The Budget Economic and Fiscal Update (BEFU) 2012 includes the Treasury's overall economic forecasts and forecast financial statements of the government. The Update includes the implications of government financial decisions and other information relevant to the fiscal and economic position.

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

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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 other circumstances as at 8 May 2012 that were communicated to me by the Minister of Finance in accordance with the requirements of the Public Finance Act 1989 and of other economic and fiscal information available to the Treasury as at 8 May 2012.

Gabriel Makhlouf
Secretary to the Treasury

14 May 2012

To enable the Treasury to prepare this Economic and Fiscal Update I have ensured the Secretary to the Treasury has been advised, in accordance with the requirements of the Public Finance Act 1989, of all Government decisions and other circumstances as at 8 May 2012 of which I was aware and that had material economic or fiscal implications.

I accept responsibility for the integrity of the disclosures contained in the Update and responsibility for the consistency and completeness of the Update information with the requirements of Fiscal Responsibility in the Public Finance Act 1989.

Hon Bill English
Minister of Finance

14 May 2012

Executive Summary

  • Economic growth is forecast to increase to 2.6% and 3.4% in the years ending March 2013 and 2014 respectively. Thereafter, the pace of growth is sustained at around 3%.
  • Trading partner growth is expected to be a little below trend in 2012 and to be a little above trend in 2013 and to gradually strengthen thereafter.
  • Households' caution in spending and investment decisions is expected to continue and is reflected in a rising household saving rate.
  • Earthquake-related rebuilding of damage to property, contents and infrastructure of $20 billion (10% of annual gross domestic product [GDP]) in 2011 prices will provide a substantial addition to economic activity. The scale and timing of the rebuild remain key uncertainties.
  • The economy is operating with a moderate degree of spare capacity, which is helping to restrain inflation at present. Fiscal and monetary policy support for the economy will be progressively withdrawn as activity accelerates.
  • Operating deficits are forecast to narrow over the next two years and to return to surplus in the year ending June 2015. This strengthening fiscal outlook is underpinned by higher revenues, together with restrained expenditure growth.
  • Over the next four years the Crown is expected to spend around $18 billion on capital items such as the purchase of physical assets and student loan advances.
  • Net core Crown debt is forecast to peak at 28.7% of GDP in the year ending June 2014 and to fall to 27.7% of GDP in the year ending June 2016.
  • Growth in Crown liabilities, led by borrowings, exceeds growth in assets over the year ending June 2013, leading to a fall in net worth attributable to the Crown. Net worth rises gradually thereafter, although it continues to decline relative to GDP until the year ending June 2015.
  • There are upside and downside risks to these economic and fiscal forecasts, in contrast to the Pre-election Update when downside risks were dominant, although the balance of risks is still to the downside.
  • The balance of risks is illustrated in two alternative scenarios around the main forecasts. While growth is higher in the upside scenario, the operating balance returns to surplus in the same year as in the main forecasts. In the downside scenario, lower growth means the operating balance remains in deficit over the period ending June 2016.
Table 1 - Summary of the Treasury's main economic and fiscal forecasts
  2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast

Economic (March years, %)

           
Economic growth1 1.2 1.6 2.6 3.4 3.1 2.9
Unemployment rate2 6.6 6.3 5.7 5.2 5.0 4.7
CPI inflation3 4.5 1.6 2.6 2.5 2.4 2.4

Fiscal (June years, % of GDP)

           
Operating balance4 -9.2 -4.1 -3.6 -0.9 0.1 0.8
Net debt5 20.0 25.0 28.1 28.7 28.6 27.7
Net worth attributable to the Crown 40.2 33.7 29.6 28.1 27.9 28.6

Notes:

  1. Real production GDP, annual average percentage change
  2. Percent of labour force, March quarter, seasonally adjusted. March 2012 actual was 6.7%
  3. Consumers price index (CPI), annual percentage change, actual 2012
  4. Total Crown operating balance before gains and losses (OBEGAL)
  5. Net core Crown debt excluding the New Zealand Superannuation Fund and advances

Sources: Statistics New Zealand, the Treasury

Finalisation Dates for the Update

Economic forecasts 27 April
Economic data 27 April
Tax revenue forecasts 27 April
Fiscal forecasts 8 May
Specific fiscal risks 8 May
Text finalised 15 May

Important Notice

The economic and fiscal numbers and forecasts in this document pre-date the release of revised GDP data by Statistics New Zealand on 15 May 2012. These new GDP data incorporated a new industry classification and other updates and resulted in changes to the level of economic activity in recent years. Although historical numbers will change, we do not expect any direct impact from these new data on our economic and fiscal forecasts. In this document, all references are to the previous GDP data unless otherwise specified. The new data will be fully incorporated into the Half Year Update 2012.

Economic Outlook

Overview

Over the past year, the New Zealand economy continued its recovery from the 2008/09 recession, registering 1.1% growth in the 12 months ending December 2011.[1]

Figure 1.1 - Real GDP growth
Figure 1.1 - Real GDP growth.
Sources: Statistics New Zealand, the Treasury

Factors facilitating this growth include strong merchandise terms of trade, good farming conditions, the Rugby World Cup (RWC) and an accommodating fiscal stance by the Government designed to underpin demand in the wake of the globalfinancial crisis and devastating natural disasters. Monetary policy has also been supporting activity through low interest rates.

This below-trend growth rate is reflected in elevated unemployment and weaker inflation. In the current June quarter, the consumers price index (CPI) is estimated to have risen at its lowest annual rate in over a decade.

The Treasury expects the pace of overall growth in gross domestic product (GDP) to continue strengthening. This process will be aided by a substantial employment and income impulse arising out of the Christchurch rebuild, the maintenance of historically low borrowing costs and - in the case of primary industry exporters – ongoing solid demand for New Zealand produce from key trading partners.

Not all sectors of the economy will benefit equally from the factors expected to underpin overall activity levels.

In the first part of the forecast period, non-commodity exporters are expected to continue to experience eroded competitiveness in the face of the strong exchange rate which will reduce their New Zealand dollar earnings. The tourism sector, in particular, is expected to face additional headwinds from weak income growth in a number of countries which are traditionally key sources of inbound tourists, the loss of infrastructure in Christchurch, and the effects of more New Zealanders taking advantage of the high value of the currency to holiday abroad instead of at home. In the broader retail sector, spending levels are expected to continue to be moderated by New Zealand households’ rising rate of saving in the face of high average debt levels.

Figure 1.2 - Real exchange rate and 90-day interest rates
Figure 1.2 - Real exchange rate and 90-day interest rates.
Source: Reserve Bank of New Zealand

Despite the increase in saving, the current account deficit is forecast to widen to 6.7% of GDP in the year ending March 2016, with a significant contribution from the Canterbury rebuild. An assumed weakening of the exchange rate towards the end of the forecast period returns the goods balance to surplus and helps the current account deficit narrow. Further adjustment is required beyond the forecast period for the deficit to return to a sustainable level.

International economy is more stable...

The economic outlook stabilised in the months following the publication of the Budget Policy Statement (BPS) earlier this year, but recent developments in Europe highlight the fragility of the outlook. Despite this uncertainty, on current readings of international and domestic indicators, New Zealand's economic outlook is relatively favourable.

Figure 1.3 - Trading partner growth
Figure 1.3 - Trading partner growth.
Sources: IMF, the Treasury

...but risks remain

Ongoing financial concerns in some European countries continue to be a potential source of adverse shocks to the world economy.

In the United States (US), the economic recovery could yet be undermined by political delays in reaching a credible medium-term path to fiscal sustainability.

The main threats to growth in China arise from the housing market, which became overheated following the rapid credit growth in 2009 and 2010 in response to the global financial crisis. In addition, China is Australia’s largest export market so events in China have significant direct implications for the economic prospects of Australia. Together, China and Australia account for around 35% of New Zealand’s merchandise exports.

Risks to the outlook from unanticipated developments internationally and domestically are explored in more detail in the Risks and Scenarios chapter.

Table 1.1 - Economic forecasts1
(Annual average % change,
March years)
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Private consumption 2.0 2.7 2.2 2.9 2.8 2.6
Public consumption 3.7 1.1 -0.8 0.1 0.7 0.6
Total consumption 2.4 2.3 1.5 2.2 2.4 2.2
Residential investment 4.4 -11.2 29.5 40.7 14.7 5.2
Market investment 9.6 6.0 7.4 14.1 6.3 2.2
Non-market investment -16.5 -7.4 5.4 3.3 5.6 3.4
Total investment 6.8 1.0 12.6 18.4 8.1 3.0
Stock change2 1.4 0.7 -0.7 -0.3 0.0 0.2
Gross national expenditure 4.6 2.4 3.7 5.8 3.9 2.6
Exports 1.9 3.0 2.1 1.0 2.1 2.1
Imports 10.5 5.2 2.8 8.5 4.9 1.7
GDP (expenditure measure) 2.0 1.5 2.9 3.4 3.0 2.8
GDP (production measure) 1.2 1.6 2.6 3.4 3.1 2.9
Real GDP per capita 0.0 0.8 1.8 2.4 2.1 2.0
Nominal GDP (expenditure measure) 5.9 4.2 4.1 6.5 5.4 4.9
GDP deflator 3.7 2.6 1.1 3.0 2.4 2.0
Output gap (% deviation, March quarter)3 -0.2 -1.0 -0.2 -0.6 -0.5 -0.1
Employment 1.2 1.3 1.3 1.6 1.6 1.4
Unemployment4 6.6 6.3 5.7 5.2 5.0 4.7
Participation rate5 68.6 68.3 68.2 68.2 68.2 68.4
Nominal wages6 2.6 3.2 3.8 3.9 3.7 3.5
CPI inflation7 4.5 1.6 2.6 2.5 2.4 2.4
Merchandise terms of trade8 9.9 1.3 -4.0 3.9 2.9 1.5
Current account balance            
  $billion -7.2 -8.7 -9.8 -13.5 -15.1 -16.8
  % of GDP -3.6 -4.2 -4.6 -5.9 -6.3 -6.7
Net international investment position            
  % of GDP -67.5 -72.1 -73.9 -75.3 -77.7 -80.8
TWI9 67.2 72.5 72.0 70.8 67.5 63.0
90-day bank bill rate9 3.0 2.7 2.9 3.6 4.1 4.4
10-year bond rate9 5.6 4.0 4.2 4.6 5.0 5.2

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

Notes:

  1. Forecasts finalised 27 April
  2. Contribution to GDP growth
  3. Estimated as the percentage difference between actual real GDP and potential real GDP
  4. Percent of the labour force, March quarter, seasonally adjusted
  5. Percent of the working-age population, March quarter, seasonally adjusted
  6. Quarterly Employment Survey, average ordinary-time hourly earnings, annual percentage change
  7. Annual percentage change, 2012 actual
  8. System of National Accounts (SNA) basis, annual average percentage change
  9. Average for the March quarter, 2012 actual

A longer time series for these variables is provided on page 132.

Notes

  • [1]Revised from 1.4% in the 15 May 2012 GDP release.

International Outlook

Trading partner growth outlook is more stable...

The trading partner growth outlook is similar to the forecasts underpinning the BPS, which were a significant downward revision from last year's Pre-election Update. The economic outlook became more stable in the months following the publication of the BPS as policy responses increased financial market liquidity and eased funding pressures in Europe and elsewhere. More recent developments, particularly those in Europe, highlight the fragility of the outlook.

Trading partner growth of 3.4% is expected over the year ending December 2012, just below the 30-year average growth rate of 3.6%. Natural disasters in Australia and Japan reduced their growth rates in 2011, but the recovery from these disasters adds to growth over 2012 and offsets weaker growth in the euro zone, the United Kingdom (UK), China and other Asian economies. The modest pace of economic recovery in the US is expected to continue over 2012. Trading partner growth is expected to be just above trend in 2013 as the recovery from 2011's dip becomes more broad based, strengthening to around 4% in the longer term, supported by New Zealand's increasing dependence on China and Australia. This outlook is very similar to those from other forecasters, including the International Monetary Fund (IMF).

Table 1.2 - Trading partner growth (years ending December)
  2012
weights
2011
actual
2012
forecast
2013
forecast
2014
forecast
2015
forecast
2016
forecast
Australia 28% 2.0 3.0 3.2 3.0 3.0 3.0
China 15% 9.3 8.1 8.3 8.0 8.0 8.0
United States 11% 1.7 2.1 2.2 2.3 2.4 2.5
Euro area 9% 1.5 -0.6 1.0 1.4 1.4 1.4
Japan 9% -0.7 1.8 1.5 1.2 1.1 1.0
United Kingdom 4% 0.8 0.5 1.4 1.6 1.8 2.2
Canada 2% 2.5 2.0 2.1 2.4 2.4 2.5
Other Asia* 23% 5.0 5.0 5.2 5.1 5.1 5.2
Trading Partners 100% 3.2 3.4 3.8 3.8 3.9 4.0
Consensus (April 2012)   3.2 3.6 4.0 4.0 4.0 4.0
IMF(April WEO)   3.2 3.5 4.1 4.2 4.3 4.4

Sources: IMF, Consensus Economics, the Treasury

...but risks of slower growth continue to dominate

Most of the risks to the international outlook are oriented to weaker growth than forecast. Further policy measures are required to return sovereign debt to a sustainable path in Europe, the US and Japan. Failure to address these issues could lead to disruption in financial markets. At the same time, addressing the issues through tighter fiscal policy could reduce economic activity. A slowing in emerging market economies - for example, from a sharp fall in property prices - would lead to lower trading partner growth. There is also the risk of political tensions in the Middle East escalating and disrupting oil supplies. A sharp increase in oil prices could undermine the already fragile recovery in world growth.

On the positive side, there is potential for a sharp improvement in sentiment in the US and a subsequent lift in investment and activity more generally, financed from the large amounts of liquidity that have been injected in bank and corporate balance sheets, which would support faster trading partner growth.

China's Economic Growth: Past, Present and Future

Since the start of the liberalisation of China's economy in 1978 it has experienced average annual growth in real GDP of 10%, doubling the size of its economy every seven years (Figure 1.4). Its share of world output has increased from 2% in 1980 to 10% in 2011 (14% if allowance is made for its lower cost of living), becoming the second largest economy in the world after the US in 2010. China has become increasingly important to New Zealand in these past three decades, especially since its accession to the World Trade Organisation in 2001 and the conclusion of a Free Trade Agreement between the two countries in 2008.

China's share of New Zealand's merchandise exports increased from 2% in the earl 1980s to 12% in 2011, surpassing the US to become our second largest trading partner after Australia (Figure 1.5). China is also an important market for services exports (eg, tourism and education) and a source of consumer goods imports and foreign investment. China is even more important to Australia as its major trading partner, accounting for more than a quarter of merchandise exports, chiefly mineral resources (Figure 1.5). The close integration between New Zealand and Australia is an additional channel for China's economic influence on New Zealand.

Figure 1.4 - China's economic growth and share of the world economy
Figure 1.4 - China's economic growth and share of the world economy.
Source: IMF
Figure 1.5 - New Zealand and Australian goods exports to China
Figure 1.5 - New Zealand and Australian goods exports to China.
Sources: Australian Bureau of Statistics, Statistics New Zealand

New Zealand's and Australia's exports to China are dominated by agricultural and industrial commodities. China's increasing demand for these goods arises from the related processes of urbanisation and industrialisation, combined with rising living standards and changing diets and tastes. Demand for these commodities has increased rapidly since 2008 as a result of the Chinese Government's fiscal and monetary stimulus in response to the global financial crisis. Demand for minerals and energy from Australia, and dairy, meat and forestry products from New Zealand, increased sharply in that period, driving up the terms of trade for both countries.

However, growth in China is slowing and there are risks to its sustainability. Annual growth in real GDP eased to 8.1% in the March quarter 2012, down from its post-global financial crisis peak of 11.9% two years ago. The slowdown is largely the result of monetary and fiscal tightening to reduce inflation which reached 6.5% mid-last year, as well as weaker demand from Europe, China's largest export market. Authorities have signalled slower growth and are also aiming to cool the housing market which became overheated following the rapid credit growth in 2009 and 2010 in response to the global financial crisis.

So far, China appears to be achieving a managed slowdown in economic growth and we expect growth to average just over 8% in 2012 with some additional strength in the second half of the year carrying through to 2013. There are risks to this outlook, chiefly centred on a sharper-than-expected correction in the property market, possibly combined with an increase in bad debts in the banking sector arising from the rapid expansion of credit in 2009 and 2010. This possibility is explored in the Risks and Scenarios chapter. While the European sovereign debt crisis does not pose a direct threat to China through financial channels (given the generally closed nature of its financial markets), weaker export demand could lead to a further slowing in the economy. The Government has room to loosen both monetary and fiscal policy if growth slows more than expected.

We expect China's growth to slow in the longer term as a number of factors come into play. Rebalancing growth from investment and exports to private consumption (a stated aim of the Government) will result in lower overall growth as households are unlikely to fully replace high investment rates as a driver of growth. In addition, growth in the working-age population is expected to peak in the next few years, limiting the sources of economic growth to gains in labour participation and productivity. We also consider that China will not be able to sustain its average 10% growth rate of the past three decades as the most rapid gains in output have already been made and growth is likely to slow as per capita incomes catch up with the developed world. However, China's per capita GDP is still only 11% of the US's. We expect that even if there are short-term fluctuations in China's growth, it will continue to be an important market for New Zealand exports.

Domestic Outlook

New Zealand's economic recovery continues...

Economic activity over 2011 was disrupted by the Canterbury earthquake of 22 February and subsequent aftershocks. The immediate disruption to overall economic activity proved to be less than the Treasury initially forecast, although the negative effects on tourism and on construction activity have been more pronounced. In the second half of 2011, the economy was buoyed by the effect of the RWC on consumption and a strong start to the dairy season. Offsetting these positive influences, the international environment deteriorated and domestic business confidence weakened. As a consequence, forecast real GDP growth for the year ending March 2012 has been downgraded from 1.9% in the BPSto 1.6%.

Figure 1.6 - Composition of GDP growth
Figure 1.6 - Composition of GDP growth.
Sources: Statistics New Zealand, the Treasury

The weaker international outlook, combined with a stronger New Zealand dollar assumption, has also reduced forecast real GDP growth in the years ending March 2013 and March 2014 to 2.6% and 3.4% respectively. Growth across the remaining two years of the forecast period averages 3% per year.

GDP growth is led by investment, underpinned by the Canterbury rebuild. This is partly offset by the negative impact from the import content of investment. Consumption spending also makes a significant contribution to forecast growth as private consumption spending rises and more than offsets slower growth in public consumption. Export volume growth is expected to be subdued as farming conditions return to normal, international prices weaken and the high New Zealand dollar constrains returns, although the latter factors become more favourable towards the end of the forecast period.

Figure 1.7 - Real private consumption growth
Figure 1.7 - Real private consumption growth.
Sources: Statistics New Zealand, the Treasury

...consumers remain cautious...

Private consumption growth, which has moderated since the 2008/09 recession, received a boost from the RWC. While some of the rise in consumer spending, such as that on hospitality and supermarket sales, appears to be closely linked to the RWC, spending on consumer durables, such as televisions and furniture, is indicative of a more generalised improvement in consumer sentiment.

Over the past year the labour market has strengthened, although unemployment remains elevated, household incomes have risen and consumer confidence has returned to average levels. Nonetheless, consumers continue to be cautious in their spending following an extended period when household consumption exceeded income, leading to an accumulation of debt. The excess of household consumption over income closed around the time the 2008/09 recession started and gross household income is now significantly greater than consumption.

Household consumption growth is expected to slow from 2.7% over the year ending March 2012, to 2.2% in the year ending March 2013 as the one-off impact of the RWC fades. The pace of growth rises to 2.9% in the year ending March 2014, supported by increasingly favourable economic conditions and by demand for durable goods, such as furniture and furnishings, associated with newly constructed dwellings. A gradual easing, to 2.8% and 2.6%, is forecast in the following years.

...and household saving increases

Figure 1.8 - Household saving and leverage
Figure 1.8 - Household saving and leverage.
Sources: Statistics New Zealand, Reserve Bank of New Zealand, the Treasury

Household income growth is also forecast to slow over the year to March 2013, reflecting the lower terms of trade, and the household saving ratio remains around its current rate. From March 2013 onwards, the faster pace of GDP growth feeds through to a stronger labour market and the terms of trade improve, increasing household incomes. The household debt to income ratio has declined from its peak but remains elevated. Continued restraint in consumption spending is expected to generate higher saving and further falls in the debt-to-income ratio.

Ongoing household caution is reflected in the subdued outlook for house price inflation. The forecast for rapid growth in the supply of houses also helps to temper gains in house prices. House price growth of around 1.5% per year is forecast, less than the rate of consumer price inflation.

Residential investment rises rapidly...

Households have also been cautious in their residential investment decisions, which have contributed to weakness in the residential construction industry. This generalised weakness has been compounded by the earthquake disasters in Canterbury. Indicators of residential building activity show activity is likely to remain at a low level in the short term. Household credit growth is weak and building consents are rising but the level remains low.

Figure 1.9 - Real residential investment
Figure 1.9 - Real residential investment.
Sources: Statistics New Zealand, the Treasury

In Canterbury there is a significant amount of repair work underway, but the number of new dwelling consents and rebuilds is small. Repair and rebuilding work is expected to accelerate over coming months and to continue rising for most of the forecast period. Much uncertainty surrounds the expected pace of new building work, although potential cost inflation is also a significant uncertainty. The Treasury forecasts assume a large increase in residential investment from the middle of 2012. The pace of activity is forecast to continue to rise, reaching a peak growth rate of over 40% in the year ending March 2014. The level of activity continues to rise for the remainder of the forecast period, but the growth rates slow to 15% in the year ending March 2015 and 5.2% in the year ending March 2016.

Economic Forecast Changes Since Budget Update 2011

The forecast level of real GDP in this Budget Update is lower than in recent forecasts, but is similar to that presented in the downside scenario in the 2011 Budget Update.

Figure 1.10 - Real GDP forecasts in recent Updates
Figure 1.10 - Real GDP forecasts in recent Updates.
Sources: Statistics New Zealand, the Treasury

In that scenario, world economic growth slowed, the terms of trade fell and business and consumer confidence weakened. This resulted in weaker real and nominal GDP growth.

The world economic outlook did deteriorate over the second half of 2011, but to a lesser extent than in the downside scenario. Other factors contributing to the weaker growth outlook since Budget 2011 include a delay in the Canterbury rebuild, a stronger currency and revisions to GDP outturns.

Compared to the main forecast in the 2011 Budget Update, aggregate price pressures in the economy have been weaker than expected, reflecting the strength of the exchange rate, lower commodity prices and a greater degree of spare capacity in the economy. As a result, the level of GDP in current prices in the 2012 Budget Update has been revised down towards the levels in the downside scenario.

Figure 1.11 - Nominal GDP forecasts in recent Updates
Figure 1.11 - Nominal GDP forecasts in recent Updates.
Sources: Statistics New Zealand, the Treasury

GDP in current prices provides the base for tax revenue forecasts. In the downside scenario, lower nominal GDP led to tax revenue being $5 billion lower over the four year period ending June 2015 than in the main forecast. In the 2012Budget Update, nominal GDP is higher than in the downside scenario but forecast tax revenue over the four-year period ending June 2015 is similar. In other words, the ratio of tax to GDP in the current forecasts is lower than in previous forecasts.

One of the main contributors to the lower tax-to-GDP ratio is the current high level of goods and services tax (GST) refunds, which are being boosted by insurance settlements following the Canterbury earthquakes. Insurance settlements include GST, which entitles insurance companies to a refund from Inland Revenue (IRD). This reduces net tax revenue until the claimants incur GST on their purchases. While temporary, the impact remains significant until the bulk of the insurance settlement are spent.

While the initial phases of the rise in residential investment are driven by the Canterbury rebuild, activity in the rest of the country is forecast to become increasingly significant over 2013. The national demand for housing is supported by past population growth, expected future population growth, rising household incomes, falling unemployment and repair of leaky homes.

...and business investment strengthens

Business investment is forecast to continue rising, picking up pace over the second half of 2012 as the rise in business confidence over the first half of 2012 and the imminent Canterbury rebuild impact on firms' decisions.

Figure 1.12 - Real business investment
Figure 1.12 - Real business investment.
Sources: Statistics New Zealand, the Treasury

The Treasury's estimate for the damage to commercial and infrastructure assets remains $7 billion (in 2011 prices), but is subject to a large degree of uncertainty. The Canterbury rebuild is expected to provide increasing support for non-residential investment particularly in the period beyond March 2013, while other construction related to the Canterbury rebuild is assumed to be spread more evenly over the forecast period. With the Canterbury rebuild underway, and continuing support from low interest rates and the high exchange rate, business investment growth is forecast to rise to 14% in the year ending March 2014 and to reach an historically high share of 24% of real GDP. The pace of business investment slows over the remainder of the forecast period, reflecting the lower exchange rate and rises in interest rates.

Government spending growth slows...

Real government consumption is forecast to fall in the year ending March 2013, as some of the temporary spending related to the Canterbury earthquakes is withdrawn and growth in other government spending slows. Government spending restraint in Budget 2012, and in earlier Budgets, is reflected in a reduction of government spending on goods and services as a share of real GDP (government transfer payments, such as Working for Families, are captured in private consumption). Estimates of the cyclically-adjusted operating balance show fiscal policy is withdrawing demand from the economy in each of the forecast years, with a peak contraction of almost 2% of GDP in the fiscal year ending June 2014.[2]

Figure 1.13 - Real government consumption
Figure 1.13 - Real government consumption.
Sources: Statistics New Zealand, the Treasury

Although government consumption expenditure continues to increase in current prices, and increases in inflation-adjusted (or constant) prices after the year ending March 2013, it grows more slowly than the rest of the economy. As a share of real GDP, government consumption declines from 18.7% in the year ending March 2012 to 16.6% by March 2016.

Partly offsetting the reduction in consumption demand, real government investment is forecast to grow at an average rate of 4% over the forecast period, reflecting the Government's ongoing social infrastructure investment programme. More generally, the reduction in demand from fiscal policy is more than offset by the increase in private sector demand from the Canterbury rebuild and other parts of the economy.

Good farming conditions lift commodity exports volumes...

Exports of goods increased 2.9% in the year ending December 2011, led by strong growth in dairy volumes. The RWC contributed to a 0.6% rise in services exports, with much of the positive impact offset by weakness in other tourist arrivals owing to the natural disasters in Canterbury and Japan, and generally weak demand in many of the traditional tourism markets. Together, goods and services exports rose 2.4% in the year ending December 2011.

Export growth is expected to slow to around 2% in the year ending March 2013 and 1% in the following year, as farming conditions return to normal and the elevated exchange rate constrains profitability. The assumed weakening of the exchange rate over 2015 and 2016 is forecast to lift volume growth to 2% per year over the final two years of the forecasts.

...but growth slows as conditions return to normal... 

Figure 1.14 - Export volume growth
Figure 1.14 - Export volume growth.
Sources: Statistics New Zealand, the Treasury

The assumption of a return to normal farming conditions is reflected in lower commodity export growth. Dairy export volumes, up 9.9% in the year ending December 2011, are expected to rise further before falling back when the current season ends and conditions revert to normal.

Thereafter, ongoing productivity gains and investment in the dairy industry result in a rising profile for dairy export volumes. The meat industry is also benefiting from good farming conditions, but the trend decline in the sheep flock is expected to continue, with an offset from a larger dairy herd resulting in stable meat export volumes. Forestry export volumes are also forecast to remain stable, reflecting steady demand in an industry that is operating close to its maximum sustainable harvest rate. Some other commodity exporters, such as kiwifruit and pip fruit growers, are finding conditions challenging.

Notes

  • [2]For more details, see the Additional Information on the Treasury website www.treasury.govt.nz

...and international demand remains subdued

Growth in non-commodity goods exports, including manufactured goods, is forecast to slow from around 4% in the year ending December 2011 to 2% in the year ending March 2013 as the elevated exchange rate and subdued trading partner conditions slow demand growth. The forecast recovery in world demand and the easing in the exchange rate contribute to growth rising to 2.9% and 3.9% in the years ending March 2014 and 2015 respectively, slowing to 3% in the year ending March 2016.

Services export growth is forecast to be weak over much of the forecast horizon - rising world incomes and a weaker exchange rate permit some recovery in the final year of the forecasts. Exports of services are dominated by travel and transport services; conditions in this industry are expected to remain subdued, reflecting weak income growth in many developed countries and the relatively high cost of New Zealand as a tourism destination. In contrast to the weakness in these industries, exports of commercial services are trending up, and have increased almost 30% since early 2007. Growth in this latter sector is expected to continue to partly offset the weakness in tourism.

Import growth is forecast to slow to 2.8% in the year ending March 2013, from 5.2% in the year ending March 2012. The expected slowing in consumption demand reduces consumption goods import growth, and imports of services, which have risen strongly in the last two years, are expected to consolidate at a high level. The Canterbury rebuild, combined with firmer domestic demand, drives the strong rise in imports in the following two years. In the final year of the forecasts, the weaker exchange rate and more restrained demand growth result in slower import growth.

Goods export prices fall in the short-term...

Over 2011 the overseas trade index (OTI) measure of the merchandise terms of trade rose to their highest level since 1974 as solid demand and short supply of dairy and meat products lifted export prices. However, good farming conditions have led to increased dairy production around the world and prices have fallen. At the same time, trading partner demand has weakened. Further falls in export prices are expected and the System of National Accounts (SNA) measure of the merchandise terms of trade is expected to fall around 8% from its peak in September 2011 to its trough in late 2012. From the end of 2012, commodity supply growth is expected to slow and demand growth to strengthen leading to a recovery in the terms of trade over 2014 and 2015. However, recent commodity price falls point to the risk of a greater decline in the terms of trade than forecast.

Figure 1.15 - Merchandise terms of trade (OTI basis)
Figure 1.15 - Merchandise terms of trade (OTI basis).
Source: Statistics New Zealand

...but recover in the medium term...

World dairy prices were around 20% below their April 2011 peak and close to their average over the past 7 years when these forecasts were finalised. Dairy prices have been supported by rapid growth in China's dairy consumption and per capita consumption remains well below that of countries such as Korea and Japan. The growth outlook for China remains solid, and is expected to generate rising demand for dairy products. Global dairy supply is expected to increase, although production costs are also expected to rise due to increased land-use competition from food, fibre and bio-fuel industries. Tighter environmental standards are also likely to contribute to higher production costs. World supply of beef and lamb is generally short following several seasons of poor farming conditions. Biological constraints on the speed of the supply response are expected to sustain prices at a relatively high level over the forecast period. Prices for forestry exports have been supported by developments in China, but the weak housing market in North America has moderated the extent of price increases. The recovery in the US is expected to gather pace over the forecast period, increasing demand for forestry products and helping to maintain forestry prices at historically high levels.

World oil prices rose over the first quarter of 2012 as the prospect of supply disruptions increased, but prices have eased in recent weeks. Oil market futures prices, which form the basis for our oil price assumption, show that oil prices in 2016 are expected to be at a similar level to current prices (US$94.4 per barrel).

...offsetting weakness in the services terms of trade

Figure 1.16 - Goods and services terms of trade (SNA basis) 
Figure 1.16 - Goods and services terms of trade (SNA basis).
Sources: Statistics New Zealand, the Treasury

In contrast to the expected recovery in the merchandise terms of trade, the services terms of trade are forecast to continue weakening, ending the forecast period around 20% below their current level. The price of overseas travel by New Zealanders, which is treated as imports of services in the SNA, is currently low, and is reflected in the growing number of overseas trips. On the other hand, the high exchange rate means the cost of travel to New Zealand is relatively high and the value of tourism spending has fallen in real terms. The expected decline in the New Zealand dollar increases the relative price of travel and other services imports for New Zealanders, resulting in a falling services terms of trade. Overall, the combined goods and services terms of trade deteriorate over 2012, but recover over 2013 and 2014, and stabilise at a level similar to that prevailing over 2011.

Wider current account deficit...

The current account of the balance of payments measures economic transactions between New Zealand residents and the rest of the world. It is a composite of balances on imports and exports of goods and services, income flows, and transfers. The current account deficit is expected to widen to 6.7% of GDP in the year ending March 2016, from 4.0% in the year ending December 2011, driven by a falling surplus on the trade balance and a widening of the deficit on services.

Figure 1.17 - Current account balance
Figure 1.17 - Current account balance.
Sources: Statistics New Zealand, the Treasury

The income deficit rose over 2011 as profit outflows recovered and was a little over 5% of GDP in the year ended December 2011. Income outflows are expected to stabilise over 2012 and to decline to 4.5% of GDP in the year ending March 2013. The goods surplus is forecast to narrow from 1.7% of GDP in the year ending December 2012 to 0.6% of GDP in the year ending March 2013. As a consequence, the current account deficit widens to 4.6% of GDP.

