The Budget Economic and Fiscal Update (BEFU) 2013 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 29 April 2013 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 29 April 2013. This Update does not incorporate any decisions, circumstances, or statements that the Minister of Finance has determined, in accordance with the Public Finance Act 1989, should not be incorporated in this Update.

Gabriel Makhlouf
Secretary to the Treasury

6 May 2013

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 29 April 2013 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

6 May 2013

Executive Summary

  • Real gross domestic product (GDP) growth is expected to increase to 3% in the year ended March 2015, and average 2.5% over the five years to March 2017, a little above the Treasury's estimate of potential growth over this period. Growth averaged 0.8% in the prior five years.
  • The operating balance before gains and losses (OBEGAL) is forecast to move from a deficit of $6.3 billion this year (compared with $7.3 billion forecast in the Half Year Economic and Fiscal Update) to a surplus of $75 million in the year ending June 2015.
Figure 1 - Real GDP and private final demand*
Figure 1 - Real GDP and private final demand*.
Sources: Statistics New Zealand, the Treasury
*Private final demand comprises private consumption, residential and market investment spending
  • Net core Crown debt is forecast to peak as a share of GDP at 28.7% in the year ending June 2015.
  • Domestic demand is the main driver of economic growth, with private spending growth accelerating to over 6% in the year ahead.
  • Strong growth in imports associated with higher investment provides a substantial offset to overall growth over the forecast period. In addition, the impact of drought lowers growth in the year ended March 2014.
  • This growth outlook sees the unemployment rate decline to around 5% and annual Consumers Price Index (CPI) inflation move back to the middle of the 1% - 3% target band. As in the Half Year Update, the current account deficit is forecast to increase as the Canterbury rebuild gets into full-swing.
  • The Canterbury rebuild is one of the main positive forces operating on demand over the forecast period, although the precise timing of activity remains a key uncertainty. The estimated level of investment associated with the rebuild has been revised up to $40 billion from $30 billion in the Half Year Update. This investment is expected to extend well beyond the forecast period. The government's fiscal costs are currently assessed to be $15.2 billion.
  • Household and business spending growth is expected to increase, although it is more muted than that seen in the 2000s. Household saving as a share of income is forecast to track around recent levels, up around 10 percentage points from its low of the past decade.
  • Monetary policy stimulus is forecast to continue for some time. As spare capacity is absorbed and inflation pressures pick up, interest rates are expected to rise gradually.
  • Budget 2013 incorporates a reduction in future operating allowances that sees a continuation of moderate government spending growth. This, together with some recovery in tax revenue, sees fiscal policy exerting a restraining influence on the economy and interest rates, notwithstanding signalled reductions in Accident Compensation Corporation (ACC) levies in the June 2015 and 2016 years.
  • The exchange rate is assumed to remain high for much of the forecast period. This will hold back activity in exporting and import-competing firms, especially those not experiencing what are expected to be relatively strong export commodity prices.
  • The terms of trade is forecast to increase in the year ahead, leading to a rebound in nominal GDP growth and supporting faster growth in tax revenue.
Figure 2 - OBEGAL, core Crown residual cash and net core Crown debt
Figure 2 - OBEGAL, core Crown residual cash and net core Crown debt.
Source: The Treasury
  • While the OBEGAL returns to surplus in the year ended June 2015, core Crown operating cash flows remain in deficit for a further year. When combined with net capital spending, residual cash remains in deficit for each year of the forecast period.
  • Since the Half Year Update forecasts were released, the risks to the main forecasts have become more balanced.
  • Significant risks to global growth remain. But overall, global risks have become more even as policy-makers have moved to reduce the chance of more extreme downside risks materialising or to boost growth. Domestically, there is a mix of upside and downside risks, including the size and pace of the Canterbury rebuild, the path and pass-through of the exchange rate, impact of the drought, and the saving behaviour of households particularly in light of current house price increases.
  • The Budget Economic and Fiscal Update contains two alternative scenarios to illustrate some of the risks to the main forecasts. While short-term growth is higher in the higher house price scenario, OBEGAL returns to surplus in the same year as in the main forecasts. In the lower inflation scenario, associated lower nominal GDP growth means that OBEGAL remains in deficit until the year ended June 2017.
  • In addition to the fiscal impact of changes to economic activity, the Government is exposed to other fiscal risks. For example, the Crown's financial position is susceptible to market risk with regards to movements in market variables such as interest rates, exchange rates and equity prices. There are also a number of contingent liabilities and fiscal risks outlined in the Specific Fiscal Risks chapter.
Table 1 - Summary of the Treasury's main economic and fiscal forecasts
  2012
Actual
2013
Estimate
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast

Economic (March years, %)

           
Economic growth1 1.9 2.5 2.4 3.0 2.6 2.2
Unemployment rate2 6.7 6.9 6.0 5.9 5.5 5.2
CPI inflation3 1.6 0.9 1.9 2.0 2.0 2.2
Current account balance4 -4.4 -4.8 -4.8 -5.2 -5.8 -6.5

Fiscal (June years, % of GDP)

           
Total Crown OBEGAL -4.4 -2.9 -0.9 0.0 0.3 1.0
Net debt5 24.3 27.1 28.4 28.7 28.1 27.3

Notes:

  1. Real production GDP, annual average percentage change
  2. Percent of labour force, March quarter, seasonally adjusted
  3. Annual percentage change. March quarter 2013 is actual
  4. % of GDP
  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 data 17 April
Economic forecasts 18 April
Tax revenue forecasts 19 April
Fiscal forecasts 29 April
Specific fiscal risks 29 April
Text finalised 9 May

Important Notice

The economic numbers and forecasts in the Budget Update pre-date the release of the Household Labour Force Survey (HLFS) for the March 2013 quarter by Statistics New Zealand on 9 May 2013. The Survey showed that the unemployment rate fell to 6.2% compared with a forecast of 6.9% and quarterly employment grew by 1.7% compared with a forecast of 0.4%. While the outturn paints a stronger picture of near-term labour market conditions, recent volatility in the HLFS suggests caution about being too definitive about this strength. The release does not change our view of the medium-term outlook included in the forecasts.

Economic Outlook

Overview

After a slow recovery from recession, real GDP growth in the New Zealand economy picked up over 2012, reaching 2.5%, the strongest annual average rate since March 2008. Looking forward, the economy is forecast to grow at an average pace of 2.5% per year over the five years to March 2017 (Figure 1.1).

Growth outlook influenced by supportive and constraining factors

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

The growth outlook reflects the net impact of a number of supporting and constraining influences. On the supportive side are the Canterbury rebuild, a high terms of trade, low interest rates and less risk-averse households and firms.

An elevated exchange rate will act as a constraining force on growth as well as working against a rebalancing of growth towards exports. In the near term, the recent drought will also restrain growth as agricultural output is lowered, but it is expected to rebound later as weather conditions return to normal. The forecast reduction in the fiscal deficit will lean against demand growth and reduce pressure on resources, supporting lower interest rates.

These influences on the outlook for the economy are the same as in the Half Year Economic and Fiscal Update, with the exception of the drought that developed in early 2013.

Several global factors will impact in different ways...

The trading partner growth outlook is similar to that presented in the Half Year Update, strengthening slightly over the forecast period from 3.4% in 2013 to 3.9% in 2017. Around this outlook, risks have become more even as a result of policy action to reduce the prospects of downside risks eventuating, but on balance they remain skewed towards weaker growth.

Global demand is expected to push export prices higher, leading to an increase in the goods terms of trade over the forecast horizon. This is a key impetus for income growth and growth in the nominal economy, supporting tax revenues.

In contrast, global monetary policy settings are acting to hold the New Zealand dollar (NZD) at current high levels. The exchange rate is assumed to remain high until around 2015, before depreciating somewhat. This will constrain non-commodity export growth, including services exports.

The drought will reduce economic activity in the 2013 calendar year, with an estimated negative impact on real GDP growth of 0.7 percentage points. However, there are risks that the impact could be greater if the drought has a larger effect on agricultural output. The impact on nominal GDP is expected to be broadly similar to the 0.7 percentage point real impact in the 2013 calendar year, equivalent to around $1.5 billion.

...while the Canterbury rebuild is a significant driver of GDP growth...

The Canterbury rebuild is expected to provide significant impetus to growth over the forecast horizon, chiefly through additional residential and business investment, but also through related consumption spending. The rebuild will also contribute to an improvement in the labour market, with the unemployment rate falling to 5.2% by 2017. It is expected a significant proportion of the residential rebuild will be completed by 2017, but levels of investment should remain high beyond this as the commercial rebuild continues and there is a more widespread pick up in activity.

...as low interest rates and household behaviour also impact on output growth

Interest rates are expected to remain supportive of growth over most of the forecast horizon. Ninety-day interest rates are expected to begin increasing from record low levels in mid-2014 as inflationary pressures rise in the economy. Inflation is expected to rise to the middle of the 1% to 3% target band in the March 2014 year as the Canterbury rebuild ramps up and spare capacity is used up in the economy.

Households are now assumed to be broadly comfortable with their financial position, given the amount of debt reduction (as a share of income) undertaken over recent years. This, combined with some moderation in risk aversion, is expected to see the household saving rate remain broadly stable over the forecast period. This results in stronger consumption growth than in the 2012 and 2013 March years, as household spending grows more in line with income growth.

The mix of the high NZD and strong domestic demand growth contributes to a widening of the annual current account deficit, from 5.0% of GDP in the December 2012 quarter to 6.5% in the March 2017 quarter.

Table 1.1 - Economic forecasts1
(Annual average % change, March years) 2012
Actual
2013
Estimate
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Private consumption 2.4 1.9 2.8 2.8 2.5 2.0
Public consumption 1.8 0.4 0.2 0.1 0.6 0.6
Total consumption 2.3 1.6 2.2 2.2 2.1 1.7
Residential investment -10.6 16.8 29.2 21.0 11.8 2.4
Market investment 8.7 7.9 14.8 6.3 1.9 0.3
Non-market investment -14.8 -14.2 -0.4 2.4 2.4 2.4
Total investment 2.3 8.0 19.7 9.6 4.1 0.9
Stock change2 0.5 -0.7 0.1 -0.2 0.0 0.0
Gross national expenditure 3.2 2.1 6.1 3.9 2.6 1.5
Exports 2.5 2.6 -2.8 2.6 2.3 2.6
Imports 6.2 -0.5 7.6 6.2 3.1 1.3
GDP (expenditure measure) 2.2 2.9 2.4 2.7 2.6 2.2
GDP (production measure) 1.9 2.5 2.4 3.0 2.6 2.2
Real GDP per capita 1.0 1.7 1.4 2.0 1.7 1.3
Nominal GDP (expenditure measure) 3.8 2.7 6.4 4.6 4.3 3.9
GDP deflator 1.6 -0.2 3.9 1.9 1.6 1.6
Output gap (% deviation, March quarter)3 -1.4 -0.8 -0.3 0.1 0.2 0.1
Employment 1.4 -0.5 1.5 2.7 1.4 1.2
Unemployment rate4 6.7 6.9 6.0 5.9 5.5 5.2
Participation rate5 68.7 67.4 68.1 68.6 68.5 68.3
Nominal wages6 3.8 2.0 2.8 2.2 2.8 3.3
CPI inflation7 1.6 0.9 1.9 2.0 2.0 2.2
Terms of trade8 1.2 -6.6 10.0 0.9 1.2 1.0
Current account balance            
  $billion -9.1 -10.1 -10.9 -12.3 -14.3 -16.6
  % of GDP -4.4 -4.8 -4.8 -5.2 -5.8 -6.5
Net international investment position            
  % of GDP -70.7 -71.9 -72.4 -74.5 -77.2 -80.9
TWI9 72.5 75.9 77.0 76.1 73.5 69.2
90-day bank bill rate9 2.7 2.7 2.7 3.6 4.3 4.8
10-year bond rate9 4.0 3.7 4.2 4.6 4.9 5.2

Notes:

  1. Forecasts finalised 18 April 2013
  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, actual for 2013
  8. System of National Accounts (SNA) and merchandise basis, annual average percentage change
  9. Average for the March quarter, actual for 2013

Longer time series for these variables are provided on page 127.

