The Budget Economic and Fiscal Update (BEFU) 2011 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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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 2 May 2011 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
Secretary to the Treasury

9 May 2011

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 2 May 2011 of which I was aware and that had material economic or fiscal implications.

 

Hon Bill English
Minister of Finance

9 May 2011

1 Economic and Fiscal Outlook

Overview

The economy is expected to gather momentum through 2011 and into 2012 and grow by an average of around 3.0% per annum over the next four years, following a subdued recovery so far. This growth in economic activity, together with Budget 2011 decisions to lower operating allowances, is expected to result in the Crown's operating balance returning to surplus (before gains and losses) in 2014/15.

The impact of the tragic earthquake in Canterbury on 22 February 2011 plays a major part in the economic outlook, from the initial disruption to activity through to the rebuilding phase. The fiscal outlook is also affected by the earthquakes, with one-off expenditures contributing to the operating deficit (before gains and losses) increasing to 8.4% of Gross Domestic Product (GDP) in 2010/11. The full impact of the earthquakes is outlined in Chapter 2.

There are some key uncertainties surrounding this outlook. In particular, the impact of the earthquakes and the degree of restraint by households and firms could differ from that outlined in our main forecasts. There are also ongoing uncertainties associated with the global economy that on balance pose downside risks to New Zealand. Some of these risks are explored in alternative scenarios in Chapter 3.

Economic Outlook

The economy has been more subdued than we expected in the Half Year Update, largely reflecting greater caution from households and businesses. Spending was lower and saving was higher as they looked to strengthen their financial positions. There were growing signs the economy was staging a recovery prior to the earthquake on 22 February, but the disruption caused by this disaster has pushed this out. The rebuilding of Canterbury is anticipated to get firmly underway from 2012 and is expected to see economic growth peak at 4.0% in the year to March 2013.

An underlying recovery in growth is also anticipated alongside this rebuilding. Higher farm incomes owing to the current surge in commodity prices are expected to flow through the wider economy, while consumer spending is expected to recover as incomes rise more strongly and household debt ratios return to more comfortable levels. Lower growth in government spending will provide room for private spending and rebuilding activity to increase with less pressure on resources. As a result, monetary policy, while gradually withdrawing current stimulus as the economy moves back onto a stronger growth path, will not need to tighten as much as it otherwise would.

Fiscal Outlook

The gap between core Crown revenue and expenses closes over the forecast period, returning the Crown's operating balance (before gains and losses) to material surplus in the June 2015 year, a year earlier than forecast in the Half Year Update. This is primarily the result of net savings in the current year's Budget package as well as a reduction in the forecast new operating spend in the next two Budgets.

The operating deficit (before gains and losses) in the short term, however, is higher than previously expected, reaching 8.4% of GDP in the current fiscal year. The increased deficit compared with what was forecast in the Half Year Update largely reflects the costs associated with the February earthquake.

Core Crown operating cash flows also reach surplus by the end of the forecast period. When capital spending is included, residual cash deficits are expected to decrease from 7.5% of GDP in the June 2011 year to 1.6% of GDP by the June 2015 year. As a result of these residual cash deficits, net core Crown debt is expected to peak at 29.6% of GDP in the June 2015 year. As outlined in the Fiscal Strategy Report (FSR), net debt is projected to reduce in subsequent years and 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
  2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Economic (March years, %)            
Economic growth1 -0.7 1.0 1.8 4.0 3.0 2.7
Consumer price inflation2 2.0 4.5 3.1 2.4 2.5 2.6
Unemployment rate3 6.0 6.8 5.7 4.8 4.8 4.6
Fiscal (June years, % of GDP)            
Operating balance4 -3.3 -8.4 -4.7 -1.8 -0.3 0.5
Net debt5 14.1 20.8 26.2 28.5 29.5 29.6
Net worth6 50.2 42.8 37.4 34.5 33.8 34.1

Notes

  1. Real production GDP, annual average percentage change
  2. Consumers Price Index (CPI), annual percentage change, 2011 actual
  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 and Fiscal Outlook

The New Zealand economy has been more subdued than we had anticipated in December's Half Year Update (Figure 1.1). Economic growth slowed sharply in mid-2010 and real GDP in the December 2010 quarter was just 0.8% higher than a year earlier. By comparison, the average increase across the OECD was 2.9% over the same period. The weakness of the New Zealand economy has largely reflected households and businesses being cautious in their spending and investment, opting instead to increase saving and strengthen their financial positions in the wake of the global financial crisis. At the same time, an elevated New Zealand dollar against most major currencies has also limited the ability of the tradable sector (exporters and import-competing firms) to drive overall growth higher.

Figure 1.1 - Real production GDP
Figure 1.1 - Real production GDP.
Sources: Statistics New Zealand, The Treasury

There were signs of the economy regaining momentum in early 2011, but this was disrupted by the tragic events in Canterbury on 22 February. A recovery in activity is now expected from mid-2011, with economic growth rising to 1.8% in the year to March 2012 and peaking at 4.0% in the year to March 2013. Higher growth in consumer spending is expected as households become more comfortable with the state of their own balance sheets and as incomes rise more strongly alongside an improving labour market. Domestic demand will also be supported as the recent increases in commodity prices flow through the wider economy. The exchange rate is forecast to remain elevated in the near term and thus remain a constraint on export growth, before falling owing to fundamental forces such as New Zealand's high level of international indebtedness and a recovering global economy. A lower New Zealand dollar will then boost export volumes, particularly service exports such as tourism. These factors are expected to provide an offset to a withdrawal of monetary stimulus and tighter fiscal policy from 2012/13, including lower growth in government consumption as operating allowances are reduced (Figure 1.2).

Figure 1.2 - Components of real GDP growth
Figure 1.2 - Components of real GDP growth.
Sources: Statistics New Zealand, The Treasury

The impact of the Canterbury earthquakes plays a major part in the economic cycle, from the initial disruption, which delays the recovery, to the positive impact of the rebuild to regain what was lost, which amplifies the expansion. The rebuilding of Canterbury is expected to get firmly underway from 2012, which will cause the upswing in national investment to be much stronger than would have been forecast in the absence of the earthquake.

While the annual current account deficit is forecast to rise above 6% of GDP by late 2013, this is largely driven by investment, including for the Canterbury rebuild. National saving rates are expected to rise as a result of a return to Budget surplus and a higher household saving rate. The forecast economic recovery is expected to be far less reliant on debt-funded household consumption and investment than was the case in the mid-2000s.

Table 1.2 - Economic forecasts1
(Annual average % change,
March years)
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Private consumption 0.4 1.5 1.4 2.6 3.4 2.9
Public consumption 0.2 2.4 1.0 -0.8 -0.4 0.6
Total consumption 0.4 1.7 1.3 1.8 2.5 2.4
Residential investment -13.0 0.9 0.8 53.5 17.4 2.7
Market investment -10.0 7.5 4.3 13.0 9.8 2.5
Non-market investment -5.6 -5.2 10.0 -6.7 -3.1 4.7
Total investment -9.4 5.3 5.6 18.8 11.0 3.0
Stock change2 -2.2 1.8 0.0 -0.4 -0.2 0.0
Gross national expenditure -3.6 4.5 1.7 5.3 4.5 2.5
Exports 4.6 1.9 3.0 2.9 2.2 2.1
Imports -9.4 10.5 2.5 6.9 6.8 1.7
GDP (expenditure measure) 0.7 2.1 1.6 4.0 3.0 2.7
GDP (production measure) -0.7 1.0 1.8 4.0 3.0 2.7
Real GDP per capita -1.9 -0.1 1.0 3.2 2.0 1.8
Nominal GDP (expenditure measure) 1.1 5.3 4.7 6.4 5.4 4.9
GDP deflator 0.4 3.2 3.1 2.3 2.4 2.1
Output gap (% deviation, March year)3 -1.0 -1.3 -1.1 0.0 -0.1 -0.2
Employment -1.3 0.9 1.1 2.5 1.8 1.3
Unemployment4 6.0 6.8 5.7 4.8 4.8 4.6
Nominal wages5 1.0 2.8 4.1 4.1 4.2 4.0
CPI inflation6 2.0 4.5 3.1 2.4 2.5 2.6
Merchandise terms of trade7 -7.5 10.4 -1.7 0.2 1.4 1.3
Current account balance            
$billion -4.5 1.0 -8.4 -11.5 -15.6 -16.8
% of GDP -2.4 0.5 -4.1 -5.2 -6.8 -6.9
Net international investment position            
% of GDP -86.0 -78.6 -79.1 -79.6 -82.2 -85.3
TWI8 65.3 67.2 66.7 64.5 60.3 56.0
90-day bank bill rate8 2.7 3.0 3.0 3.9 4.7 5.0
10-year bond rate8 5.9 5.6 5.7 5.7 5.9 6.0

Notes

  1. Forecasts finalised 13 April 2011 and include data up to 18 April 2011
  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, actual CPI inflation for 2011
  7. System of National Accounts (SNA) basis, annual average percentage change
  8. Average for the March quarter, actual for 2011

A longer time series for these variables is provided on page 187.

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

Global economy continues to recover…

The outlook for world growth has generally been revised up as the recovery from the global financial crisis has progressed, although there have been some set-backs recently. The recovery is being driven by emerging economies, in particular China and other Asian countries, with additional benefits for New Zealand via Australia. Activity in the major developed economies has been slower to rebound as they were more directly affected by the global crisis and their economic challenges are more entrenched. Temporary shocks have also adversely affected economic activity, in particular the Queensland floods in Australia and the earthquake in Japan. These events are expected to reduce growth in the short term, but rebuilding in Australia and Japan will boost it subsequently.

Figure 1.3 - Trading Partner Growth
Figure 1.3 - Trading Partner Growth.
Source:  International Monetary Fund, The Treasury

Growth in our main trading partners in calendar 2010 was estimated to be 4.6%, a rapid recovery from a 0.5% decline in output in 2009 (Figure 1.3). The outlook for 2011 is for 3.7% growth, taking account of the adverse events above, before increasing to 4.4% in 2012 and reverting to a trend of just above 4.0% thereafter. These figures take account of the increasing share of New Zealand's trade directed to the faster-growing Asian economies.

Notwithstanding this positive headline picture, there remains an elevated level of risk around global growth. While there are some upsides, on balance the risks are weighted to the downside for the forecast period as a whole. As a result, the international economy remains a source of potential downside risk to New Zealand, with the possibility of rising global imbalances causing increased policy tension, the need for significant structural and fiscal policy change in many developed economies, continued financial difficulties in a number of peripheral European economies, and the possibility of higher oil prices. Some of these risks are explored further in the Risks and Scenarios and Fiscal Risks chapters.

...and boosts world prices for New Zealand's commodity exports

World prices for New Zealand's key commodities have exceeded the very high levels of 2007/08. This is pushing the merchandise terms of trade (the ratio of export prices to import prices) higher than was previously expected despite oil prices also being higher (Figure 1.4). A key judgement in these forecasts is the degree to which commodity prices can be sustained at such high levels. Some fall is expected as weather-related price increases reverse this year, but commodity prices over the next five years are then forecast to rise again and contribute to a rising profile for the terms of trade. This assumption is based on the strength of demand for food and other primary products from emerging markets, most notably China and India. Another feature of commodity prices is likely to be ongoing volatility, which makes it more difficult to differentiate longer-term trends from short-term movements. The increase in commodity prices could be larger than forecast, particularly in the near term as a result of the tightness of supply. However, anything that curbs demand from major markets such as China could see commodity prices weaken by more than expected. This possibility is explored in a downside scenario from page 108.

Figure 1.4 - Merchandise terms of trade (SNA)
Figure 1.4 - Merchandise terms of trade (SNA).
Source: Statistics New Zealand, The Treasury

The Trade Weighted Index (TWI) of the exchange rate is forecast to remain around its March 2011 quarter average for the remainder of this year, supported by high terms of trade and a persistent interest rate differential. The terms of trade also provide longer-term support to the exchange rate, but ultimately long-term fundamentals such as the requirement for external balance are expected to see the exchange rate fall. A narrowing of the positive differential between local and global interest rates also contributes to the lower exchange rate. However, there is considerable uncertainty surrounding the path of the exchange rate.

There is also uncertainty about how the exchange rate will impact on export volumes. In terms of export receipts, the exchange rate is being more than offset by historically high world prices for commodity exporters. For manufacturing exporters, the effect of the exchange rate depends crucially on the markets they export to; the New Zealand dollar has appreciated strongly against the United States dollar and United Kingdom pound but is relatively low against the Australian dollar. A high exchange rate has made New Zealand less competitive in export services over recent years, but the forecast depreciation of the New Zealand dollar from 2012 is expected to gradually boost the volume of export services. In the near term, the Rugby World Cup is forecast to have a one-off positive impact on export services (ie, tourist spending), which is estimated to lift real GDP by around 0.3% in the second half of 2011.

Post-recession household behavioural change evident but expected to moderate...

The level of real or inflation-adjusted household spending is fundamentally linked to real income and real wealth, with temporary deviations reflected in saving and changes in borrowing. Between 2002 and 2007, house prices doubled, driving a significant lift in household wealth. At the same time, borrowing increased and demand for new and existing housing increased. Spending on durable goods (eg, appliances) rose in line with new housing investment. Spending on other goods and services also increased, reflecting confidence that robust income and asset price growth would continue in the medium term.

In early 2008, real private consumption began declining, as households faced higher prices for food and fuel, rising interest rates and, crucially, falling house prices. For the past three years, households have remained circumspect in their spending decisions, consistent with a recognition that debt levels (relative to income and assets) and debt servicing are unsustainably high, and concerns over job security (see the box on page 74 for more discussion on household deleveraging). In December 2010, real household spending per person was still 2.5% lower than three years earlier (Figure 1.5).

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

The lack of consumer spending growth since the end of the recession has occurred against a backdrop of low mortgage interest rates, linked to large reductions in the Official Cash Rate between mid-2008 and early 2009. Typically, low interest rates would encourage additional borrowing, but we have not seen this to date. The latest Reserve Bank data show household credit growth fell to a record low 1.4% in March 2011 from a year earlier, with the level of debt falling in the March month for the first time in the history of the series. We anticipate credit growth will remain weak for some time as households continue to consolidate their financial positions. In recent years, house prices have been flat and we expect annual increases to rise to only 3.0% per annum over the forecast period.

In addition to concerns around debt, real household spending growth since the recession has been impacted by petrol prices, which have risen 38% between March 2009 and early May 2011. With petrol being an important component of household budgets and subject to relatively inelastic demand, the large increase in prices has led to reduced spending on discretionary goods and services, such as motor vehicles and entertainment. While we expect oil prices to retrace slightly over the forecast period, the level is expected to remain high. The exchange rate is assumed to fall from 2012, flowing through to higher petrol prices and placing further pressure on household budgets.

With the outlook for housing and borrowing flat, real consumer spending growth is, therefore, expected to grow in line with real income. We expect the labour market to be broadly flat over the first half of 2011, before picking up thereafter, with incomes driven by higher growth in employment and wages. Rising incomes are expected to allow consumer spending to grow moderately over the forecast period. On average, private consumption is forecast to grow 2.4% per year over the next five years. This is lower than the 4.5% average growth rate during the 2002 to 2007 housing boom but higher than the 0.6% recorded in the three years to the end of 2010.

...as income growth strengthens with an improving labour market

Employment will be impacted significantly by the earthquake. Some firms in and around Christchurch were unable to reopen after the February earthquake, while some workers living in affected areas did not return to work in the immediate aftermath. Although much activity was able to be relocated, we have assumed nationwide employment is around 15,000 lower by mid-2011 as a result of February's earthquake than it otherwise would have been. Despite this impact, total national employment is still expected to grow over 2011 as economic activity recovers.

Figure 1.6 - Unemployment rate
Figure 1.6 - Unemployment rate.
Sources:  Statistics New Zealand, The Treasury

Once the rebuilding of Canterbury gets firmly underway, employment growth is expected to rise relatively quickly, facilitating a fall in the unemployment rate from 6.8% in mid-2011 to below 5% by the end of 2012 (Figure 1.6).[3] As the labour market tightens, wage growth is forecast to rise from recent low rates, peaking at 4.2% per annum in 2013/14. Some occupations directly related to reconstruction work are likely to see faster wage gains as capacity constraints in the building industry are approached. The annual net inflow of permanent and long-term migrants is expected to rise above 10,000 as the economy strengthens, after falling to around zero later this year largely because of the relatively strong Australian labour market and the disruption caused by the earthquakes.

  • [3]There are a number of issues related to the measurement of the economy since the February earthquake. For example, the Household Labour Force Survey was unable to survey many households in Canterbury in the weeks after the earthquake. The March 2011 quarter labour data, released after our forecasts were finalised, did not pick up the full impact of the earthquake. Compared to our expectation of a steady unemployment rate of 6.8% in the March quarter, the unemployment rate fell from a revised 6.7% to 6.6%.

Household Deleveraging

One of the key uncertainties for these forecasts is the degree to which households continue to increase their saving and strengthen their balance sheets. Household debt-to-asset ratios and debt-to-income ratios have fallen from their peaks in 2008 and 2009. How much more adjustment is undertaken has important implications for the path of consumption: for any given level of income and assets, maintaining or reducing debt from its current level requires that households spend less and save more than has been the case over the past decade.

Households took on more risk…

Household spending grew strongly for most of the past decade, supported in part by rapid growth in household debt and mortgage debt in particular. Household liabilities more than doubled in just six years, from $73 billion in 2001 to $150 billion in 2007. On the other side of the balance sheet, assets also more than doubled in value as house prices rose and residential building activity grew strongly - the median house price rose from $174,000 in 2001 to $349,000 in 2007, and 150,000 dwellings were added to the housing stock. As a consequence, the debt-to-asset ratio was little changed, but the risk profile of balance sheets had changed - house prices had moved well beyond their traditional relationship with household income and rental costs - and household net wealth was more exposed to a fall in house prices (Figure 1.7).

Table 1.3 - Household balance sheets
March years 2001 2009 2011
(Estimated)
2015
(Forecast)
Debt-to-asset ratio 21% 23% 22% 23%
Debt servicing ratio 6% 9% 7% 6%
Debt-to-income ratio 106% 157% 143%* 150%
Household saving rate -5% -5% 6%* 2%

Source: The Treasury *Includes insurance payments for earthquake damage

This risk was partially realised in 2008 when house prices began falling, compounded by losses in financial wealth as finance companies failed and equity markets fell. This involuntary rise in leverage (debt-to-asset or debt-to-income) was short-lived as asset prices rebounded over 2009/10. Nonetheless, net wealth remains below its pre-recession peak, house prices remain overvalued on the metrics above and debt remains high relative to income. The limited prospects for future house price growth, coupled with a desire by households to reduce the risk on their balance sheets, implies households will seek to increase their saving. The implication is that consumption will likely remain on a lower growth path.

…which they are now shedding...

Recent falls in the debt-to-asset and debt-to-income ratios indicate that household balance sheets are becoming stronger, largely reflecting rising incomes and asset prices, but households have also begun to rein in their liabilities. Household credit fell in March 2011, the first monthly fall in at least 20 years.

The debt servicing ratio, which tracks the share of income going to meet interest payments on debt, provides another measure of the household debt burden. From an average of 6% between 1990 and 2004, household debt service payments rose to 9% of disposable income in the year to March 2009 before falling interest rates reduced payments to an estimated 7% in the year to March 2011. At current interest rates the debt servicing requirements do not point to a need for households to significantly reduce their debt. Over the year ahead, income growth, driven by a recovery in the labour market, is expected to exceed debt growth and, with largely unchanged interest rates, debt servicing payments are expected to fall further. Thereafter, debt growth picks up, as do interest rates, but rising incomes enable the debt servicing ratio to remain stable at around 6%.

…through greater saving

The relatively subdued growth in both credit and consumption, combined with moderate income growth, provides scope for households to save around 2% of disposable income, a significant turnaround from the average saving rate of around -8% recorded over the 2003 to 2007 period (Figure 1.8).

Figure 1.7 - Relative house prices
Figure 1.7 - Relative house prices.
Sources:  Statistics New Zealand, Department of Building and Housing, REINZ
Figure 1.8 - Household saving rate
Figure 1.8 - Household saving rate.
Sources:  Statistics New Zealand, The Treasury

In sum, households have reduced their debt-to-asset and debt-to-income ratios and their debt service burdens from their peaks, but they remain at historically high levels. Barring an unexpected surge in asset prices, simply maintaining that improved position will require higher saving. A greater desire for saving than forecast here implies lower consumption spending. How much the saving rate does actually rise also depends on what else is affecting GDP growth. Private consumption spending accounts for around 60% of GDP, so if consumption is growing only slowly, a sector other than consumption must drive GDP growth if incomes are to grow faster than consumption and provide scope for higher saving. Residential and commercial construction are key drivers of GDP growth in our forecasts, with flow-on effects for manufacturing and other related support industries. The strong terms of trade also support household income and provide scope for increased saving.

Budget decisions impact on government consumption and investment...

Fiscal policy is currently having a stimulatory impact on the economy. Earthquake-related expenditure in Canterbury will add to this in the short term. In the June 2012 year, the overall fiscal stance is expected to be broadly neutral. Fiscal tightening is expected to begin in the following year. This tightening will occur at a time when rebuilding work in Canterbury is expected to peak.

Figure 1.9 - Real government consumption
Figure 1.9 - Real government consumption.
Sources:  Statistics New Zealand, The Treasury

The Government's Budget decisions have an impact on the economy through public consumption, private consumption and non-market investment. The main impact is slower growth in government consumption (Figure 1.9), with reprioritisation of existing spending in Budget 2011 and lower operating allowances of $800 million in Budget 2012 and Budget 2013 (returning to $1.19 billion from Budget 2014, growing at 2% per annum). Changes to government transfers such as Working for Families will negatively impact private consumption, although this impact is expected to be limited by the nature of the changes (eg, Working for Families changes are targeted at higher-income families). Non-market investment, meanwhile, is forecast to grow, but this growth will be slower than previously expected reflecting lower gross capital allowances of $900 million per Budget.

...and private investment rises strongly owing to rebuilding in Canterbury...

Although growth in non-market investment is expected to be lower than previously expected, total investment is expected to rise very strongly from 2012 on the back of the rebuilding of Canterbury (Figure 1.10). In these forecasts, investment is able to make up a larger share of the real economy than in recent upswings owing to the nature of the funding. Much of the extra investment will be funded through insurance, ultimately reinsurance flows from overseas and from government. Another factor supporting this rise in investment relative to the experience of the 2000s is an anticipated fall in private and public consumption as a share of the economy, allowing room for interest rates to be lower.

Figure 1.10 - Real investment (ex large items)
Figure 1.10 - Real investment (ex large items).
Source:  Statistics New Zealand, The Treasury

The regional pattern of economic activity will likely be quite different from previous cycles. Most notably, the expansion from 2012 will be weighted heavily to the Canterbury region. The rebuilding will put pressure on all parts of the construction industry - residential, commercial and infrastructure - in contrast to more typical expansions in New Zealand, which traditionally witness upturns in these different parts at different times. There is a risk that the rebuilding does not scale up as quickly as expected in these forecasts, either owing to ongoing aftershocks or greater capacity constraints being experienced. Alternatively, there is also a risk of the same volume of work being done in Canterbury but with more displacement of work outside the region or more inflation pressures than we have factored in our main forecasts. These issues are discussed further in the Risks and Scenarios chapter.

...to replace lost capital, which has reduced the productive capacity of the economy

Potential growth is an estimate of how fast the economy can grow without generating inflation pressures, but is subject to much uncertainty owing to the unobservable nature of potential output. Potential output is expected to grow by around 2.5% per annum over the forecast period. Our forecasts for the level of potential output remain lower than we forecast prior to the global financial crisis. As a result, the level of real GDP per capita is forecast to be lower than we had expected at the time of Budget 2008 as we have re-evaluated both past and future potential output (Figure 1.11). Compared to the Half Year Update, the productive capacity of the economy has been further reduced by the February earthquake in Canterbury, initially owing to the loss of physical capital. Although this impact is small, it still means that inflation pressures in these forecasts are slightly higher for any given level of economic activity.

Figure 1.11 - Real production GDP per capita
Figure 1.11  - Real production GDP per capita.
Sources:  Statistics New Zealand, The Treasury

Inflation eases from mid-2011 but pressure remains from Canterbury rebuild

Headline Consumers Price Index (CPI) inflation is forecast to reach 5.3% in the year to June 2011, reflecting the 1 October 2010 increase in GST, higher excise rates for cigarettes and tobacco and recent sharp fuel price increases (Figure 1.12). The increase in the GST rate (which we assume added 2% to inflation) was offset by income tax cuts and, according to Treasury business talks in early March, is not expected to be a feature in wage setting. Furthermore, inflation expectations have remained relatively unchanged since the tax changes were announced. The two-year-ahead measure in the Reserve Bank's Survey of Expectations rose to 2.8% in the June 2010 quarter, but fell in the following quarter to 2.6%, where it has remained through to the March 2011 quarter. Inflation expectations are likely being tempered by the lack of demand pressure in the economy, as evident in recent inflation outturns. In the March 2011 quarter, the CPI rose 0.8%, but excluding fuel, and cigarette and tobacco price increases, prices were broadly flat, reflecting the weak trading environment. From mid-2012, the annual inflation rate is expected to remain within the Reserve Bank's 1% to 3% target band. Subdued pricing pressure, reflecting the gradual nature of the economic recovery, is expected to be countered by inflationary pressure associated with the Canterbury rebuild. We expect the output gap (the difference between actual and potential output) to close by mid-2012 as the rebuild gathers momentum. Tradable inflation averages around 2%, which is higher than its historical average because of a falling exchange rate from 2012.

Figure 1.12 - Consumers Price Index
Figure 1.12 - Consumers Price Index.
Source:  Statistics New Zealand, The Treasury

Fiscal policy becomes contractionary from 2012/13, with government spending more restrained than was forecast in the Half Year Update, freeing up resources and reducing pressure on non-tradable inflation. As a result, monetary policy will not need to tighten as much, allowing interest rates to stay lower for longer and take pressure off the exchange rate. This mix is more conducive to tradable sector growth. We expect 90-day interest rates to lift gradually to 5.0% by March 2015, as the output gap closes. During the global financial crisis, the gap between the Official Cash Rate and funding costs for banks and other financial institutions lifted sharply (to around 150 basis points), meaning retail borrowing rates for households and businesses were higher than they otherwise would be for a given Official Cash Rate. The funding gap is expected to remain at 150 basis points over the next few years before falling to around 100 basis points by the end of the forecast period. The 10-year rate is assumed to lift slightly to 6.0% by the end of the forecast period, in line with its long-term average.

Current account deficit rises as investment increases by more than saving

An annual current account surplus is expected for the year-ended March 2011 for the first time since the early 1970s. This surplus will partly reflect subdued domestic demand and strong terms of trade, but is mainly the result of a higher current transfers balance in the September 2010 and March 2011 quarters owing to reinsurance payments related to the Canterbury earthquakes. New Zealand’s net international investment position (IIP) also improves because of reinsurance inflows (Figure 1.13).

Figure 1.13 - Current account and net IIP
Figure 1.13 - Current account and net IIP.
Sources:  Statistics New Zealand, The Treasury

The current account balance is forecast to return to deficits above 6% of GDP by late 2013, while the net international liability position is expected to rise again as a result. The rise in the current account deficit is expected to be driven by higher investment-related imports, including for the rebuild of Canterbury, while export growth remains subdued. This experience would be different from the mid-2000s in both cause (increasing household debt) and magnitude (current account deficits rose above 8% of GDP). The forecast depreciation of the New Zealand dollar from 2012 is expected to boost service exports and dampen the demand for imports, twin developments that will together assist to strengthen the trade balance and contribute to a narrowing of the current account deficit towards the end of the forecast period and beyond.

The current account balance can also be examined as the difference between national saving and investment (Figure 1.14). The national saving rate is expected to rise over the forecast period, supported by an increasing rate of household saving. Higher government saving also helps to increase national saving as the operating balance (before gains and losses) returns to surplus.

Figure 1.14 - National saving and investment
Figure 1.14 - National saving and investment.
Sources:  Statistics New Zealand, The Treasury

The nominal size of the economy grows by around 5% per annum...

Nominal GDP is expected to rise by 5.3% in the year to March 2011, which reflects higher terms of trade and high inflation including the rise in GST on 1 October 2010 (nominal GDP is GST-inclusive). After easing back to 4.7% in the March 2012 year, growth in the nominal economy is then forecast to expand 6.4% in the March 2013 year, boosted by the rebuilding of Canterbury, before once again easing back gradually. Over the 2011 to 2015 March years, nominal GDP is expected to be a cumulative $13.1 billion (or 1.2%) lower than assumed in the Half Year Update, largely because of the delayed recovery caused by subdued domestic activity and the February earthquake.

...and supports a recovery in tax revenue...

Tax revenue has returned to growth over the past six months, after two years of contraction, but this growth remains weak. Most tax types have shown nil or only modest growth recently, although GST was boosted by the 1 October 2010 rate increase and offset by accompanying personal income tax rate cuts. Growth in tax revenue is expected to rise to an average of 7.5% per annum between the June 2011 and 2015 years. This increase is expected to be underpinned by growth in the nominal economy of around 5% per annum, together with an increase in core Crown tax revenue as a proportion of GDP from 25.6% in 2011 to 27.8% in 2015 owing to the following factors:

  • Corporate taxes have dropped by around 30% since the June 2008 year (Figure 1.15). Taxable corporate profits also appear to have dropped by about 30% through this period. In addition, recent data suggest there was a significant build-up in tax losses through the 2008/09 recession, which are now being offset against taxable profits, thereby reducing corporate tax. We expect loss usage to remain at an elevated level, peaking in the 2013 year. Once the loss effect abates, corporate tax growth is expected to accelerate. This loss effect causes corporate tax to be pro-cyclical, which means it falls by more than GDP during downturns but grows more rapidly than GDP at the top of the cycle.
  • Given the progressive personal income tax scale, higher incomes attract a higher rate of income tax, which means the tax on those incomes increases at a faster rate as incomes increase. In aggregate, this is known as “fiscal drag”. Fiscal drag has been absent from source deductions (mostly PAYE) collections over the past few years owing to personal income tax cuts. PAYE growth will again be negative in the June 2012 year as income tax changes only took effect on 1 October 2010. From 2013 to 2015, fiscal drag is anticipated to add an average of around $400 million per annum to PAYE, which would see PAYE rise as a proportion of GDP from an estimated 10.1% in 2012 to 10.7% in 2015.
  • We are also yet to see a full year of GST at the new 15% rate. Therefore, GST revenue will grow at a faster rate than private consumption and residential investment in the June 2012 year. Thus, GST is also expected to add to the tax-to-GDP ratio over the forecast period, growing from 6.6% of GDP in 2011 to 7.5% in 2015.
  • The level of interest rates also affects tax revenue because interest earned by lenders is taxable and interest incurred by borrowers is deductible from taxable business profits. Over the 2011 to 2015 period, average deposit rates are expected to rise by around 50%. This, together with growth in the amount of money on deposit, is forecast to increase resident withholding tax on interest (RWT) from 0.9% of GDP in 2011 to 1.3% in 2015.
Figure 1.15 - Operating surplus (proxy for business profits) and corporate tax revenue
Figure 1.14 - National saving and investment.
Source:  Statistics New Zealand, The Treasury

...although taxes are lower than expected in the Half Year Update...

In total across the five June years 2011 to 2015, core Crown tax revenue is expected to be $5 billion lower than forecast in the Half Year Update, as shown in Table 1.4. The largest reduction is expected to occur in corporate tax, mainly because operating surpluses (ie, profits) are expected to be lower. A slightly longer and larger tax loss effect than was previously assumed has also reduced the forecast of corporate taxes.

GST forecasts have been reduced in response to a softer near-term outlook for domestic consumption, albeit with reductions weighted more to the earlier years of the forecast period than the later years. This profile is, in part, a result of the Canterbury earthquakes. Insurers are expected to receive GST refunds from their GST-inclusive insurance payouts, mainly in the 2011 and 2012 years. Once the insurance claimants spend their insurance proceeds, either by purchasing replacement goods or constructing replacement buildings, the GST will flow back to the Crown. This is expected to happen mainly from 2012 onwards.

Net other persons tax is also expected to be lower than previously forecast, but not all of the tax types have had their forecasts reduced. The source deductions forecasts are slightly higher than in the Half Year Update in all years except for 2015, mainly owing to higher forecasts of aggregate wages and salaries.