The goods surplus is forecast to continue to narrow and a goods deficit is expected to develop in late 2013. Small goods deficits, of around 0.4% of GDP, are expected to persist until the end of the forecast period, when the weaker exchange rate helps return the balance into surplus. The income deficit is forecast to remain around 4.5% of GDP over the years ending March 2013 to March 2015 as business profitability and interest payments keep pace with nominal GDP growth. The transfers balance is forecast to remain in deficit throughout the forecast horizon reflecting the impact of higher insurance premiums in the wake of the Canterbury earthquakes.

The current account deficit is forecast to widen to 6.7% of GDP in the year ending March 2016, but the assumption of a significant weakening in the exchange rate and the gradual unwind of activity in Canterbury mean that the deficit is narrowing. This narrowing trend is expected to continue beyond the end of the forecast period.

...but national saving also rises

Figure 1.18 - Saving and investment
Figure 1.18 - Saving and investment.
Sources: Statistics New Zealand, the Treasury

From a saving and investment perspective, the widening of the current account reflects the expected increase in investment driven by the Canterbury rebuild and part-financed from overseas reinsurance inflows. The inflows are recorded in the capital account of the balance of payments. Statistics New Zealand estimates over $15 billion of reinsurance inflows for the earthquakes have been paid to New Zealand insurers to date, reflecting the high level of insurance coverage by Canterbury businesses and households. The large proportion of home and business equity protected by insurance policies means that households and businesses can continue saving, contributing to a rise in national saving. The Government's programme of fiscal consolidation further supports national saving.

The net international liability position is forecast to rise from 72% of GDP at the end of 2011 to 81% of GDP at the end of March 2016, driven by a fall in international assets as insurance claims are settled. At the end of the forecast period, a small proportion of the insurance claims remain to be settled and the current account deficit remains above its sustainable level, suggesting that the net liability position will deteriorate further. The Treasury estimates that a current account deficit of 4% of GDP would stabilise net international liabilities at 85% of GDP.

Firmer labour market...

Figure 1.19 - Labour market
Figure 1.19 - Labour market.
Sources: Statistics New Zealand, the Treasury

The labour market has firmed over the past year and this is expected to continue over the forecast period. In the year ending December 2011, the number of people employed increased 1.6% and the unemployment rate eased to 6.4% (revised up from 6.3%). Data released after the forecasts were finalised show employment increased 1.4% in the year ending March 2012, compared to a forecast rise of 1.3%, and the unemployment rate increased to 6.7% in the March 2012 quarter, higher than the 6.3% forecast. A higher labour force participation rate, which rose to 68.8% compared to a forecast of 68.3%, accounts for most of the difference between the actual unemployment rate and the forecast rate. The participation rate can be volatile but, if sustained, the increase in the size of the labour force points to greater spare capacity in the labour market, which may moderate inflation pressures as a result of weaker wage growth and the assumed rise in labour productivity.

Employment growth is expected to remain modest over 2012, but to begin rising more quickly in 2013 as the Canterbury rebuild increases labour demand. Employment growth of 1.6% is expected in the years ending March 2014 and 2015, up from 1.3% in the year ending March 2013, easing to 1.4% in the final year of the forecasts.

Labour force participation has averaged a little over 68% of the working-age population in recent years. Participation in older age groups has been increasing, but that has been offset by falling participation in younger age groups, where unemployment is highest. These trends are expected to continue, and the participation rate is forecast to remain close to 68% over the forecast period.[3] The unemployment rate is expected to decline to 4.7% in the March 2016 quarter, reflecting ongoing employment growth.

...leads to ongoing wage growth

Annual wage and salary growth accelerated to 3.8% in the March 2012 quarter, up from 2.6% in the previous March quarter. The wage and salary data for the March quarter was released after the forecasts were finalised, and shows that wages and salaries grew more strongly than expected. If sustained, the most recent data point to higher wage growth than contained in our forecasts. However, when considered alongside the moderating influence of the higher unemployment rate on wage growth, the forecast for wages to continue growing at around the current rate remains appropriate.

The Canterbury rebuild will likely see construction sector wages rise more rapidly than those in other industries. There is a risk that this exerts more upward pressure on wages in other industries than is currently factored in, either because of greater labour shortages for the types of labour skills required or because labour productivity in the rebuild is lower than expected. On the other hand, the localised and intensive nature of the rebuild may lift labour productivity.

Inflation is restrained...

Inflation is restrained but is forecast to rise as downward price pressure from the recent appreciation of the exchange rate fades, excises on tobacco and transport increase, and spare capacity in the economy is reduced.

Figure 1.20 - CPI inflation
Figure 1.20 - CPI inflation.
Sources: Statistics New Zealand, the Treasury

The Treasury estimates the output gap, a measure of spare capacity, to be around 1% of GDP currently. This is contributing to relatively low domestically generated, or non-tradable, inflation. The acceleration in business investment over the next two years increases productive capacity, partly through an increase in imports, but output increases more rapidly and the output gap narrows, closing at the end of the forecast period. With resources less than fully employed across the forecast period, non-tradables inflation is expected to remain restrained. However, in the year ahead, rising insurance premiums, higher excises on tobacco and transport, and higher rental accommodation prices, are expected to increase non-tradable inflation. With tradable inflation also increasing, headline inflation is forecast to rise to 2.6% in the March quarter of 2013. Further tobacco excise increases, ongoing but diminishing spare capacity, and a depreciating exchange rate, contribute to inflation remaining around 2.4% over the remainder of the forecast period.

...and monetary policy stimulus is withdrawn...

The forecasts assume that monetary policy does not tighten to offset the temporary effects of the higher excises on the CPI. However, strengthening demand in the economy and diminishing spare capacity are forecast to lead to a gradual withdrawal of monetary stimulus. The withdrawal of this support is forecast to begin in early 2013. Short-term 90-day interest rates are expected to rise from 2.7% in the March 2012 quarter to 4.4% in the March 2016 quarter.

Notes

  • [3]Some components of welfare reform (work tests and associated provisions for sole parents and partners) are within the scope of these forecasts (see Specific Fiscal Risks page 66) and their impact has been considered during the development of these forecasts.

...but the pace of tightening is uncertain

The pace and extent of interest rate rises are dependent on the strength of the exchange rate, the strength of domestic demand, and conditions in financial markets; a stronger exchange rate would also lead to tighter monetary conditions. Banks continue to find the cost of funds elevated relative to their pre-global financial crisis levels, which is increasing the margin between the Reserve Bank's Official Cash Rate (OCR) and retail interest rates. These higher costs are assumed to persist over the forecast horizon; international funding markets are expected to improve but to remain impaired; and upward pressure on domestic funding costs is expected as domestic deposit growth slows and credit demand rises. Further increases in the cost of funds would, if passed on to borrowers, reduce the extent of increases in the OCR required to meet the Reserve Bank's medium-term target of inflation between 1% and 3%.

Figure 1.21 - Exchange rate and 10-year interest rates
Figure 1.21 - Exchange rate and 10-year interest rates.
Sources: Reserve Bank of New Zealand, the Treasury

The rate of productivity growth is also critical to the inflation outlook. The Treasury forecasts assume labour productivity growth of 1.4% per year over the forecast period, similar to that over the decade prior to the 2008/09 recession. A lower rate of productivity growth would lead to a faster reduction in spare capacity and require an earlier tightening of monetary policy.

Ten-year interest rates fell to an historic low of 4.0% in the March 2012 quarter, reflecting lower yields internationally, but also some specific factors such as an improvement in investor sentiment as New Zealand's economic outlook has remained favourable relative to a number of other countries. Long-term interest rates are forecast to rise to a little over 5% by the end of the forecast period, reflecting the expected recovery in world economic growth and the gradual normalisation of global monetary conditions. The expected rise in 10-year interest rates flows through to higher business and government borrowing costs.

Stronger income growth expected

Nominal GDP growth is expected to slow to 4.1% over the year ending March 2013, reflecting the decline in the terms of trade. Nominal GDP is forecast to rise strongly in the following year as the terms of trade recover and the pace of growth in the real economy accelerates. Nominal GDP growth eases to around 5% per year in the last two years of the forecast period as real activity slows and the terms of trade level off.

Figure 1.22 - Nominal GDP growth
Figure 1.22 - Nominal GDP growth.
Sources: Statistics New Zealand, the Treasury

Nominal GDP is comprised of compensation of employees, and business and agricultural operating surplus.

Compensation of employees is forecast to grow 3.9% in the year ending March 2013, increasing to 5.2% the following year, underpinned by the firming labour market and the Canterbury rebuild. Compensation of employees continues to grow at around 5% per year through to the end of the forecasts. This means compensation of employees is stable as a share of GDP at around 44%.

Agricultural operating surplus is expected to fall in the year ending March 2013, reflecting lower commodity prices and the assumption that the exchange rate will provide only a limited offset. Operating surplus growth is expected to remain subdued in the year ending March 2014, but to recover strongly in the following years as the exchange rate falls and commodity demand firms.

Business operating surplus is expected to increase to 5.3% in the year ending March 2013, while the impetus from the Canterbury rebuild generates surplus growth of over 10% in the year ending March 2014. Operating surplus growth averages around 5% in the following years, in line with the moderation in activity across the economy.

Economic Forecast Assumptions

  • From an outflow of 4,000 in the year ending March 2012, net permanent and long-term migration rises to an inflow of 19,000 in the year ending March 2014 and returns to a long-run assumption of 10,000 by mid-2015.
  • The non-accelerating inflation rate of unemployment (NAIRU) is assumed to be around 4.5% by 2016 (it varies over time, starting out around 5.2% in 2011).
  • Average hours worked per week are assumed to be 33 (near their current level).
  • Economy-wide labour productivity growth is assumed to average around 1.4% per year between the years ending March 2012 and March 2016.
  • Damage caused by the Canterbury earthquakes is assumed to be $20 billion (2011 dollars) spread across residential property and contents ($13 billion), commercial ($4 billion) and infrastructure ($3 billion). Rebuilding is expected to ramp up from the second half of 2012.
  • West Texas Intermediate (WTI) oil prices are assumed to fall from above US$100 per barrel in the March quarter 2012 to US$94.4 in the June quarter 2016, although we also look at other oil price measures.
  • 90-day interest rates are assumed to increase starting with OCR rises in early 2013 to around 4.5% at the end of the forecast period, while 10-year interest rates are assumed to move towards our anchor assumption of 5.5%, reaching 5.3% within the forecast period.
  • The Trade Weighted Index (TWI) is assumed to remain around 72 for the next two years or so before falling to 62 by the June quarter 2016, which is the end of the forecast period.
  • Tobacco excise increases add 0.2 percentage points to the CPI in each of the March quarters 2013, 2014, 2015 and 2016.

Fiscal Outlook

Overview

Table 2.1 - Fiscal indicators
Year ended 30 June 2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast

$billions

           
Core Crown tax revenue 51.6 54.7 58.2 63.1 67.2 71.2
Core Crown expenses 70.5 69.6 73.7 72.9 74.9 77.3
Total Crown OBEGALa -18.4 -8.4 -7.9 -2.0 0.2 2.1
Total Crown OBEGAL (excluding earthquake expenses) -9.3 -7.1 -5.9 -1.7 0.4 2.2
Total Crown operating balance -13.4 -10.6 -5.7 0.4 2.7 4.8
Core Crown residual cash -13.3 -12.1 -9.7 -5.2 -3.7 -1.2
Net debtb 40.1 51.9 61.3 66.5 69.8 70.7
Gross debtc 72.4 80.1 80.0 88.1 84.2 84.8
Net worth attributable to the Crown 80.6 70.0 64.6 65.2 68.1 73.2

% of GDP

           
Core Crown tax revenue 25.7% 26.3% 26.7% 27.2% 27.5% 27.8%
Core Crown expenses 35.2% 33.5% 33.8% 31.5% 30.7% 30.2%
Total Crown OBEGALa -9.2% -4.1% -3.6% -0.9% 0.1% 0.8%
Total Crown OBEGAL (excluding earthquake expenses) -4.6% -3.4% -2.7% -0.8% 0.1% 0.9%
Total Crown operating balance -6.7% -5.1% -2.6% 0.2% 1.1% 1.9%
Core Crown residual cash -6.7% -5.8% -4.4% -2.2% -1.5% -0.5%
Net debtb 20.0% 25.0% 28.1% 28.7% 28.6% 27.7%
Gross debtc 36.2% 38.5% 36.7% 38.0% 34.5% 33.2%
Net worth attributable to the Crown 40.2% 33.7% 29.6% 28.1% 27.9% 28.6%

Notes:

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

A glossary and longer time series for these indicators are provided on pages 126 and 131 respectively.

Source: The Treasury

Budget 2012 forecasts narrowing operating deficits over the next three years before the Crown returns to surplus in the 2014/15 fiscal year.

This strengthening fiscal outlook is underpinned by higher revenues together with restrained growth in discretionary spending.

While the nominal value of core Crown expenses is expected to increase across the four-year forecast period, growth in spending is anticipated to be modest, so that expenses will decline as a share of GDP from 35% of GDP in 2010/11 to 30% of GDP in 2015/16.

Over the next four years, the core Crown is expected to spend around $18 billion on capital items such as the purchase of physical assets and advancing student loans. Net debt is expected to peak at 28.7% of GDP in 2013/14, fall to 27.7% of GDP in 2015/16 and continue to ease throughout the projection period[4] ending 2025/26.

Total Crown assets are forecast to grow by $18.9 billion over the next five years, from $245.2 billion to $264.1 billion. This five-year growth figure is roughly half that forecast in Budget 2011, reflecting ongoing fiscal restraint and the beginning of an unwinding of financial assets that had been built up in recent years to fund a series of upcoming bond maturities.

Table 2.2 - Reconciliation between OBEGAL and net debt
Year ending 30 June
$billions
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Core Crown revenue 57.6 60.0 64.2 69.2 73.6 77.9
Core Crown expenses (70.5) (69.6) (73.7) (72.9) (74.9) (77.3)
Net surpluses/(deficits) of SOEs and CEs (5.5) 1.2 1.6 1.7 1.5 1.5
Total Crown OBEGAL (18.4) (8.4) (7.9) (2.0) 0.2 2.1
Net retained surpluses of SOEs, CEs and NZS Fund 6.0 (1.4) (1.7) (1.7) (1.5) (1.4)
Non-cash items and working capital movements 3.1 1.6 2.9 1.1 1.0 1.1
Net core Crown cash flow from operations (9.3) (8.2) (6.7) (2.6) (0.3) 1.8
Net purchase of physical assets (1.5) (1.4) (1.9) (1.6) (1.6) (1.4)
Advances and capital injections (2.5) (2.4) (2.4) (1.9) (2.5) (2.2)
Forecast for future new capital spending (0.1) (0.2) (0.6) (0.8) (0.9)
Partial share sales 1.5 1.5 1.5 1.5
Core Crown residual cash deficit (13.3) (12.1) (9.7) (5.2) (3.7) (1.2)
Opening net debt 26.7 40.1 51.9 61.3 66.5 69.8
Core Crown residual cash deficit 13.3 12.1 9.7 5.2 3.7 1.2
Other valuation changes in financial assets and financial liabilities 0.1 (0.3) (0.3) (0.4) (0.3)
Closing net debt 40.1 51.9 61.3 66.5 69.8 70.7
As a percentage of GDP 20.0% 25.0% 28.1% 28.7% 28.6% 27.7%

Source: The Treasury

Notes

  • [4]The projection period is the ten year period from 2016/17 to 2025/26.

Core Crown Tax Revenue

Tax revenue continues to recover ...

Core Crown tax revenue is forecast to increase over the next four years, reaching $71.2 billion (27.8% of GDP) in 2015/16.

All of the major macroeconomic drivers of tax revenue (compensation of employees, entrepreneurial income, operating surplus and domestic consumption) are forecast to grow at above 4% per year.

Increased residential investment in the Canterbury region is expected to provide a significant boost to GST revenue in the 2012/13 and 2013/14 fiscal years. This increase is expected to offset reduced GST revenue in the current year (resulting from refunds paid on the insurance proceeds that will be used to fund much of this investment).

In addition to the impact of economic growth, the Budget Update includes a number of policy changes, including changes to tobacco excise, fuel excise and road user charges. These policy changes increase core Crown tax revenue by $1.7 billion over the forecast period. Further detail of the tax policy changes can be found at www.treasury.govt.nz/budget/forecasts/befu2012.

Table 2.3 - Movement in core Crown tax revenue
Year ending 30 June
$billions
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2011 Pre-election Update 55.5 59.2 63.6 67.6 71.5
    Policy changes
    Forecast changes (1.1) (1.0) (0.7) (0.5) (0.4)
2012 Budget Policy Statement 54.4 58.2 62.9 67.1 71.1
    Policy changes 0.2 0.4 0.5 0.6
    Forecast changes 0.3 (0.2) (0.2) (0.4) (0.5)
2012 Budget Update 54.7 58.2 63.1 67.2 71.2
Composition of 2012 Budget Update:          
    Source deductions 21.2 22.6 24.1 25.6 27.2
    Corporate tax 8.6 9.0 9.8 10.5 11.0
    GST 14.7 15.7 17.3 18.3 19.3
    Other taxes 10.2 10.9 11.9 12.8 13.7

Source: The Treasury

Core Crown tax revenue forecasts are lower than in the Pre-election Update but higher than in the Budget Policy Statement.

The forecast of nominal GDP is the main driver of the tax forecasts. The outlook for GDP was lowered in the Budget Policy Statement, which resulted in reductions in the tax revenue forecasts ranging from $0.4 billion to $1.1 billion in each year of the forecast period.

Nominal GDP forecasts were reduced further in this Budget Update, which, with the exception of the 2012 year, caused further reductions in the underlying tax revenue forecasts. Policy changes that affected tax revenue more than offset these reductions, resulting in tax revenue forecasts increasing slightly from the Budget Policy Statement.

... and increases as a percentage of GDP

Figure 2.1 - Core Crown Tax Revenue
Figure 2.1 - Core Crown Tax Revenue.
Source: The Treasury

Core Crown tax revenue is forecast to increase over the forecast period from 25.7% of GDP in 2010/11 to 27.8% of GDP in 2015/16.

Further discussion of the changes to core Crown tax revenue as a percentage of GDP and their drivers can be found in the box below.

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. In this Budget Update, the two sets of tax forecasts are very close to each other, with the largest difference in any one year being almost $350 million (around 0.2% of core Crown tax revenue).

A full comparison of the Treasury and Inland Revenue forecasts can be found at www.treasury.govt.nz/budget/forecasts/befu2012.

Core Crown Tax Revenue as a Percentage of GDP

While core Crown tax revenue increases as a percentage of GDP over the forecast period, it has been decreasing as a percentage of GDP since 2008. The reasons for the previous decline and forecast increase are outlined in the following tables. Values in these tables were estimated using data as at 1 May 2012 and could change in the future as current data are revised and more data become available.

Table 2.4 - Change in core Crown tax revenue from 2008 to 2011
Year ending 30 June
% of GDP
2008
Actual
2009
Actual
2010
Actual
2011
Actual
Total
3 years
Core Crown tax revenue 31.0 29.5 26.8 25.7  
    Annual movement   (1.5) (2.7) (1.1) (5.3)
Annual movement owing to:          
    Legislated tax system changes          
        Up to 2008 Budget   (1.7) (0.3) (0.4) (2.4)
        Post 2008 Budget   (0.3) (0.4) 0.1 (0.6)
    Composition of GDP   (1.3) 0.3 (0.5) (1.5)
    Timing   0.4 (0.7) (0.2) (0.5)
    Interest RWT   (0.4) (0.4)
    Company tax losses   0.3 (0.6) 0.1 (0.2)
    Structured finance tax settlements   0.9 (0.6) (0.3)
    Fiscal drag   0.2 0.1 0.1 0.4
    Other   (0.1) (0.1)
Total annual movement   (1.5) (2.7) (1.1) (5.3)

Source: The Treasury

  • “Legislated tax system changes” shows movements in tax revenue caused by changes to tax rates, thresholds and taxable bases. Broadly speaking, the “Up to 2008 Budget” reductions were caused by the changes made in 2008 to the personal and business tax rates. “Post 2008 Budget” changes relate to the 2009 personal tax changes and the initial impacts of tax changes made in the 2010 Budget Update package.
  • The composition of GDP affects the tax-to-GDP ratio because not all parts of GDP are taxed at the same rate. For instance, compensation of employees, which measures total wages and salaries in the economy, has a higher average implicit tax rate than does operating surplus, the measure of profits in the economy.
  • Timing largely reflects movements between years caused by changes in the amounts of tax paid as provisional tax and final tax.
  • Movements in interest rates and the size of interest bearing deposits affect the amount of resident withholding tax (RWT) collected. Deposit interest rates declined sharply throughout this period.
  • Income tax payers can use accumulated tax losses to reduce the amount of tax that they pay on profits earned in later tax years. This loss offset effect is most prevalent in company tax and can result in swings of several hundreds of millions of dollars in income tax from one year to the next.
  • ”Structured finance tax settlements” refers to the major trading banks' settlements of their structured finance tax liabilities (mostly recognised in 2009).
  • “Fiscal drag” is the additional source deduction revenue generated as an individual's average tax rate increases as their income increases.

While core Crown tax revenue as a percentage of GDP declined over the past few years, it is forecast to increase over the forecast period from 25.7% of GDP in 2010/11 to 27.8% in 2015/16.

Table 2.5 - Change in core Crown tax revenue from 2011 to 2016
Year ending 30 June
% of GDP 
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Total
5 years
Core Crown tax revenue 25.7 26.3 26.7 27.2 27.5 27.8  
    Annual movement   0.6 0.4 0.5 0.3 0.3 2.1
Annual movement owing to:              
    Fiscal drag   0.1 0.1 0.2 0.2 0.2 0.8
    Composition of GDP   0.2 0.2 0.1 0.1 0.6
    Legislated tax system changes   0.3 0.1 0.1 0.1 0.6
    Other   0.2 0.1 (0.1) (0.1) 0.1
Total annual movement   0.6 0.4 0.5 0.3 0.3 2.1

Source: The Treasury

“Legislated tax system changes” are mainly the increases to tobacco excise rates, the fuel excise rate and road user charges. The 0.3% of GDP in 2011/2012 represents the revenue-positive aspects of the 2010 Budget Update package beginning to take effect.

Core Crown Expenses

Core Crown expenses continue to increase over the forecast period ...

Core Crown expenses are expected to increase in nominal terms by $6.8 billion over the forecast period, reaching $77.3 billion in 2015/16 (Table 2.6).

Figure 2.2 - Core Crown Expenses
Figure 2.2 - Core Crown Expenses.
Source: The Treasury

The major increases are in relation to social assistance expenses ($3.6 billion), new spending ($3.5 billion), and finance costs ($1.2 billion) reflecting the expected increase in gross debt.

The reductions relating to the financial assistance package for weathertight homes and the emissions trading scheme reflect expenditure incurred in 2011/12 which has not been repeated to the same extent in future periods.

Earthquake expenses are expected to increase core Crown expenses over the next couple of years then decline to have minimal impact by 2014/15 onwards. The largest impact is in 2012/13 when earthquake costs are estimated to reach $2.2 billion. Excluding these costs, core Crown expenses would reduce from the estimated $73.7 billion in 2012/13 to $71.5 billion.

Table 2.6 - Cumulative growth in core Crown expenses
Year ended 30 June
$billions
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast

Movements in expenditure

         

New spending

         
Budget 2011 decisions 0.4 (0.1) (0.4) (0.3) (0.3)
Budget 2012 decisions (0.7) 0.5 0.6 0.4 0.6
Budget 2013 allowance 0.8 0.8 0.8
Budget 2014 allowance 1.2 1.2
Budget 2015 allowance 1.2

Forecast changes

         
New Zealand Superannuation costs 0.8 1.4 2.0 2.8 3.5
Other social assistance (0.1) (0.1) (0.1) 0.1
Emissions Trading Scheme (0.2) (0.6) (0.6) (0.4) (0.2)
Debt impairments 0.2 0.5 0.6 0.4 0.5

Other movements

         
Finance costs 0.5 0.7 0.9 1.2 1.2
Weathertight homes (0.8) (0.6) (0.6) (0.6) (0.6)
Earthquake expenses (0.9) 0.6 (1.2) (1.4) (1.5)
Other movements (0.1) 0.8 0.4 0.4 0.3
Increase/(decrease) in core Crown expenses (0.9) 3.2 2.4 4.4 6.8
2011 Core Crown expenses 70.5 70.5 70.5 70.5 70.5
Core Crown expenses 69.6 73.7 72.9 74.9 77.3

Source: The Treasury

Almost half of the growth in expenses since 2010/11 relates to increases in New Zealand Superannuation costs and other social assistance. Total social assistance expenses rise from $20.6 billion in 2010/11 to $24.2 billion in 2015/16.

New Zealand Superannuation is forecast to increase from $8.8 billion in 2010/11 to $12.3 billion in 2015/16 (an increase of $3.5 billion). Recipient numbers are estimated to reach nearly 680,000 by that time, 20% higher than current levels.

Overall, New Zealand Superannuation is forecast to consume a larger share of social assistance expenses at just over 51% in 2015/16 compared to around 43% last year. As a percentage of GDP, superannuation expenses rise from 4.4% of GDP in 2010/11 to 4.8% of GDP in 2015/16.

Working for Families stays relatively flat over the forecast period while Domestic Purposes Benefits are forecast to rise slightly.

Figure 2.3 - Components of social assistance expenses in 2011 and 2016
Figure 2.3 - Components of social assistance expenses in 2011 and 2016 - 2011 Actual.
Figure 2.3 - Components of social assistance expenses in 2011 and 2016 - 2016 Forecast.
Source: The Treasury

... but falls as a percentage of GDP ...

While core Crown expenses increase in nominal terms across the forecast period they fall as a percentage of GDP, largely reflecting two years of net zero budgets. In the current Budget Update the Government has announced new spending of $4.4 billion offset by $4.4 billion of savings (representing $3.0 billion of reprioritisation and $1.4 billion of revenue initiatives) (Table 2.7). This net zero budget compares to the $800 million per year spending previously forecast.

Table 2.7 - Reconciliation of Budget 2012
Year ended 30 June
$billions
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
5 year
Total
Savings in Budget 2012 (0.7) (0.8) (0.8) (1.1) (1.0) (4.4)
New spending in Budget 2012 1.1 1.1 1.1 1.1 4.4
Budget 2012 (0.7) 0.3 0.3 0.1
Impact of Budget 2012:            
Increase core Crown revenue 0.2 0.3 0.4 0.5 1.4
Increase/(decrease) core Crown expenses (0.7) 0.5 0.6 0.4 0.6 1.4
Budget 2012 (0.7) 0.3 0.3 0.1

Source: The Treasury

The allowance for new operating spending in Budget 2013 has been set at $800 million per year while Budget 2014 and 2015 increases to $1.2 billion per year.

Table 2.8 - New operating spending in future Budgets
Year ended 30 June
$billions 
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
5 year
Total
Budget 2013 0.8 0.8 0.8 2.4
Budget 2014 1.2 1.2 2.4
Budget 2015 1.2 1.2
Future budgets new operating spend 0.8 2.0 3.2 6.0

Source: The Treasury

... while the costs associated with the Canterbury Earthquake Recovery Fund are expected to be recorded later than previously estimated

Some costs associated with the Canterbury Earthquake Recovery Fund (the “Fund”) are now expected to be recorded later than previously forecast. While total costs are expected to remain the same, some expenses previously forecast to occur in the current financial year are now expected to be reported in the 2012/13 financial year. This includes costs associated with the Government's share of repairing local infrastructure, which are not now expected to be determined until the end of this calendar year.

Table 2.9 - Canterbury Earthquake Recovery Fund
Year ending 30 June
$billions 
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
 
Total
Budget 2012 1.6 0.8 2.2 0.5 0.2 0.2 5.5
Pre-election Update 1.6 2.8 0.4 0.3 0.3 0.1 5.5
Increase/(decrease) in core Crown earthquake expenses (2.0) 1.8 0.2 (0.1) 0.1

Source: The Treasury

The Fund excludes costs incurred by Crown entities (including the Earthquake Commission) and State-owned enterprises (SOEs). An estimate of total Crown costs can be found on page 38.

In addition to the costs outlined above, the Crown has guaranteed any cash shortfall in the Earthquake Commission. These forecasts estimate the cash shortfall to be $0.8 billion in the final two years of the forecast. The funding is assumed to be an advance to the Earthquake Commission, which is expected to be repaid. While this funding is forecast to increase net core Crown debt, there is no impact on core Crown expenses.

Fiscal Restraint

The return to surplus in 2014/15 is achieved through both the recovery of tax revenue and fiscal restraint.  Expenses, as a percentage of GDP, are expected to decline from 35.2% of GDP in 2010/11 to 30.2% of GDP by the end of the forecast period. 

While some of this decline is attributable to the one-off nature of earthquake expenses, a large portion is the result of savings identified in both Budget 2011 and Budget 2012.

Figure 2.4 - Core Crown expenses
Source: The Treasury

The return to surplus in 2014/15 was first forecast in the 2010 Half Year Update at a modest $39 million.  Since then economic recovery has been slower than initially expected and the country has experienced the devastating Canterbury earthquakes.  As a result, tax revenue has fallen more than previously estimated, and expenses associated with the earthquakes have led to a deterioration of the fiscal outlook.

In response to the declining tax revenue and increased expense forecasts, the Government has identified fiscal restraint as key to meeting its target to return to surplus by 2014/15.

In the 2010 Half Year Update core Crown expenses were forecast to reach $78.6 billion in the 2014/15 financial year (based on the policy settings at that time).  In Budget 2012 these expenses are forecast to have reduced to $74.9 billion.  This is a net saving of $3.7 billion.

These savings have largely been achieved through a reduction in the amount of new operating spending.  The major reductions in spending have been as follows:

  • savings of $1.4 billion in Budget 2011 by reducing new spending from a previously forecast spending of $1.1 billion to a saving of $0.3 billion
  • savings of $0.7 million in Budget 2012 by reducing new spending from a previously forecast $1.1 billion to $0.4 billion
  • savings of $0.4 billion in Budget 2013.  Previous forecasts had assumed an allowance of $1.2 billion for new operating spending.  This allowance was reduced to $0.8 billion in Budget 2011
  • reduced finance costs as a result of the consequential reduction in borrowings.

Operating Surplus

The Crown is forecast to return to surplus in 2014/15 ...

OBEGAL is expected to reach a surplus of $197 million in 2014/15.

The deficit is expected to fall from a high of 9.2% of GDP last year to 4.1% of GDP in the current year before reaching a positive 0.1% of GDP in 2014/15. Surpluses are then projected to continue. The Risks and Scenarios chapter outlines risks to OBEGAL, along with their potential impact.

Figure 2.5 - Operating balance before gains and losses
Figure 2.5 - Operating balance before gains and losses.
Source: The Treasury
Figure 2.6 - Operating balance before gains and losses by sector
Figure 2.6 - Operating balance before gains and losses by sector.
Source: The Treasury

While core Crown expenses exceed core Crown revenue for most of the forecast period, SOEs and Crown entities are forecasting surpluses from the current financial year onwards. These surpluses are after the estimated profits forgone from the Government's partial share sale in five companies are deducted (refer page 42).

Earthquake expenses will continue to affect the deficit over the next few years (refer page 38) as costs such as the repair of infrastructure and restoration of the central business district are finalised. When earthquake expenses are excluded, the track to surplus is not as sharp, rising from -4.6% of GDP last year to -3.4% in the current year. The surplus in 2014/15 excluding earthquake expenses is forecast as $356 million (0.1% of GDP).

The 2011/12 deficit has decreased from the $12.1 billion forecast in the Budget Policy Statement to $8.4 billion in this Budget Update. The main reasons for this reduction are delays in expenditure (including earthquake expenses) now expected to be recognised in 2012/13 (the deficit in 2012/13 has risen from the previously forecast $4.4 billion to $7.9 billion), as well as savings identified as part of the current year's budget package.

Operating Balance Indicators

The operating balance before gains and losses (OBEGAL) is used as the indicator of the Government's performance against its objective to return an operating surplus sufficient to meet the Government's net capital requirements, including capital contributions to the New Zealand Superannuation (NZS) Fund, and ensure consistency with the debt objective.

There are, however, other operating indicators that are also useful in measuring different aspects of that performance, as well as allowing international comparison.

Figure 2.7 - Cyclically-adjusted balance
Figure 2.7 - Cyclically-adjusted balance.
Source: The Treasury

Operating balance

The operating balance includes gains and losses (primarily from valuation changes to assets and liabilities) and tends to be more volatile than OBEGAL as it includes (often short term) movements in market prices.  This indicator is the best measure of the full financial costs of the Government's operations.  Changes in asset and liability valuations, although volatile, represent changes in the resource demands facing the Government.

Cyclically-adjusted balance

The cyclically-adjusted balance (sometimes referred to as the structural balance) attempts to remove temporary cyclical factors (such as the effects of the economic cycle on tax revenue and unemployment benefits) and one-off impacts such as the Canterbury earthquakes.  This indicator provides a useful measure of the effects of policy decisions. 