Recent Economic Developments

Economic growth picked up pace at the end of 2012...

After a period of weak growth in the middle of 2012, New Zealand's real GDP rose 1.5% in the December 2012 quarter. Growth was broad-based across industries, with the forestry and logging sector performing well, in part owing to good harvesting conditions and robust demand from China. Construction activity also accelerated, as the Canterbury rebuild began to get underway in earnest. However, while real GDP growth was strong in the quarter, nominal GDP growth continued to be low, declining for the third time in four quarters, as the terms of trade fell further and pricing pressures remained weak in the economy.

The strong December quarter real GDP growth contributed to a solid 2012 year overall for the economy. Real production GDP rose 2.5% in the year to 2012, the strongest annual average growth rate since March 2008 and faster than many other developed economies (Figure 1.2). Despite solid growth in real GDP, employment growth has been weak and the unemployment rate remains elevated. The recent performance of the labour market is discussed in more detail in the box “Recent Labour Market Conditions” (page 21).

Figure 1.2 - Real GDP growth rates
Figure 1.2 - Real GDP growth rates.
Sources: Statistics New Zealand, Haver Analytics

...with indicators pointing to ongoing strength in early 2013...

Indicators point to continuing growth in early 2013. Higher business confidence points to increased activity, which should translate into additional business investment. Consumer confidence has also picked up in 2013, suggesting ongoing consumption growth, although some moderation is expected from the surge in private consumption seen in the December quarter. Other indicators, such as the Performance of Manufacturing Index (PMI) and Performance of Services Index (PSI), point to a recovery in the manufacturing sector and continuation of growth in the service sector respectively.

...but drought will provide some offset

The impact of the drought will provide some offset to the positive growth suggested by forward-looking indicators. The drought will lower agricultural output, particularly in the dairy sector, as well as have other impacts throughout the economy. The impacts of the drought are discussed in more detail in the box “Economic Impacts of the Drought” (page 17).

International Economic Outlook

Global growth steady, while downside risks recede

As the global financial crisis clearly illustrated, global economic conditions are an important force impacting on the New Zealand economy. The trading partner growth outlook is similar to that underpinning forecasts in the Half Year Update. New Zealand's main trading partners, weighted by export share, are expected to grow 3.4% in the 2013 calendar year. This is slightly slower than 2012, primarily owing to slower Australian growth as mining investment moderates (Table 1.2). Trading partner growth is then expected to pick up to just below 4.0% by 2017 (Figure 1.3).

Figure 1.3 - Top-16 trading partner growth
Figure 1.3 - Top-16 trading partner growth.
Sources: IMF, Haver Analytics, the Treasury

While the central outlook for trading partner growth remains broadly unchanged from the Half Year Update, the risks to the outlook have become more balanced. Policy actions by central banks, including the willingness of the European Central Bank to purchase government bonds, additional quantitative easing in the US and additional monetary easing in Japan, have all contributed to a reduction in extreme downside risks. There are also upside risks to the outlook, some of which are associated with the impacts of increased monetary easing in Japan and the US, but also a stronger-than-expected cyclical rebound in global demand.

However, risks are still slightly skewed to the downside. The euro area remains weak, with the region's activity expected to contract again in 2013. The bailout of Cyprus in March shows policy-makers are still only “managing through” the crisis, while the underlying issues of high government debt and a lack of competitiveness in the peripheral economies remain. Other downside risks include a greater-than-expected impact on growth from the automatic government spending cuts in the US, as well as a large housing market correction in China. More detail on the risks to the global outlook can be found in the Risks and Scenarios chapter.

Table 1.2 - Trading partner growth (calendar years)
  2013 weights 2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Australia 27% 3.6 2.7 2.9 3.0 3.0 3.0
China 17% 7.8 8.0 7.6 7.3 7.0 7.0
United States 11% 2.2 1.7 2.4 2.5 2.5 2.5
Japan 9% 2.0 1.0 1.4 1.1 1.0 1.0
Euro area 8% -0.5 -0.4 1.0 1.2 1.3 1.4
United Kingdom 4% 0.3 0.7 1.4 1.8 2.0 2.0
Canada 2% 1.8 1.6 2.3 2.4 2.5 2.5
Other Asia* 23% 3.8 4.3 4.7 5.0 5.0 5.0
Trading Partner Growth (TPG) 100% 3.5 3.4 3.8 3.8 3.8 3.9
TPG - Consensus (April 2013)   3.5 3.5 3.9 4.1 4.1 4.0
TPG - IMF WEO (April 2013)   3.5 3.5 4.1 4.2 4.3 4.4

* South Korea, Taiwan, Hong Kong, Singapore, Malaysia, Indonesia, Thailand, Philippines, India

Sources: IMF, Haver Analytics, Consensus Economics, the Treasury

New Zealand Economic Outlook

Moderate growth in New Zealand's economy expected to continue...

Overall, real GDP growth in the New Zealand economy is expected to be similar to the forecasts presented in the Half Year Update in December, averaging 2.5% per year, a little above the Treasury's estimate of potential growth over the forecast period. However, the profile of growth is slightly different to the Half Year Update, owing to a stronger-than-expected exchange rate, lower-than-expected pricing pressures, revisions to previous data and, most notably, the impact of the drought on the agricultural and related industries.

Real production GDP growth is forecast to be 2.5% and 2.4% in the years ending March 2013 and March 2014 respectively, compared with 2.3% and 2.9% forecast in the Half Year Update. The March 2014 year growth rate is lower than in the Half Year Update primarily because of the impact of the drought on the economy.

Nevertheless, growth in the March 2015 year and beyond is expected to pick up as business and residential investment rise, in part driven by the Canterbury rebuild, as well as the recovery from the drought. Growing consumption, as incomes improve, also plays a part. Net exports are expected to be a drag on growth from 2013 to 2016 (March years), as a higher NZD impacts on export and import demand. Imports also grow owing to demand arising from the Canterbury rebuild. After this, net exports are forecast to provide a positive contribution as international demand continues to grow and the NZD depreciates. Figure 1.4 shows the main contributions to expenditure GDP growth.

Figure 1.4 - Composition of Expenditure GDP growth
Figure 1.4 - Composition of Expenditure GDP growth.
Sources: Statistics New Zealand, the Treasury

...as private consumption continues growing solidly...

Private consumption is expected to make a solid contribution to GDP growth over the forecast period. Private consumption growth is expected to pick up over 2013 and 2014 as consumer confidence remains elevated and incomes rise. Annual real private consumption growth is forecast to peak at 2.8% in the 2014 and 2015 March years, before moderating to 2.0% in the March 2017 year (Figure 1.5). The other main driver of the increase in consumption over the forecast period is the pick up in residential investment, especially with the Canterbury rebuild, resulting in additional durables consumption. It is expected that the recent rise in house prices will have less effect on consumption than in the previous cycle, as households have become more cautious. As a result, consumption generally grows with income, with only a small scope for housing equity withdrawal as a means of funding additional spending. The Government's signalled changes to ACC levies are expected to result in additional modest increases in consumption, focused mainly towards the end of the forecast period. More details on signalled changes to ACC levies can be found in the Fiscal Outlook chapter on page 35.

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

...while the household saving rate remains steady

Household saving as a percentage of disposable income is expected to remain broadly in balance across the forecast period, as it has been for the past few years (Figure 1.6). This represents a shift in behaviour from much of the past two decades and its continuation will be an important factor influencing demand in the economy. Household saving is around 10 percentage points higher than its low a decade ago.

Figure 1.6 - Net household saving rate
Figure 1.6 - Net household saving rate.
Sources: Statistics New Zealand, the Treasury

It is assumed that households are now broadly comfortable with the amount of debt reduction (as a share of income) undertaken over recent years given developments in their net worth, partly driven by house price developments, reduced uncertainty about future economic growth, and income prospects. However, households are expected to remain cautious in their spending habits, with increases in consumption coming from rises in income, rather than from running down assets or increasing debt further.

GDP growth to be boosted by residential investment from the Canterbury rebuild...

Residential investment remains a key driver of demand growth in these forecasts. A significant proportion of the growth in residential investment across the forecast period is driven by earthquake-related investment associated with the Canterbury rebuild. There are signs that the rebuild is about to ramp up significantly, with building consents and anecdotal evidence from the region suggesting that a number of the factors delaying progress thus far are diminishing. Annual real residential investment growth is expected to peak at almost 30% in the March 2014 year, as the Canterbury rebuild gets into full swing.

While the Canterbury rebuild is expected to make up a large proportion of the surge in residential investment over the forecast period, activity in the rest of the country is also expected to rise significantly, especially in the Auckland region. Figure 1.7 shows the level of real residential investment with and without the Canterbury rebuild. The drivers of the underlying growth include a catch up for past population growth, expected future population increases (including through migration), rising household incomes, low interest rates and some ongoing repairs of leaky homes.

Figure 1.7 - Real residential investment
Figure 1.7 - Real residential investment.
Sources: Statistics New Zealand, the Treasury

Higher house prices, particularly in the Auckland region, are expected to encourage an increase in new home building, with signs of this already in dwelling consents data. This will help to moderate growth in house prices, but will take some time, with annual house price inflation forecast at around 7% in each of the March 2013 and 2014 quarters. The growth in residential investment begins to moderate after the March 2014 year, when the pace of the Canterbury rebuild reaches its peak.

...as well as strengthening market investment...

A pick up in market investment is also expected to be a strong driver of growth over the forecast period. While market investment has recovered somewhat following the global financial crisis, it is yet to exceed its pre-crisis peak (Figure 1.8). However, improved business confidence, low interest rates, a high exchange rate (making imported capital goods cheaper) and some catch up are all expected to result in stronger growth over 2013 and 2014. Later in the forecast period, higher interest rates and a lower exchange rate will see market investment growth moderate. The Canterbury rebuild is also expected to contribute to the increase in market investment.

Figure 1.8 - Real market investment
Figure 1.8 - Real market investment.
Sources: Statistics New Zealand, the Treasury

Investment Associated with the Canterbury Rebuild

Estimating the level of investment activity associated with the Canterbury rebuild is inherently difficult and subject to much uncertainty. To reflect this uncertainty, the Treasury estimates are rounded to the nearest $5 billion. In this box the term investment relates to the gross fixed capital formation concept used in the compilation of GDP.

Estimates revised higher...

New information compiled by the Canterbury Earthquake Recovery Authority (CERA) has led the Treasury to revise its estimate of the total level of investment that relates to the Canterbury rebuild to $40 billion from $30 billion in the Half Year Update (Table 1.3). This investment will be spread across a number of years, including beyond 2017 and reflects both private sector and government spending.

Table 1.3 - Estimates of Canterbury earthquake rebuild investment ($ billions, totals rounded to nearest $5 billion)
  Residential Commercial
and social
Infrastructure Total
Half Year Update 14 13 3 30
Budget Update 18 15 5 40

Sources: CERA, the Treasury

...but resource constraints mean the rebuild will extend beyond the forecast period

Resource constraints in the local and national economy mean that the amount of rebuild activity forecast to occur in the period to June 2017 is similar to the Half Year Update; a little under half of the recovery-related investment is forecast to occur during this period. The key implication of the revised estimate is either to extend the duration of the rebuild or increase the intensity of activity beyond 2017.