Table 1.4 - Change in core Crown tax revenue forecasts
Year ended 30 June 2011 2012 2013 2014 2015
$billion Forecast Forecast Forecast Forecast Forecast

Core Crown tax revenue

         
    Half Year Update 2010 forecasts 52.5 57.2 61.0 64.9 68.5
        Forecast changes -1.3 -2.0 -1.1 -0.5 -
    Budget 2011 forecasts 51.2 55.2 59.9 64.4 68.5
    Changes in components          
    Source deductions 0.3 0.2 0.4 0.1 -0.1
    Other persons tax -0.1 -0.4 -0.2 -0.2 -0.2
    Corporate tax -0.9 -0.7 -0.8 -0.4 -0.3
    Interest RWT 0.1 -0.3 -0.4 -0.1 0.1
    GST -0.8 -0.7 -0.2 0.1 0.3
    Other taxes 0.1 -0.1 -0.1 -0.1 -0.1
Policy changes - - 0.2 0.2 0.2

Note: Numbers in tables may not add exactly to the stated totals owing to rounding

Source: The Treasury

...with other outcomes possible, both lower and higher

In line with established practice, Inland Revenue also prepared a set of tax forecasts. The Treasury and Inland Revenue forecasting teams compare forecasts to provide quality assurance for each other. Both sets of tax forecasts were based on the Treasury's economic forecasts. Using slightly different assumptions and forecasting models, Inland Revenue has produced a set of tax forecasts that are much lower than the Treasury's. In this Update, the total difference between the tax forecasts across the five June years 2011 to 2015 is nearly $4 billion, a larger difference than is usually the case (Table 1.5). The bulk of the difference occurs in estimates for corporate tax. The Treasury forecasts corporate tax growth to remain subdued through the early part of the recovery as tax loss usage increases, and growth will accelerate through 2013 to 2015 as tax loss usage abates. Inland Revenue, however, does not forecast such a rapid acceleration as it makes no explicit assumption regarding the utilisation of tax losses in corporate tax.

The lower forecasts of tax revenue from Inland Revenue indicate there may be some downside risk to our tax forecasts. At the same time, there are also upside risks. The economic recovery could turn out stronger than forecast, or tax revenue could be higher if we have underestimated the size of the pro-cyclical response in corporate tax. The Canterbury earthquakes also present risks to the tax forecasts. What is currently being interpreted as underlying weakness in taxes could be a timing effect caused by earthquake-related business disruption. If so, tax revenue will likely be higher than in the Budget forecasts.

Table 1.5 - The Treasury and Inland Revenue core Crown tax revenue forecasts
Year ended 30 June
$billion
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast

Source deductions

         
The Treasury 20.7 21.2 23.1 24.7 26.3
Inland Revenue 20.6 20.9 22.8 24.5 26.2
Difference 0.1 0.3 0.3 0.2 0.1

Net other persons tax

         
The Treasury 2.1 2.7 3.0 3.1 3.3
Inland Revenue 2.0 2.5 2.8 3.2 3.5
Difference 0.1 0.2 0.2 (0.1) (0.2)

Corporate taxes

         
The Treasury 7.7 8.8 9.3 10.3 10.8
Inland Revenue 8.0 8.8 9.0 9.5 9.7
Difference (0.3) - 0.3 0.8 1.1

Goods and services tax

         
The Treasury 13.2 15.0 16.4 17.6 18.5
Inland Revenue 13.2 15.3 16.3 17.5 18.4
Difference - (0.3) 0.1 0.1 0.1

Other taxes

         
The Treasury 7.5 7.5 8.1 8.7 9.6
Inland Revenue 7.3 7.6 8.0 8.6 9.2
Difference 0.2 (0.1) 0.1 0.1 0.4

Total tax

         
The Treasury 51.2 55.2 59.9 64.4 68.5
Inland Revenue 51.1 55.1 58.9 63.3 67.0
Difference 0.1 0.1 1.0 1.1 1.5

Total tax (% of GDP)

         
The Treasury 25.6 26.4 26.9 27.5 27.8
Inland Revenue 25.6 26.3 26.4 27.0 27.2
Difference - 0.1 0.5 0.5 0.6

Sources: The Treasury, Inland Revenue

The gap between core Crown revenue and expenses closes over the forecast period...

Core Crown revenue falls in the current financial year to 28.5% of GDP before recovering to 31.0% by the end of the forecast period (Figure 1.16).

Figure 1.16 - Core Crown expenses and revenue
Figure 1.16 - Core Crown expenses and revenue.
Source:  The Treasury

The largest component of core Crown revenue is tax revenue. As previously discussed, forecast tax revenue is lower than in the Half Year Update. However, it increases in absolute terms over the forecast period, reaching 27.8% of GDP by June 2015.

While core Crown expenses increase this year as a result of the Canterbury earthquake, they fall as a percentage of GDP across the forecast period to be 31.3% of GDP by June 2015. This decrease reflects the cessation of “one-off” expenditure such as costs associated with the Canterbury earthquakes, provision for weathertight homes payments and the Deposit Guarantee Scheme, as well as a decrease in the amount of new spending forecast over this time.

Table 1.6 - Fiscal forecasts
Year ended 30 June 2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast

$billion

           
Core Crown revenue 56.2 57.0 61.1 66.4 71.5 76.4
Core Crown expenses 64.0 72.8 73.0 72.6 74.1 77.1
Core Crown residual cash -9.0 -15.0 -13.5 -9.0 -5.4 -4.1
Net debt1 26.7 41.5 54.9 63.6 69.0 72.9
Gross debt2 53.6 71.6 77.8 79.2 88.7 86.2
Total Crown operating balance before gains and losses -6.3 -16.7 -9.7 -4.1 -0.7 1.3
Total Crown operating balance -4.5 -9.4 -7.3 -1.4 2.3 4.6
Total Crown net worth 95.0 85.5 78.3 76.9 79.3 83.9

% of GDP

           
Core Crown revenue 29.7% 28.5% 29.2% 29.8% 30.5% 31.0%
Core Crown expenses 33.8% 36.4% 34.9% 32.5% 31.7% 31.3%
Core Crown residual cash -4.8% -7.5% -6.4% -4.0% -2.3% -1.6%
Net debt1 14.1% 20.8% 26.2% 28.5% 29.5% 29.6%
Gross debt2 28.3% 35.8% 37.2% 35.5% 37.9% 35.0%
Total Crown operating balance before gains and losses -3.3% -8.4% -4.7% -1.8% -0.3% 0.5%
Total Crown operating balance -2.4% -4.7% -3.5% -0.6% 1.0% 1.9%
Total Crown net worth 50.2% 42.8% 37.4% 34.5% 33.8% 34.1%

Notes:

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

A longer time series for these variables is provided on page 186.

Source: The Treasury

...with core Crown expenses[4] lower than previous forecasts...

Relative to GDP, core Crown expenses are lower than the Half Year Updateby the end of the forecast period primarily as a result of the current year's net savings package and a reduction in new spending in the next two Budgets (Figure 1.17).

Figure 1.17 - Core Crown expenses
Figure 1.17 - Core Crown expenses.
Source: The Treasury

Overall, though, core Crown expenses are forecast to increase in nominal terms. Table 1.7 details the movements.

Table 1.7 - Growth in core Crown expenses
Year ended 30 June
$billion
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast

Movements in expenditure

         

New spending

         
Budget 2010 decisions 1.4 1.2 1.2 1.2 1.2
Budget 2011 decisions - 0.4 (0.1) (0.4) (0.3)
Budget 2012 allowance - - 0.8 0.8 0.8
Budget 2013 allowance - - - 0.8 0.8
Budget 2014 allowance - - - - 1.2

Existing policies

         
Increases in New Zealand Superannuation costs 0.5 1.3 1.9 2.6 3.4
Increase in other social assistance 0.5 0.7 0.7 0.7 0.8
Emissions Trading Scheme 1.2 0.6 0.3 0.3 0.3
Debt impairments 0.2 0.5 0.5 0.6 0.7
Finance costs 0.8 1.4 2.0 2.4 2.9

Short-term expenses

         
Canterbury earthquakes 2.5 1.5 0.3 0.2 0.2
Weathertight homes 0.7 - - - -
Deposit Guarantee Scheme 0.3 - - - -
Other movements 0.7 1.4 1.0 0.9 1.1
Increase in core Crown expenses 8.8 9.0 8.6 10.1 13.1
Baseline expenses (June 2010) 64.0 64.0 64.0 64.0 64.0
Core Crown expenses 72.8 73.0 72.6 74.1 77.1

Source: The Treasury

The Budget 2011 package is a net savings package which results in a decrease in core Crown expenses (Table 1.8). This compares to the $1.12 billion additional spending each year forecast in the Half Year Update.

Table 1.8 - Reconciliation of Budget 2011 initiatives
Year ended 30 June
$billion
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
5-year
Total
Savings in Budget 2011 (0.2) (0.7) (1.3) (1.5) (1.5) (5.2)
New spending in Budget 2011 0.1 1.1 1.0 0.8 0.9 3.9

Net savings in Budget 2011

(0.1) 0.4 (0.3) (0.7) (0.6) (1.3)
Revenue initiatives (impacting core Crown revenue) - - 0.2 0.3 0.3 0.8
Increase/(decrease) in core Crown expenses (0.1) 0.4 (0.1) (0.4) (0.3) (0.5)

Source: The Treasury

In addition to the net savings in Budget 2011, the forecast includes a reduced operating allowance for new spending in Budget 2012 and Budget 2013. These forecasts now include an allowance for new spending of $800 million a year in those two Budgets (compared to $1.12 billion in the previous forecast).

However, the cost of existing programmes continues to increase over the forecast period.

Most notably, social assistance expenses are forecast to increase by $3.1 billion over the forecast period when compared to the year ended June 2011. The majority of this increase is in relation to New Zealand Superannuation which increases by $2.8 billion over that period.

This increase in social assistance expenses is owing to both growth in the number of recipients (Figure 1.18) and the effect of wage and CPI indexation.

Figure 1.18 - Beneficiary numbers
Figure 1.18 - Beneficiary numbers.
Source: Ministry of Social Development

In addition, finance costs increase substantially in the next few years (Figure 1.19) with the borrowing programme largest in the current year (reaching $20 billion). The Government is borrowing more now while conditions are favourable, reducing borrowing requirements in future years.

Figure 1.19 - Finance costs
Figure 1.19 - Finance costs.
Source: The Treasury

The “pre-borrowing” portion of debt is then invested in financial assets. Therefore, while finance costs increase over the forecast period, some of this is offset by an increase in interest revenue from the invested assets (Table 1.9).

Table 1.9 - Core Crown net interest income
Year ended 30 June
$billion
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Core Crown interest revenue 1.0 1.3 1.5 1.6 1.9
Core Crown finance costs (3.1) (3.7) (4.3) (4.7) (5.3)
Core Crown net interest (2.1) (2.4) (2.8) (3.1) (3.4)

Source: The Treasury

Notes

  • [4]Core Crown expenses represent the operating expenses of government entities listed on page 145 but exclude expenses of State-owned enterprises and Crown entities. Also excluded are gains and losses.

...returning the Crown to surplus by the end of the forecast period...

When combined with the forecasts of State-owned enterprises and Crown entities, the total Crown is expected to record a material surplus in the June 2015 year (one year earlier than forecast in the Half Year Update).

The operating deficit[5] peaks in the current year at 8.4% of GDP (Figure 1.20). Excluding the direct costs of the earthquakes, the deficit would be around 5.2% of GDP.

Figure 1.20 - Total Crown operating balance before gains and losses
Figure 1.20 - Total Crown operating balance before gains and losses.
Source:  The Treasury

Current weak economic growth is also playing a part in the large operating deficit in June 2011. Figure 1.20 shows the cyclically-adjusted,[6] or structural, operating balance. This cyclically-adjusted deficit reaches 4.8% of GDP in the current year, compared to the 5.2% above. The small difference between the two balances implies a small cyclical component to the operating deficit. For example, the automatic stabilisers (such as unemployment benefits) do temporarily add to the deficit, reflecting the negative output gap and high unemployment rate.

The structural deficit in the June 2011 financial year is gradually eliminated over the forecast period. The pace of improvement in the structural balance averages 1.5% of GDP per annum from June 2012 to June 2015 financial years.

When forecast net gains are included, the total Crown operating balance (including gains and losses) is forecast to reach a surplus of $2.3 billion a year earlier in the June 2014 financial year. These net gains are forecast predominantly by the Crown's financial institutions (eg, the New Zealand Superannuation Fund).

Notes

  • [5]Operating balance before gains and losses.
  • [6]For more details, see the Additional Information.

...and reducing cash deficits

In line with the operating balance before gains and losses, operating cash does reach surplus by the end of the forecast period. However, when capital spending is added, residual cash remains in deficit by $4.1 billion (or 1.6% of GDP) in the final year of the forecast (Table 1.10). These cash deficits represent the amount the Government has to fund, either by raising debt or reducing financial assets, and result in an increase in net debt.

Capital spending includes purchases of physical assets, advances (eg, student loans), capital injections (eg, investment in the New Zealand Transport Agency) and future new capital spending.

Contributions to the New Zealand Superannuation Fund are not expected to recommence during the forecast period.

Table 1.10 - Reconciliation from operating balance to net debt
Year ending 30 June
$billion
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Core Crown revenue 56.2 57.0 61.1 66.4 71.5 76.4
Core Crown expenses (64.0) (72.8) (73.0) (72.6) (74.1) (77.1)
Net surpluses/(deficits) of SOEs and CEs and core Crown gains and losses 3.3 6.4 4.6 4.8 4.9 5.3
Total Crown operating balance (4.5) (9.4) (7.3) (1.4) 2.3 4.6
Net retained surpluses of SOEs, CEs and NZS Fund (3.7) (6.0) (4.7) (4.9) (4.9) (5.3)
Non-cash items and working capital movements 3.2 4.8 2.5 0.8 1.3 0.8
Net core Crown cash flow from operations (5.0) (10.6) (9.5) (5.5) (1.3) 0.1
Contribution to NZS Fund (0.2)
Net purchase of physical assets (1.8) (1.9) (1.8) (1.4) (2.0) (1.6)
Advances and capital injections (2.0) (2.5) (2.1) (2.1) (2.1) (2.6)
Forecast for future new capital spending (0.2) (0.5) (0.6) (0.8)
Reprioritisation of assets to fund new capital spending 0.1 0.5 0.6 0.8
Core Crown residual cash deficit (9.0) (15.0) (13.5) (9.0) (5.4) (4.1)
Opening net debt 17.1 26.7 41.5 54.9 63.6 69.0
Core Crown residual cash deficit 9.0 15.0 13.5 9.0 5.4 4.1
Other valuation changes in financial assets and financial liabilities 0.6 (0.2) (0.1) (0.3) (0.2)
Closing net debt 26.7 41.5 54.9 63.6 69.0 72.9

Source: The Treasury

The forecast for future new capital spending has been decreased to $900 million per Budget (spread over five years) from the $1.39 billion in the Half Year Update. This allowance is spread over the forecast period as outlined in Table 1.11.

Table 1.11 - Forecast for future new capital spending
Year ended 30 June
$billion
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Outside the
forecast
period
 
Total
Budget 2011 0.1 0.1
Budget 2012 0.1 0.4 0.1 0.1 0.2 0.9
Budget 2013 0.1 0.4 0.2 0.2 0.9
Budget 2014 0.1 0.4 0.4 0.9
Budget 2015 0.1 0.8 0.9
  0.2 0.5 0.6 0.8 1.6 3.7

Source: The Treasury

The Government has decided that, rather than fund this new spending through an increase in debt, existing capital on the Crown balance sheet will be utilised. New capital spending has therefore been forecast as a reduction in the Crown's assets. This is represented as “reprioritisation of assets to fund new capital spending” in Table 1.10.

As a result, net debt peaks at the end of the forecast period...

The continuation of cash deficits across the forecast period results in net debt peaking at 29.6% of GDP in the June 2015 financial year (Figure 1.21). Current projections estimate that net debt will begin falling as a percentage of GDP in the following year.

Figure 1.21 - Net core Crown debt
Figure 1.21 - Net core Crown debt.
Source:  The Treasury

As discussed in the Fiscal Strategy Report, net debt is projected to decrease as a percentage of GDP after the forecast period.

While net debt increases steadily over the forecast period, gross debt increases markedly in the short term. The 2010/11 borrowing programme run by the New Zealand Debt Management Office has recently been increased to $20 billion, which is larger than the current forecast cash deficit. This increase is possible owing to strong investor demand and means borrowing requirements in future years are reduced (Table 1.12). Net debt does not follow a similar trend as the surplus proceeds from these bond issuances are forecast to be invested in financial assets (resulting in no increase in net debt).

Table 1.12 - Net increase in domestic bonds
Year ended 30 June
$billion
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
5-year
Total
Cash proceeds from issue of domestic bonds (market) 20.8 13.6 11.7 9.5 7.6 63.2
Repayment of domestic bonds (market) (7.6) (10.0) (10.0) (27.6)
Net increase in domestic bonds (market) 20.8 6.0 1.7 9.5 (2.4) 35.6
Cash proceeds from issue of domestic bonds (non-market) 0.4 0.2 0.5 0.3 0.4 1.8
Repayment of domestic bonds (non-market) (1.2) (1.1) (0.4) (0.1) (0.3) (3.1)
Net increase in domestic bonds (non-market) (0.8) (0.9) 0.1 0.2 0.1 (1.3)
Net cash proceeds from bond issuance 20.0 5.1 1.8 9.7 (2.3) 34.3

Source: The Treasury

...with continued focus on the management of the balance sheet

Net worth is forecast to fall to $76.9 billion by 2013 as operating deficits continue before rising to $83.9 billion by June 2015. Assets are forecast to reach $257.7 billion by the end of the forecast period while liabilities total $173.8 billion.

When compared to June 2010, total Crown liabilities increase by $45.5 billion by June 2015. The majority of this increase reflects the increase in gross debt. The Accident Compensation Corporation claims liability also increases by $5.1 billion over the same period.

In contrast, total assets are set to increase by $34.3 billion from June 2010 (Table 1.13).

Table 1.13 - Asset movements
Year ended 30 June
$billion
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
5-year
Total
Opening total Crown assets 217.2 223.4 241.4 243.6 243.6 255.5  
Increases in assets:              
Addition of property, plant and equipment1 6.6 8.0 8.6 7.4 7.4 7.1 38.5
Student loans issued 1.5 1.6 1.6 1.6 1.7 1.6 8.1
Investment growth in Crown Financial Institutions 5.7 5.8 2.9 4.4 5.4 5.7 24.2
Forecast for new capital spending 0.2 0.5 0.6 0.8 2.1
Kiwibank mortgages 1.9 0.8 2.2 1.9 0.1 0.1 5.1
Gross investment in assets 15.7 16.2 15.5 15.8 15.2 15.3 78.0
Reduction in assets:              
Depreciation on property, plant and equipment (3.6) (3.8) (4.0) (4.2) (4.3) (4.4) (20.7)
Reduction/(increase) in New Zealand Debt Management Office/Reserve Bank financial assets (3.0) 3.9 (8.1) (8.1) 4.3 (7.0) (15.0)
Balance sheet funding for new capital spending (0.1) (0.5) (0.6) (0.8) (2.0)
Other changes in assets (2.9) 1.7 (1.1) (3.0) (2.7) (0.9) (6.0)
Net change in assets 6.2 18.0 2.2 0.0 11.9 2.2 34.3
Closing total Crown assets 223.4 241.4 243.6 243.6 255.5 257.7  

1 Further breakdown is provided in note 14 of the forecast financial statements.

Source: The Treasury

Major increases in assets include:

  • the purchase of around $38.5 billion of physical assets over the next five years. A breakdown of purchases of physical assets by the main sectors is provided on page 161
  • an expected issuance of student loans of $8.1 billion
  • growth in Crown Financial Institutions (eg, Accident Compensation Corporation) of around $24.2 billion
  • forecast for new capital spending over the next five years of $2.1 billion, and
  • net increase in Kiwibank mortgages of $5.1 billion.

These increases will be offset by around $20.7 billion of expected depreciation and an anticipated reduction in financial assets held by the New Zealand Debt Management Office and the Reserve Bank to fund the forecast cash deficit of around $15.0 billion.

While the forecast for new capital spending over the next five years is $2.1 billion, it is expected that existing capital will be reprioritised to meet this investment. This means that instead of borrowing to fund these investments, the Government will source funding from its existing balance sheet. As previously mentioned, the forecasts therefore assume that the allowance for new capital spending ($900 million per Budget spread over five years) will be met through a corresponding reduction in assets. This reprioritisation is to be applied for five Budgets for a total of $4.5 billion of new capital spending.

Finalisation Dates and Assumptions for the Forecasts

Economic and fiscal forecasts - finalisation dates
Economic forecasts 13 April
Economic data 18 April
Tax revenue forecasts 20 April
Fiscal forecasts 2 May
Text finalised 11 May
Economic forecast assumptions

Earthquake - The Canterbury earthquakes have had a significant impact on the New Zealand economy over the past year and will continue to over the forecast period. Details of the economic and fiscal impacts are in Chapter 2.

Trading partner growth - The global economic outlook has continued to be revised upwards. The economies of New Zealand's top-16 trading partners are expected to grow 3.7% in 2011 and 4.4% in 2012 before averaging 4.1% per annum growth in the final three years of the forecast period. These are similar to growth rates in Consensus Forecasts for April 2011.

Global inflation and interest rates - Inflation pressures have risen for many of our trading partners, particularly in emerging Asia, as a result of high commodity prices and resource constraints. We expect interest rates to be gradually normalised over the forecast period.

Figure 1.22 - WTI oil prices
Figure 1.22 - WTI oil prices.
Sources:  Datastream, The Treasury

Oil prices - The average price of West Texas Intermediate (WTI) oil was US$94/barrel in the March 2011 quarter and is assumed to rise over US$105/barrel per quarter from mid-2011, before falling to around US$100 at the end of the forecast period. At this point, the oil price assumption is approximately 12% above that assumed in the Half Year Update. These projections are based on a monthly average of futures prices from the New York Mercantile Exchange recorded on 11 April 2011.

Terms of trade - The merchandise terms of trade, as measured in the System of National Accounts (SNA), are estimated to rise further over the first half of 2011 to be around 2% higher in the June 2011 quarter than in the December 2010 quarter. This is around 8% higher than in the Half Year Update 2010.

Monetary conditions - The New Zealand dollar exchange rate is assumed to remain around its March 2011 quarter level of 67.2 on the Trade Weighted Index (TWI) throughout 2011. The TWI is then assumed to depreciate gradually from early 2012 to 56.0 in the March 2015 quarter. Ninety-day interest rates are expected to rise from 2.7% in the June quarter of 2011 to 4.0% two years later and continue to increase to 5.0% by the end of the forecast period.

External migration - The net inflow of permanent and long-term migrants is assumed to fall from 10,000 in the year to December 2010 to zero in the next year as a result of the subdued recovery and impact of the Canterbury earthquakes. Additional activity related to post-earthquake recovery eventually supports a rebound in net migration to 15,000 in the year to March 2014 before settling at our long-run assumption of 10,000 in the year to June 2015.

Several relatively minor tax policy changes have been included in the Budget forecasts:

Removal of KiwiSaver ESCT exemption - Employer contributions to KiwiSaver schemes will no longer be exempt Employer Superannuation Contribution Tax.

Exemption for non-resident investment in PIEs - The rules for non-resident investors in Portfolio Investment Entities will be aligned with those for direct investment to ensure fairness of tax treatment.

Bank thin capitalisation rules - The minimum prescribed percentage of equity for tax purposes will increase from 4% to 6%, the effect of which will limited foreign-owned banks' interest deductions against the NewZealand tax base.

Other - Several other minor policy changes that, individually, are below the $10 million per annum materiality threshold.

Table 1.14 - Tax policy changes included in the Budget tax revenue forecasts
Year ended 30 June
($ million)
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast

Material tax policy changes

         
Removal of KiwiSaver ESCT exemption 44 196 212 226
Exemption for non-resident investment in PIEs (5) (10) (10) (10)
Bank thin capitalisation rules 8 31 31 31
Other (9) (19) (9) (9) (10)
Total (9) 29 208 224 237
Fiscal forecast assumptions

The fiscal forecasts are based on assumptions and judgements developed from the best information available on 2 May 2011, 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. The Canterbury earthquakes add 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 1.15 - Summary of key economic forecasts used in fiscal forecasts
  2010/11 2011/12 2012/13 2013/14 2014/15
June years Half Year
forecasts
Budget
forecasts
Budget
forecasts
Budget
forecasts
Budget
forecasts
Budget
forecasts
Real GDP (P) (ann avg % chg) 2.5 0.7 2.5 4.0 2.7 2.8
Nominal GDP (E) ($m) 202,398 199,819 209,178 222,916 234,237 246,098
CPI (annual avg % change) 3.7 3.8 3.4 2.5 2.6 2.5
Govt 10-year bonds (ann avg %) 5.3 5.5 5.7 5.7 5.9 6.0
5-year bonds (ann avg %) 4.6 4.6 5.0 5.3 5.6 5.8
90-day bill rate (ann avg %) 3.3 3.0 2.9 3.7 4.6 4.9
Unemployment rate (ann avg %) 6.2 6.7 5.9 4.9 4.8 4.6
Employment (ann avg % change) 1.8 1.2 1.3 2.5 1.6 1.3
Current account (% of GDP) -1.5 0.7 -4.5 -5.5 -7.0 -6.7

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

 
Government decisions Incorporates government decisions up to 2 May 2011.
Tax revenue

Tax policy changes enacted and announced by the Government will take place as planned and will affect tax revenue and receipts as calculated and agreed by Inland Revenue and the Treasury.

The surge in other persons tax refunds and company tax refunds over the past few years was largely a result of the recession. We have assumed that refunds will return to pre-recession trends as the economic recovery gets underway. Utilisation of corporate tax losses to offset future taxable profits will retard the growth of corporate tax up to and including the 2013 year.

Earthquake-related GST refunds will provide a temporary boost to GST refunds over 2011 and 2012. GST receipts from earthquake-related spending will provide a temporary boost to net GST, mostly from 2012 onwards. The total net effect of these two elements will be zero (ignoring any additional spending over and above the insurance claims that may occur).

The current unusually large margin between 90-day interest rates and six-month term deposit rates will be maintained throughout the forecast period, which has a positive influence on resident withholding tax on interest.

Earthquake costs Expenditure (accrual measure) is forecast based on estimates on when key decisions will be taken. The timing of cash payments is based on estimates of when actual spending will take place. Refer to Chapter 2 for more detailed discussion on underlying assumptions.
Operating allowance for new spending

Net $800 million in Budgets 2012 and 2013.

Net $1.19 billion in Budget 2014, growing by the rate of 2% per annum for subsequent Budgets.

Capital allowance for new spending

$900 million in Budget 2012 onwards allocated as follows:

 
$billions 11/12 12/13 13/14 14/15 Post 2015 Total
Budget 12 0.10 0.35 0.20 0.15 0.10 0.90
Budget 13   0.10 0.35 0.20 0.25 0.90
Budget 14     0.10 0.35 0.45 0.90
Budget 15     - 0.10 0.80 0.90
Subtotal 0.10 0.45 0.65 0.80 1.60 3.60

Funding for this new spending will be from existing capital investments rather than borrowing for the next five Budgets.

Investment rate of returns Incorporate the actual results to 28 February 2011.  Beyond the June 2011 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 five-year rate from the economic forecasts and adjusted for differing maturity.
Top-down adjustment

Based on historical spending patterns of departments and estimations of current fiscal conditions.

Top-down adjustment to operating and capital as follows:

 
$billions 10/11 11/12 12/13 13/14 14/15
Operating 0.25 0.31 0.05 0.05 0.05
capital 0.10 0.17 - - -
Subtotal 0.35 0.48 0.05 0.05 0.05
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 2010 annual financial statements and any additional valuations that have occurred up to 28 February 2011 are included in these forecasts.  A number of revaluation exercises are currently underway and are planned to be completed in time for the 2011 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 31 January 2011 and 31 December 2010 respectively, with the ACC valuation being adjusted for the 31 March 2011 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 31 January 2011.  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.  Details of current climate change policies are listed at: www.mfe.govt.nz/issues/climate/policies-initiatives

The carbon price assumption is based on estimates of the current carbon price from Point Carbon, and is €10.95 with an exchange rate of 0.5387 (a carbon price of NZ$20.33) over the forecast period.

The economic models used to project agriculture and energy activity assume an international carbon price of NZ$25 per tonne to 2012, and NZ$50 to 2020.

The forecast assumes a 65% uptake of post-1989 foresters into the ETS over Commitment Period One (CP1).

It is assumed the ETS has no fiscal impact on debt or cash flows, as the net cash impact from the ETS and international obligations is highly uncertain.

Kyoto position The Kyoto position included in the fiscal forecasts reflects the Government's obligation for CP1, from 2008 to 2012.  It does not include any future potential reduction of the position through the transfer of units offshore through the forestry sector, or any future changes to the position through transactions under the ETS.
NZS Fund contributions No contribution is assumed in the forecast period.

2 Economic and Fiscal Impacts of the Canterbury Earthquakes

Overview

The earthquakes in Canterbury were very destructive, resulting in significant loss of life and turmoil for those involved. They have also had a significant effect on the economy, and will continue to do so for many more years. This, combined with the Government's response, means that the Government's fiscal position has also been significantly affected. This chapter provides a summary of the Treasury's current analysis of these economic and fiscal effects.

Damage Estimates

It is still too early to estimate with confidence the financial cost of the damage caused by the Canterbury earthquakes, and there will always be uncertainty around the exact cost. Nevertheless, information received over the past couple of months suggests that the Treasury's initial assumptions made in late February remain reasonable[7]. Allowing for some double counting for cases where prior damage has been compounded, the Treasury estimates the combined financial cost of the damage caused by the two earthquakes to be around $15 billion - about 8% of GDP and 2.5% of the nation's capital stock. Although there will be a significant boost to economic activity during the rebuild, it is clear that New Zealand's wealth and living standards have suffered as a result of these earthquakes. Resources will be used to rebuild the capital stock rather than grow it.

Table 2.1 - Damage estimates
$ billion Residential Commercial Infrastructure Total
4 September 3.25 0.75 1.0 5.0
22 February 6.0 3.0 3.0 12.0
Total* 9.0 3.0 3.0 15.0

* Totals do not sum to avoid double counting of damage

Source: The Treasury

Notes

Economic Impacts

Economic activity in Canterbury fell significantly in the immediate aftermath of both earthquakes as people stayed at home and businesses did not open. Business and consumer confidence declined sharply, including the confidence of those outside Canterbury less directly affected, further dampening economic activity. Beyond exports of services, the impact on export activity has been relatively limited.

As businesses have re-opened, people have recommenced work, initial reconstruction activity has gotten underway and economic activity has increased again. The Treasury estimates that nationwide GDP will be around 1.5% lower in 2011 than it would have been otherwise, although it is worth noting there will be difficulties for Statistics New Zealand as it tries to measure economic activity in the earthquake-affected area.

The Treasury is working on the assumption that at least $15 billion is spent repairing, replacing or renewing damaged properties over the next seven years - acknowledging the considerable uncertainty around the extent, cost and timing of rebuilding. It is not expected that rebuilding activity will fully get underway until early 2012, but that it will accelerate quickly thereafter. The rebuild will be assisted by the combination of the settling of insurance claims and a subdued construction sector elsewhere in New Zealand.

A significant amount of the financial costs associated with the damage and rebuild will be covered by private and public (in the form of the Earthquake Commission) insurance, with the majority of the insurance claims subsequently covered by international reinsurers. These reinsurance flows could be in the area of $10 billion - enough to push New Zealand's current account balance temporarily into a rare surplus. The remainder of the costs will be largely borne by the Government, with individuals and private businesses covering the rest.

Figure 2.1 – Indicative timing of Canterbury rebuilding
Figure 2.1 - Indicative timing of Canterbury rebuilding.
Source:  The Treasury

Although the Treasury expects rebuilding to occur in all three sectors simultaneously, it is assumed that the big increase in residential investment activity will take place in calendar 2012, with commercial activity building up steadily, and infrastructure spending this year and next. It is expected construction activity will remain at a high level throughout most of the forecast period, before starting to trend down in 2014.

