bank bills
  2. Excludes advances
Economic Indicators
March Years
Annual average % change
1998
Actual
1999
 Actual
2000
 Actual
2001
 Actual
2002
 Actual
2003
 Actual
2004
 Actual
2005
 Actual
2006
 Actual
2007
 Actual
2008
 Actual
2009
 Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Private consumption 2.3 3.0 3.2 1.4 2.7 4.8 6.4 4.6 4.5 2.3 3.2 -1.1 0.6 2.9 1.7 2.5 2.3
Public consumption 7.4 -0.4 5.8 -2.1 4.1 1.3 4.9 4.1 4.9 4.5 4.9 4.2 1.0 2.3 1.4 0.9 0.6
TOTAL CONSUMPTION 3.4 2.2 3.8 0.6 3.0 4.0 6.0 4.5 4.6 2.8 3.6 0.1 0.7 2.8 1.6 2.1 1.9
Residential investment                3.0 -13.0 19.5 -13.3 2.0 23.6 14.9 2.6 -5.1 -1.4 3.8 -22.8 -9.9 22.0 13.5 7.3 4.3
Non-market investment                 14.0 -4.8 13.0 -13.8 21.9 13.7 15.6 13.7 2.7 -5.4 -11.5 12.0 -2.8 -5.4 -3.6 3.8 4.6
Market investment                     -2.2 2.6 6.9 8.0 6.9 2.3 12.2 11.6 11.1 -1.2 8.4 -1.9 -10.4 6.2 10.3 4.7 3.0
TOTAL INVESTMENT 0.2 -2.3 10.6 0.4 6.8 7.8 13.1 8.8 6.2 -2.0 5.5 -7.2 -9.2 10.5 11.4 5.6 3.5
Stock change (contribution to growth) -0.2 -0.3 1.2 -0.3 0.1 -0.1 0.2 0.3 -0.5 -0.7 0.7 0.0 -1.9 1.1 0.4 0.3 0.0
GROSS NATIONAL EXPENDITURE 2.5 0.9 6.2 0.3 3.8 4.7 7.6 5.8 4.5 1.1 4.6 -1.6 -3.3 5.6 4.3 3.3 2.3
Exports 3.9 2.9 7.4 6.3 3.0 7.8 1.1 4.8 -0.2 2.9 3.1 -3.4 2.8 1.6 4.7 3.5 3.3
Imports 2.5 2.1 11.3 -0.7 4.0 7.2 12.7 12.5 4.2 -1.6 10.0 -4.7 -9.9 9.0 8.9 5.0 1.5
EXPENDITURE ON GDP 2.9 1.2 5.1 2.4 3.5 4.9 3.9 3.6 3.3 2.4 2.5 -1.0 0.4 3.4 3.0 2.7 3.0
GDP (production measure) 1.7 0.5 5.3 2.4 3.5 4.9 4.3 3.7 3.2 0.9 2.9 -1.4 -0.3 3.2 3.1 2.9 3.0
 - annual % change 0.3 2.5 6.4 0.6 4.5 4.6 5.2 2.4 2.4 1.7 2.1 -3.1 2.1 3.1 3.3 2.8 3.2
Real GDP per capita 0.5 -0.3 4.7 1.8 2.6 3.0 2.4 2.2 2.0 -0.4 1.9 -2.4 -1.5 2.0 2.1 2.0 2.1
Nominal GDP (expenditure basis) 3.7 1.7 6.0 5.6 7.4 5.2 7.0 7.1 5.7 5.0 7.5 1.7 1.7 7.0 6.3 4.8 5.1
GDP deflator 0.8 0.5 0.9 3.2 3.8 0.3 2.9 3.4 2.3 2.6 4.8 2.7 1.3 3.5 3.3 2.0 2.1
Output gap (% deviation, March year average) 0.1 -1.9 0.6 0.0 0.1 1.0 1.4 1.7 2.3 1.4 3.0 0.2 -1.7 -0.6 -0.6 -0.8 -0.6
Employment 0.3 -0.6 1.9 2.0 2.9 2.8 3.0 3.6 2.8 2.2 1.3 0.9 -1.6 0.2 2.0 2.1 2.0
Unemployment (% March quarter s.a.)          7.4 7.5 6.5 5.5 5.3 5.0 4.3 3.9 4.0 3.8 3.8 5.0 7.1 6.2 5.5 5.1 4.6
Wages (average ordinary-time hourly, ann % change)         2.5 3.1 1.7 3.1 3.6 2.2 3.4 3.5 5.2 4.6 4.5 5.3 3.3 2.6 3.5 3.7 3.9
CPI inflation (ann % change)      1.3 -0.1 1.5 3.1 2.6 2.5 1.5 2.8 3.3 2.5 3.4 3.0 2.2 5.9 2.4 2.4 2.4
Merchandise terms of trade (SNA basis)       -1.8 0.9 0.2 3.4 4.0 -5.6 4.3 3.5 -2.0 -1.1 8.5 -0.7 -6.3 4.9 0.6 1.7 1.0
Current account balance - $billion           -5.4 -4.4 -7.0 -5.1 -3.9 -4.5 -6.6 -10.1 -14.5 -13.5 -14.1 -14.6 -4.9 -8.9 -13.1 -15.7 -17.2
Current account balance - % of GDP           -5.3 -4.2 -6.3 -4.4 -3.1 -3.4 -4.7 -6.7 -9.0 -8.0 -7.8 -7.9 -2.6 -4.4 -6.1 -7.0 -7.3
TWI (March quarter)                          61.2 57.6 54.1 50.5 51.6 60.6 66.9 69.6 68.3 68.8 71.9 53.7 65.3 65.2 63.5 58.5 54.0
90-day bank bill rate (March quarter)        8.9 4.5 6.0 6.4 5.0 5.8 5.5 6.9 7.6 7.8 8.8 3.7 2.7 4.3 5.2 5.4 5.7
10-year bond rate (March quarter)            6.8 5.7 7.3 6.0 6.7 6.0 5.9 6.0 5.7 5.9 6.3 4.6 5.9 5.9 5.9 5.9 6.0

Additional Information

The following information forms part of the Budget Economic and Fiscal Update 2010 (“Budget Update”), released by the Treasury on 20 May 2010. 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 - these tables provide detailed breakdowns of the economic forecasts.
  • Tax tables - detailed tax revenue and receipts tables comparing Treasury's forecasts with IRD's forecasts.
  • Additional fiscal indicators - estimates of the cyclically-adjusted balance and fiscal impulse.
  • Accounting policies - outline of the specific Crown accounting policies. The published forecast financial statements only provide a summary.

Detailed Economic Forecast Information

The following tables provide additional detail on the economic forecasts presented in the 2010 Budget Update.