In addition to uncertainty around the amount of recovery-related investment that will occur, there is uncertainty over the timing and intensity of the rebuild. Key determinants of the rate of progress and the eventual peak of the rebuild include insurance settlements as well as the capacity and capability of the construction sector. These factors provide both upside and downside risks to our $40 billion rebuild assumption, as well as the proportion of this that occurs by June 2017. Another risk to the forecasts is how much the Canterbury rebuild crowds out activity in other parts of the economy (for further discussion see the Risks and Scenarios chapter).

The Treasury's estimate of the level of investment required to repair or replace capital assets that were damaged or destroyed in the earthquakes is a major subset of total earthquake-related transactions. It captures the vast majority of the additional expenditure expected to be captured in the national accounts (GDP). Total transactions would include non-capital items (such as business interruption insurance), non-construction costs (such as residential red zone property purchases) and central government operating expenses resulting from the earthquakes. Factoring in these elements would lead to estimates higher than $40 billion.

A discussion about the earthquake-related expenses incurred by the Government can be found in the Fiscal Outlook Chapter on page 33.

...while government consumption growth is expected to remain low

The combined impact of fiscal decisions in the 2013 and previous Budgets will see real government consumption rise only very modestly, averaging 0.4% per year over the forecast period, compared to around 4% for much of the 2000s. This sees government consumption as a share of real GDP fall towards the past decade's low of 16% (Figure 1.9). A lower share of government spending in the economy will free up resources enabling additional activity elsewhere, such as the Canterbury rebuild. It also allows interest rates and the exchange rate to remain lower than they would otherwise be. After allowing for both operating and capital spending and revenue developments, fiscal policy is forecast to be subtracting on average about 0.6% of GDP from demand per year in the economy between the 2013 and 2017 June years.[1]

Figure 1.9 - Real government consumption
Figure 1.9 - Real government consumption.
Sources: Statistics New Zealand, the Treasury
Figure 1.10 - Export and import volume growth
Figure 1 - Cyclically-adjusted balance.
Sources: Statistics New Zealand, the Treasury

Net exports to provide negative contribution to growth...

Net exports are forecast to be a drag on real GDP growth across much of the forecast period. While positive export volumes growth is expected to return following the negative impact of the drought, import volume growth is expected to outstrip this, primarily as investment growth remains strong. Increased investment, chiefly on the business side, usually has a large import component. Net exports are expected to provide a positive contribution to growth again in the 2017 March year, as the pace of the Canterbury rebuild peaks. The exchange rate is also assumed to depreciate towards the end of the forecast horizon, making imports relatively more expensive and boosting demand for exports.

Goods export volumes are expected to fall in the near term, as the drought negatively impacts agricultural production in the 2013 and 2014 March years, but pick up thereafter. The impacts of the drought are examined in more detail in the box below. Services export growth is expected to remain low in the near term as the exchange rate remains elevated, making New Zealand a more expensive destination for tourists and foreign students.

Over the longer term, both goods and services export volumes are expected to grow more strongly, largely driven by an assumed depreciation in the New Zealand dollar. Both are also expected to rise as global demand picks up, generating additional demand for New Zealand's goods and services. In addition, dairy and other commodity exports are likely to benefit from links with fast-growing Asian markets (Figure 1.10).

Notes

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

Economic Impacts of the Drought

Drought conditions affected much of the country during the late summer, particularly in the North Island. The return of rainfall to much of the country in April appears to have broken the drought, with soil moisture levels much higher now than a few months ago. Nonetheless, the drought will take a toll on the agricultural sector and the wider economy.

Drought will reduce real GDP in 2013...

The resumption of rainfall in April supports the assessment made when the forecasts were finalised that the impact of the drought will be largely contained to the 2013 calendar year. Compared to the situation if there was no drought, it is estimated that annual real GDP growth in 2013 will now be around 0.7 percentage points slower. There may be some follow-on impact on growth next year depending on the speed of the recovery from the drought.This estimate takes into account the expected direct impacts of lower agricultural production, including reduced dairy and meat production and earlier than usual slaughtering and processing. It also incorporates indirect multiplier effects throughout the economy in line with previous studies to capture the impact on all industries associated with dairy and meat production.

The dairy industry made a strong start to the 2012/13 season, with cumulative milk production running around 5% to 7% ahead of the previous year in January. However, pasture conditions deteriorated rapidly from January onwards, particularly in the North Island, and total milk production over the season as a whole is now likely to be around 1% to 2% down from last season. There is likely to be a lingering impact at the start of next season too.

Meanwhile, faced with reduced feed supply, farmers sent sheep and cattle to slaughter earlier than usual and therefore at lower carcass weights. It is expected that total lamb production will be around 3% lower in the 2012/13 year than if there was no drought, with a similar magnitude reduction in beef production. Given the strong negative relationship between lambing percentages and the extent of soil moisture deficit in the previous season, it is assumed that this season's dry conditions will result in a 10% reduction in the number of lambs born at the start of the 2013/14 season (Figure 1.11). However, given that the available feed will be shared amongst fewer animals, this may in turn lead to higher carcass weights next season, so it is uncertain how the drought will affect overall lamb production in the 2013/14 season.

Figure 1.11 - Soil moisture deficit vs. lambing percentages
Figure 1.11 - Soil moisture deficit vs. lambing percentages.
Sources: NIWA, Ministry for Primary Industries, the Treasury
...and have a similar impact on nominal GDP

There are three main channels through which the drought's impact on prices in the economy will be felt. The first channel is the offsetting impact of higher dairy prices following the surge seen at Fonterra's fortnightly GlobalDairyTrade auctions in March and early April. This will provide a welcome offset to the reduction in dairy output and, providing it is reflected in payments to farmers, the incomes of those who have managed to maintain milk supply will be higher than would otherwise be the case.

However, the bulk of annual dairy production appears to have been sold earlier in the season at lower prices, and it is important to note that the recent high auction prices are only being achieved for low volumes at the tail-end of the season (Figure 1.12). Increased production costs for farmers to offset reduced pasture growth will also weigh on many farmers' profits and reduce the value-added contribution to GDP made by the dairy sector.

Figure 1.12 - Quantity and price of dairy products sold at bi-monthly GlobalDairyTrade auctions
Figure 1.12 - Quantity and price of dairy products sold at bi-monthly GlobalDairyTrade auctions.
Sources: GlobalDairyTrade, the Treasury

Moreover, part of the sharp pick up in dairy prices is likely to have been driven by tighter global supply (over and above that caused by drier conditions in New Zealand). The reduced milk production in New Zealand in recent months has limited the extent that the dairy industry can benefit from this spike in global prices, and it is expected dairy prices will fall back later this year as global supply returns to normal.

The second channel through which the drought will impact on prices is through lower meat prices. The drought-induced increase in stock slaughter earlier in the season than usual has seen beef and lamb prices fall by around 10% since the start of the year (although reduced supply may lead to higher prices next season).

Finally, in the face of reduced demand, the impact of the drought will limit price pressures from emerging in related sectors in the rest of the economy, such as the freight and wholesale industries. This would tend to reduce nominal GDP from what it would otherwise be.

On balance, the positive contribution from higher dairy prices is expected to be broadly offset by these other price movements. As a result, compared to a “no drought” situation, it is expected the impact of the drought on nominal GDP in the 2013 calendar year will be broadly similar to the 0.7 percentage point impact on real GDP outlined above (equivalent to around $1.5 billion). However, greater uncertainty is associated with this estimate.

Climatic conditions, including the possibility of successive droughts, pose considerable uncertainty and ongoing risks. Such risks are discussed further in the Risks and Scenarios chapter.

...but increase in goods terms of trade will provide support to incomes

The goods terms of trade are expected to rebound significantly over 2013 and continue rising, providing support to incomes over the forecast horizon (Figure 1.13). The near-term rebound in the goods terms of trade is in part expected to be driven by the substantial increase in dairy prices thus far in 2013 following falls over 2012, as discussed in the drought box above.

Figure 1.13 - Goods terms of trade (SNA)
Figure 1.13 - Goods terms of trade (SNA).
Sources: Statistics New Zealand, the Treasury

Over the medium term, the goods terms of trade are expected to continue to strengthen, supported by a number of structural factors. Global demand for New Zealand's commodity exports is forecast to strengthen over time, resulting in commodity prices remaining at or near historical highs. Demand from China in particular for New Zealand dairy products is forecast to increase, as incomes and per capita consumption rise, supporting global prices. The higher goods terms of trade are also a key driver of nominal GDP growth in the economy over the forecast period.

Higher goods import prices will provide some offset to the higher goods export prices. Rises in prices of consumer and intermediate goods imports are expected to be partly offset by the continuation of falls in prices of capital goods. West Texas Intermediate (WTI) oil market futures contracts, which form the basis for the oil price assumption, are pricing in a gradual decline in oil prices over the forecast period. WTI oil prices are assumed to fall to around $85 per barrel in the June quarter of 2017, around 10% lower than their average in the March 2013 quarter.

The current account deficit widens...

The current account, which measures economic transactions between New Zealand residents and the rest of the world, comprises balances on imports and exports of goods and services, income flows and transfers. The annual current account deficit is expected to widen from 5.0% of GDP in the December 2012 quarter to 6.5% of GDP in the March 2017 quarter. The widening is expected to be driven by a widening of the deficit on services, a fall in the goods surplus and a further fall in the income balance (Figure 1.14).

Figure 1.14 - Current account balance
Figure 1.14 - Current account balance.
Sources: Statistics New Zealand, the Treasury

The goods balance is expected to remain reasonably strong in the near term, supported by the recent increases in commodity prices. However, further out, the balance will deteriorate, primarily owing to increased imports associated with the pick up in investment across the forecast period. The balance begins to recover at the end of the forecast period as investment growth slows and the depreciating exchange rate makes New Zealand goods more attractive overseas, supporting export volumes and receipts.

Weakness in the services balance is the main driver of the deterioration in the current account deficit, as a falling exchange rate results in an increase in the value of imports of services (as overseas travel and other services imports become more expensive). Exports of services are expected to increase only moderately as the global economy recovers, in part owing to the elevated exchange rate.

The income deficit is also expected to widen - primarily in the latter part of the forecast horizon - as business profits pick up, leading to increased flows overseas of income on equity investments in New Zealand, as well as higher interest payments overseas on New Zealand's net stock of debt as a result of higher international interest rates.

...even as national saving rises

The current account deficit (equal to the difference between national saving and investment) is expected to increase over the forecast period. This is owing to investment increasing by more than saving, partly as a result of the Canterbury rebuild (Figure 1.15). However, the investment-saving gap does not flow through fully into new borrowing, with a large proportion of the Canterbury rebuild to be paid for by overseas insurance inflows; Statistics New Zealand estimates a total of $17.9 billion of reinsurance claims from all of the Canterbury earthquakes. At the end of the December 2012 quarter, $8.0 billion of these claims had been settled with overseas reinsurers, with these inflows recorded in the financial account of the balance of payments.

Figure 1.15 - Saving and investment
Figure 1.15 - Saving and investment.
Sources: Statistics New Zealand, the Treasury

The rise in national saving is driven mainly by higher general government saving over the forecast period, as tax revenue increases and government consumption continues to be restrained. Gross general government saving as a share of GDP is expected to rise from a low of -1.5% in the 2011 March year to 3.5% in the 2017 March year.

Business operating surplus growth is expected to rise in the near term as output continues to grow faster than hours worked and margins are restored, improving profits and supporting corporate tax revenue. Operating surplus growth is expected to moderate thereafter, as the labour market picks up and the overall pace of nominal GDP growth slows. Household saving, as discussed above, is expected to remain broadly stable across the forecast period.