While some of the construction activity in Canterbury will come at the expense of activity elsewhere, nationwide construction activity is expected to remain above where it would have been otherwise throughout most of the next seven years. The Treasury also forecasts higher private consumption as damaged possessions are replaced and to some extent higher public consumption and transfers owing to earthquake-related expenditure. The extra activity over the medium term is expected to broadly offset the near-term weakness, such that nominal GDP, and hence tax revenue, return to pre-earthquake levels by the end of the forecast period.

It is likely that inflation pressures next year and beyond will be higher than what they would have been otherwise, as the rebuilding activity absorbs currently underutilised labour and capital. The unemployment rate is forecast to fall to 4.8% in March 2013. Construction cost inflation is forecast to increase to around 6% per annum. Lower forecast government consumption growth provides some offset to the extra private consumption and investment activity, providing some reduced pressure on non-tradable inflation. It is likely that recent natural disasters around the world, including the Canterbury earthquakes, will prompt (potentially significant) increases in insurance premiums over time. Finally, as noted above, the Canterbury earthquakes are estimated to have destroyed around 2.5% of the nation's capital stock, reducing the level of potential output and meaning slightly more inflation for any given level of economic activity.

The Reserve Bank of New Zealand will likely be required to have higher interest rates than otherwise over the medium term in order to keep the resulting inflation pressures in check. Higher interest rates imply somewhat greater upward pressure on the New Zealand dollar than would be the case in the absence of the earthquakes, with lower export volume growth as a result. The current account deficit over the forecast period is forecast to be higher because much of the rebuild will involve increased capital imports, although reinsurance inflows have reduced the deficit over recent quarters.

Fiscal Impacts

The earthquakes will have a significant impact on the Government's fiscal position. Operating spending and debt will be higher as a result of providing short-term income support and assistance, paying for reconstruction of infrastructure and repairing government-owned property, land remediation and Earthquake Commission (EQC) payments to households. Each of these areas is discussed in more detail below. The changed outlook for the economy will also affect tax revenue as noted earlier. The tax forecasts included in the Budget Update are based on an economic outlook that includes the impact of the earthquake on economic activity and therefore incomes and expenditure.

The current estimate of the total cost to the Crown is $8.8 billion, with the vast majority of this figure expected to occur within the 2010/11 to 2014/15 period. Around $5.5 billion of this cost impacts on the core Crown sector and $3.3 billion on the State-owned enterprise and Crown entity sector, mainly via the EQC. Only the core Crown element adds to core Crown net debt although total government net worth is reduced by the full amount. The direct impact of these expenses means net debt is about 3% of GDP higher by the end of the forecast period than it would be without the earthquakes.

Table 2.2 outlines the assumed timing of when the major spending hits the operating balance at both the core and total Crown levels. This timing reflects a combination of accounting rules about when events are recognised and our current best estimate of when decisions are likely to be made. To help manage the costs of the earthquakes a Canterbury Earthquake Recovery Fund of $5.5 billion has been set up. Around $2.3 billion of this fund has already been allocated.

Table 2.2 - Impact on operating expenses of earthquake costs (years ended June)
Accrual expenses  $million 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Total
Local infrastructure 789 59 78 79 79 78 1162
State-owned assets (schools etc) 25 45 15       85
Welfare support and emergency response 457 52 6 6     521
AMI Insurance contingency 427 18 18 18 19   500
Yet to be allocated 1111 1492 234 166 165 71 3239
Total Canterbury Earthquake Recovery Fund 2809 1666 351 269 263 149 5507
EQC 3050           3050
ACC 181           181
Other SOE and CE costs 40           40
Total Crown 6080 1666 351 269 263 149 8778

Residential property

EQC has reinsurance for its costs above $1.5 billion, up to $4 billion for each of the two earthquakes. Given current information, the total cost to EQC of its share of the damage to residential property is forecast to be $3.1 billion. This forecast cost has increased the 2010/11 forecast total Crown operating deficit (by the $1.6 billion) from that in the Half Year Update, but has not impacted on core Crown net debt because EQC's assets and liabilities are not part of the core Crown. The impact on EQC and the National Disaster Fund (NDF) is discussed further in the Investment Statement Supplement.

Local infrastructure

The Government is committed to contributing 60% of the cost of repairing essential local infrastructure (water, storm water, sewerage systems and stop banks). A provision for around $0.8 billion in 2010/11 has been included in these forecasts based on current estimates of the amount of damage to underground systems.

The primary government contribution to repairing local roads comes from the National Land Transport Fund. The New Zealand Transport Agency (NZTA) assesses damage estimates and formulates a special funding assistance rate, which determines the split of central and local government funding for repair of local road infrastructure. The current Christchurch City Council estimate of total damage is $0.7 billion. However, it is too soon to know how much is eligible for funding from the National Land Transport Fund. Preliminary estimates from NZTA indicate that around $0.4 billion will be eligible, thus the forecasts apportion this over a number of years. The National Land Transport Fund contribution to local road costs may be absorbed using the provision for emergency work built into the National Land Transport Programme, or if this is exhausted, the costs will be absorbed by reprioritising projects within the National Land Transport Programme. In the event that the Government decides to assist the region to meet its share of roading costs, the additional costs will be met from the Crown contingency allowance discussed below.

Local roads and essential infrastructure repair costs are dependent on decisions around land remediation. The current local road estimates do not attempt to reflect any land remediation policy outcomes.

State-owned assets

The cost of repairing state highways is not expected to be significant and may be absorbed using the provision for emergency work built into the National Land Transport Programme, or if this is exhausted, the costs will be absorbed by reprioritising projects within the National Land Transport Programme.

Costs associated with repairing other government infrastructure, including schools, housing and health facility assets, are largely covered by insurance and no additional provision for these costs, other than for insurance excesses, has been factored into the forecasts.

Welfare Support and Emergency Response

The Government has provided other assistance for the community and the cost of these initiatives is estimated to be $0.5 billion, most of which occurs in 2010/11. This includes the immediate costs incurred during the state of national emergency and various support initiatives such as the Earthquake Employment Support package.

AMI Insurance

On 7 April the Government agreed to provide a back-up financial support package for AMI Insurance (AMI) to give policyholders certainty and to ensure an orderly rebuild of Christchurch. As a result, the Government has entered into a five-year arrangement to subscribe for $500 million in convertible called, but unpaid, preference shares in AMI.

The full extent of the costs faced by AMI for the Canterbury earthquakes will remain unclear for several months until AMI has completed a detailed assessment of claims. Even then, the actual cost will remain uncertain and dependent on factors such as the basis on which claims are settled, potential building cost inflation and the time taken to rebuild. Therefore, it is uncertain if AMI will require the government injection over the next five years, and if it is required, when it would be needed and how much it would require.

Given the significant uncertainties and the limited information available at this time, the forecasts incorporate a high level of caution and prudence. Therefore, the AMI support package is included in the fiscal forecast as follows:

  • Recognise a payable of $427 million to AMI in 2010/11 (being the value in today's dollars of a $500 million payment in 2014/15).
  • Forecast an expense of $427 million in 2010/11. This expense reflects a very cautious assumption that if funds were injected in 2014/15, the Government's investment would not be recouped on eventual exit.
  • Record an “interest” expense of $73 million over four years (which represents the difference between $427 million in today's dollars and the nominal payment of $500 million in 2014/15).
  • Forecast a payment of $500 million in 2014/15.

Given the high level of uncertainty around these estimates, a fiscal risk has been included in the Fiscal Risks chapter. It is possible some of the Government's investment could actually be recouped on exit, while it is also a possibility that the Government may have to commit to more than a $500 million support package if AMI's shortfall for claims payments, after exhausting its own resources, is greater than $500 million.

Unallocated

As noted in Table 2.2, the fiscal forecasts incorporate unallocated funds of $3.2 billion. The unallocated funds will be used for any additional costs flowing from current obligations or decisions, as well as for policy decisions that have not yet been made, such as temporary housing and any remediation of land damaged in the February earthquake.

Sources of funding in Budget 2011

Budget 2011 provides funding to meet these costs via the creation of the Canterbury Earthquake Recovery Fund of $5.5 billion. This represents the core Crown costs discussed above. Around $0.7 billion of funding has already been either charged against the Budget 2010 contingency or met from existing baselines and thus was built into the Half Year Economic and Fiscal Update (HYEFU) 2010. The remaining $4.8 billion represents a new addition to net debt as of Budget 2011.

Table 2.3 - Sources of funding for earthquake-related costs (years ended June)
Accrual expenses $million 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Total
Absorbed by reprioritising within entities 84 123 94 79 79 78 537
Budget 2010 contingency 198 1         199
Budget 2011 2527 1542 257 190 184 71 4771
Total Canterbury Earthquake Recovery Fund 2809 1666 351 269 263 149 5507
EQC 3050           3050
ACC 181           181
Other Total Crown 40           40
Total Crown 6080 1666 351 269 263 149 8778

As noted above, the earthquake costs impact mainly on the 2010/11 and 2011/12 fiscal years. The timing of cash disbursements and hence the impact on net debt is somewhat different. The impact on net debt gives a better indication of the potential impact on economic activity, although it is still not precise. Figure 2.2 summarises the assumed cash profile of the above earthquake costs. This cash profile represents our current best estimate of likely timing of the impact on net debt, and has been factored into the macro and fiscal forecasts, including estimates of the fiscal impulse. Although the bulk of the increase in net debt will be in the form of standard New Zealand Government bonds, a proportion of the funding will be raised via the issuance of Canterbury Earthquake Kiwi Bonds.

Figure 2.2 – Expense and cash profile of earthquake costs
Figure 2.2 - Expense and cash profile of earthquake costs.
Source:  The Treasury

Uncertainty Around Economic and Fiscal Impacts

There is a high level of uncertainty surrounding both the economic and fiscal impacts of the earthquakes. In terms of impact on the economy, a range of factors could see the effects differ from those built into the Treasury's economic forecasts. These include the quantum and timing of reconstruction activity. With respect to the fiscal impact, there is uncertainty attached both to costs where decisions have already been taken, and to areas where there is either still too much uncertainty or where decisions have not yet been made.

When such costs are committed to, or when they can be reliably measured, they will be recorded in the Crown's financial statements and forecasts and charged against the $3.2 billion of the Fund yet to be allocated. Similarly, costs over and above those already built into the forecasts will be counted against the Fund. To the extent additional costs add to more than the $5.5 billion in the Fund there will be an adverse impact on the fiscal position.

3 Risks and Scenarios

Overview

The forecasts presented in the Economic and Fiscal Outlook chapter incorporate judgements about how both the New Zealand and the world economies evolve. These judgements have a number of risks surrounding them. We have balanced these risks in arriving at our view of how the economy is most likely to evolve.

The first part of this chapter discusses these global and domestic risks in more detail. Global risks have the potential to alter world growth, particularly for our main trading partners, which would flow through to the New Zealand economy. Key global risks are:

  • inflation in emerging Asia being significantly higher than forecast
  • sovereign debt issues in Europe driving a deterioration in the financial system
  • private sector ability to compensate as fiscal and monetary stimuli ease, and
  • more robust recoveries in advanced economies and emerging Asia.

Domestic risks focus on the timing of the rebuild following the Canterbury earthquakes and the extent of consolidation by the private sector. The risks that the timing and size of the earthquake rebuild differ from the main forecasts are high, given we have no recent experience of the redevelopment required. Developments in Canterbury are fluid, with changing estimates of damage and required skills. The risks related to the private sector focus on the agriculture and household sectors. These risks are based on participants' comfort with debt levels over the forecast period, with any change from the main forecasts leading to either a more rapid or a more drawn-out profile for spending and investment.

Although we consider the main forecast presented in the Economic and Fiscal Outlook chapter to be the most likely outcome, two scenarios that illustrate different paths for the economy are presented in this chapter. These scenarios do not fully illustrate the range of possibilities, but they represent key risks. The upside scenario illustrates the impact of higher confidence levels and stronger domestic demand in the short term. GDP is higher in both real and nominal terms, driven by increases in private consumption and residential investment. The downside scenario models a sharp fall in export commodity prices, which flows through to spending and investment being lower than in the main forecasts and a weaker profile for real and nominal GDP. Changes in tax revenue are the key driver of the operating balance (before gains and losses) in both scenarios, with the operating balance returning to surplus one year earlier (2013/14) in the upside scenario and beyond the forecast period in the downside scenario.

Risks and Scenarios

Economic and fiscal forecasts always involve a significant amount of uncertainty. The first part of this chapter outlines the key risks to the outlook, both global and domestic. The second part explains how two of the most likely risks could play out in alternative scenarios.

Economic Risks

Key risks continue to surround the global economy...

The robust growth in emerging market economies in 2010 led to a rebound in global commodity prices, especially when combined with supply constraints affecting some agricultural commodities. This increase in global commodity prices has been positive for New Zealand's terms of trade, but rising food and fuel prices also pose a threat to the global recovery. Inflation is already beginning to increase in both developed and developing economies and some countries, especially in emerging Asia, have started to tighten monetary conditions. Rising food and fuel prices also pose a threat to growth in that they reduce households' disposable income, especially in developing economies where these items account for a larger share of expenditure. A combination of high inflation and monetary tightening could cause an abrupt adjustment in emerging economies and is explored in the downside scenario below.

There are other risks to the global outlook as well. Sovereign debt remains a serious issue in the euro area with Portugal receiving assistance and increasing speculation of a restructuring of Greece's debt. Any deterioration in this issue would have implications for commercial banks in Europe given their exposure to sovereign debt.

There is still considerable need for fiscal consolidation in many advanced economies, in particular the United States, where there is no consensus yet on how best to reduce budget deficits. There is still some uncertainty about how sustainable the economic recovery is in some of the developed economies, particularly once monetary and fiscal stimulus is withdrawn. Labour and housing markets are still weak in many countries and will delay a recovery in private consumption.

So far, global imbalances have not been reduced significantly. While this is a longer-term issue, the lack of resolution may make the current recovery unsustainable. Political instability in the Middle East and North Africa has the potential to further disrupt oil supplies, leading prices to spike. There is uncertainty about the impact of the Japanese earthquake. We have assumed a short-term negative impact, largely offset by the subsequent recovery. There are also likely to be some benefits for a commodity exporter such as New Zealand as the reconstruction phase gets under way.

Other positive risks exist, although they are not as obvious or large. The global recovery is more assured than it was in 2010 as the recovery has become more strongly established. Emerging market economies are leading the recovery and their growth is particularly robust. Corporate balance sheets in the developed economies are stronger and industrial production data have generally been positive.

...while domestic risks relate to timing issues around the Christchurch rebuild…

The Canterbury earthquakes caused loss of life and damage on a scale not seen in New Zealand since the 1931 Napier earthquake. Judgement around the timing of the rebuild has been informed by studying similar events both here and abroad, and incorporating the latest information on frequently-revised damage estimates. Given the fluid nature of developments, the timing and extent of the rebuild are difficult to forecast with a high degree of confidence.

Our main forecasts assume construction grows strongly over calendar year 2012 and maintains a high level of activity throughout the forecast period and beyond. If the rebuild were to intensify sooner and more quickly than expected, residential and non-residential construction, imported goods and employment would all be stronger than in the main forecasts. The potential for skill shortages to be more acute than expected would manifest itself in higher wages and stronger-than-expected inflation, particularly for housing goods and services. In addition, a more rapid rebuild would boost confidence in the economy, providing a lift to consumer spending and business investment. Conversely, a slower rebuild would have the opposite effect, leading to softer economic outcomes in the short term. A slower-than-expected rebuild could be driven by a more drawn-out planning period, particularly if seismic activity increased in the near term, or capacity constraints are more binding than assumed in the main forecasts. A consequence of a slower rebuild is the potential for a net outflow of people from New Zealand in the first half of 2012, as departures continue rising and arrivals are pared back in line with weaker job prospects than in the main forecasts.

…and the degree of consolidation by households and the agriculture sector

There are other risks to the domestic outlook as well. Private consumption growth is expected to be tempered by weak house price growth and limited appetite, on the part of households, to increase debt. The risk is that a combination of increased willingness of banks to lend and households to borrow flows through to increased demand for housing and consumer spending. While this would drive a stronger economy in the near term, it would result in more subdued activity further out as the inevitable household rebalancing occurs. Conversely, the degree of consolidation over the next four years could be more intense than currently expected, with households unwilling to free up income for spending until debt is at a level that they deem to be sustainable. Such a scenario would lead to greater weakness in the near term but a stronger recovery later on, as household finances are more robust than in the main forecasts.

Similar to the household story above, the degree of consolidation by the agriculture sector could be more or less intense than assumed. In recent months, agricultural credit has fallen in absolute terms at the same time as commodity prices have reached historic highs. A more aggressive approach to debt reduction would slow growth in the near term, but would put the agriculture sector in a stronger position further out. On the other hand, there could be a more rapid pass-through of high export earnings to the rest of the economy, as commodity exporters increasingly consider that current returns for agricultural commodities are permanent. The perception of more persistent higher income would manifest itself in increased spending and investment, driving a more rapid recovery than assumed in the main forecasts, and is one of the drivers of the upside scenario outlined below.

There are also non-economic risks, particularly climatic events, that may impact on the economy. Over the past year, poor weather has adversely affected agricultural production, both here and overseas, and is partly behind the current high level of our terms of trade. Finally, there is a risk that tax outturns are either higher or lower than forecast. The Economic and Fiscal Outlook chapter features a more in-depth discussion of these risks.

Table 3.1 - Summary of key economic variables for main forecasts and scenarios
(Annual average % change,
Year ended 31 March)
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Real GDP (production measure)            
Main forecast -0.7 1.0 1.8 4.0 3.0 2.7
Upside scenario   1.0 2.0 4.7 3.0 2.5
Downside scenario   1.0 0.9 4.0 3.0 2.6
CPI inflation1            
Main forecast 2.0 4.5 3.1 2.4 2.5 2.6
Upside scenario   4.5 3.4 3.2 3.3 2.9
Downside scenario   4.5 3.3 2.2 2.7 2.7
Unemployment rate2            
Main forecast 6.0 6.8 5.7 4.8 4.8 4.6
Upside scenario   6.8 5.7 4.6 4.5 4.4
Downside scenario   6.8 6.2 5.5 5.1 4.7
Nominal GDP ($billion)            
Main forecast 187 197 207 220 232 243
Upside scenario   197 207 223 237 249
Downside scenario   197 203 215 227 238

Notes:

  1. Annual percentage change, 2011 is actual figure
  2. March quarter, seasonally adjusted

Upside Scenario

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

The upside scenario incorporates a stronger economic recovery led by domestic drivers. The upturn is triggered by increased confidence from both the agriculture and household sector, with commodity exporters anticipating permanently higher returns and households more confident in house price rises.

In this scenario, commodity exporters become increasingly confident that the terms of trade will remain structurally elevated over the long term. With strong export returns viewed as permanent, spending from the agriculture sector is greater than expected in the near term, providing a boost to retailers and multiplying through the rest of the economy more rapidly than assumed in the main forecasts. In this scenario, it is assumed that commodity exporters, in general, are comfortable with their current level of borrowing, particularly in relation to income, and focus less on debt reduction than in the main forecasts.

At the same time, house prices are slightly stronger, growing 5% by mid-2012, rather than 1.8% as in the main forecasts. Higher house prices in the near term reflect current low interest rates and developing housing shortages, lifting household wealth. Higher household wealth flows through to increased consumer spending and residential investment. Residential investment is significantly boosted over the second half of 2011 as investors and home buyers begin building before skill shortages rise as the Canterbury rebuild gathers momentum.

The combined effect of increased agriculture and household confidence is evident in the profile for private consumption. The upside scenario includes a stronger profile for private consumption, with growth 1.8% points and 1.1% point higher in the March 2013 and 2014 years respectively than in the main forecasts. Despite the stronger outturn, private consumption growth remains moderate relative to history, growing an average 3.0% over the five years to March 2015.

Figure 3.1 – Real private consumption
Figure 3.1 - Real private consumption.
Source:  Statistics New Zealand, the Treasury

Increased private consumption and residential construction drive a stronger economic outlook than in the main forecasts and, consequently, the labour market also strengthens, with the unemployment rate falling to 4.4% by March 2015. The stronger-than-expected domestic economy means CPI inflation is around the top of the 1% to 3% band over the forecast period which, together with increased real activity, results in nominal GDP being a cumulative $15 billion higher in March 2015 compared with the main forecasts.

…returning the operating balance to surplus sooner than in the main forecasts

Core Crown revenue is a cumulative $6 billion higher in the domestic-led upside scenario, led by increases in various tax types. The significant boost to private consumption and residential investment flows through to higher GST revenue, which, at $1.7 billion higher than the main track, makes the largest contribution to the higher tax take. Increased income driven off the stronger domestic economy lifts source deductions and corporate tax by about $1 billion each, while the more rapid increase in interest rates lifts resident withholding tax higher.

The fall in core Crown expenses, at $0.3 billion, is significantly lower than the rise in core Crown revenue described above, owing to the drivers of social assistance payments. With a stronger economy, Unemployment Benefit recipient numbers are lower than in the main case. However, benefit and superannuation payments are higher per recipient, with a higher annual indexation reflecting the more elevated track for CPI inflation.

In this scenario, the operating balance (before gains and losses) moves into surplus in the June 2014 year, one year earlier than in the main forecasts. Net core Crown debt as a proportion of GDP peaks at 27.3% of GDP over both the June 2013 and June 2014 years.

Downside Scenario

Growth in emerging Asia, particularly China, slows more rapidly than assumed…

The downside scenario evolves from a more rapid reduction in growth across emerging Asia, particularly China, over the second half of 2011. Weaker-than-assumed activity flows through to New Zealand in the form of lower prices for key commodity exports, particularly dairy, meat and forestry products. In addition, growth in our largest single trading partner, Australia, slows as demand for hard commodities from emerging Asia lessens in the face of a weaker expansion. The consequences of this scenario highlight the increasing trade linkages in the Asia-Pacific region, with emerging Asia and Australia currently taking over half of New Zealand's goods exports.

In this scenario, the merchandise terms of trade fall sharply, down 7.3% in the March 2012 year, reflecting lower prices for export commodities, with the assumption that oil prices remain relatively elevated as advanced economies continue to recover. The lower terms of trade result in a more rapid deterioration in the current account balance. The current account deficit increases to 5.4% of GDP in the March 2012 year (compared with 4.1% in the main forecasts) and to 7.8% by March 2015. The exchange rate is lower throughout and the TWI falls to 52.1 by March 2015, around 4 points lower than in the main forecasts.

The rapid fall in the terms of trade sparks lower consumer and business confidence, resulting in a more subdued outlook for consumer spending and market investment. With the terms of trade remaining at a lower level, private consumption growth averages around 1.6% over the four years to March 2015, compared with 2.4% in the main forecasts and 3.2% in the upside scenario. In addition, lower confidence leads to a flat outturn for market investment in the March 2012 year, compared with around 4% in the main track.

Weaker domestic activity, combined with the softer terms of trade, results in nominal GDP being a cumulative $20 billion lower through to March 2015.

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

The fall in cumulative nominal GDP in the downside scenario ($20 billion) is more than the rise in the upside scenario ($15 billion). However, the impact on tax revenue is less in the downside scenario (-$5 billion) than in the upside scenario ($6 billion), reflecting the relatively strong tracks for consumer and residential investment price inflation in the downside scenario. In the near term, inflation is weaker in this scenario, but is stronger than the main forecasts over the last two years of the forecast period. The relatively strong track for inflation reflects a sharper fall in the New Zealand dollar, raising prices of imported goods, along with pressure remaining on construction costs. With stronger inflation, the profile for 90-day interest rates is also higher, raising interest earnings.

In line with changes to these economic drivers, GST revenue falls by $1.1 billion, a significantly smaller change than in the upside scenario, while resident withholding taxes rise by $0.3 billion relative to the main track, providing some offset to declines in other tax types. Source deductions are $1.6 billion lower relative to the main forecast, reflecting the weaker labour market, and corporate and other persons tax are a combined $2.0 billion lower, in line with softer prices for exports and generally weaker business conditions.

Figure 3.2 – Operating balance (before gains and losses)
Figure 3.2 - Operating balance (before gains and losses).
Source:  The Treasury

In the downside scenario, core Crown expenses are $0.8 billion higher, as the weaker labour market flows through to increased Unemployment Benefit recipient numbers. With CPI inflation holding up over the forecast period as a whole, annual indexation of benefits is broadly similar to the main track, providing little offset in the form of lower annual adjustments.

In this scenario, the operating balance (before gains and losses) does not move into surplus within the forecast period (Figure 3.2) and, consequently, the profile for net core Crown debt as a proportion of GDP has not peaked by June 2015, reaching 32.7% at that time.

Fiscal Sensitivities

The scenarios set out alternative paths for the fiscal position based on plausible assumptions for specific drivers. In addition, Table 3.2 provides some “rules of thumb” on the sensitivities of the fiscal position to changes in specific variables without identifying the drivers of change.

Table 3.2 - Fiscal sensitivity analysis
Year ended 30 June
($million)
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
1% lower nominal GDP growth per annum on          
Tax revenue (515) (1,110) (1,785) (2,555) (3,380)
Revenue impact of a 1% decrease in growth of          
Wages and salaries (235) (475) (770) (1,090) (1,440)
Taxable business profits (100) (230) (365) (525) (690)
One percentage point lower interest rates          
Interest income1 (52) (149) (136) (78) (88)
Expenses1 (37) (279) (427) (521) (604)
Impact of interest rates on the operating balance (14) 130 291 444 517

Note: 1 NZDMO holdings only

Source: The Treasury

 

4 Fiscal Risks

Structural deficits, the collapse of a number of finance institutions and a series of natural disasters have led to an increase in net government debt. As a result, the Government's fiscal buffers are smaller and fiscal policy will need to continue to be sensitive to future developments. The Government's policy response is outlined in the FSR. Policy will need to remain adaptive as global markets remain volatile and many major developed economies face significant structural challenges.

The most significant economic risks have been identified in Chapter 3. The first section of this chapter illustrates the link between these risks to the economy and the fiscal position. The second section presents a Statement of Specific Fiscal Risks.

The Statement of Specific Fiscal Risks is a requirement of the Public Finance Act 1989 and sets out all pending government decisions and other circumstances known to the Government at the finalisation of the fiscal forecasts that may have a material effect on the fiscal and economic outlook. It is not possible to identify every possible risk and disclosure is also subject to the legal requirements and materiality thresholds described at the end of this chapter.

The Economy and Public Finances

The economic and fiscal forecasts are subject to heightened forecast uncertainty as a result of a volatile external environment and domestic factors such as high levels of external debt held by the New Zealand private sector. Chapter 3 provides scenarios to illustrate a plausible range for the economic and fiscal projections. However, further shocks are possible, potentially leading to outcomes well beyond the range suggested by these scenarios.

New Zealand's strong fiscal track record provides confidence that the risk of default for the Crown's creditors remains remote. Reflecting this, the Crown currently holds the top Aaa foreign currency rating from Moody's and strong AA+ foreign currency ratings from Standard and Poor's (S&P) and Fitch Ratings. The ratings from S&P and Fitch, however, are currently on a negative outlook and will be sensitive to developments in the economy. Markedly slower growth or any other factor that negatively impacts on the fiscal position represents a potential risk to the current rating. A key implication of a sovereign rating downgrade could be an increase in debt-servicing costs for the Government and higher borrowing rates for New Zealand households and businesses.

The fiscal outlook is particularly exposed to structural economic shocks, which have a permanent impact on the level of national income and therefore tax revenue. High levels of external indebtedness increase the economy's exposure to shocks from the global economy. Financial markets remain volatile and many major economies are currently facing significant structural challenges. Notably, many advanced economies are dealing with high government debt, household balance sheets needing repair and a financial sector (especially in Europe) that remains weak. In this global environment, shocks could rapidly flow between countries through changes in trade, the terms of trade or interest and exchange rates.

Under constant policy settings, the main source of uncertainty about the fiscal position arises from the inherent uncertainty about future tax revenue. An analysis of historical tax forecast errors provides some guide to how unforeseen events in New Zealand or abroad can impact on the fiscal position. Tax revenue in the next fiscal year (2011/12) would normally fall within a range of two standard deviations of historical forecast errors. This range is ±6% of actual tax revenue, which equates to ±$3 billion (based on an analysis of forecast errors over 1994 to 2010). Greater variance can occur, but would be expected at more infrequent intervals (around one year in every 20 if errors are normally distributed). Figure 4.1 shows core Crown tax revenue with uncertainty estimated from historic forecast variance.

Figure 4.1 – Core Crown tax revenue uncertainty
Figure 4.1 - Core Crown tax revenue uncertainty.
Source:  The Treasury

Note: The coloured band represents sequential deciles such that the difference between the 10th and 90th percentiles represents an 80% confidence interval. See Treasury Working Paper 10/08 for further information about the methodology used.

Overview of Specific Fiscal Risks

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

  • Pending policy decisions affecting revenue: Changes to tax policy or ACC levies could reduce or increase government income.
  • Pending policy decisions affecting expenses: Costs of policy proposals could increase or decrease depending on decisions taken and they are risks to the extent that they cannot be managed within baselines or budget allowances.
  • Pending capital decisions: Capital investment decisions are risks to the extent that they cannot be managed within balance sheets or budget allowances.
  • Matters dependent on external factors: The liability of the Government for costs is sometimes dependent on external factors such as the outcome of negotiations or international obligations.

Some key examples of the risks disclosed in this chapter are outlined below:

  • government decisions relating to the recommendations of the Welfare Working Group and the redesign of business processes at Inland Revenue
  • specific policies that may have flow-on costs that are not accounted for within allocated funding, such as early childhood education funding, but are not likely enough to include in the forecasts
  • explicit guarantees that give assurance to the public and businesses about the Crown's planned response to specific events are recognised as risks; the largest current guarantee relates to the Extended Deposit Guarantees Scheme with a total value of $1.9 billion, and
  • generic cross-Government risks such as the renegotiation of collective employment agreements could have material costs and flow-on effects to remuneration in other sectors.

General cost pressures, such as those associated with an ageing population, are not recognised as specific fiscal risks.

A number of new risks have been added since the Half Year Update. Key examples are:

  • the amount and timing of cash proceeds from the planned partial sale of State-owned assets are uncertain
  • possible policy decisions relating to Canterbury earthquakes, social housing and legal aid may affect expenses
  • pending decisions relating to irrigation are likely to require capital investment, and
  • negotiations such as those on an international climate change agreement are yet to settle on final costs, which are likely to be material.

The costs of individual natural disasters, and other major events, are not recognised as specific fiscal risks in advance as they usually occur infrequently and their timing cannot be predicted. Once a disaster does occur, a number of choices arise about how to respond. Specific risks are disclosed at this point based on the range of possible responses.

A number of earthquake-related risks have been added to this chapter. In addition to policy choices for the Government, recent events in Canterbury and Japan have placed pressure on private sector insurers. As a result, the cost of insurance premiums, most notably for EQC's reinsurance, could increase over the next five years with potential flow-on effects to the Crown. This is not yet certain enough to be a risk but could be recognised in the future.

The final part of the chapter contains a current list of contingent liabilities, which are likely 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 on uncalled capital. The largest quantified contingent liabilities are to international financial organisations and mostly relate to uncalled capital and promissory notes.

Statement of Specific Fiscal Risks

Summary Table

The matters listed below are disclosed as specific fiscal risks because they meet the rules for disclosure outlined at the end of the chapter. Full descriptions of the risks listed below are set out in the next section.