Table 1: Real Gross Domestic Product

Chain-volume series expressed in 1995/96 prices

Table 1: Real Gross Domestic Product
  Actual Seasonally Adjusted
  $ million Annual %
change
Annual
Average %
change
$million Quarterly %
change
2007Q1 32,964 1.7 0.9 33,258 1.4
2007Q2 32,867 2.5 1.3 33,516 0.8
2007Q3 33,396 3.1 2.0 33,755 0.7
2007Q4 35,382 3.8 2.8 34,056 0.9
2008Q1 33,645 2.1 2.9 33,950 -0.3
2008Q2 33,091 0.7 2.4 33,740 -0.6
2008Q3 33,155 -0.7 1.5 33,523 -0.6
2008Q4 34,484 -2.5 -0.2 33,176 -1.0
2009Q1 32,612 -3.1 -1.4 32,911 -0.8
2009Q2 32,322 -2.3 -2.2 32,960 0.1
2009Q3 32,683 -1.4 -2.3 33,052 0.3
2009Q4 34,653 0.5 -1.6 33,325 0.8
2010Q1 33,286 2.1 -0.3 33,592 0.8
2010Q2 33,205 2.7 0.9 33,860 0.8
2010Q3 34,009 4.1 2.3 34,393 1.6
2010Q4 35,728 3.1 3.0 34,358 -0.1
2011Q1 34,317 3.1 3.2 34,631 0.8
2011Q2 34,221 3.1 3.3 34,896 0.8
2011Q3 34,830 2.4 2.9 35,223 0.9
2011Q4 36,983 3.5 3.0 35,566 1.0
2012Q1 35,465 3.3 3.1 35,791 0.6
2012Q2 35,343 3.3 3.1 36,041 0.7
2012Q3 35,881 3.0 3.3 36,286 0.7
2012Q4 37,994 2.7 3.1 36,538 0.7
2013Q1 36,453 2.8 2.9 36,787 0.7
2013Q2 36,362 2.9 2.9 37,080 0.8
2013Q3 36,954 3.0 2.8 37,371 0.8
2013Q4 39,169 3.1 2.9 37,668 0.8
2014Q1 37,627 3.2 3.0 37,972 0.8
2014Q2 37,529 3.2 3.1 38,270 0.8

Source: Statistics New Zealand, The Treasury

Table 2: Consumer Price Index and Exchange Rates

Table 2: Consumer Price Index and Exchange Rates
        Consumers Price Index Exchange rates
  Index Quarterly %
change
Annual %
change
TWI USD
2007Q1 1010 0.5 2.5 68.8 0.70
2007Q2 1020 1.0 2.0 72.0 0.74
2007Q3 1025 0.5 1.8 71.3 0.74
2007Q4 1037 1.2 3.2 71.0 0.76
2008Q1 1044 0.7 3.4 71.9 0.79
2008Q2 1061 1.6 4.0 69.2 0.78
2008Q3 1077 1.5 5.1 65.5 0.71
2008Q4 1072 -0.5 3.4 57.8 0.58
2009Q1 1075 0.3 3.0 53.7 0.53
2009Q2 1081 0.6 1.9 58.4 0.60
2009Q3 1095 1.3 1.7 62.6 0.67
2009Q4 1093 -0.2 2.0 65.5 0.73
2010Q1 1099 0.5 2.2 65.3 0.71
2010Q2 1107 0.7 2.4 65.3 0.71
2010Q3 1119 1.1 2.2 65.3 0.71
2010Q4 1152 3.0 5.4 65.3 0.71
2011Q1 1163 1.0 5.9 65.2 0.71
2011Q2 1170 0.6 5.7 65.0 0.70
2011Q3 1176 0.5 5.1 64.7 0.70
2011Q4 1182 0.5 2.6 64.2 0.69
2012Q1 1191 0.7 2.4 63.5 0.68
2012Q2 1197 0.5 2.3 62.4 0.66
2012Q3 1203 0.5 2.3 61.2 0.64
2012Q4 1210 0.5 2.4 59.9 0.62
2013Q1 1219 0.8 2.4 58.5 0.59
2013Q2 1227 0.7 2.5 57.2 0.57
2013Q3 1234 0.6 2.6 56.0 0.55
2013Q4 1241 0.6 2.6 54.9 0.54
2014Q1 1249 0.6 2.4 54.0 0.52
2014Q2 1256 0.6 2.3 53.2 0.51

Source: Statistics New Zealand, The Treasury

Table 3: Gross Domestic Expenditure and Income

Table 3: Gross Domestic Expenditure and Income
March Year 2009
Actual
2010
Estimate
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
  $ m %volume %price $ m %volume %price $ m %volume %price $ m %volume %price $ m %volume %price $ m
Consumption:                                
- Private 108,402 0.6 1.8 110,999 2.9 3.2 117,922 1.7 3.6 124,138 2.5 1.8 129,554 2.3 2.0 135,231
- Public 36,798 1.0 2.7 38,178 2.3 3.4 40,352 1.4 3.5 42,364 0.9 2.7 43,901 0.6 2.8 45,379
Gross Fixed Capital Formation:                                
- Residential 9,400 -9.9 0.5 8,516 22.0 1.9 10,592 13.5 5.1 12,633 7.3 5.3 14,271 4.3 5.8 15,754
- Market * 27,674 -10.4 2.8 25,522 6.2 2.2 27,721 10.3 3.3 31,548 4.7 1.5 33,526 3.0 2.0 35,220
- Non-market ** 3,017 -2.8 3.3 3,019 -5.4 2.8 2,935 -3.6 1.5 2,874 3.8 1.4 3,026 4.6 1.4 3,210
- Total all sectors 40,084 -9.2 1.7 37,060 10.5 0.7 41,248 11.4 2.5 47,055 5.6 2.3 50,824 3.5 3.0 54,184
Change in Stocks 1,180     -1,453     58     1,145     1,837     2,012
Gross National Expenditure 186,462 -3.3 2.4 184,784 5.6 2.2 199,581 4.3 3.2 214,701 3.3 2.0 226,116 2.3 2.3 236,805
Exports 56,916 2.8 -12.3 51,391 1.6 7.8 56,221 4.7 2.8 60,556 3.5 6.5 66,726 3.3 9.5 75,524
Imports 59,371 -9.9 -8.5 49,004 9.0 3.7 55,483 8.9 3.0 62,257 5.0 6.6 69,663 1.5 10.0 77,761
Expenditure on GDP 184,008 0.4 1.3 187,171 3.4 3.5 200,319 3.0 3.3 213,000 2.7 2.0 223,180 3.0 2.1 234,568
Statistical Discrepancy 794     789     770     751     736     720
Gross Domestic Product 184,802     187,960     201,089     213,751     223,916     235,287
Compensation of employees 80,669   2.1 82,327   1.9 83,914   5.7 88,664   6.1 94,099   6.1 99,832
Operating Surplus, net:                                 
- Agriculture 4,935   6.9 5,278   18.2 6,239   0.2 6,252   7.2 6,699   13.1 7,577
- Other 49,954   -1.9 49,006   12.2 54,986   5.5 58,028   1.9 59,127   2.5 60,600
- Total all sectors 54,889   -1.1 54,284   12.8 61,226   5.0 64,280   2.4 65,826   3.6 68,177
Consumption of fixed capital 26,976   6.0 28,595   5.5 30,167   5.5 31,826   5.5 33,577   5.5 35,424
Indirect Taxes 23,167   2.1 23,654   12.8 26,681   12.0 29,880   4.8 31,313   4.6 32,754
Less subsidies 899   0.0 899   0.0 899   0.0 899   0.0 899   0.0 899
Gross Domestic Product 184,802   1.7 187,960   7.0 201,089   6.3 213,751   4.8 223,916   5.1 235,287

* Includes Local Government and Non-profit Organisations
** Central Government (includes Crown Entities but not SOEs)

Source: Statistics New Zealand, The Treasury

Tables 4 & 5: Labour Market Indicators

Table 4 - Labour Market Indicators - Annual Average Percentage Change
March Year 2009
Actual
2010
Estimate
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Real GDP (production basis) -1.4 -0.3 3.2 3.1 2.9 3.0
Working Age Population 1.1 1.4 1.4 1.2 1.1 1.0
Labour Force 1.8 0.7 0.1 1.0 1.5 1.6
Employment - Full Time Equivalents* 0.8 -1.9 0.2 2.0 2.1 2.0
Labour Productivity* -2.2 1.6 3.1 1.1 0.9 1.0
Labour Productivity ** -1.8 3.1 2.8 0.8 0.5 0.8
CPI  (annual percentage change) 3.0 2.2 5.9 2.4 2.4 2.4
Average Ordinary Time Hourly Wages 5.3 4.2 2.5 3.3 3.6 3.8
Average Weekly Earnings 4.9 4.8 2.0 3.7 4.0 4.0
Real Wages 1.4 2.2 -1.4 -0.6 1.3 1.2
Compensation of Employees 4.0 2.1 1.9 5.7 6.1 6.1
Unit Labour Costs (Hours worked basis) 7.2 1.2 -0.4 2.6 3.1 3.0
Real Unit Labour Costs 3.2 -0.7 -4.1 -1.4 0.7 0.4