Net operating balance (GFS)

The net operating balance (GFS) uses the framework developed by the International Monetary Fund called Government Financial Statistics (GFS) and is specifically designed for government reporting.  The net operating balance represents revenue and expenses of the core Crown (excluding the Reserve Bank) and Crown entities, and therefore excludes SOEs.  It also excludes a wider range of valuation movements than OBEGAL.

Further discussion on the cyclically-adjusted balance and the net operating balance (GFS) can be found at www.treasury.govt.nz/budget/forecasts/befu2012.

Table 2.10 - Operating balance indicators
Year ended 30 June 2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast

% of GDP

           
OBEGAL (9.2) (4.1) (3.6) (0.9) 0.1 0.8
OBEGAL excluding earthquake expenses (4.6) (3.4) (2.7) (0.8) 0.1 0.9
Operating balance (6.7) (5.1) (2.6) 0.2 1.1 1.9
Cyclically-adjusted balance (4.5) (3.0) (2.5) (0.5) 0.4 0.9
Net operating balance (GFS) (6.9) (2.5) (1.8) 0.5 1.2 2.0

Source: The Treasury

Net Debt

Operating deficits result in cash shortfalls...

Operating cash deficits are also expected to persist across most of the forecast period reaching surplus in 2015/16.

In addition to these operating cash deficits, the Crown is forecast to spend $18 billion on capital items such as the purchase of physical assets and student loans over the next four years. When the proceeds from the Government's partial sale of shares in five companies are included the net capital spend is $12 billion (Table 2.2 on page 26).

Figure 2.8 - Net core Crown debt
Figure 2.8 - Net core Crown debt.
Source: The Treasury

Unlike the new operating spend (which is an annual spend), the amount set aside for new capital spending is spread across a number of years. New capital spending for Budget 2012 was just under $560 million, spread across five years. This compares to the $900 million previously forecast. The amount set aside for new capital spending in future budgets has been forecast as $1.2 billion in Budget 2013 and $0.9 billion in Budgets 2014, 2015, and 2016(Table 2.11).

Table 2.11 - New capital spending in future budgets
Year ending 30 June
$billions 
2012/13
Forecast
2013/14
Forecast
2014/15
Forecast
2015/16
Forecast
Outside the
forecast
period
Total
Budget 2013 0.1 0.4 0.3 0.2 0.2 1.2
Budget 2014 0.1 0.4 0.2 0.2 0.9
Budget 2015 0.1 0.4 0.4 0.9
Budget 2016 0.1 0.8 0.9

Source: The Treasury

The resulting residual cash deficit will be funded by an increase in net core Crown debt,[5] which is expected to increase from $40.1 billion (20.0% of GDP) in 2010/11 to $70.7 billion (27.7% of GDP) in 2015/16 after peaking at 28.7% of GDP in 2013/14.

... which must be funded in part by the issue of government bonds

The residual cash deficit is forecast to be funded by either reducing financial assets (eg, marketable securities) or raising debt.

Gross debt[6] is forecast to peak at 38.5% of GDP in the current year before reducing to 33.2% of GDP by 2015/16. This reduction includes bond repayments of $30.5 billion across the five-year forecast.

The New Zealand Debt Management Office (NZDMO) can raise debt through a number of programmes, but mainly funds via the domestic bond programme. The forecast cash proceeds from government bonds are outlined in Table 2.12. The cash proceeds from the issue of government bonds are forecast to be $51.5 billion across the five-year forecast period, with a face value of $49.5 billion.

Table 2.12 - Net increase in government bonds
Year ending 30 June
$billions
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
5 year
Total
Face value of government bonds issued (market) 15.0 13.5 10.0 8.0 3.0 49.5

Cash proceeds

           
Cash proceeds from issue of government bonds (market) 17.0 14.1 9.9 7.7 2.8 51.5
Repayment of government bonds (market) (7.6) (10.0) (11.0) (1.9) (30.5)
Net increase in government bonds (market) 9.4 4.1 9.9 (3.3) 0.9 21.0
Cash proceeds from issue of government bonds (non-market) 
Repayment of government bonds (non-market) (1.5) (0.5) (1.4) (3.4)
Net increase in government bonds (non-market) (1.5) (0.5) (1.4) (3.4)
Net cash proceeds from bond issuance 7.9 3.6 8.5 (3.3) 0.9 17.6

Source: The Treasury

Canterbury Earthquakes

The Canterbury earthquakes will continue to impact the Government's fiscal position over a number of years, both indirectly through impacts on economic growth, and directly through the provision of financial assistance to the region and payment of insurance claims (by the Earthquake Commission and Southern Response Earthquake Services Limited[7]).

The amount and timing of these costs continue to change over time as damage estimates are refined and policy decisions are made, and it may still be some time before the final cost will be known.  The Specific Fiscal Risks chapter includes discussion on the risks associated with the Canterbury earthquakes (page 68).

The latest estimate of the impact on OBEGAL (net of reinsurance) included in these forecasts is outlined in Table 2.13 below.

Table 2.13 - Impact on OBEGAL of earthquake direct expenses
Year ending 30 June
$millions
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Total
Forecast
Pre-election
Update
Local infrastructure 160 208 801 187 133 154 1,643 1,555
State-owned assets 46 30 3 79 77
Welfare support 220 13 233 261
AMI insurance 355 (38) (90) (46) (17) (16) 148 335
Land zoning 653 343 71 1,067 847
Other costs 159 229 244 67 35 39 773 1,907
Yet to be allocated 74 1,136 284 70 1,564 525
Canterbury Earthquake Recovery Fund 1,593 859 2,165 492 221 177 5,507 5,507
EQC 7,471 515 (173) (220) (62) (86) 7,445 7,977
Other SOEs and CEs 23 23 23
Total Crown 9,087 1,374 1,992 272 159 91 12,975 13,507

Source: The Treasury

Negative amounts primarily represent the unwind of the risk margin (the forecast assumes that earthquake-related claims are paid out at the central estimate) and unexpired risk liabilities.  These are non-cash liabilities which are estimated to reverse over the forecast period.

Table 2.14 - Estimated cash profile of earthquake direct expenses
Year ending 30 June
$millions 
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Total
Forecast
Pre-election
Update
Local infrastructure 64 347 350 328 264 290 1,643 1,555
State-owned assets 46 30 3 79 77
Welfare support 220 13 233 261
AMI insurance 100 48 148 335
Land zoning 694 308 65 1,067 847
Other costs 179 256 196 68 35 39 773 1,907
Yet to be allocated 72 592 590 286 24 1,564 525
Canterbury Earthquake Recovery Fund 509 1,512 1,449 1,051 585 401 5,507 5,507
EQC 1,178 2,374 832 1,725 1,097 239 7,445 7,977
Other SOEs and CEs 23 23 23
Total Crown 1,710 3,886 2,281 2,776 1,682 640 12,975 13,507

Source: The Treasury

Table 2.14 outlines the expected cash profile for earthquake costs.  Cash payments in relation to the Canterbury Earthquake Recovery Fund will result in an increase in net debt.

Notes

  • [5]Net core Crown debt excluding the New Zealand Superannuation Fund and advances.
  • [6]Gross sovereign-issued debt excluding Reserve Bank bills and settlement cash.
  • [7]Formerly AMI Insurance.

Total Crown Balance Sheet

Table 2.15 - Summary balance sheet forecasts, 2011 to 2016
Year ending 30 June
$billions
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Change between
2011 and 2016

Total Crown Assets

             
Budget Update 245.2 249.2 244.3 254.5 255.1 264.1 18.9
Pre-election Update 245.2 245.6 242.0 253.0 256.4 267.4 22.2

Total Crown Liabilities

             
Budget Update 164.3 178.9 178.1 186.3 182.6 185.0 20.7
Pre-election Update 164.3 177.3 176.0 185.5 184.9 190.2 25.9

Total Net Worth Attributable to the Crown

             
Budget Update 80.6 70.0 64.6 65.2 68.1 73.2 (7.4)
Pre-election Update 80.6 68.0 65.6 67.2 71.2 76.9 (3.7)

Source: The Treasury

Growth in assets is expected over the forecast period, but at a more muted pace than in recent years

By 2016, total Crown assets are forecast to increase by $18.9 billion (net of asset reductions) to $264.1 billion. This growth is slower than in previous years, at roughly half the rate forecast for the 2010 to 2015 period in last year’s Budget Update. This reflects ongoing fiscal constraint and the beginning, from this year, of an unwinding of financial assets built-up in recent years to help fund upcoming government bond maturities.

Figure 2.9 - Total Crown assets - portfolio break-down
Figure 2.9 - Total Crown assets - portfolio break-down.
Source: The Treasury

As discussed in previous Economic and Fiscal Updates, the Crown's balance sheet can be thought of as divided into three areas – the Social, Commercial and Financial Portfolios.[8]

Social asset growth is expected to form roughly half of all growth, increasing from $113.6 billion in 2010/11 to $124.4 billion by 2015/16. This is driven largely by continued investment in priority social areas, including education, health and state highways. The student loan book is another driver which, after loan repayments, is expected to grow by $2.3 billion in net terms as new loan issuances continue to outpace repayments.

Total Crown commercial assets are expected to grow strongly through commercial expansion, particularly in the electricity and banking areas. This is forecast to see commercial assets grow by $12.2 billion over the next five years. Commercial assets include assets from the companies included in the Government's partial sale of shares.[9]

The Financial Portfolio is the only area expected to experience a decline in asset levels, from $73.5 billion in 2010/11 to $69.4 billion by 2015/16. As mentioned, this is primarily owing to the realisation of assets accumulated by the New Zealand Debt Management Office (NZDMO) in recent years to help meet government bond maturities in 2012/13 and 2014/15. Ongoing reductions in Earthquake Commission assets, as claims from the Canterbury earthquakes are paid out, will also reduce financial assets. These reductions are expected to more than offset financial returns made on the remaining financial investments.

This growth will be funded from a range of sources

Once asset reductions are added to net growth, gross asset growth is forecast at $75.7 billion over the forecast period. This gross growth will be funded from a range of sources across the three balance sheet portfolios (Figure 2.10).

While proceeds from the Future Investment Fund are forecast to fund all new capital investments (such as new projects announced in each year's Budget) these represent only a small portion of the total forecast capital spend. Of the remaining capital spend, the majority of funding from core Crown funding sources (eg, general taxation, borrowing) is expected to be invested in the Social Portfolio, contributing half of social funding. Only $250 million of core Crown funding is currently forecast to be required for the Commercial Portfolio, for KiwiRail's ‘Turnaround Plan'.

Aside from the KiwiRail injection, the remaining commercial growth is currently forecast to be funded from within the portfolio, for example through operating returns ($9.3 billion) and SOE borrowing ($3.5 billion). For the purposes of these forecasts, growth in Kiwibank loans is assumed to be directly funded by growth in deposits ($7.1 billion).

Financial Portfolio growth is also forecast to be funded from sources within the portfolio, through financial and operating returns on investments and valuation gains ($22.3 billion). Contributions to the NZS Fund are not expected to resume until the 2017/18 fiscal year.

Figure 2.10 - Forecast funding sources, 2012-2016
Figure 2.10 - Forecast funding sources, 2012-2016.
Source: The Treasury

Growth in liabilities is expected to outpace the growth in assets...

The value of total Crown liabilities is also forecast to increase over the next five years, from $164.3 billion in 2010/11 to $185.0 billion by the end of the forecast period, $1.8 billion more than assets.

These forecasts are higher in the early years than those of the Pre-election Update, reflecting larger borrowings than previously forecast owing to larger initial operating deficits. However, borrowings are now expected to be lower over later years, resulting in total liabilities in 2015/16 being $5.2 billion lower than in the last forecasts.

Figure 2.11 - Total Crown liabilities - portfolio break-down
Figure 2.11 - Total Crown liabilities - portfolio break-down.
Source: The Treasury

From 2011 to 2016, the largest increase in liabilities is expected in the Financial Portfolio, increasing from $120.7 billion to $132.5 billion. Rising core Crown borrowing, issued by the NZDMO, is the main driver. However, the majority of this is expected before the 2014/15 return to surplus, with borrowings remaining largely flat in the last two years of the forecast. Liabilities in relation to the Canterbury earthquakes, held by both the Earthquake Commission and Southern Response Earthquake Services Limited, are expected to peak in 2012/13 before declining as these claims continue to be paid out.

Commercial liabilities are also expected to increase, from $27.2 billion to $37.5 billion. Of this, $7.1 billion is from forecast growth in Kiwibank deposits with most of the remainder driven by higher borrowings being carried out by other SOEs.

Social liabilities are expected to reduce by $1.4 billion, owing largely to earthquake provisions relating to Christchurch's reconstruction held by the Department of Internal Affairs and the Canterbury Earthquake Reconstruction Authority being paid out.

Notes

  • [8]The ‘Social Portfolio’ consists of the assets and liabilities held primarily to provide public services or to protect assets for future generations; the ”Financial Portfolio” reflects assets and liabilities held by the Crown to finance or pre-fund government expenditure; while the Crown’s ”Commercial Portfolio” consists of the portfolio of companies held with purely commercial objectives. For more details, see the Investment Statement of the Government of New Zealand 2010 on the Treasury website http://www.treasury.govt.nz/budget/2010/is
  • [9]For more details on the balance sheet impacts of the Government’s partial sale of shares in five companies see page 42.

...resulting in an overall weaker balance sheet across the forecast period.

Overall, these asset and liability movements lead to a reduction in net worth attributable to the Crown over the first two years of the forecast period, to $64.6 billion, as the balance sheet continues to bear the effects of the forecast operating balance deficits.[10] Following the return to fiscal surplus in 2014/15, a gradual improvement is expected, with net worth attributable to the Crown rising to $73.2 billion by 2016, still remaining $7.4 billion below 2011 levels.

Figure 2.12 - Net worth attributable to the Crown, 2010 to 2016
Figure 2.12 - Net worth attributable to the Crown, 2010 to 2016.
Source: The Treasury

In terms of balance sheet composition, the overall changes are consistent with the broad trends outlined in the Pre-election Update (Figure 2.13).

Figure 2.13 - Total Crown balance sheet composition, 2010, 2011 and 2016
Figure 2.13 - Total Crown balance sheet composition, 2010, 2011 and 2016.
Source: The Treasury

The Social and Commercial Portfolios are expected to grow in net terms, by $12.2 billion and $2.0 billion respectively, as asset growth in each area outpaces that of liabilities.

The Financial Portfolio is the only area of the balance sheet expected to fall in value, as the growth in core Crown borrowings, combined with the reductions in NZDMO and Earthquake Commission assets, results in an increasingly negative net position, from -$47.2 billion to -$63.1 billion by 2015/16.

Government's Partial Share Sales

The Government intends to sell up to 49% of its shareholdings in the SOEs Mighty River Power, Meridian, Genesis Energy and Solid Energy and reduce the Crown's current shareholding in Air New Zealand.

Mighty River Power is the first company being prepared for partial share sales, via an Initial Public Offering, which is expected to commence in the third quarter of 2012, subject to market conditions.

Table 2.16 below outlines the forecast fiscal impacts of the Government's partial sale of shares in these five companies.  These assumptions are similar to those reported in the 2012 Budget Policy Statement, but the assumptions and accounting treatment have been slightly revised in accordance with International Accounting Standards.

Table 2.16 - Estimated fiscal impact of the partial share sales
Year ending 30 June
$billion
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
 
Total

Cash/Debt impact

         
Forecast cash proceeds 1,500 1,500 1,500 1,500 6,000
Forecast forgone dividends (50) (90) (140) (180) (460)
Estimated finance cost savings 55 91 173 256 575
Reduction in net debt 1,505 1,501 1,533 1,576 6,115

Accrual impact

         
Forecast forgone profits (90) (180) (270) (360) (900)
Estimated finance cost savings 55 91 173 256 575
Net decrease in the operating balance before gains and losses (OBEGAL) (35) (89) (97) (104) (325)
Forecast gain on disposal recorded in taxpayer funds 200 200 200 200 800
Increase in net worth attributable to the Crown 165 111 103 96 475

Estimated finance costs are based on average bond yields.
Profits include dividends paid in cash to shareholders and earnings that are retained by the company.

Source: The Treasury

The estimated fiscal impact of the partial share sales is:

  • a $6.1 billion reduction in net debt.  Proceeds will reduce the Crown's borrowing requirement.  Forgone dividends increase net debt but are offset by estimated finance cost savings
  • a $325 million reduction in the operating balance before gains and losses (OBEGAL).  Profits attributable to minority shareholders (forgone profits) reduce the surplus.  This is offset somewhat by a reduction in finance costs resulting from the reduced net debt, and
  • a $475 million increase in net worth attributable to the Crown over the forecast horizon.  Gains on disposal are forecast, reflecting an expectation that sale prices will be greater than the proportion of the companies' carrying value divested by the Government.

As the Government will retain control of these entities they will continue to be Government Reporting Entities.  This means that the companies will continue to be fully consolidated in the financial statements of the Government, with the minority interest in those companies, which will increase substantially, being disclosed separately.

As a result, the Government's balance sheet will not reduce in size as a result of the partial share sales.  100 percent of the assets and liabilities of those companies will continue to be included in the Government's total assets and liabilities.  Instead, the minority interests' share of those assets and liabilities will increase.

Table 2.17 - Estimated balance sheet fiscal impact of the partial share sales
Year ended 30 June
$million
2016
Without
Partial
Sale
Impact of
Partial
Sale
2016
With
Partial
Sale
Notes

Assets

       
Social 124,392 124,392  
Commercial 70,279 70,279  
Financial 69,414 69,414  
Total Assets 264,085 264,085  

Liabilities

       
Social 14,945 14,945  
Commercial 37,484 37,484  
Financial 138,643 (6,115) 132,528 1
Total Liabilities 191,072 (6,115) 184,957  

Net Worth

       
Attributable to the Crown 72,705 475 73,180 2
Attributable to minority interests 308 5,640 5,948 3
Total Net Worth 73,013 6,115 79,128  

1  Financial liabilities reduce in line with the reduction in net debt.

2  Net worth attributable to the Crown increases to reflect the accrual impact outlined in table 2.16 above.

3  Net worth attributable to minority interests increases as follows:

 
Net assets divested 5,200
Forgone profits 900
Less forgone dividends (460)
Increase in minority interests 5,640

Source: The Treasury

Notes

  • [10]“Net worth attributable to the Crown”excludes the portion attributable to minority interests. Over the forecast period, net worth attributable to minority interests is forecast to rise to $5.6 billion as a result of the Government's partial sale of shares in five companies. See page 43 for further details.

Fiscal Forecast Assumptions

The fiscal forecasts are based on assumptions and judgements developed from the best information available on 8 May 2012, 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 further 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.
  • 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 2.18 - Summary of key economic forecasts used in fiscal forecasts
June years 2011/12 2012/13 2013/14 2014/15 2015/16
  PREFU forecasts Budget forecasts Budget forecasts Budget forecasts Budget forecasts Budget forecasts
Real GDPa (ann avg % chg) 2.8 1.8 2.9 3.3 3.1 2.8
Nominal GDPb ($m) 211,773 207,987 217,870 231,787 244,028 255,567
CPI (annual avg % change) 3.2 2.3 2.2 2.5 2.4 2.4
Govt 10-year bonds (ann avg %) 4.5 4.1 4.2 4.7 5.1 5.3
5-year bonds (ann avg %) 3.6 3.6 3.8 4.2 4.8 5.0
90-day bill rate (ann avg %) 2.9 2.8 3.1 3.7 4.2 4.4
Unemployment rate (ann avg %) 6.0 6.4 5.8 5.3 5.0 4.7
Employment (ann avg % change) 1.7 1.1 1.4 1.6 1.5 1.4
Current account (% of GDP) -2.2 -4.1 -5.1 -5.9 -6.4 -6.5

Notes:

  1. Production measure
  2. Expenditure measure

Source: The Treasury

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

 
Government decisions Incorporate government decisions up to 8 May 2012.
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.

Nominal tax revenue will grow in line with growth in nominal GDP and its components.

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 page 38 for further discussion.
Operating allowance

Net $800 million in Budget 2013.

Net $1.2 billion from Budget 2014 growing at a rate of 2% per annum for subsequent Budgets.

Provision for new capital spending

Net $1.2 billion in Budget 2013.

Net $900 million in Budget 2014 onwards as follows:

 
Year ending 30 June
$billions 
2012/13
Forecast
2013/14
Forecast
2014/15
Forecast
2015/16
Forecast
Outside the
forecast
period
Total
Budget 2013 0.1 0.4 0.3 0.2 0.2 1.2
Budget 2014 0.1 0.4 0.2 0.2 0.9
Budget 2015 0.1 0.4 0.4 0.9
Budget 2016 0.1 0.8 0.9
Partial share sales

Sale programme spread evenly across the four years from 2012/13 to 2015/16. 

Net sale proceeds of $6 billion (based on a mid-point estimate of between $5 billion and $7 billion).

Forgone profits and dividends are based on an average of the fiscal forecasts provided by the companies for Budget 2012 Update.

Finance cost on new bond issuances Based on 5-year rate from the main economic forecasts and adjusted for differing maturity.
Top-down adjustment

A top-down adjustment is made to compensate for departments who tend to forecast upper spending limits (appropriations) rather than best estimates.

Top-down adjustment to operating and capital as follows:

 
Year ending 30 June
$billion 
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Operating 0.5 0.7 0.2 0.2 0.2
Capital 0.3 0.1
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 2011 annual financial statements and any additional valuations that have occurred up to 29 February 2012 are included in these forecasts. 
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.
Investment rate of returns Incorporate the actual results to 29 February 2012.  Beyond this time, gains on financial instruments are based on long-term benchmark rates of return for each portfolio.
Government Superannuation Fund and ACC liabilities

The Government Superannuation Fund and ACC liabilities included in these forecasts have been valued as at 29 February 2012 and 31 December 2011 respectively.  The ACC liability has been adjusted for the 31 March 2012 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.  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 for the ETS is based on estimates of the current certified emission reduction (CER) carbon price from Point Carbon, and is €6.50 with an exchange rate of 0.61 (a carbon price of NZ$10.60) over the forecast period.

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

The forecast assumes a 62% uptake of post-1989 foresters into the ETS over Commitment Period One (CP1).

Revenues and the associated expenses arising from the agriculture sector entering the ETS are included from the June 2015 financial year.

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.

The carbon price assumption for the Kyoto position is based on estimates of the current assigned amount unit (AAU) carbon price from Point Carbon, and is €5.03 with an exchange rate of 0.61 (a carbon price of NZ$8.20) over the forecast period.

NZS Fund contributions No contribution is assumed in the forecast period.

Risks and Scenarios

Overview

  • The global economic outlook remains uncertain and poses risks to the New Zealand economy. While the initial short-term challenges, in Europe for example, have partly been addressed, ongoing medium-term challenges for the global economy remain.
  • The uncertainties around the pace of growth in the domestic economy lie mainly with the growth in household spending and the timing and scale of the Canterbury earthquake rebuild.
  • There are upside and downside risks to the forecasts included in the Economic Outlook and Fiscal Outlook chapters. In pre-global financial crisis conditions, we might expect outcomes better or worse than the main forecasts with roughly a 50-50 split. However, the balance of risks in these forecasts is on the downside.
  • The balance of these risks also means that the Government's fiscal strategy will remain challenging, as illustrated by the scenarios presented in this chapter. In the downside scenario nominal GDP is $25 billion lower than the main forecasts, compared to $15 billion higher in the upside scenario. Also, the operating balance remains in deficit over the forecast period in the downside scenario. While the operating surplus in the upside scenario is larger than in the main forecasts, a surplus is achieved in the same year.
Table 3.1 - Comparison of scenarios with the main forecasts
  Nominal GDP1 Tax revenue1 Operating surplus2 Net core Crown debt
as at June 20163
Upside Scenario +$15 billion +$5.4 billon Yes
(same year, 2015)
-1.9% of GDP
Downside Scenario -$25 billion -$8.1 billion No
(outside forecast period)
+4.4% of GDP

Notes:

  1. 5-year cumulative change from main forecasts
  2. Operating balance before gains and losses. “Yes” or “No” refers to whether or not a surplus is achieved within the forecast period, June 2012-June 2016
  3. Change from main forecasts

Source: The Treasury

Introduction

The first part of this chapter outlines the key risks to the economic outlook. In the second part of the chapter we present upside and downside scenarios for the New Zealand economy. The chapter then focuses on the established channels between the risks facing the economy and the Crown’s fiscal position.

Economic Risks

Global outlook remains uncertain...

The global economy faces several medium-term challenges. Actions by euro area authorities have alleviated some financial market tensions and the risk of extremely negative outcomes. Nonetheless, further measures are required to restore sovereign balance sheets to sustainable positions. Our main forecasts assume that European authorities manage through further crises as they arise. However, any worsening of the euro area debt crisis would lead to tighter financial conditions and increased risk-aversion worldwide, subduing growth.

Also, many developed-economy governments face the challenge of continuing fiscal austerity measures without overly compromising fragile recoveries. Failure to manage this process will have effects on growth in parts of the euro area, the UK and US, with spillover effects on growth in other regions of the global economy. Political uncertainty around structural reform and changing governance arrangements may similarly lead to increased risk aversion and lower growth.

A sharp slowing in emerging market economies (eg, from a tightening in bank lending standards in Asia) would lead to slower world growth. Geo-political tensions in the Middle East could lead to an increase in oil prices, and, if prolonged, would hinder the global recovery. On the other hand, growth slowing at a manageable pace and inflation easing in China, as well as room for authorities to stimulate the economy, if necessary, could underpin a more sustainable medium-term growth outlook.

Any positive or negative risks to the outlook for China will be amplified through Australia. With a mining-related investment boom largely locked in, risks to Australian growth over the forecast period are small. However, with consumer confidence modest, the economy outside of mining remains subdued.

Other positives include recent US data indicating that growth is stabilising. In addition, positive corporate earnings may underpin growth in the short term. Overall, while extreme or “tail” risks have receded, the global outlook remains skewed to the downside.

...posing risks to New Zealand's economy

If international activity turns out to be weaker than we have built into our main forecasts, demand for our exports would fall. Reduced demand would lead to lower volumes of manufactured goods exports and lower tourist arrivals and spending. For commodity exports, production tends to respond less to reduced demand; instead, the reduced demand is reflected in falling prices of commodity exports. Lower export prices would result in a lower terms of trade.

Our main forecasts assume that the terms of trade decline in the near term, but remain high relative to historical standards over the five-year forecast period. Should the terms of trade, in contrast, fall much further and reach their 30-year average, a sharp drop in incomes for agricultural producers would flow through into weaker domestic demand, less income for investment and debt repayment, and a significantly wider current account deficit. Lower commodity prices could also impact on New Zealand goods and services providers that export to Australia, which would also experience a cut in its national income from international commodity sales.

On the financial side, a drop in confidence and pick-up in global risk-aversion would be expected to reduce the availability, and raise the cost, of credit for New Zealand. With a high current account deficit, there is a risk that markets would demand a higher risk premium for New Zealand's debt in the future. That said, there is room for the Reserve Bank to provide liquidity as needed and, if the outlook for inflation permits, to facilitate easier monetary conditions to help domestic borrowers adjust.

Finally, lower world growth may lead to falls in consumer and business confidence. With lower confidence, households may lower their spending and increase their saving more than assumed in the main forecasts. Similarly, businesses may invest less and hire fewer workers than assumed in the main forecasts.

The economy faces domestic challenges as well...

There are risks to our forecasts arising from domestic sources as well. Private consumption growth is expected to be held back by modest house price growth and households' aggregate desire to reduce their debt-to-income ratios to more comfortable levels. Given the greater potential for tighter conditions in global funding markets, the risk is that the degree of household consolidation could be more intense than expected, with households seeking to move to an even lower level of debt than we have forecast. While this might bring forward some rebalancing in the economy from later years, such a scenario would involve weaker domestic activity in the near term. At present, the risk of a large-scale increase in borrowing by households, reflecting an increased willingness by banks to lend, seems small. If this were to occur, it would drive a stronger economy in the near term and defer household rebalancing until later years.

...including ongoing uncertainty over the timing of the Canterbury rebuild ...

The timing and extent of the Canterbury earthquake rebuild is difficult to forecast. If large aftershocks cause further damage, the risk is that the current $20 billion damage estimate factored into our main forecasts would clearly rise, as would the risk that the rebuild would be slower and overall economic activity lower in the short term. Conversely, if the issues delaying the process (including aftershocks and insurance claim delays), were to be rectified sooner than assumed, the rebuild could gather pace more quickly. Accordingly, residential and non-residential construction, imported goods and employment would all be stronger than in the main forecasts. As a result, we would expect wages in and around the rebuild area to come under upward pressure, as well as prices for some goods - particularly housing construction-related goods and services.

On the other hand, higher worker migration into Canterbury, as well as increased productivity in the construction sector owing to the localised nature of the rebuild, may help to relieve pressure on prices in the construction sector. On top of this, a more rapid rebuild could boost wider confidence in the economy, providing a lift to consumer spending and business investment.

...and risks from non-economic events

There are also non-economic risks that may impact on the economy, particularly climatic conditions here and abroad. Poor weather and droughts have adversely affected domestic agricultural production in the past; equally, climatic conditions can lift production as we have seen in New Zealand over the past season. Any impact on agricultural incomes from production may be offset by prices moving in the opposite direction, although this will depend on many factors, particularly production abroad. Other risks may impact on the economy, including the potential for biosecurity issues to hit the agricultural sector.

Table 3.2 - Summary of key economic variables for main forecasts and scenarios
March years 2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast

Real GDP (annual average % change)

           
Main forecast 1.2 1.6 2.6 3.4 3.1 2.9
Upside scenario   1.6 3.0 4.2 3.5 2.6
Downside scenario   1.6 2.5 2.6 2.1 2.7

CPI inflation (annual % change)1

           
Main forecast 4.5 1.6 2.6 2.5 2.4 2.4
Upside scenario   1.6 2.6 2.6 2.9 3.0
Downside scenario   1.6 3.2 2.8 1.7 1.6

Unemployment rate2

           
Main forecast 6.6 6.3 5.7 5.2 5.0 4.7
Upside scenario   6.3 5.7 5.1 4.6 4.3
Downside scenario   6.3 6.0 5.7 5.9 5.8

Nominal GDP (expenditure measure, $billions)

           
Main forecast 198 206 215 229 241 253
Upside scenario   206 215 231 246 258
Downside scenario   206 211 223 235 245

Current account balance (% of GDP)

           
Main forecast -3.6 -4.2 -4.6 -5.9 -6.3 -6.7
Upside scenario   -4.2 -4.6 -6.3 -7.0 -7.5
Downside scenario   -4.2 -6.6 -8.3 -6.8 -6.7

Notes:

  1. Annual percentage change, 2012 is actual figure
  2. March quarter, seasonally adjusted

Source: The Treasury

Downside Scenario

Growth in emerging Asia, particularly China, is lower over the forecast period…

The downside scenario stems from a lower growth outlook across emerging Asia, particularly China, over the forecast period. The lower growth could arise from a tightening in lending standards by banks and authorities, given heightened concern about the quality of banks' commercial and residential loans.

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 falls in the face of weaker growth. The consequences of this scenario highlight the increasing trade linkages in the Asia-Pacific region, with emerging Asia and Australia currently taking around half of New Zealand's goods exports. Trading partner growth is lower in every year and 2.1% points cumulatively lower over the five years to 2016 than in the main forecasts (Figure 3.1).

An escalation of the sovereign debt crisis in Europe, leading to slower global growth, is a plausible alternative to this scenario and would have broadly similar effects. Given our larger reliance on Asia for trade, the impact may be less direct, but still large. On the other hand, Australasian banks are more reliant on Europe for funding and the impact on funding costs and its availability may be larger and more direct in a Europe-based scenario. For more discussion of a Europe-based scenario see the Pre-election Update.

...with a lower terms of trade and reduced incomes...

In this scenario, the merchandise terms of trade fall sharply (Figure 3.2), down around 9% in the March 2013 year, reflecting lower prices for export commodities. The lower terms of trade result in a more rapid deterioration in the current account balance. The current account deficit increases to 8.3% of GDP in the March 2014 year compared to 5.9% in the main forecasts. However, as the terms of trade rebound in 2015 along with growth in export volumes, the current account deficit decreases to 6.7% by March 2016, the same level as in the main forecasts.

Figure 3.1 - Trading partner growth
Figure 3.1 - Trading partner growth.
Sources: IMF, the Treasury
Figure 3.2 - Merchandise terms of trade (SNA)
Figure 3.2 - Merchandise terms of trade (SNA).
Sources: Statistics New Zealand, the Treasury

A slow-down in Australasia may mean that Australian and New Zealand banks face a higher risk premium on their international wholesale borrowing. While part of these increased funding costs may be absorbed in falling bank margins, the remainder would be passed on to household and business borrowers. This scenario assumes that households and businesses are charged an additional 50 basis point premium on their borrowing compared to the main forecasts.