The net international liability position is forecast to rise from 71.7% of GDP at the end of December 2012 to 80.9% of GDP at the end of March 2017, partly reflecting a fall in international assets as insurance claims are settled.

Labour market conditions remain subdued...

While GDP growth was solid in 2012, the unemployment rate remains elevated and employment growth weak. Despite this, wage growth remains moderate, with skilled workers in particular demand. Indicators for the labour market have pointed to a pick up for some time, but this is yet to eventuate. Recent labour market conditions are discussed in more detail in the box below.

Recent Labour Market Conditions

Labour market outturns have been lower than both Treasury and other forecaster expectations over the past year. The unemployment rate has remained elevated despite real output increasing solidly, particularly in 2012. In addition, employment fell in three of the four quarters in 2012. This box provides an overview of the recent conditions in the labour market.[2]

Fall in employment concentrated in younger part-time workers...

Total employment fell 32,000 (1.4%) in the year to December 2012, with part-time employment down 34,500 (6.6%) over the same time period. The fall in part-time employment was greatest amongst younger (under 30) female workers, especially those working one to nine hours per week. As the fall in employment was concentrated amongst those working fewer hours, the overall impact on aggregate hours worked in the economy was less, falling only 1.0% from a year ago. The fact that a large proportion of the fall was in younger workers, who are generally at the lower end of the income scale, partly explains why PAYE tax revenue rose more than 5% in the 2012 calendar year, despite the weak headline labour market statistics.

Another factor that could be supporting tax revenue is that the overall labour market may not be as weak as the Household Labour Force Survey (HLFS) suggests. Other indicators of the labour market, such as the Quarterly Employment Survey (QES) and employment conditions surveys, suggest more strength in the labour market than the HLFS. The different coverage of the surveys can explain some of the differences in results, with the QES not covering self-employment or the agricultural sector, both of which showed very weak employment results during 2012. However, despite the wider coverage in the HLFS, issues in the survey itself may also be contributing to the different results; otherwise it is difficult to explain why the headline measures of employment and unemployment remain at odds with other indicators. Overall, it is considered that while the labour market remains subdued, the weakness may be overstated somewhat in the HLFS headline employment and unemployment figures.

...as firms look to control costs and improve productivity...

Similar to many other economies, New Zealand's recovery from the recent recession has been more prolonged than previous recoveries. Previous relationships between business confidence and employment growth have failed to hold over the past year, with indicators pointing to much stronger employment. Businesses may be waiting until they see demand grow more strongly before they gain enough confidence to hire additional workers. In the meantime, firms have focused on controlling costs and improving productivity. Economy-wide estimates of labour productivity (hours-worked basis) were up a very strong 3.3% in 2012 from the previous year, following a 0.1% fall in 2011 (Figure 1.16). Increases in employment tend to lag increases in output by one to two quarters, thus stronger employment growth is expected in the second half of 2013, as well as a moderation in productivity growth.

...leading workers to leave the labour force

The subdued labour market contributed to a fall in the labour force participation rate over 2012, as some workers became discouraged at not being able to find work and left the labour force. The participation rate fell 1.2 percentage points over 2012, with the main change occurring in the December quarter. While several age groups contributed to this fall, the main contributions came from younger people (15- to 19-year-olds particularly) and older people (55+). There is evidence that some younger workers may have given up looking for work and instead enrolled in education. This is part of a trend since 2007 of a falling participation rate for 15- to 19-year-olds, while the proportion in education has increased. The other age group that contributed significantly to the fall in participation - older workers - saw the number of those identifying as retired increase over the year. While this is likely to be part of a longer-term trend as baby boomers retire, the size of the increase suggests that some older workers may have decided to fully retire as they could not find work, thereby leaving the labour force.

Overall, the fall in the participation rate is expected to be temporary rather than structural in nature. The participation rate is expected to rise gradually again over 2013 and 2014, as employment opportunities improve, encouraging people to seek work again (Figure 1.17). In the later period of the forecasts, the participation rate should begin to fall again as there will be a greater number of people in the older age groups that tend to participate less in the labour force.

Figure 1.16 - Economy-wide labour productivity (hours-worked basis)
Figure 1.16 - Economy-wide labour productivity (hours-worked basis).
Sources: Statistics New Zealand, the Treasury
Figure 1.17 - Labour force participation rate
Figure 1.17 - Labour force participation rate.
Sources: Statistics New Zealand, the Treasury

Notes

  • [2]The March 2013 HLFS was released after the finalisation of the economic forecasts. The increase in quarterly employment was stronger than forecast (1.7% compared to 0.4%). The unemployment rate fell to 6.2% compared to the 6.9% forecast. Recent quarterly outturns in the survey have been volatile and Statistics New Zealand noted that an atypical fall in unemployment in the March 2013 quarter was accentuated in the headline unemployment rate figure. While the outturn paints a stronger picture of near-term labour market conditions, recent volatility suggests caution about being too definitive about this strength. The release does not change our view of the medium-term outlook included in the forecasts.

...but set to strengthen as business confidence and output increase

The labour market is expected to strengthen over the forecast period, beginning in the second half of 2013. The Canterbury rebuild will be a large contributor to the strengthening, particularly in the 2014 March year, but a more widespread improvement is expected to occur across the country as output continues to increase. A turn in net migration, as fewer New Zealanders leave for Australia as the mining investment boom reaches a peak and the Australian economy slows, is expected to support the filling of skilled job vacancies and keep wage growth moderate. Signalled reductions in ACC levies are expected to generate some additional demand for workers, while ongoing welfare reform is expected to strengthen job-search incentives and have a positive influence on labour force participation.

Employment growth is expected to be positive in the first half of 2013, before accelerating as the recovery becomes more entrenched, giving businesses enough confidence to employ additional workers. Annual average employment growth is expected to turn around from a low of -0.8% in the June 2013 quarter to peak at 3.1% in the September 2014 quarter (Figure 1.18). Employment growth is then expected to moderate towards the end of the forecast period.

Figure 1.18 - Unemployment rate and employment growth
Figure 1.18 - Unemployment rate and employment growth.
Sources: Statistics New Zealand, the Treasury

The strong employment growth is expected to drive a fall in the unemployment rate across the forecast period. The unemployment rate is expected to stay broadly steady at around 6.9% over the first half of 2013, before declining steadily, to slightly above 5% in March 2017. The rise in employment, fall in unemployment and pressures from the Canterbury rebuild are expected to put upward pressures on wages in the near term, with annual growth in average hourly earnings expected to rise to 3.2% in the December 2013 quarter, before moderating the following year. Over time, wage pressures will begin to grow again as the unemployment rate continues to fall.

Growth in compensation of employees, which is driven by changes in the number of hours worked in the economy as well as wage rates, is forecast to increase 2.9% in the March 2013 year, 3.9% in the March 2014 year and 4.7% in the March 2015 year as the labour market recovers and additional hours are worked. Higher wage rates will also contribute. Annual growth in compensation of employees is then expected to moderate slightly towards the end of the forecast period as employment and hours worked growth slows. Compensation of employees is an important contributor to forecasts of PAYE revenue.

Inflation low as exchange rate remains elevated...

Annual Consumers Price Index (CPI) inflation has been lower than anticipated in the Half Year Update. The main drivers for the lower result are a greater flow-through from a higher exchange rate and ongoing heavy discounting by retailers as they try to maximise sales volumes. The elevated exchange rate has contributed to negative annual tradables inflation; this has helped retailers, particularly those who sell imported goods, to keep prices low, as they operate in a highly-competitive environment. Annual non-tradables inflation remains below its long-term average, but still relatively high at 2.4% in the March 2013 quarter, given that spare capacity remains in the economy, keeping pricing pressures lower.

...but set to increase as spare capacity is used up and exchange rate depreciates...

While inflation has been low recently, both non-tradables and tradables pricing pressures are expected to pick up over the forecast period (Figure 1.19). Pressure on non-tradables prices will come primarily through a closing of the output gap as spare capacity is used up. Potential growth is forecast to increase from just under 2% currently and approach 2.5% near the end of the forecast period.[3] While the size of the current negative output gap is subject to uncertainty, the estimated gap of 0.8% of GDP in the March 2013 quarter is expected to be eliminated by mid-2014. Another factor that is likely to contribute to additional non-tradable pricing pressures is the Canterbury rebuild. It is expected that these pressures will be moderate as productivity gains are made, although there are risks to this judgement. These risks are discussed further in the Risks and Scenarioschapter. Higher government charges are also expected to contribute to non-tradables inflation, with higher tobacco prices in particular contributing around 0.4 percentage points to annual non-tradable inflation (or 0.2 percentage points to total inflation) in each year excluding the March 2017 year.

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

The exchange rate will be the main influence on tradables inflation over the forecast period. The NZD trade-weighted index (TWI) is expected to remain elevated over 2013 and 2014, before depreciating over the rest of the forecast period. This reflects the adjustment required to reduce the current account deficit to a sustainable level over time (Figure 1.20). As the exchange rate stops appreciating and then depreciates, there will be upwards pressure on tradables inflation. Risks around the path and pass-through of the exchange rate are discussed in the Risks and Scenarios chapter.

Figure 1.20 - TWI, 90-day and 10-year rates
Sources: RBNZ, the Treasury

Overall, annual CPI inflation is expected to rise to 1.9% in the March 2014 quarter from 0.9% in the March 2013 quarter. Inflation will increase only gradually from there, to 2.2% in the March 2017 quarter.

...leading to a withdrawal of monetary stimulus 

Over time, as the economy continues to grow and spare capacity is used up, monetary stimulus is expected to be progressively withdrawn in order to combat increasing inflationary pressures. The withdrawal of stimulus in these forecasts is more gradual than assumed in the Half Year Update as the result of lower-than-expected inflationary pressures to date. Ninety-day interest rates are expected to remain around 2.7% until the March 2014 quarter. After this, rates should rise gradually as inflation pressures increase. Ninety-day rates are expected to be 4.8% in the March 2017 quarter (Figure 1.20).

Ten-year government bond rates have been low over the second half of 2012 and early 2013 as New Zealand bonds have received additional demand from overseas investors looking to diversify portfolios. The New Zealand economy has also performed favourably on an international stage, attracting more funds. However, 10-year interest rates are expected to increase over the forecast horizon, primarily as global risk appetite increases as growth prospects improve. Typically this will reduce the demand for government bonds and increase demand for other higher-yielding assets such as equities, increasing bond yields - this is expected to be not only a trend in New Zealand bonds, but bonds around the globe. Ten-year bond rates are forecast to increase from 3.7% in the March 2013 quarter to 5.2% by the June 2017 quarter (Figure 1.20).

Stronger nominal GDP growth expected

Despite solid real GDP growth, nominal GDP growth (which includes price effects as well as volumes) has been soft over the past year. Nominal GDP growth for the March 2013 year is expected to be a modest 2.7%, down from 4.6% and 3.8% in 2011 and 2012 respectively. Weak pricing pressures have been the main reason behind the weaker nominal GDP result, with a high exchange rate keeping downwards pressures on tradables prices, strong competition and subdued demand engraining a discounting culture among businesses, and falling terms of trade also contributing. However, a strong turnaround is expected in the March 2014 year, with nominal GDP expected to rise 6.4%. This will primarily be driven by an increase in the terms of trade, but also a levelling off in the exchange rate and a pick up in demand across the economy leading to greater pricing pressures.

Figure 1.21 - Nominal GDP and terms of trade
Figure 1.21 - Nominal GDP and terms of trade.
Sources: Statistics New Zealand, the Treasury

Nominal GDP growth is expected to moderate somewhat later in the forecast period, as the total terms of trade level off and pricing pressures are restrained by higher interest rates. Nominal GDP growth is forecast to average 4.2% per year over the 2015 to 2017 March year period.