* Full time equivalent basis

** Hours worked basis

Table 5 - Labour Market Indicators - (Number (000's)
As at March Quarter 2009
Actual
2010
Estimate
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Total Population 4,306 4,360 4,405 4,447 4,488 4,529
     Natural Increase 35 32 34 32 31 30
     Net  Migration 7 22 12 10 10 10
     Annual Change 42 54 45 42 41 40
Working Age Population      3,361 3,412 3,456 3,495 3,532 3,567
     Annual Change          38 51 44 39 37 36
Not in the labour force     1,059 1,087 1,128 1,137 1,139 1,138
     Annual Change          -11 28 41 9 2 -1
Labour Force                2,302 2,325 2,328 2,358 2,393 2,429
     Annual Change           49 23 3 30 35 37
Total Employment            2,173 2,140 2,166 2,214 2,257 2,305
     Annual Change          16 -33 26 47 44 48
Unemployment                129 185 162 145 136 124
     Annual Change          33 57 -23 -18 -9 -11
Participation Rate (%seasonally adjusted)    68.4 67.8 67.1 67.3 67.6 68.0
Unemployment Rate (%seasonally adjusted)    5.0 7.1 6.2 5.5 5.1 4.6

Source: Statistics New Zealand, The Treasury

Table 6: Current Account

Table 6: Current Account
   $NZ Million Percent of Nominal GDP 
Year ended March 2009
Actual
2010
Estimate
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2009
Actual
2010
Estimate
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Exports Goods 44,259 39,466 43,467 46,387 51,631 58,893            
annual % change 14.3 -10.8 10.1 6.7 11.3 14.1            
Imports Goods 45,594 36,952 42,360 47,841 53,657 59,955            
annual % change 12.5 -19.0 14.6 12.9 12.2 11.7            
Balance on Goods -1,337 2,514 1,106 -1,454 -2,027 -1,062 -0.7 1.3 0.6 -0.7 -0.9 -0.5
Exports Services 12,658 11,945 12,807 14,218 15,103 16,670            
annual % change -1.2 -5.6 7.2 11.0 6.2 10.4            
Imports Services 13,776 12,052 13,123 14,416 16,005 17,807            
annual % change 9.0 -12.5 8.9 9.9 11.0 11.3            
Balance on services -1,119 -106 -316 -198 -902 -1,137 -0.6 -0.1 -0.2 -0.1 -0.4 -0.5
Balance on goods & services -2,456 2,408 790 -1,652 -2,929 -2,198 -1.3 1.3 0.4 -0.8 -1.3 -0.9
Int'l investment income and transfers balance -12,116 -7,353 -9,679 -11,412 -12,731 -14,952 -6.6 -3.9 -4.8 -5.4 -5.7 -6.4
Current account balance -14,568 -4,946 -8,889 -13,064 -15,660 -17,150 -7.9 -2.6 -4.4 -6.1 -7.0 -7.3

Source: Statistics New Zealand, The Treasury

Table 7: Exports - SNA basis

Table 7: Exports - SNA basis
  Dairy Products Meat and Meat Products Non-Commodity*
March Years %volume %price $m %volume %price $m %volume %price $m
2006 -2.4 6.1 5,993 -2.2 -3.0 4,611 -0.6 2.6 10,324
2007 22.3 2.1 7,455 6.7 2.5 5,037 0.6 12.2 11,671
2008 -0.9 25.7 9,434 -2.9 -5.1 4,656 0.7 6.3 12,458
2009 -15.1 27.8 10,101 1.5 23.2 5,796 1.3 17.3 14,815
2010 30.9 -33.0 8,916 -3.1 -7.3 5,248 -4.9 -8.7 12,892
2011 -6.3 30.2 10,894 -6.7 2.3 4,974 9.7 0.9 14,252
2012 1.5 -1.2 10,916 0.1 2.4 5,102 7.3 5.0 16,062
2013 3.2 3.6 11,703 2.0 7.3 5,584 4.4 10.5 18,522
2014 3.2 8.9 13,156 1.8 9.5 6,223 2.5 13.7 21,604
Table 7: Exports - SNA basis (continued)
   Total Goods** Services Total Exports
March Years   %volume %price $m %volume %price $m %volume %price $m
2006 0.6 1.0 31,581 -2.2 1.9 12,350 -0.2 1.2 43,931
2007 4.9 7.5 35,636 -2.1 4.6 12,639 2.9 6.8 48,275
2008 4.5 3.9 38,720 -1.0 2.3 12,818 3.1 3.3 51,535
2009 -2.0 16.9 44,259 -7.7 7.0 12,658 -3.4 14.7 56,916
2010 4.1 -14.6 39,466 -3.5 -2.0 11,945 2.8 -12.3 51,391
2011 0.4 9.8 43,467 4.4 2.4 12,807 1.6 7.8 56,221
2012 3.5 3.1 46,387 9.6 1.5 14,218 4.7 2.8 60,556
2013 3.2 7.9 51,631 4.1 1.9 15,103 3.5 6.5 66,726
2014 2.8 11.0 58,893 5.4 4.6 16,670 3.3 9.5 75,524

* Consists of 'Metal Products and Machinery Equipment', 'Chemicals, Rubber and Other Non-Metallic Goods' and 'Textile, Apparel and Leather'

** Note that Statistics NZ withholds data for some components of exports for confidentiality reasons. As a result we have not published the "Wood and Wood Products' and 'Other Goods' components of exports.

Table 8: Imports - SNA basis

Breakdown of Imports

Table 8: Imports - SNA basis - Breakdown of Imports
   Capital Goods (VFD) Mineral Fuel* (VFD) Intermediate Goods** (VFD) Consumption Goods (VFD)
March Years   %volume %price $m %volume %price $m %volume %price $m %volume %price $m
2006 16.8 -5.2 7,317 0.3 36.9 5,237 -1.4 0.8 14,366 8.1 -1.0 8,703
2007 -3.0 2.3 7,249 -8.0 21.4 5,865 -2.8 12.5 15,717 5.8 3.4 9,525
2008 10.2 -9.8 7,213 15.8 2.7 6,982 9.9 -6.5 16,144 6.9 -2.7 9,908
2009 3.3 13.4 8,292 -6.3 26.3 8,186 -6.5 21.6 18,278 -3.0 12.7 10,788
2010 -27.4 -1.3 6,070 0.6 -27.4 5,999 -11.3 -10.1 14,601 -4.7 -1.1 10,185
2011 5.6 -13.9 5,508 1.1 26.1 7,683 12.2 10.0 18,107 12.1 -4.8 10,898
2012 26.5 -1.3 6,879 4.0 6.9 8,538 5.0 6.6 20,244 5.5 4.1 11,975
2013 12.0 4.4 8,035 2.4 7.4 9,389 2.2 8.1 22,367 4.0 9.4 13,635
2014 2.6 7.2 8,838 1.0 9.4 10,369 0.8 10.7 24,948 2.1 12.0 15,591
Table 8: Imports - SNA basis - Breakdown of Imports (continued)
  Total Goods (VFD) Services Total  
March Years %volume %price $m %volume %price $m %volume %price $m
2006 4.0 3.0 35,685 5.0 0.7 11,830 4.2 2.4 47,515
2007 -0.9 8.7 38,464 -3.7 7.0 12,206 -1.6 8.3 50,671
2008 10.0 -4.3 40,515 9.9 -5.8 12,633 10.0 -4.7 53,148
2009 -4.4 17.8 45,594 -5.7 16.7 13,776 -4.7 17.6 59,371
2010 -11.1 -8.8 36,952 -5.9 -7.6 12,052 -9.9 -8.5 49,004
2011 9.2 4.7 42,360 9.1 -0.4 13,123 9.0 3.7 55,483
2012 10.4 2.4 47,841 4.1 5.6 14,416 8.9 3.0 62,257
2013 5.8 6.0 53,657 2.1 8.8 16,005 5.0 6.6 69,663
2014 1.7 9.8 59,955 0.6 10.6 17,807 1.5 10.0 77,761

* Consists of 'Fuels and Lubricants' and 'Petrol and Aviation Gas'

** Consists of 'Intermediate Goods' excluding 'Fuels and Lubricants' and 'Passenger Cars'

Tax Tables

In line with established practice, Inland Revenue has also prepared a set of tax forecasts, which, like the Treasury's tax forecasts, is based on the Treasury's macroeconomic forecasts.