The rapid fall in the terms of trade leads to lower incomes. Higher retail interest rates compound the fall in incomes, resulting in a more subdued outlook for household spending. Private consumption averages around 2% over the four years to March 2016, compared with 2.6% in the main forecasts and over 3% in the upside scenario. The higher interest rates along with falling profitability lead to around 2% and 1% lower market and residential investment for the March 2014 year respectively, compared to the main forecasts. Nevertheless, residential investment activity remains high, underpinned by the earthquake rebuild.

Weaker domestic activity, combined with lower terms of trade and inflation, results in nominal GDP being a cumulative $25 billion lower through to June 2016.

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

Core Crown revenue is a cumulative $8.1 billion lower in the downside scenario, owing mainly to lower income taxes. The weaker domestic economy reduces source deductions and corporate tax by about $2 billion each, compared to the main forecasts, while other persons tax falls by $0.6 billion. Also, lower private consumption and residential investment lead to $1.2 billion lower GST revenue, compared to the main forecasts, while the fall in interest rates reduces resident withholding tax.

Figure 3.3 - Operating balance (before gains and losses)
Figure 1.18 - Saving and investment.
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. In addition, finance costs are higher, owing to higher government borrowing.

In this scenario, the operating balance (before gains and losses) does not move into surplus within the forecast period and, consequently, net core Crown debt as a proportion of GDP is still rising at the end of the forecast period (June 2016), reaching 32.0% at that time.

Upside Scenario

A faster earthquake rebuild and higher household spending increase growth...

There is a large degree of uncertainty around the timing and scale of the Canterbury rebuild. In the upside scenario, we allow for a faster rebuild compared to the main forecasts and bring more of the rebuild inside the forecast period. Immigration is higher in 2013 with most of the increase assumed to be workers moving into Canterbury. In addition, productivity in the construction sector is higher with the localised rebuild helping the sector to achieve more economies of scale than assumed in the main forecasts.

The higher migration of workers into Canterbury and increased productivity combine to increase residential investment, with growth around 1% point higher in the March 2014 year than in the main forecasts. Also, the higher productivity and increased supply of workers lower pressure on construction prices.

We also assume stronger private consumption in the upside scenario, with growth 0.6% and 1.6% points higher in the March 2013 and 2014 years respectively than in the main forecasts. Higher private consumption translates into lower household saving as well as higher imports compared to the main forecasts. Part of the higher spending is owing to households spending more on durables to accompany the rebuild of their homes. This would be more consistent with the historical relationship between residential investment and durables spending than assumed in the main forecasts.

With more household spending, profits improve, leading to higher employment and investment growth compared to the main forecasts, particularly in the retail sector. Reflecting employment growth, the unemployment rate falls below 5% by September 2014 - one year earlier than in the main forecasts. The stronger-than-expected domestic economy means CPI inflation is around the top of the 1% to 3% band over the forecast period. The higher inflation, together with increased real activity, results in about $15 billion higher nominal GDP cumulatively by June 2016 compared with the main forecasts.

Figure 3.4 - Real private consumption
Figure 3.4 - Real private consumption.
Sources: Statistics New Zealand, the Treasury

With higher inflation over the forecast period, monetary conditions are tighter. Ninety-day bank bill rates are 0.4% points higher than in the main forecasts on average in the year to March 2014, with the difference increasing to 1.2% points by the year to March 2016.

…giving a modest increase in the operating surplus in 2015

Core Crown revenue is a cumulative $5.4 billion higher in the upside scenario, led by increases in various tax types. Increased income driven off the stronger domestic economy lifts corporate tax and source deductions by about $1.9 and $0.9 billion respectively compared to the main forecasts. The boosts to private consumption and residential investment flow through to $1.7 billion higher GST revenue, compared to the main forecasts, while the faster increase in interest rates lifts resident withholding tax.

Core Crown expenses are $0.5 billion lower, as the stronger labour market flows through to fewer Unemployment Benefit recipients. In addition, finance costs are lower, owing to less government borrowing.

In this scenario, the operating balance (before gains and losses) moves into surplus in the June 2015 year, the same year as the main forecasts, with the surplus 0.7% points of GDP higher than in the main forecasts. Net core Crown debt as a proportion of GDP peaks at 27.8% of GDP in the June 2013 year.

These results are consistent with the balance of risks remaining on the downside

In pre-global financial crisis conditions, we might expect outcomes better or worse than the main forecasts with roughly a 50-50 split. Similarly, if the risks were balanced we would expect that the differences between the scenarios and the main forecasts would be broadly equal. However, we have assumed that the risks are skewed to the downside. This is illustrated in Table 3.1 which shows that in the downside scenario nominal GDP is $25 billion lower than in the main forecasts, compared to $15 billion higher in the upside scenario. Tax revenue is $8.1 billion lower in the downside scenario, while it is $5.4 billion higher in the upside scenario. Moreover, in the downside scenario, the operating balance remains in deficit over the forecast period, and in the upside scenario, while the operating surplus is larger than in the main forecasts, it is achieved in the same year. Overall, these results reflect our view that the balance of risks remains skewed to the downside.

General Fiscal Risks

The discussion up to this point has focused on the main near-term economic risks. The rest of this chapter focuses on the links between the inherent risks to the performance of the economy and the Crown's fiscal position.

Table 3.3 provides some rules of thumb on the sensitivities of the fiscal position to small changes in specific variables. For example, if for some reason nominal GDP growth is 1 % point slower than we have forecast each year up to the year ending June 2016, we would expect tax revenue to be around $3.5 billion (1.7% of GDP) lower than forecast as a result. The sensitivities are broadly symmetric; that is, if nominal GDP growth is 1% point faster each year than we expect, tax revenue would be around $3.5 billion higher than forecast instead.

Fiscal Sensitivities

Table 3.3 - Fiscal sensitivity analysis
Year ending 30 June
($millions unless stated)
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast

1% lower nominal GDP growth per annum on

         
Tax revenue         (560)      (1,180)      (1,895)      (2,670)      (3,520)
   (% of GDP)          (0.3)         (0.6)         (0.9)         (1.3)         (1.7)

Revenue impact of a 1% decrease in growth of

         
Wages and salaries         (240)        (510)         (810)      (1,145)      (1,510)
   (% of GDP)          (0.1)         (0.2)         (0.4)         (0.6)         (0.7)
Taxable business profits         (100)        (230)         (380)        (545)        (725)
   (% of GDP)          (0.0)         (0.1)         (0.2)         (0.3)         (0.3)

Impact of 1% point lower interest rates on

         
Interest income1           (55)        (135)          (75)        (105)          (55)
   (% of GDP)          (0.0)         (0.1)         (0.0)         (0.0)         (0.0)
Expenses1           (40)        (230)         (280)        (450)        (535)
   (% of GDP)          (0.0)         (0.1)         (0.1)         (0.2)         (0.2)
Overall operating balance           (15)           95          205         345         480
   (% of GDP)          (0.0)          0.0          0.1          0.1          0.2

Note:

  1. New Zealand Debt Management Office holdings only

Source: The Treasury

Revenue Risks

One of the major sources of risk to the fiscal position arises from the inherent uncertainty about future tax revenue. The amount of tax revenue that the Government accrues in a given year is closely linked to the performance of the economy.

Figure 3.5 plots our main tax revenue forecast, along with confidence intervals around those forecasts based on the Treasury's historical tax forecast errors.[11] The outermost shaded area captures the range (+/- $5 billion in the June 2015 year) within which actual tax forecasts would typically fall for 80% of the time.[12] The tax revenue forecasts from the upside and downside scenarios are also plotted; tax revenue in the June 2015 year is $1.7 billion higher and $2.5 billion lower than in the main forecasts in the upside and downside scenarios, respectively.

Figure 3.5 - Core Crown tax revenue uncertainty
Figure 3.5 - Core Crown tax revenue uncertainty.
Source: The Treasury

Based on average historical forecast errors and an even balance of risks, Figure 3.5 shows that tax revenue over the forecast period would come in weaker than shown in the downside scenario approximately one-quarter of the time, and conversely come in stronger approximately three-quarters of the time. For the upside scenario, tax revenue over the forecast period would come in stronger than shown in the upside scenario approximately one-third of the time, and come in weaker approximately two-thirds of the time.

However, as discussed previously, the forecast risks are not evenly balanced - they are skewed to the downside. Accordingly, the probability of tax revenue undershooting the downside scenario is likely to be higher than one-quarter, and the probability of tax revenue overshooting the upside scenario is likely to be lower than one-third.

Notes

  • [11]A full summary of the methodology and critical assumptions is included in New Zealand Treasury Working Paper 10/08. Standard deviation assumptions used for 0-, 1-, 2- and 3-year ahead forecasts are 0.9%, 3.2%, 5.3% and 6.6% of the actual, respectively.
  • [12]Recent Treasury analysis shows that a shock that has a significant and persistent impact on economic growth can result in tax revenues coming in significantly below the outermost shaded area. See Fookes, C (2011), “Modelling shocks to New Zealand's fiscal position,” New Zealand Treasury Working Paper 11/02.

Expenditure Risks

One-off and unexpected expenditure shocks can have a large impact on the Crown's operating balance in the year that they occur. Persistent errors in forecasting the cost of various programmes (ie, policies that cost more than the Government allows for) can also have substantial ongoing effects on the fiscal position.

There is also considerable uncertainty with regard to the performance of the economy on Crown expenditures. This uncertainty largely relates to the operation of the so-called automatic stabilisers. For example, if the economy performs better (worse) than expected in a given year, official expenditures on social programmes may be lower (higher) than planned, and tax revenues higher (lower).

Meanwhile, the destructive seismic events of recent years have underlined the inherent exposure of the Crown's fiscal position to exogenous shocks on the capital side. The Government's fiscal position would be impacted if another catastrophic earthquake were to occur or if the costs associated with the recent events exceed the updated estimates. The ageing population also presents risks to the medium-term fiscal position, particularly to the extent that demographic forecasts may prove to be too low or high.

Balance Sheet Risks

In addition to risks around revenue and expenditure, the Crown's financial position is exposed to risks from its balance sheet. While some are unavoidable, the Crown's general approach is to identify, avoid, or mitigate these risks where practicable.

The largest source of balance sheet risk is volatility in asset and liability values owing to movements in market variables such as interest rates, exchange rates, and equity prices. Of the Crown's aggregate financial risk, roughly a third is estimated to be attributed to this “market risk”.[13] Three areas of the balance sheet are particularly susceptible:

  • Financial assets held by the Crown financial institutions (CFIs) are sensitive to financial-market volatility. While practices such as hedging are used where practicable, the Crown Ownership Monitoring Unit (COMU) estimates a 10% fall (rise) in the MSCI World Equity Index would lead to a 4.4% fall (rise) in the value of the Crown's financial portfolio.
  • Insurance and retirement liabilities and provisions are prone to market volatility through their actuarial valuations, which are sensitive to assumptions around variables such as interest and inflation rates, and risk margins. For example, a 1% fall in the risk-free discount rate used is estimated to result in a $5.5 billion increase in the combined value of the Crown's liabilities from ACC, the Earthquake Commission, AMI and the Government Superannuation Fund.[14]
  • Physical assets such as land, buildings, state highways, and military equipment are susceptible to market movements through their accounting valuations. Changes in property market conditions, interest rates and changes in the costs of construction will affect the recorded value of many Crown physical assets.

Business risks, relating to the broader commercial environment, may also affect the Crown's balance sheet. A number of entities owned by the Crown, including commercial and social entities, have their financial performance and valuations impacted by these external factors.

The Crown is also susceptible to “liquidity risk” with respect to its ability to raise cash to meet its obligations. This risk, however, is small given the New Zealand Debt Management Office's ongoing management of the core Crown's liquidity position, as well as the Government's commitment to maintaining prudent debt levels.

Notes

  • [13]Irwin, T and Parkyn, O (2009), “Improving the management of the Crown's exposure to risk”, New Zealand Treasury Working Paper 09/06.
  • [14]For more information, see the Notes to the Financial Statements of the Government of New Zealand 2011.

Funding Risks

The New Zealand Crown remains in the top-20 rated sovereigns globally, with the top Aaa foreign-currency rating from Moody's and AA foreign-currency ratings from Standard & Poor's and Fitch. The outlook is stable across all three agencies.

The downside risks identified by the rating agencies are broadly in line with the risks identified earlier in the chapter. In the case of an increase in global risk-aversion and in the absence of a marked improvement in the external position, New Zealand may be more likely to face a degree of funding pressure in the future. All things being equal, any further deterioration in the ratings outlook could serve to raise debt-servicing costs for the Crown. On the other hand, additional downward pressure on borrowing rates is possible if diversification flows, particularly away from Europe, continue in the future.

Specific Fiscal Risks

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

Overview

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 potential policy decisions and key areas of uncertainty that may have a material effect on the fiscal outlook.

The Government generally sets aside allowances of new funding for future Budgets to manage uncertainty. These allowances are included in the fiscal forecasts. Current fiscal management policy is for future policy decisions affecting expenses or capital expenditure to be met through reprioritisation or from within existing provisions included in the fiscal forecasts. Future policy decisions are risks to the fiscal forecasts only to the extent that they cannot be managed from within:

  • existing baselines or Budget allowances for operating expenditure, or
  • existing balance sheets or the Future Investment Fund for capital expenditure.

Notwithstanding this, known material policy risks are identified as specific fiscal risks, even though the Government has more control in managing such risks through the Budget allowances and Future Investment Fund. This is done to ensure a prudent approach to disclosing risks, improve transparency and not pre-judge future decisions by governments.

The specific fiscal risks are categorised into:

  • Potential policy decisions affecting revenue: For example, changes to tax policy or ACC levies could reduce or increase government income.
  • Potential policy decisions affecting expenses but expected to be funded from Budget allowances: Costs of policy proposals could increase or decrease expenses depending on decisions taken, and they are risks to the fiscal forecasts only to the extent that they cannot be managed within existing baselines or Budget allowances.
  • Potential capital decisions but expected to be funded from the Future Investment Fund: Capital investment decisions are risks to the fiscal forecasts only to the extent that they cannot be managed within existing balance sheets or the Future Investment Fund.
  • 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.

A range of generic risks to the fiscal forecasts are not recognised as specific fiscal risks:

  • The most significant economic risks have been identified in Chapter 3.
  • General cost pressures, such as those associated with demographic changes (for example an ageing population).
  • Potential risks from changes in demand for government services or transfer payments owing to underlying structural factors (such as changes in demand for Unemployment Benefits).
  • The costs of future 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 and when potential liabilities are recognised (eg, through setting aside an allocation of funding for the disaster). Specific risks are disclosed at this point based on the range of possible responses.

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

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.

 
Specific fiscal risks as at 8 May 2012 Status Value of risk

Potential policy decisions affecting revenue

   
ACC - Levies Changed Unquantified
Revenue - Income-Sharing Tax Credits Unchanged $500 million per annum
Revenue - Salary Trade-Offs Unchanged Unquantified
Services funded by Third Party Revenue Changed Unquantified

Potential policy decisions affecting expenses but expected to be funded from Budget allowances

   
Environment - Review of the Emissions Trading Scheme Changed Between $175 million of operating savings and $145 million of operating expenses
Government Response to Wai 262 Unchanged Unquantified
Housing - Reform of Social Housing Unchanged Unquantified
Revenue - KiwiSaver Auto-Enrolment  Changed $350 to $550 million operating expenses
Revenue - Transformation and Technology Renewal Unchanged Unquantified
Reviews of Public Services Unchanged Unquantified
Social Development - Welfare Reform New Unquantified
State Sector Employment Agreements Unchanged Unquantified

Potential capital decisions but expected to be funded from the Future Investment Fund

   
Departmental Capital Intentions Changed Unquantified
Earthquake Strengthening for Crown-Owned Buildings New Unquantified
Finance - Crown Overseas Properties Changed $150 million capital expenditure
Finance - Investment in Kiwibank New Unquantified
Primary Industries - Investment in Water Infrastructure Unchanged Unquantified
Transport - Support for KiwiRail Changed Unquantified

Matters dependent on external factors

   
ACC - Non-Earners' Account Changed Unquantified
ACC - Work-Related Gradual Process Disease and Infection Changed Unquantified
Canterbury Earthquake - AMI Support Package Changed Unquantified
Canterbury Earthquake - EQC Changed Unquantified
Canterbury Earthquake - Exceeding the CERF Changed Unquantified
Communications - Potential Impairment in Value of Broadband Investment Unchanged Unquantified
Defence Force - Potential Rationalisation, Revaluation and Disposal of NZDF Assets New Unquantified
Energy - Crown Revenue from Petroleum Royalties Unchanged Unquantified
Environment - Finance for Developing Countries Unchanged Unquantified
Environment - International Climate Change Obligations Changed Unquantified
Environment - Kyoto Protocol Obligations Changed Unquantified
Finance - Entities in Receivership under Crown Retail Deposit Guarantee Scheme Unchanged Unquantified
Finance - Goodwill on Acquisition New Unquantified
Finance - Government Commitments to International Financial Institutions Unchanged Unquantified
Finance - Sale of Part of the Crown's Shareholding in Five Companies Changed Unquantified
Health - Payment of Family Caregivers Changed Unquantified
Housing - Weathertight Homes New Unquantified
Revenue - Cash Held in Tax Pools Unchanged Unquantified
Transport - KiwiRail Balance Sheet Restructure New Unquantified
Treaty Negotiations - Treaty Settlement Forecast Unchanged Unquantified
Treaty Negotiations - Relativity Clause Unchanged Unquantified

Potential Policy Decisions Affecting Revenue

ACC - Levies (Changed, Unquantified)

Levy rates for the Work, Earners' and Motor Vehicle accounts are set by Cabinet following a public consultation process. Claims experience, ACC performance and economic assumptions (particularly discount rates) can impact insurance expenditure, both in the current year and the estimated future liability. If any of these factors differ from what is forecast the revenue collected may be more or less than required to cover the costs of claims, resulting in unplanned savings or costs to the Crown.

Revenue - Income-Sharing Tax Credits (Unchanged, 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 reported the Bill back recommending that the significant fiscal cost of the package be addressed before the Bill proceeds further.

Revenue - Salary Trade-Offs (Unchanged, Unquantified)

The Government is reviewing the tax treatment of employee benefits traded off for salary, including the treatment of car parks. Any changes are expected to result in an increase in tax revenues.

Services funded by Third Party Revenue (Changed, Unquantified)

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

Potential Policy Decisions Affecting Expenses but Expected to be Funded from Budget Allowances

Environment - Review of the Emissions Trading Scheme (Changed, Quantified)

A statutory review of the Emissions Trading Scheme (ETS) was completed in 2011 and the Government released its public consultation document on proposed changes to the ETS in April 2012. The Government is considering changes to the ETS in response to the recommendations of the review. Depending on final decisions, the impacts of these changes could range from a net fiscal cost of $145 million to fiscal savings of up to $175 million over the forecast period. These estimates are subject to change, based on carbon price fluctuations and the final decisions to be taken following public consultation.

Government Response to Wai 262 (Unchanged, Unquantified)

The Waitangi Tribunal released its report on the Wai 262 claim on 2 July 2011. The report focuses on the protection of Māori culture and identity, with a particular focus on mātauranga Māori and associated taonga. The Tribunal’s recommendations are directed towards a number of government agencies individually, as groups and across sectors. The Government is currently considering the Tribunal’s report and recommendations to fully understand their implications (including any fiscal implications).

Housing - Reform of Social Housing (Unchanged, Unquantified)

The Government has decided to change the policy settings for social housing. This includes growing third party providers of social housing, increasing the effectiveness of financial assistance and Housing New Zealand Corporation focusing on providing social housing to those with the greatest housing need. Plans for implementation remain under development, but may require reprioritisation or additional funding. However, there may be offsetting financial benefits to the Crown if significant gains in efficiency are achieved.

Revenue - KiwiSaver Auto-Enrolment (Changed, Quantified)

The Government has announced its intention to consult on the design of a one-off KiwiSaver auto-enrolment exercise to increase the number of KiwiSaver members. An auto-enrolment exercise is likely to entail a one-off cost for kick-start payments to new members and ongoing additional costs for the Member Tax Credit. Depending on the timing, design features and take-up rate, these costs could be in the order of $350 to $550 million over the first four years after the auto-enrolment took place and are expected to be funded out of the operating allowances. The Government will proceed with a one-off KiwiSaver enrolment exercise only when it is confident that such a step poses no significant risks to returning to and maintaining an operating surplus.

Revenue - Transformation and Technology Renewal (Unchanged, Unquantified)

Inland Revenue is exploring options that will fundamentally change the way in which it manages its processes and data, in order to deliver smarter, modern services for less. Technology renewal is an integral part of Inland Revenue's future business model. Any changes could impact tax revenue collections and/or have material administrative costs to implement.

Reviews of Public Services (Unchanged, Unquantified)

A series of reviews have been initiated 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 used to meet pressures in other areas.

Social Development - Welfare Reform (New, Unquantified)

The Government is currently working on two phases of welfare reform. Best estimates of the likely costs and benefit savings for the first phase, being legislated for in the Social Security (Youth Support and Work Focus) Amendment Bill, are included in the fiscal forecasts. This risk covers any variance in the actual costs and savings of the first phase plus the total cost and benefit savings for the second phase, for which final decisions have not yet been made.

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 of restraint given the current economic environment.

Potential Capital Decisions but Expected to be Funded from the Future Investment Fund

Departmental Capital Intentions (Changed, Unquantified)

The Government requires 16 capital-intensive agencies or sectors to identify their capital spending intentions over the next 10 years based on current policy settings and certain demographic and inflation assumptions. 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 fiscal forecasts only to the extent that they cannot be managed through existing balance sheets and the Future Investment Fund.

Earthquake Strengthening for Crown-Owned Buildings (New, Unquantified)

There is a possibility that the Crown will incur costs for earthquake strengthening some of the buildings that it owns which may not meet modern building standards. The Government is currently undertaking a stock-take of Crown-owned earthquake-prone buildings. The likelihood, timing and fiscal impact of any earthquake strengthening are uncertain.

Finance - Crown Overseas Properties (Changed, 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 2013/14 to 2015/16.

Finance - Investment in Kiwibank (New, Unquantified)

Kiwibank has indicated that it may require new equity within the next three years mainly to meet the Basel III regulatory capital requirements. New Zealand Post is reaching constraints in its balance sheet to support Kiwibank.

Primary Industries - Investment in Water Infrastructure (Unchanged, Unquantified)

In Budget 2011 the Government established a funding programme to support potential irrigation development projects to an investment-ready stage. The Government intends to consider as part of Budget 2013 investing up to $400 million of equity for the construction and operation of water harvesting, storage and off-farm distribution infrastructure. The proposal will provide detailed advice on the key investment principles and the provision of a clear separation in the Crown's role in supporting scheme development and investment decisions.

Transport - Support for KiwiRail (Changed, Unquantified)

KiwiRail has signalled its intention to seek further Crown funding to complete the 10-year strategy for KiwiRail to achieve a commercially viable rail network, with $243 million likely to be requested in 2013 and $90 million in 2014.

Matters Dependent on External Factors

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

Funding for the Non-Earners' Account is agreed as part of the annual Budget process. Claims experience, ACC's performance and economic assumptions (particularly discount rates) can impact insurance expenditure, both in the current year and the estimated future liability. If any of these factors differ from what is forecast the amount required to cover the costs of non-earners' claims for that year may be more or less than the agreed level of funding, resulting in unplanned savings or costs to the Crown.

ACC - Work-Related Gradual Process Disease and Infection (Changed, Unquantified)

The appropriate accounting treatment of Work-Related Gradual Process Disease and Infection claims is under consideration. Current practice is to recognise such claims at the date that someone first presents to a health provider with an injury. An alternative would be to recognise the estimated future claims cost when the individual is originally exposed to potential injury-causing events. ACC may need to recognise an additional liability for injuries resulting from exposure that has already occurred, but where claimants have yet to present to a health provider with an injury.

Canterbury Earthquake - AMI Support Package (Changed, Unquantified)

Sale of AMI's ongoing business to IAG was completed on 5 April 2012. AMI's earthquake claims liability has been retained in a new Crown company named Southern Response Earthquake Services Ltd. The ultimate cost to the Crown of settling earthquake claims remains subject to significant uncertainty; out-year forecasts assume that the actual cost to settle claims will align with the actuary's central estimate of the claims provision; however, small percentage changes in the liability can result in a material impact on the forecasts.

Canterbury Earthquake - EQC (Changed, Unquantified)

The net financial position of the Earthquake Commission (EQC), and the size of any requirement for additional Crown funding, is extremely uncertain. The key drivers of this uncertainly are:

  • EQC's outstanding claims liability - The actuarial estimate of EQC's outstanding claims liability is highly uncertain and sensitive to assumptions; for example, cost apportionment across events, reinsurance recoveries and the profile of claims settlement. The magnitude of the net outstanding claims cost is large, so small percentage changes in the liability will have a material impact on forecasts.
  • Reinsurance market conditions - Forecast reinsurance price assumptions, which are a substantial component of EQC's forecasts, are very uncertain.
  • Seismicity in New Zealand - Seismic conditions, especially in Canterbury, impact on insurance provisioning within EQC's forecasts.
  • EQC review and policy decisions - Outcomes from the review of the EQC or other policy decisions (eg, reinsurance) may be implemented during the forecast period. Any significant decisions could have a material impact on EQC's forecasts.
Canterbury Earthquake - Exceeding the CERF (Changed, Unquantified)

The Christchurch Earthquake Recovery Fund (CERF) was established in Budget 2011 to manage the Crown's costs of the Canterbury earthquakes. Although earthquake-related costs are becoming clearer, there remain a number of pending decisions and possible eventualities that result in a risk that the amount of the CERF may be exceeded. These include:

  • Land decisions - Some properties are still classified as orange or white. Further decisions on land zoning and associated government policies have yet to be made. These may increase costs to the Crown.
  • Rock fall - The costs of rock fall risk are uncertain. The Crown may be required to provide a contribution towards costs not met by other parties.
  • Infrastructure - Not all damage to infrastructure has been fully assessed. There is a risk that the damage is greater than currently expected, which would increase the costs to the Crown.
  • Contribution to council costs - Cost-sharing arrangements are yet to be finalised. There is a risk that the Crown share is greater than forecast, which would increase the costs to the Crown. This includes any potential Crown contribution towards the Central Business District Plan costs.
Communications - Potential Impairment in Value of Broadband Investment (Unchanged, Unquantified)

The Government has set aside $1.345 billion to progressively capitalise Crown Fibre Holdings so that it can invest with private partners in a new network delivering “ultra-fast” broadband services. Crown Fibre Holdings has entered into contracts with several partners. Given the nature of the investments made, it is possible that the full value of the investments 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.

Defence Force - Potential Rationalisation, Revaluation and Disposal of NZDF Assets (New, Unquantified)

The creation of the Defence Logistics Command within the New Zealand Defence Force (NZDF) may result in the rationalisation of inventory that is surplus to requirements and is over and above the existing provision for obsolescence. In addition, the revaluation of NZDF assets on 30 June 2012 could see an increase in asset values across the NZDF of up to $300 million. The Government is also considering the potential to dispose of a number of New Zealand Defence Force Assets, including the Seasprite helicopters, Unimog trucks, light armoured vehicles and the HMNZS Resolution. Depending on the timing of disposal and sale price received, this could have an impact on the Government's overall financial position.

Energy - Crown Revenue from Petroleum Royalties (Unchanged, 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 the Crown revenue. The overall impact for the Crown could therefore be negative or positive. 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.

Environment - Finance for Developing Countries (Unchanged, Unquantified)

There is an international expectation that developed countries, including New Zealand, contribute finance to developing countries to support adaptation to, and mitigation of, the effects of climate change. Developed countries have committed to mobilising US$100 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.

Environment - International Climate Change Obligations (Changed, 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 New Zealand climate change commitments post-2012 could have significant financial implications, which will need to be recognised when the commitment is considered binding. Following the Conference of Parties in Durban in 2011, New Zealand is considering decisions on the nature of any international commitments to 2020, including whether to sign up to a second commitment period under the Kyoto Protocol.

Environment – 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, which is subject to uncertainty around any future international agreements. The Government may also need to purchase emission units to meet its obligations, which would have a corresponding impact on net debt.

Finance - Entities in Receivership under Crown Retail Deposit Guarantee Scheme (Unchanged, 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 has previously recognised its obligations under the schemes as a liability and has forecast 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 - Goodwill on Acquisition (New, Unquantified)

As at 31 March 2012, the Government had goodwill on acquisition of a number of sub-entities totalling $527 million. Under New Zealand accounting standards (NZ IAS 36), such goodwill items are required to be assessed annually for impairment. If there is any indication that the goodwill may be impaired, the recoverable amount of the cash generating units to which the goodwill is allocated is required to be estimated. If the recoverable amount is less than the carrying amount of those units, the units and the goodwill allocated to them are regarded as impaired and the Government is required to recognise impairment losses in the operating statement. Such assessments will be conducted at the end of the financial year and the fiscal forecasts currently make no allowance for such impairment losses.

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 changed financial plans on the part of these institutions. The risk of government commitments to the International Monetary Fund being called has increased owing to the global financial crisis and recent world events, including in the euro area.

Finance - Sale of Part of the Crown's Shareholding in Five Companies (Changed, Unquantified)

The Government has agreed to sell part of the Crown's shareholding in Mighty River Power. It is also proposing to sell part of the Crown's shareholding in Genesis Energy, Meridian Energy, Solid Energy and Air New Zealand. The fiscal forecasts include an estimate of the cash proceeds from the sale of part of the Crown's shareholding in these five companies, the dividends and profits from these companies that will be paid or are attributable to minority shareholders rather than to the Crown, and the estimated finance cost savings. However, the final amount and timing of any cash proceeds, foregone profits, the flow-on effects for the Crown and any implementation costs are uncertain, and may differ from what has been assumed in the fiscal forecasts.

Health - Payment of Family Caregivers (Changed, Unquantified)

The Human Rights Tribunal has declared that the Ministry of Health's policy of not employing family members to provide care to disabled relatives is in breach of section 19 of the New Zealand Bill of Rights. The High Court has found in favour of the family caregivers. The Court of Appeal heard the Crown's appeal in early 2012 and, subsequent to the finalisation of the fiscal forecasts, announced that it had dismissed the Crown's appeal. The Crown is now working through the fiscal and policy implications of the decision.

Housing - Weathertight Homes (New, 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 differ significantly from the current provision of $357.9 million as uncertainty remains regarding the extent of damage to eligible homes and the level of uptake.

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

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

Transport - KiwiRail Balance Sheet Restructure (New, Unquantified)

KiwiRail intends to restructure its balance sheet to become more commercial. As part of this it intends to write down the value of its assets to represent a more commercial value. KiwiRail and the Government are currently considering the timing of this restructure. Any decision to complete the restructure could result in a significant write-down in the value of KiwiRail's assets depending on the extent and value of the assets deemed to be commercialised. Any write-down will impact on the Crown's net worth, initially through a reduction in the revaluation reserve and, secondly, if the revaluation reserve is insufficient to cover the write-down, through the operating balance.

Treaty Negotiations - Treaty Settlement Forecast (Unchanged, Unquantified)

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

Treaty Negotiations - Relativity Clause (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 2011 PREFU

The following risks have been removed since the 2011Pre-election Economic and Fiscal Update:

Risks Removed Since the 2011 PREFU
Expired risks Reason
ACC, Education, Health, Social Development - Caregiver Employment Conditions Some decisions taken and included in fiscal forecasts, no longer material
Defence Force - Future Operationally Deployed Forces Activity No longer material
Defence Force - Asset Valuations Incorporated into new risk Potential Rationalisation, Revaluation and Disposal of NZDF Assets
Education - Early Childhood Education Funding No longer material
Education - Upward Adjustment for School Operating Funding No longer material
Finance - Extended Crown Retail Deposit Guarantee Scheme Extended scheme ended on 31 December 2011
Revenue - Apportionment Rules for Mixed-Use Assets Included in fiscal forecasts
Revenue - Potential Tax Policy Changes No longer material
Social Development - Welfare Working Group Recommendations Some decisions taken and included in fiscal forecasts, remaining risk incorporated into Welfare Reform risk
Transport - Response to the MV Rena Grounding No longer material

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

The Public Finance Act 1989 requires that the Statement of Specific Fiscal Risks sets out all government decisions, contingent liabilities or contractual obligations known to the Government and subject to specific requirements that may have a material effect on the economic or fiscal outlook.[15]

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

  • [15]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 the following criteria:

  • The matter can be quantified for particular years with reasonable certainty.
  • A decision has been taken, or a decision has not yet been taken but it is reasonably probable[16] the matter will be approved, or it is reasonably probable the situation will occur.

Additionally, any other matters may be incorporated into the forecasts if the Secretary to the Treasury considers, using his 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

  • [16]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[17] (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 his 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

  • [17]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[18] to be approved or occur within the forecasting period.

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

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

If possible, the Minister of Finance should avoid withholding the matter either by making a decision on it before the forecasts are finalised, or by disclosing it as an unquantified risk.