Summary Table
Specific fiscal risks as at 2 May Status Value of risk
Pending policy decisions affecting revenue    
ACC - Levies Unchanged Unquantified
Finance - Mixed Ownership Model New Unquantified
Revenue - Apportionment Rules for High-Value Assets New Unquantified
Revenue - Potential Tax Policy Changes Unchanged Unquantified
Revenue - Salary Sacrifice New Unquantified
Revenue - Income-Sharing Tax Credits Changed $500m per annum by 2014/15
Risk to Third-Party Revenue Unchanged Unquantified
Pending policy decisions affecting expenses    
Climate Change - Review of the Emissions Trading Scheme New Unquantified
Communications - Recovery of Value of Broadband Investment New Unquantified
Education - Early Childhood Education Funding Unchanged Unquantified
Education - Inflation Adjustment for School Operating Funding Unchanged Unquantified
Housing - Reform of Social Housing New Unquantified
Justice - Legal Aid New Unquantified
Revenue - Child Support Unchanged Unquantified
Revenue - Redesigning Business Processes at Inland Revenue Unchanged Unquantified
Revenue - Student Loans Redesign New Unquantified
Social Development - ServiceLink New Unquantified
Social Development - Welfare Working Group Recommendations New Unquantified
State Sector Employment Agreements Unchanged Unquantified
Pending capital decisions    
Agriculture and Forestry - Investment in Water Infrastructure New Investment of up to $400m
Departmental Capital Intentions New Unquantified
Finance - Crown Overseas Properties Unchanged $150m over 2 to 3 years
Housing - Weathertight Homes Unchanged Unquantified
Reviews of the Delivery of Public Services Changed Unquantified
Transport - Support for New Zealand Railways Corporation (KiwiRail) Changed Unquantified
Matters dependent on external factors    
ACC - Non-Earners' Account Unchanged Unquantified
Canterbury Earthquake - AMI Support Package New Unquantified
Canterbury Earthquake Recovery Fund New Unquantified
Climate Change - Finance for Developing Countries Changed Unquantified
Climate Change - Kyoto Protocol Obligations Changed Unquantified
Climate Change - Post-2012 International Climate Change Obligations New Unquantified
Defence Force - Future Operationally Deployed Forces Activity Unchanged $30m operating expenses per annum
Defence Force - Sale of Skyhawks and Aermacchi Trainers Changed Unquantified
Education, Health, Social Development - Caregiver Employment Conditions Changed Unquantified
Energy - Crown Revenue from Petroleum Royalties Changed Unquantified
Finance - Entities in Receivership under Crown Retail Deposit Guarantee Schemes Changed Unquantified
Finance - Extended Crown Retail Deposit Guarantee Scheme Changed Unquantified
Finance - Government Commitments to International Financial Institutions Unchanged Unquantified
Health - Payment of Family Caregivers Changed Unquantified
Revenue - Cash Held in Tax Pools Unchanged Unquantified
State Services - KiwiSaver Contribution Unchanged Unquantified
Treaty Negotiations - Treaty Settlement Forecast New Unquantified
Treaty Negotiations - Treaty of Waitangi Claims - Settlement Relativity Payments Unchanged Unquantified

Statement of Specific Fiscal Risks

Pending policy decisions affecting revenue

ACC - Levies (Unchanged, Unquantified)

Changes in tax settings, economic factors, and ACC's financial performance affect ACC's levy income.

Finance - Mixed Ownership Model (New, Unquantified)

The Government is considering extending the type of Mixed Ownership Model that currently applies to Air New Zealand, Genesis Energy, Meridian Energy, Mighty River Power and Solid Energy, and further reducing the Crown's shareholding in Air New Zealand. The final amount and timing of any cash proceeds, the flow-on effects to future dividend streams and any implementation costs are uncertain.

Revenue - Apportionment Rules for High-Value Assets (New, Unquantified)

A government discussion document will be released on the apportionment rules applying to tax deductions for high-value assets that are also partly used for private purposes. Any changes to those rules could have a positive impact on tax revenue.

Revenue - Potential Tax Policy Changes (Unchanged, Unquantified) 

The tax policy work programme announced by the Government includes a number of items that are under consideration, including:

  • the tax treatment of profit distribution plans
  • the tax treatment of charitable giving
  • the imputation system
  • the tax treatment of employee benefits
  • amortisation of capital raising costs
  • the international tax review
  • the GST treatment of cross-border business activities, and
  • the tax treatment of hybrid instruments.

Measures on the work programme are expected to be revenue neutral or positive in aggregate; however, individual initiatives could be revenue negative in themselves.

Revenue - Salary Sacrifice (New, Unquantified) 

The Government is reviewing the tax treatment of employee benefits paid in lieu of salary. Any changes are expected to result in an increase in tax revenues.

Revenue - Income-Sharing Tax Credits (Changed, Quantified)

The Government has introduced legislation to establish an income-sharing tax credit. If passed as introduced, the legislation will allow couples with children under the age of 18 to pool their earnings for income tax purposes if they meet certain criteria. If implemented, the changes will reduce tax revenues by $500 million per annum once the scheme is fully operational. The Finance and Expenditure Committee has recommended the significant fiscal cost of the package be addressed before the Bill proceeds.

Risk to Third-Party Revenue (Unchanged, Unquantified)

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 reduce the level of an activity or temporarily subsidise that activity.

Pending policy decisions affecting expenses

Climate Change - Review of the Emissions Trading Scheme (New, Unquantified)

The ETS is currently under review. Following the review, any changes to the ETS could have significant fiscal implications. The outcome of international negotiations for a post-2012 international climate change agreement may also have a significant impact on the fiscal implications of the ETS post-2012.

Communications - Recovery of Value of Broadband Investment (New, Unquantified)

The Government has committed to spend $1.5 billion on a new broadband network delivering “ultra fast” broadband services. Of this amount, $1.4 billion has already been invested, or is allocated for Crown Fibre Holdings to invest, in broadband initiatives with partners. Given the nature of the investment mechanism, it is likely that the full value of the investment will not be recovered. The fiscal forecasts include a provision for this impairment, but the final amount of the impairment may vary from this provision.

Education - Early Childhood Education Funding (Unchanged, Unquantified)

Demand for Early Childhood Education (ECE) services is continuing to increase more than forecast, raising the costs of subsidies to ECE services. If this continues, the Government will face additional cost pressures.

Education - Inflation Adjustment for School Operating Funding (Unchanged, Unquantified)

The Government has increased school operating grants in Budget 2011 to help meet increased costs associated with inflation. A risk remains in outyears that similar cost pressures will need to be addressed.

Housing - Reform of Social Housing (New, Unquantified)

The Government is considering changes to policy settings for social housing. This includes an intention to grow third party provision of social housing. The strategy remains under development, but it potentially represents a risk to the fiscal forecasts. There may be offsetting financial benefits to the Crown if significant gains in efficiency are achieved.

Justice - Legal Aid (New, Unquantified)

Based on current policy settings, legal aid expenditure will exceed available funding in future years. The Government is currently developing further options for delivering legal aid in a sustainable and affordable way. Options are due to be considered by Cabinet in September 2011 and the fiscal implications should be known subsequent to any Cabinet decisions.

Revenue - Child Support (Unchanged, Unquantified)

A government discussion document has been released which considers changes to the child support regime. The discussion document considers the costs of raising children, potential changes to the child support formula and options to improve compliance with the child support regime. Any changes would have administrative costs for Inland Revenue and could increase fiscal costs from reduced offsets to benefits.

Revenue - Redesigning Business Processes at Inland Revenue (Unchanged, Unquantified) 

The Government is investigating options to redesign business processes at Inland Revenue, which could include both policy and administrative options to simplify processes and improve the integrity of the tax system. Any changes could impact on tax revenue collections and/or have material administrative costs to implement.

Revenue - Student Loans Redesign (New, Unquantified)

The Government is making changes to student loans legislation and is modernising the IT system used for collecting student loan repayments, which is part of the tax administration system. The project could be delayed by up to a year, which may reduce forecast increases in student loan repayments. Any delay in implementation could also have an impact on the business process redesign at Inland Revenue, which could have a material impact on the administration costs of the tax system.

Social Development - ServiceLink (Changed, Unquantified) 

The Ministry of Social Development is working with Inland Revenue and the Department of Internal Affairs to develop a business case for ServiceLink, which will integrate service delivery across government. ServiceLink is designed to improve service and reduce costs by moving, where appropriate, simple customer transactions online and away from face-to-face and voice channels. Cabinet will consider business cases, including potential costs, in 2011 and 2012.

Social Development - Welfare Working Group Recommendations (Changed, Unquantified) 

On 22 February 2011 the Welfare Working Group made 43 recommendations to the Government on options to reduce long-term benefit dependency. Ministers have directed officials to develop advice for consideration. Many of the recommendations would result in large up-front costs if adopted. The Government will respond to the Welfare Working Group's report later in 2011.

State Sector Employment Agreements (Unchanged, Unquantified) 

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.

Pending capital decisions

Agriculture and Forestry - Investment in Water Infrastructure (New, Quantified)

The Government has established a funding programme to support potential irrigation development projects to an investment-ready stage. The Government is also considering investing up to $400 million of equity in water harvesting, storage and off-farm distribution infrastructure after 2013. Any investment will be made by taking short to medium-term minority equity stakes in order to help attract other investors.

Departmental Capital Intentions (New, Unquantified)

The Government requires 15 capital-intensive agencies to identify their capital spending intentions over the next 10 years based on current policy settings and certain demographic and inflation assumptions. The difference between capital intentions and currently available funding is material but the Government expects that these intentions will be managed back through a range of measures such as prioritisation, changes to asset utilisation, alternative methods of service delivery and changes to policy settings. Departmental capital intentions are risks to the extent that they cannot be managed through these mechanisms or funded through existing funding sources.

Finance - Crown Overseas Properties (Unchanged, Quantified)

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 2012/13 to 2014/15.

Housing - Weathertight Homes (Unchanged, Unquantified)

The Government has agreed to offer a package to assist homeowners to repair homes affected by the weathertightness issues that occurred in the late 1990s and early 2000s. The package includes a 25% government contribution towards agreed repair costs, a 25% contribution from participating territorial authorities and credit support for the remaining repair costs for those who meet the eligibility and lending criteria. There is a risk that the costs of the package will exceed the $1.055 billion provided for in the fiscal forecasts, as uncertainty remains regarding the extent of damage to eligible homes and the level of uptake.

Reviews of the Delivery of Public Services (Changed, Unquantified)

The Government has initiated a series of reviews to improve the effectiveness and efficiency of public services. Reviews may recommend, or result in, changes to service delivery and/or free up resources for reprioritisation within Votes or be returned to the centre to meet pressures in other areas.

Transport - Support for New Zealand Railways Corporation (KiwiRail) (Changed, Unquantified)

The Government has agreed in principle to support a 10-year strategy for KiwiRail to achieve a commercially viable rail network. The overall commitment KiwiRail seeks towards the 10-year plan is $1.2 billion over the period 2010/11 to 2014/15. The Government has indicated it will provide a total of $750 million in capital over three years; $500 million of this was provided in Budgets 2010 and 2011. KiwiRail Group also has $499 million in debt owing to the Crown with $408 million maturing in the forecast period, which may need to be refinanced or restructured.

Matters dependent on external factors

ACC - Non-Earners' Account (Unchanged, Unquantified)

Changes in tax settings, economic factors and ACC's financial performance affect the Crown's liability for claims by non-earners. If ACC's performance is different from what is forecast, the amount required to cover the costs of claims for that year may be more or less than needed, resulting in unplanned savings or costs to the Crown.

Canterbury Earthquake - AMI Support Package (New, Unquantified)

There is a $500 million provision in the forecasts for the AMI support package. The timing and actual impact on the Government's fiscal position will only become known when the full extent of the claims AMI faces for the Canterbury earthquakes becomes more certain. It is possible that the provision will not be needed if AMI is able to pay all claims from its own resources or source alternatives to government funding. It is also possible that the Government may have to commit to more than $500 million if AMI's shortfall for claims payments exceeds $500 million.

Canterbury Earthquake Recovery Fund (New, Unquantified)

The Canterbury earthquakes have had a significant impact on the Government's fiscal position. The current estimate of the cost to the Crown is $8.8 billion. A breakdown of the costs is included in the Economic and Fiscal Impacts of the Canterbury Earthquakes section of this document. Around $5.5 billion of funding has been allocated to the Canterbury Earthquake Recovery Fund to cover the Core Crown costs associated with recovery from the earthquakes. The Fund includes estimated costs to cover:

  • the Government's share of repairing essential local infrastructure
  • repairing State-owned assets
  • other policy responses such as welfare support, and
  • the AMI support package (see separate risk).

As there is still a high degree of uncertainty around the costs from the earthquakes there is a risk the amounts included in the fiscal forecasts for the Canterbury Earthquake Recovery Fund may differ from the final costs.

Climate Change - Finance for Developing Countries (Changed, Unquantified)

There is an international expectation that developed countries, including New Zealand, contribute finance to developing countries to support adaptation and mitigation. Developed countries have committed to mobilising $US100 billion per year by 2020 to address the needs of developing countries. This would come from a wide variety of sources, both public and private.

Climate Change - Kyoto Protocol Obligations (Changed, Unquantified)

The fiscal impact of the Government's Kyoto Protocol obligations (2008 to 2012) is currently uncertain. An increase in New Zealand's net emissions or the future transfer of emission units offshore could reduce the net Kyoto position significantly. Increased allocation to emitters or increased participation by foresters under the ETS would negatively impact the Government's ETS position. The fiscal impact of any changes is dependent on the carbon price. The Government may also need to purchase emission units to meet its obligations, which would have a corresponding impact on net debt.

Climate Change - Post-2012 International Climate Change Obligations (New, Unquantified)

The Government is currently taking part in international negotiations for a post-2012 international climate change agreement. Currently no rights or obligations are included in the fiscal forecasts for any post-2012 agreement because of the high levels of uncertainty. Any agreement could have significant financial implications, and will need to be recognised at the time.

Defence Force - Future Operationally Deployed Forces Activity (Unchanged, Quantified)

New Zealand Defence Force personnel are deployed overseas on peace support and other operations conducted in support of the United Nations and other relevant multinational agencies. Maintaining existing deployment levels would result in an increased annual operating balance impact of between $10 million and $30 million from 2011/12.

Defence Force - Sale of Skyhawks and Aermacchi Trainers (Changed, Unquantified)

The A-4 Skyhawk and Aermacchi aircraft are now being disposed of as two separate fleets. The A-4 Skyhawk fleet will largely be gifted to museums with some proceeds expected from the sale of spare parts. The market is currently being tested for interest in the Aermacchi fleet. The net sale proceeds from the fleets are uncertain.

Education, Health, Social Development - Caregiver Employment Conditions (Changed, Unquantified)

The Employment Court and subsequently the Court of Appeal have made judgements in favour of a third-party employed caregiver regarding his sleepover employment conditions. Although the third-party employer is appealing the decision, an unsuccessful result would require consideration of the effect on the Crown. This decision would also have an impact on other service providers in health and other sectors.

Energy - Crown Revenue from Petroleum Royalties (Changed, Unquantified)

The Crown revenue from petroleum royalties is very dependent upon the US dollar value per barrel and the exchange rate. Movements up or down in either of these variables could result in a significant decrease or increase in Crown revenue. In addition, the Government is currently reviewing the regulatory, royalty and taxation arrangements for petroleum as part of the Petroleum Action Plan. Although the outcomes of this review are still uncertain, any changes to policies in this area could have a significant impact on future revenue from petroleum royalties.

Finance - Entities in Receivership under Crown Retail Deposit Guarantee Schemes (Changed, Unquantified)

Eight entities that were guaranteed under the original Deposit Guarantee Scheme and one that was guaranteed under the extended scheme are now in receivership. The Crown recognises its obligations under the schemes as liabilities and its rights of recovery from the receivers as assets. While the reported assets represent the receivers' best prudent estimates of likely recoveries from the receiverships the eventual return to the Crown is uncertain and dependent upon the value that can be realised from these entities' assets.

Finance - Extended Crown Retail Deposit Guarantee Scheme (Changed, Unquantified)

There are four financial institutions participating in the extended Retail Deposit Guarantee Scheme. These entities have deposits totalling $1.9 billion covered by the guarantee and are listed on the Treasury website. This is the maximum exposure and does not include any offset resulting from the recovery of the remaining assets of financial institutions in the event the guarantee is called upon. The entities participating in the extended scheme are currently assessed to be unlikely to default and therefore no provision is considered necessary in relation to the amount guaranteed by the Crown under the extended guarantee. While this represents a best estimate of the expected outcome, a range of outcomes is possible if entities default, including eventual loss to the Crown.

Finance - Government Commitments to International Financial Institutions (Unchanged, Unquantified)

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

Health - Payment of Family Caregivers (Changed, Unquantified) 

The Human Rights Review 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 Act. The High Court has also found in favour of the family caregivers. Leave has been granted to appeal to the Court of Appeal.

Revenue - Cash Held in Tax Pools (Unchanged, Unquantified)

Funds held in tax pools are recognised as an asset of 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 loss to the Crown.

State Services - KiwiSaver Contribution (Unchanged, Unquantified)

The forecast of the costs of KiwiSaver policies for State sector employees is dependent on a number of assumptions and projections, such as uptake and contribution rates, all of which may change through time. In the current economic environment, factors such as reduced automatic enrolment, financial market disruption and low consumer confidence increase forecast uncertainty.

Treaty of Waitangi Negotiations - Treaty Settlement Forecast (New, Unquantified)

The fiscal forecasts include provision for the cost of future Treaty settlements. There is a risk that the timing and amount of the settlements could be different from what is forecast. It is not possible to reliably estimate the value of this difference.

Treaty Negotiations - Treaty of Waitangi Claims - Settlement Relativity Payments (Unchanged, Unquantified)

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. There is a risk that the timing and the amount of the expense for the relativity payments may differ from that included in the fiscal forecasts.

Risks Removed Since the 2010 HYEFU

The following risks have been removed since the Half Year Update:

Risks Removed Since the 2010 HYEFU
Expired risks Reason
Canterbury Earthquake - Land Superseded by “Canterbury Earthquake Recovery Fund” risk
Canterbury Earthquake - Local Authorities Superseded by “Canterbury Earthquake Recovery Fund” risk
Communications - Broadband Investment Initiative Funded in Budget 2011
Corrections - Community Probation Services Capacity No longer material
Corrections - Prison Capacity Incorporated into “Departmental Capital Intentions” risk
Education - Broadband Investment: Schools Incorporated into “Departmental Capital Intentions” risk
Education - Operating Funding for New Schools Funded in Budget 2011
Education - Repairing Leaky Schools Incorporated into “Departmental Capital Intentions” risk
Education - School Property Incorporated into “Departmental Capital Intentions” risk
Finance - Electricity Reforms Virtual asset swaps complete, remainder no longer material
Housing - Housing Shareholders' Advisory Group Superseded by “Reform of Social Housing” risk
Justice - Auckland Region Property Strategy Funded from Baselines
Justice - Review of the Legal Aid System Superseded by “Legal Aid” risk
Police - Digital Radio Network Incorporated into “Departmental Capital Intentions” risk

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

The Public Finance Act requires that the Statement of Specific Fiscal Risks sets out all government decisions, contingent liabilities or contractual obligations known to the Government and subject to specific requirements that may have a material effect on the economic or fiscal outlook[8].

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

Notes

  • [8]The Statement of Specific Fiscal Risks is a requirement set out in sections 26Q and 26U of the Public Finance Act 1989.

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 $100 million over five years.
  • 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[9] 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 their 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.

Notes

  • [9]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).

Rules for the Disclosure of Specific Fiscal Risks 

Matters are disclosed as specific fiscal risks if:

  • the likely cost is more than $100 million over five years, and either
  • a decision has not yet been taken, but it is reasonably possible[10] (but not probable) that the matter will be approved or the situation will occur, or
  • it is reasonably probable that the matter will be approved or the situation will occur, but the matter cannot be quantified or assigned to particular years with reasonable certainty.

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

Notes

  • [10]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).

Exclusions from Disclosure

Matters are excluded from disclosure as specific fiscal risks if they fail to meet the materiality criterion (ie, are less than $100 million over five years), or if they are unlikely[11] to 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

  • [11]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).

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 possible assets that may arise if a particular event occurs.

Only contingent liabilities and contingent assets involving amounts of over $100 million are separately disclosed. Contingent liabilities below $100 million are included in the “other quantifiable contingent liabilities” total.

Contingent liabilities and contingent assets have been stated as at 31 March 2011, being the latest set of contingent liabilities reported.

Quantifiable Contingent Liabilities

Summary table
  Status [12] $million
Guarantees and indemnities    
Other guarantees and indemnities Changed 102
Uncalled capital    
Asian Development Bank Changed 3,220
International Bank for Reconstruction and Development Changed 1,076
Other uncalled capital Changed 44
Legal proceedings and disputes    
Tax in dispute Changed 297
Other legal proceedings and disputes Changed 104
Other quantifiable contingent liabilities    
International finance organisations Changed 1,369
Kyoto Protocol Changed 1,541
New Zealand Export Credit Office Changed 142
Other quantifiable contingent liabilities Changed 309
Total quantifiable contingent liabilities   8,204

Notes

  • [12]Relative to reporting in the Budget Policy Statement 2011 published on 14 December 2010.

Unquantifiable Contingent Liabilities

Summary table - Guarantees and indemnities
  Status
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
Deposit Guarantee Schemes Changed
Earthquake Commission (EQC) Unchanged
Electricity Corporation of New Zealand Limited (ECNZ) Unchanged
Genesis Energy Limited - Kupe offshore platform New
Genesis Energy Limited - Financial guarantees Unchanged
Genesis Energy 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
Meridian Energy Limited - Letters of credit and performance bonds Unchanged
National Provident Fund (NPF) Unchanged
New Zealand Railways Corporation Unchanged
Persons exercising investigating powers Unchanged
Public Trust Unchanged
Reserve Bank of New Zealand Unchanged
Synfuels-Waitara outfall indemnity Unchanged
Tainui Corporation Unchanged

 

Summary table - Other unquantifiable contingent liabilities
  Status
Abuse claims Unchanged
Accident Compensation Corporation (ACC) litigations Changed
Air New Zealand litigation Changed
Caregiver employment conditions Unchanged
Environmental liabilities Unchanged
Kordia Group Limited Unchanged
Maui contracts Unchanged
Rugby World Cup 2011 Unchanged
Television New Zealand Unchanged
Treaty of Waitangi claims Unchanged
Westpac New Zealand Limited Unchanged

 

A contingent liability in relation to the indemnification of the Stadel Museum's touring exhibition has been removed since the Half Year Update.

Summary table - Contingent assets
  Status
Legal proceedings and tax disputes Changed

The Foreshore and Seabed Act was repealed on 31 March 2011 and has therefore been removed as a contingent asset.

Description of Contingent Liabilities

Quantified contingent liabilities over $100 million

Tax in dispute 

Tax in dispute 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.

$297 million at 31 March 2011 ($301 million at 31 October 2010)

Other quantifiable contingent liabilities

International finance organisations 

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.

$1,369 million at 31 March 2011 ($1,501 million at 31 October 2010)

Kyoto Protocol

During the first commitment period (2008-2012), the Ministry for the Environment estimates that 89.3 million tonnes of credits will be generated by carbon removals via forests. To the extent that these forests are harvested (in subsequent commitment periods) and a future international agreement is negotiated, 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 2011, approximately 13.5 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 (75.8 million tonnes) multiplied by the carbon price of NZ$20.33 as at 31 March 2011.

$1,541 million at 31 March 2011 ($1,665 million at 31 October 2010)

New Zealand Export Credit Office

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.

$142 million at 31 March 2011 ($105 million at 31 October 2010)

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 which 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 Ltd 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. 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 signed a number of documents to settle in full Contact's outstanding land rights and geothermal asset rights at Wairakei. Those documents contained two reciprocal indemnities between the Crown and Contact to address the risk of certain losses to the respective parties' assets arising from the negligence or fault of the other party.

Deposit Guarantee Schemes

The Crown operates an extended Retail Deposit Guarantee Scheme. The objective of this scheme was to ensure ongoing retail depositor confidence in New Zealand's financial system. As at 31 March 2011 four entities remained in the extended scheme with deposits totalling $1.9 billion under guarantee. This is the maximum exposure and does not include any offset resulting from the recovery of the remaining assets of financial institutions in the event the guarantee is called upon. The fiscal risk with respect to the Extended Crown Retail Deposit Guarantee Scheme is detailed in the Specific Fiscal Risks section of this chapter.

The Crown operated an opt-in Wholesale funding guarantee facility operated from November 2008 to May 2010. The objective was to facilitate access to international financial markets by New Zealand financial institutions, in a global environment where international investors were highly risk averse and where many other governments had offered guarantees on their banks' wholesale debt. At the time of closing the scheme, the Crown had issued 24 guarantee certificates; the benefit of those guarantees will remain in place for the underlying securities until the scheduled maturity of those securities. The terms of these securities range from two to five years. Over time, the value of securities issued with the benefit of Crown guarantees will reduce, with the last guarantee certificate expiring in October 2014. As at 31 March 2011, the value of wholesale securities guaranteed was $9.7 billion.

Earthquake Commission (EQC) 

The Crown is liable to meet any deficiency in 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.

Further discussion on the recent Canterbury earthquakes can be found in the Economic and Fiscal Impacts of the Canterbury Earthquakes section of this document.

Electricity Corporation of New Zealand Limited (ECNZ) 

The ECNZ Sale and Purchase Agreement provides for compensation to ECNZ for any tax, levy or royalty imposed on ECNZ for the use of water or geothermal energy for plants in existence or under construction at the date of the Sale and Purchase Agreement. The agreement also provides for compensation for any net costs to ECNZ arising from resumption of assets pursuant to the Treaty of Waitangi (State Enterprises) Act 1988.

The Deed of Assumption and Release between ECNZ, Contact Energy Limited and the Crown provides that the Crown is no longer liable to ECNZ in respect of those assets transferred to it from ECNZ. As a result of the split of ECNZ in 1999, Ministers have transferred the benefits of the deed to ECNZ's successors - Meridian Energy Limited, Mighty River Power Limited and Genesis Power Limited.

Under the Transpower New Zealand Limited (Transpower) Sale and Purchase and Debt Assumption Agreements, the Crown has indemnified ECNZ for any losses resulting from changes in tax rules applicable to transactions listed in the agreements. Additionally, the Crown has indemnified the directors and officers of ECNZ for any liability they may incur in their personal capacities as a result of the Transpower separation process.

Following the split of ECNZ in 1999 into three new companies, the Crown has indemnified ECNZ in relation to all of ECNZ's pre-split liabilities, including:

  • existing debt and swap obligations
  • hedge contracts and obligations, and
  • any liabilities that arise out of the split itself.

Genesis Energy Limited - Kupe offshore platform

The Kupe joint venture has had a failure on the power cable running through the umbilical line to the Kupe offshore platform. The Kupe operator has lodged a warranty claim in respect of the cable failure. In addition, an insurance claim for $95 million has been lodged relating to the cable failure. The cable failure has not had any impact on production from the Kupe field.

Genesis Energy Limited - Financial guarantees

Genesis has 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.

Genesis 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 Energy Limited - Letters of credit and performance bonds

Genesis, 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.

Genesis has also issued letters of credit and performance bonds to certain suppliers and services 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.

Meridian Energy Limited - Letters of credit and performance bonds

In addition to its borrowings, Meridian has entered into a number of letters of credit and performance guarantee arrangements which provide credit support to support the collateral requirements of Meridian's trading business.

National Provident Fund (NPF)

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 

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

Section 10 of the Finance Act 1990 guarantees all loan and swap obligations of the New Zealand Railways Corporation.

Persons exercising investigating powers 

The Crown, under section 63 of the Corporations (Investigation and Management) Act 1989, indemnifies the Securities Commission, the Registrar and Deputy Registrar of Companies, members of an advisory committee, every statutory manager of a corporation and persons appointed pursuant to sections 17 and 19 of the Act in respect of any liability arising as a result of exercising the investigating powers conferred under the Act. The indemnity does not apply where the investigating powers have 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 12 October 2010 the Minister of Finance guaranteed interest payable on estates whose money constitutes the Common Fund. The guarantee continues until the earlier of the date the Public Trust Act 2001 is amended to provide that the guarantee in section 52 of that Act applies to both capital and accrued interest, or the date that the Minister of Finance revokes the guarantee.

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 which was laid across the Waitara meat processing plant site.

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

Tainui Corporation

Several leases of Tainui land at Huntly and Meremere have been transferred from ECNZ to Genesis Power. 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 several legal actions against ACC in existence, arising in the main from challenges to operational decisions made by ACC. ACC will be defending these claims.

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 in 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, and in the case of the European Union were, also the subject of investigations or proceedings by regulators in New Zealand, Australia, and the United States and the European Union. 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. On 17 May 2010 the Australian Competition and Consumer Commission filed proceedings alleging breaches of the (Australian) Trade Practices Act 1974.

A formal Statement of Objections relating to alleged conduct in the air cargo business was issued by the European Commission in 2007 to 25 airlines including Air New Zealand. Air New Zealand responded to this Statement of Objections and on 9 November 2010 the European Commission advised that it had closed its file in relation to Air New Zealand, following consideration of the responses.

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.

Caregiver employment conditions

In October 2010, the Court of Appeal heard an appeal against an Employment Court decision relating to minimum wage requirements for employees of disability support services providers currently paid sleepover allowances. If the employer's appeal is unsuccessful, consideration will need to be given to the repercussions for the Crown.

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 the Crown has accepted liability and for which costs can be reliably measured have been included as a provision.

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.

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 World Cup 2011

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 NZRU in relation to the joint venture entity, and has also agreed to reimburse NZRU for New Zealand withholding tax that might be incurred on certain payments made in relation to the tournament.

Television New Zealand

Television New Zealand 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 which has been transferred by the Crown to a State-owned enterprise or tertiary institution, or is subject to the Crown Forest Assets Act 1989.

On occasion, Māori claimants pursue the resolution of particular claims against the Crown through higher courts. There are currently two such actions against the Crown - one awaiting a decision on an application at the Supreme Court and one to be heard at the High Court. Failure to successfully defend such actions may result in liability for historical Treaty grievances in excess of that currently anticipated. The fiscal risk with respect to settlement relativity payments is detailed in the Specific Fiscal Risks section of this chapter.

Westpac New Zealand Limited

Under the Domestic Transaction Banking Services Master Agreement with Westpac Banking Corporation (Westpac’s rights and obligations under this agreement were vested in Westpac New Zealand Limited under the Westpac New Zealand Act 2006), 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 Inland Revenue processing arrangements.

Under the Supplier Payments Service - New Zealand Government Master Agreement dated 23 June 2010, the Crown indemnified Westpac New Zealand Limited against certain costs, damages and losses to third parties resulting from unauthorised, forged or fraudulent payment instructions (excluding costs, damages and losses arising from Westpac's wilful default, negligence or breach of the agreement or other applicable legal obligation).

Contingent Assets

Legal proceedings and tax disputes

Legal proceedings and tax disputes are contingent assets in relation to Inland Revenue pending assessments or Inland Revenue initiated assessments. They are net of any losses brought forward. Contingent assets arise where Inland Revenue has advised or is about to advise 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 – non-assessed. 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.

$637 million at 31 March 2011 ($568 million at 31 October 2010)

5 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 2 May 2011.

The finalisation dates and key assumptions that underpin the preparation of the Forecast Financial Statements are outlined on pages 90 to 94.

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 the 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 the Treasury's best professional judgement.

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.

Key forecast assumptions used are set out on pages 90 to 94.

Government Reporting Entity as at 2 May 2011

These forecast financial statements are for the government reporting entity as specified in Part 3 of the Public Finance Act 1989. This comprises Ministers of the Crown and the following entities:

Core Crown

Departments
  • Agriculture and Forestry
  • Building and Housing
  • Canterbury Earthquake Response Authority
  • 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
  • New Zealand Customs Service
  • New Zealand Defence Force
  • New Zealand Police
  • New Zealand Security Intelligence Service
  • Office of the Clerk
  • Pacific Island Affairs
  • Parliamentary Counsel Office
  • Parliamentary Service
  • Prime Minister and Cabinet
  • Science and Innovation
  • Serious Fraud Office
  • Social Development
  • State Services Commission
  • Statistics
  • Transport
  • Treasury
  • Women's Affairs
Offices of Parliament
  • Controller and Auditor General
  • Office of the Ombudsmen
  • Parliamentary Commissioner for the Environment
Others
  • New Zealand Superannuation Fund
  • Reserve Bank of New Zealand

State-owned enterprises 

  • Air New Zealand Limited*
  • 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)
  • Transpower New Zealand Limited
  • Subsidiaries of State-owned enterprises are consolidated by their parents and not listed separately in this table.

*included for disclosure purposes as if it were a State-owned enterprise.