Table 9: Treasury and Inland Revenue forecasts of tax revenue (accrual)
  2008/09
Actual
2009/10
Forecast
2010/11
Forecast
2011/12
Forecast
2012/13
Forecast
2013/14
Forecast
$ million   Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference

Direct tax

                               

Individuals

                               
Source deductions 22,966 22,248 22,271 (23) 20,580 20,676 (96) 21,424 21,207 217 22,959 22,743 216 24,792 24,576 216
Other persons tax 4,408 4,261 4,149 112 4,403 4,293 110 4,865 4,741 124 5,019 4,904 115 5,156 4,975 181
Refunds (1,636) (1,979) (1,970) (9) (1,484) (1,710) 226 (1,609) (1,690) 81 (1,609) (1,660) 51 (1,620) (1,580) (40)
Fringe benefit tax 500 459 476 (17) 430 455 (25) 439 441 (2) 466 465 1 499 492 7
Subtotal: Individuals 26,238 24,989 24,926 63 23,929 23,714 215 25,119 24,699 420 26,835 26,452 383 28,827 28,463 364
Company tax (net) 8,294 6,447 6,871 (424) 8,550 9,038 (488) 9,156 9,509 (353) 9,569 9,609 (40) 10,011 9,900 111

Withholding taxes on:

                               
Resident interest income 2,571 1,812 1,754 58 1,465 1,533 (68) 1,928 1,855 73 2,310 2,091 219 2,583 2,291 292
Non-resident income 1,451 1,009 1,025 (16) 628 577 51 714 661 53 754 684 70 790 710 80
Foreign-source dividends 10 (1) 8 (9) 8 9 (1) 8 9 (1) 8 9 (1) 8 9 (1)
Resident dividend income 65 142 121 21 240 232 8 252 219 33 325 281 44 503 511 (8)
Subtotal: Withholding tax 4,097 2,962 2,908 54 2,341 2,351 (10) 2,902 2,744 158 3,397 3,065 332 3,884 3,521 363
Total income tax 38,629 34,398 34,705 (307) 34,820 35,103 (283) 37,177 36,952 225 39,801 39,126 675 42,722 41,884 838
Other: Estate and gift duties 1 2 2 ..  1 1 ..  1 1 ..  1 1 ..  1 1 .. 
Total direct tax 38,630 34,400 34,707 (307) 34,821 35,104 (283) 37,178 36,953 225 39,802 39,127 675 42,723 41,885 838

Indirect tax

                               
GST (net) 16,108 16,417 16,659 (242) 20,278 20,382 (104) 22,142 22,323 (181) 23,060 23,254 (194) 24,069 24,246 (177)

Excise duties on:

                               
Alcoholic drinks 616 636 622 14 657 665 (8) 702 692 10 726 719 7 750 745 5
Tobacco products 172 188 173 15 209 198 11 223 212 11 232 216 16 232 215 17
Petroleum fuels 781 849 820 29 907 886 21 972 965 7 990 1,003 (13) 1,020 1,042 (22)
Subtotal: excise duties 1,569 1,673 1,615 58 1,773 1,749 24 1,897 1,869 28 1,948 1,938 10 2,002 2,002 .. 

Other indirect tax

                               
Customs duty 1,880 1,933 1,872 61 2,060 2,096 (36) 2,170 2,120 50 2,215 2,204 11 2,231 2,256 (25)
Road user charges 868 894 885 9 955 930 25 1,002 980 22 1,048 1,030 18 1,105 1,090 15
Gaming duties 264 269 272 (3) 273 275 (2) 279 277 2 282 281 1 286 285 1
Motor vehicle fees 171 170 168 2 175 175 ..  180 180 ..  186 185 1 192 190 2
Exhaustible resource levy 39 37 35 2 38 33 5 38 32 6 36 32 4 36 33 3
Approved issuer levy, cheque duty & other 98 83 83 ..  96 86 10 96 85 11 96 85 11 96 85 11
Subtotal: Other indirect tax 3,320 3,386 3,315 71 3,597 3,595 2 3,765 3,674 91 3,863 3,817 46 3,946 3,939 7
Total indirect tax 20,997 21,476 21,589 (113) 25,648 25,726 (78) 27,804 27,866 (62) 28,871 29,009 (138) 30,017 30,187 (170)
Total tax 59,627 55,876 56,296 (420) 60,469 60,830 (361) 64,982 64,819 163 68,673 68,136 537 72,740 72,072 668
Total tax (% of GDP) 32.3% 29.5% 29.7% -0.2% 29.7% 29.8% -0.2% 30.1% 30.0% 0.1% 30.4% 30.2% 0.2% 30.6% 30.3% 0.3%

less Core Crown tax eliminations

                               
Core Crown income tax 3 142 142 ..  310 310 ..  337 337 ..  367 367 ..  399 399 .. 
GST on Crown expenses and departmental outputs 4,557 4,711 4,711 ..  5,834 5,834 ..  6,249 6,249 ..  6,366 6,366 ..  6,509 6,509 .. 
Crown ESCT 368 356 356 ..  398 398 ..  404 404 ..  407 407 ..  407 407 .. 
Crown AIL 18 15 15 ..  15 15 ..  15 15 ..  15 15 ..  15 15 .. 
Core Crown taxation 54,681 50,652 51,072 (420) 53,912 54,273 (361) 57,977 57,814 163 61,518 60,981 537 65,410 64,742 668
Core Crown tax (% of GDP) 29.6% 26.7% 26.9% -0.2% 26.4% 26.6% -0.2% 26.9% 26.8% 0.1% 27.2% 27.0% 0.2% 27.5% 27.2% 0.3%

less Total Crown tax eliminations

                               
Income tax from SOEs and CEs 476 370 370 ..  402 402 ..  479 479 ..  548 548 ..  652 652 .. 
Other Crown GST ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  .. 
ESCT from SOEs and CEs 11 8 8 ..  8 8 ..  8 8 ..  9 9 ..  9 9 .. 
Lottery duty 49 40 40 ..  45 45 ..  49 49 ..  50 50 ..  51 51 .. 
Total Crown taxation 54,145 50,234 50,654 (420) 53,457 53,818 (361) 57,441 57,278 163 60,911 60,374 537 64,698 64,030 668
Total Crown tax (% of GDP) 29.4% 26.5% 26.7% -0.2% 26.2% 26.4% -0.2% 26.6% 26.6% 0.1% 27.0% 26.7% 0.2% 27.2% 26.9% 0.3%
Nominal GDP 184,455 189,526 189,526   203,876 203,876   215,722 215,722   225,820 225,820   237,609 237,609  

Source: Inland Revenue, The Treasury

Table 10: Treasury and Inland Revenue forecasts of tax receipts (cash)

Table 10: Treasury and Inland Revenue forecasts of tax receipts (cash)
  2008/09
Actual
2009/10
Forecast
2010/11
Forecast
2011/12
Forecast
2012/13
Forecast
2013/14
Forecast
$ million   Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference

Direct tax

                               

Individuals

                               
Source deductions 22,945 22,155 22,180 (25) 20,679 20,398 281 21,316 21,114 202 22,849 22,648 201 24,684 24,483 201
Other persons tax 4,988 4,745 4,790 (45) 4,875 4,830 45 5,488 5,310 178 5,670 5,470 200 5,899 5,590 309
Refunds (2,488) (2,739) (2,820) 81 (2,255) (2,560) 305 (2,482) (2,540) 58 (2,524) (2,520) (4) (2,599) (2,460) (139)
Fringe benefit tax 506 476 475 1 433 448 (15) 430 433 (3) 453 457 (4) 490 484 6
Subtotal: Individuals 25,951 24,637 24,625 12 23,732 23,116 616 24,752 24,317 435 26,448 26,055 393 28,474 28,097 377
Company tax (net) 5,909 7,107 6,956 151 8,350 8,703 (353) 8,964 9,248 (284) 9,396 9,332 64 9,798 9,609 189

Withholding taxes on:

                               
Resident interest income 2,593 1,778 1,734 44 1,463 1,533 (70) 1,926 1,855 71 2,308 2,091 217 2,581 2,291 290
Non-resident income 1,437 892 909 (17) 627 577 50 713 661 52 753 684 69 789 710 79
Foreign-source dividends (2) 8 8 ..  8 9 (1) 8 9 (1) 8 9 (1) 8 9 (1)
Resident dividend income 97 126 121 5 240 232 8 252 219 33 325 281 44 503 511 (8)
Subtotal: Withholding tax 4,125 2,804 2,772 32 2,338 2,351 (13) 2,899 2,744 155 3,394 3,065 329 3,881 3,521 360
Total income tax 35,985 34,548 34,353 195 34,420 34,170 250 36,615 36,309 306 39,238 38,452 786 42,153 41,227 926
Other: Estate and gift duties 2 2 2 ..  1 1 ..  1 1 ..  1 1 ..  1 1 .. 
Total direct tax 35,987 34,550 34,355 195 34,421 34,171 250 36,616 36,310 306 39,239 38,453 786 42,154 41,228 926

Indirect tax

                               
GST (net) 15,392 16,102 16,356 (254) 19,773 19,917 (144) 21,823 22,019 (196) 22,731 22,940 (209) 23,747 23,939 (192)

Excise duties on:

                               
Alcoholic drinks 587 636 632 4 657 665 (8) 702 692 10 726 719 7 750 745 5
Tobacco products 170 188 173 15 209 198 11 223 212 11 232 216 16 232 215 17
Petroleum fuels 786 849 820 29 907 886 21 972 965 7 990 1,003 (13) 1,020 1,042 (22)
Subtotal: Excise duties 1,543 1,673 1,625 48 1,773 1,749 24 1,897 1,869 28 1,948 1,938 10 2,002 2,002 .. 

Other indirect tax

                               
Customs duty 1,957 1,933 1,872 61 2,060 2,096 (36) 2,170 2,160 10 2,215 2,204 11 2,231 2,256 (25)
Road user charges 864 894 885 9 955 930 25 1,002 980 22 1,048 1,030 18 1,105 1,090 15
Gaming duties 276 267 272 (5) 273 275 (2) 279 277 2 282 281 1 286 285 1
Motor vehicle fees 165 170 168 2 175 175 ..  180 180 ..  186 185 1 192 190 2
Exhaustible resource levy 36 43 35 8 38 33 5 38 32 6 36 32 4 36 33 3
Approved issuer levy, cheque duty & other 95 90 83 7 96 86 10 96 85 11 96 85 11 96 85 11
Subtotal: Other indirect tax 3,393 3,397 3,315 82 3,597 3,595 2 3,765 3,714 51 3,863 3,817 46 3,946 3,939 7
Total indirect tax 20,328 21,172 21,296 (124) 25,143 25,261 (118) 27,485 27,602 (117) 28,542 28,695 (153) 29,695 29,880 (185)
Total tax 56,315 55,722 55,651 71 59,564 59,432 132 64,101 63,912 189 67,781 67,148 633 71,849 71,108 741
Total tax (% of GDP) 30.5% 29.4% 29.4% 0.0% 29.2% 29.2% 0.1% 29.7% 29.6% 0.1% 30.0% 29.7% 0.3% 30.2% 29.9% 0.3%

less Core Crown tax eliminations

                               
Core Crown income tax (152) 11 11 ..  223 223 ..  353 353 ..  381 381 ..  411 411 .. 
GST on Crown expenses and departmental outputs 4,567 4,751 4,751 ..  5,849 5,849 ..  6,262 6,262 ..  6,360 6,360 ..  6,502 6,502 .. 
Crown ESCT 367 319 319 ..  361 361 ..  367 367 ..  370 370 ..  370 370 .. 
Crown AIL 18 15 15 ..  15 15 ..  15 15 ..  15 15 ..  15 15 .. 
Core Crown taxation 51,515 50,626 50,555 71 53,116 52,984 132 57,104 56,915 189 60,655 60,022 633 64,551 63,810 741
Core Crown tax (% of GDP) 27.9% 26.7% 26.7% 0.0% 26.1% 26.0% 0.1% 26.5% 26.4% 0.1% 26.9% 26.6% 0.3% 27.2% 26.9% 0.3%

less Total Crown tax eliminations

                               
Income tax from SOEs and CEs 332 324 324 ..  390 390 ..  447 447 ..  529 529 ..  613 613 .. 
Other Crown GST 4 (9) (9) ..  (4) (4) ..  (3) (3) ..  4 4 ..  5 5 .. 
ESCT from SOEs and CEs 11 4 4 ..  4 4 ..  4 4 ..  4 4 ..  4 4 .. 
Lottery duty 49 40 40 ..  45 45 ..  49 49 ..  50 50 ..  51 51 .. 
Total Crown taxation 51,119 50,267 50,196 71 52,681 52,549 132 56,607 56,418 189 60,068 59,435 633 63,878 63,137 741
Total Crown tax (% of GDP) 27.7% 26.5% 26.5% 0.0% 25.8% 25.8% 0.1% 26.2% 26.2% 0.1% 26.6% 26.3% 0.3% 26.9% 26.6% 0.3%

Source: Inland Revenue, The Treasury

Additional Fiscal Indicators

There are different approaches to assessing the relationship between the economy and the fiscal position, and the relationship between fiscal policy and the economy (see the 2008 Budget Forecasts, http://www.treasury.govt.nz/budget/forecasts/befu2008, pages 86 and 87). One approach to assessing these relationships uses summary fiscal indicators. The following sections explain Treasury's perspective on these indicators, the relationship between them, and how they are calculated.[1]

The nature of the tax changes, the recent economic shock, and in particular the long-lasting changes to key economic variables mean that these summary fiscal indicators are subject to more-than-usual uncertainty. In particular, the fiscal impulse indicator is not a good guide to discretionary fiscal policy stimulus. For this, and other reasons described below, Treasury is currently reviewing both the fiscal impulse and the cyclically-adjusted balance indicators.

The cyclically-adjusted balance and fiscal impulse

The cyclically-adjusted balance (CAB) is a summary indicator of what the fiscal balance would be if the economy was operating at potential output. In this sense the CAB is concerned with the relationship between the economy and the fiscal position. The CAB can act as a guide in assessing the sustainability of fiscal policy. It does this by gauging the extent to which the fiscal balance reflects temporary cyclical factors rather than long-lasting factors. The fiscal balance can therefore be described as:

Fiscal balance = CAB + cyclical component

The cyclical component can be calculated by adjusting tax and spending flows by the output gap, the difference between actual output and potential output. Potential output, and so the output gap, is not directly observable and has to be estimated. Cyclical adjustment also takes into account the responsiveness of different tax types, and unemployment, to the output gap.[2] Since the approach removes an estimate of the cyclical component of taxes and unemployment spending from the fiscal balance, the CAB is a mix of discretionary fiscal policy, demand driven influences on spending (eg, population changes), and prices differing from trend. Because it includes estimated variables and is sensitive to new information, particularly regarding the output gap, the CAB is subject to uncertainty.