Nominal GDP is particularly important for generating forecasts of tax revenue. The main components of nominal income GDP, namely compensation of employees and business operating surplus, are inputs for generating forecasts of PAYE and corporate tax revenues respectively.

Economic Forecast Assumptions

  • Net permanent and long-term migration returned to a small inflow in the March 2013 year and is forecast to return to a long-run assumption of 12,000 per year by the start of 2015.
  • The non-accelerating inflation rate of unemployment (NAIRU) is assumed to be around 4.5% by 2017.
  • Average hours worked per week are assumed to be around 33 (near their current level).
  • Economy-wide labour productivity growth is assumed to average around 1.3% per year between the years ending March 2013 and March 2017. This includes a 3.2% increase in 2013, followed by flat productivity growth in 2014.
  • Investment associated with the rebuild from the Canterbury earthquakes is assumed to be around $40 billion (rounded to the nearest $5 billion), spread across residential property ($18 billion), commercial and social assets ($15 billion) and infrastructure ($5 billion). Around $17 billion of the total (or 45%) is forecast to be undertaken within the forecast period to June 2017.
  • WTI oil prices are assumed to fall from around US$94 per barrel in the March 2013 quarter to around US$85 in the June 2017 quarter.
  • Ninety-day interest rates are assumed to increase from mid-2014 to around 4.9% at the end of the forecast period. Ten-year interest rates are also assumed to rise gradually from their current levels, reaching 5.2% by the end of the forecast period.
  • The TWI is assumed to remain around 77 until the start of 2015 before falling to around 68 in the June 2017 quarter.
  • Tobacco excise increases add 0.2 percentage points to annual inflation in each of the March quarters 2014, 2015 and 2016.
  • The reductions to ACC levy rates signalled as part of Budget 2013 will reduce contributions by households and employers by around $300 million in the year to June 2015 and around $1 billion in future years.

Notes

Fiscal Outlook

Overview

  • Tax revenue is forecast to increase slightly, while expenses decline, as a share of GDP over the next four years.
  • Operating deficits narrow and a surplus of $75 million is forecast in 2014/15 after taking into account the proposed reduction in ACC levies.
  • Net core Crown debt peaks as a share of GDP at 28.7% in 2014/15.
  • The Crown's balance sheet strengthens and fiscal buffers begin to be rebuilt.
Table 2.1 - Fiscal indicators
Year ended 30 June 2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast

$billions

           
Total Crown OBEGAL1  (9.2)  (6.3)  (2.0) 0.1 0.8 2.6
Net core Crown debt2 50.7 57.9 64.8 68.2 69.7 70.3
Gross debt3 79.6 78.6 87.7 83.2 87.5 93.9
Net worth attributable to the Crown 59.3 61.5 62.0 64.8 68.5 73.9

% of GDP

           
Total Crown OBEGAL1  (4.4)  (2.9)  (0.9) 0.0 0.3 1.0
Net core Crown debt2 24.3 27.1 28.4 28.7 28.1 27.3
Gross debt3 38.2 36.8 38.5 34.9 35.3 36.5
Net worth attributable to the Crown 28.5 28.7 27.2 27.3 27.6 28.7

Notes:

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

Source: The Treasury

Overall, growth in the economy, and managed spending levels, sees the Crown return to surplus, slow the pace of growth in debt and increase the size of net worth, helping the Crown to begin rebuilding fiscal buffers to absorb future shocks.

The fiscal forecasts shows the Government is expected to achieve its fiscal objective of a return to surplus in 2014/15 with $75 million forecast.

Tax revenue increases in each year of the forecasts reflecting the expected growth in the economy, as discussed in the Economic Outlook chapter.

Core Crown expenses are expected to increase by $5.5 billion over the next four years, largely owing to new spending announced in Budget 2013 and Budget allowances set aside for future spending. Budget 2013 decisions have increased expenses by around $1.0 billion per annum. Coupled with revenue initiatives, the net spending in Budget 2013 reduces to $900 million per annum. As in previous years, most of the new funding is allocated to the priority areas of education, health, welfare.

Including allocations from the operating allowance and the Future Investment Fund, total Canterbury earthquake expenses are now forecast to reach $15.2 billion by 2016/17 (refer to page 33).

The improving fiscal position has provided enough headroom for the Government to signal reductions in ACC levies from 2014/15 onwards, with the expected impacts built into these forecasts (refer to page 35).

Net debt peaks as a share of GDP in 2014/15 at 28.7%, although nominal net debt continues to increase until 2017/18, one year following the end of these forecasts.

The partial share offers are expected to provide proceeds that the Government will invest largely in social assets, managed through the Future Investment Fund that was established in Budget 2012 (refer to page 38).

Table 2.2 - Reconciliation between OBEGAL and net debt
Year ending 30 June
$billions
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Core Crown revenue 60.6   63.8   68.4   72.3   75.8   79.5  
Core Crown expenses (69.1)  (71.6)  (72.4)  (73.5)  (75.2)  (77.2) 
Net surpluses/(deficits) of SOEs and CEs (0.7)  1.5   2.0   1.3   0.2   0.3  
Total Crown OBEGAL (9.2)  (6.3)  (2.0)  0.1   0.8   2.6  
Net retained surpluses of SOEs, CEs and NZS Fund 0.4   (1.2)  (2.1)  (1.4)  (0.3)  (0.5) 
Non-cash items and working capital movements 1.6   1.6   0.9   0.7   1.3   1.8  
Net core Crown cash flow from operations (7.2)  (5.9)  (3.2)  (0.6)  1.8   3.9  
Net purchase of physical assets (1.3)  (1.5)  (2.6)  (1.9)  (1.3)  (1.5) 
Advances and capital injections (2.1)  (1.9)  (2.1)  (2.0)  (2.6)  (2.0) 
Forecast for future new capital spending -   -   (0.5)  (0.7)  (0.9)  (1.0) 
Proceeds from Government share offers -   1.5   1.5   1.5   1.5   -  
Core Crown residual cash deficit (10.6)  (7.8)  (6.9)  (3.7)  (1.5)  (0.6) 
Opening net debt 40.1   50.7   57.9   64.8   68.2   69.7  
Core Crown residual cash deficit 10.6   7.8   6.9   3.7   1.5   0.6  
Valuation changes in financial instruments -   (0.6)  -   (0.3)  -   -  
Closing net debt 50.7   57.9   64.8   68.2   69.7   70.3  
As a percentage of GDP 24.3% 27.1% 28.4% 28.7% 28.1% 27.3%

Source: The Treasury

Core Crown Tax Revenue

Tax revenue increases by around 5% per annum on average over the next four years...

Core Crown tax revenue is forecast to increase by $14.5 billion over the next four years, reaching $72.8 billion in 2016/17. These increases outpace the growth in the economy and see tax revenue rise as a share of GDP each year, reaching 28.3% by the end of the forecast period, but still below levels of the last decade (Figure 2.1).

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

The tax revenue forecasts assume the underlying strength recorded this year remains and that this base then continues to grow. The strength in this year's tax take is owing to a faster growing economy and a shift in income distribution. While there has been recent weakness in the labour market, this has been concentrated at the lower end of the income scale and resulted in a higher average tax rate, owing to the progressive nature of PAYE tax. Coupled with this, strong international equity markets and base-broadening measures have boosted other persons tax. Moderate growth in the nominal economy and earnings is expected to continue across the forecast period, and translate into growth in all types of tax revenue.

In total, the growth in tax revenue is expected to be above the forecast rate of nominal GDP growth (as shown in Figure 2.2). All tax types are expected to increase across the forecast period, with particular strength in tax from employees, as shown in Table 2.3.

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

Labour earnings growth is the key contributor to the growth in tax revenue across the forecast period. Earnings growth and the progressive nature of the personal tax scale contribute to add $5.1 billion to source deductions over the next four years.

The level of residential investment is forecast to double over the forecast period, mainly as a result of rebuilding in Canterbury. The higher investment is expected to add $1.3 billion to GST by 2016/17 (over the next four years) and is the main reason why GST is forecast to grow faster than private consumption.

Corporate tax is expected to rise over the forecast period as business profitability continues to improve as growing domestic activity allows firms to rebuild margins which have been compressed in recent years. In addition, an assumed running down of tax losses that built up over the recession contributes to the forecast growth in corporate tax.

These forecasts also see an expected rise in 90-day interest rates from 2.7% in 2012/13 to 4.7% by 2016/17, with flow on impacts to increased tax on interest earned on residents' savings (RWT).

Budget 2013 announces revenue initiatives, largely in relation to increased funding for the enforcement of tax law in the property sector.[4] This increased enforcement is expected to raise an additional $45 million of tax revenue from 2016/17 onwards.

Table 2.3 - Reconciliation of change in core Crown tax revenue over the forecast period
Year ending 30 June
$billions
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast

Movement in core Crown tax owing to:

         
Employees' compensation 0.5  1.1  1.0  1.0  1.2 
Entrepreneurial income 0.1  0.2  0.3  0.1  0.1 
Corporate profits 0.3  1.1  0.2  0.4  0.2 
Private consumption 0.5  0.7  0.8  0.8  0.7 
Residential investment 0.3  0.5  0.4  0.3  0.1 
Interest rates (0.1) -    0.2  0.3  0.3 
Fiscal drag 0.2  0.2  0.2  0.2  0.3 
Tax loss offsets -    0.4  -    0.1  -   
Timing and other factors 1.4  (0.1) 0.6  0.4  0.2 
Total movement in core Crown tax revenue 3.2  4.1  3.7  3.6  3.1 
Plus: previous year's tax base 55.1  58.3  62.4  66.1  69.7 
Core Crown tax revenue 58.3  62.4  66.1  69.7  72.8 
   as a % of GDP 27.3% 27.4% 27.8% 28.1% 28.3%

Source: The Treasury

...and is higher than the Half Year Update

The Half Year Update forecast tax revenue of $71.9 billion by 2016/17, while Budget 2013 expects an additional $0.9 billion, taking the total to $72.8 billion in 2016/17. The reason for the increase is largely owing to the strength of the current year's outturn. While the Half Year Update included increases in both other persons tax and PAYE, the actual outturn for these tax types has outstripped those forecasts. The forecasts assume that most of the current strength will remain and the base will grow.

Figure 2.3 - Movement in core Crown tax revenue since the Half Year Update
Figure 2.3 - Movement in core Crown tax revenue since the Half Year Update
Source: The Treasury

The signalled reductions in ACC levies (refer to page 35) also impact the tax take. With lower levies there is an increase in disposable income, which has flow on impacts to the forecasts in the form of increased tax from consumption and interest on savings.

Notes

  • [4]Refer to the Additional Information on Treasury's website for further details on tax policy changes.

Core Crown Expenses

Growth in core Crown expenses slows over the forecast period...

While core Crown expenses are forecast to increase in nominal terms by $5.5 billion in total over the next four years (Figure 2.5), this increase is relatively modest compared to the previous 10 years' growth. The annual average increase in core Crown expenses (excluding earthquake costs) from 2003 through 2012 was 6.1%. These forecasts see the annual average increase in expenses fall to 2.7%, as shown in Figure 2.4.

Figure 2.4 - Core Crown expenses growth (excluding earthquake costs)
Figure 2.4 - Core Crown expenses growth (excluding earthquake costs).
Source: The Treasury

The lower expenditure growth is largely owing to smaller allowances for new spending in recent Budgets and the Government's decisions to reduce future operating allowances from Budget 2014 onwards by around $0.2 billion per Budget.