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 Authority
  • Energy Efficiency and Conservation Authority
  • Environmental Risk Management Authority
  • Families Commission
  • Government Superannuation Fund Authority
  • Guardians of New Zealand Superannuation
  • Health and Disability Commissioner
  • Health Quality and Safety Commission
  • 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 Productivity 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 (2,483)
  • 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 (29)
  • Testing Laboratory Registration Council
  • Transport Accident Investigation Commission

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

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

  • Agriculture and Marketing Research and Development Trust
  • Asia New Zealand Foundation
  • Crown Fibre Holdings Limited
  • Fish and Game Councils (12)
  • Health Benefits Limited
  • Leadership Development Centre Trust
  • Learning State Limited
  • 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 (23)
  • Road Safety Trust
  • Sentencing Council
  • The Māori Trustee

Forecast Financial Statements

Forecast Statement of Financial Performance for the years ending 30 June
  Note 2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

Revenue

               
Taxation revenue 1 50,347 53,457 50,640 54,690 59,270 63,752 67,746
Other sovereign revenue 1 4,682 5,759 5,444 5,808 6,218 6,641 7,323
Total revenue levied through the Crown's sovereign power   55,029 59,216 56,084 60,498 65,488 70,393 75,069
Sales of goods and services   14,331 15,399 15,128 16,078 17,092 17,907 18,454
Interest revenue and dividends 2 2,315 4,063 2,618 3,051 3,390 3,654 4,086
Other revenue   3,050 3,103 6,339 3,106 3,206 3,308 3,374
Total revenue earned through the Crown's operations   19,696 22,565 24,085 22,235 23,688 24,869 25,914
Total revenue (excluding gains)   74,725 81,781 80,169 82,733 89,176 95,262 100,983

Expenses

               
Transfer payments and subsidies 3 21,213 22,628 22,340 22,926 23,542 24,149 25,115
Personnel expenses 4 18,477 19,109 18,859 19,149 19,399 19,472 19,747
Depreciation and amortisation 5 4,229 4,428 4,786 4,631 4,805 4,943 5,047
Other operating expenses 5 31,338 35,927 38,137 37,792 35,577 35,922 36,204
Interest expenses 6 2,777 4,612 3,506 4,685 5,390 5,805 6,350
Insurance expenses 7 3,006 3,725 9,519 3,138 3,570 3,925 4,266
Forecast new operating spending 8 - 394 - 463 1,040 1,815 3,007
Top-down expense adjustment 8 - (410) (250) (310) (50) (50) (50)
Total expenses (excluding losses)   81,040 90,413 96,897 92,474 93,273 95,981 99,686
Operating balance before gains/(losses)   (6,315) (8,632) (16,728) (9,741) (4,097) (719) 1,297
Net gains/(losses) on financial instruments 9 2,522 1,250 5,144 1,973 2,230 2,496 2,777
Net gains/(losses) on non-financial instruments 10 (960) 181 1,894 172 190 190 197
Total gains/(losses)   1,562 1,431 7,038 2,145 2,420 2,686 2,974
Net surplus from associates and joint ventures   227 134 253 303 327 325 316
Operating balance (including minority interest)   (4,526) (7,067) (9,437) (7,293) (1,350) 2,292 4,587
Attributable to minority interest   17 - - - - - -
Operating balance 11 (4,509) (7,067) (9,437) (7,293) (1,350) 2,292 4,587

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
Total Crown expenses 2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

By functional classification

             
Social security and welfare 24,206 26,127 25,637 26,353 27,432 28,469 29,701
GSF pension expenses 333 363 289 311 392 448 489
Health 12,673 13,379 13,118 13,787 13,659 13,634 13,639
Education 12,440 12,861 12,783 13,005 13,087 12,944 13,134
Core government services 2,830 3,922 6,083 5,440 4,165 4,218 4,318
Law and order 3,354 3,746 3,724 3,745 3,645 3,635 3,643
Defence 1,771 1,862 1,850 1,872 1,824 1,824 1,822
Transport and communications 7,991 8,184 8,244 8,584 8,635 8,894 9,111
Economic and industrial services 7,541 8,114 14,078 7,758 7,824 8,076 8,195
Primary services 1,373 1,742 1,624 1,700 1,661 1,662 1,673
Heritage, culture and recreation 2,584 3,344 3,805 3,327 2,975 2,959 2,989
Housing and community development 1,087 1,102 1,781 1,119 1,118 1,174 1,192
Other 80 1,071 625 635 476 474 473
Finance costs 2,777 4,612 3,506 4,685 5,390 5,805 6,350
Forecast new operating spending 394 463 1,040 1,815 3,007
Top-down expense adjustment (410) (250) (310) (50) (50) (50)
Total Crown expenses excluding losses 81,040 90,413 96,897 92,474 93,273 95,981 99,686

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 - Functional Expense Analysis for the years ending 30 June
Core Crown expenses 2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

By functional classification

             
Social security and welfare 21,185 22,120 22,175 22,935 23,644 24,396 25,334
GSF pension expenses 328 357 281 302 383 439 480
Health 13,128 14,043 13,774 14,353 14,332 14,242 14,236
Education 11,724 11,992 12,039 12,257 12,266 12,077 12,236
Core government services 2,974 3,979 6,357 5,564 4,296 4,352 4,457
Law and order 3,191 3,537 3,526 3,555 3,438 3,423 3,418
Defence 1,814 1,912 1,890 1,911 1,863 1,863 1,862
Transport and communications 2,345 2,417 2,330 2,378 2,096 2,087 2,082
Economic and industrial services 2,839 2,828 2,755 2,235 1,901 1,849 1,872
Primary services 507 757 731 755 706 698 700
Heritage, culture and recreation 1,281 2,037 2,437 1,947 1,535 1,490 1,485
Housing and community development 306 370 1,046 333 299 287 290
Other 80 1,088 625 635 476 474 473
Finance costs 2,311 3,230 3,078 3,714 4,325 4,701 5,254
Forecast new operating spending 394 463 1,040 1,815 3,007
Top-down expense adjustment (410) (250) (310) (50) (50) (50)
Total core Crown expenses excluding losses 64,013 70,651 72,794 73,027 72,550 74,143 77,136

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
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Revaluation of physical assets 196 69
Effective portion of changes in the fair value of cash flow hedges (112) 5 (52) 3
Net change in fair value of cash flow hedges transferred to operating balance (62) (1) (16)
Net change in fair value of cash flow hedges transferred to the hedged item (3) (8) (7)
Foreign currency translation differences for foreign operations (11) (37) (6) (1) 2 (1)
Valuation gain/(losses) on investments available for sale taken to reserves 3 1 4 6 8 11 12
Other movements (1) (1) 8 50 10 7 4
Other comprehensive income for the year 10 4 (32) 46 17 20 15
Operating balance (including minority interest) (4,526) (7,067) (9,437) (7,293) (1,350) 2,292 4,587
Total comprehensive income (4,516) (7,063) (9,469) (7,247) (1,333) 2,312 4,602
Attributable to:              
 - minority interest (34)
 - the Crown (4,482) (7,063) (9,469) (7,247) (1,333) 2,312 4,602
Total comprehensive income (4,516) (7,063) (9,469) (7,247) (1,333) 2,312 4,602

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
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

Cash flows from operations

             

Cash was provided from

             
Taxation receipts 50,104 52,681 50,094 53,959 58,442 63,013 66,888
Other sovereign receipts 4,268 4,792 4,768 4,878 5,006 5,037 5,007
Sales of goods and services 14,411 15,173 15,027 16,046 17,081 17,765 18,386
Interest and dividend receipts 2,378 3,592 2,558 2,594 2,886 3,023 3,390
Other operating receipts 2,974 2,960 3,204 4,536 4,991 4,028 3,524
Total cash provided from operations 74,135 79,198 75,651 82,013 88,406 92,866 97,195

Cash was disbursed to

             
Transfer payments and subsidies 21,335 22,642 22,426 23,435 23,669 24,280 25,257
Personnel and operating payments 50,767 54,693 56,604 59,108 58,402 56,363 56,150
Interest payments 2,420 3,979 3,378 4,583 5,349 5,546 6,235
Forecast new operating spending 394 463 1,040 1,815 3,007
Top-down expense adjustment (410) (250) (310) (50) (50) (50)
Total cash disbursed to operations 74,522 81,298 82,158 87,279 88,410 87,954 90,599
Net cash flows from operations (387) (2,100) (6,507) (5,266) (4) 4,912 6,596

Cash flows from investing activities

             

Cash was provided from/(disbursed to)

             
Net purchase of physical assets (5,865) (7,842) (7,302) (7,852) (6,871) (7,003) (6,698)
Net purchase of shares and other securities 2,092 (1,088) (4,690) 5,831 6,682 (5,529) 5,446
Net purchase of intangible assets (377) (513) (432) (532) (404) (367) (338)
Net repayment/(issues) of advances (310) (1,426) (2,344) (2,039) (1,969) (958) (782)
Net acquisition of investments in associates (198) (468) 21 (137) (167) (187) (681)
Forecast new capital spending (282) (242) (454) (651) (800)
Balance sheet funding of new capital spending 100 450 650 800
Top-down capital adjustment 300 100 170
Net cash flows from investing activities (4,658) (11,319) (14,647) (4,701) (2,733) (14,045) (3,053)
Net cash flows from operating and investing activities (5,045) (13,419) (21,154) (9,967) (2,737) (9,133) 3,543

Cash flows from financing activities

             

Cash was provided from/(disbursed to)

             
Issues of circulating currency 15 104 359 219 230 241 253
Net issue/(repayment) of Government stock1 7,157 11,718 19,705 4,774 232 7,797 (4,442)
Net issue/(repayment) of foreign-currency borrowings 3,296 (5,320) (1,533) (6,639) (517) (863) (1,517)
Net issue/(repayment) of other New Zealand dollar borrowings (3,764) 6,898 4,126 11,390 2,815 2,026 2,413
Net cash flows from financing activities 6,704 13,400 22,657 9,744 2,760 9,201 (3,293)
Net movement in cash 1,659 (19) 1,503 (223) 23 68 250
Opening cash balance 6,268 6,143 7,774 9,103 8,886 8,929 9,032
Foreign-exchange gains/(losses) on opening cash (153) 2 (174) 6 20 35 50
Closing cash balance 7,774 6,126 9,103 8,886 8,929 9,032 9,332

Note 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 for the years ending 30 June
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

Reconciliation between the net cash flows from operations and the operating balance

             
Net cash flows from operations (387) (2,100) (6,507) (5,266) (4) 4,912 6,596

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

             

Gains/(losses)

             
Net gains/(losses) on financial instruments 2,522 1,250 5,144 1,973 2,230 2,496 2,777
Net gains/(losses) on non-financial instruments (960) 181 1,894 172 190 190 197
Total gains/(losses) 1,562 1,431 7,038 2,145 2,420 2,686 2,974

Other non-cash items in operating balance

             
Depreciation and amortisation (4,229) (4,428) (4,786) (4,631) (4,805) (4,943) (5,047)
Write-down on initial recognition of financial assets (855) (896) (805) (806) (809) (816) (817)
Impairment on financial assets (excl. receivables) 33 5 52 85 97 113 115
Decrease/(increase) in defined benefit retirement plan liabilities 284 337 382 377 314 265 231
Decrease/(increase) in insurance liabilities (974) (1,329) (5,922) 1,269 853 (863) (1,728)
Other 244 135 256 307 325 325 315
Total other non-cash Items (5,497) (6,176) (10,823) (3,399) (4,025) (5,919) (6,931)

Movements in working capital

             
Increase/(decrease) in receivables (338) 225 3,779 (1,081) (1,687) (452) 387
Increase/(decrease) in accrued interest (420) (162) (68) 356 488 410 628
Increase/(decrease) in inventories 78 51 150 70 46 8 28
Increase/(decrease) in prepayments 18 (7) (13) (3) (2) 1 (16)
Decrease/(increase) in deferred revenue (202) 109 195 62 28 19
Decrease/(increase) in payables/provisions 677 (438) (3,188) (177) 1,386 627 921
Total movements in working capital (187) (222) 855 (773) 259 613 1,948
Operating balance (4,509) (7,067) (9,437) (7,293) (1,350) 2,292 4,587

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

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

Forecast Statement of Changes in Net Worth for the years ending 30 June
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Opening net worth 99,515 96,479 94,988 85,519 78,272 76,939 79,251
Operating balance (including minority interest) (4,526) (7,067) (9,437) (7,293) (1,350) 2,292 4,587
Net revaluations 196 69
Transfers to/(from) reserves (96) 4 (44) 53 10 7 4
(Gains)/losses transferred to the statement of financial performance (60) (1) (16)
Other movements (30) 1 (41) (7) 7 13 11
Total comprehensive income (4,516) (7,063) (9,469) (7,247) (1,333) 2,312 4,602
Transactions with minority interest in Air New Zealand (11)
Closing net worth 94,988 89,416 85,519 78,272 76,939 79,251 83,853

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
 
2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

Assets

               
Cash and cash equivalents 12 7,774 6,126 9,103 8,886 8,929 9,032 9,332
Receivables 12 13,884 14,038 17,514 16,709 15,269 15,108 15,705
Marketable securities, deposits and derivatives in gain 12 43,687 46,220 49,006 43,034 36,404 41,989 37,607
Share investments 12 12,179 17,771 14,206 16,095 18,540 21,506 24,042
Advances 12 18,447 20,411 19,851 22,433 24,635 25,140 25,634
Inventory   1,160 1,228 1,309 1,380 1,426 1,434 1,461
Other assets   1,661 1,488 1,668 1,662 1,655 1,648 1,645
Property, plant and equipment 14 113,330 117,742 116,933 121,186 124,305 127,114 129,471
Equity accounted investments1   9,049 9,440 9,398 9,613 9,815 10,010 10,295
Intangible assets and goodwill 15 2,184 2,596 2,524 2,714 2,703 2,679 2,629
Forecast for new capital spending (net) 8 282 142 146 147 147
Top-down capital adjustment   (425) (100) (270) (270) (270) (270)
Total assets   223,355 236,917 241,412 243,584 243,557 255,537 257,698

Liabilities

               
Issued currency   4,020 4,251 4,380 4,598 4,828 5,070 5,323
Payables 17 9,931 10,001 9,169 9,603 9,608 9,887 10,221
Deferred revenue   1,628 1,222 1,433 1,371 1,343 1,323 1,324
Borrowings   69,733 89,416 91,003 101,383 104,652 113,994 111,023
Insurance liabilities 18 27,131 28,635 31,802 30,533 29,680 30,543 32,271
Retirement plan liabilities 19 9,940 8,821 9,271 8,895 8,580 8,316 8,085
Provisions 20 5,984 5,155 8,835 8,929 7,927 7,153 5,598
Total liabilities   128,367 147,501 155,893 165,312 166,618 176,286 173,845
Total assets less total liabilities   94,988 89,416 85,519 78,272 76,939 79,251 83,853

Net worth

               
Taxpayer funds 21 31,087 26,983 21,720 14,463 13,161 15,482 20,095
Property, plant and equipment revaluation reserve 21 63,593 62,086 63,600 63,614 63,576 63,554 63,532
Other reserves 21 (94) (100) (203) (207) (200) (187) (176)
Total net worth attributable to the Crown   94,586 88,969 85,117 77,870 76,537 78,849 83,451
Net worth attributable to minority interest   402 447 402 402 402 402 402
Total net worth   94,988 89,416 85,519 78,272 76,939 79,251 83,853

Note 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

 
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

Borrowings

             
Government stock 27,926 41,328 47,016 52,145 52,880 61,635 58,273
Treasury bills 7,625 9,509 6,698 7,707 7,682 7,655 7,645
Government retail stock 309 337 270 270 270 270 270
Settlement deposits with Reserve Bank 6,679 7,602 6,736 6,736 6,736 6,736 6,736
Derivatives in loss 2,376 1,369 1,777 1,559 1,524 1,443 1,398
Finance lease liabilities 920 1,037 1,231 1,492 1,372 1,715 1,723
Other borrowings 23,898 28,234 27,275 31,474 34,188 34,540 34,978
Total borrowings 69,733 89,416 91,003 101,383 104,652 113,994 111,023
Total sovereign-guaranteed debt 50,017 65,890 68,536 74,900 75,307 83,807 80,284
Total non-sovereign-guaranteed debt 19,716 23,526 22,467 26,483 29,345 30,187 30,739
Total borrowings 69,733 89,416 91,003 101,383 104,652 113,994 111,023

Net debt:

             
Core Crown borrowings1 58,583 73,196 76,945 83,195 84,614 94,171 91,758
Add back NZS Fund holdings of sovereign-issued debt and NZS Fund
borrowings
308 (31) (167) (231) (231) (266) (316)
Gross sovereign-issued debt2 58,891 73,165 76,778 82,964 84,383 93,905 91,442
Less core Crown financial assets3 57,209 61,317 65,089 59,728 54,517 60,909 56,717
Net core Crown debt (incl. NZS Fund)4 1,682 11,848 11,689 23,236 29,866 32,996 34,725
Add back NZS Fund holdings of core Crown financial assets and
NZS Fund financial assets5
14,189 16,575 17,854 19,068 20,493 22,032 23,684
Net core Crown debt (excl. NZS Fund)4 15,871 28,423 29,543 42,304 50,359 55,028 58,409
Core Crown advances 10,867 11,542 11,959 12,568 13,260 13,961 14,466
Net core Crown debt (excl. NZS Fund and advances)6 26,738 39,965 41,502 54,872 63,619 68,989 72,875

Gross debt:

             
Gross sovereign-issued debt2 58,891 73,165 76,778 82,964 84,383 93,905 91,442
Less Reserve Bank settlement cash and bank bills (6,900) (7,796) (6,800) (6,800) (6,800) (6,800) (6,800)
Add back changes to DMO borrowing owing to settlement cash7 1,600 1,600 1,600 1,600 1,600 1,600 1,600
Gross sovereign-issued debt excluding Reserve Bank settlement
cash and bank bills4
53,591 66,969 71,578 77,764 79,183 88,705 86,242

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. 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 any Government stock held by the 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 NZDMO borrowing. Therefore, the impact of settlement cash on GSID is adjusted by this amount.

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

Statement of Actual Commitments as at 31 March 2011

Statement of Actual Commitments as at 31 March 2011
  As at
31 Mar
2011
$m
As at
30 June
2010
$m

Capital commitments

   
Specialist military equipment 387 422
Land and buildings 820 849
Other property, plant and equipment 7,025 6,370
Other capital commitments 220 224
Tertiary Education Institutions 302 302
Total capital commitments 8,754 8,167

Operating commitments

   
Non-cancellable accommodation leases 2,871 2,862
Other non-cancellable leases 3,209 3,230
Non-cancellable contracts for the supply of goods and services 2,253 2,258
Other operating commitments 7,340 9,376
Tertiary Education Institutions 304 304
Total operating commitments 15,977 18,030
Total commitments 24,731 26,197

Total commitments by segment

   
Core Crown 12,751 20,983
Crown entities 11,137 13,811
State-owned enterprises 7,917 7,242
Inter-segment eliminations (7,074) (15,839)
Total commitments  24,731 26,197

Statement of Actual Contingent Liabilities and Assets as at 31 March 2011

Statement of Actual Contingent Liabilities and Assets as at 31 March 2011
  As at
31 Mar
2011
$m
As at
30 June
2010
$m

Quantifiable contingent liabilities

   
Guarantees and indemnities 102 106
Uncalled capital 4,340 2,310
Legal proceedings and disputes 401 414
Other contingent liabilities 3,361 3,535
Total quantifiable contingent liabilities 8,204 6,365

Total quantifiable contingent liabilities by segment

   
Core Crown 7,874 6,050
Crown entities 261 171
State-owned enterprises 69 144
Inter-segment eliminations
Total quantifiable contingent liabilities 8,204 6,365

Quantifiable contingent assets by segment

   
Core Crown 701 570
Crown entities 3 2
Total quantifiable contingent assets 704 572

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

Notes to the Forecast Financial Statements

NOTE 1: Revenue collected through the Crown's sovereign power
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

Taxation revenue (accrual)

             

Individuals

             
Source deductions 21,774 20,174 20,670 21,165 23,129 24,722 26,339
Other persons 3,987 4,403 3,822 4,342 4,672 4,654 4,748
Refunds (1,831) (1,484) (1,681) (1,656) (1,701) (1,574) (1,435)
Fringe benefit tax 461 430 461 430 457 481 505
Total individuals 24,391 23,523 23,272 24,281 26,557 28,283 30,157

Corporate tax

             
Gross companies tax 6,698 8,214 6,907 7,978 8,293 8,979 9,381
Refunds (379) (376) (363) (400) (446) (465) (460)
Non-resident withholding tax 884 628 498 508 573 643 688
Foreign-source dividend w/holding payments (3) 8 1 1 1 1 1
Total corporate tax 7,200 8,474 7,043 8,087 8,421 9,158 9,610

Other direct income tax

             
Resident w/holding tax on interest income 1,804 1,465 1,707 1,665 1,986 2,527 3,084
Resident w/holding tax on dividend income 130 240 203 209 292 470 489
Estate and gift duties 2 1 2
Total other direct income tax 1,936 1,706 1,912 1,874 2,278 2,997 3,573
Total direct income tax 33,527 33,703 32,227 34,242 37,256 40,438 43,340

Goods and services tax

             
Gross goods and services tax 19,797 23,968 23,253 26,007 28,354 31,536 33,143
Refunds (7,880) (9,524) (10,047) (10,965) (11,928) (13,981) (14,675)
Total goods and services tax 11,917 14,444 13,206 15,042 16,426 17,555 18,468

Other indirect taxation

             
Road user charges 910 955 995 1,049 1,134 1,214 1,289
Petroleum fuels excise - domestic production 805 907 862 886 903 940 975
Alcohol excise - domestic production 600 657 625 665 700 732 765
Tobacco excise - domestic production 217 209 238 251 259 257 259
Petroleum fuels excise - imports1 622 600 650 668 681 709 735
Alcohol excise - imports1 225 242 234 250 263 274 287
Tobacco excise - imports1 851 1,020 953 1,005 1,035 1,029 1,034
Other customs duty 175 198 154 130 110 95 80
Gaming duties 219 228 218 223 223 226 228
Motor vehicle fees 171 175 169 168 171 174 177
Energy resources levies 39 38 36 38 36 36 36
Approved issuer levy and cheque duty 69 81 73 73 73 73 73
Total other indirect taxation 4,903 5,310 5,207 5,406 5,588 5,759 5,938
Total indirect taxation 16,820 19,754 18,413 20,448 22,014 23,314 24,406
Total taxation revenue 50,347 53,457 50,640 54,690 59,270 63,752 67,746

Other sovereign revenue (accrual)

             
ACC levies 3,261 3,823 3,670 3,882 3,992 4,072 4,187
Fire Service levies 301 309 313 309 315 322 328
EQC levies 86 87 87 89 90 91 92
Other miscellaneous items 1,034 1,540 1,374 1,528 1,821 2,156 2,716
Total other sovereign revenue 4,682 5,759 5,444 5,808 6,218 6,641 7,323
Total sovereign revenue 55,029 59,216 56,084 60,498 65,488 70,393 75,069

Note 1: Customs excise-equivalent duty.

NOTE 1 (continued): Receipts collected through the Crown's sovereign power
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

Taxation receipts (cash)

             

Individuals

             
Source deductions 21,744 20,314 20,575 21,066 23,031 24,621 26,234
Other persons 4,630 4,875 4,320 4,765 5,057 5,090 5,200
Refunds (2,793) (2,255) (2,445) (2,394) (2,390) (2,254) (2,172)
Fringe benefit tax 469 433 456 424 450 473 500
Total individuals 24,050 23,367 22,906 23,861 26,148 27,930 29,762

Corporate tax

             
Gross companies tax 8,650 9,051 7,871 8,369 8,556 9,209 9,626
Refunds (1,644) (1,314) (970) (799) (811) (785) (821)
Non-resident withholding tax 889 627 494 508 573 643 688
Foreign-source dividend w/holding payments 6 8 1 1 1 1 1
Total corporate tax 7,901 8,372 7,396 8,079 8,319 9,068 9,494

Other direct income tax

             
Resident w/holding tax on interest income 1,833 1,463 1,714 1,664 1,985 2,526 3,083
Resident w/holding tax on dividend income 114 240 202 208 291 469 488
Estate and gift duties 2 1 2
Total other direct income tax 1,949 1,704 1,918 1,872 2,276 2,995 3,571
Total direct income tax 33,900 33,443 32,220 33,812 36,743 39,993 42,827

Goods and services tax

             
Gross goods and services tax 18,797 23,052 22,056 25,135 27,472 30,679 32,234
Refunds (7,456) (9,124) (9,393) (10,394) (11,361) (13,418) (14,111)
Total goods and services tax 11,341 13,928 12,663 14,741 16,111 17,261 18,123

Other indirect taxation

             
Petroleum fuels excise - domestic production 805 907 862 886 903 940 975
Tobacco excise - domestic production 214 209 238 251 259 257 259
Customs duty 1,805 2,060 1,991 2,053 2,089 2,107 2,136
Road user charges 908 955 995 1,049 1,134 1,214 1,289
Alcohol excise - domestic production 622 657 625 665 700 732 765
Gaming duties 218 228 220 223 223 226 228
Motor vehicle fees 195 175 169 168 171 174 177
Energy resources levies 37 38 36 38 36 36 36
Approved issuer levy and cheque duty 59 81 75 73 73 73 73
Total other indirect taxation 4,863 5,310 5,211 5,406 5,588 5,759 5,938
Total indirect taxation 16,204 19,238 17,874 20,147 21,699 23,020 24,061
Total taxation receipts 50,104 52,681 50,094 53,959 58,442 63,013 66,888

Other sovereign receipts (cash)

             
ACC levies 3,291 3,761 3,688 3,804 3,928 3,921 3,860
Fire Service levies 301 309 313 309 315 322 328
EQC levies 86 87 90 88 90 91 92
Other miscellaneous items 590 635 677 677 673 703 727
Total other sovereign receipts 4,268 4,792 4,768 4,878 5,006 5,037 5,007
Total sovereign receipts 54,372 57,473 54,862 58,837 63,448 68,050 71,895
NOTE 2: Interest revenue and dividends
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

By type

             
Interest revenue 1,926 3,482 2,265 2,569 2,880 3,039 3,385
Dividends 389 581 353 482 510 615 701
Total interest revenue and dividends 2,315 4,063 2,618 3,051 3,390 3,654 4,086

By source

             
Core Crown 2,135 2,487 2,185 2,134 2,552 2,773 3,103
Crown entities 1,146 939 1,106 768 944 1,104 1,281
State-owned enterprises 626 1,550 763 1,021 1,041 1,045 1,057
Inter-segment eliminations (1,592) (913) (1,436) (872) (1,147) (1,268) (1,355)
Total interest revenue and dividends 2,315 4,063 2,618 3,051 3,390 3,654 4,086
NOTE 3: Transfer payments and subsidies
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
New Zealand Superannuation 8,290 8,822 8,833 9,575 10,214 10,887 11,666
Domestic Purposes benefit 1,693 1,756 1,765 1,895 1,950 1,997 2,062
Unemployment benefit 930 969 959 1,029 1,007 900 862
Invalid's benefit 1,303 1,319 1,307 1,347 1,382 1,414 1,452
Family tax credit 2,168 2,239 2,214 2,178 2,149 2,101 2,097
Accommodation supplement 1,154 1,221 1,202 1,264 1,295 1,306 1,335
Sickness benefit 710 760 742 782 807 832 860
Student allowances 570 656 626 627 570 525 507
Disability allowances 411 421 410 411 406 415 425
Other social assistance benefits 2,525 2,801 2,750 2,637 2,639 2,642 2,659
Total social assistance grants 19,754 20,964 20,808 21,745 22,419 23,019 23,925

Subsidies

             
KiwiSaver subsidies 1,024 1,179 1,039 656 614 596 631

Other transfer payments

             
Official development assistance 435 485 493 525 509 534 559
Total transfer payments and subsidies 21,213 22,628 22,340 22,926 23,542 24,149 25,115
NOTE 4: Personnel expenses
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Core Crown 5,991 6,076 5,905 6,021 5,969 6,010 6,078
Crown entities 10,043 10,516 10,309 10,440 10,685 10,659 10,813
State-owned enterprises 2,455 2,526 2,654 2,697 2,754 2,812 2,866
Inter-segment eliminations (12) (9) (9) (9) (9) (9) (10)
Total personnel expenses 18,477 19,109 18,859 19,149 19,399 19,472 19,747
NOTE 5: Depreciation, amortisation and other operating expenses
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Core Crown 34,226 38,677 41,663 40,197 37,681 37,473 37,689
Crown entities 18,392 17,903 18,064 18,390 18,166 18,175 18,252
State-owned enterprises 9,494 10,237 9,826 10,560 11,185 11,683 11,997
Inter-segment eliminations (26,545) (26,462) (26,630) (26,724) (26,650) (26,466) (26,687)
Total depreciation, amortisation and other operating expenses 35,567 40,355 42,923 42,423 40,382 40,865 41,251
NOTE 6: Interest expenses
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

By type

             
Interest on financial liabilities 2,724 4,537 3,427 4,592 5,260 5,662 6,199
Interest unwind on provisions 53 75 79 93 130 143 151
Total interest expenses 2,777 4,612 3,506 4,685 5,390 5,805 6,350

By source

             
Core Crown 2,311 3,230 3,078 3,714 4,325 4,701 5,254
Crown entities 245 181 247 272 286 301 301
State-owned enterprises 845 1,733 1,010 1,392 1,442 1,537 1,601
Inter-segment eliminations (624) (532) (829) (693) (663) (734) (806)
Total interest expenses 2,777 4,612 3,506 4,685 5,390 5,805 6,350
NOTE 7: Insurance expenses
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
By entity              
ACC 2,922 3,668 3,103 3,042 3,423 3,777 4,118
EQC 64 39 6,389 78 128 128 128
Other 20 18 27 18 19 20 20
Total insurance expenses 3,006 3,725 9,519 3,138 3,570 3,925 4,266
NOTE 8: Forecast new spending and top-down expense adjustment
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

Forecast new operating spending

             
Unallocated new spending from Budget 2011 394 463 240 215 217
Forecast new spending for Budget 2012 800 800 800
Forecast new spending for Budget 2013 800 800
Forecast new spending for Budget 2014 1,190
Total forecast new operating spending 394 463 1,040 1,815 3,007
Operating top-down adjustment (410) (250) (310) (50) (50) (50)

Unallocated new spending from Budget 2011 represents expenses included in Budget 2011 that have yet to be allocated.

Forecast for future new spending indicates the expected spending increases from future Budgets.

NOTE 8: Forecast new spending and top-down expense adjustment (continued)
  2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Post-2015
Forecast
$m
Total
Forecast
$m

Forecast new capital spending (annual)

             
Unallocated new spending from Budget 2011 142 4 1 147
Forecast new spending for Budget 2012 100 350 200 150 100 900
Forecast new spending for Budget 2013 100 350 200 250 900
Forecast new spending for Budget 2014 100 350 450 900
Forecast new spending for Budget 2015 100 800 900
Balance sheet funding of new capital spending (100) (450) (650) (800) (1,600) (3,600)
Total forecast new capital spending 142 4 1 147
Forecast new capital spending (cumulative) 142 146 147 147    
Capital top-down adjustment (cumulative) (100) (270) (270) (270) (270)    

Unallocated new spending from Budget 2011 represents capital spending included in Budget 2011 that has yet to be allocated.

Forecast for future new spending indicates the expected capital spending increases from future Budgets.

These forecasts assume that, instead of borrowing to fund this new capital spending, the Government will source funding from its existing balance sheet. The forecasts therefore assume that the allowance for new capital spending ($900 million each Budget spread across five years) will be met through a corresponding reduction in assets.This is referred to as "balance sheet funding of new capital spending".