In addition to its role in assessing fiscal sustainability, it is common, especially in cross-country comparisons, to use the change in the CAB as an indicator of change in discretionary fiscal policy and the impact of fiscal policy on the economy. The Treasury's fiscal impulse indicator uses the change in a cash based version of the CAB for the core Crown. The appropriateness of using the change in the CAB for these tasks is subject to some debate.[3]

Limitations of summary fiscal indicators

If potential output evolves smoothly through time and does not change between forecast rounds then changes in the path of output, and the associated output gap, tend to reflect cyclical developments from the demand side of the economy. In this case, the use of the output gap to adjust taxes and spending will mean that movements in the CAB will tend to reflect discretionary fiscal policy changes. However, when potential output is changing then movements in the CAB are less clearly related to discretionary fiscal policy changes.

If changes to GDP are permanent, then the change in tax revenue will be treated as a non-policy driven structural shift (although the ratio of tax to potential output will be less affected). On the spending side, lower inflation will reduce the rise in some government expenses (eg, benefits). Spending on unemployment benefits increases as the unemployment rate rises. However, the majority of government expenses are more structural in nature and do not respond immediately or directly to movements in nominal GDP (and so the ratio to potential will rise if potential output is falling).[4]

In addition to the impact of non-policy related changes, summary indicators such as fiscal impulse do not allow for the composition of fiscal policy changes or how a change in fiscal policy will be transmitted through the economy. Treasury research using time series statistical analysis indicates that spending and taxes have different effects on New Zealand GDP.[5]

Notes

  • [1]There is no unique terminology for these summary indicators. For example, the terms cyclically-adjusted balance (CAB) and structural budget balance (SBB) are often used interchangeably. The CAB removes cyclical factors. The SBB removes all temporary factors: cyclical; temporary fiscal policy measures; and one-offs. If these last two factors are not large then the two measures will be similar. The terms fiscal impulse, fiscal stance and fiscal stimulus are also used interchangeably.
  • [2]Treasury’s approach to estimating the cyclically-adjusted balance and fiscal impulse is set out in Treasury Working Papers 01/10 and 02/30 refer http://www.treasury.govt.nz/publications/research-policy/wp/2001/01-10/ and http://www.treasury.govt.nz/publications/research-policy/wp/2002/02-30/
  • [3]These issues are covered in the Treasury Working Paper 02/30 - refer above for website link.
  • [4]These effects can operate in reverse under upward revisions to potential output and/or higher inflation.
  • [5]See Treasury Working Paper 06/08 - refer http://www.treasury.govt.nz/publications/research-policy/wp/2006/06-08/. The degree to which the fiscal impulse indicator matches the time series estimates depends on the exact form of the latter. In neither of the time series specifications does the summary indicator match the time series estimate across the entire sample period.

Treasury's summary fiscal indicators

Based on the 2010 BEFU Forecasts, the estimate of fiscal impulse for the 2010 fiscal year has decreased from an expansionary 2.2% of GDP at the 2009 HYEFU Forecasts to 2% of GDP. This change largely reflects the stronger economy and the tax changes.

Using the CAB for the purpose of assessing the impact of the economy on the fiscal position is arguably less problematic than using it to assess discretionary policy changes and aggregate demand effects. Notwithstanding that the CAB is influenced by non-policy related structural effects, it does give a perspective on the sustainability of the fiscal position, particularly when supplemented with medium-term fiscal projections contained in the Fiscal Strategy Report.

Because it provides a clearer view of underlying fiscal performance, the operating balance before gains and losses is used in the CAB indicator (see Figure 1 below).

Output in the 2009 HYEFU Forecasts was below potential across the forecast period, with the gap closing in 2014. Now the output gap troughs at -1.5% and the CAB indicates a structural deficit in 2013 of around 1.6% of GDP compared to around 2.4% at the time of the HYEFU forecasts.

Figure 1 - Operating balance before gains and losses and cyclically-adjusted indicator
Figure 1 -O perating balance before gains and losses and cyclically-adjusted indicator.
Source: The Treasury

Figure 2 - Fiscal impulse

Figure 2 - Fiscal impulse.
Source: The Treasury

Table 11 - Additional fiscal indicators

Operating balance before gains and losses (Year ended June, % GDP)
Historical Forecast
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
1.2 1.9 3.3 3.8 4.6 4.4 3.4 3.1 -2.1 -3.7 -4.2 -2.5 -1.9 -1.3

Memorandum items:

Cyclically-adjusted operating balance before gains and losses (Year ended June, % GDP)
Historical Forecast
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
1.2 1.8 2.8 2.9 3.7 3.4 2.6 1.8 -1.8 -3.0 -4.0 -2.2 -1.6 -1.1
Output gap (Year ended June, % deviation)
Historical Forecast
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-0.1 0.3 1.0 1.9 1.9 2.0 1.7 2.8 -0.8 -1.5 -0.6 -0.6 -0.9 -0.4
Fiscal impulse (Year ended June, % GDP)
Historical Forecast
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-1.1 -0.8 -0.3 0.3 -1.6 0.5 0.0 0.6 3.6 2.0 1.2 -1.6 -1.3 -0.7

Source: The Treasury

Accounting Policies

The forecast financial statements contained in the published Budget Economic and Fiscal Update 2010 are based on the following accounting policies.

Statement of Compliance

These forecast financial statements have been prepared in accordance with the Public Finance Act 1989 and with New Zealand Generally Accepted Accounting Practice (NZ GAAP). The accounting policies applied in the statements are the same as those applied in the audited, actual financial statements of the Government for the year ended 30 June 2009.

For the purposes of these forecast financial statements, the government reporting entity has been designated as a public benefit entity. The forecast financial statements comply with FRS-42: Prospective Financial Statements and NZ GAAP as it relates to prospective financial statements.

Reporting Entity

The Government reporting entity is defined in section 2(1) of the Public Finance Act 1989 as:

  • the Sovereign in right of New Zealand, and
  • the legislative, executive, and judicial branches of the Government of New Zealand.

Basis of Preparation

These forecast financial statements have been prepared on the basis of historic cost modified by the revaluation of certain assets and liabilities.

The statements are prepared on an accrual basis, unless otherwise specified (for example, the Statement of Cash Flows).

The forecast financial statements are presented in New Zealand dollars rounded to the nearest million, unless otherwise specified.

Judgements and Estimations

The preparation of these forecast financial statements requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. For example, the present value of large cash flows that are predicted to occur a long time into the future, as with the settlement of ACC outstanding claim obligations and Government Superannuation retirement benefits, depends critically on judgements regarding the time value of money, the risk free rate and inflation assumptions. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

More details on these judgements and estimations are available in the Financial Statements of the Government of New Zealand for the year ended 30 June 2009.

Standards and Interpretations Issued But Not Yet Effective

The Government elected to early adopt all NZ IFRSs and Interpretations that had been approved by the New Zealand Accounting Standards Review Board as at 30 June 2009 that are not yet applicable, except:

  • NZ IFRS 7: Financial Instruments: Disclosures (revised) approved by the Accounting Standards Review Board in March 2009. NZ IFRS 7: Financial Instruments: Disclosures (revised) becomes effective for periods commencing on or after 1 January 2009, and results in presentation changes only.

The early adoption of this standard and interpretation would not have a material impact on the forecast financial statements.