Notes

  • [18]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, or present liabilities that are unable to be measured with sufficient reliability to be recorded in the financial statements (unquantifiable liabilities).

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

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

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

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

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

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

Contingent liabilities and contingent assets have been stated as at 31 March 2012, being the latest set of reported contingencies.

Quantifiable Contingent Liabilities and Contingent Assets

Contingent Liabilities
Guarantees and indemnities Status [19] ($millions)
Indemnification of touring exhibitions New 370
Other guarantees and indemnities Changed 91
    461

Uncalled capital

   
Asian Development Bank Changed 2,935
International Bank for Reconstruction and Development Changed 1,003

International Monetary Fund - arrangements to borrow

New

1,092

International Monetary Fund - promissory notes   Changed 1,154
Other uncalled capital Changed 176
    6,360

Legal proceedings and disputes

   
Tax disputes Changed 312
Other legal proceedings and disputes Changed 46
    358

Other quantifiable contingent liabilities

   
Kyoto protocol units Changed 528
New Zealand Export Credit Office Changed 171
Other quantifiable contingent liabilities Changed 349
    1,048
Total contingent liabilities   8,227
 
Guarantees and indemnities Status [19] ($millions)

Contingent Assets

   
Legal proceedings and tax disputes Changed 592
Other quantifiable contingent assets Changed 112
Total contingent assets   704

Notes

  • [19]Relative to reporting in the Financial Statements of the New Zealand Government for the year ending 30 June 2011 and reported in the 2011 Pre-election Fiscal Update.

Unquantifiable Contingent Liabilities and Contingent Assets

 
Contingent liabilities  
Guarantees and indemnities Status
Airways Corporation of New Zealand Unchanged
Asure New Zealand Limited Unchanged
At Work Insurance Limited Unchanged
Building Industry Authority Unchanged
Civil Defence Emergency Management - New Zealand Local Authorities Unchanged
Contact Energy Limited Unchanged
EQC Unchanged
Electricity Corporation of New Zealand Limited Unchanged
Genesis Energy - letters of credit and performance bonds Unchanged
Housing New Zealand Corporation 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 - letters of credit and performance bonds Unchanged
National Provident Fund Unchanged
New Zealand Aluminium Smelter and Comalco 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

Other unquantifiable contingent liabilities

 
Abuse claims Unchanged
ACC litigations Unchanged
Air New Zealand litigation Unchanged
Environmental liabilities Unchanged
Maui contracts Unchanged
Television New Zealand Unchanged
Treaty of Waitangi claims Unchanged
Westpac New Zealand Limited Unchanged

Contingent assets

 

Unquantifiable contingent assets

 
Properties acquired under the Canterbury red zone support package Unchanged

Description of Contingent Liabilities

Quantified contingent liabilities over $100 million

Guarantees and indemnities

Indemnification of touring exhibitions

The Crown has a contingent liability for damages and losses under the scheme for indemnifying touring exhibitions.

$370 million at 31 March 2012 (nil at 30 June 2011)

Uncalled capital

New Zealand contributes to the World Bank: International Bank for Reconstruction and Development, the International Monetary Fund (IMF) and the Asian Development Bank (ADB) as part of its commitment to multilateral approaches to ensuring global financial and economic stability. Member countries contribute capital by subscribing to shares in the institutions.

Capital is typically used to raise additional funding on the international capital markets for loans to member countries, or in the case of the IMF quota contributions to directly finance lending to members. For New Zealand and other donor countries, capital contributions comprise both “paid-in” capital and “callable capital or promissory notes”. Even though promissory notes are technically “at call”, they are treated as contingent liabilities, as there are significant restrictions on the actual ability to call them, and there is no realistic estimate of either the amount or the timeframe of any call.

The specific amounts of uncalled capital with the various institutions were:

Asian Development Bank

$2,935 million at 31 March 2012 ($2,995 million at 30 June 2011)

International Bank for Reconstruction and Development

$1,003 million at 31 March 2012 ($991 million at 30 June 2011)

International Monetary Fund - new arrangements to borrow

$1,092 million at 31 March 2012 (was considered remote at 30 June 2011, $1,207 million)

International Monetary Fund - promissory notes

$1,154 million at 31 March 2012 ($1,254 million at 30 June 2011)

Legal proceedings and disputes

Tax in dispute

When a taxpayer disagrees with an assessment issued following the dispute process, the taxpayer may challenge that decision by filing proceedings with the Taxation Review Authority or the High Court. This contingent liability represents the outstanding debt of tax assessments raised against which an objection has been lodged and legal action is proceeding.

$312 million at 31 March 2012 ($281 million at 30 June 2011)

Other quantifiable contingent liabilities

Kyoto Protocol

The Government has a contingent liability relating to 64.3 million forestry credits. During the first commitment period, the Net Kyoto Position of the Crown estimates that 92.2 million tonnes of carbon credits will be generated by carbon removals via forests. To the extent that these forests are harvested in subsequent commitment periods there will be an associated liability generated.

The New Zealand ETS transfers a portion of the potential future liability to forest owners. As at 31 March 2012, approximately 27.9 million tonnes had 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 (64.3 million tonnes). Using the carbon price as at 31 March 2012, this contingent liability can be measured at $528 million.

$528 million at 31 March 2012 ($997 million at 30 June 2011)

New Zealand Export Credit Office

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

$171 million at 31 March 2012 ($132 million at 30 June 2011)

Unquantifiable contingent liabilities

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 for Primary Industries, or its subcontractor.

At Work Insurance Limited

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

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.

The Crown introduced the weathertight homes Financial Assistance Package (FAP) to assist homeowners in getting their leaky homes repaired. The FAP sees the Crown contribute 25% of agreed repair costs (with affected local authorities also contributing the same amount) and provide assistance to homeowners to access bank finance for the remaining agreed repair costs by way of loss share agreements with banks. Affected homeowners who take up this assistance agree to forgo legal actions against the Crown.

Civil Defence Emergency Management - New Zealand Local Authorities

The Guide to the National Civil Defence Emergency Management Plan (“the Guide”) states that the Government will reimburse local authorities, in whole or in part, for certain types of response and recovery costs incurred as a result of a local or national emergency. The Guide is issued by the Director of Civil Defence Emergency Management (CDEM) under Section 9 of the Civil Defence Emergency Management Act 2002.

Under current policy as set out in the Guide, local authorities will be eligible for reimbursement of cost categories above individually specified thresholds, as follows:

  • 100% of “direct response” costs (these are costs associated with caring for displaced people)
  • 60% of “other response” costs (temporary repairs to essential infrastructure and precautionary measures to reduce immediate damage), and
  • 60% of “recovery” costs (these relate to restoration of local authority essential infrastructure (fresh water, storm water and waste water) and river management systems, where there is major community disruption or continuing risk to life).

The Crown's obligation to reimburse Canterbury local authorities for “recovery costs” in respect of the Canterbury earthquakes is detailed in the “Specific Fiscal Risks” section of this chapter.

Contact Energy Limited

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

EQC

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

The Crown's current obligation to meet EQC's cash shortfall as a result of the Canterbury earthquakes is detailed in the “Specific Fiscal Risks” section of this chapter.

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 arose out of the split itself.

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.

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

Under section 197 of the Summary Proceedings Act 1957, the Crown has indemnified Justices of the Peace and Community Magistrates against damages or costs awarded against them as a result of them exceeding their jurisdiction. The indemnification is given provided a High Court Judge certifies that they have exceeded their jurisdiction in good faith and that they 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).

New Zealand Aluminium Smelters and Comalco

The Crown has indemnified New Zealand Aluminium Smelters and Comalco in relation to aluminium dross disposed of in their landfill, specifically 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. The timing and amount of this are uncertain and cannot be quantified.

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.

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.

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

Environmental liabilities

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

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

In accordance with NZ IAS 37: Provisions, Contingent Liabilities and Contingent Assets, any contaminated sites for which the Crown has accepted liability, and for which costs can be reliably measured, were included as a provision.

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.

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.

The Government has announced that analogue television transmission will cease by November 2013. The Company has an obligation to decommission its analogue transmitters which are located on Kordia Limited's transmission sites. The decommissioning of analogue transmitters will be undertaken as a broadcasting industry initiative and the Company's share of the cost of decommissioning, net of any amounts recovered from disposal, cannot be reliably estimated.

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 an SOE or tertiary institution, or is subject to the Crown Forest Assets Act 1989.

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

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).

Description of Contingent Assets

Quantified contingent assets

Legal proceedings and tax disputes

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.

$592 million at 31 March 2012 ($636 million at 30 June 2011)

Unquantified contingent assets

Properties acquired under the Canterbury Red Zone Support Package

A provision has been made for the costs associated with the Red Zone Support Package. As a consequence of this package, the Crown will acquire residential properties that are unlikely to be suitable for continued residential occupation for a prolonged period of time (red zone properties). As no determination has been made of the possible use of the properties the Crown will acquire, any value for the asset is contingent.

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 8 May 2012.

The finalisation dates and key assumptions that underpin the preparation of the Forecast Financial Statements are outlined on pages 44 to 47.

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 included within the 2012 Budget Update Additional Information document which can be found on the Treasury's website at http://www.treasury.govt.nz/budget/forecasts/befu2012.

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 on pages 61 to 85.

Key forecast assumptions used are set out on pages 44 to 47.

Government Reporting Entity as at 8 May 2012

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
  • Canterbury Earthquake Recovery Authority
  • Crown Law Office
  • Department of Building and Housing
  • Department of Conservation
  • Department of Corrections
  • Department of Internal Affairs
  • Department of Labour
  • Department of the Prime Minister and Cabinet
  • Education Review Office
  • Government Communications Security Bureau
  • Inland Revenue Department
  • Land Information New Zealand
  • Ministry for Culture and Heritage
  • Ministry for Primary Industries
  • Ministry for the Environment
  • Ministry of Defence
  • Ministry of Economic Development
  • Ministry of Education
  • Ministry of Foreign Affairs and Trade
  • Ministry of Health
  • Ministry of Justice
  • Ministry of Māori Development
  • Ministry of Pacific Island Affairs
  • Ministry of Science and Innovation
  • Ministry of Social Development
  • Ministry of Transport
  • Ministry of Women's Affairs
  • New Zealand Customs Service
  • New Zealand Defence Force
  • New Zealand Police
  • New Zealand Security Intelligence Service
  • Office of the Clerk of the House of Representatives
  • Parliamentary Counsel Office
  • Parliamentary Service
  • Serious Fraud Office
  • State Services Commission
  • Statistics New Zealand
  • The Treasury
Offices of Parliament
  • Controller and Auditor General
  • 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 NZ 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 they were an SOE

Crown entities

  • Accident Compensation Corporation
  • Alcohol Advisory Council of New Zealand
  • Arts Council of New Zealand Toi Aotearoa
  • Broadcasting Commission
  • Broadcasting Standards Authority
  • Careers New Zealand
  • Charities Commission
  • Children's Commissioner
  • Civil Aviation Authority of New Zealand
  • Commerce Commisson
  • Crown Health Financing Agency
  • Crown Research Institutes (8)
  • District Health Boards (20)
  • Drug Free Sport New Zealand
  • Earthquake Commission
  • Education New Zealand
  • Electricity Authority
  • Electoral Commission
  • Energy Efficiency and Conservation Authority
  • Environmental Protection Authority
  • External Reporting Board
  • Families Commission
  • Financial Markets Authority
  • Government Superannuation Fund Authority
  • Guardians of New Zealand Superannuation
  • Health and Disability Commissioner
  • Health 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
  • Maritime Safety Authority of 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 (2,470)
  • Social Workers Registration Board
  • Sport and Recreation New Zealand
  • Standards Council
  • Takeovers Panel
  • Te Reo Whakapuaki Irirangi (Māori Broadcasting Funding Agency)
  • Te Taura Whiri i te Reo Māori (Māori Language Commission)
  • Television New Zealand Limited
  • Tertiary Education Commission
  • Tertiary education institutions (29)
  • Testing Laboratory Registration Council
  • Transport Accident Investigation Commission

Crown entity subsidiaries 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 Asset Management Limited
  • Crown Fibre Holdings Limited
  • Dispute Resolution Services 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
  • Southern Response Earthquake Services Limited
  • Te Ariki Trust
  • The Māori Trustee

Financial Statements

Forecast Statement of Financial Performance for the years ending 30 June
  Note 2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Revenue

               
Taxation revenue 1 51,128 54,690 54,331 57,663 62,370 66,341 70,297
Other sovereign revenue 1 5,281 5,808 5,112 5,446 5,679 5,872 6,221
Total revenue levied through the Crown's sovereign power   56,409 60,498 59,443 63,109 68,049 72,213 76,518
Sales of goods and services   15,084 16,078 16,380 16,337 16,975 17,939 18,590
Interest revenue and dividends 2 2,570 3,051 2,824 3,376 3,644 4,245 4,617
Other revenue   7,500 3,106 3,928 3,481 3,580 3,774 3,865
Total revenue earned through the Crown's operations   25,154 22,235 23,132 23,194 24,199 25,958 27,072
Total revenue (excluding gains)   81,563 82,733 82,575 86,303 92,248 98,171 103,590

Expenses

               
Transfer payments and subsidies 3 22,172 22,926 22,534 23,218 23,742 24,459 25,442
Personnel expenses 4 19,088 19,149 19,315 19,676 19,811 20,055 20,301
Depreciation and amortisation 5 4,682 4,631 4,520 4,687 4,819 4,915 5,010
Other operating expenses 5 35,829 37,792 36,386 38,929 36,235 36,568 37,113
Interest expenses 6 3,596 4,685 4,173 4,663 5,019 5,636 5,781
Insurance expenses 7 14,592 3,138 4,451 3,289 3,464 3,851 4,063
Forecast new operating spending 8 463 87 348 1,141 2,370 3,568
Top-down expense adjustment 8 (310) (450) (700) (150) (150) (150)
Total expenses (excluding losses)   99,959 92,474 91,016 94,110 94,081 97,704 101,128
Forgone profits from partial share sales   (90) (180) (270) (360)
Operating balance before gains/(losses)   (18,396) (9,741) (8,441) (7,897) (2,013) 197 2,102
Net gains/(losses) on financial instruments 9 4,619 1,973 917 1,735 1,932 2,082 2,256
Net gains/(losses) on non-financial instruments 10 79 172 (3,371) 201 176 183 186
Total gains/(losses)   4,698 2,145 (2,454) 1,936 2,108 2,265 2,442
Net surplus from associates and joint ventures   237 303 253 262 271 273 270
Attributable to minority interest   101
Operating balance 11 (13,360) (7,293) (10,642) (5,699) 366 2,735 4,814
Forecast Statement of Financial Performance (continued) - Functional Expense Analysis for the years ending 30 June
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Total Crown expenses

             

By functional classification

             
Social security and welfare 25,324 26,353 25,772 26,912 27,662 28,474 29,682
GSF pension expenses 311 311 200 340 369 426 467
Health 13,068 13,787 13,471 14,013 13,800 13,780 13,749
Education 12,406 13,005 12,690 13,164 13,068 13,183 13,335
Core government services 5,515 5,440 4,791 6,459 4,583 4,204 4,245
Law and order 3,567 3,745 3,679 3,779 3,677 3,675 3,754
Defence 1,778 1,872 1,776 1,973 1,834 1,831 1,827
Transport and communications 8,402 8,584 8,829 8,801 9,032 9,416 9,702
Economic and industrial services 18,818 7,758 9,560 7,900 7,670 8,245 8,401
Primary services 1,603 1,700 1,650 1,830 1,743 1,744 1,719
Heritage, culture and recreation 3,437 3,327 3,421 3,022 2,998 3,217 3,423
Housing and community development 1,655 1,119 878 1,115 1,103 1,123 1,094
Other 479 635 489 491 532 530 531
Finance costs 3,596 4,685 4,173 4,663 5,019 5,636 5,781
Forecast new operating spending 463 87 348 1,141 2,370 3,568
Top-down expense adjustment (310) (450) (700) (150) (150) (150)
Total Crown expenses excluding losses 99,959 92,474 91,016 94,110 94,081 97,704 101,128

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

Forecast Statement of Financial Performance (continued) - Functional Expense Analysis for the years ending 30 June
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Core Crown expenses

             

By functional classification

             
Social security and welfare 22,005 22,935 22,236 23,239 23,794 24,365 25,307
GSF pension expenses 305 302 190 329 356 413 453
Health 13,753 14,353 14,130 14,745 14,630 14,611 14,583
Education 11,650 12,257 11,883 12,387 12,213 12,289 12,420
Core government services 5,563 5,564 4,943 6,537 4,649 4,298 4,339
Law and order 3,382 3,555 3,494 3,558 3,448 3,436 3,505
Defence 1,809 1,911 1,818 2,016 1,877 1,875 1,871
Transport and communications 2,281 2,378 2,366 2,174 2,041 2,107 1,992
Economic and industrial services 2,609 2,235 2,099 2,134 1,910 1,844 1,862
Primary services 706 755 677 832 731 726 695
Heritage, culture and recreation 1,966 1,947 2,015 1,548 1,452 1,625 1,800
Housing and community development 876 333 103 328 307 307 256
Other 479 635 489 491 532 530 531
Finance costs 3,066 3,714 3,553 3,766 3,971 4,266 4,224
Forecast new operating spending 463 87 348 1,141 2,370 3,568
Top-down expense adjustment (310) (450) (700) (150) (150) (150)
Total core Crown expenses excluding losses 70,450 73,027 69,633 73,732 72,902 74,912 77,256

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
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Revaluation of physical assets (443) (47)
Effective portion of changes in the fair value of cash flow hedges (252) 3 56 (3) (1)
Net change in fair value of cash flow hedges transferred to operating balance 17
Net change in fair value of cash flow hedges transferred to the hedged item 95 (7) (22)
Foreign currency translation differences for foreign operations (37) (6) 58 55
Valuation gain/(losses) on investments available for sale taken to reserves (1) 6 11 10 12 12 14
Other movements 1 50 2 2 31 3 34
Other comprehensive income for the year (620) 46 58 64 43 15 47
Operating balance (including minority interest) (13,461) (7,293) (10,642) (5,609) 546 3,005 5,174
Total comprehensive income (14,081) (7,247) (10,584) (5,545) 589 3,020 5,221
Attributable to:              
 - minority interest (74) 90 180 270 360
 - the Crown (14,007) (7,247) (10,584) (5,635) 409 2,750 4,861
Total comprehensive income (14,081) (7,247) (10,584) (5,545) 589 3,020 5,221

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
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Cash flows from operations

             

Cash was provided from

             
Taxation receipts 50,418 53,959 53,178 56,856 61,671 65,605 69,385
Other sovereign receipts 4,693 4,878 4,889 4,729 4,758 4,813 5,110
Sales of goods and services 14,899 16,046 16,284 16,369 16,873 17,829 18,475
Interest and dividend receipts 2,682 2,594 2,808 3,106 3,300 3,814 4,080
Other operating receipts 2,990 4,536 4,738 7,172 5,020 4,411 4,119
Total cash provided from operations 75,682 82,013 81,897 88,232 91,622 96,472 101,169

Cash was disbursed to

             
Transfer payments and subsidies 22,172 23,435 23,049 23,284 23,806 24,534 25,518
Personnel and operating payments 55,152 59,108 60,303 62,535 60,388 59,098 58,264
Interest payments 3,107 4,583 4,045 4,797 4,998 5,733 5,755
Forecast new operating spending 463 87 348 1,141 2,370 3,567
Top-down expense adjustment (310) (450) (700) (150) (150) (150)
Total cash disbursed to operations 80,431 87,279 87,034 90,264 90,183 91,585 92,954
Net cash flows from operations (4,749) (5,266) (5,137) (2,032) 1,439 4,887 8,215

Cash flows from investing activities

             

Cash was provided from/(disbursed to)

             
Net purchase of physical assets (5,996) (7,852) (6,474) (7,039) (6,226) (5,760) (6,016)
Net purchase of shares and other securities (8,405) 5,831 (8,289) 7,480 (5,939) 3,852 (3,449)
Net purchase of intangible assets (600) (532) (547) (515) (399) (355) (331)
Net repayment/(issues) of advances (1,003) (2,039) (2,099) (1,840) (2,007) (2,061) (1,810)
Net acquisition of investments in associates 173 (137) 102 1,510 1,533 1,532 1,530
Forecast new capital spending (242) (88) (194) (571) (811) (850)
Balance sheet funding of new capital spending 100
Top-down capital adjustment 170 250 100
Net cash flows from investing activities (15,831) (4,701) (17,145) (498) (13,609) (3,603) (10,926)
Net cash flows from operating and investing activities (20,580) (9,967) (22,282) (2,530) (12,170) 1,284 (2,711)

Cash flows from financing activities

             

Cash was provided from/(disbursed to)

             
Issues of circulating currency 234 219 306 144 141 145 150
Net issue/(repayment) of Government stock1 21,088 4,774 22,386 3,921 9,354 (3,930) 2,536
Net issue/(repayment) of foreign-currency borrowings 1,809 (6,639) (8,774) (623) (679) (1,256) (1,120)
Net issue/(repayment) of other New Zealand dollar borrowings 81 11,390 13,410 (1,484) 2,997 2,895 917
Net cash flows from financing activities 23,212 9,744 27,328 1,958 11,813 (2,146) 2,483
Net movement in cash 2,632 (223) 5,046 (572) (357) (862) (228)
Opening cash balance 7,774 9,103 9,801 14,899 14,327 13,970 13,108
Foreign-exchange gains/(losses) on opening cash (605) 6 52
Closing cash balance 9,801 8,886 14,899 14,327 13,970 13,108 12,880

1: Net issue 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.

Forecast Statement of Cash Flows (continued) for the years ending 30 June
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

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

             
Net cash flows from operations (4,749) (5,266) (5,137) (2,032) 1,439 4,887 8,215
Items included in the operating balance
but not in net cash flows from operations
             

Gains/(losses)

             
Net gains/(losses) on financial instruments 4,619 1,973 917 1,735 1,932 2,082 2,256
Net gains/(losses) on non-financial instruments 79 172 (3,371) 201 176 183 186
Total gains/(losses) 4,698 2,145 (2,454) 1,936 2,108 2,265 2,442

Other non-cash items in operating balance

             
Depreciation and amortisation (4,682) (4,631) (4,520) (4,687) (4,819) (4,915) (5,010)
Write-down on initial recognition of financial assets (807) (806) (855) (748) (771) (782) (810)
Impairment on financial assets (excl. receivables) 105 85 82 181 169 178 186
Decrease/(increase) in defined benefit retirement plan liabilities 358 377 483 405 362 321 295
Decrease/(increase) in insurance liabilities (13,179) 1,269 1,080 2,985 2,092 364 (909)
Other 238 307 253 262 272 273 270
Total other non-cash Items (17,967) (3,399) (3,477) (1,602) (2,695) (4,561) (5,978)

Movements in working capital

             
Increase/(decrease) in receivables 6,605 (1,081) (312) (3,767) (1,184) (243) (117)
Increase/(decrease) in accrued interest (599) 356 (111) 404 322 528 511
Increase/(decrease) in inventories 149 70 (7) 59 26 7 2
Increase/(decrease) in prepayments 39 (3) 25 (44) 43 (1) (1)
Decrease/(increase) in deferred revenue (46) 62 244 32 24 (1) (4)
Decrease/(increase) in payables/provisions (1,490) (177) 587 (685) 283 (146) (256)
Total movements in working capital 4,658 (773) 426 (4,001) (486) 144 135
Operating balance (13,360) (7,293) (10,642) (5,699) 366 2,735 4,814

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
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Opening net worth 94,988 85,519 80,887 70,303 66,208 68,207 72,587
Operating balance (excluding minority interest) (13,461) (7,293) (10,642) (5,699) 366 2,735 4,814
Net revaluations (443) (47)
Transfers to/(from) reserves (278) 53 58 (1) 31 3 33
(Gains)/losses transferred to the Statement of Financial Performance 17
Other movements 84 (7) 47 65 12 12 14
Total comprehensive income (14,081) (7,247) (10,584) (5,635) 409 2,750 4,861
Partial share sales in SOEs 200 200 200 200
Transactions with minority interest (20) 1,340 1,390 1,430 1,480
Closing net worth 80,887 78,272 70,303 66,208 68,207 72,587 79,128

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
 
2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Assets

               
Cash and cash equivalents 12 9,801 8,886 14,899 14,327 13,970 13,108 12,880
Receivables 12 21,690 16,709 20,566 16,799 15,615 15,372 15,255
Marketable securities, deposits and derivatives in gain 12 49,056 43,034 43,821 36,197 41,263 36,844 39,622
Share investments 12 14,248 16,095 14,470 15,853 17,228 18,645 20,122
Advances 12 20,567 22,433 22,091 23,895 25,875 27,872 29,999
Inventory   1,308 1,380 1,301 1,360 1,386 1,392 1,394
Other assets   1,996 1,662 2,003 2,051 2,221 1,934 1,931
Property, plant and equipment 14 114,854 121,186 118,008 121,335 123,704 125,761 127,638
Equity accounted investments1   9,301 9,613 9,756 9,967 10,151 10,303 10,458
Intangible assets and goodwill 15 2,394 2,714 2,430 2,571 2,609 2,604 2,622
Forecast for new capital spending 8 142 88 282 853 1,664 2,514
Top-down capital adjustment   (270) (250) (350) (350) (350) (350)
Total assets   245,215 243,584 249,183 244,287 254,525 255,149 264,085

Liabilities

               
Issued currency   4,254 4,598 4,560 4,704 4,845 4,990 5,140
Payables 17 11,099 9,603 12,866 13,503 13,607 13,841 13,892
Deferred revenue   1,674 1,371 1,430 1,399 1,374 1,375 1,380
Borrowings   90,245 101,383 101,466 103,207 114,346 111,350 113,276
Insurance liabilities 18 39,314 30,533 39,905 36,919 34,828 34,464 35,373
Retirement plan liabilities 19 10,156 8,895 11,886 11,481 11,119 10,798 10,503
Provisions 20 7,586 8,929 6,767 6,866 6,199 5,744 5,393
Total liabilities   164,328 165,312 178,880 178,079 186,318 182,562 184,957
Total assets less total liabilities   80,887 78,272 70,303 66,208 68,207 72,587 79,128

Net worth

               
Taxpayer funds 21 18,188 14,463 7,573 2,144 2,790 5,805 10,901
Property, plant and equipment revaluation reserve 21 62,690 63,614 62,618 62,550 62,501 62,424 62,376
Other reserves 21 (299) (207) (196) (134) (122) (110) (97)
Total net worth attributable to the Crown   80,579 77,870 69,995 64,560 65,169 68,119 73,180
Net worth attributable to minority interest   308 402 308 1,648 3,038 4,468 5,948
Total net worth   80,887 78,272 70,303 66,208 68,207 72,587 79,128

1: Tertiary education institutions constitute most equity accounted investments.

Forecast Statement of Borrowings as at 30 June

Forecast Statement of Borrowings as at 30 June
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Borrowings

             
Government stock 46,018 52,145 53,293 56,380 65,066 60,235 60,749
Treasury bills 7,028 7,707 8,371 4,700 4,690 4,681 4,677
Government retail stock 261 270 251 251 251 251 251
Settlement deposits with Reserve Bank 6,276 6,736 6,244 6,244 6,244 6,244 6,244
Derivatives in loss 2,767 1,559 2,553 2,401 2,214 2,083 1,989
Finance lease liabilities 1,176 1,492 1,596 1,471 1,517 1,607 1,623
Other borrowings 26,719 31,474 29,158 31,760 34,364 36,249 37,743
Total borrowings 90,245 101,383 101,466 103,207 114,346 111,350 113,276
Total sovereign-guaranteed debt 67,765 74,900 76,445 76,212 84,760 79,813 79,526
Total non-sovereign-guaranteed debt 22,480 26,483 25,021 26,995 29,586 31,537 33,750
Total borrowings 90,245 101,383 101,466 103,207 114,346 111,350 113,276

Net debt:

             
Core Crown borrowings1 76,885 83,195 85,759 85,674 93,903 90,198 90,965
Add back NZS Fund holdings of sovereign-issued debt and
NZS Fund borrowings
405 (231) (873) (884) (1,012) (1,110) (1,238)
Gross sovereign-issued debt2 77,290 82,964 84,886 84,790 92,891 89,088 89,727
Less core Crown financial assets3 65,400 59,728 63,974 56,569 61,684 57,279 59,417
Net core Crown debt 11,890 23,236 20,912 28,221 31,207 31,809 30,310
Core Crown advances 12,079 12,568 13,147 13,894 14,496 15,546 16,125
Net core Crown debt (incl. NZS Fund)4 23,969 35,804 34,059 42,115 45,703 47,355 46,435
Add back NZS Fund holdings of core Crown financial assets and
NZS Fund financial assets5
16,159 19,068 17,862 19,150 20,767 22,436 24,233
Net core Crown debt (excl. NZS Fund and advances)6 40,128 54,872 51,921 61,265 66,470 69,791 70,668

Gross debt:

             
Gross sovereign-issued debt2 77,290 82,964 84,886 84,790 92,891 89,088 89,727
Less Reserve Bank settlement cash and bank bills (6,470) (6,800) (6,344) (6,418) (6,438) (6,458) (6,478)
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
72,420 77,764 80,142 79,972 88,053 84,230 84,849

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 creditworthiness of a country.

5: Adding back the NZS Fund assets provides the financial liabilities less financial assets of the core Crown, excluding those assets set aside to meet part of the future cost of New Zealand Superannuation.

6: Net core Crown debt (excluding NZS Fund and advances) excludes financial assets which are held for public policy rather than treasury management purposes.

7: The Reserve Bank has used $1.6 billion of settlement cash to purchase reserves that were to have been funded by the NZDMO borrowing. Therefore, the impact of settlement cash on GSID is adjusted by this amount.

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

Statement of Actual Commitments as at 31 March 2012

Statement of Actual Commitments as at 31 March 2012
  As at
31 Mar 2012
$m
As at
30 June 2011
$m

Capital commitments

   
Specialist military equipment 331 369
Land and buildings 609 701
Other property, plant and equipment 6,921 7,032
Other capital commitments 344 408
Tertiary Education Institutions 413 413
Total capital commitments 8,618 8,923

Operating commitments

   
Non-cancellable accommodation leases 2,757 2,909
Other non-cancellable leases 2,974 3,171
Non-cancellable contracts for the supply of goods and services 5,382 5,520
Other operating commitments 7,477 7,415
Tertiary Education Institutions 366 366
Total operating commitments 18,956 19,381
Total commitments 27,574 28,304

Statement of Actual Contingent Liabilities and Assets as at 31 March 2012

Statement of Actual Contingent Liabilities and Assets as at 31 March 2012
  As at
31 Mar 2012
$m
As at
30 June 2011
$m

Quantifiable contingent liabilities

   
Guarantees and indemnities 461 106
Uncalled capital 6,360 2,310
Legal proceedings and disputes 358 414
Other contingent liabilities 1,048 3,535
Total quantifiable contingent liabilities 8,227 6,365

Total quantifiable contingent liabilities by segment

   
Core Crown 8,000 6,050
Crown entities 93 171
State-owned enterprises 134 144
Inter-segment eliminations
Total quantifiable contingent liabilities 8,227 6,365

Quantifiable contingent assets by segment

   
Core Crown 684 570
Crown entities 20 2
Total quantifiable contingent assets 704 572

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

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
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Taxation revenue (accrual)

             

Individuals

             
Source deductions 20,857 21,165 21,169 22,563 24,057 25,622 27,231
Other persons 3,791 4,342 4,242 4,386 4,609 4,802 4,992
Refunds (1,679) (1,656) (1,657) (1,567) (1,466) (1,394) (1,326)
Fringe benefit tax 462 430 444 458 482 507 532
Total individuals 23,431 24,281 24,198 25,840 27,682 29,537 31,429

Corporate tax

             
Gross companies tax 6,687 7,978 8,019 8,301 8,961 9,469 9,975
Refunds (197) (400) (274) (279) (305) (342) (349)
Non-resident withholding tax 467 508 451 455 513 572 613
Foreign-source dividend w/holding payments 1 5
Total corporate tax 6,957 8,087 8,201 8,477 9,169 9,699 10,239

Other direct income tax

             
Resident w/holding tax on interest income 1,704 1,665 1,671 1,673 1,893 2,208 2,503
Resident w/holding tax on dividend income 195 209 288 375 575 605 630
Estate and gift duties 2
Total other direct income tax 1,901 1,874 1,959 2,048 2,468 2,813 3,133
Total direct income tax 32,289 34,242 34,358 36,365 39,319 42,049 44,801

Goods and services tax

             
Gross goods and services tax 23,484 26,007 25,853 26,795 29,730 32,152 34,639
Refunds (9,776) (10,965) (11,212) (11,052) (12,450) (13,869) (15,377)
Total goods and services tax 13,708 15,042 14,641 15,743 17,280 18,283 19,262

Other indirect taxation

             
Road user charges 1,016 1,049 1,038 1,152 1,240 1,320 1,399
Petroleum fuels excise - domestic production 872 886 885 939 969 1,012 1,041
Alcohol excise - domestic production 623 665 665 698 734 769 803
Tobacco excise - domestic production 220 251 254 223 211 218 227
Petroleum fuels excise - imports1 575 668 602 626 646 675 694
Alcohol excise - imports1 229 250 240 249 260 272 284
Tobacco excise - imports1 924 1,005 957 983 1,030 1,066 1,108
Other customs duty 188 130 190 179 172 162 155
Gaming duties 214 223 229 231 233 237 242
Motor vehicle fees 172 168 174 170 171 173 176
Energy resources levies 36 38 33 36 36 36 36
Approved issuer levy and cheque duty 62 73 65 69 69 69 69
Total other indirect taxation 5,131 5,406 5,332 5,555 5,771 6,009 6,234
Total indirect taxation 18,839 20,448 19,973 21,298 23,051 24,292 25,496
Total taxation revenue 51,128 54,690 54,331 57,663 62,370 66,341 70,297

Other sovereign revenue (accrual)

             
ACC levies 3,586 3,882 3,670 3,395 3,484 3,573 3,663
Fire Service levies 312 309 322 313 319 326 337
EQC levies 88 89 98 240 272 275 277
Other miscellaneous items 1,295 1,528 1,022 1,498 1,604 1,698 1,944
Total other sovereign revenue 5,281 5,808 5,112 5,446 5,679 5,872 6,221
Total sovereign revenue 56,409 60,498 59,443 63,109 68,049 72,213 76,518

1: Customs excise-equivalent duty.