Figure 2.5 - Increase in core Crown expenses
Figure 2.5 - Increase in core Crown expenses.
Source: The Treasury

Budget 2013 decisions have increased spending by $1.0 billion[5] per year and include spending of $0.4 billion for health, $0.2 billion for education, $0.1 billion for earthquake recovery and $0.1 billion for growth-related initiatives. For more details about the Budget 2013 package, including reprioritisation, refer to the Minister’s Executive Summary.

The forecasts include operating allowances for new spending of around $1.0 billion for the next three Budgets, which in total increase the level of expenses by $3.0 billion by 2016/17.

Social assistance spending increases by $2.4 billion by 2016/17, with the increase owing to payments being indexed to inflation and increasing recipient numbers. New Zealand Superannuation increases by $2.5 billion over that period with other benefit types reducing slightly.

Finance costs also increase over the next four years as gross debt continues to grow and interest rates are forecast to rise.

Partially offsetting the increases, earthquake costs reduce over the forecast period; refer to page 33 for details of the profile of earthquake expenses.

...as a result, they fall as a share of GDP...

While expenses continue to increase in nominal terms over the forecast period, the growth is expected to be at a slower rate than economic growth, as shown in Figure 2.6.

Figure 2.6 - Core Crown expenses
Figure 2.6 - Core Crown expenses.
Source: The Treasury

Core Crown expenses are forecast to fall from 33.5% of GDP in 2012/13 to 30.0% of GDP by 2016/17.

...and have declined since the Half Year Update

By 2016/17 expenses are $0.8 billion less than forecast in the Half Year Update, falling from $78.0 billion to $77.2 billion. As shown in Figure 2.7, the main driver of the decrease is the reduction in future Budget allowances from Budget 2014 onwards.

Figure 2.7 - Future Budget allowances
Figure 2.7 - Future Budget allowances.
Source: The Treasury

Cost to the Crown of Canterbury Earthquakes

The Government continues to make significant contributions to the rebuild of Canterbury, with latest estimates for the total cost to the Crown at $15.2 billion. This latest estimate adds $2.1 billion for key projects in the Canterbury region to the $5.5 billion the Government previously set aside for earthquake recovery on top of $7.6 billion for costs relating to the Earthquake Commission (EQC) and other Crown entities.

Budget 2013 has allocated over $0.9 billion from the Future Investment Fund for the Christchurch hospitals redevelopment, the Justice and Emergency Services Precinct and to tertiary education institutions in the Canterbury region. Just over $0.3 billion of operating funding has been set aside in the Budget as part of the Crown’s contribution to anchor projects in the central city. The remainder of the increase relates to commitments for final land zoning decisions, school property portfolio expenditure and other education initiatives and funding for CERA.

Table 2.4 below outlines the latest estimates of the net impact of the earthquake included in these forecasts, the operating/capital split and the expected cash profile of earthquake costs.

Table 2.4 - Net earthquake expenses (operating and capital)
Year ending 30 June
$millions
2011 & 2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Total
BEFU
Total
HYEFU
Local infrastructure 881 1,164 100 100 100 50 2,395 1,549
Crown assets1 12 21 230 437 500 379 1,579 33
Land zoning 920 189 109 1,218 1,120
Christchurch central rebuild 187 708 117 (174) 63 901 588
Welfare support 243 32 24 6 305 307
Southern Response support package 511 (49) (84) (41) (34) (2) 301 300
Estimation contingency 793
Other costs 318 242 137 77 76 18 868 817
Canterbury earthquake recovery costs 2,885 1,786 1,224 696 468 508 7,567 5,507
EQC (net of reinsurance proceeds) 8,133 (164) (255) (68) (114) 7,532 7,532
Other Crown entities (18) 40 (124) 77 53 38 66 49
Total Crown 11,000 1,662 845 705 407 546 15,165 13,088
Operating and capital expenses                
Operating expenditure (OBEGAL) 10,987 1,395 10 209 119 132 12,852 12,500
Capital expenditure 13 267 835 496 288 414 2,313 588
Total Crown 11,000 1,662 845 705 407 546 15,165 13,088
Total cash payments 5,247 1,597 3,283 2,778 1,722 538 15,165 13,038

Note:

  1. Crown assets includes capital expenditure on Canterbury hospitals, schools, tertiary education institutions and the Justice and Emergency Services Precinct

Source: The Treasury

While the expenses are largely recognised up front and indicate the Crown's obligation, the cash profile reflects the expected timing of payments to settle these obligations.

These are the latest estimates of the cost of the earthquake to the Crown; the Specific Fiscal Risks chapter includes discussion on the risks associated with the Canterbury earthquakes (page 59).

A discussion about investment spending associated with the Canterbury rebuild can be found in the Economic Outlook chapter on page 15. The box in the Economic Outlook chapter focuses on aggregate investment levels, including both government and private sector spending.

Notes

  • [5]While the Budget 2013 package was $1.0 billion in 2016/17, on average Budget 2013 has a net impact of $0.9 billion, comprising of $1.0 billion new spending offset by $0.1 billion of revenue initiatives.

Operating Surplus

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

With the increase in tax revenue outstripping spending growth, the Crown's OBEGAL is forecast to return to surplus in 2014/15 at $75 million.

The outlook has improved since the Half Year Update particularly in relation to tax revenue, which has enabled the Government to signal reductions in ACC levy rates (refer to the box on the next page). As a result of the levy reductions, OBEGAL grows at a slower rate than forecast in the Half Year Update.

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

State-owned Enterprise (SOE) and Crown Entity (CE) sectors contribute $2.0 billion to the surplus in 2012/13 falling to $1.1 billion by the end of the forecasts. The fall is mainly owing to the reduction in ACC levy rates and forgone profits from the Government share offers (partially offset by reduced borrowing costs). Figure 2.8 shows the composition of OBEGAL from the different sectors of the Government.

The underlying nature of OBEGAL can be seen using the cyclically adjusted balance (CAB). This measure adjusts for the state of the economy and significant one-off expenses. Figure 2.9 shows that CAB has been close to OBEGAL in recent years, indicating that the recent operating deficits have been largely structural. The projected size of the economy reduced following the recession, implying a smaller tax base while, in contrast, expenses continued to grow. In these forecasts, tax is expected to grow faster than expenses, seeing CAB move to surplus in 2014/15.[6]

Figure 2.9 - OBEGAL and CAB
Figure 2.9 - OBEGAL and CAB.
Source: The Treasury

...while current strength in equity markets lifts the operating balance

When gains and losses are included, the total Crown operating balance is forecast to be in surplus this year, then declines next year before growing each subsequent year of the forecasts (Figure 2.10). The current year's surplus is a result of gains made by Crown financial institutions (CFIs), largely ACC and the NZS Fund, and reflects strong global equity returns (for example, by 31 March 2013 the New Zealand Superannuation Fund had made year-to-date gains of $3.8 billion, a return of 19.9%). While the current year reflects strong market growth, the forecast gains in future years assume a long-term rate of return, resulting in more subdued growth in these years. These gains play a part in increasing the Government's financial assets, and the Crown's net worth (discussed on page 37).

Figure 2.10 - Components of operating balance
Figure 2.10 - Components of operating balance.
Source: The Treasury

ACC Levy Reductions

As part of Budget 2013, the Government has signalled reductions in ACC levy rates of around $300 million in 2014/15 and $1.0 billion from 2015/16 onwards. When combined with the consequential impact on investment revenue and insurance expenses, the fiscal impact on OBEGAL of the levy reductions is expected to be approximately $0.4 billion in 2014/15, $1.5 billion in 2015/16 and $1.1 billion in 2016/17 (refer to Table 2.5).

The impact on specific levy rates has yet to be agreed; therefore, the fiscal forecasts include revenue and expense contingencies to reflect the expected fiscal impact of the reductions.

Investment revenue has been adjusted to reflect any consequential forgone investment returns from ACC's asset portfolio.

Insurance expenses have also increased in the forecasts to reflect the expected flow-on impacts on the valuation of the claims liability. An expense is required in order to rebalance the risk of meeting future claims with reduced revenue.

Table 2.5 - Fiscal impact of reducing ACC levies
Year ending 30 June
$billions
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Decrease in levy revenue (0.3) (1.0) (1.0)
Forgone investment revenue (0.1)
Increase in insurance expenses 0.1 0.5
Impact on OBEGAL (0.4) (1.5) (1.1)

Source: The Treasury

Notes

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

Net Debt

Net debt peaks as a share of GDP in 2014/15...

While the Crown returns to operating surplus in 2014/15, core Crown operating cash flows[7] remain in deficit a further year, not reaching surplus until 2015/16. By 2016/17, the core Crown cash surplus is expected to reach $3.9 billion.

While operating cash flows are positive by 2015/16, net capital spending is expected to exceed these cash flows. As a result, residual cash remains in deficit for each year of the forecast period. These deficits are funded by an increase in net debt. In nominal terms, net debt is expected to peak in 2016/17 at $70.3 billion before beginning to decline. However, net debt peaks as a share of GDP in 2014/15 at 28.7% (Figure 2.11) as the growth in the economy is expected to outpace the increase in net debt.

Figure 2.11 - Net debt
Figure 2.11 - Net debt.
Source: The Treasury

...with residual cash deficits mostly funded by issuing government bonds

Over the next four years residual cash deficits are expected to total $12.7 billion. In order to fund these deficits the bond programme is expected to raise funds of $30.8 billion, with $14.3 billion of existing debt due to be repaid, providing net cash proceeds of $16.5 billion (Table 2.6). The bond programme includes some pre-funding to meet debt maturing just outside the forecast period (December 2017).

Table 2.6 - Net increase in government bonds
Year ending 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
4-year
Total
Face value of government bonds issued (market) 10.0 8.0 7.0 7.0 32.0

Cash proceeds from government bond issue

         
Cash proceeds from issue of market bonds 10.2 7.8 6.4 6.4 30.8
Repayment of market bonds (11.0) (1.8) (12.8)
Net proceeds from market bonds 10.2 (3.2) 4.6 6.4 18.0
Repayment of non-market bonds (0.8) (0.7) (1.5)
Net repayment of non-market bonds (0.8) (0.7) (1.5)
Net cash proceeds from bond issuance 9.4 (3.9) 4.6 6.4 16.5

Source: The Treasury

The forecast issuance over the next four years is $2.0 billion lower than was forecast at the Half Year Update, largely owing to the improvement in core Crown tax revenue and core Crown expenses.

Notes

  • [7]Net debt and residual cash indicators are measured on a core Crown basis. Residual cash includes both operating and capital activity. This differs from OBEGAL, which is measured at a total Crown level and includes operating activity only.

Total Crown Balance Sheet

Operating balance surpluses result in increasing net worth...

Net worth attributable to the Crown is expected to increase in 2012/13 for the first time since the global financial crisis and the Canterbury earthquakes. At its height, net worth peaked at $105.1 billion in 2007/08, but has since nearly halved to stand at $59.3 billion as at 30 June 2012.

This year, net worth attributable to the Crown is forecast to increase by $2.2 billion, largely owing to the operating balance surplus (of which $5.9 billion is attributable to gains on the Crown's investment portfolio), and reach $61.5 billion. Net worth is expected to grow another $12.4 billion to stand at $73.9 billion by 2016/17, as shown in Figure 2.12. As a share of GDP this is 28.7%, roughly half the level of the peak 56.6% of GDP in 2007/08.

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

...with assets increasing $32.8 billion over the forecast period...

Assets are forecast to increase by $32.8 billion, with the growth over the forecast period made up of investment of $79.3 billion offset by reductions of $46.5 billion, as shown in Table 2.7.

Figure 2.13 - Total Crown assets
Figure 2.13 - Total Crown assets.
Source: The Treasury

The largest asset growth over the forecast period is in the financial portfolio, and reflects investment growth in CFIs such as the NZS Fund and ACC. Much of this growth is recognised as gains in the operating balance; however, there is also growth in the asset base from reinvestment. For example, this year, ACC and NZS Fund financial assets grow by $8.2 billion, with roughly $5.3 billion coming from holding gains with the remaining $2.9 billion being new investments.