Reporting and Forecast Period

The reporting period for these forecast financial statements is the year ended 30 June 2010 to 30 June 2014.

The “2009 Actual” figures reported in the statements are the audited results reported in the Financial Statements of Government for the year ended 30 June 2009. The “2010 Previous Budget” figures are the original forecasts to 30 June 2010, as presented in the 2009 Budget. The “2010 Forecast” figures incorporate actual financial results up to either 28 February 2010 or 31 March 2010.

Where necessary, the financial information of State-Owned enterprises and Crown entities (that have a balance date other than 30 June) has been adjusted for any transactions or events that have occurred since their most recent balance date and that are significant for the Government's financial statements. Such entities are primarily in the education sector.

Basis of Combination

These forecast financial statements combine the following entities using the acquisition method of combination:

Core Entities

  • Ministers of the Crown
  • Government departments
  • Offices of Parliament
  • the Reserve Bank of New Zealand
  • New Zealand Superannuation Fund

Other entities

  • State-Owned enterprises
  • Crown entities (excl. Tertiary Education Institutions)
  • Air New Zealand Limited
  • Organisations listed in Schedule 4 of the Public Finance Act 1989

Corresponding assets, liabilities, income and expenses, are added together line by line. Transactions and balances between these sub-entities are eliminated on combination. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by the Government Reporting entity.

Tertiary education institutions are equity-accounted. This policy results in the recognition of their net assets, including asset revaluation movements and surpluses and deficits. The reason for adopting this different method of combination for tertiary education institutions is explained in the Financial Statements of the Government of New Zealand for the year ended 30 June 2009.

The basis of combination for joint ventures depends on the form of the joint venture:

 
Forms of Joint Venture Basis of Combination
Jointly controlled operations The Government reporting entity recognises the assets it controls, the liabilities and expenses that it incurs, and its share of the jointly controlled operations' income.
Jointly controlled assets The Government reporting entity recognises its share of the jointly controlled assets, its share of any liabilities and expenses incurred jointly, any other liabilities and expenses it has incurred in respect of the jointly controlled asset, and income from the sale or use of its share of the output of the jointly controlled assets.
Jointly controlled entities Jointly controlled entities are equity accounted, whereby the Government reporting entity initially recognises its share of interest in these entities' net assets at cost and subsequently adjusts the cost for changes in net assets.  The Government reporting entity's share of the jointly controlled entities' surpluses and deficits are recognised in the statement of financial performance.

Accounting Policies

The accounting policies set out below have been applied consistently to all periods in the 2010 Budget Update.

Income

Taxation revenue levied through the Crown's sovereign power

The Government provides many services and benefits that do not give rise to revenue. Further, payment of tax does not of itself entitle a taxpayer to an equivalent value of services or benefits, since there is no relationship between paying tax and receiving Crown services and transfers. Such revenue is received through the exercise of the sovereign power of the Crown in Parliament.

Where possible, taxation revenue is recognised at the time the debt to the Crown arises.

 
Revenue type Revenue recognition point
Source deductions When an individual earns income that is subject to PAYE
Resident withholding tax (RWT) When an individual is paid interest or dividends subject to deduction at source
Fringe benefit tax (FBT) When benefits are provided that give rise to FBT
Provisional tax When taxable income is earned
Terminal tax Assessment filed date
Goods and services tax (GST) When the liability to the Crown is incurred
Customs and excise duty When goods become subject to duty
Road user charges and motor vehicle fees When payment of the fee or charge is made
Stamp, cheque and credit card duties When the liability to the Crown is incurred
Exhaustible resources levy When the resource is extracted
Other indirect taxes When the debt to the Crown arises
Levies (eg, ACC levies) When the obligation to pay the levy is incurred
Revenue earned through operations

Revenue from the supply of goods and services to third parties is measured at the fair value of consideration received. Revenue from the supply of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from the supply of services is recognised on a straight-line basis over the specified period for the services unless an alternative method better represents the stage of completion of the transaction.

Interest income

Interest income is accrued using the effective interest rate method.

The effective interest rate exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. The method applies this rate to the principal outstanding to determine interest income each period.

Dividend income

Dividend income from investments is recognised when the Government's rights as a shareholder to receive payment have been established.

Rental income

Rental income is recognised in the statement of financial performance on a straight-line basis over the term of the lease. Lease incentives granted are recognised evenly over the term of the lease as a reduction in total rental income.

Donated or Subsidised Assets

Where an asset is acquired for nil or nominal consideration, the fair value of the asset received is recognised as income in the statement of financial performance.

Expenses

General

Expenses are recognised in the period to which they relate.

Welfare benefits and entitlements

Welfare benefits and entitlements, including New Zealand Superannuation, are recognised in the period when an application for a benefit has been received and the eligibility criteria has been met.

Grants and subsidies

Where grants and subsidies are discretionary until payment, the expense is recognised when the payment is made. Otherwise, the expense is recognised when the specified criteria have been fulfilled and notice has been given to the Crown.

Interest expense

Interest expense is accrued using the effective interest rate method.

The effective interest rate exactly discounts estimated future cash payments through the expected life of the financial liability to that liability's net carrying amount. The method applies this rate to the principal outstanding to determine interest expense each period.

Foreign currency

Transactions in foreign currencies are initially translated at the foreign exchange rate at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of financial performance, except when deferred in net worth when hedge accounting is applied.

Non-monetary assets and liabilities measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies and measured at fair value are translated into New Zealand dollars at the exchange rate applicable at the fair value date. The associated foreign exchange gains or losses follow the fair value gains or losses to either the statement of financial performance or directly to net worth.

Foreign exchange gains and losses arising from translating monetary items that form part of the net investment in a foreign operation are reported in a translation reserve in net worth.

Sovereign receivables and taxes repayable

Receivables from taxes, levies and fines (and any penalties associated with these activities) as well as social benefit receivables do not arise out of a contract. These non-contract receivables are collectively referred to as sovereign receivables.

Sovereign receivables are initially assessed at nominal amount or face value; that is, the receivable reflects the amount of tax owed, levy, fine charged, or social benefit debt payable. These receivables are subsequently adjusted for penalties and interest as they are charged, and tested for impairment. Interest and penalties charged on tax receivables are presented as tax revenue in the statement of financial performance.

Taxes repayable represent refunds due to taxpayers and are recognised at their nominal value. They are subsequently adjusted for interest once account and refund reviews are complete.

Financial instruments

Financial assets

Financial assets are designated into the following categories: loans and receivables, financial instruments available-for-sale, financial assets held for trading, and financial instruments designated as fair value through profit and loss. This designation is made by reference to the purpose of the financial instruments, policies and practices for their management, their relationship with other instruments and the reporting costs and benefits associated with each designation.

The maximum loss due to default on any financial asset is the carrying value reported in the statement of financial position.

Financial assets

Major financial asset type

Designation
Trade and other receivables All designated as loans and receivables
Student loans All designated as loans and receivables
Kiwibank mortgages Generally designated as loans and receivables
Other advances Generally designated as loans and receivables
IMF financial assets All designated as loans and receivables
Share investments Generally designated as fair value through profit and loss
Marketable securities Generally designated as fair value through profit and loss

Loans and receivables are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method (refer interest revenue policy). Loans and receivables issued with durations of less than 12 months are recognised at their nominal value, unless the effect of discounting is material. Allowances for estimated irrecoverable amounts are recognised when there is objective evidence that the asset is impaired. Interest, impairment losses and foreign exchange gains and losses are recognised in the statement of financial performance.

The student loans valuation model has been adapted to reflect current student loans policy. As such, the carrying value is sensitive to changes on a number of underlying assumptions, including future income levels, repayment behaviour and macro economic factors such as inflation and the discount rates used to determine the effective interest rate on new borrowers.