NOTE 1 (continued): Receipts collected through the Crown's sovereign power
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Taxation receipts (cash)

             

Individuals

             
Source deductions 20,699 21,066 21,011 22,450 23,938 25,498 27,102
Other persons 4,386 4,765 4,890 5,062 5,232 5,365 5,492
Refunds (2,463) (2,394) (2,558) (2,493) (2,325) (2,210) (2,102)
Fringe benefit tax 457 424 440 457 481 506 531
Total individuals 23,079 23,861 23,783 25,476 27,326 29,159 31,023

Corporate tax

             
Gross companies tax 7,588 8,369 8,285 8,737 9,438 9,994 10,394
Refunds (772) (799) (729) (756) (815) (918) (969)
Non-resident withholding tax 462 508 432 454 512 571 612
Foreign-source dividend w/holding payments (1) 1 5
Total corporate tax 7,277 8,079 7,993 8,435 9,135 9,647 10,037

Other direct income tax

             
Resident w/holding tax on interest income 1,701 1,664 1,670 1,672 1,892 2,207 2,502
Resident w/holding tax on dividend income 196 208 288 375 575 605 630
Estate and gift duties 2
Total other direct income tax 1,899 1,872 1,958 2,047 2,467 2,812 3,132
Total direct income tax 32,255 33,812 33,734 35,958 38,928 41,618 44,192

Goods and services tax

             
Gross goods and services tax 22,162 25,135 25,024 25,895 28,922 31,347 33,836
Refunds (9,177) (10,394) (10,912) (10,552) (11,950) (13,369) (14,877)
Total goods and services tax 12,985 14,741 14,112 15,343 16,972 17,978 18,959

Other indirect taxation

             
Road user charges 1,015 1,049 1,038 1,152 1,240 1,320 1,399
Petroleum fuels excise - domestic production 869 886 885 939 969 1,012 1,041
Alcohol excise - domestic production 625 665 665 698 734 769 803
Tobacco excise - domestic production 181 251 254 223 211 218 227
Customs duty 2,005 2,053 1,989 2,037 2,108 2,175 2,241
Gaming duties 216 223 229 231 233 237 242
Motor vehicle fees 171 168 174 170 171 173 176
Energy resources levies 36 38 33 36 36 36 36
Approved issuer levy and cheque duty 60 73 65 69 69 69 69
Total other indirect taxation 5,178 5,406 5,332 5,555 5,771 6,009 6,234
Total indirect taxation 18,163 20,147 19,444 20,898 22,743 23,987 25,193
Total taxation receipts 50,418 53,959 53,178 56,856 61,671 65,605 69,385

Other sovereign receipts (cash)

             
ACC levies 3,612 3,804 3,703 3,413 3,423 3,459 3,732
Fire Service levies 312 309 322 313 319 326 337
EQC levies 88 88 121 270 273 275 278
Other miscellaneous items 681 677 743 733 743 753 763
Total other sovereign receipts 4,693 4,878 4,889 4,729 4,758 4,813 5,110
Total sovereign receipts 55,111 58,837 58,067 61,585 66,429 70,418 74,495
NOTE 2: Interest revenue and dividends
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
By type              
Interest revenue 2,142 2,569 2,383 2,885 3,111 3,675 4,003
Dividends 428 482 441 491 533 570 614
Total interest revenue and dividends 2,570 3,051 2,824 3,376 3,644 4,245 4,617
By source              
Core Crown 2,169 2,134 1,856 2,397 2,487 2,736 2,817
Crown entities 1,234 768 1,126 1,123 1,171 1,282 1,423
State-owned enterprises 801 1,021 838 905 1,083 1,309 1,537
Inter-segment eliminations (1,634) (872) (996) (1,049) (1,097) (1,082) (1,160)
Total interest revenue and dividends 2,570 3,051 2,824 3,376 3,644 4,245 4,617
NOTE 3: Transfer payments and subsidies
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
New Zealand Superannuation 8,830 9,575 9,587 10,243 10,867 11,583 12,369
Family tax credit 2,139 2,178 2,111 2,113 2,065 2,040 2,062
Domestic Purposes Benefit 1,757 1,895 1,818 1,820 1,841 1,880 1,919
Invalid's Benefit 1,306 1,347 1,326 1,321 1,327 1,341 1,353
Accommodation supplement 1,197 1,264 1,203 1,243 1,271 1,288 1,310
Unemployment Benefit 943 1,029 888 881 849 788 737
Sickness Benefit 743 782 774 781 803 830 858
Student allowances 620 627 649 602 532 505 494
Disability allowances 409 411 403 366 360 362 365
Other social assistance benefits 2,691 2,637 2,532 2,661 2,659 2,678 2,737
Total social assistance grants 20,635 21,745 21,291 22,031 22,574 23,295 24,204

Subsidies

             
KiwiSaver subsidies 1,042 656 708 688 673 669 693
Other transfer payments              
Official development assistance 495 525 535 499 495 495 545
Total transfer payments and subsidies 22,172 22,926 22,534 23,218 23,742 24,459 25,442
NOTE 4: Personnel expenses
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Core Crown 5,996 6,021 5,860 6,003 5,977 6,034 6,120
Crown entities 10,410 10,440 10,655 10,897 10,982 11,094 11,170
State-owned enterprises 2,695 2,697 2,810 2,786 2,862 2,937 3,021
Inter-segment eliminations (13) (9) (10) (10) (10) (10) (10)
Total personnel expenses 19,088 19,149 19,315 19,676 19,811 20,055 20,301
NOTE 5: Depreciation, amortisation and other operating expenses
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Core Crown 39,157 40,197 38,028 41,041 38,150 37,873 38,000
Crown entities 17,905 18,390 17,967 18,062 17,906 17,967 18,116
State-owned enterprises 9,567 10,560 11,289 11,173 11,526 12,315 12,817
Inter-segment eliminations (26,118) (26,724) (26,378) (26,660) (26,528) (26,672) (26,810)
Total depreciation, amortisation and other operating expenses 40,511 42,423 40,906 43,616 41,054 41,483 42,123
NOTE 6: Interest expenses
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

By type

             
Interest on financial liabilities 3,545 4,592 4,128 4,610 4,955 5,557 5,686
Interest unwind on provisions 51 93 45 53 64 79 95
Total interest expenses 3,596 4,685 4,173 4,663 5,019 5,636 5,781

By source

             
Core Crown 3,066 3,714 3,553 3,766 3,971 4,266 4,224
Crown entities 248 272 244 247 244 248 260
State-owned enterprises 1,027 1,392 1,104 1,254 1,482 1,706 1,932
Inter-segment eliminations (745) (693) (728) (604) (678) (584) (635)
Total interest expenses 3,596 4,685 4,173 4,663 5,019 5,636 5,781
NOTE 7: Insurance expenses
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

By entity

             
ACC 2,979 3,042 3,138 3,300 3,501 3,722 3,964
EQC 11,776 78 958 71 11 154 121
Other (incl. Inter-segment eliminations) (163) 18 355 (82) (48) (25) (22)
Total insurance expenses 14,592 3,138 4,451 3,289 3,464 3,851 4,063
NOTE 8: Forecast new spending and top-down expense adjustment
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Forecast new operating spending

             
Unallocated contingencies 463 87 348 341 380 364
Forecast new spending for Budget 2013 800 800 800
Forecast new spending for Budget 2014 1,190 1,190
Forecast new spending for Budget 2015   1,214
Total forecast new operating spending 463 87 348 1,141 2,370 3,568
Operating top-down adjustment (310) (450) (700) (150) (150) (150)

Unallocated contingencies represents expenses included in Budget 2012 and previous Budgets that has yet to be allocated. Forecast new spending indicates the expected spending increases from future Budgets.

NOTE 8: Forecast new spending and top-down expense adjustment (continued)
  2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Post-2016
Forecast
$m
Total
Forecast
$m

Forecast new capital spending (annual)

             
Unallocated contingencies 88 94 21 21 224
Forecast new spending for Budget 2013 100 450 340 200 151 1,241
Forecast new spending for Budget 2014 100 350 200 250 900
Forecast new spending for Budget 2015 100 350 450 900
Forecast new spending for Budget 2016 100 800 900
Total forecast new capital spending 88 194 571 811 850 1,651 4,165
Forecast new capital spending (cumulative) 88 282 853 1,664 2,514    
Capital top-down adjustment (cumulative) (250) (350) (350) (350) (350)    

Unallocated contingencies represents capital spending from Budget 2012 and previous Budgets that has yet to be allocated.

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

NOTE 9: Gains and losses on financial instruments
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

By source

             
Core Crown 4,116 1,546 558 1,685 1,765 1,841 1,884
Crown entities 1,058 688 650 288 346 454 591
State-owned enterprises (281) (68) (262) (46) 20 (6)
Inter-segment eliminations (274) (193) (29) (192) (199) (207) (219)
Net gains/(losses) on financial instruments 4,619 1,973 917 1,735 1,932 2,082 2,256
NOTE 10: Gains and losses on non-financial instruments
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

By type

             
Actuarial gains/(losses) on GSF liability (574) (2,212)
Actuarial gains/(losses) on ACC outstanding claims 996 (1,671)
Other (343) 172 512 201 176 183 186
Net gains/(losses) on non-financial instruments 79 172 (3,371) 201 176 183 186

By source

             
Core Crown (588) (8) (2,129) 7 4 2
Crown entities 931 (1) (1,691) (11) (41) (40) (40)
State-owned enterprises (264) 180 448 205 214 221 226
Inter-segment eliminations -   1 1 (1)
Net gains/(losses) on non-financial instruments 79 172 (3,371) 201 176 183 186
NOTE 11: Source of operating balance
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Core Crown (9,267) (10,350) (11,098) (7,774) (1,887) 600 2,603
Crown entities (3,143) 2,533 347 1,873 1,916 1,813 1,932
State-owned enterprises 327 981 419 890 985 1,092 1,106
Inter-segment eliminations (1,277) (457) (310) (688) (648) (770) (827)
Total operating balance (13,360) (7,293) (10,642) (5,699) 366 2,735 4,814
NOTE 12: Financial assets
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Cash and cash equivalents 9,801 8,886 14,899 14,327 13,970 13,108 12,880
Tax receivables 7,104 6,788 7,196 6,974 6,923 6,952 6,943
Trade and other receivables 14,586 9,921 13,370 9,825 8,692 8,420 8,312
Student loans (refer note 13) 7,460 7,822 8,238 8,781 9,165 9,489 9,782
Kiwibank mortgages 11,495 13,493 12,637 13,830 15,303 16,827 18,575
Long-term deposits 2,259 2,047 1,888 1,697 1,747 2,209 2,386
IMF financial assets 2,168 2,528 2,228 2,445 2,486 2,537 2,403
Other advances 1,612 1,118 1,216 1,284 1,407 1,556 1,642
Share investments 14,248 16,095 14,470 15,853 17,228 18,645 20,122
Derivatives in gain 5,415 2,394 4,989 4,028 3,511 3,216 2,878
Other marketable securities 39,214 36,065 34,716 28,027 33,519 28,882 31,955
Total financial assets 115,362 107,157 115,847 107,071 113,951 111,841 117,878

Financial assets by entity

             
NZDMO 29,928 20,413 25,455 14,820 17,984 11,328 11,493
Reserve Bank of New Zealand 17,909 17,628 17,352 17,631 17,441 16,953 17,022
NZS Fund 18,687 19,543 19,101 20,445 21,933 23,510 25,179
Other core Crown 19,116 17,694 19,269 18,863 18,873 19,320 19,745
Intra-segment eliminations (9,165) (6,769) (7,188) (5,832) (5,328) (4,489) (4,565)
Total core Crown segment 76,475 68,509 73,989 65,927 70,903 66,622 68,874
ACC portfolio 21,569 23,742 25,873 28,440 31,168 34,134 37,344
EQC portfolio 9,305 6,168 7,024 3,781 1,106 201 69
Other Crown entities 8,831 6,343 8,723 8,191 8,109 7,504 7,212
Intra-segment eliminations (3,314) (1,532) (3,498) (3,503) (3,507) (2,927) (2,712)
Total Crown entities segment 36,391 34,721 38,122 36,909 36,876 38,912 41,913
Total state-owned enterprises segment 20,241 19,624 20,756 21,393 23,078 25,028 27,172
Inter-segment eliminations (17,745) (15,697) (17,020) (17,158) (16,906) (18,721) (20,081)
Total financial assets 115,362 107,157 115,847 107,071 113,951 111,841 117,878
NOTE 13: Student loans
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Nominal value (including accrued interest) 12,070 12,909 12,982 13,840 14,541 15,178 15,798
Opening book value 6,790 7,325 7,460 8,238 8,781 9,165 9,489
Amount borrowed in current year 1,564 1,590 1,607 1,644 1,692 1,699 1,744
Less initial write-down to fair value (713) (707) (714) (651) (673) (683) (710)
Repayments made during the year (802) (834) (859) (953) (1,169) (1,253) (1,326)
Interest unwind 484 534 537 601 632 659 683
(Impairment)/reversal of impairment 125 (110) 194 (110) (110) (110) (110)
Other movements 12 24 13 12 12 12 12
Closing book value 7,460 7,822 8,238 8,781 9,165 9,489 9,782
NOTE 14: Property, plant and equipment
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

By class of asset

             

Net carrying value

             
Land (valuation)1 35,111 36,055 35,341 35,551 35,516 35,802 35,973
Buildings (valuation) 24,539 25,232 24,980 25,528 25,995 26,170 26,164
Electricity distribution network (cost) 2,690 3,553 3,412 3,835 4,036 4,153 4,200
Electricity generation assets (valuation) 14,439 14,915 14,900 15,348 15,871 16,341 17,035
Aircraft (excluding military) (valuation) 1,805 2,587 2,066 2,222 2,539 2,618 2,736
State highways (valuation) - excluding land 17,713 18,913 18,391 19,120 19,997 20,926 21,959
Rail network (valuation) - excluding land 7,100 7,106 7,244 7,614 7,606 7,523 7,434
Specialist military equipment (valuation) 3,331 3,377 3,273 3,346 3,347 3,425 3,412
Specified cultural and heritage assets (valuation) 2,456 2,636 2,483 2,506 2,531 2,557 2,584
Other plant and equipment (cost) 5,670 6,812 5,918 6,265 6,266 6,246 6,141
Total property, plant and equipment 114,854 121,186 118,008 121,335 123,704 125,761 127,638

By source

             
Core Crown 29,549 30,595 29,686 30,140 30,243 30,582 30,510
Crown entities 48,480 50,949 49,798 51,182 52,375 53,535 54,792
State-owned enterprises 36,825 39,642 38,524 40,013 41,086 41,644 42,336
Inter-segment eliminations    -     -     -     -     -     -     - 
Total property, plant and equipment 114,854 121,186 118,008 121,335 123,704 125,761 127,638

Land breakdown by usage1

             
Housing 8,423 8,571 8,415 8,394 8,341 8,276 8,209
State highway corridor land 7,413 7,591 7,513 7,603 7,708 7,808 7,903
Conservation land 5,677 5,923 5,685 5,679 5,695 5,708 5,718
Rail network 5,641 5,649 5,641 5,641 5,641 5,641 5,641
Schools 2,718 2,830 2,721 2,747 2,761 2,773 2,786
Commercial (SOEs) excluding Rail 1,531 1,607 1,553 1,594 1,556 1,743 1,821
Other 3,708 3,884 3,813 3,893 3,814 3,853 3,895
Total land 35,111 36,055 35,341 35,551 35,516 35,802 35,973

1: Land relating to state highways, the rail network and conservation which had previously been included within the State highways, Rail network and Specified cultural and heritage assets categories has been reclassified to the Land category.

NOTE 14 (continued): Property, plant and equipment
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Schedule of movements

             

Cost or valuation

             
Opening balance 123,941 131,282 126,601 133,898 141,147 147,225 152,914
Additions (refer below for further breakdown) 6,644 8,628 7,327 7,437 6,917 6,766 6,574
Disposals (1,283) (287) (465) (436) (441) (643) (451)
Net revaluations (2,471)    -  (9)    -     -     -     - 
Other (230) (240) 444 248 (398) (434) (454)
Total cost or valuation 126,601 139,383 133,898 141,147 147,225 152,914 158,583

Accumulated depreciation and impairment

             
Opening balance 10,611 14,349 11,747 15,890 19,812 23,521 27,153
Eliminated on disposal (832) (73) (158) (40) (32) (161) (80)
Eliminated on revaluation (1,884)    -  (44)    -     -     -     - 
Depreciation expense 3,727 4,032 3,900 4,070 4,173 4,263 4,344
Other 125 (111) 445 (108) (432) (470) (472)
Total accumulated depreciation and impairment 11,747 18,197 15,890 19,812 23,521 27,153 30,945
Total property, plant and equipment 114,854 121,186 118,008 121,335 123,704 125,761 127,638

Additions - by functional classification

             
Transport 2,807 2,685 2,396 2,299 2,483 2,227 2,267
Economic 1,200 2,573 1,928 1,659 1,591 1,450 1,639
Education 648 865 753 931 733 717 730
Health 617 605 749 686 445 397 397
Defence 258 726 436 556 472 463 406
Other 1,114 1,174 1,065 1,306 1,193 1,512 1,135
Total additions to property, plant and equipment1 6,644 8,628 7,327 7,437 6,917 6,766 6,574

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

NOTE 15: Intangible assets and goodwill
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

By type

             
Net Kyoto position2 291 444 189 189 189 189 189
Goodwill 485 484 442 431 452 452 452
Other intangible assets 1,618 1,786 1,799 1,951 1,968 1,963 1,981
Total intangible assets and goodwill 2,394 2,714 2,430 2,571 2,609 2,604 2,622

By source

             
Core Crown 1,157 1,498 1,160 1,294 1,317 1,304 1,251
Crown entities 430 500 455 472 464 451 440
State-owned enterprises 807 716 815 805 828 849 931
Inter-segment eliminations    -     -     -     -     -     -     - 
Total intangible assets and goodwill 2,394 2,714 2,430 2,571 2,609 2,604 2,622

2: The New Zealand Government has committed under the Kyoto Protocol to ensuring that New Zealand's average net emissions of greenhouse gases from 2008 to 2012 (the first commitment period of the Kyoto Protocol, or CP1) are reduced to gross 1990 emission 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 2012 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
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Revenue 518 551 516 563 578 602 641
Less current tax expense 872 367 175 419 450 483 521
Less other expenses 169 172 132 160 161 169 184
Add gains/(losses) 3,518 1,215 (100) 1,327 1,436 1,555 1,686
Operating balance 2,995 1,227 109 1,311 1,403 1,505 1,622
Opening net worth 15,656 18,668 18,652 18,777 20,120 21,558 23,101
Operating balance 2,995 1,227 109 1,311 1,403 1,505 1,622
Other movements in reserves 1 6 16 32 35 38 42
Closing net worth 18,652 19,901 18,777 20,120 21,558 23,101 24,765

Comprising:

             
Financial assets 18,687 19,543 19,101 20,445 21,933 23,510 25,179
Financial liabilities (1,161) (674) (1,560) (1,620) (1,633) (1,645) (1,660)
Net other assets 1,126 1,032 1,236 1,295 1,258 1,236 1,246
Closing net worth 18,652 19,901 18,777 20,120 21,558 23,101 24,765
NOTE 17: Payables
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

By type

             
Accounts payable 7,337 6,161 9,564 10,139 9,816 9,683 9,512
Taxes repayable 3,762 3,442 3,302 3,364 3,791 4,158 4,380
Total payables 11,099 9,603 12,866 13,503 13,607 13,841 13,892

By source

             
Core Crown 6,997 6,371 6,796 7,367 7,362 7,478 7,473
Crown entities 5,587 4,663 6,618 6,501 6,499 6,487 6,465
State-owned enterprises 4,779 4,917 5,302 5,523 5,748 5,968 6,164
Inter-segment eliminations (6,264) (6,348) (5,850) (5,888) (6,002) (6,092) (6,210)
Total payables 11,099 9,603 12,866 13,503 13,607 13,841 13,892
NOTE 18: Insurance liabilities
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

By entity

             
ACC liability 26,939 27,687 29,433 30,651 31,963 33,448 35,100
EQC liability 10,570 2,785 8,643 5,210 2,272 656 145
Southern Response1 liability 2,082 1,764 992 517 270 35
Other insurance liabilities (277) 61 65 66 76 90 93
Total insurance liabilities 39,314 30,533 39,905 36,919 34,828 34,464 35,373

1: Southern Response Earthquake Services Limited - previously AMI liability

ACC liability

Calculation information

PricewaterhouseCoopers Actuarial Pty Ltd have prepared an independent actuarial estimate of the ACC outstanding claims liability as at 31 December 2011. 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 rates as at 31 March 2012. The equivalent single effective discount rate, taking into account ACC's projected future cash flow patterns, is a short-term discount rate of 4.56% 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 ortfolio of assets that partially offset the claims liability. The assets (less cross-holdings of NZ Government stock) are included in the asset portion of the Crown's overall statement of financial position.

NOTE 18: Insurance liabilities (continued)
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Gross ACC liability

             
Opening gross liability 26,997 26,761 26,939 29,433 30,651 31,963 33,448
Net change (58) 926 2,494 1,218 1,312 1,485 1,652
Closing gross liability 26,939 27,687 29,433 30,651 31,963 33,448 35,100

Less net assets available to ACC

             
Opening net asset value 16,745 20,236 20,233 23,165 25,744 28,468 31,429
Net change 3,488 2,926 2,932 2,579 2,724 2,961 3,219
Closing net asset value 20,233 23,162 23,165 25,744 28,468 31,429 34,648

Net ACC reserves (net liability)

             
Opening reserves position (10,252) (6,525) (6,706) (6,268) (4,907) (3,495) (2,019)
Net change 3,546 2,000 438 1,361 1,412 1,476 1,567
Closing reserves position (net liability) (6,706) (4,525) (6,268) (4,907) (3,495) (2,019) (452)

EQC liability

Calculation information

Melville Jessup Weaver has refreshed their 30 June 2011 independent actuarial estimate of the EQC outstanding claims liability as at 31 December 2011 for inclusion in this forecast. The refresh included a $450 million estimate of earthquake costs, net of reinsurance, for the 23 December 2011 earthquake in Christchurch.

To determine the outstanding claims liability the actuarial approach adopted was to estimate the projected ultimate claims costs then deduct the payments made in relation to those claims. An aggregate stochastic methodology was adopted to calculate the estimate ultimate claims cost. Each component of the claims liability was split into separate groups depending upon the Canterbury earthquake event grouping or other “business as usual” claims. These event groups were further split into sub-claim valuation groups being land claims, building claims or personal property claims. Critical assumptions used in projecting the ultimate costs include cost of apportionment across earthquake events, the profile of claims settlement, claims inflation rate per annum, risk margins and claims handling costs.

There is a high level of uncertainty associated with the valuation of the outstanding claims liability, reinsurance recoveries and unexpired risk liability. Some of the key uncertainties are: the impact of multiple earthquake events; severe land damage and a complex land claims environment from both an engineering and legal perspective; the relatively early stage of claims development, particularly from the 23 December earthquake and the potential for construction cost inflation to exceed expectations. The actual claims outcome may differ from the one currently forecast.

Presentation approach

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

NOTE 18 (continued): Insurance liabilities
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

EQC liability

             
Opening gross liability 88 4,985 10,570 8,643 5,210 2,272 656
Net change 10,482 (2,200) (1,927) (3,433) (2,938) (1,616) (511)
Closing gross liability 10,570 2,785 8,643 5,210 2,272 656 145

Less reinsurance receivable

             
Opening reinsurance receivable 3,340 4,185 4,040 1,595 594 131
Net change 4,185 (1,140) (145) (2,445) (1,001) (463) (131)
Closing reinsurance receivable 4,185 2,200 4,040 1,595 594 131

Net EQC liability

             
Opening net position (88) (1,645) (6,385) (4,603) (3,615) (1,678) (525)
Net change (6,297) 1,060 1,782 988 1,937 1,153 380
Closing net position (net liability) (6,385) (585) (4,603) (3,615) (1,678) (525) (145)
NOTE 19: Retirement plan liabilities
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Government Superannuation Fund 10,152 8,891 11,883 11,478 11,116 10,795 10,500
Other funds 4 4 3 3 3 3 3
Total retirement plan liabilities 10,156 8,895 11,886 11,481 11,119 10,798 10,503

The net liability of the Government Superannuation Fund (GSF) was calculated by GSF's actuary as at 29 February 2012. The liability arises from closed schemes for past and present public sector employees as set out in the Government Superannuation Fund Act 1956. A Projected Unit Credit method was used to calculate the liability as at 29 February 2012, based on membership data as at that date with allowance for subsequent movements to 29 February 2012. The funding method requires the benefits payable from GSF in respect of past service to be calculated and then discounted back to the valuation date.

For these forecast financial statements, the net GSF liability was updated for the latest discount rates derived from the market yield curve for New Zealand Government bonds as at 29 February 2012.

Other principal long-term financial assumptions were an inflation rate, as measured by the Consumer Price Index, of 2.5% for 2012 and an annual salary growth rate, before any promotional effects, of 3% (unchanged from 30 June 2011).

The 2011/12 projected increase in the net GSF liability is $1,731 million, reflecting an increase in the GSF liability of $1,650 million and a decrease in the GSF assets of $81 million.

The increase in the GSF liability of $1,650 million includes an actuarial loss between 1 July 2011 and 29 February 2012, of $2,056 million owing to movements in the discount rates and an increase in the allowance for future mortality improvements. The remaining $406 million reduction is due to expected benefits paid to members (reduces the liability) and current service cost and interest unwind (increases the liability).

The decrease in the value of the net assets of GSF of $81 million includes a loss of $156 million reflecting the updated market value of assets at 29 February 2012. The balance of $75 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 2011/12 onwards reflect the net of the expected current service cost, interest cost, investment returns and contributions.

NOTE 19: Retirement plan liabilities (continued)
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

GSF liability

             
Opening GSF liability 12,881 12,497 13,311 14,961 14,606 14,288 14,006
Net projected change 430 (321) 1,650 (355) (318) (282) (261)
Closing GSF liability 13,311 12,176 14,961 14,606 14,288 14,006 13,745

Less net assets available to GSF

             
Opening net asset value 2,945 3,229 3,159 3,078 3,128 3,172 3,211
Investment valuation changes 336 180 38 188 191 193 196
Contribution and other income less pension payments (122) (124) (119) (138) (147) (154) (162)
Closing net asset value 3,159 3,285 3,078 3,128 3,172 3,211 3,245

Net GSF liability

             
Opening unfunded liability 9,936 9,268 10,152 11,883 11,478 11,116 10,795
Net projected change 216 (377) 1,731 (405) (362) (321) (295)
Closing unfunded liability 10,152 8,891 11,883 11,478 11,116 10,795 10,500
NOTE 20: Provisions
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Provision for ETS credits 612 1,241 889 815 636 441 233
Provision for National Provident Fund guarantee 983 925 911 843 787 736 685
Provision for employee entitlements 3,050 2,919 3,073 3,133 3,069 3,060 3,075
Provision for Canterbury Red Zone support package 1,039 280
Provision for weathertight services financial assistance package 567 687 358 306 207 93 29
Other provisions 1,335 3,157 1,256 1,769 1,500 1,414 1,371
Total provisions 7,586 8,929 6,767 6,866 6,199 5,744 5,393

By source

             
Core Crown 5,351 6,433 4,372 4,529 3,849 3,354 2,938
Crown entities 1,770 1,705 1,807 1,814 1,835 1,839 1,848
State-owned enterprises 1,028 882 967 925 940 1,001 1,028
Inter-segment eliminations (563) (91) (379) (402) (425) (450) (421)
Total provisions 7,586 8,929 6,767 6,866 6,199 5,744 5,393

Provision for ETS credits

The Emissions Trading Scheme (ETS) was established to encourage reduction in greenhouse gas emissions. The ETS creates a limited number of tradable units (the NZ Unit) which the Government can allocate. 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 obligations exceed the number of allocated NZ Units. Emitters can also currently 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 used to calculate the ETS provision is assumed to remain constant over the forecast period and is based on the estimated current carbon price of €6.50 with an exchange rate of 0.6131 (a carbon price of NZ$10.60).

The carbon price for the ETS provision has been determined by the Ministry for the Environment based on international market transactions that have occurred in the certified emission reduction (CER) markets. Currently, the CER market has been determined to be the most relevant market to use for determining the carbon price for NZ Units and the calculation of the provision for ETS credits. As the market for NZ Units develops the basis for determining this carbon price will be reviewed.