Commercial assets increase $9.1 billion over the forecast period, which is largely attributable to growth in the Kiwibank mortgage assets (that grow as their deposits from customers grow) and as SOEs increase their investment in physical assets.

The social asset portfolio increases as a result of new capital spending (funded by the Future Investment Fund, as detailed below), and as existing assets are replaced and student loans are issued.

Table 2.7 - Asset growth by portfolio
Year ending 30 June
$billions
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Total
Forecast
Opening commercial assets 46.6 47.9 50.0 52.2 54.5 46.6
Gross investment 3.2 3.6 3.5 3.8 4.3 18.4
Gross reductions (1.9) (1.5) (1.3) (1.5) (1.8)  (8.0)
Closing commercial assets1 47.9 50.0 52.2 54.5 57.0 57.0
Opening financial assets 72.5 70.9 75.1 69.8 75.6 72.5
Gross investment - CFIs 8.2 3.7 4.2 4.7 5.0 25.8
Other investments 2 (9.8) 0.5 (9.5) 1.1 3.9  (13.8)
Closing financial assets 70.9 75.1 69.8 75.6 84.5 84.5
Opening social assets 121.2 121.9 125.1 126.9 128.8 121.2
Gross investment 5.5 7.7 7.4 7.1 7.4 35.1
Gross reductions (4.8) (4.5) (5.6) (5.2) (4.6)  (24.7)
Closing social assets 121.9 125.1 126.9 128.8 131.6 131.6
Opening total assets 240.3 240.7 250.2 248.9 258.9 240.3
Gross investment 16.9 15.0 15.1 15.6 16.7 79.3
Gross reductions (16.5) (5.5) (16.4) (5.6) (2.5)  (46.5)
Closing total assets 240.7 250.2 248.9 258.9 273.1 273.1

Notes:

  1. The full value of the assets in the companies involved in the Government's partial share sales remain on the Crown's balance sheet after the sale. The ownership of those assets does change, and this is reflected in the increase in minority interests
  2. Other investments include assets managed by the Debt Management Office, which fluctuate with the borrowing programme (discussed on page 36)

Source: The Treasury

...including $1.5 billion allocated from the Future Investment Fund...

In Budget 2012 the Future Investment Fund was established to allocate the estimated proceeds from the partial share sales of certain SOEs (as discussed on page 40) to fund new capital, rather than issuing debt. Budget 2012 allocated $0.6 billion of the Fund, while this Budget allocates another $1.5 billion. A large portion of this allocation is expected to be spent on the Canterbury rebuild as well as investments in technology, irrigation and KiwiRail.

Table 2.8 - Future Investment Fund
$billions Total
Forecast
Proceeds from partial share sales 6.0
Allocated in Budget 2012 (0.6)
Allocated in Budget 2013 (1.5)
To be allocated  3.9

Source: The Treasury

...while liabilities increase at a slower rate...

The Crown's liabilities are expected to increase by $15.6 billion over the next four years, largely driven by increased borrowing. Borrowings are forecast to increase $22.3 billion to $123.1 billion by 2016/17.

As shown in Figure 2.14, borrowing is mostly held in the financial portfolio (by Treasury, through the Debt Management Office, and RBNZ). Borrowings in this portfolio increase $13.6 billion over the next four years to meet the Crown's cash deficits (refer to page 36 for discussion of the bond programme). The remainder of borrowing is in the commercial portfolio, and is largely made up of Kiwibank deposits, which grow in line with the bank's mortgage assets.

Figure 2.14 - Total Crown borrowings
Figure 2.14 - Total Crown borrowings.
Source: The Treasury

Partially offsetting the growth in borrowings are reductions in liabilities as a result of settling obligations related to the Canterbury earthquakes. The Crown's earthquake-related insurance liabilities held in the financial portfolio (EQC and Southern Response) are forecast to decrease $8.4 billion as all claims are expected to be settled by 2016/17. Similarly, the Crown's social liabilities are expected to reduce by $2.4 billion to $14.2 billion as the earthquake-related liabilities are settled.

Figure 2.15 - Total Crown liabilities
Figure 2.15 - Total Crown liabilities.
Source: The Treasury

...which is critical in order to rebuild the fiscal buffer to absorb future shocks

With the recent deterioration in the Crown's net worth it is important the fiscal buffer is rebuilt to allow headroom for the Government to be able to respond to future shocks, manage volatility and meet contingent liabilities and fiscal risks if they eventuate.

A significant source of balance sheet risk is volatility in asset and liability values owing to movements in external factors such as interest rates, exchange rates and equity prices. This volatility is illustrated by the level of gains and losses being recognised in the operating balance; as shown in Figure 2.16. The CFIs are particularly susceptible to market risk.

Figure 2.16 - Volatility of gains and losses
Figure 2.16 - Volatility of gains and losses.
Source: The Treasury

The long-term liabilities for ACC and the Government Superannuation Fund (GSF) are sensitive to changes in discount rates as their value is based on cash flows up to 80 years into the future, discounted to estimate the current obligation. As an example of this sensitivity, losses on GSF and ACC liabilities totalled $6.8 billion in 2011/12, mostly owing to changes in the discount rate, and if the discount were to reduce by 1.0%, the liabilities would increase by around $7.5 billion.

The Crown is also exposed to risks that may eventuate if certain events occur, or if present liabilities that cannot currently be measured are quantified.[8] For example, the Crown has issued a number of guarantees and indemnities. If events occur that require the Crown to meet any of these guarantees, there will be associated fiscal costs with negative impacts on the operating balance (eg, the Deposit Guarantee Scheme that was established in the wake of the global financial crisis).

Contingent liabilities also include capital that the Crown has subscribed to in International financial institutions, such as the World Bank and the International Monetary Fund (IMF), which is callable by them. If called, the Crown's assets will increase but debt will also rise to fund the increase in capital.

A full description of the Crown's fiscal risks and contingent liabilities is provided in the Specific Fiscal Risks chapter.

Notes

  • [8]Refer to the Specific Fiscal Risks chapter for definitions of contingent liabilities and a full list of those that the Crown is currently exposed to.

Partial Share Sales

The forecast fiscal impact of the Government share offers remains similar to the Half Year Update. However, it is now assumed that there will be no proceeds from a partial sale of Solid Energy over the forecast period. As Solid Energy was a small component of total forecast proceeds the parameters of the expected proceeds have not changed. Forecast forgone dividends and forecast forgone profits have been updated with the latest forecasts from the companies.

Table 2.9 outlines the fiscal impact of the share offers and further details about the assumptions surrounding the forecasts can be found in the assumptions note on page 42. At the time these assumptions were made the outcome of the Mighty River Power offer was not known.

Table 2.9 - Estimated fiscal impact of the Government share offers
Year ending 30 June
$millions
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
5-year
Total

Cash/Debt impact

           
Forecast cash proceeds 1,500 1,500 1,500 1,500 6,000
Forecast forgone dividends (120) (170) (230) (290) (810)
Estimated finance cost savings 7 79 158 245 291 780
Reduction in net debt 1,507 1,459 1,488 1,515 1 5,970

Accrual impact

           
Forecast forgone profits (10) (140) (200) (270) (340) (960)
Estimated finance cost savings 7 79 158 245 291 780
Net decrease in OBEGAL (3) (61) (42) (25) (49) (180)
Forecast gain on disposal recorded in taxpayers' funds 175 175 175 175 700
Increase in net worth attributable to the Crown 172 114 133 150 (49) 520

Source: The Treasury

Fiscal Forecast Assumptions

The fiscal forecasts are based on assumptions and judgements developed from the best information available on 29 April 2013, when the forecasts were finalised. Actual events are likely to differ from 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 Table 2.10 below (on a June-year-end basis to align with the Government's balance date).

Table 2.10 - Summary of key economic forecasts used in fiscal forecasts
Year ended 30 June
$billions
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Real GDP1 (ann avg % chg) 2.4 2.5 2.5 2.9 2.5 2.2
Nominal GDP2 ($m) 208,467 213,844 227,892 237,954 248,004 257,219
CPI (ann avg % chg) 2.2 0.9 1.7 1.9 2.0 2.2
Govt 10-year bonds (ann avg, %) 4.1 3.6 4.1 4.5 4.9 5.1
5-year bonds (ann avg, %) 3.5 2.9 3.3 4.1 4.8 5.0
90-day bill rate (ann avg, %) 2.7 2.7 2.8 3.4 4.2 4.7
Unemployment rate (ann avg, %) 6.6 7.0 6.2 5.9 5.6 5.3
Employment (ann avg % chg) 1.0 (0.8) 2.5 2.2 1.3 1.2

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 and other circumstances known to the Government up to 29 April 2013.
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 between IRD and the Treasury.
Earthquake costs Expenditure (accrual measure) is forecast based on estimates on when key decisions will be taken.  The timing of cash payments is based on estimates of when actual spending will take place.  Refer to page 33 for further discussion.
Operating allowance Net $1.0 billion from Budget 2014 growing at a rate of 2.0% per annum for subsequent Budgets.
Provision for new capital spending Net $3.7 billion over the next four Budgets with $1.0 billion in Budget 2014, $0.9 billion in Budget 2015, Budget 2016 and Budget 2017.  For further details, see note 8 of the Forecast Financial Statements.
Government share offers

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).

Net assets of the entities as at 30 June 2012 ($5.3 billion) were used to determine the gain on sale.

Forgone profits and dividends are based on an average of the fiscal forecasts provided by the companies for the Budget 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 that tend to forecast upper spending limits (appropriations) rather than best estimates.

Top-down adjustment to operating and capital as follows:

 
Year ending 30 June
$billions
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Operating 0.3 0.6 0.3 0.3 0.3
Capital 0.3 0.1
Borrowing requirements 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 2012 annual financial statements and any additional valuations that have occurred up to 31 March 2013 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 31 March 2013.  Beyond this time, gains on financial instruments are based on long-term benchmark rates of return for each portfolio.
GSF and ACC liabilities

The GSF and ACC liabilities included in these forecasts have been valued as at 28 February 2013 and 31 December 2012 respectively.  The ACC liability has also been adjusted for the 31 March 2013 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.

GSF'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.

NZS Fund contributions

No contribution is assumed in the forecast period.

 
Year ending 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Required contribution 2.4 2.2 2.1 2.1
Actual contribution - - - -

The underlying assumptions in calculating the required contribution in each year are the previous year's NZS Fund balance and projected series, over the ensuing forty years of nominal GDP, net (after-tax) New Zealand superannuation expenses and the Government 5-year bond rate. The latter is used in calculating the Fund's expected long-run after-tax annual return.  Over the forecast years all Fund variables, apart from the capital contributions, are provided by the NZS Fund itself. 

Refer to the Treasury's website for the NZS Fund model. 