The data for valuation of student loans has been integrated from files provided by Inland Revenue Department, Ministry of Social Development and the Ministry of Education. The current data is up to 31 March 2009, and contains information on borrowings, repayments, income, educational factors, and socio-economic factors amongst others and has been analysed and incorporated into the valuation model. This integrated data has been supplemented by less detailed, but more recent data to value student loans at balance date. Given the lead time required to compile and analyse the detailed, integrated data, it is expected that there is a lag between the availability of this data set and balance date.

Financial assets held for trading and financial assets designated at fair value through profit or loss are recorded at fair value with any realised and unrealised gains or losses recognised in the statement of financial performance.

A financial asset is designated at fair value through profit and loss if acquired principally for the purpose of trading in the short term. It may also be designated into this category if the accounting treatment results in more relevant information because it either significantly reduces an accounting mismatch with related liabilities or is part of a group of financial assets that is managed and evaluated on a fair value basis, such as with the NZ Superannuation Fund. Gains or losses from interest, foreign exchange and other fair value movements are separately reported in the statement of financial performance. Transaction costs are expensed as they are incurred.

Available-for-sale financial assets are initially recorded at fair value plus transaction costs. They are subsequently recorded at fair value with any resultant fair value gains or losses recognised directly in net worth except for impairment losses, any interest calculated using the effective interest method and, in the case of monetary items (such as debt securities), foreign exchange gains and losses resulting from translation differences due to changes in the amortised cost of the asset. These latter items are recognised in the statement of financial performance.

For non-monetary available-for-sale financial assets (eg, some unlisted equity instruments) the fair value movements recognised in net worth include any related foreign exchange component. At derecognition, the cumulative fair value gain or loss previously recognised directly in net worth is recognised in the statement of financial performance.

Cash and cash equivalents include: cash on hand, cash in transit, bank accounts and deposits with a maturity of no more than three months from date of acquisition.

Fair values of quoted investments are based on current bid prices. Regular way purchases and sales of all financial assets are accounted for at trade date. If the market for a financial asset is not active, fair values for initial recognition and, where appropriate, subsequent measurement are established by using valuation techniques, as set out in the following notes. At each balance date an assessment is made whether there is objective evidence that a financial asset or group of financial assets is impaired.

Financial liabilities
Financial liabilities
Major financial liability type Designation
Accounts payable All designated at amortised cost
Government stock Generally designated at amortised cost
Treasury bills Generally designated as fair value through profit and loss
Government retail stock Generally designated at amortised cost
Settlement deposits with Reserve Bank Generally designated as fair value through profit and loss
Issued currency Not designated: Recognised at face value

Financial liabilities held for trading and financial liabilities designated at fair value through profit or loss are recorded at fair value with any realised and unrealised gains or losses recognised in the statement of financial performance. A financial liability is designated at fair value through profit and loss if acquired principally for the purpose of trading in the short term. It may also be designated into this category if the accounting treatment results in more relevant information because it either eliminates or significantly reduces an accounting mismatch with related assets or is part of a group of financial liabilities that is managed and evaluated on a fair value basis. Gains or losses from interest, foreign exchange and other fair value movements are separately reported in the statement of financial performance. Transaction costs are expensed as they are incurred.

Other financial liabilities are recognised initially at fair value less transaction costs and subsequently measured at amortised cost using the effective interest rate method. Financial liabilities entered into with durations of less than 12 months are recognised at their nominal value. Amortisation and, in the case of monetary items, foreign exchange gains and losses, are recognised in the statement of financial performance as is any gain or loss when the liability is derecognised.

Currency issued for circulation, including demonetised currency after 1 July 2004, is recognised at face value. Currency issued represents a liability in favour of the holder.

Derivatives

Derivative financial instruments are recognised both initially and subsequently at fair value. They are reported as either assets or liabilities depending on whether the derivative is in a net gain or net loss position respectively. Recognition of the movements in the value of derivatives depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged (see Hedging section below).

Derivatives that are not designated for hedge accounting are classified as held-for-trading financial instruments with fair value gains or losses recognised in the statement of financial performance. Such derivatives may be entered into for risk management purposes, although not formally designated for hedge accounting, or for tactical trading.

Hedging

Individual entities consolidated within the Government reporting entity apply hedge accounting after considering the costs and benefits of adopting hedge accounting, including whether an economic hedge exists and the effectiveness of that hedge, whether the hedge accounting qualifications could be met, and the extent it would improve the relevance of reported results.

Transactions between entities within the Government reporting entity do not qualify for hedge accounting in the financial statements of the Government (although they may qualify for hedge accounting in the separate financial statements of the individual entities). Where a derivative is used to hedge the foreign exchange exposure of a monetary asset or liability, the effects of the hedge relationship are automatically reflected in the statement of financial performance so hedge accounting is not necessary.

(a) Cash flow hedge

Where a derivative qualifies as a hedge of variability in asset or liability cash flows (cash flow hedge), the effective part of any gain or loss on the derivative is recognised in net worth and the ineffective part is recognised in the statement of financial performance. Where the hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability (eg, where the hedge relates to the purchase of an asset in a foreign currency), the amount recognised directly in net worth is included in the initial cost of the asset or liability. Otherwise, gains or losses recognised in net worth transfer to the statement of financial performance in the same periods as when the hedged item affects the statement of financial performance (eg, when the forecast sale occurs). Effective parts of the hedge are recognised in the same area of the statement of financial performance as the hedged item.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in net worth at that time remains in net worth and is recognised when the forecast transaction is ultimately recognised in the statement of financial performance. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in net worth is transferred to the statement of financial performance.

(b) Fair value hedge

Where a derivative qualifies as a hedge of the exposure to changes in fair value of an asset or liability (fair value hedge) any gain or loss on the derivative is recognised in the statement of financial performance together with any changes in the fair value of the hedged asset or liability.

The carrying amount of the hedged item is adjusted by the fair value gain or loss on the hedged item in respect of the risk being hedged. Effective parts of the hedge are recognised in the same area of the statement of financial performance as the hedged item.

Financial Instruments - forecasting policies

For forecasting purposes, financial instruments held after 30 June 2009 are assumed to be held until they mature. Additional gains and losses on financial assets measured at fair value are based on long-run rate of return assumptions appropriate to the forecast portfolio mix, after adjusting for interest revenue and dividend revenue which are reported separately. Gains and losses on financial liabilities measured at fair value are assumed to unwind over the period to maturity, as they are assumed to be redeemed at par value.

Forecast sales and purchases of financial instruments are assumed to be issued at par value, with no premiums or discounts forecast. The exceptions are interest-free assets with long maturities, such as student loans and some sovereign receivables, where a write-down to fair value is recognised when the loan or receivable is issued.

Forecasts of borrowings incorporate a number of technical assumptions regarding the use of the Crown's fiscal surplus for domestic debt reduction. These assumptions may not reflect the actual future composition of the domestic debt programmes, as these decisions have yet to be made.

Derivatives held for trading are measured at fair value, which is nil when initially entered into. That is, fair value changes are only recognised after the derivative is created and as a result of changes in underlying variables such as exchange rates. Hence, forecasts for derivatives expected to be entered into over the forecast period are assumed to have a nil balance. Forward margins on forward-exchange contracts existing as at 30 June 2009 are amortised over the period of the contract on a straight line basis.

Gains and losses are not forecast for financial assets measured at amortised cost.

Inventories

Inventories are recorded at the lower of cost (calculated using weighted average method) and net realisable value. Inventories held for distribution for public benefit purposes are recorded at cost adjusted where applicable for any loss of service potential. Where inventories are acquired at no cost, or for nominal consideration, the cost is deemed to be the current replacement cost at the date of acquisition.

Inventories include unissued currency and harvested agricultural produce (eg, logs, wool).

The cost of harvested agricultural produce is measured at fair value less estimated point-of-sale costs at the point of harvest.

Property, plan