The ETS impact on the fiscal forecast is as follows:

NOTE 20: Provisions (continued)
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Revenue 326 379 191 311 427 644 825
Expenses (838) (692) (668) (237) (248) (449) (618)
Gains/(losses) (22)    -  201    -     -     -     - 
Operating balance (534) (313) (276) 74 179 195 207
NOTE 21: Net worth attributable to the Crown
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
Taxpayer funds 18,188 14,463 7,573 2,144 2,790 5,805 10,901
Property, plant and equipment revaluation reserve 62,690 63,614 62,618 62,550 62,501 62,424 62,376
Investment revaluation reserve 58 69 69 79 91 103 117
Cash flow hedge reserve (310) (223) (276) (279) (279) (279) (280)
Foreign currency translation reserve (47) (53) 11 66 66 66 66
Total net worth attributable to the Crown 80,579 77,870 69,995 64,560 65,169 68,119 73,180

Taxpayer Funds

             
Opening taxpayer funds 31,087 21,720 18,188 7,573 2,144 2,790 5,805
Operating balance excluding minority interest (13,360) (7,293) (10,642) (5,699) 366 2,735 4,814
Partial share sales in state-owned enterprises 200 200 200 200
Transfers from/(to) other reserves 461 36 27 70 80 80 82
Closing taxpayer funds 18,188 14,463 7,573 2,144 2,790 5,805 10,901

Property, plant and equipment revaluation reserve

             
Opening revaluation reserve 63,593 63,600 62,690 62,618 62,550 62,501 62,424
Net revaluations (443) (47)
Transfers from/(to) other reserves (460) 14 (25) (68) (49) (77) (48)
Closing property, plant and equipment revaluation reserve 62,690 63,614 62,618 62,550 62,501 62,424 62,376

Investment revaluation reserve

             
Opening investment revaluation reserve 59 63 58 69 79 91 103
Valuation gain/(losses) on investments available for sale taken to reserves (1) 6 11 10 12 12 14
Closing investment revaluation reserve 58 69 69 79 91 103 117

Cash flow hedge reserve

             
Opening cash flow hedge reserve (143) (219) (310) (276) (279) (279) (279)
Transfer into reserve (279) 3 56 (3) (1)
Transfer to the Statement of Financial Performance 17 -  
Transfer to initial carrying value of hedged item 95 (7) (22)
Closing cash flow hedge reserve (310) (223) (276) (279) (279) (279) (280)

Foreign currency translation reserve

             
Opening foreign currency translation reserve (10) (47) (47) 11 66 66 66
Movement arising from translation of foreign operations (37) (6) 58 55
Closing foreign currency translation reserve (47) (53) 11 66 66 66 66
NOTE 22: Core Crown residual cash
  2011
Actual
$m
2012
Previous
Budget
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m

Core Crown operating cash flows

             
Tax receipts 51,454 55,084 53,953 57,762 62,751 66,791 70,641
Other sovereign receipts 646 645 664 653 663 673 683
Interest, profits and dividends 1,817 1,469 1,469 1,676 1,648 1,796 1,743
Sale of goods and services and other receipts 2,094 2,496 2,735 2,506 2,156 1,994 1,990
Transfer payments and subsidies (22,226) (23,448) (23,062) (23,334) (23,874) (24,593) (25,567)
Personnel and operating costs (40,433) (42,107) (40,960) (42,411) (41,062) (40,341) (40,028)
Finance costs (2,637) (3,493) (3,398) (3,918) (3,877) (4,407) (4,246)
Forecast for future new operating spending (463) (87) (348) (1,141) (2,370) (3,567)
Top-down expense adjustment 310 450 700 150 150 150
Net core Crown operating cash flows (9,285) (9,507) (8,236) (6,714) (2,586) (307) 1,799

Core Crown capital cash flows

             
Net purchase of physical assets (1,524) (1,863) (1,631) (1,999) (1,627) (1,576) (1,433)
Net increase in advances (1,242) (879) (1,080) (926) (760) (1,187) (710)
Net purchase of investments (1,292) (1,261) (1,334) 62 360 201 (4)
Forecast for future new capital spending (242) (88) (194) (571) (811) (850)
Balance sheet funding of new capital spending 100
Top-down capital adjustment 170 250 100
Net Core Crown capital cash flows (4,058) (3,975) (3,883) (2,957) (2,598) (3,373) (2,997)
Residual cash deficit (13,343) (13,482) (12,119) (9,671) (5,184) (3,680) (1,198)

The residual cash deficit is funded as follows:

             

Debt programme cash flows

             
Market:              
    Issue of government bonds 19,468 13,635 17,012 14,122 9,933 7,711 2,840
    Repayment of government bonds (7,602) (7,602) (9,982) (10,985) (1,871)
    Net issue/(repayment) of short-term borrowing1 (422) 1,534 1,342 (3,701)
Total market debt cash flows 19,046 7,567 10,752 439 9,933 (3,274) 969
Non market:              
    Issue of government bonds 270 187
    Repayment of government bonds (803) (1,113) (1,501) (499) (1,450)
    Net issue/(repayment) of short-term borrowing (125) (50)
  (658) (926) (1,551) (499) (1,450)
Total debt programme cash flows 18,388 6,641 9,201 (60) 8,483 (3,274) 969
Other borrowing cash flows              
Net (repayment)/issue of other New Zealand dollar borrowing (1,096) 7,261 8,641 741 945 1,524 1,260
Net (repayment)/issue of foreign currency borrowing 1,469 (7,371) (8,406) (620) (676) (1,254) (1,117)
Total other borrowing cash flows 373 (110) 235 121 269 270 143

Investing cash flows

             
Other net sale/(purchase) of marketable securities and deposits (4,791) 6,733 6,360 9,465 (3,708) 6,539 (63)
Issues of circulating currency 234 219 306 144 141 145 150
Decrease/(increase) in cash (861) (1) (3,983) 1 (1) (1)
Total investing cash flows (5,418) 6,951 2,683 9,610 (3,568) 6,684 86
Residual cash deficit funding 13,343 13,482 12,119 9,671 5,184 3,680 1,198

1: Short-term borrowing consists of Treasury Bills and may include Euro-Commercial Paper.

Forecast Statement of Segments

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

Revenue

         
Taxation revenue 51,557 (429) 51,128
Other sovereign revenue 1,275 5,080 (1,074) 5,281
Sales of goods and services 1,443 14,680 12,510 (13,549) 15,084
Interest revenue and dividends 2,169 1,234 801 (1,634) 2,570
Other revenue 1,106 17,042 935 (11,583) 7,500
Total revenue (excluding gains) 57,550 38,036 14,246 (28,269) 81,563

Expenses

         
Social assistance and official development assistance 22,227 (55) 22,172
Personnel expenses 5,996 10,410 2,695 (13) 19,088
Other operating expenses 39,161 32,670 9,727 (26,455) 55,103
Interest expenses 3,066 248 1,027 (745) 3,596
Forecast for future new spending and top-down adjustment
Total expenses (excluding losses) 70,450 43,328 13,449 (27,268) 99,959
Operating balance before gains/(losses) (12,900) (5,292) 797 (1,001) (18,396)
Total gains/(losses) 3,530 1,989 (545) (276) 4,698
Net surplus/(deficit) from associates and joint ventures 103 160 (26) 237
Attributable to minority interest in Air NZ 101 101
Operating balance (9,267) (3,143) 327 (1,277) (13,360)

Expenses by functional classification

         
Social security and welfare 22,005 3,945 (626) 25,324
Health 13,753 11,467 (12,152) 13,068
Education 11,650 9,176 23 (8,443) 12,406
Transport and communications 2,281 2,117 6,203 (2,199) 8,402
Other 17,695 16,375 6,196 (3,103) 37,163
Finance costs 3,066 248 1,027 (745) 3,596
Forecast for future new spending and top-down adjustment
Total Crown expenses (excluding losses) 70,450 43,328 13,449 (27,268) 99,959
Statement of Financial Position as at 30 June 2011
  Core Crown
2011
Actual
$m
Crown entities
2011
Actual
$m
State-owned
enterprises
2011
Actual
$m
Inter-segment
eliminations
2011
Actual
$m
Total Crown
2011
Actual
$m

Assets

         
Cash and cash equivalents 6,087 2,773 1,425 (484) 9,801
Receivables 11,376 8,999 3,576 (2,261) 21,690
Other financial assets 59,012 24,619 15,240 (15,000) 83,871
Property, plant and equipment 29,549 48,480 36,825 114,854
Equity accounted investments 30,093 7,979 197 (28,968) 9,301
Intangible assets and goodwill 1,157 430 807 2,394
Inventory and other assets 1,691 378 1,290 (55) 3,304
Forecast for new capital spending and top-down adjustment
Total assets 138,965 93,658 59,360 (46,768) 245,215

Liabilities

         
Borrowings 76,827 5,123 23,099 (14,804) 90,245
Other liabilities 27,207 45,105 9,021 (7,250) 74,083
Total liabilities 104,034 50,228 32,120 (22,054) 164,328
Total assets less total liabilities 34,931 43,430 27,240 (24,714) 80,887

Net worth

         
Taxpayer funds 19,531 17,098 9,574 (28,015) 18,188
Reserves 15,400 26,332 17,323 3,336 62,391
Net worth attributable to minority interest in Air NZ 343 (35) 308
Total net worth 34,931 43,430 27,240 (24,714) 80,887
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 54,741 (410) 54,331
Other sovereign revenue 958 5,355 (1,201) 5,112
Sales of goods and services 1,414 14,424 13,964 (13,422) 16,380
Interest revenue and dividends 1,856 1,126 838 (996) 2,824
Other revenue 1,062 13,278 970 (11,382) 3,928
Total revenue (excluding gains) 60,031 34,183 15,772 (27,411) 82,575

Expenses

         
Social assistance and official development assistance 22,546 (12) 22,534
Personnel expenses 5,860 10,655 2,810 (10) 19,315
Other operating expenses 38,037 22,064 11,641 (26,385) 45,357
Interest expenses 3,553 244 1,104 (728) 4,173
Forecast for future new spending and top-down adjustment (363) (363)
Total expenses (excluding losses) 69,633 32,963 15,555 (27,135) 91,016
Operating balance before gains/(losses) (9,602) 1,220 217 (276) (8,441)
Total gains/(losses) (1,571) (1,041) 186 (28) (2,454)
Net surplus/(deficit) from associates and joint ventures 74 168 16 (5) 253
Operating balance (11,099) 347 419 (309) (10,642)

Expenses by functional classification

         
Social security and welfare 22,236 4,153 (617) 25,772
Health 14,130 11,707 (12,366) 13,471
Education 11,883 9,388 23 (8,604) 12,690
Transport and communications 2,366 2,252 6,539 (2,328) 8,829
Other 15,828 5,219 7,889 (2,492) 26,444
Finance costs 3,553 244 1,104 (728) 4,173
Forecast for future new spending and top-down adjustment (363) (363)
Total Crown expenses (excluding losses) 69,633 32,963 15,555 (27,135) 91,016
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 10,736 3,283 1,479 (599) 14,899
Receivables 10,014 8,568 3,447 (1,463) 20,566
Other financial assets 53,239 26,271 15,830 (14,958) 80,382
Property, plant and equipment 29,686 49,797 38,524 1 118,008
Equity accounted investments 31,304 8,186 445 (30,179) 9,756
Intangible assets and goodwill 1,160 455 815 2,430
Inventory and other assets 1,666 317 1,359 (38) 3,304
Forecast for new capital spending and top-down adjustment (162) (162)
Total assets 137,643 96,877 61,899 (47,236) 249,183

Liabilities

         
Borrowings 85,761 5,436 25,441 (15,172) 101,466
Other liabilities 28,002 46,734 8,988 (6,310) 77,414
Total liabilities 113,763 52,170 34,429 (21,482) 178,880
Total assets less total liabilities 23,880 44,707 27,470 (25,754) 70,303

Net worth

         
Taxpayer funds 8,432 18,407 9,769 (29,035) 7,573
Reserves 15,448 26,300 17,358 3,316 62,422
Net worth attributable to minority interest 343 (35) 308
Total net worth 23,880 44,707 27,470 (25,754) 70,303
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 58,251 (588) 57,663
Other sovereign revenue 1,433 5,231 (1,218) 5,446
Sales of goods and services 1,379 14,553 13,857 (13,452) 16,337
Interest revenue and dividends 2,397 1,123 905 (1,049) 3,376
Other revenue 731 13,102 1,160 (11,512) 3,481
Total revenue (excluding gains) 64,191 34,009 15,922 (27,819) 86,303

Expenses

         
Social assistance and official development assistance 23,267 (49) 23,218
Personnel expenses 6,003 10,897 2,786 (10) 19,676
Other operating expenses 41,048 21,435 11,087 (26,665) 46,905
Interest expenses 3,766 247 1,254 (604) 4,663
Forecast for future new spending and top-down adjustment (352) (352)
Total expenses (excluding losses) 73,732 32,579 15,127 (27,328) 94,110
Forgone profits from partial share sales (90) (90)
Operating balance before gains/(losses) (9,541) 1,430 705 (491) (7,897)
Total gains/(losses) 1,692 277 159 (192) 1,936
Net surplus/(deficit) from associates and joint ventures 75 166 26 (5) 262
Operating balance (7,774) 1,873 890 (688) (5,699)

Expenses by functional classification

         
Social security and welfare 23,239 4,345 (672) 26,912
Health 14,745 11,725 (12,457) 14,013
Education 12,387 9,574 23 (8,820) 13,164
Transport and communications 2,174 2,223 6,654 (2,250) 8,801
Other 17,773 4,465 7,196 (2,525) 26,909
Finance costs 3,766 247 1,254 (604) 4,663
Forecast for future new spending and top-down adjustment (352) (352)
Total Crown expenses (excluding losses) 73,732 32,579 15,127 (27,328) 94,110
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 10,611 2,752 1,639 (675) 14,327
Receivables 9,357 6,146 2,791 (1,495) 16,799
Other financial assets 45,959 28,011 16,963 (14,988) 75,945
Property, plant and equipment 30,140 51,181 40,013 1 121,335
Equity accounted investments 32,458 8,364 485 (31,340) 9,967
Intangible assets and goodwill 1,294 472 805 2,571
Inventory and other assets 1,706 326 1,417 (38) 3,411
Forecast for new capital spending and top-down adjustment (68) (68)
Total assets 131,457 97,252 64,113 (48,535) 244,287

Liabilities

         
Borrowings 85,674 5,257 27,636 (15,360) 103,207
Other liabilities 28,439 44,414 8,395 (6,376) 74,872
Total liabilities 114,113 49,671 36,031 (21,736) 178,079
Total assets less total liabilities 17,344 47,581 28,082 (26,799) 66,208

Net worth

         
Taxpayer funds 1,883 21,351 10,240 (31,330) 2,144
Reserves 15,461 26,230 17,409 3,316 62,416
Net worth attributable to minority interest 433 1,215 1,648
Total net worth 17,344 47,581 28,082 (26,799) 66,208
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 63,069 (699) 62,370
Other sovereign revenue 1,540 5,377 (1,238) 5,679
Sales of goods and services 1,360 14,611 14,442 (13,438) 16,975
Interest revenue and dividends 2,487 1,171 1,083 (1,097) 3,644
Other revenue 723 12,928 1,192 (11,263) 3,580
Total revenue (excluding gains) 69,179 34,087 16,717 (27,735) 92,248

Expenses

         
Social assistance and official development assistance 23,811 (69) 23,742
Personnel expenses 5,977 10,982 2,862 (10) 19,811
Other operating expenses 38,152 21,419 11,474 (26,527) 44,518
Interest expenses 3,971 244 1,482 (678) 5,019
Forecast for future new spending and top-down adjustment 991 991
Total expenses (excluding losses) 72,902 32,645 15,818 (27,284) 94,081
Forgone profits from partial share sales (180) (180)
Operating balance before gains/(losses) (3,723) 1,442 719 (451) (2,013)
Total gains/(losses) 1,769 305 234 (200) 2,108
Net surplus/(deficit) from associates and joint ventures 66 169 32 4 271
Operating balance (1,888) 1,916 985 (647) 366

Expenses by functional classification

         
Social security and welfare 23,794 4,574 (706) 27,662
Health 14,630 11,643 (12,473) 13,800
Education 12,213 9,531 23 (8,699) 13,068
Transport and communications 2,041 2,253 6,943 (2,205) 9,032
Other 15,262 4,400 7,370 (2,523) 24,509
Finance costs 3,971 244 1,482 (678) 5,019
Forecast for future new spending and top-down adjustment 991 991
Total Crown expenses (excluding losses) 72,902 32,645 15,818 (27,284) 94,081
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 10,560 2,514 1,594 (698) 13,970
Receivables 9,219 5,207 2,771 (1,582) 15,615
Other financial assets 51,124 29,155 18,713 (14,626) 84,366
Property, plant and equipment 30,243 52,376 41,086 (1) 123,704
Equity accounted investments 33,301 8,537 516 (32,203) 10,151
Intangible assets and goodwill 1,317 464 828 2,609
Inventory and other assets 1,866 331 1,450 (40) 3,607
Forecast for new capital spending and top-down adjustment 503 503
Total assets 138,133 98,584 66,958 (49,150) 254,525

Liabilities

         
Borrowings 93,901 5,331 30,296 (15,182) 114,346
Other liabilities 27,506 42,813 8,164 (6,511) 71,972
Total liabilities 121,407 48,144 38,460 (21,693) 186,318
Total assets less total liabilities 16,726 50,440 28,498 (27,457) 68,207

Net worth

         
Taxpayer funds 1,221 24,291 10,476 (33,198) 2,790
Reserves 15,505 26,149 17,409 3,316 62,379
Net worth attributable to minority interest 613 2,425 3,038
Total net worth 16,726 50,440 28,498 (27,457) 68,207
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 67,185 -   (844) 66,341
Other sovereign revenue 1,633 5,480 (1,241) 5,872
Sales of goods and services 1,333 14,679 15,390 (13,463) 17,939
Interest revenue and dividends 2,736 1,282 1,309 (1,082) 4,245
Other revenue 716 12,974 1,342 (11,258) 3,774
Total revenue (excluding gains) 73,603 34,415 18,041 (27,888) 98,171

Expenses

         
Social assistance and official development assistance 24,516 (57) 24,459
Personnel expenses 6,034 11,094 2,937 (10) 20,055
Other operating expenses 37,876 21,845 12,286 (26,673) 45,334
Interest expenses 4,266 248 1,706 (584) 5,636
Forecast for future new spending and top-down adjustment 2,220 2,220
Total expenses (excluding losses) 74,912 33,187 16,929 (27,324) 97,704
Forgone profits from partial share sales (270) (270)
Operating balance before gains/(losses) (1,309) 1,228 842 (564) 197
Total gains/(losses) 1,843 414 215 (207) 2,265
Net surplus/(deficit) from associates and joint ventures 66 171 35 1 273
Operating balance 600 1,813 1,092 (770) 2,735

Expenses by functional classification

         
Social security and welfare 24,365 4,821 (712) 28,474
Health 14,611 11,643 (12,474) 13,780
Education 12,289 9,654 23 (8,783) 13,183
Transport and communications 2,107 2,258 7,235 (2,184) 9,416
Other 15,054 4,563 7,965 (2,587) 24,995
Finance costs 4,266 248 1,706 (584) 5,636
Forecast for future new spending and top-down adjustment 2,220 2,220
Total Crown expenses (excluding losses) 74,912 33,187 16,929 (27,324) 97,704
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 10,454 2,058 1,314 (718) 13,108
Receivables 9,342 4,861 2,842 (1,673) 15,372
Other financial assets 46,826 31,993 20,872 (16,330) 83,361
Property, plant and equipment 30,582 53,536 41,644 (1) 125,761
Equity accounted investments 34,304 8,709 517 (33,227) 10,303
Intangible assets and goodwill 1,304 451 849 2,604
Inventory and other assets 1,588 331 1,447 (40) 3,326
Forecast for new capital spending and top-down adjustment 1,314 1,314
Total assets 135,714 101,939 69,485 (51,989) 255,149

Liabilities

         
Borrowings 90,197 5,885 32,195 (16,927) 111,350
Other liabilities 26,948 42,681 8,202 (6,619) 71,212
Total liabilities 117,145 48,566 40,397 (23,546) 182,562
Total assets less total liabilities 18,569 53,373 29,088 (28,443) 72,587

Net worth

         
Taxpayer funds 3,046 27,305 10,797 (35,343) 5,805
Reserves 15,523 26,068 17,408 3,315 62,314
Net worth attributable to minority interest 883 3,585 4,468
Total net worth 18,569 53,373 29,088 (28,443) 72,587
Statement of Financial Performance for the year ended 30 June 2016
  Core Crown
2016
Forecast
$m
Crown entities
2016
Forecast
$m
State-owned
enterprises
2016
Forecast
$m
Inter-segment
eliminations
2016
Forecast
$m
Total Crown
2016
Forecast
$m

Revenue

         
Taxation revenue 71,171 (874) 70,297
Other sovereign revenue 1,880 5,588 (1,247) 6,221
Sales of goods and services 1,333 14,732 16,018 (13,493) 18,590
Interest revenue and dividends 2,817 1,423 1,537 (1,160) 4,617
Other revenue 708 13,098 1,397 (11,338) 3,865
Total revenue (excluding gains) 77,909 34,841 18,952 (28,112) 103,590

Expenses

         
Social assistance and official development assistance 25,491 (49) 25,442
Personnel expenses 6,120 11,170 3,021 (10) 20,301
Other operating expenses 38,003 22,203 12,790 (26,810) 46,186
Interest expenses 4,224 260 1,932 (635) 5,781
Forecast for future new spending and top-down adjustment 3,418 3,418
Total expenses (excluding losses) 77,256 33,633 17,743 (27,504) 101,128
Forgone profits from partial share sales (360) (360)
Operating balance before gains/(losses) 653 1,208 849 (608) 2,102
Total gains/(losses) 1,884 551 226 (219) 2,442
Net surplus/(deficit) from associates and joint ventures 66 173 31 270
Operating balance 2,603 1,932 1,106 (827) 4,814

Expenses by functional classification

         
Social security and welfare 25,307 5,093 (718) 29,682
Health 14,583 11,643 (12,477) 13,749
Education 12,420 9,778 23 (8,886) 13,335
Transport and communications 1,992 2,268 7,617 (2,175) 9,702
Other 15,312 4,591 8,171 (2,613) 25,461
Finance costs 4,224 260 1,932 (635) 5,781
Forecast for future new spending and top-down adjustment 3,418 3,418
Total Crown expenses (excluding losses) 77,256 33,633 17,743 (27,504) 101,128
Statement of Financial Position as at 30 June 2016
  Core Crown
2016
Forecast
$m
Crown entities
2016
Forecast
$m
State-owned
enterprises
2016
Forecast
$m
Inter-segment
eliminations
2016
Forecast
$m
Total Crown
2016
Forecast
$m

Assets

         
Cash and cash equivalents 10,274 2,038 1,308 (740) 12,880
Receivables 9,458 4,667 2,872 (1,742) 15,255
Other financial assets 49,142 35,208 22,992 (17,599) 89,743
Property, plant and equipment 30,510 54,791 42,336 1 127,638
Equity accounted investments 35,394 8,882 518 (34,336) 10,458
Intangible assets and goodwill 1,251 440 931 2,622
Inventory and other assets 1,602 331 1,432 (40) 3,325
Forecast for new capital spending and top-down adjustment 2,164 2,164
Total assets 139,795 106,357 72,389 (54,456) 264,085

Liabilities

         
Borrowings 90,965 6,066 34,477 (18,232) 113,276
Other liabilities 26,383 43,810 8,193 (6,705) 71,681
Total liabilities 117,348 49,876 42,670 (24,937) 184,957
Total assets less total liabilities 22,447 56,481 29,719 (29,519) 79,128

Net worth

         
Taxpayer funds 6,874 30,497 11,068 (37,538) 10,901
Reserves 15,573 25,984 17,408 3,314 62,279
Net worth attributable to minority interest 1,243 4,705 5,948
Total net worth 22,447 56,481 29,719 (29,519) 79,128

Core Crown Expense Tables

Core Crown Expense Tables
($million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Social security and welfare 16,768 17,877 19,382 21,185 22,005 22,236 23,239 23,794 24,365 25,307
GSF pension expenses 645 690 655 328 305 190 329 356 413 453
Health 10,355 11,297 12,368 13,128 13,753 14,130 14,745 14,630 14,611 14,583
Education 9,269 9,551 11,455 11,724 11,650 11,883 12,387 12,213 12,289 12,420
Core government services 4,816 3,371 5,293 2,974 5,563 4,943 6,537 4,649 4,298 4,339
Law and order 2,699 2,894 3,089 3,191 3,382 3,494 3,558 3,448 3,436 3,505
Defence 1,517 1,562 1,757 1,814 1,809 1,818 2,016 1,877 1,875 1,871
Transport and communications 2,405 2,244 2,663 2,345 2,281 2,366 2,174 2,041 2,107 1,992
Economic and industrial services 1,595 2,889 2,960 2,839 2,609 2,099 2,134 1,910 1,844 1,862
Primary services 438 541 534 507 706 677 832 731 726 695
Heritage, culture and recreation 844 1,107 1,002 1,281 1,966 2,015 1,548 1,452 1,625 1,800
Housing and community development 255 260 297 306 876 103 328 307 307 256
Other 68 254 118 80 479 489 491 532 530 531
Finance costs 2,329 2,460 2,429 2,311 3,066 3,553 3,766 3,971 4,266 4,224
Forecast for future new spending  ..   ..   ..   ..   ..  87 348 1,141 2,370 3,568
Top-down expense adjustment  ..   ..   ..   ..   ..  ( 450) ( 700) ( 150) ( 150) ( 150)
Core Crown expenses 54,003 56,997 64,002 64,013 70,450 69,633 73,732 72,902 74,912 77,256

Source: The Treasury

Table 6.1 - Social security and welfare expenses
($million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Welfare benefits 15,435 16,288 17,366 18,961 19,781 20,452 21,134 21,742 22,491 23,414
Social rehabilitation and compensation 163 199 336 331 119 81 107 128 119 109
Departmental expenses 845 850 1,092 1,130 1,127 1,138 1,102 1,080 1,055 1,051
Child support impairment 183 193 205 371 281 112 422 401 268 316
Other non-departmental expenses1 142 347 383 392 697 453 474 443 432 417
Social security and welfare expenses 16,768 17,877 19,382 21,185 22,005 22,236 23,239 23,794 24,365 25,307

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

Source: The Treasury

Table 6.2 - New Zealand superannuation and welfare benefit expenses
($million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
New Zealand Superannuation 6,810 7,348 7,744 8,290 8,830 9,587 10,243 10,867 11,583 12,369
Domestic Purposes Benefit 1,468 1,478 1,530 1,693 1,757 1,818 1,820 1,841 1,880 1,919
Unemployment Benefit 613 458 586 930 943 888 881 849 788 737
Invalid's Benefit 1,132 1,216 1,260 1,303 1,306 1,326 1,321 1,327 1,341 1,353
Family Tax Credit 1,699 1,897 2,062 2,168 2,139 2,111 2,113 2,065 2,040 2,062
Accommodation Supplement 877 891 989 1,154 1,197 1,203 1,243 1,271 1,288 1,310
Sickness Benefit 573 582 613 710 743 774 781 803 830 858
Disability Allowance 270 278 390 411 409 403 366 360 362 365
Income-Related Rents 434 465 512 522 553 589 626 672 719 771
In Work Tax Credit 461 563 584 595 585 568 565 533 507 503
Child Tax Credit 44 11 6 4 3 2 2 1 1 .. 
Special Benefit 106 71 ..  ..  ..  ..  ..  ..  ..  .. 
Benefits paid in Australia 71 58 50 45 40 37 22 19 15 12
Paid Parental Leave 122 135 143 154 154 156 163 170 180 197
Childcare Assistance 139 150 159 178 188 189 191 190 193 196
War Disablement Pensions 122 134 125 137 135 129 124 119 115 111
Veteran's Pension 143 161 176 179 178 176 172 167 162 158
Other benefits 351 392 437 488 621 496 501 488 487 493
Benefit expenses 15,435 16,288 17,366 18,961 19,781 20,452 21,134 21,742 22,491 23,414

Source: The Treasury

Table 6.3 - Beneficiary numbers
(Thousands) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
New Zealand Superannuation 495 508 522 540 561 585 611 634 655 677
Domestic Purposes Benefit 100 97 101 110 114 115 113 112 111 111
Unemployment Benefit 52 37 48 78 80 74 72 68 61 55
Accommodation Supplement 251 245 267 312 320 312 315 314 312 310
Invalid's Benefit 78 82 86 88 88 87 86 85 85 84
Sickness Benefit 48 48 50 58 60 60 60 60 61 61

Source: Ministry of Social Development

Table 6.4 - Health expenses
($million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Departmental outputs 180 206 206 211 199 190 186 185 185 185
Health services purchasing 9,614 10,503 11,354 12,077 12,530 12,979 13,586 13,457 13,437 13,406
Other non-departmental outputs 99 97 98 106 120 118 117 108 109 109
Health payments to ACC 425 463 667 691 849 752 757 781 781 783
Other expenses 37 28 43 43 55 91 99 99 99 100
Health expenses 10,355 11,297 12,368 13,128 13,753 14,130 14,745 14,630 14,611 14,583

Source: The Treasury

Table 6.5 - Health services purchasing
($million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Payments to District Health Boards 8,547 9,312 10,038 10,670 11,133 11,503 12,057 11,992 11,982 11,956
National disability support services 755 834 889 930 971 1,028 1,053 1,053 1,053 1,053
Public health services purchasing 312 357 427 477 426 448 476 412 402 397
Health services purchasing 9,614 10,503 11,354 12,077 12,530 12,979 13,586 13,457 13,437 13,406

Source: The Treasury

Table 6.6 - Education expenses
($million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Early childhood education 617 860 1,030 1,184 1,340 1,344 1,402 1,445 1,478 1,512
Primary and secondary schools 4,325 4,552 4,936 5,157 5,354 5,521 5,670 5,540 5,598 5,676
Tertiary funding 3,322 3,266 4,564 4,465 3,991 3,933 4,215 4,173 4,169 4,197
Departmental expenses 875 828 888 898 923 1,017 1,020 982 972 964
Other education expenses 130 45 37 20 42 68 80 73 72 71
Education expenses 9,269 9,551 11,455 11,724 11,650 11,883 12,387 12,213 12,289 12,420
Table 6.6 - Education expenses (continued)
Places 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Early childhood education1 123,413 134,155 142,135 152,862 159,619 164,014 167,712 171,613 175,397 180,926

1: Full-time equivalent based on 1,000 funded child hours per calendar year. Numbers were previously based on the year commencing 1 July.

Sources: Ministry of Education, the Treasury

Table 6.7 - Primary and secondary education expenses
($million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Primary 2,141 2,262 2,484 2,622 2,731 2,817 2,898 2,828 2,856 2,908
Secondary 1,682 1,761 1,898 1,972 2,051 2,113 2,157 2,102 2,123 2,140
School transport 125 131 152 160 163 173 179 187 194 201
Special needs support 263 278 290 297 310 321 338 327 329 331
Professional development 104 108 101 95 90 88 89 87 87 87
Schooling improvement 10 12 11 11 9 9 9 9 9 9
Primary and secondary education expenses 4,325 4,552 4,936 5,157 5,354 5,521 5,670 5,540 5,598 5,676
Table 6.7 - Primary and secondary education expenses (continued)
Places 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Primary1 479,230 475,820 474,630 473,431 474,149 479,882 485,490 491,237 499,329 505,611
Secondary1 277,619 277,582 280,062 281,095 281,999 279,579 278,822 277,590 276,540 275,300

1: These are snapshots based as at 1 July for primary year levels (years 1 to 8) and 1 March for secondary year levels (years 9 to 13). These numbers 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) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Tuition 1,962 2,172 2,287 2,398 2,354 2,314 2,404 2,399 2,403 2,406
Other tertiary funding 339 452 522 489 429 450 448 459 468 477
Tertiary student allowances 382 386 444 570 620 649 602 532 505 494
Student loans 639 256 1,311 1,008 588 520 761 783 793 820
Tertiary education expenses 3,322 3,266 4,564 4,465 3,991 3,933 4,215 4,173 4,169 4,197
Table 6.8 - Tertiary education expenses (continued)
Places (year) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Estimated funded places1 225,652 225,836 234,230 239,978 238,721 244,791 242,369 241,667 241,740 241,775
Actual delivered places1 230,319 229,224 246,041 250,440 240,618          

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) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Official development assistance 330 362 458 435 495 535 499 495 495 545
Indemnity and guarantee expenses ..  ..  992 7 319 29 37 43 48 48
Departmental expenses 1,402 1,557 1,668 1,324 1,492 1,641 1,689 1,593 1,550 1,543
Non-departmental expenses 237 277 117 236 471 455 1,582 592 610 625
Tax receivable write-down and impairments 2,479 701 1,654 590 1,010 1,104 1,141 1,197 1,153 1,200
Science expenses 163 168 179 191 174 117 120 121 124 124
Other expenses1 205 306 225 191 1,602 1,062 1,469 608 318 254
Core government service expenses 4,816 3,371 5,293 2,974 5,563 4,943 6,537 4,649 4,298 4,339

1: Non-departmental expenses and other expenses in the forecast period include costs associated with the Canterbury earthquakes.