NOTE 9: Gains and losses on financial instruments
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

By source

             
Core Crown 2,094 1,231 4,455 1,546 1,650 1,760 1,874
Crown entities 787 209 1,082 688 842 1,024 1,187
State-owned enterprises (105) (11) (163) (68) (68) (76) (63)
Inter-segment eliminations (254) (179) (230) (193) (194) (212) (221)
Net gains/(losses) on financial instruments 2,522 1,250 5,144 1,973 2,230 2,496 2,777
NOTE 10: Gains and losses on non-financial instruments
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

By type

             
Actuarial gains/(losses) on GSF liability (1,231) 287
Actuarial gains/(losses) on ACC outstanding claims 410 1,251
Other (139) 181 356 172 190 190 197
Net gains/(losses) on non-financial instruments (960) 181 1,894 172 190 190 197

By source

             
Core Crown (1,351) 21 445 (8) (6) (3)
Crown entities 398 (17) 1,241 (1) (1) (1) (1)
State-owned enterprises (7) 177 208 180 191 197 200
Inter-segment eliminations 1 1
Net gains/(losses) on non-financial instruments (960) 181 1,894 172 190 190 197
NOTE 11: Source of operating balance
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Core Crown (7,000) (9,082) (10,891) (10,350) (4,455) (821) 1,221
Crown entities 2,373 1,423 1,415 2,533 2,615 2,617 2,763
State-owned enterprises 635 1,014 964 981 1,173 1,245 1,387
Inter-segment eliminations (517) (422) (925) (457) (683) (749) (784)
Total operating balance (4,509) (7,067) (9,437) (7,293) (1,350) 2,292 4,587
NOTE 12: Financial assets
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Cash and cash equivalents 7,774 6,126 9,103 8,886 8,929 9,032 9,332
Tax receivables 6,864 6,288 6,449 6,788 6,811 6,794 6,816
Trade and other receivables 7,020 7,750 11,065 9,921 8,458 8,314 8,889
Student loans (refer note 13) 6,790 7,300 7,325 7,822 8,279 8,722 9,125
Kiwibank mortgages 10,419 12,411 11,255 13,493 15,363 15,450 15,536
Long-term deposits 2,784 2,240 2,161 2,047 1,929 2,156 2,386
IMF financial assets 2,199 2,546 2,307 2,528 2,716 2,717 2,582
Other advances 1,238 700 1,271 1,118 993 968 973
Share investments 12,179 17,771 14,206 16,095 18,540 21,506 24,042
Derivatives in gain 2,972 1,771 3,053 2,394 2,010 1,573 1,374
Other marketable securities 35,732 39,663 41,485 36,065 29,749 35,543 31,265
Total financial assets 95,971 104,566 109,680 107,157 103,777 112,775 112,320

Financial assets by entity

             
NZDMO 23,097 24,360 28,326 20,413 12,450 16,681 10,102
Reserve Bank of New Zealand 19,125 18,928 17,781 17,628 17,512 17,584 17,153
NZS Fund 15,552 16,452 18,629 19,543 20,940 22,463 23,961
Other core Crown 16,643 16,777 17,501 17,694 18,111 18,405 18,876
Intra-segment eliminations (8,437) (6,845) (8,196) (6,769) (5,775) (5,384) (4,410)
Total core Crown segment 65,980 69,672 74,041 68,509 63,238 69,749 65,682
ACC portfolio 16,985 18,897 20,842 23,742 27,080 30,749 34,733
EQC portfolio 6,003 6,424 8,190 6,168 4,203 3,786 3,984
Other Crown entities 6,631 6,352 6,388 6,343 6,393 6,576 6,798
Intra-segment eliminations (1,483) (1,482) (1,523) (1,532) (1,542) (1,551) (1,562)
Total Crown entities segment 28,136 30,191 33,897 34,721 36,134 39,560 43,953
Total state-owned enterprises segment 16,064 18,987 17,613 19,624 21,384 21,854 22,248
Inter-segment eliminations (14,209) (14,284) (15,871) (15,697) (16,979) (18,388) (19,563)
Total financial assets 95,971 104,566 109,680 107,157 103,777 112,775 112,320
NOTE 13: Student loans
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Nominal value (including accrued interest) 11,145 12,050 12,024 12,909 13,731 14,528 15,270
Opening book value 6,553 6,874 6,790 7,325 7,822 8,279 8,722
Amount borrowed in current year 1,525 1,616 1,579 1,590 1,615 1,644 1,648
Less initial write down to fair value (728) (772) (707) (707) (709) (716) (717)
Repayments made during the year (754) (826) (786) (834) (927) (1,000) (1,076)
Interest unwind 463 506 501 534 576 613 646
(Impairment)/reversal of impairment (280) (110) (64) (110) (110) (110) (110)
Other movements 11 12 12 24 12 12 12
Closing book value 6,790 7,300 7,325 7,822 8,279 8,722 9,125
NOTE 14: Property, plant and equipment
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

By class of asset

             

Net carrying value

             
Land (valuation) 16,688 16,570 16,803 16,892 16,990 17,090 17,193
Buildings (valuation) 24,019 25,831 24,822 25,232 25,436 25,718 25,609
Electricity distribution network (cost) 2,251 2,887 2,812 3,553 4,104 4,327 4,607
Electricity generation assets (valuation) 13,642 12,333 13,953 14,915 15,468 15,642 16,121
Aircraft (excluding military) (valuation) 1,731 2,347 2,083 2,587 2,864 3,280 3,409
State highways (valuation) 24,838 25,596 25,838 26,504 27,273 28,171 29,236
Rail network (valuation) 12,437 13,224 12,554 12,755 12,803 12,790 12,755
Specialist military equipment (valuation) 3,413 3,835 3,382 3,377 3,210 3,383 3,579
Specified cultural and heritage assets (valuation) 8,505 8,645 8,522 8,559 8,590 8,616 8,645
Other plant and equipment (cost) 5,806 6,474 6,164 6,812 7,567 8,097 8,317
Total property, plant and equipment 113,330 117,742 116,933 121,186 124,305 127,114 129,471

By source

             
Core Crown 29,986 31,877 30,334 30,595 30,460 30,923 31,023
Crown entities 48,109 49,453 49,722 50,949 52,148 53,212 54,386
State-owned enterprises 35,235 36,412 36,877 39,642 41,697 42,979 44,062
Inter-segment eliminations
Total property, plant and equipment 113,330 117,742 116,933 121,186 124,305 127,114 129,471

Schedule of movements

             

Cost or valuation

             
Opening balance 119,547 125,897 123,941 131,282 139,383 146,482 153,015
Additions (refer below for further breakdown) 6,555 8,221 7,964 8,628 7,433 7,444 7,055
Disposals (977) (229) (308) (287) (233) (749) (342)
Net revaluations (1,143) (226)
Other (41) (273) (89) (240) (101) (162) (108)
Total cost or valuation 123,941 133,616 131,282 139,383 146,482 153,015 159,620

Accumulated depreciation and impairment

             
Opening balance 9,412 12,263 10,611 14,349 18,197 22,177 25,901
Eliminated on disposal (587) (64) (108) (73) (73) (426) (109)
Eliminated on revaluation (1,349) (168)
Depreciation expense 3,582 3,834 3,767 4,032 4,192 4,328 4,440
Other (447) (159) 247 (111) (139) (178) (83)
Total accumulated depreciation and impairment 10,611 15,874 14,349 18,197 22,177 25,901 30,149
Total property, plant and equipment 113,330 117,742 116,933 121,186 124,305 127,114 129,471

Additions - by functional classification

             
Transport 2,383 2,494 2,947 2,685 2,502 2,851 2,408
Economic 1,425 1,793 1,507 2,573 2,187 1,434 1,863
Education 725 936 943 865 786 741 738
Health 430 932 716 605 498 412 459
Defence 526 936 597 726 451 591 595
Other 1,066 1,130 1,254 1,174 1,009 1,415 992
Total additions to property, plant and equipment1 6,555 8,221 7,964 8,628 7,433 7,444 7,055

Note 1: These additions do not include any purchases which may result from the allocation of the net forecast for new capital spending (separately disclosed in the Statement of Financial Position).

NOTE 15:  Intangible assets and goodwill
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

By type

             
Net Kyoto position1 212 231 444 444 444 444 444
Goodwill 487 457 484 484 484 484 484
Other intangible assets 1,485 1,908 1,596 1,786 1,775 1,751 1,701
Total intangible assets and goodwill 2,184 2,596 2,524 2,714 2,703 2,679 2,629

By source

             
Core Crown 1,122 1,327 1,375 1,498 1,515 1,518 1,503
Crown entities 417 503 444 500 507 493 466
State-owned enterprises 645 766 705 716 680 669 659
Inter-segment eliminations 1 (1) 1
Total intangible assets and goodwill 2,184 2,596 2,524 2,714 2,703 2,679 2,629

Note 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 to 2012 (the first commitment period of the Kyoto Protocol, or CP1) are 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.

To assist New Zealand in meeting its Kyoto Protocol commitments, an Emissions Trading Scheme (ETS) was established (refer note 20). These two initiatives should be looked at together when understanding New Zealand's international climate change obligations. The asset reported in these financial statements could be significantly reduced if international units are transferred offshore through foresters participating in the ETS. This, combined with other ETS variables, has a significant impact on the Government's net fiscal position from the Kyoto Protocol, which will crystallise when the first Kyoto commitment period is settled up post-2012.

These financial statements report on the New Zealand Government's international climate change obligations for the first commitment period, but not for future commitment periods which are currently being negotiated.

The latest Net Position estimate for 2011 can be found on the Ministry for the Environment's website: www.mfe.govt.nz/issues/climate/greenhouse-gas-emissions/net-position

NOTE 16: NZS Fund
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Revenue 433 520 495 551 574 603 642
Less current tax expense (27) 310 795 367 404 443 484
Less other expenses 502 135 267 172 189 207 221
Add gains/(losses) 1,750 978 3,576 1,215 1,360 1,506 1,647
Operating balance 1,708 1,053 3,009 1,227 1,341 1,459 1,584
Opening net worth 13,688 16,066 15,656 18,668 19,901 21,251 22,720
Gross contribution from the Crown 250
Operating balance 1,708 1,053 3,009 1,227 1,341 1,459 1,584
Other movements in reserves 10 5 3 6 9 10 12
Closing net worth 15,656 17,124 18,668 19,901 21,251 22,720 24,316

Comprising:

             
Financial assets 15,552 16,452 18,629 19,543 20,940 22,463 23,961
Net other assets 104 672 39 358 311 257 355
Closing net worth 15,656 17,124 18,668 19,901 21,251 22,720 24,316
NOTE 17: Payables
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

By type

             
Accounts payable 6,703 6,242 5,941 6,161 5,960 5,945 6,028
Taxes repayable 3,228 3,759 3,228 3,442 3,648 3,942 4,193
Total payables 9,931 10,001 9,169 9,603 9,608 9,887 10,221

By source

             
Core Crown 7,120 7,011 6,160 6,371 6,249 6,537 6,741
Crown entities 4,390 3,680 4,747 4,663 4,618 4,667 4,709
State-owned enterprises 4,652 4,876 4,842 4,917 5,099 5,132 5,236
Inter-segment eliminations (6,231) (5,566) (6,580) (6,348) (6,358) (6,449) (6,465)
Total payables 9,931 10,001 9,169 9,603 9,608 9,887 10,221

NOTE 18: Insurance liabilities

NOTE 18: Insurance liabilities
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

By entity

             
ACC liability 26,997 28,483 26,761 27,687 28,926 30,381 32,088
EQC property damage claims1 88 86 4,985 2,785 685 85 100
Other insurance liabilities 46 66 56 61 69 77 83
Total insurance liabilities 27,131 28,635 31,802 30,533 29,680 30,543 32,271

1The majority of the 2011 forecast balance relates to the Canterbury earthquakes.

ACC liability

Calculation information

PricewaterhouseCoopers Actuarial Pty Ltd has prepared an independent actuarial estimate of the ACC outstanding claims liability as at 31 December 2010. 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 key economic variables that impact on changes to the valuation are the long-term Labour Cost Index (LCI), average weekly earnings and the discount rate. Discount rates were derived from the yield curve for New Zealand government bonds. For these forecast statements, the claims liability has been updated for the latest discount rate as at 31 March 2011. The equivalent single effective discount rate, taking into account ACC's projected future cash flow patterns, is a short-term discount rate of 5.98% and a long-term discount rate of 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 New Zealand Government stock) are included in the asset portion of the Crown's overall statement of financial position.

NOTE 18: Insurance liabilities (continued)
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

Gross ACC liability

             
Opening gross liability 26,446 27,169 26,997 26,761 27,687 28,926 30,381
Net change 551 1,314 (236) 926 1,239 1,455 1,707
Closing gross liability 26,997 28,483 26,761 27,687 28,926 30,381 32,088

Less net assets available to ACC

             
Opening net asset value 13,695 16,607 16,745 20,236 23,162 26,509 30,172
Net change 3,050 2,282 3,491 2,926 3,347 3,663 4,012
Closing net asset value 16,745 18,889 20,236 23,162 26,509 30,172 34,184

Net ACC reserves (net liability)

             
Opening reserves position (12,751) (10,562) (10,252) (6,525) (4,525) (2,417) (209)
Net change 2,499 968 3,727 2,000 2,108 2,208 2,305
Closing reserves position (net liability) (10,252) (9,594) (6,525) (4,525) (2,417) (209) 2,096

NOTE 19: Retirement plan liabilities

NOTE 19: Retirement plan liabilities
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Government Superannuation Fund 9,936 8,817 9,268 8,891 8,577 8,312 8,081
Other funds 4 4 3 4 3 4 4
Total retirement plan liabilities 9,940 8,821 9,271 8,895 8,580 8,316 8,085

The net liability of the Government Superannuation Fund (GSF) liabilities has been calculated by the Government Actuary as at 31 January 2011. 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 31 January 2011, 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% (long-term rate unchanged from 30 June 2010). Other principal long-term financial assumptions were an inflation rate, as measured by the Consumer Price Index, of 4.6% for 2011 decreasing to 2.6% in 2012 and decreasing further to 2.5% from 2013 and an annual salary growth rate, before any promotional effects, of 3% (unchanged from 30 June 2010).

The 2010/11 projected reduction in the net GSF liability is $668 million, reflecting a decrease in the GSF liability of $384 million and an increase in the GSF assets of $284 million.

The decrease in the GSF liability of $384 million includes an actuarial gain between 1 July 2010 and 31 January 2011, of $61 million owing to experience adjustments. In addition to the actuarial gain, changes in the current service cost, interest cost and benefits paid to members give an overall net projected change of $384 million.

The increase in the value of the net assets of GSF of $284 million includes an actuarial gain, from 1 July 2010 to 31 January 2011, of $227 million. The balance of $57 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.

NOTE 19: Retirement plan liabilities (continued)
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

GSF net defined benefit retirement liability

             

GSF liability

             
Opening GSF liability 11,792 12,204 12,881 12,497 12,176 11,916 11,701
Net projected change 1,089 (320) (384) (321) (260) (215) (184)
Closing GSF liability 12,881 11,884 12,497 12,176 11,916 11,701 11,517

Less net assets available to GSF

             
Opening net asset value 2,804 3,050 2,945 3,229 3,285 3,339 3,389
Investment valuation changes 285 151 404 180 185 188 190
Contribution and other income less pension payments (144) (134) (120) (124) (131) (138) (143)
Closing net asset value 2,945 3,067 3,229 3,285 3,339 3,389 3,436

Net GSF liability

             
Opening unfunded liability 8,988 9,154 9,936 9,268 8,891 8,577 8,312
Net projected change 948 (337) (668) (377) (314) (265) (231)
Closing unfunded liability 9,936 8,817 9,268 8,891 8,577 8,312 8,081

NOTE 20: Provisions

NOTE 20: Provisions
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Provision for ETS credits 74 722 928 1,241 1,061 693 (76)
Provision for future Retail Deposit Guarantee Scheme payments 748
Provision for National Provident Fund guarantee 1,007 883 965 925 884 843 802
Provision for employee entitlements 2,836 2,516 2,896 2,919 2,988 2,882 2,905
Other provisions 1,319 1,034 4,046 3,844 2,994 2,735 1,967
Total provisions 5,984 5,155 8,835 8,929 7,927 7,153 5,598

By source

             
Core Crown 3,424 2,788 6,258 6,433 5,392 4,538 2,904
Crown entities 1,695 1,563 1,698 1,705 1,721 1,736 1,742
State-owned enterprises 925 862 952 882 918 995 1,080
Inter-segment eliminations (60) (58) (73) (91) (104) (116) (128)
Total provisions 5,984 5,155 8,835 8,929 7,927 7,153 5,598

Provision for ETS credits

The Emissions Trading Scheme (ETS) was established to encourage reduction in greenhouse gas emissions. The ETS creates 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 might occur where emissions exceed the number of allocated NZ Units. In the ETS transition period to the end of 2012, emitters can also use the NZ$25 price option to settle their emission obligation.

Until the end of 2012, the Government's net position regarding its climate change obligations will be determined by the net Kyoto position and the provision for ETS credits. After 2012, the net position will depend on any future international climate change commitments.

The carbon price is assumed to remain constant over the forecast period and is based on the estimated current carbon price of €10.95 with an exchange rate of 0.5387 (a carbon price of NZ$20.33).

The ETS impact on the fiscal forecast is as follows:

NOTE 20: Provisions (continued)
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Revenue 23 378 378 379 580 783 1,191
Expenses 80 1,007 1,232 692 400 415 422
OBEGAL (57) (629) (854) (313) 180 368 769
Provision for ETS credits 74 722 928 1,241 1,061 693 (76)

NOTE 21: Net worth attributable to the Crown

NOTE 21: Net worth attributable to the Crown
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
Taxpayer funds 31,087 26,983 21,720 14,463 13,161 15,482 20,095
Property, plant and equipment revaluation reserve 63,593 62,086 63,600 63,614 63,576 63,554 63,532
Investment revaluation reserve 59 62 63 69 77 88 100
Cash flow hedge reserve (143) (186) (219) (223) (223) (223) (223)
Foreign currency translation reserve (10) 24 (47) (53) (54) (52) (53)
Total net worth attributable to the Crown 94,586 88,969 85,117 77,870 76,537 78,849 83,451

Taxpayer Funds

             
Opening taxpayer funds 36,382 34,027 31,087 21,720 14,463 13,161 15,482
Operating balance excluding minority interest (4,509) (7,067) (9,437) (7,293) (1,350) 2,292 4,587
Transfers from/(to) other reserves (786) 23 70 36 48 29 26
Closing taxpayer funds 31,087 26,983 21,720 14,463 13,161 15,482 20,095

Property, plant and equipment revaluation reserve

             
Opening revaluation reserve 62,612 62,110 63,593 63,600 63,614 63,576 63,554
Net revaluations 196 69
Transfers from/(to) other reserves 785 (24) (62) 14 (38) (22) (22)
Closing property, plant and equipment revaluation reserve 63,593 62,086 63,600 63,614 63,576 63,554 63,532

Investment revaluation reserve

             
Opening investment revaluation reserve 56 61 59 63 69 77 88
Valuation gain/(losses) on investments available for sale taken to reserves 3 1 4 6 8 11 12
Closing investment revaluation reserve 59 62 63 69 77 88 100

Cash flow hedge reserve

             
Opening cash flow hedge reserve 18 (190) (143) (219) (223) (223) (223)
Transfer into reserve (96) 5 (52) 3
Transfer to the statement of financial performance (62) (1) (16)
Transfer to initial carrying value of hedged item (3) (8) (7)
Closing cash flow hedge reserve (143) (186) (219) (223) (223) (223) (223)

Foreign currency translation reserve

             
Opening foreign currency translation reserve 24 (10) (47) (53) (54) (52)
Movement arising from translation of foreign operations (10) (37) (6) (1) 2 (1)
Closing foreign currency translation reserve (10) 24 (47) (53) (54) (52) (53)

NOTE 22:  Reconciliation of core Crown operating cash flows to residual core Crown cash

NOTE 22: Reconciliation of core Crown operating cash flows to residual core Crown cash
  2010
Actual
$m
2011
Previous
Budget
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m

Core Crown cash flows from operations

             
Total tax receipts 50,631 53,348 51,076 55,084 59,471 64,063 68,062
Total other sovereign receipts 566 582 645 645 640 670 695
Interest, profits and dividends 1,897 1,572 1,810 1,469 1,791 1,910 2,161
Sale of goods and services and other receipts 2,658 2,214 2,141 2,496 2,131 2,075 2,091
Transfer payments and subsidies (21,605) (22,726) (22,480) (23,448) (23,712) (24,323) (25,300)
Personnel and operating costs (37,157) (40,498) (41,435) (42,107) (40,624) (39,545) (39,633)
Finance costs (1,981) (2,847) (2,558) (3,493) (4,166) (4,351) (5,035)
Forecast for future new operating spending (394) (463) (1,040) (1,815) (3,007)
Top-down expense adjustment 410 250 310 50 50 50
Net cash flows from core Crown operations (4,991) (8,339) (10,551) (9,507) (5,459) (1,266) 84
Net purchase of physical assets (1,778) (2,258) (1,886) (1,863) (1,439) (2,014) (1,634)
Net increase in advances (926) (905) (1,334) (879) (940) (897) (679)
Net purchase of investments (1,055) (1,843) (1,280) (1,261) (1,109) (1,215) (1,822)
Contribution to NZS Fund (250)
Forecast for future new capital spending (282) (242) (454) (651) (800)
Balance sheet funding of new capital spending 100 450 650 800
Top-down capital adjustment 300 100 170
Residual cash (9,000) (13,327) (14,951) (13,482) (8,951) (5,393) (4,051)

Financed by:

             
Other net sale/(purchase) of marketable securities and deposits 2,002 (286) (5,883) 6,733 6,983 (4,595) 6,032
Total operating and investing activities (6,998) (13,613) (20,834) (6,749) (1,968) (9,988) 1,981

Used in:

             
Net (repayment)/issue of other New Zealand dollar borrowing (3,938) 5,815 1,679 8,295 478 964 1,606
Net (repayment)/issue of foreign currency borrowing 3,368 (5,320) (1,734) (6,871) (573) (872) (1,523)
Issues of circulating currency 15 104 359 219 230 241 253
Decrease/(increase) in cash (817) 14 551 (1) 1 1
  (1,372) 613 855 1,642 136 333 337
Net cash inflow/(outflow) to be offset by domestic bonds (8,370) (13,000) (19,979) (5,107) (1,832) (9,655) 2,318

Gross cash proceeds from domestic bonds

             
Domestic bonds (market) 12,424 12,776 20,760 13,635 11,721 9,548 7,556
Domestic bonds (non-market) 799 224 372 187 504 247 365
Total gross cash proceeds from domestic bonds 13,223 13,000 21,132 13,822 12,225 9,795 7,921
Repayment of domestic bonds (market) (4,197) (7,602) (9,992) (9,984)
Repayment of domestic bonds (non-market) (656) (1,153) (1,113) (401) (140) (255)
Net cash proceeds from domestic bonds 8,370 13,000 19,979 5,107 1,832 9,655 (2,318)

Forecast Statement of Segments

Statement of Financial Performance for the year ended 30 June 2010

Statement of Financial Performance for the year ended 30 June 2010
  Core Crown
2010
Actual
$m
Crown entities
2010
Actual
$m
State-owned
enterprises
2010
Actual
$m
Inter-segment
eliminations
2010
Actual
$m
Total Crown
2010
Actual
$m

Revenue

         
Taxation revenue 50,744 (397) 50,347
Other sovereign revenue 1,015 4,840 (1,173) 4,682
Sales of goods and services 1,387 14,107 11,979 (13,142) 14,331
Interest revenue and dividends 2,135 1,146 626 (1,592) 2,315
Other revenue 935 12,553 974 (11,412) 3,050
Total revenue (excluding gains) 56,216 32,646 13,579 (27,716) 74,725

Expenses

         
Social assistance and official development assistance 21,484 (271) 21,213
Personnel expenses 5,991 10,043 2,455 (12) 18,477
Other operating expenses 34,227 21,379 9,512 (26,545) 38,573
Interest expenses 2,311 245 845 (624) 2,777
Forecast for future new spending and top-down adjustment
Total expenses (excluding losses) 64,013 31,667 12,812 (27,452) 81,040
Operating balance before gains/(losses) (7,797) 979 767 (264) (6,315)
Total gains/(losses) 742 1,185 (112) (253) 1,562
Net surplus/(deficit) from associates and joint ventures 55 209 (37) 227
Attributable to minority interest in Air NZ 17 17
Operating balance (7,000) 2,373 635 (517) (4,509)

Expenses by functional classification

         
Social security and welfare 21,185 3,848 (827) 24,206
Health 13,128 11,070 (11,525) 12,673
Education 11,724 9,010 23 (8,317) 12,440
Transport and communications 2,345 2,108 5,977 (2,439) 7,991
Other 13,320 5,386 5,967 (3,720) 20,953
Finance costs 2,311 245 845 (624) 2,777
Forecast for future new spending and top down adjustment
Total Crown expenses (excluding losses) 64,013 31,667 12,812 (27,452) 81,040

Statement of Financial Position as at 30 June 2010

Statement of Financial Position as at 30 June 2010
  Core Crown
2010
Actual
$m
Crown entities
2010
Actual
$m
State-owned
enterprises
2010
Actual
$m
Inter-segment
eliminations
2010
Actual
$m
Total Crown
2010
Actual
$m

Assets

         
Cash and cash equivalents 4,973 2,392 585 (176) 7,774
Receivables 8,776 4,713 1,740 (1,345) 13,884
Other financial assets 52,232 21,031 13,740 (12,690) 74,313
Property, plant and equipment 29,986 48,109 35,235 113,330
Equity accounted investments 28,663 7,760 223 (27,597) 9,049
Intangible assets and goodwill 1,122 417 645 2,184
Inventory and other assets 1,463 326 1,071 (39) 2,821
Forecast for new capital spending and top-down adjustment
Total assets 127,215 84,748 53,239 (41,847) 223,355

Liabilities

         
Borrowings 57,583 4,835 19,747 (12,432) 69,733
Other liabilities 24,963 33,421 6,612 (6,362) 58,634
Total liabilities 82,546 38,256 26,359 (18,794) 128,367
Total assets less total liabilities 44,669 46,492 26,880 (23,053) 94,988

Net worth

         
Taxpayer funds 28,761 19,316 9,373 (26,363) 31,087
Reserves 15,908 27,176 17,064 3,351 63,499
Net worth attributable to minority interest in Air NZ 443 (41) 402
Total net worth 44,669 46,492 26,880 (23,053) 94,988

Statement of Financial Performance for the year ended 30 June 2011

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

Revenue

         
Taxation revenue 51,189 (549) 50,640
Other sovereign revenue 1,346 5,209 (1,111) 5,444
Sales of goods and services 1,487 14,391 12,640 (13,390) 15,128
Interest revenue and dividends 2,185 1,106 763 (1,436) 2,618
Other revenue 743 16,308 1,017 (11,729) 6,339
Total revenue (excluding gains) 56,950 37,014 14,420 (28,215) 80,169

Expenses

         
Social assistance and official development assistance 22,396 (56) 22,340
Personnel expenses 5,905 10,309 2,654 (9) 18,859
Other operating expenses 41,665 27,566 9,841 (26,630) 52,442
Interest expenses 3,078 247 1,010 (829) 3,506
Forecast for future new spending and top-down adjustment (250) (250)
Total expenses (excluding losses) 72,794 38,122 13,505 (27,524) 96,897
Operating balance before gains/(losses) (15,844) (1,108) 915 (691) (16,728)
Total gains/(losses) 4,900 2,323 45 (230) 7,038
Net surplus/(deficit) from associates and joint ventures 53 200 4 (4) 253
Attributable to minority interest in Air NZ
Operating balance (10,891) 1,415 964 (925) (9,437)

Expenses by functional classification

         
Social security and welfare 22,175 4,103 (641) 25,637
Health 13,774 11,285 (11,941) 13,118
Education 12,039 9,341 24 (8,621) 12,783
Transport and communications 2,330 2,093 6,135 (2,314) 8,244
Other 19,648 11,053 6,336 (3,178) 33,859
Finance costs 3,078 247 1,010 (829) 3,506
Forecast for future new spending and top-down adjustment (250) (250)
Total Crown expenses (excluding losses) 72,794 38,122 13,505 (27,524) 96,897

Statement of Financial Position as at 30 June 2011

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

Assets

         
Cash and cash equivalents 6,481 2,366 425 (169) 9,103
Receivables 8,956 8,218 2,223 (1,883) 17,514
Other financial assets 58,604 23,313 14,965 (13,819) 83,063
Property, plant and equipment 30,334 49,722 36,876 1 116,933
Equity accounted investments 29,878 7,977 382 (28,839) 9,398
Intangible assets and goodwill 1,374 444 705 1 2,524
Inventory and other assets 1,574 345 1,087 (29) 2,977
Forecast for new capital spending and top-down adjustment (100) (100)
Total assets 137,101 92,385 56,663 (44,737) 241,412

Liabilities

         
Borrowings 76,942 5,129 22,600 (13,668) 91,003
Other liabilities 26,427 38,439 6,732 (6,708) 64,890
Total liabilities 103,369 43,568 29,332 (20,376) 155,893
Total assets less total liabilities 33,732 48,817 27,331 (24,361) 85,519

Net worth

         
Taxpayer funds 17,882 21,625 9,716 (27,503) 21,720
Reserves 15,850 27,192 17,172 3,183 63,397
Net worth attributable to minority interest in Air NZ 443 (41) 402
Total net worth 33,732 48,817 27,331 (24,361) 85,519

Statement of Financial Performance for the year ended 30 June 2012

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

Revenue

         
Taxation revenue 55,222 (532) 54,690
Other sovereign revenue 1,500 5,549 (1,241) 5,808
Sales of goods and services 1,489 13,917 13,537 (12,865) 16,078
Interest revenue and dividends 2,134 768 1,021 (872) 3,051
Other revenue 716 13,627 956 (12,193) 3,106
Total revenue (excluding gains) 61,061 33,861 15,514 (27,703) 82,733

Expenses

         
Social assistance and official development assistance 22,939 (13) 22,926
Personnel expenses 6,021 10,440 2,697 (9) 19,149
Other operating expenses 40,200 21,510 10,576 (26,725) 45,561
Interest expenses 3,714 272 1,392 (693) 4,685
Forecast for future new spending and top-down adjustment 153 153
Total expenses (excluding losses) 73,027 32,222 14,665 (27,440) 92,474
Operating balance before gains/(losses) (11,966) 1,639 849 (263) (9,741)
Total gains/(losses) 1,538 687 113 (193) 2,145
Net surplus/(deficit) from associates and joint ventures 78 207 19 (1) 303
Attributable to minority interest in Air NZ
Operating balance (10,350) 2,533 981 (457) (7,293)

Expenses by functional classification

         
Social security and welfare 22,935 4,035 (617) 26,353
Health 14,353 11,792 (12,358) 13,787
Education 12,257 9,384 24 (8,660) 13,005
Transport and communications 2,378 2,202 6,419 (2,415) 8,584
Other 17,237 4,537 6,830 (2,697) 25,907
Finance costs 3,714 272 1,392 (693) 4,685
Forecast for future new spending and top-down adjustment 153 153
Total Crown expenses (excluding losses) 73,027 32,222 14,665 (27,440) 92,474

Statement of Financial Position as at 30 June 2012

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

Assets

         
Cash and cash equivalents 6,266 2,297 494 (171) 8,886
Receivables 8,785 7,254 2,358 (1,688) 16,709
Other financial assets 53,458 25,170 16,772 (13,838) 81,562
Property, plant and equipment 30,594 50,949 39,642 1 121,186
Equity accounted investments 31,120 8,184 396 (30,087) 9,613
Intangible assets and goodwill 1,498 500 716 2,714
Inventory and other assets 1,595 359 1,117 (29) 3,042
Forecast for new capital spending and top-down adjustment (128) (128)
Total assets 133,188 94,713 61,495 (45,812) 243,584

Liabilities

         
Borrowings 83,194 5,351 26,642 (13,804) 101,383
Other liabilities 26,590 37,090 6,738 (6,489) 63,929
Total liabilities 109,784 42,441 33,380 (20,293) 165,312
Total assets less total liabilities 23,404 52,272 28,115 (25,519) 78,272

Net worth

         
Taxpayer funds 7,536 25,112 10,536 (28,721) 14,463
Reserves 15,868 27,160 17,136 3,243 63,407
Net worth attributable to minority interest in Air NZ 443 (41) 402
Total net worth 23,404 52,272 28,115 (25,519) 78,272

Statement of Financial Performance for the year ended 30 June 2013

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

Revenue

         
Taxation revenue 59,906 (636) 59,270
Other sovereign revenue 1,793 5,730 (1,305) 6,218
Sales of goods and services 1,431 13,984 14,550 (12,873) 17,092
Interest revenue and dividends 2,552 944 1,041 (1,147) 3,390
Other revenue 685 13,601 812 (11,892) 3,206
Total revenue (excluding gains) 66,367 34,259 16,403 (27,853) 89,176