Source: The Treasury

Table 6.10 - Law and order expenses
($million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Police 1,086 1,198 1,326 1,349 1,393 1,393 1,407 1,392 1,391 1,392
Ministry of Justice 454 367 379 372 397 447 475 429 421 430
Department of Corrections 662 787 829 903 956 984 996 982 976 1,034
NZ Customs Service1 12 12 12 13 120 128 152 149 150 151
Other departments 48 79 80 102 237 107 94 90 88 88
Department expenses 2,262 2,443 2,626 2,739 3,103 3,059 3,124 3,042 3,026 3,095
Non-departmental outputs 354 326 380 399 261 365 357 332 336 336
Other expenses 83 125 83 53 18 70 77 74 74 74
Law and order expenses 2,699 2,894 3,089 3,191 3,382 3,494 3,558 3,448 3,436 3,505

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

Source: The Treasury

Table 6.11 - Defence expenses
($million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
NZDF core expenses 1,459 1,517 1,697 1,747 1,736 1,721 1,953 1,818 1,815 1,807
Other expenses 58 45 60 67 73 97 63 59 60 64
Defence expenses 1,517 1,562 1,757 1,814 1,809 1,818 2,016 1,877 1,875 1,871

Source: The Treasury

Table 6.12 - Transport and communication expenses
($million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
New Zealand Transport Agency1 1,874 1,966 1,562 1,778 1,696 1,743 1,767 1,817 1,822 1,827
Departmental outputs 113 137 83 63 65 64 46 46 46 46
Other non-departmental expenses 221 104 170 58 105 181 175 121 120 91
Asset impairments 47 ..  320 ..  ..  ..  ..  ..  ..  .. 
Rail funding 142 24 507 418 386 312 157 31 93 3
Other expenses 8 13 21 28 29 66 29 26 26 25
Transport and communication expenses 2,405 2,244 2,663 2,345 2,281 2,366 2,174 2,041 2,107 1,992

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) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Departmental outputs 546 603 389 382 420 367 366 375 370 364
Employment initiatives 207 186 185 220 214 219 200 197 171 171
Non-departmental outputs 873 822 809 927 756 581 771 581 552 552
Reserve electricity generation 16 81 20 23 9 8 1 ..  ..  .. 
KiwiSaver (includes housing deposit subsidy) ..  1,102 1,281 1,024 1,045 719 701 686 682 706
Research and development tax credits ..  37 154 ..  ..  ..  ..  ..  ..  .. 
Other expenses (47) 58 122 263 165 205 95 71 69 69
Economic and industrial services expenses 1,595 2,889 2,960 2,839 2,609 2,099 2,134 1,910 1,844 1,862

Source: The Treasury

Table 6.14 - Employment initiatives
($ million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Training incentive allowance 29 27 30 19 11 16 14 15 15 15
Subsidised work 88 67 63 109 112 111 93 89 63 63
Employment support for the disabled 86 88 88 88 87 88 89 89 89 89
Other employment assistance schemes 4 4 4 4 4 4 4 4 4 4
Employment initiatives 207 186 185 220 214 219 200 197 171 171

Source: The Treasury

Table 6.15 - Primary service expenses
($ million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Departmental expenses 342 363 364 352 354 358 400 377 378 381
Non-departmental outputs 80 95 82 123 142 129 152 130 125 99
Biological research1 ..  ..  ..  ..  167 105 106 102 102 102
Other expenses 16 83 88 32 43 85 174 122 121 113
Primary service expenses 438 541 534 507 706 677 832 731 726 695

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

Source: The Treasury

Table 6.16 - Heritage, culture and recreation expenses
($ million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Environmental protection 321 546 416 651 1,225 1,119 713 646 839 1,020
Community grants 7 8 9 8 8 7 ..  ..  ..  .. 
Departmental outputs 111 109 120 115 133 179 272 266 260 258
Non-departmental outputs 388 430 422 405 455 431 462 464 460 455
Other expenses 17 14 35 102 145 279 101 76 66 67
Heritage, culture and recreation expenses 844 1,107 1,002 1,281 1,966 2,015 1,548 1,452 1,625 1,800

Source: The Treasury

Table 6.17 - Environmental protection expenses
($ million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Emissions Trading Scheme ..  ..  17 80 838 668 237 248 449 618
Departmental outputs 242 283 306 300 301 357 335 320 317 317
Non-departmental outputs 27 38 47 231 26 47 85 48 43 55
Other expenses 52 225 46 40 60 47 56 30 30 30
Environmental protection expenses 321 546 416 651 1,225 1,119 713 646 839 1,020

Source: The Treasury

Table 6.18 - Housing and community development expenses
($ million) 2007
Actual
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Financial assistance package 1 ..  ..  ..  ..  567 (209) ..  ..  ..  .. 
Housing subsidies 25 28 29 30 31 23 6 6 6 6
Departmental outputs 134 141 148 140 136 95 116 106 102 102
Other non-departmental expenses 96 91 112 122 105 150 150 149 149 110
Other expenses ..  ..  8 14 37 44 56 46 50 38
Housing and community development expenses 255 260 297 306 876 103 328 307 307 256

1: Financial assistance package for 2012 forecast includes the impact of a revised estimate of the weathertight homes financial assistance package provision.

Source: The Treasury

Glossary of Terms

ACC insurance liability

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

Baselines

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

Consumers Price Index (CPI)

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

Contingent assets

Potential assets dependent on an uncertain event occurring.

Contingent liabilities

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

Core Crown

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

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

Consists primarily 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 nominal 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 or redeemed.

Excise duties

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

Financial assets

Any asset that is cash, an equity instrument of another entity (shares), a contractual right to receive cash or shares 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)

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

Fiscal objectives (long-term)

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

Forecast new capital spending

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, 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. These valuation changes 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; therefore 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 expenditure on final 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 the Earthquake Commission).

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 financial statements of Government 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.

National saving

National disposable income less private and public consumption spending. Income excludes gains and losses on capital. Gross saving includes depreciation.

Net core Crown cash flow from operations

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.

New Zealand equivalents to International Financial Reporting Standards (NZ IFRS)

The reporting and measurement framework under which these forecast financial statements are prepared. These standards are approved by the External Reporting Board in New Zealand, 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 subject to short-term market fluctuations 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.

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, purchase of assets, loans to others).

Settlement cash

This is the amount of money deposited with the Reserve Bank by registered banks. It is a liquidity mechanism used to settle wholesale obligations between registered banks and provides the basis for settling most of the retail banking transactions that occur every working day between businesses and individuals.

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.

Terms of trade

The terms of trade measure the changing volume of imports that can be funded by a fixed volume of New Zealand's exports. The terms of trade index is calculated as the ratio of the total export price index to the total import price index.

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

Represents the Government's total debt obligations to external parties and can be split into sovereign-guaranteed debt and non-sovereign-guaranteed debt. Non-sovereign-guaranteed debt represents the debt obligations of State-owned enterprises and Crown entities that are not explicitly guaranteed by the Crown.

Total Crown

Includes the core Crown (defined above) plus Crown entities and State-owned Enterprises.

Tradable/non-tradable output

There is no official definition of the tradable sector. In this document the tradable sector is defined as 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

Wages and other costs associated with employment per unit of output.

Year ended

Graphs and tables within this document use different expressions of the timeframe. While some tables may refer to the end of the tax year (31 March), others will refer to the end of the Government's financial year (30 June). For example, unless otherwise stated references to 2011/12 or 2012 will mean the end of the financial year.

Time Series of Fiscal and Economic Indicators

Fiscal Indicators
June Years 2000
Actual
2001
 Actual
2002
 Actual
2003
 Actual
2004
 Actual
2005
 Actual
2006
 Actual
2007
 Actual
2008
 Actual
2009
Actual
2010
Actual
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast

$ millions

                                 

Revenue and Expenses

                                 
Core Crown revenue 34,946 37,842 39,945 43,440 46,219 51,045 55,735 58,211 61,819 59,482 56,216 57,550 60,031 64,191 69,179 73,603 77,909
Core Crown expenses 34,829 36,559 37,513 39,897 41,882 44,895 49,320 54,003 56,997 64,002 64,013 70,450 69,633 73,732 72,902 74,912 77,256

Surpluses

                                 
Total Crown OBEGAL 594 1,422 2,471 4,366 5,573 7,075 7,091 5,860 5,637 (3,893) (6,315) (18,396) (8,441) (7,897) (2,013) 197 2,102
Total Crown operating balance 1,405 1,208 2,286 1,621 7,309 5,931 9,542 8,023 2,384 (10,505) (4,509) (13,360) (10,642) (5,699) 366 2,735 4,814

Cash Position

                                 
Core Crown residual cash (386) 349 216 1,217 520 3,104 2,985 2,877 2,057 (8,639) (9,000) (13,343) (12,119) (9,671) (5,184) (3,680) (1,198)

Debt

                                 
Gross debt1 36,580 37,194 36,650 36,617 36,017 35,478 33,903 30,647 31,390 43,356 53,591 72,420 80,142 79,972 88,053 84,230 84,849
Gross debt incl RB settlement cash and bank bills 36,580 37,194 36,650 36,617 36,017 35,478 35,867 36,805 37,745 50,973 58,891 77,290 84,886 84,790 92,891 89,088 89,727
Net core Crown debt (incl NZS Fund)2 25,895 24,908 24,773 22,647 19,902 13,324 6,302 1,620 (2,676) 5,633 12,549 23,969 34,059 42,115 45,703 47,355 46,435
Net core Crown debt2 25,895 24,908 25,388 24,531 23,858 19,879 16,163 13,380 10,258 17,119 26,738 40,128 51,921 61,265 66,470 69,791 70,668

Net Worth

                                 
Total Crown net worth 12,605 15,450 22,825 28,012 39,595 54,240 83,971 96,827 105,514 99,515 94,988 80,887 70,303 66,208 68,207 72,587 79,128
Total net worth attributable to the Crown 12,605 15,450 22,766 27,918 39,456 54,025 83,678 96,531 105,132 99,068 94,586 80,579 69,995 64,560 65,169 68,119 73,180
Nominal GDP 112,588 119,991 127,511 134,660 145,199 154,377 161,885 172,023 183,331 185,242 189,016 200,329 207,987 217,870 231,787 244,028 255,567

% GDP

                                 

Revenue and Expenses

                                 
Core Crown revenue 31.0 31.5 31.3 32.3 31.8 33.1 34.4 33.8 33.7 32.1 29.7 28.7 28.9 29.5 29.8 30.2 30.5
Core Crown expenses 30.9 30.5 29.4 29.6 28.8 29.1 30.5 31.4 31.1 34.6 33.9 35.2 33.5 33.8 31.5 30.7 30.2

Surpluses

                                 
Total Crown OBEGAL 0.5 1.2 1.9 3.2 3.8 4.6 4.4 3.4 3.1 (2.1) (3.3) (9.2) (4.1) (3.6) (0.9) 0.1 0.8
Total Crown operating balance 1.2 1.0 1.8 1.2 5.0 3.8 5.9 4.7 1.3 (5.7) (2.4) (6.7) (5.1) (2.6) 0.2 1.1 1.9

Cash Position

                                 
Core Crown residual cash (0.3) 0.3 0.2 0.9 0.4 2.0 1.8 1.7 1.1 (4.7) (4.8) (6.7) (5.8) (4.4) (2.2) (1.5) (0.5)

Debt

                                 
Gross debt1 32.5 31.0 28.7 27.2 24.8 23.0 20.9 17.8 17.1 23.4 28.4 36.2 38.5 36.7 38.0 34.5 33.2
Gross debt incl RB settlement cash and bank bills 32.5 31.0 28.7 27.2 24.8 23.0 22.2 21.4 20.6 27.5 31.2 38.6 40.8 38.9 40.1 36.5 35.1
Net core Crown debt (incl NZS Fund)2 23.0 20.8 19.4 16.8 13.7 8.6 3.9 0.9 (1.5) 3.0 6.6 12.0 16.4 19.3 19.7 19.4 18.2
Net core Crown debt2 23.0 20.8 19.9 18.2 16.4 12.9 10.0 7.8 5.6 9.2 14.1 20.0 25.0 28.1 28.7 28.6 27.7

Net Worth

                                 
Total Crown net worth 11.2 12.9 17.9 20.8 27.3 35.1 51.9 56.3 57.6 53.7 50.3 40.4 33.8 30.4 29.4 29.7 31.0
Total net worth attributable to the Crown 11.2 12.9 17.9 20.7 27.2 35.0 51.7 56.1 57.3 53.5 50.0 40.2 33.7 29.6 28.1 27.9 28.6

1 Excludes Reserve Bank settlement cash and bank bills

2 Excludes advances

Economic Indicators1
March Years
Annual average % change
2000
Actual
2001
 Actual
2002
 Actual
2003
 Actual
2004
 Actual
2005
 Actual
2006
 Actual
2007
 Actual
2008
 Actual
2009
 Actual
2010
 Actual
2011
 Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Private consumption 3.3 1.4 2.7 4.8 6.2 4.5 4.4 2.5 3.3 -1.1 0.4 2.0 2.7 2.2 2.9 2.8 2.6
Public consumption 5.8 -2.1 4.2 1.4 4.9 4.6 4.9 4.1 5.0 4.2 0.2 3.7 1.1 -0.8 0.1 0.7 0.6
TOTAL CONSUMPTION 3.8 0.6 3.0 4.0 5.9 4.6 4.5 2.8 3.7 0.1 0.3 2.4 2.3 1.5 2.2 2.4 2.2
Residential investment                19.5 -13.3 2.0 23.6 15.0 2.6 -5.1 -1.5 4.3 -23.0 -12.8 4.4 -11.2 29.5 40.7 14.7 5.2
Non-market investment                 13.0 -13.8 21.9 10.7 15.7 11.0 5.9 -7.0 -7.9 15.6 -5.6 -16.5 -7.4 5.4 3.3 5.6 3.4
Market investment                     7.4 7.3 6.9 2.8 13.0 11.9 11.3 -1.5 9.2 -3.3 -11.4 9.6 6.0 7.4 14.1 6.3 2.2
TOTAL INVESTMENT 10.9 -0.1 6.8 8.0 13.6 8.8 6.6 -2.3 6.4 -7.7 -10.8 6.8 1.0 12.6 18.4 8.1 3.0
Stock change (contribution to growth) 1.2 -0.3 0.1 -0.1 0.2 0.3 -0.5 -0.7 0.6 0.2 -2.1 1.4 0.7 -0.7 -0.3 0.0 0.2
GROSS NATIONAL EXPENDITURE 6.4 0.2 3.8 4.7 7.6 5.8 4.5 1.0 4.8 -1.4 -3.9 4.6 2.4 3.7 5.8 3.9 2.6
Exports 7.4 6.3 3.0 7.8 1.1 4.8 -0.2 2.9 3.4 -3.0 4.8 1.9 3.0 2.1 1.0 2.1 2.1
Imports 11.3 -0.7 4.0 7.2 12.7 12.5 4.2 -1.6 10.4 -4.3 -9.4 10.5 5.2 2.8 8.5 4.9 1.7
EXPENDITURE ON GDP 5.2 2.4 3.5 5.0 4.0 3.6 3.3 2.2 2.8 -1.0 0.6 2.0 1.5 2.9 3.4 3.0 2.8
GDP (production measure) 5.4 2.5 3.6 4.9 4.4 3.8 3.2 0.9 3.0 -1.5 -0.9 1.2 1.6 2.6 3.4 3.1 2.9
 - annual % change 6.5 0.8 4.6 4.6 5.3 2.6 2.4 1.7 2.2 -3.4 1.3 1.2 1.6 3.3 3.1 3.0 2.8
Real GDP per capita 4.8 1.9 2.7 3.0 2.4 2.4 2.1 -0.4 1.9 -2.4 -2.1 0.0 0.8 1.8 2.4 2.1 2.0
Nominal GDP (expenditure basis) 6.0 5.7 7.5 5.1 6.9 7.1 5.6 5.0 7.7 1.9 1.0 5.9 4.2 4.1 6.5 5.4 4.9
GDP deflator 0.8 3.2 3.9 0.2 2.8 3.3 2.3 2.8 4.7 2.9 0.4 3.7 2.6 1.1 3.0 2.4 2.0
Output gap (% deviation, March year average) 0.6 0.1 0.2 1.1 1.4 1.7 2.1 1.0 2.8 0.8 -0.5 -0.2 -0.8 -0.5 -0.4 -0.6 -0.3
Employment 1.9 2.0 2.9 2.8 3.0 3.6 2.8 2.2 1.3 0.9 -1.3 1.2 1.3 1.3 1.6 1.6 1.4
Unemployment (% March quarter s.a.)          6.5 5.5 5.3 5.0 4.3 3.9 4.0 3.9 3.9 5.1 6.1 6.6 6.3 5.7 5.2 5.0 4.7
Wages (average ordinary-time hourly, ann % change)         1.7 3.2 3.7 2.3 3.5 3.6 5.4 4.7 4.7 5.4 1.0 2.6 3.2 3.8 3.9 3.7 3.5
CPI inflation (ann % change)      1.5 3.1 2.6 2.5 1.5 2.8 3.3 2.5 3.4 3.0 2.0 4.5 1.6 2.6 2.5 2.4 2.4
Merchandise terms of trade (SNA basis)       0.2 3.4 4.0 -5.6 4.3 3.5 -2.0 -1.1 8.5 -0.1 -7.5 9.9 1.3 -4.0 3.9 2.9 1.5
Current account balance - $billion           -7.1 -4.4 -3.4 -4.1 -6.2 -9.4 -14.0 -13.5 -14.6 -14.8 -3.6 -7.2 -8.7 -9.8 -13.5 -15.2 -16.9
Current account balance - % of GDP           -6.4 -3.7 -2.7 -3.1 -4.4 -6.2 -8.7 -8.0 -8.0 -8.0 -1.9 -3.6 -4.2 -4.6 -5.9 -6.3 -6.7
TWI (March quarter)                          54.1 50.5 51.6 60.6 66.9 69.6 68.3 68.8 71.9 53.7 65.3 67.2 72.5 72.0 70.8 67.5 63.0
90-day bank bill rate (March quarter)        6.0 6.4 5.0 5.8 5.5 6.9 7.6 7.8 8.8 3.7 2.7 3.0 2.7 2.9 3.6 4.1 4.4
10-year bond rate (March quarter)            7.3 6.0 6.7 6.0 5.9 6.0 5.7 5.9 6.3 4.6 5.9 5.6 4.0 4.2 4.6 5.0 5.2

1 Data for 2012 and subsequently are forecasts, except CPI inflation, TWI, 90-day bank bill rate and 10-year bond rate, which are actual for 2012. Historical GDP data are those that were available on 27 April when the forecasts were completed.

Additional Information

The following information forms part of the Budget Economic and Fiscal Update 2012 (Budget Update), released by the Treasury on 24 May 2012. This information provides further details on the Budget Update and should be read in conjunction with the published document. The additional information includes:

  • Detailed economic forecast information - tables providing breakdowns of the economic forecasts.
  • Treasury and Inland Revenue tax forecasts - detailed tax revenue and receipts tables comparing Treasury's forecasts with IRD's forecasts.
  • Tax policy changes - an analysis of the effect of changes in tax policy on forecasts for tax revenue since the Pre-election Update.
  • Additional fiscal indicators - estimates of the cyclically-adjusted balance and fiscal impulse.
  • Government Finance Statistics (GFS) for central government - fiscal tables presented under a GFS presentation framework to help with cross-country comparisons.
  • Accounting policies - outline of the specific Crown accounting policies. The published forecast financial statements only provide a summary.

Detailed Economic Forecast Information

This section includes a series of tables to provide additional detail on the economic forecasts presented in the Budget Update.

The economic and fiscal numbers and forecasts in this document pre-date the release of revised GDP data by Statistics New Zealand on 15 May 2012. These new GDP data incorporated a new industry classification and other updates and resulted in changes to the level of economic activity in recent years. Although historical numbers will change, we do not expect any direct impact from these new data on our economic and fiscal forecasts. In this document, all references are to the previous GDP data unless otherwise specified. The new data will be fully incorporated into the Half Year Update 2012.

Table 1 Real gross domestic product

Table 2 Consumers price index and exchange rates

Table 3 Gross domestic expenditure and income

Tables 4 and 5 Labour market indicators

Table 6 Current account

Table 7 Exports - SNA basis

Table 8 Imports - SNA basis

Table 1 - Real gross domestic product

Chain-volume series expressed in 1995/96 prices
Actual Seasonally Adjusted
Quarter $ million Annual %
change
Annual Average
% change
$ million Quarterly
% change
2009Q1 32,877 -3.4 -1.5 33,151 -1.1
2009Q2 32,544 -2.7 -2.3 33,186 0.1
2009Q3 32,799 -2.1 -2.7 33,211 0.1
2009Q4 34,826 0.0 -2.0 33,486 0.8
2010Q1 33,316 1.3 -0.9 33,591 0.3
2010Q2 33,021 1.5 0.1 33,675 0.3
2010Q3 33,213 1.3 1.0 33,638 -0.1
2010Q4 35,104 0.8 1.2 33,746 0.3
2011Q1 33,703 1.2 1.2 33,980 0.7
2011Q2 33,347 1.0 1.0 34,006 0.1
2011Q3 33,807 1.8 1.2 34,244 0.7
2011Q4 35,743 1.8 1.4 34,360 0.3
2012Q1 34,250 1.6 1.6 34,532 0.5
2012Q2 34,066 2.2 1.8 34,739 0.6
2012Q3 34,516 2.1 1.9 34,962 0.6
2012Q4 36,745 2.8 2.2 35,323 1.0
2013Q1 35,390 3.3 2.6 35,681 1.0
2013Q2 35,257 3.5 2.9 35,954 0.8
2013Q3 35,787 3.7 3.3 36,250 0.8
2013Q4 37,993 3.4 3.5 36,523 0.8
2014Q1 36,499 3.1 3.4 36,799 0.8
2014Q2 36,370 3.2 3.3 37,088 0.8
2014Q3 36,900 3.1 3.2 37,377 0.8
2014Q4 39,176 3.1 3.1 37,660 0.8
2015Q1 37,608 3.0 3.1 37,917 0.7
2015Q2 37,458 3.0 3.1 38,198 0.7
2015Q3 37,973 2.9 3.0 38,464 0.7
2015Q4 40,290 2.8 2.9 38,731 0.7
2016Q1 38,654 2.8 2.9 38,972 0.6
2016Q2 38,443 2.6 2.8 39,203 0.6

Source: 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
Quarter Index Quarterly
% change
Annual
% change
TWI USD
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 69.1 0.80
2011Q3 1162 0.4 4.6 72.0 0.83
2011Q4 1158 -0.3 1.8 68.7 0.78
2012Q1 1164 0.5 1.6 72.5 0.82
2012Q2 1171 0.6 1.2 72.9 0.82
2012Q3 1177 0.5 1.3 72.0 0.80
2012Q4 1183 0.4 2.1 72.0 0.80
2013Q1 1194 1.0 2.6 72.0 0.80
2013Q2 1203 0.7 2.7 71.9 0.80
2013Q3 1209 0.5 2.7 71.6 0.79
2013Q4 1215 0.5 2.8 71.3 0.79
2014Q1 1224 0.7 2.5 70.8 0.78
2014Q2 1230 0.5 2.3 70.2 0.77
2014Q3 1237 0.5 2.3 69.4 0.76
2014Q4 1244 0.5 2.3 68.5 0.74
2015Q1 1253 0.8 2.4 67.5 0.73
2015Q2 1260 0.5 2.4 66.4 0.71
2015Q3 1267 0.5 2.4 65.3 0.69
2015Q4 1274 0.6 2.4 64.1 0.68
2016Q1 1283 0.7 2.4 63.0 0.66
2016Q2 1290 0.5 2.4 61.9 0.64

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

Table 3 - Gross domestic expenditure and income

Table 3 - Gross domestic expenditure and income
March Year 2011
Actual
2012
Estimate
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
  $ mill %vol %pr $ mill %vol %pr $ mill %vol %pr $ mill %vol %pr $ mill %vol %pr $ mill
Consumption:                                
- Private 115,209 2.7 2.6 121,391 2.2 1.5 125,909 2.9 1.9 131,972 2.8 1.8 138,191 2.6 1.9 144,522
- Public 40,552 1.1 2.9 42,182 -0.8 2.0 42,649 0.1 2.2 43,604 0.7 2.2 44,886 0.6 2.2 46,158
Gross Fixed Capital Formation:                                
- Residential 8,665 -11.2 2.9 7,925 29.5 4.5 10,736 40.7 6.8 16,105 14.7 5.2 19,410 5.2 4.9 21,430
- Market * 27,397 6.0 -1.5 28,631 7.4 4.6 32,165 14.1 1.5 37,247 6.3 0.9 39,976 2.2 1.8 41,588
- Non-market ** 2,577 -7.4 1.4 2,421 5.4 2.8 2,618 3.3 2.4 2,772 5.6 2.4 2,998 3.4 2.4 3,176
- Total all sectors 38,618 1.0 -0.1 38,965 12.6 3.7 45,518 18.4 4.2 56,125 8.1 2.8 62,384 3.0 3.1 66,194
Change in Stocks 746     1,307     402     -114     -184     287
Gross National Expenditure 195,124 2.4 2.1 203,845 3.7 1.4 214,477 5.8 2.0 231,586 3.9 1.9 245,277 2.6 2.2 257,162
Exports 58,157 3.0 1.8 60,899 2.1 -4.8 59,195 1.0 3.9 62,179 2.1 6.8 67,809 2.1 9.8 76,076
Imports 55,288 5.2 0.5 58,513 2.8 -1.9 59,047 8.5 1.8 65,145 4.9 5.5 72,076 1.7 9.9 80,513
Expenditure on GDP 197,994 1.5 2.6 206,229 2.9 1.1 214,625 3.4 3.0 228,621 3.0 2.4 241,011 2.8 2.0 252,725
Statistical Discrepancy 447     447     447     447     447     447
Gross Domestic Product 198,441     206,676     215,072     229,068     241,458     253,172
Compensation of employees 87,590   5.2 92,172   3.9 95,758   5.2 100,710   5.3 106,056   5.0 111,377
Operating Surplus, net:                                 
- Agriculture 7,250   7.2 7,775   -7.3 7,205   3.7 7,469   7.2 8,005   9.0 8,723
- Other 48,351   -2.3 47,238   5.0 49,614   9.9 54,533   5.2 57,346   3.6 59,421
- Total all sectors 55,601   -1.1 55,013   3.3 56,818   9.1 62,002   5.4 65,351   4.3 68,144
Consumption of fixed capital 29,924   5.4 31,540   5.4 33,243   5.4 35,038   5.4 36,930   5.4 38,925
Indirect Taxes 25,979   10.1 28,606   4.5 29,906   6.9 31,972   5.6 33,775   4.8 35,380
Less subsidies 654   0.0 654   0.0 654   0.0 654   0.0 654   0.0 654
Gross Domestic Product 198,441   4.2 206,676   4.1 215,072   6.5 229,068   5.4 241,458   4.9 253,172

* Includes Local Government and Non-profit Organisations

** Central Government (includes Crown Entities but not SOEs)

Note: Income GDP numbers presented here are consistent with the previous National Accounts release for 2010 as the 2011 release was done under a new industry classification

Source: Statistics New Zealand, The Treasury

Tables 4 and 5 - Labour market indicators

Table 4 - Annual Average Percentage Change
March Year 2011
Actual
2012
Estimate
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Real GDP (production basis) 1.2 1.6 2.6 3.4 3.1 2.9
Working-age Population 1.4 1.0 0.9 1.1 1.1 1.0
Labour Force 1.5 1.2 0.7 1.0 1.2 1.2
Employment 1.2 1.3 1.3 1.6 1.6 1.4
Labour Productivity * -0.9 0.0 1.8 2.1 1.6 1.5
CPI  (annual percentage change) 4.5 1.6 2.6 2.5 2.4 2.4
Average Ordinary Time Hourly Wages 1.6 3.0 3.4 3.8 3.8 3.6
Average Weekly Earnings 2.7 3.6 2.5 3.6 3.7 3.6
Real Wages -1.2 -0.3 1.6 1.1 1.4 1.2
Compensation of Employees 3.7 5.2 3.9 5.2 5.3 5.0
Unit Labour Costs * 2.5 3.1 1.5 1.7 2.1 2.1
Real Unit Labour Costs -0.3 -0.2 -0.3 -0.9 -0.2 -0.3

* Hours worked basis

Table 5 - Number (000's)
As at March Quarter 2011
Actual
2012
Estimate
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Total Population 4,403 4,430 4,467 4,514 4,556 4,595
     Natural Increase 34 31 33 28 30 29
     Net Migration 6 -3 5 19 12 10
     Annual Change 41 27 37 47 42 39
Working Age Population      3,458 3,482 3,516 3,556 3,594 3,630
     Annual Change          46 25 33 40 38 36
Not in the labour force (s.a.)     1,083 1,096 1,111 1,126 1,136 1,143
     Annual Change          -7 13 16 14 10 7
Labour Force (s.a.) 2,367 2,378 2,397 2,424 2,453 2,482
     Annual Change          53 11 19 27 29 29
Total Employment (s.a.)           2,211 2,228 2,260 2,298 2,331 2,366
     Annual Change          38 17 33 37 34 34
Unemployment (s.a.)             155 151 137 127 121 116
     Annual Change          13 -4 -14 -10 -5 -5
Participation Rate (% s.a.)    68.6 68.3 68.2 68.2 68.2 68.4
Unemployment Rate (% s.a.)     6.6 6.3 5.7 5.2 5.0 4.7

s.a - seasonally adjusted

Source: Statistics New Zealand, The Treasury

Table 6 - Current account

Table 6 - Current account
Year ended March
  $NZ Million
2011
Actual
2012
Estimate
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Exports Goods 45,523 48,118 46,411 49,444 54,827 62,339
annual % change 13.5 5.7 -3.5 6.5 10.9 13.7
Imports Goods 42,093 44,760 45,153 50,257 55,738 62,325
annual % change 12.3 6.3 0.9 11.3 10.9 11.8
Balance on Goods 3,431 3,358 1,258 -813 -911 14
% of nominal GDP 1.7 1.6 0.6 -0.4 -0.4 0.0
Exports Services 12,633 12,801 12,727 12,661 12,906 13,652
annual % change -1.4 1.3 -0.6 -0.5 1.9 5.8
Imports Services 13,195 13,754 13,894 14,888 16,338 18,188
annual % change 6.0 4.2 1.0 7.2 9.7 11.3
Balance on services -562 -953 -1,167 -2,227 -3,432 -4,536
% of nominal GDP -0.3 -0.5 -0.5 -1.0 -1.4 -1.8
Balance on goods & services 2,869 2,405 91 -3,040 -4,343 -4,522
% of nominal GDP 1.4 1.2 0.0 -1.3 -1.8 -1.8
Int'l investment income and transfers balance -10,063 -11,118 -9,885 -10,475 -10,854 -12,351
% of nominal GDP -5.1 -5.4 -4.6 -4.6 -4.5 -4.9
Current account balance    -7,196 -8,713 -9,794 -13,515 -15,197 -16,873
% of nominal GDP -3.6 -4.2 -4.6 -5.9 -6.3 -6.7

Source: Statistics New Zealand, The Treasury

Table 7 - Exports - SNA basis

Table 7 - Exports - SNA basis
March Years Dairy Products Meat and Meat Products Non-Commodity*
  %volume %price $ mill %volume %price $ mill %volume %price $ mill
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 0.5 29.4 11,668 -2.4 6.3 5,550 6.2 2.4 14,173
2012 8.2 0.9 12,779 -3.1 9.4 5,852 4.9 -0.9 14,774
2013 1.7 -11.2 11,576 3.4 -8.6 5,543 2.0 -0.2 15,028
2014 -0.4 5.1 12,136 -0.4 4.0 5,736 2.9 6.3 16,428
2015 2.0 7.2 13,269 2.8 7.5 6,342 3.9 9.3 18,648
2016 2.0 9.1 14,782 2.8 8.8 7,099 3.0 13.3 21,758
Table 7 - Exports - SNA basis (continued)
March Years Total Goods** Services Total Exports
  %volume %price $ mill %volume %price $ mill %volume %price $ mill
2008 4.5 3.9 38,718 0.4 2.2 12,988 3.4 3.3 51,705
2009 -2.6 17.6 44,248 -4.1 6.9 13,309 -3.0 15.1 57,556
2010 6.8 -15.4 40,092 -1.9 -1.8 12,809 4.8 -12.5 52,900
2011 2.7 10.7 45,523 -1.0 -0.5 12,633 1.9 7.9 58,157
2012 3.6 2.0 48,118 -0.1 1.5 12,801 3.0 1.8 60,899
2013 3.3 -6.5 46,411 0.4 -0.9 12,727 2.1 -4.8 59,195
2014 1.2 5.3 49,444 0.2 -0.8 12,661 1.0 3.9 62,179
2015 2.4 8.3 54,827 0.8 1.0 12,906 2.1 6.8 67,809
2016 2.1 11.4 62,339 2.2 3.5 13,652 2.1 9.8 76,076

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

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

Table 8 - Imports - SNA basis

Table 8 - Imports - SNA basis
March Years Capital Goods (VFD*) Mineral Fuel** (VFD) Intermediate Goods*** (VFD) Consumption Goods (VFD)
  %volume %price $ mill %volume %price $ mill %volume %price $ mill %volume %price $ mill
2008 10.2 -9.7 7,213 15.8 2.7 6,982 10.3 -6.4 16,225 6.9 -2.7 9,908
2009 3.5 13.2 8,292 -6.3 26.3 8,186 -6.3 21.9 18,452 -2.7 12.4 10,788
2010 -28.2 2.1 6,202 1.5 -27.4 6,059 -11.1 -9.9 14,818 -4.1 -1.0 10,256
2011 25.3 -4.3 7,436 -2.0 16.7 6,945 12.9 1.2 16,943 7.7 -4.5 10,564
2012 11.5 -6.8 7,739 2.5 18.0 8,410 5.5 0.0 17,903 3.5 -2.7 10,638
2013 0.5 -13.2 6,749 6.7 1.1 9,074 5.2 -2.1 18,466 2.6 -1.5 10,754
2014 19.6 -0.2 8,055 3.2 1.2 9,469 5.5 4.9 20,428 9.5 3.6 12,185
2015 7.7 3.2 8,958 2.7 2.9 10,009 3.3 7.8 22,753 6.1 7.5 13,898
2016 1.8 7.0 9,750 0.9 7.2 10,826 1.1 11.3 25,600 3.6 11.3 16,029
Table 8 - Imports - SNA basis (continued)
March Years Total Goods (VFD) Services Total  
  %volume %price $ mill %volume %price $ mill %volume %price $ mill
2008 10.3 -4.3 40,596 10.9 -5.8 12,725 10.4 -4.7 53,321
2009 -4.3 17.9 45,768 -4.2 16.6 14,091 -4.3 17.6 59,859
2010 -10.5 -8.5 37,471 -6.1 -6.4 12,453 -9.4 -8.0 49,925
2011 11.6 0.7 42,093 7.3 -1.5 13,195 10.5 0.1 55,288
2012 5.4 0.7 44,760 4.6 -0.3 13,754 5.2 0.5 58,513
2013 3.5 -2.5 45,153 0.8 0.2 13,894 2.8 -1.9 59,047
2014 10.0 1.3 50,257 3.2 3.9 14,888 8.5 1.8 65,145
2015 5.3 5.3 55,738 3.0 6.6 16,338 4.9 5.5