Expenses

         
Social assistance and official development assistance 23,583 (41) 23,542
Personnel expenses 5,969 10,685 2,754 (9) 19,399
Other operating expenses 37,683 21,718 11,202 (26,651) 43,952
Interest expenses 4,325 286 1,442 (663) 5,390
Forecast for future new spending and top-down adjustment 990 990
Total expenses (excluding losses) 72,550 32,689 15,398 (27,364) 93,273
Operating balance before gains/(losses) (6,183) 1,570 1,005 (489) (4,097)
Total gains/(losses) 1,650 841 123 (194) 2,420
Net surplus/(deficit) from associates and joint ventures 80 204 45 (2) 327
Attributable to minority interest in Air NZ
Operating balance (4,453) 2,615 1,173 (685) (1,350)

Expenses by functional classification

         
Social security and welfare 23,644 4,451 (663) 27,432
Health 14,332 11,730 (12,403) 13,659
Education 12,266 9,554 24 (8,757) 13,087
Transport and communications 2,096 2,248 6,575 (2,284) 8,635
Other 14,897 4,420 7,357 (2,594) 24,080
Finance costs 4,325 286 1,442 (663) 5,390
Forecast for future new spending and top-down adjustment 990 990
Total Crown expenses (excluding losses) 72,550 32,689 15,398 (27,364) 93,273

Statement of Financial Position as at 30 June 2013

Statement of Financial Position as at 30 June 2013
  Core Crown
2013
Forecast
$m
Crown entities
2013
Forecast
$m
State-owned
enterprises
2013
Forecast
$m
Inter-segment
eliminations
2013
Forecast
$m
Total Crown
2013
Forecast
$m

Assets

         
Cash and cash equivalents 6,287 2,286 526 (170) 8,929
Receivables 8,722 5,834 2,415 (1,702) 15,269
Other financial assets 48,229 28,014 18,443 (15,107) 79,579
Property, plant and equipment 30,461 52,148 41,696 124,305
Equity accounted investments 32,200 8,389 422 (31,196) 9,815
Intangible assets and goodwill 1,516 507 680 2,703
Inventory and other assets 1,596 362 1,150 (27) 3,081
Forecast for new capital spending and top-down adjustment (124) (124)
Total assets 128,887 97,540 65,332 (48,202) 243,557

Liabilities

         
Borrowings 84,612 5,421 29,718 (15,099) 104,652
Other liabilities 25,313 36,206 6,959 (6,512) 61,966
Total liabilities 109,925 41,627 36,677 (21,611) 166,618
Total assets less total liabilities 18,962 55,913 28,655 (26,591) 76,939

Net worth

         
Taxpayer funds 3,084 28,792 11,078 (29,793) 13,161
Reserves 15,878 27,121 17,134 3,243 63,376
Net worth attributable to minority interest in Air NZ 443 (41) 402
Total net worth 18,962 55,913 28,655 (26,591) 76,939

Statement of Financial Performance for the year ended 30 June 2014

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

Revenue

         
Taxation revenue 64,441 (689) 63,752
Other sovereign revenue 2,127 5,882 (1,368) 6,641
Sales of goods and services 1,448 14,018 15,325 (12,884) 17,907
Interest revenue and dividends 2,773 1,104 1,045 (1,268) 3,654
Other revenue 702 13,426 756 (11,576) 3,308
Total revenue (excluding gains) 71,491 34,430 17,126 (27,785) 95,262

Expenses

         
Social assistance and official development assistance 24,192 (43) 24,149
Personnel expenses 6,010 10,659 2,812 (9) 19,472
Other operating expenses 37,475 22,081 11,700 (26,466) 44,790
Interest expenses 4,701 301 1,537 (734) 5,805
Forecast for future new spending and top-down adjustment 1,765 1,765
Total expenses (excluding losses) 74,143 33,041 16,049 (27,252) 95,981
Operating balance before gains/(losses) (2,652) 1,389 1,077 (533) (719)
Total gains/(losses) 1,755 1,023 121 (213) 2,686
Net surplus/(deficit) from associates and joint ventures 77 205 47 (4) 325
Attributable to minority interest in Air NZ
Operating balance (820) 2,617 1,245 (750) 2,292

Expenses by functional classification

         
Social security and welfare 24,396 4,751 (678) 28,469
Health 14,242 11,787 (12,395) 13,634
Education 12,077 9,430 24 (8,587) 12,944
Transport and communications 2,087 2,320 6,778 (2,291) 8,894
Other 14,875 4,452 7,710 (2,567) 24,470
Finance costs 4,701 301 1,537 (734) 5,805
Forecast for future new spending and top-down adjustment 1,765 1,765
Total Crown expenses (excluding losses) 74,143 33,041 16,049 (27,252) 95,981

Statement of Financial Position as at 30 June 2014

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

Assets

         
Cash and cash equivalents 6,307 2,295 599 (169) 9,032
Receivables 8,841 5,510 2,535 (1,778) 15,108
Other financial assets 54,601 31,755 18,720 (16,441) 88,635
Property, plant and equipment 30,923 53,212 42,980 (1) 127,114
Equity accounted investments 33,369 8,594 447 (32,400) 10,010
Intangible assets and goodwill 1,517 493 669 2,679
Inventory and other assets 1,590 364 1,157 (29) 3,082
Forecast for new capital spending and top-down adjustment (123) (123)
Total assets 137,025 102,223 67,107 (50,818) 255,537

Liabilities

         
Borrowings 94,170 5,461 30,822 (16,459) 113,994
Other liabilities 24,697 37,134 7,074 (6,613) 62,292
Total liabilities 118,867 42,595 37,896 (23,072) 176,286
Total assets less total liabilities 18,158 59,628 29,211 (27,746) 79,251

Net worth

         
Taxpayer funds 2,267 32,531 11,632 (30,948) 15,482
Reserves 15,891 27,097 17,136 3,243 63,367
Net worth attributable to minority interest in Air NZ 443 (41) 402
Total net worth 18,158 59,628 29,211 (27,746) 79,251

Statement of Financial Performance for the year ended 30 June 2015

Statement of Financial Performance for the year ended 30 June 2015
  Core Crown
2015
Forecast
$m
Crown entities
2015
Forecast
$m
State-owned
enterprises
2015
Forecast
$m
Inter-segment
eliminations
2015
Forecast
$m
Total Crown
2015
Forecast
$m

Revenue

         
Taxation revenue 68,490 (744) 67,746
Other sovereign revenue 2,687 6,057 (1,421) 7,323
Sales of goods and services 1,439 14,078 15,854 (12,917) 18,454
Interest revenue and dividends 3,103 1,281 1,057 (1,355) 4,086
Other revenue 694 13,568 782 (11,670) 3,374
Total revenue (excluding gains) 76,413 34,984 17,693 (28,107) 100,983

Expenses

         
Social assistance and official development assistance 25,157 (42) 25,115
Personnel expenses 6,078 10,813 2,866 (10) 19,747
Other operating expenses 37,690 22,499 12,015 (26,687) 45,517
Interest expenses 5,254 301 1,601 (806) 6,350
Forecast for future new spending and top-down adjustment 2,957 2,957
Total expenses (excluding losses) 77,136 33,613 16,482 (27,545) 99,686
Operating balance before gains/(losses) (723) 1,371 1,211 (562) 1,297
Total gains/(losses) 1,871 1,186 137 (220) 2,974
Net surplus/(deficit) from associates and joint ventures 72 206 39 (1) 316
Attributable to minority interest in Air NZ
Operating balance 1,220 2,763 1,387 (783) 4,587

Expenses by functional classification

         
Social security and welfare 25,334 5,062 (695) 29,701
Health 14,236 11,819 (12,416) 13,639
Education 12,236 9,634 24 (8,760) 13,134
Transport and communications 2,082 2,315 7,007 (2,293) 9,111
Other 15,037 4,482 7,850 (2,575) 24,794
Finance costs 5,254 301 1,601 (806) 6,350
Forecast for future new spending and top-down adjustment 2,957 2,957
Total Crown expenses (excluding losses) 77,136 33,613 16,482 (27,545) 99,686

Statement of Financial Position as at 30 June 2015

Statement of Financial Position as at 30 June 2015
  Core Crown
2015
Forecast
$m
Crown entities
2015
Forecast
$m
State-owned
enterprises
2015
Forecast
$m
Inter-segment
eliminations
2015
Forecast
$m
Total Crown
2015
Forecast
$m

Assets

         
Cash and cash equivalents 6,448 2,399 655 (170) 9,332
Receivables 8,969 5,957 2,596 (1,817) 15,705
Other financial assets 50,265 35,597 18,997 (17,576) 87,283
Property, plant and equipment 31,023 54,386 44,063 (1) 129,471
Equity accounted investments 34,744 8,800 473 (33,722) 10,295
Intangible assets and goodwill 1,504 466 659 2,629
Inventory and other assets 1,610 364 1,161 (29) 3,106
Forecast for new capital spending and top-down adjustment (123) (123)
Total assets 134,440 107,969 68,604 (53,315) 257,698

Liabilities

         
Borrowings 91,757 5,433 31,460 (17,627) 111,023
Other liabilities 23,285 38,911 7,268 (6,642) 62,822
Total liabilities 115,042 44,344 38,728 (24,269) 173,845
Total assets less total liabilities 19,398 63,625 29,876 (29,046) 83,853

Net worth

         
Taxpayer funds 3,492 36,552 12,299 (32,248) 20,095
Reserves 15,906 27,073 17,134 3,243 63,356
Net worth attributable to minority interest in Air NZ 443 (41) 402
Total net worth 19,398 63,625 29,876 (29,046) 83,853

6 Core Crown Expense Tables

[23]

Core Crown Expense Tables
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Social security and welfare 15,598 16,768 17,877 19,382 21,185 22,175 22,935 23,644 24,396 25,334
GSF pension expenses 761 645 690 655 328 281 302 383 439 480
Health 9,547 10,355 11,297 12,368 13,128 13,774 14,353 14,332 14,242 14,236
Education 9,914 9,269 9,551 11,455 11,724 12,039 12,257 12,266 12,077 12,236
Core government services 2,507 4,816 3,371 5,293 2,974 6,357 5,564 4,296 4,352 4,457
Law and order 2,235 2,699 2,894 3,089 3,191 3,526 3,555 3,438 3,423 3,418
Defence 1,383 1,517 1,562 1,757 1,814 1,890 1,911 1,863 1,863 1,862
Transport and communications 1,818 2,405 2,244 2,663 2,345 2,330 2,378 2,096 2,087 2,082
Economic and industrial services 1,592 1,595 2,889 2,960 2,839 2,755 2,235 1,901 1,849 1,872
Primary services 467 438 541 534 507 731 755 706 698 700
Heritage, culture and recreation 891 844 1,107 1,002 1,281 2,437 1,947 1,535 1,490 1,485
Housing and community development 202 255 260 297 306 1,046 333 299 287 290
Other 49 68 254 118 80 625 635 476 474 473
Finance costs 2,356 2,329 2,460 2,429 2,311 3,078 3,714 4,325 4,701 5,254
Forecast for future new spending  ..   ..   ..   ..   ..   ..  463 1,040 1,815 3,007
Top-down expense adjustment  ..   ..   ..   ..   ..  ( 250) ( 310) ( 50) ( 50) ( 50)
Core Crown expenses 49,320 54,003 56,997 64,002 64,013 72,794 73,027 72,550 74,143 77,136

Source: The Treasury

Notes

  • [23]Historical data contained in the expense tables have been restated on a NZ IFRS basis for material changes.
Table 6.1 - Social security and welfare expenses
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Welfare benefits 14,246 15,435 16,288 17,366 18,961 19,917 20,852 21,593 22,237 23,166
Social rehabilitation and compensation 145 163 199 336 331 120 81 112 113 112
Departmental expenses 858 845 850 1,092 1,130 1,154 1,118 1,104 1,098 1,100
Child support impairment 151 183 193 205 371 280 446 533 643 643
Other non-departmental expenses1 198 142 347 383 392 704 438 302 305 313
Social security and welfare expenses 15,598 16,768 17,877 19,382 21,185 22,175 22,935 23,644 24,396 25,334

Note 1: Other non-departmental expenses in the 2011 forecast include costs associated with the Canterbury earthquakes.

Source: The Treasury

Table 6.2 - New Zealand Superannuation and welfare benefit expenses
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
New Zealand Superannuation 6,414 6,810 7,348 7,744 8,290 8,833 9,575 10,214 10,887 11,666
Domestic Purposes Benefit 1,493 1,468 1,478 1,530 1,693 1,765 1,895 1,950 1,997 2,062
Unemployment Benefit 712 613 458 586 930 959 1,029 1,007 900 862
Invalid's Benefit 1,073 1,132 1,216 1,260 1,303 1,307 1,347 1,382 1,414 1,452
Family Tax Credit 1,285 1,699 1,897 2,062 2,168 2,214 2,178 2,149 2,101 2,097
Accommodation Supplement 843 877 891 989 1,154 1,202 1,264 1,295 1,306 1,335
Sickness Benefit 541 573 582 613 710 742 782 807 832 860
Disability Allowance 261 270 278 390 411 410 411 406 415 425
Income-Related Rents 395 434 465 512 522 559 587 623 663 705
In Work Tax Credit 70 461 563 584 595 592 567 560 527 500
Child Tax Credit 154 44 11 6 4 3 2 2 1 1
Special Benefit 162 106 71 ..  ..  ..  ..  ..  ..  .. 
Benefits paid in Australia 80 71 58 50 45 40 37 22 19 16
Paid Parental Leave 96 122 135 143 154 155 164 173 184 194
Childcare Assistance 110 139 150 159 178 190 188 185 181 180
War Disablement Pensions 113 122 134 125 137 136 137 136 133 131
Veteran's Pension 128 143 161 176 179 178 179 176 174 172
Other benefits 316 351 392 437 488 632 510 506 503 508
Benefit expenses 14,246 15,435 16,288 17,366 18,961 19,917 20,852 21,593 22,237 23,166

Source: The Treasury

Table 6.3 - Beneficiary numbers
(Thousands) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
New Zealand Superannuation 482 495 508 522 540 561 583 607 628 650
Domestic Purposes Benefit 106 100 97 101 110 114 118 118 118 119
Unemployment Benefit 64 52 37 48 78 81 84 80 70 66
Accommodation Supplement 249 251 245 267 312 322 330 332 329 331
Invalid's Benefit 76 78 82 86 88 88 89 89 89 89
Sickness Benefit 47 48 48 50 58 60 61 62 62 63

Source: Ministry of Social Development

Table 6.4 - Health expenses
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Departmental outputs 174 180 206 206 211 201 200 201 201 201
Health services purchasing 8,805 9,614 10,503 11,354 12,077 12,539 13,231 13,159 13,084 13,086
Other non-departmental outputs 135 99 97 98 106 124 119 117 111 111
Health payments to ACC 372 425 463 667 691 854 752 804 795 786
Other expenses 61 37 28 43 43 56 51 51 51 52
Health expenses 9,547 10,355 11,297 12,368 13,128 13,774 14,353 14,332 14,242 14,236

Source: The Treasury

Table 6.5 - Health services purchasing
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Payments to District Health Boards 7,814 8,547 9,312 10,038 10,670 11,115 11,749 11,665 11,650 11,666
National disability support services 699 755 834 889 930 974 1,028 1,013 1,013 1,013
Public health services purchasing 292 312 357 427 477 450 454 481 421 407
Health services purchasing 8,805 9,614 10,503 11,354 12,077 12,539 13,231 13,159 13,084 13,086

Source: The Treasury

Table 6.6 - Education expenses
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Early childhood education 555 617 860 1,030 1,184 1,366 1,424 1,486 1,528 1,564
Primary and secondary schools 4,153 4,325 4,552 4,936 5,157 5,431 5,487 5,578 5,405 5,550
Tertiary funding 4,047 3,322 3,266 4,564 4,465 4,209 4,273 4,210 4,160 4,145
Departmental expenses 821 875 828 888 898 983 1,027 979 974 966
Other education expenses 338 130 45 37 20 50 46 13 10 11
Education expenses 9,914 9,269 9,551 11,455 11,724 12,039 12,257 12,266 12,077 12,236
Places 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Early childhood education1 115,903 123,196 133,863 142,014 155,108 163,973 172,195 176,793 180,842 186,304

Note 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 6.7 - Primary and secondary education expenses
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Primary 2,062 2,141 2,262 2,484 2,622 2,779 2,809 2,869 2,790 2,892
Secondary 1,618 1,682 1,761 1,898 1,972 2,076 2,091 2,114 2,019 2,050
School transport 118 125 131 152 160 163 172 180 186 193
Special needs support 245 263 278 290 297 312 318 318 313 318
Professional development 101 104 108 101 95 91 88 88 88 88
Schooling improvement 9 10 12 11 11 10 9 9 9 9
Primary and secondary education expenses 4,153 4,325 4,552 4,936 5,157 5,431 5,487 5,578 5,405 5,550
Places 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Primary1 481,007 479,230 475,820 474,630 473,431 475,454 481,114 486,630 492,555 500,821
Secondary1 275,869 277,619 277,582 280,062 281,095 283,286 281,774 277,806 272,943 268,125

Note 1: Restated in 1999, these 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 13). These numbers include special school rolls but exclude health camps, hospital schools and home schooling.

Sources: Ministry of Education, The Treasury

Table 6.8 - Tertiary education expenses
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Tuition 1,865 1,962 2,172 2,287 2,398 2,368 2,369 2,381 2,369 2,371
Other tertiary funding 110 339 452 522 489 444 460 440 440 440
Tertiary student allowances 354 382 386 444 570 626 627 570 525 507
Initial fair value change in student loans 1,415 ..  ..  ..  ..  ..  ..  ..  ..  .. 
Student loans 303 639 256 1,311 1,008 771 817 819 826 827
Tertiary education expenses 4,047 3,322 3,266 4,564 4,465 4,209 4,273 4,210 4,160 4,145
Places (year) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Estimated funded places1 223,761 225,652 225,836 234,230 239,978 240,232 244,339 242,533 242,633 242,687
Actual delivered places1 226,891 230,319 229,224 246,041 250,422          

Note 1: Tertiary places are the number of equivalent full time (EFT) students in: student achievement component; adult and community education; and youth guarantee programmes. Note that historical place numbers have been revised so will differ from previous published EFU numbers. Place numbers are based on calendar years rather than fiscal years.

Sources: Ministry of Education, The Treasury

Table 6.9 - Core government service expenses
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Official development assistance 330 330 362 458 435 493 525 509 534 559
Indemnity and guarantee expenses ..  ..  ..  992 7 402 59 58 58 58
Departmental expenses 1,403 1,402 1,557 1,668 1,324 1,539 1,653 1,613 1,608 1,619
Non-departmental expenses ..  237 277 117 236 456 524 545 550 571
Tax receivable write-down and impairments 338 2,479 701 1,654 590 1,053 1,104 1,068 1,112 1,157
Science expenses 157 163 168 179 191 177 119 121 122 125
Other expenses1 279 205 306 225 191 2,237 1,580 382 368 368
Core government service expenses 2,507 4,816 3,371 5,293 2,974 6,357 5,564 4,296 4,352 4,457

Note 1: Other expenses in the forecast period include costs associated with the Canterbury earthquakes.

Source: The Treasury

Table 6.10 - Law and order expenses
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Police 976 1,086 1,198 1,326 1,349 1,344 1,337 1,334 1,329 1,329
Ministry of Justice 299 454 367 379 372 413 451 444 438 439
Department of Corrections 572 662 787 829 903 1,017 997 1,014 1,014 1,014
NZ Customs Service1 12 12 12 12 13 122 138 147 148 147
Other departments 64 48 79 80 102 105 99 69 72 72
Department expenses 1,923 2,262 2,443 2,626 2,739 3,001 3,022 3,008 3,001 3,001
Non-departmental outputs 262 354 326 380 399 447 444 358 359 360
Other expenses 50 83 125 83 53 78 89 72 63 57
Law and order expenses 2,235 2,699 2,894 3,089 3,191 3,526 3,555 3,438 3,423 3,418

Source: The Treasury

Note 1: Previously the majority of NZ Customs Service expenses were classified as core government services.

Table 6.11 - Defence expenses
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
NZDF core expenses 1,306 1,459 1,517 1,697 1,747 1,799 1,852 1,813 1,813 1,812
Other expenses 77 58 45 60 67 91 59 50 50 50
Defence expenses 1,383 1,517 1,562 1,757 1,814 1,890 1,911 1,863 1,863 1,862

Source: The Treasury

Table 6.12 - Transport and communication expenses
($million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
New Zealand Transport Agency1 1,482 1,874 1,966 1,562 1,778 1,704 1,793 1,838 1,902 1,902
Departmental outputs 101 113 137 83 63 65 66 65 65 65
Other non-departmental expenses 109 221 104 170 58 121 142 92 91 87
Asset impairments 47 47 ..  320 ..  ..  ..  ..  ..  .. 
Rail funding 77 142 24 507 418 410 347 77 3 3
Other expenses 2 8 13 21 28 30 30 24 26 25
Transport and communication expenses 1,818 2,405 2,244 2,663 2,345 2,330 2,378 2,096 2,087 2,082

Note 1: Since 2008/09 funding has been provided to New Zealand Transport Agency (NZTA). From 2004/05 to 2007/08 funding was provided to Land Transport NZ. 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 6.13 - Economic and industrial services expenses
($ million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Departmental outputs 549 546 603 389 382 446 426 413 416 414
Employment initiatives 202 207 186 185 220 231 228 196 196 196
Non-departmental outputs 751 873 822 809 927 842 698 598 556 551
Reserve electricity generation 26 16 81 20 23 20 11 ..  ..  .. 
Flood relief 8 ..  ..  ..  ..  ..  ..  ..  ..  .. 
KiwiSaver ..  ..  1,102 1,281 1,024 1,039 656 614 596 631
Research and development tax credits ..  ..  37 154 ..  ..  ..  ..  ..  .. 
Other expenses 56 (47) 58 122 263 177 216 80 85 80
Economic and industrial services expenses 1,592 1,595 2,889 2,960 2,839 2,755 2,235 1,901 1,849 1,872

Source: The Treasury

Table 6.14 - Employment initiatives
($ million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Training incentive allowance 32 29 27 30 19 20 16 15 15 15
Subsidised work 84 88 67 63 109 120 121 89 89 89
Employment support for the disabled 82 86 88 88 88 87 87 88 88 88
Other employment assistance schemes 4 4 4 4 4 4 4 4 4 4
Employment initiatives 202 207 186 185 220 231 228 196 196 196

Source: The Treasury

Table 6.15 - Primary service expenses
($ million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Departmental expenses 350 342 354 360 352 361 386 372 370 373
Non-departmental outputs 97 80 109 89 136 156 228 198 191 170
Biological research1 ..  ..  ..  ..  ..  168 105 106 102 102
Other expenses 20 16 78 85 19 46 36 30 35 55
Primary service expenses 467 438 541 534 507 731 755 706 698 700

1Biological research was previously classified as an economic and industrial services expense.

Source: The Treasury

Table 6.16 - Heritage, culture and recreation expenses
($ million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Community grants 7 7 7 8 8 8 7 7 7 7
Kyoto protocol 42 ..  ..  ..  ..  ..  ..  ..  ..  .. 
Emissions Trading Scheme ..  ..  ..  17 80 1,232 692 400 415 422
Departmental outputs 322 357 392 426 415 447 559 532 519 510
Non-departmental outputs 351 411 469 467 637 462 501 472 470 471
Other expenses 169 69 239 84 141 288 188 124 79 75
Heritage, culture and recreation expenses 891 844 1,107 1,002 1,281 2,437 1,947 1,535 1,490 1,485

Source: The Treasury

Table 6.17 - Housing and community development expenses
($ million) 2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Housing subsidies 23 25 28 37 44 68 67 58 51 55
Departmental outputs 117 134 141 148 140 147 122 104 102 101
Other non-departmental expenses 62 96 91 112 122 831 144 137 134 134
Housing and community development expenses 202 255 260 297 306 1,046 333 299 287 290

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.
Consumer Price Index (CPI)
Statistics New Zealand's official index to measure the rate of change in prices of goods and services purchased by households.
Contingent assets
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 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.
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.
Corporate tax
The sum of net company tax, non-resident withholding tax (NRWT) and foreign-source dividend withholding payments (FDWP).
Current account (Balance of Payments)
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 (eg, 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 bonds 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 excludes 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) 10 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 the Government Superannuation Fund. 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.
GDP deflator
An index of changes in the general price level in the economy. It is calculated as the ratio of nominal GDP to real GDP.
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 at today's prices (nominal GDP), or excluding the effects of price changes over time (real GDP).
Gross domestic product (expenditure)
The sum of total final expenditure on goods and services in the economy.
Gross national expenditure (GNE)
A measure of total expenditure on final goods and services by New Zealand residents.
Gross sovereign-issued debt (GSID)
Includes all debt issued by the sovereign (the core Crown). It therefore includes Government stock held within the Crown (eg, 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 unit of labour input (where labour inputs might be measured as hours worked or the number of people employed).
Line-by-line consolidation
A term used to refer to the general approach to the presentation of the 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, State-owned enterprises, 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 exchange rate either support or restrict economic growth.
Monetary policy
The Reserve Bank implements its monetary policy decisions by adjusting its Official Cash Rate (OCR) in an effort to maintain stability in general level of prices within a defined annual CPI target range.
Tightening monetary policy means raising the OCR in order to moderate aggregate demand pressures and reduce inflationary pressures. Easing monetary policy has the reverse effect.
Net core Crown cash flow from operations
Operating balance (before gains and losses) less retained items (eg, net surplus of State-owned enterprises, Crown entities 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/or 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 international investment position (NIIP)
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
A measure that provides the Government with an idea of how its assets which earn a financial return match its liabilities. The measure consists of the financial assets of the core Crown and Crown entities, all assets of State-owned enterprises (excluding the physical assets of KiwiRail), and total liabilities.
New Zealand equivalents to International Financial Reporting Standards (NZ IFRS)
These standards are approved by the Accounting Standards Review Board in New Zealand. They are based on 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 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 impact of gains and losses on the operating balance can be volatile so the operating balance before gains and losses can provide a more useful measure of underlying stewardship.
Output gap
The difference between actual and potential GDP. Potential GDP is the level of output an economy can sustain without acceleration of inflation.
Productivity
The amount of output (eg, 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 and a private 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 corporates and individuals.
Specific fiscal risks
A category of government decisions or circumstances which may have a material impact on the fiscal position. 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 which meets 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.
Top-down adjustment
An adjustment to expenditure forecasts to reflect the extent to which departments use appropriations (upper spending limits) when preparing their forecasts. As appropriations apply to the core Crown only, no adjustment is required to State-owned enterprises or Crown entity forecasts.
Total borrowings
Total borrowings represent 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 State-owned enterprises and Crown entities that are not explicitly guaranteed by the Crown.
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 of total real GDP.
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, 2010/11 or 2011 will generally mean “year ended 30 June” unless otherwise stated.

Time Series of Fiscal and Economic Indicators

Fiscal Indicators

Fiscal Indicators
June years 1999
 Actual
2000
 Actual
2001
 Actual
2002
 Actual
2003
 Actual
2004
 Actual
2005
 Actual
2006
 Actual
2007
 Actual
2008
 Actual
2009
Actual
2010
Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast

$millions

                                 

Revenue and expenses

                                 
Core Crown revenue 32,880 34,946 37,842 39,945 43,440 46,219 51,045 55,735 58,211 61,819 59,482 56,216 56,950 61,061 66,367 71,491 76,413
Core Crown expenses 33,939 34,829 36,559 37,513 39,897 41,882 44,895 49,320 54,003 56,997 64,002 64,013 72,794 73,027 72,550 74,143 77,136

Surpluses

                                 
Total Crown OBEGAL 128 594 1,422 2,471 4,366 5,573 7,075 7,091 5,860 5,637 (3,893) (6,315) (16,728) (9,741) (4,097) (719) 1,297
Total Crown operating balance 1,705 1,405 1,208 2,286 1,621 7,309 5,931 9,542 8,023 2,384 (10,505) (4,509) (9,437) (7,293) (1,350) 2,292 4,587

Cash position

                                 
Core Crown residual cash 2,048 (386) 349 216 1,217 520 3,104 2,985 2,877 2,057 (8,639) (9,000) (14,951) (13,482) (8,951) (5,393) (4,051)

Debt

                                 
Gross debt1 37,307 36,580 37,194 36,650 36,617 36,017 35,478 33,903 30,647 31,390 43,356 53,591 71,578 77,764 79,183 88,705 86,242
Gross debt incl RB settlement cash and bank bills 37,307 36,580 37,194 36,650 36,617 36,017 35,478 35,867 36,805 37,745 50,973 58,891 76,778 82,964 84,383 93,905 91,442
Net core Crown debt (incl NZS Fund)2 25,923 25,895 24,908 24,773 22,647 19,902 13,324 6,302 1,620 (2,676) 5,633 12,549 23,648 35,804 43,126 46,957 49,191
Net core Crown debt2 25,923 25,895 24,908 25,388 24,531 23,858 19,879 16,163 13,380 10,258 17,119 26,738 41,502 54,872 63,619 68,989 72,875

Net worth

                                 
Total Crown net worth 10,121 12,605 15,450 22,825 28,012 39,595 54,240 83,971 96,827 105,514 99,515 94,988 85,519 78,272 76,939 79,251 83,853
Nominal GDP 106,163 112,588 119,991 127,511 134,664 145,202 154,368 161,894 172,049 183,385 185,331 189,122 199,819 209,178 222,916 234,237 246,098

% GDP

                                 

Revenue and expenses

                                 
Core Crown revenue 31.0 31.0 31.5 31.3 32.3 31.8 33.1 34.4 33.8 33.7 32.1 29.7 28.5 29.2 29.8 30.5 31.0
Core Crown expenses 32.0 30.9 30.5 29.4 29.6 28.8 29.1 30.5 31.4 31.1 34.5 33.8 36.4 34.9 32.5 31.7 31.3
Surpluses                                  
Total Crown OBEGAL 0.1 0.5 1.2 1.9 3.2 3.8 4.6 4.4 3.4 3.1 (2.1) (3.3) (8.4) (4.7) (1.8) (0.3) 0.5
Total Crown operating balance 1.6 1.2 1.0 1.8 1.2 5.0 3.8 5.9 4.7 1.3 (5.7) (2.4) (4.7) (3.5) (0.6) 1.0 1.9

Cash position

                                 
Core Crown residual cash 1.9 (0.3) 0.3 0.2 0.9 0.4 2.0 1.8 1.7 1.1 (4.7) (4.8) (7.5) (6.4) (4.0) (2.3) (1.6)

Debt

                                 
Gross debt1 35.1 32.5 31.0 28.7 27.2 24.8 23.0 20.9 17.8 17.1 23.4 28.3 35.8 37.2 35.5 37.9 35.0
Gross debt incl RB settlement cash and bank bills 35.1 32.5 31.0 28.7 27.2 24.8 23.0 22.2 21.4 20.6 27.5 31.1 38.4 39.7 37.9 40.1 37.2
Net core Crown debt (incl NZS Fund)2 24.4 23.0 20.8 19.4 16.8 13.7 8.6 3.9 0.9 (1.5) 3.0 6.6 11.8 17.1 19.3 20.0 20.0
Net core Crown debt2 24.4 23.0 20.8 19.9 18.2 16.4 12.9 10.0 7.8 5.6 9.2 14.1 20.8 26.2 28.5 29.5 29.6

Net worth

                                 
Total Crown net worth 9.5 11.2 12.9 17.9 20.8 27.3 35.1 51.9 56.3 57.5 53.7 50.2 42.8 37.4 34.5 33.8 34.1

Notes:

1 Excludes Reserve Bank settlement cash and bank bills.

2 Excludes advances.

Economic Indicators

Economic Indicators
March Years
Annual average % change
1999
Actual
2000
 Actual
2001
 Actual
2002
 Actual
2003
 Actual
2004
 Actual
2005
 Actual
2006
 Actual
2007
 Actual
2008
 Actual
2009
 Actual
2010
 Actual
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Private consumption 3.0 3.3 1.4 2.7 4.8 6.2 4.5 4.4 2.5 3.3 -1.1 0.4 1.5 1.4 2.6 3.4 2.9
Public consumption -0.3 5.8 -2.1 4.2 1.4 4.9 4.6 4.9 4.1 5.0 4.2 0.2 2.4 1.0 -0.8 -0.4 0.6
TOTAL CONSUMPTION 2.2 3.8 0.6 3.0 4.0 5.9 4.6 4.5 2.8 3.7 0.1 0.4 1.7 1.3 1.8 2.5 2.4
Residential investment -13.0 19.5 -13.3 2.0 23.6 14.9 2.6 -5.1 -1.4 3.8 -23.2 -13.0 0.9 0.8 53.5 17.4 2.7
Non-market investment  -4.8 13.0 -13.8 21.9 10.7 15.7 11.0 5.9 -7.0 -7.9 15.6 -5.6 -5.2 10.0 -6.7 -3.1 4.7
Market investment 1.7 7.4 7.3 6.9 2.8 13.0 11.9 11.3 -1.5 9.4 -3.3 -10.0 7.5 4.3 13.0 9.8 2.5
TOTAL INVESTMENT -2.9 10.9 -0.1 6.8 8.0 13.6 8.8 6.6 -2.2 6.3 -7.7 -9.4 5.3 5.6 18.8 11.0 3.0
Stock change (contribution to growth) -0.3 1.2 -0.3 0.1 -0.1 0.2 0.3 -0.5 -0.7 0.6 0.2 -2.2 1.8 0.0 -0.4 -0.2 0.0
GROSS NATIONAL EXPENDITURE 0.8 6.4 0.2 3.8 4.7 7.6 5.8 4.5 1.0 4.8 -1.4 -3.6 4.5 1.7 5.3 4.5 2.5
Exports 2.9 7.4 6.3 3.0 7.8 1.1 4.8 -0.2 2.9 3.2 -3.5 4.6 1.9 3.0 2.9 2.2 2.1
Imports 2.1 11.3 -0.7 4.0 7.2 12.7 12.5 4.2 -1.6 10.1 -4.4 -9.4 10.5 2.5 6.9 6.8 1.7
EXPENDITURE ON GDP 1.0 5.2 2.4 3.5 5.0 4.0 3.6 3.3 2.2 2.9 -1.1 0.7 2.1 1.6 4.0 3.0 2.7
GDP (production measure) 0.6 5.4 2.5 3.6 4.9 4.4 3.8 3.2 0.8 3.0 -1.6 -0.7 1.0 1.8 4.0 3.0 2.7
 - annual % change 2.7 6.5 0.8 4.6 4.6 5.3 2.6 2.4 1.7 2.2 -3.6 1.8 -0.2 3.1 4.1 2.6 2.8
Real GDP per capita -0.2 4.8 1.9 2.7 3.0 2.4 2.4 2.1 -0.4 1.9 -2.5 -1.9 -0.1 1.0 3.2 2.0 1.8
Nominal GDP (expenditure basis) 1.8 6.0 5.7 7.5 5.1 6.9 7.1 5.6 5.0 7.8 1.8 1.1 5.3 4.7 6.4 5.4 4.9
GDP deflator 0.8 0.8 3.2 3.9 0.2 2.8 3.3 2.3 2.8 4.7 2.9 0.4 3.2 3.1 2.3 2.4 2.1
Output gap (% deviation, March year average) -1.9 0.6 0.1 0.1 1.0 1.4 1.7 2.2 1.2 3.2 0.9 -1.0 -1.3 -1.1 0.0 -0.1 -0.2
Employment -0.6 1.9 2.0 2.9 2.8 3.0 3.6 2.8 2.2 1.3 0.9 -1.3 0.9 1.1 2.5 1.8 1.3
Unemployment (% March quarter s.a.) 7.5 6.5 5.5 5.3 5.0 4.3 3.9 4.0 3.9 3.9 5.1 6.0 6.8 5.7 4.8 4.8 4.6
Wages (average ordinary-time hourly, ann % change) 3.0 1.7 3.2 3.7 2.3 3.5 3.6 5.4 4.7 4.7 5.4 1.0 2.8 4.1 4.1 4.2 4.0
CPI inflation (ann % change) -0.1 1.5 3.1 2.6 2.5 1.5 2.8 3.3 2.5 3.4 3.0 2.0 4.5 3.1 2.4 2.5 2.6
Merchandise terms of trade (SNA basis) 0.9 0.2 3.4 4.0 -5.6 4.3 3.5 -2.0 -1.1 8.5 -0.1 -7.5 10.4 -1.7 0.2 1.4 1.3
Current account balance - $billion  -4.2 -7.1 -4.4 -3.4 -4.1 -6.1 -9.3 -13.9 -13.3 -14.4 -14.7 -4.5 1.0 -8.4 -11.5 -15.6 -16.8
Current account balance - % of GDP  -4.0 -6.4 -3.7 -2.7 -3.1 -4.3 -6.1 -8.7 -7.9 -7.9 -8.0 -2.4 0.5 -4.1 -5.2 -6.8 -6.9
TWI (March quarter)  57.6 54.1 50.5 51.6 60.6 66.9 69.6 68.3 68.8 71.9 53.7 65.3 67.2 66.7 64.5 60.3 56.0
90-day bank bill rate (March quarter)  4.5 6.0 6.4 5.0 5.8 5.5 6.9 7.6 7.8 8.8 3.7 2.7 3.0 3.0 3.9 4.7 5.0
10-year bond rate (March quarter) 5.7 7.3 6.0 6.7 6.0 5.9 6.0 5.7 5.9 6.3 4.6 5.9 5.6 5.7 5.7 5.9 6.0

2011 Budget Update Additional Information

The following information forms part of the Budget Economic and Fiscal Update 2011 ("Budget Update"), released by the Treasury on 19 May 2011. 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
  • Government Finance Statistics for central government - fiscal tables presented under a GFS presentation framework to help with cross-country comparisons
  • Accounting policies - outline of the specific Crown accounting policies. 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 2011 Budget Update.

Table 1 - Real Gross Domestic Product

Chain-volume series expressed in 1995/96 prices

  Actual Seasonally Adjusted
$ million Annual
% change
Annual
Average
% change
$million Quarterly
% change
2008Q1 34,018 2.2 3.0 34,324 -0.2
2008Q2 33,425 0.7 2.5 34,080 -0.7
2008Q3 33,477 -0.8 1.5 33,874 -0.6
2008Q4 34,792 -2.7 -0.2 33,450 -1.3
2009Q1 32,799 -3.6 -1.6 33,099 -1.0
2009Q2 32,480 -2.8 -2.5 33,120 0.1
2009Q3 32,789 -2.1 -2.8 33,191 0.2
2009Q4 34,846 0.2 -2.1 33,481 0.9
2010Q1 33,395 1.8 -0.7 33,708 0.7
2010Q2 33,102 1.9 0.4 33,756 0.1
2010Q3 33,274 1.5 1.3 33,687 -0.2
2010Q4 35,144 0.9 1.5 33,757 0.2
2011Q1 33,343 -0.2 1.0 33,656 -0.3
2011Q2 33,268 0.5 0.7 33,925 0.8
2011Q3 33,754 1.4 0.7 34,173 0.7
2011Q4 35,835 2.0 1.0 34,421 0.7
2012Q1 34,391 3.1 1.8 34,714 0.8
2012Q2 34,482 3.7 2.5 35,164 1.3
2012Q3 35,108 4.0 3.2 35,544 1.1
2012Q4 37,336 4.2 3.8 35,862 0.9
2013Q1 35,814 4.1 4.0 36,150 0.8
2013Q2 35,686 3.5 4.0 36,391 0.7
2013Q3 36,165 3.0 3.7 36,614 0.6
2013Q4 38,355 2.7 3.3 36,842 0.6
2014Q1 36,751 2.6 3.0 37,095 0.7
2014Q2 36,629 2.6 2.7 37,352 0.7
2014Q3 37,150 2.7 2.7 37,611 0.7
2014Q4 39,426 2.8 2.7 37,870 0.7
2015Q1 37,777 2.8 2.7 38,132 0.7
2015Q2 37,652 2.8 2.8 38,396 0.7

Sources: Statistics New Zealand, The Treasury

Table 2 - Consumers Price Index and Exchange Rates

Table 2 - Consumers Price Index and Exchange Rates
  Consumers Price Index Exchange rates
Index Quarterly
% change
        Annual
% change
TWI USD
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 1097 0.4 2.0 65.3 0.71
2010Q2 1099 0.2 1.7 66.7 0.70
2010Q3 1111 1.1 1.5 66.9 0.72
2010Q4 1137 2.3 4.0 67.8 0.76
2011Q1 1146 0.8 4.5 67.2 0.76
2011Q2 1157 1.0 5.3 66.9 0.78
2011Q3 1164 0.6 4.8 67.0 0.78
2011Q4 1172 0.6 3.1 67.3 0.78
2012Q1 1182 0.9 3.1 66.7 0.77
2012Q2 1189 0.6 2.7 66.2 0.76
2012Q3 1195 0.5 2.6 65.8 0.76
2012Q4 1201 0.5 2.5 65.2 0.74
2013Q1 1211 0.8 2.4 64.5 0.73
2013Q2 1219 0.7 2.5 63.6 0.71
2013Q3 1226 0.6 2.6 62.6 0.70
2013Q4 1234 0.6 2.7 61.5 0.68
2014Q1 1241 0.6 2.5 60.3 0.66
2014Q2 1248 0.6 2.4 59.2 0.64
2014Q3 1256 0.6 2.4 58.1 0.62
2014Q4 1264 0.6 2.5 57.0 0.60
2015Q1 1273 0.6 2.6 56.0 0.58
2015Q2 1281 0.6 2.6 55.1 0.57

Sources: Statistics New Zealand, The Treasury

Table 3 - Gross Domestic Expenditure and Income

Table 3 - Gross Domestic Expenditure and Income
March
Year
2010
Actual
2011
Estimate
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
$ mill %vol %pr $ mill %vol %pr $ mill %vol %pr $ mill %vol %pr $ mill %vol %pr $ mill
Consumption:                                
  • Private
110,838 1.5 2.0 114,803 1.4 3.4 120,351 2.6 2.4 126,342 3.4 2.1 133,343 2.9 1.9 139,927
  • Public
38,212 2.4 1.9 39,878 1.0 2.9 41,440 -0.8 2.7 42,218 -0.4 2.6 43,111 0.6 2.3 44,363
Gross Fixed Capital Formation:                                
  • Residential
8,208 0.9 0.2 8,300 0.8 2.8 8,603 53.5 4.1 13,752 17.4 6.1 17,121 2.7 6.3 18,696
  • Market *
25,605 7.5 -1.0 27,241 4.3 2.2 29,032 13.0 2.6 33,656 9.8 1.9 37,648 2.5 1.7 39,244
  • Non-market **
3,036 -5.2 4.0 3,011 10.0 3.2 3,414 -6.7 2.4 3,260 -3.1 2.4 3,238 4.7 2.4 3,474
  • Total all sectors
36,845 5.3 -0.6 38,548 5.6 0.8 41,049 18.8 3.9 50,668 11.0 3.2 58,007 3.0 2.8 61,413
Change in Stocks -1,444     1,293     1,431     766     261     218
Gross National Expenditure 184,451 4.5 0.9 194,524 1.7 3.3 204,270 5.3 2.3 219,994 4.5 2.1 234,721 2.5 2.2 245,922
Exports 52,424 1.9 7.1 57,154 3.0 5.3 61,977 2.9 2.1 65,177 2.2 5.8 70,501 2.1 8.8 78,331
Imports 49,690 10.5 -0.9 54,485 2.5 6.9 59,732 6.9 2.6 65,506 6.8 5.3 73,669 1.7 8.6 81,300
Expenditure on GDP 187,185 2.1 3.2 197,192 1.6 3.1 206,515 4.0 2.3 219,666 3.0 2.4 231,553 2.7 2.1 242,952
Statistical Discrepancy 617     623     629     637     645     652
Gross Domestic Product 187,802     197,815     207,144     220,303     232,198     243,604
Compensation of employees 84,486   3.3 87,245   4.5 91,133   6.5 97,074   5.9 102,835   5.3 108,307
Operating Surplus, net:                                
  • Agriculture
6,036   19.7 7,222   7.2 7,739   0.1 7,744   3.1 7,985   8.1 8,628
  • Other
45,768   5.2 48,157   1.2 48,755   7.1 52,233   4.2 54,406   3.3 56,183
  • Total all sectors
51,804   6.9 55,379   2.0 56,494   6.2 59,977   4.0 62,391   3.9 64,811
Consumption of fixed capital 28,391   6.0 30,094   5.5 31,750   5.5 33,496   5.5 35,338   5.5 37,282
Indirect Taxes 23,775   8.3 25,751   10.4 28,422   7.0 30,410   6.2 32,288   4.9 33,858
Less subsidies 654   0.0 654   0.0 654   0.0 654   0.0 654   0.0 654
Gross Domestic Product 187,802   5.3 197,815   4.7 207,144   6.4 220,303   5.4 232,198   4.9 243,604

* 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

Tables 4 - Labour Market Indicators
Annual Average Percentage Change
March Year 
2010
Actual
2011
Estimate
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Real GDP (production basis) -0.7 1.0 1.8 4.0 3.0 2.7
Working Age Population 1.4 1.3 1.0 1.0 1.1 1.1
Labour Force 0.7 1.3 0.6 1.2 1.5 1.2
Employment - Total -1.3 0.9 1.1 2.5 1.8 1.3
Labour Productivity * 2.0 -1.2 1.3 1.5 1.2 1.5
CPI  (annual percentage change) 2.0 4.5 3.1 2.4 2.5 2.6
Average Ordinary Time Hourly Wages 3.1 1.7 3.6 4.1 4.1 4.1
Average Weekly Earnings 3.4 2.8 3.4 4.0 4.0 4.0
Real Wages 1.2 -1.2 -0.5 1.5 1.5 1.6
Compensation of Employees 1.1 3.4 4.5 6.5 5.9 5.3
Unit Labour Costs (Hours worked basis) 1.1 2.9 2.3 2.5 2.9 2.5
Real Unit Labour Costs -0.7 0.0 -1.8 -0.1 0.3 0.0

* Hours worked basis

Sources: Statistics New Zealand, The Treasury

Tables 5 - Labour Market Indicators
Number (000's)
As at March Quarter
 2010
Actual
2011
Estimate
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Total Population 4,362 4,396 4,431 4,470 4,515 4,556

Natural Increas

35 28 34 31 29 30

Net Migration

21 6 0 8 15 11

Annual Change

56 34 35 40 44 41
Working Age Population 3,412 3,452 3,484 3,519 3,558 3,596

Annual Change

51 40 32 36 39 37
Not in the labour force (s.a.) 1,087 1,092 1,115 1,114 1,121 1,132

Annual Change

27 5 22 0 6 11
Labour Force (s.a.) 2,316 2,349 2,360 2,398 2,431 2,458

Annual Change

20 33 12 38 33 27
Total Employment (s.a.) 2,176 2,190 2,225 2,282 2,315 2,345

Annual Change

-2 14 36 57 33 30
Unemployment (s.a.) 140 159 135 116 116 113

Annual Change

23 19 -24 -19 0 -3
Participation Rate (% s.a) 68.1 68.0 67.8 68.1 68.3 68.4
Unemployment Rate (% s.a) 6.0 6.8 5.7 4.8 4.8 4.6

Sources: Statistics New Zealand, The Treasury

Table 6 - Current Account

Table 6 - Current Account
$NZ Million
Year ended March
2010
Actual
2011
Estimate
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
Exports Goods 40,092 45,046 48,939 51,501 56,016 62,820
annual % change -9.4 12.4 8.6 5.2 8.8 12.1
Imports Goods 37,452 41,554 45,891 50,676 57,364 63,337
annual % change -18.2 11.0 10.4 10.4 13.2 10.4
Balance on Goods 2,641 3,493 3,048 825 -1,347 -518
% of Nominal GDP 1.4 1.8 1.5 0.4 -0.6 -0.2
Exports Services 12,332 12,057 13,026 13,647 14,428 15,452
annual % change -4.8 -2.2 8.0 4.8 5.7 7.1
Imports Services 12,239 12,931 13,841 14,830 16,305 17,963
annual % change -11.5 5.7 7.0 7.1 9.9 10.2
Balance on services 92 -874 -816 -1,183 -1,877 -2,511
% of Nominal GDP 0.0 -0.4 -0.4 -0.5 -0.8 -1.0
Balance on goods & services 2,733 2,618 2,232 -358 -3,224 -3,028
% of Nominal GDP 1.5 1.3 1.1 -0.2 -1.4 -1.2
Income and current transfers balance -7,192 -1,626 -10,612 -11,107 -12,410 -13,778
% of Nominal GDP -3.8 -0.8 -5.1 -5.1 -5.4 -5.7

Current account balance   

-4,458 992 -8,379 -11,464 -15,634 -16,806
% of Nominal GDP -2.4 0.5 -4.1 -5.2 -6.8 -6.9

Source: Statistics New Zealand, The Treasury

Table 7 - Exports - SNA basis

Breakdown of Exports

Table 7 - Exports - SNA basis (part 1)
  Dairy Products Meat and Meat Products Non-Commodity*
%v %p $ mn %v %p $ mn %v %p $ mn
2007 22.3 2.1 7,455 6.7 2.5 5,037 0.6 12.2 11,668
2008 -0.9 25.7 9,434 -2.9 -5.1 4,656 0.7 6.3 12,456
2009 -15.1 27.9 10,101 1.5 23.2 5,796 1.6 16.8 14,804
2010 30.8 -31.9 9,078 -1.1 -7.5 5,332 -5.6 -6.7 13,052
2011 -1.2 30.8 11,609 -2.3 5.8 5,520 7.8 -1.1 13,918
2012 -0.6 9.3 12,703 -8.4 13.2 5,688 8.6 1.4 15,323
2013 3.5 -3.3 12,714 2.4 -0.4 5,807 3.7 6.4 16,898
2014 3.2 0.5 13,222 3.2 6.1 6,355 1.9 10.3 18,977
2015 3.2 6.8 14,577 2.8 7.7 7,038 2.2 12.5 21,807
Table 7 - Exports - SNA basis (part 2)
March
Years
Total Goods** Services Total Exports
%v %p $ mn %v %p $ mn %v %p $ mn
2007 4.9 7.5 35,633 -2.1 4.6 12,639 2.9 6.8 48,272
2008 4.5 3.9 38,718 -0.4 2.3 12,889 3.2 3.3 51,606
2009 -2.6 17.6 44,248 -6.0 6.9 12,949 -3.5 15.2 57,196
2010 6.8 -15.4 40,092 -2.9 -1.7 12,332 4.6 -12.5 52,424
2011 2.7 9.5 45,046 -1.5 -0.8 12,057 1.9 7.1 57,154
2012 2.4 6.1 48,939 8.0 0.1 13,026 3.0 5.3 61,977
2013 2.8 2.4 51,501 3.3 1.4 13,647 2.9 2.1 65,177
2014 2.3 6.4 56,016 2.0 3.6 14,428 2.2 5.8 70,501
2015 2.1 9.8 62,820 2.2 4.8 15,452 2.1 8.8 78,331

* 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 confidentaility reasons. As a result we have not

Table 8 - Imports - SNA basis

Breakdown of Imports

Table 8 - Imports - SNA basis (part 1)
March
Years
Capital Goods (VFD) Mineral Fuel* (VFD) Intermediate Goods** (VFD) Consumption Goods (VFD)
%v %p $ mn %v %p $ mn %v %p $ mn %v %p $ mn
2007 -3.0 2.3 7,249 -8.0 21.4 5,865 -2.8 12.4 15,717 5.8 3.4 9,525
2008 10.2 -9.7 7,213 15.8 2.7 6,982 9.9 -6.5 16,144 6.9 -2.7 9,908
2009 3.5 13.2 8,292 -6.3 26.3 8,186 -5.9 22.0 18,454 -2.7 12.4 10,788
2010 -28.2 2.1 6,202 1.5 -27.4 6,059 -11.2 -9.9 14,799 -4.1 -1.0 10,256
2011 22.5 -5.5 7,186 -1.4 14.1 6,840 14.3 -1.1 16,763 7.3 -4.3 10,544
2012 5.1 -10.2 6,795 0.6 25.6 8,656 4.1 11.0 19,436 2.9 0.4 10,893
2013 14.9 -7.2 7,233 5.3 5.4 9,595 5.3 5.1 21,458 7.5 4.7 12,269
2014 15.4 9.6 9,151 3.3 3.6 10,272 3.4 7.2 23,779 5.4 8.6 14,042
2015 1.9 4.3 9,734 1.1 6.9 11,104 1.0 9.5 26,286 3.5 10.8 16,093

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

Table 8 - Imports - SNA basis (part 2)
March
Years
Total Goods (VFD) Services Total
%v %p $ mn %v %p $ mn %v %p $ mn
2007 -0.9 8.7 38,464 -3.7 7.0 12,186 -1.6 8.3 50,649
2008 10.0 -4.3 40,515 10.1 -5.8 12,631 10.1 -4.7 53,146
2009 -4.1 17.9 45,770 -5.3 16.6 13,827 -4.4 17.6 59,597
2010 -10.5 -8.5 37,452 -5.9 -6.5 12,239 -9.4 -8.0 49,690
2011 11.8 -0.9 41,554 6.9 -1.4 12,931 10.5 -0.9 54,485
2012 2.1 8.0 45,891 4.7 2.3 13,841 2.5 6.9 59,732
2013 8.3 2.0 50,676 2.0 5.1 14,830 6.9 2.6 65,506
2014 7.9 4.9 57,364 2.6 7.2 16,305 6.8 5.3 73,669
2015 1.9 8.4 63,337 0.7 9.4 17,963 1.7 8.6 81,300

* 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. The two sets of forecasts differ from each other because of the different modelling approaches used by the two agencies and the various assumptions and judgements made by the forecasting teams in producing their forecasts.

The Treasury's total tax forecasts are higher than Inland Revenue's in every year from 2010/11 through to 2014/15. By 2014/15, the difference between the forecasts has reached $1.5 billion, a much larger difference than has usually been the case in past forecast updates. The bulk of the difference occurs in estimates for corporate tax. The Treasury forecasts corporate tax growth to remain subdued through the early part of the recovery as tax loss usage increases and growth will accelerate through 2013 to 2015 as tax loss usage abates. Inland Revenue has not forecast such a rapid acceleration in corporate tax, as it has made no explicit assumption regarding the utilisation of tax losses.

Table 9 - Treasury and Inland Revenue forecasts of tax revenue (accrual)

Table 9 - Treasury and Inland Revenue forecasts of tax revenue (accrual)
$ million 2009/10
Actual 
2010/11
Forecast
2011/12
Forecast
2012/13
Forecast
2013/14
Forecast
2014/15
Forecast
  Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference

Direct tax

                               

Individuals

                               
Source deductions 22,135 21,161 21,083 78 21,636 21,398 238 23,614 23,305 309 25,212 25,019 193 26,833 26,706 127
Other persons tax 3,987 3,822 3,670 152 4,342 4,106 236 4,672 4,296 376 4,654 4,615 39 4,748 4,856 (108)
Refunds (1,831) (1,681) (1,660) (21) (1,656) (1,650) (6) (1,701) (1,530) (171) (1,574) (1,390) (184) (1,435) (1,330) (105)
Fringe benefit tax 461 461 455 6 430 462 (32) 457 481 (24) 481 497 (16) 505 529 (24)
Subtotal: Individuals 24,752 23,763 23,548 215 24,752 24,316 436 27,042 26,552 490 28,773 28,741 32 30,651 30,761 (110)
Company tax (net) 6,631 7,834 8,120 (286) 8,423 8,473 (50) 8,829 8,511 318 9,586 8,853 733 10,089 9,097 992

Withholding taxes on:

                               
Resident interest income 1,804 1,707 1,695 12 1,665 1,654 11 1,986 1,910 76 2,527 2,274 253 3,084 2,703 381
Non-resident income 884 498 445 53 508 495 13 573 560 13 643 630 13 688 660 28
Foreign-source dividends (3) 1 1 ..  1 1 ..  1 1 ..  1 1 ..  1 1 .. 
Resident dividend income 130 203 201 2 209 211 (2) 292 286 6 470 461 9 489 466 23
Subtotal: Withholding tax 2,815 2,409 2,342 67 2,383 2,361 22 2,852 2,757 95 3,641 3,366 275 4,262 3,830 432
Total income tax 34,198 34,006 34,010 (4) 35,558 35,150 408 38,723 37,820 903 42,000 40,960 1,040 45,002 43,688 1,314
Other: Estate and gift duties 2 2 2 ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..   .. 
Total direct tax 34,200 34,008 34,012 (4) 35,558 35,150 408 38,723 37,820 903 42,000 40,960 1,040 45,002 43,688 1,314

Indirect tax

                               
GST (net) 16,729 19,155 19,118 37 21,283 21,548 (265) 22,555 22,450 105 23,723 23,666 57 24,840 24,754 86

Excise duties on:

                               
Alcoholic drinks 600 625 639 (14) 665 659 6 700 695 5 732 732 ..  765 771 (6)
Tobacco products 217 238 225 13 251 241 10 259 251 8 257 254 3 259 259 .. 
Petroleum fuels 805 862 829 33 886 896 (10) 903 904 (1) 940 943 (3) 975 971 4
Subtotal: excise duties 1,622 1,725 1,693 32 1,802 1,796 6 1,862 1,850 12 1,929 1,929 ..  1,999 2,001 (2)

Other indirect tax

                               
Customs duty 1,873 1,991 1,978 13 2,053 2,060 (7) 2,089 2,089 ..  2,107 2,089 18 2,136 2,089 47
Road user charges 910 995 1,010 (15) 1,049 1,050 (1) 1,134 1,125 9 1,214 1,190 24 1,289 1,255 34
Gaming duties 265 263 261 2 268 262 6 272 267 5 276 271 5 279 275 4
Motor vehicle fees 171 169 170 (1) 168 175 (7) 171 185 (14) 174 190 (16) 177 195 (18)
Exhaustible resource levy 39 36 37 (1) 38 36 2 36 35 1 36 37 (1) 36 40 (4)
Approved issuer levy, cheque duty & other 90 88 98 (10) 88 88 ..  88 83 5 88 83 5 88 83 5
Subtotal: Other indirect tax 3,348 3,542 3,554 (12) 3,664 3,671 (7) 3,790 3,784 6 3,895 3,860 35 4,005 3,937 68
Total indirect tax 21,699 24,422 24,365 57 26,749 27,015 (266) 28,207 28,084 123 29,547 29,455 92 30,844 30,692 152
Total tax 55,899 58,430 58,377 53 62,307 62,165 142 66,930 65,904 1,026 71,547 70,415 1,132 75,846 74,380 1,466
Total tax (% of GDP) 29.6% 29.2% 29.2% 0.0% 29.8% 29.7% 0.1% 30.0% 29.6% 0.5% 30.5% 30.1% 0.5% 30.8% 30.2% 0.6%

less Core Crown tax eliminations

                               
Core Crown income tax (27) 795 795   367 367   404 404   443 443   485 485  
GST on Crown expenses and departmental outputs 4,812 5,949 5,949   6,241 6,241   6,129 6,129   6,168 6,168   6,372 6,372  
Crown ESCT 349 482 482   462 462   476 476   480 480   484 484  
Crown AIL 21 15 15   15 15   15 15   15 15   15 15  
Core Crown taxation 50,744 51,189 51,136 53 55,222 55,080 142 59,906 58,880 1,026 64,441 63,309 1,132 68,490 67,024 1,466
Core Crown tax (% of GDP) 26.8% 25.6% 25.6% 0.0% 26.4% 26.3% 0.1% 26.9% 26.4% 0.5% 27.5% 27.0% 0.5% 27.8% 27.2% 0.6%

less Total Crown tax eliminations

                               
Income tax from SOEs and CEs 339 495 495   478 478   578 578   629 629   683 683  
Other Crown GST ..  ..  ..    ..  ..    ..  ..    ..  ..    ..  ..   
ESCT from SOEs and CEs 12 9 9   9 9   9 9   10 10   10 10  
Lottery duty 46 45 45   45 45   49 49   50 50   51 51  
Total Crown taxation 50,347 50,640 50,587 53 54,690 54,548 142 59,270 58,244 1,026 63,752 62,620 1,132 67,746 66,280 1,466
Total Crown tax (% of GDP) 26.6% 25.3% 25.3% 0.0% 26.1% 26.1% 0.1% 26.6% 26.1% 0.5% 27.2% 26.7% 0.5% 27.5% 26.9% 0.6%
Nominal GDP 189,122 199,819 199,819 ..  209,178 209,178 ..  222,916 222,916 ..  234,237 234,237 ..  246,098 246,098 .. 

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

Table 10 - Treasuryand Inland Revenue forecasts of tax receipts (cash)
  2009/10
Actual 
2010/11
Forecast
2011/12
Forecast
2012/13
Forecast
2013/14
Forecast
2014/15
Forecast
$ million   Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference

Direct tax

                               

Individuals

                               
Source deductions 22,097 21,066 20,988 78 21,536 21,313 223 23,510 23,216 294 25,104 24,926 178 26,721 26,609 112
Other persons tax 4,630 4,320 4,260 60 4,765 4,620 145 5,057 4,830 227 5,090 5,130 (40) 5,200 5,330 (130)
Refunds (2,793) (2,445) (2,480) 35 (2,394) (2,470) 76 (2,390) (2,350) (40) (2,254) (2,210) (44) (2,172) (2,150) (22)
Fringe benefit tax 469 456 463 (7) 424 454 (30) 450 473 (23) 473 490 (17) 500 506 (6)
Subtotal: Individuals 24,403 23,397 23,231 166 24,331 23,917 414 26,627 26,169 458 28,413 28,336 77 30,249 30,295 (46)
Company tax (net) 7,471 7,779 7,890 (111) 8,631 8,340 291 8,703 8,330 373 9,449 8,695 754 9,917 8,890 1,027

Withholding taxes on:

                               
Resident interest income 1,833 1,714 1,694 20 1,664 1,653 11 1,985 1,909 76 2,526 2,273 253 3,083 2,702 381
Non-resident income 889 494 445 49 508 495 13 573 560 13 643 630 13 688 660 28
Foreign-source dividends 6 1 1 ..  1 1 ..  1 1 ..  1 1 ..  1 1 .. 
Resident dividend income 114 202 200 2 208 210 (2) 291 285 6 469 460 9 488 465 23
Subtotal: Withholding tax 2,842 2,411 2,340 71 2,381 2,359 22 2,850 2,755 95 3,639 3,364 275 4,260 3,828 432
Total income tax 34,716 33,587 33,461 126 35,343 34,616 727 38,180 37,254 926 41,501 40,395 1,106 44,426 43,013 1,413
Other: Estate and gift duties 2 2 2 ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  .. 
Total direct tax 34,718 33,589 33,463 126 35,343 34,616 727 38,180 37,254 926 41,501 40,395 1,106 44,426 43,013 1,413

Indirect tax

                               
GST (net) 16,150 18,668 18,621 47 20,987 21,266 (279) 22,243 22,153 90 23,392 23,350 42 24,494 24,420 74

Excise duties on:

                               
Alcoholic drinks 622 625 639 (14) 665 659 6 700 695 5 732 732 ..  765 771 (6)
Tobacco products 214 238 225 13 251 241 10 259 251 8 257 254 3 259 259 .. 
Petroleum fuels 805 862 829 33 886 896 (10) 903 904 (1) 940 943 (3) 975 971 4
Subtotal: Excise duties 1,641 1,725 1,693 32 1,802 1,796 6 1,862 1,850 12 1,929 1,929 ..  1,999 2,001 (2)

Other indirect tax

                               
Customs duty 1,805 1,991 1,978 13 2,053 2,060 (7) 2,089 2,089 ..  2,107 2,089 18 2,136 2,089 47
Road user charges 908 995 1,010 (15) 1,049 1,050 (1) 1,134 1,125 9 1,214 1,190 24 1,289 1,255 34
Gaming duties 264 265 261 4 268 262 6 272 267 5 276 271 5 279 275 4
Motor vehicle fees 195 169 150 19 168 175 (7) 171 185 (14) 174 190 (16) 177 195 (18)
Exhaustible resource levy 37 36 37 (1) 38 36 2 36 35 1 36 37 (1) 36 40 (4)
Approved issuer levy, cheque duty & other 82 90 98 (8) 88 88 ..  88 83 5 88 83 5 88 83 5
Subtotal: Other indirect tax 3,291 3,546 3,534 12 3,664 3,671 (7) 3,790 3,784 6 3,895 3,860 35 4,005 3,937 68
Total indirect tax 21,082 23,939 23,848 91 26,453 26,733 (280) 27,895