Risks and Scenarios

Overview

  • Relative to the Half Year Update forecasts, the risks to the Budget Update central forecasts are more balanced, mainly owing to receding extreme global downside risks. However, significant global economic risks remain and are slightly skewed to the downside. The underlying euro area government debt problems still exist, there are risks around how the US manages its fiscal consolidation and the effects of developed-country monetary easing remain uncertain.
  • Domestically, uncertainties surround some of the key judgements in the economic forecasts and are slightly skewed to the upside. These judgements include the size and pace of the Canterbury rebuild, the path and pass-through of the exchange rate, the saving behaviour of households and the impact of the drought.
  • The more balanced profile of risks is demonstrated by the upside and downside scenarios being broadly symmetrical. In the downside scenario nominal GDP is $19 billion lower over the forecast period based on lower inflation internationally and domestically. The upside scenario results in nominal GDP being $19 billion higher over the forecast period and is driven by stronger-than-expected house prices which results in more complementary consumption spending, along with increased pricing pressures in the construction industry. The scenarios are based on their impact on nominal GDP and tax revenue over the forecast period.
  • If these economic risks or any significant deviations from the central forecast were to eventuate they would impact on the Government's fiscal performance and position. These economic uncertainties also pose risks to the Government's debt servicing costs. The fiscal uncertainties are illustrated by the downside and upside scenarios. Core Crown tax revenue is $5.4 billion lower over the forecast period in the downside scenario and the operating balance (before gains and losses) reaches surplus two years later, compared to the central forecast. Core Crown tax revenue is a cumulative $6.6 billion higher in the upside scenario and a larger surplus is recorded in the 2015 June year, compared to the central forecast.
  • The Crown's financial position is also exposed to risks from its balance sheet. 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. These may result in operating balance impacts.

Introduction

The first part of this chapter outlines the key risks to the economic outlook. These risks mainly relate to the key judgements associated with the central forecast. In the second part of the chapter, upside and downside scenarios are presented which represent just two possible ways the New Zealand economy could deviate from the central forecast. The chapter then focuses on the established channels between the risks facing the economy and the Crown’s fiscal position.

Economic Risks

Risks to the forecasts have become more balanced…

In recent Economic and Fiscal Updates, risks around the central forecasts have been skewed to the downside, mainly owing to the relatively high probability associated with a negative global shock occurring as the euro area debt crisis evolved. The height of these elevated downside risks was shown in the Pre-election Economic and Fiscal Update 2011, where an upside scenario was not included in order to demonstrate that there was a much higher probability of a downside scenario occurring. Since then, downside risks have become less prevalent to the point where risks are now fairly symmetrical around the central forecast. The more balanced nature of risks is illustrated by the upside and downside scenarios having similar-sized impacts on nominal GDP and tax revenue.

…with extreme global downside risks receding…

The more balanced profile of risks mainly relates to a lower probability of a severe internationally-generated negative shock occurring. The euro area debt crisis has settled down somewhat, the US avoided the “fiscal cliff” and China is experiencing a relatively modest slowing in growth. Definitive decisions by officials have lessened the risk of disorderly default or break-up of the euro area. This has included Ireland, Greece and Portugal all receiving funding packages from the IMF and European organisations, while the European Central Bank (ECB) has pledged to “do whatever it takes” to keep the euro area together, including buying sovereign bonds.

More recently, Cyprus has participated in a partial “bail-in”, where large uninsured depositors have to take losses on their deposits in order for Cyprus to receive funding from the IMF and European Union. In the US, Congress was able to avoid the “fiscal cliff”; there will still be significant fiscal consolidation, including payroll tax increases and government spending cuts (“the sequester”), but not at the level feared by market participants if negotiations had failed. The Federal Reserve has also pledged to keep policy easing in place until the recovery becomes entrenched, reducing downside risks. Fears of a sharp slowing in growth in China have mostly been averted, with real GDP growth reaching a trough of 7.4% on a year earlier in the September quarter of 2012 and rebounding slightly to 7.9% and 7.7% in the December and March quarters respectively.

…but global risks remain…

While the extreme negative risks from the euro area debt crisis have receded, significant global risks remain and are still somewhat skewed to the downside. In the central forecast it is assumed that governments and officials continue to do what is necessary to avoid a disorderly default by a euro area country but that growth in the region remains weak as fiscal consolidation weighs heavily on activity. The probability that the crisis will worsen significantly has fallen recently owing to actions taken by organisations, including the ECB and IMF. However, escalation of the euro debt crisis would further dampen growth in the region and cause financial market turmoil, with spillover effects on the rest of the world.

More generally, the effects of fiscal consolidation and monetary easing by major advanced economies remain uncertain. The US and euro area must undergo significant adjustment to reduce government debt. Japan, the US and the UK are currently undertaking significant quantitative easing programmes to stimulate their economies through the purchase of financial assets. An example is the Bank of Japan pledging to double the size of its balance sheet over the next two years in order to achieve its 2% inflation target. This has driven the yen lower and boosted Japanese asset markets. How these changes flow through to the real economies remains uncertain.

…including for New Zealand's major trading partners…

One of the main risks associated with New Zealand's largest trading partner, Australia, is the source of growth after the peak in mining investment has passed this year. It will take some time for the exports associated with this investment to ramp up, requiring increased residential and non-mining business investment to maintain Australia's recent strength in economic growth.

China has grown in importance to the New Zealand economy, now being our second largest trading partner. The risk of a significant slowing in growth, as Chinese authorities tried to clamp down on rising asset prices, has eased recently. However, risks remain of a correction in the housing market, following the recent run up in prices, and the build up of poor quality debt over the recent investment boom. China is also attempting to rebalance its economy away from export- and investment-led growth, towards consumption. Faster progress towards this goal would benefit New Zealand as a major supplier of soft commodities, including dairy products.

…which, if they eventuate, would impact on the New Zealand economy

If any of the global downside risks eventuate, demand for New Zealand's exports would be lower; the opposite is true of upside risks which are considered now to be almost as likely. For products whose production is responsive to demand, including services and manufactured exports, lower world growth would depress demand and decrease export volumes; whereas for other products with supply constraints, including agricultural exports, the main impact would be through lower prices.

Downside global developments would also have a negative impact on domestic confidence and asset prices. Higher risk aversion in response to negative developments would result in more cautionary behaviour by households, which would be expected to lead to lower asset prices and less willingness by consumers to commit to major purchases. The result of these developments would be lower private consumption, while more caution on the part of firms would decrease business investment and employment as they are less willing to commit to expenditure in a more uncertain environment.

Negative global developments would increase the level of uncertainty faced by financial market participants and lower the amount of risk they are willing to take on. This would flow through to reduced availability, and higher cost, of credit for New Zealand. The effective repricing of risk would increase the borrowing costs of New Zealand banks, which they would pass on to customers. However, there is room for the RBNZ to provide liquidity as needed and lower the base interest rate to mitigate the impact of higher funding costs on the interest rates faced by households and businesses. This is different from the majority of other developed-country central banks that are at the zero lower bound of interest rates and are undertaking alternative policy (eg, quantitative easing) to ease monetary conditions.

Risks surround key judgements relating to the domestic economy…

Offsetting the somewhat negatively skewed global risks, upside risks are slightly more prevalent for the domestic economy. Domestic risks mainly relate to the key judgements that have been made in the forecasts about the size and timing of the Canterbury rebuild, the level and flow through of the exchange rate, household saving behaviour and the developments of monetary policy. In addition, the impact of the drought, the current amount of spare capacity in the economy and the current underlying strength of the labour market remain uncertain.

...including earthquake rebuilding...

The timing and extent of the Canterbury earthquake rebuild is difficult to forecast, as an event of this magnitude has never occurred before in New Zealand. The key determinants of the speed the rebuild can ramp up and be sustained include insurance settlements and the capacity and capability of the construction sector. These factors provide both upside and downside risks to the rebuild assumption influencing the central forecast (see the “Investment Associated with the Canterbury Rebuild” box [Chapter 1, page 15] for more information). If insurance settlements and construction capability progress faster than expected, residential and non-residential construction, imported goods volumes and employment would all be stronger than in the main forecast. There is also a risk that the Canterbury rebuild puts more upward pressure on prices, which is explored further in the upside scenario.

Another risk to the forecasts is how much the Canterbury rebuild crowds out activity in other parts of the economy. New Zealand has limited construction capacity, which will be added to through inward migration and the importation of capital goods, a significant part of which will be taken up by Canterbury. So while the Canterbury rebuild is a major driver of growth over the forecast period, in its absence other parts of the country would use some of the construction industry's capacity to increase activity.

...as well as the exchange rate...

A major change in judgement between the Half Year Update and the Budget Update is the evolution of the exchange rate. Previously, it was assumed that a significant fall in the New Zealand dollar (NZD) would occur over the forecast period owing to most measures suggesting a large over-valuation. However, this depreciation has not occurred yet and other factors, including looser monetary policy in major advanced economies and a positive growth outlook for New Zealand relative to other developed economies, have supported the NZD. The forecast for the NZD has therefore been held higher for longer on a trade-weighted basis. A risk to this forecast is that the over-valuation of the NZD leads financial market participants to sell the currency, resulting in a lower exchange rate than in the central forecast. A lower exchange rate would increase tradables inflation, as imported goods would become more expensive, and discourage consumption of imported products. On the other hand, exporters and import-competing businesses would become more competitive, boosting manufacturing and services exports and production of import substitutes for the domestic market.

…and household saving behaviour

In the central scenario it is assumed that households are fairly comfortable with the current state of their balance sheets and spend close to what they earn, resulting in a saving rate around zero over the forecast period. There is a risk that households show less restraint than anticipated; for example, households use the increased house prices that are forecast to fund consumption through housing equity withdrawal as occurred over the early-to-mid 2000s. This sort of behaviour is explored further in the upside scenario. This would result in consumption rising faster than disposable income, with the shortfall being funded by rising debt, and cause the saving rate to be more negative over the forecast period. While this would be positive for GDP growth in the near term, owing to a boost to private consumption, it may require a sharper negative adjustment in the medium term as households become more indebted and may need to repair their balance sheets.

Policy developments could turn out different than expected…

Macroeconomic policy developments remain uncertain, with macro-prudential policy being added to the uncertainty surrounding interest rates. The central forecast assumes that short-term interest rates begin rising in the June quarter of 2014, in line with market pricing at the time the forecasts were finalised. If recent strong growth in house prices were to spill over into more generalised price increases through wealth effects, an earlier increase in interest rates may be required. This could put further pressure on the exchange rate to appreciate and dampen domestic demand. On the other hand, if rising credit growth in order to finance house purchases and related consumption pose a threat to financial stability, macro-prudential tools may be used to stem the credit growth.

…as could the drought…

The effects of the recent drought on the economy are uncertain, particularly its impact on nominal GDP. Previous droughts have coincided with adverse global events such as the late-1990s Asian financial crisis and the late-2000s global financial crisis, which make it difficult to isolate the impact of each drought episode on the economy. The impact of this summer's drought on the economy is discussed in the “Economic Impacts of the Drought” box (Chapter 1, page 17). While rainfall has recently increased, given the weakened condition of the dairy herd going into the winter, a return to drought conditions would be particularly damaging and would impact on growth in the 2014 calendar year. A cold, dry winter could also reduce lambing rates next season to a greater extent than assumed, and may also negatively affect hydro-electricity generation which would be negative for GDP if producers switch to more costly thermal generation. The impact of the drought on prices is also a key uncertainty. If global dairy supply conditions remain tighter than assumed, dairy prices may be supported at a higher level next season than anticipated. There are also potential second round impacts to consider if changes in incomes resulting from the drought alter spending behaviour.

 …and other key judgements

Labour market data have been volatile recently and movements in the Household Labour Force Survey have appeared at odds with other indicators. For more information see the “Recent Labour Market Conditions” box (Chapter 1, page 21). If the assumption that modest employment growth will resume in the first half of 2013, following recent labour market weakness, is incorrect and employment remains weak, the unemployment rate could rise rather than be flat as is forecast. This would result in more spare capacity and lower wage pressures in the economy, creating less domestically-generated inflation. Related to this, the current amount of spare capacity in the economy (the output gap) is uncertain. If the output gap is more negative than the 1.0% of potential GDP estimated in the December quarter of 2012, there will be less domestically-generated inflation, but a greater cyclical increase in real GDP, than we have incorporated in the central forecast.

Alternative Scenarios

The following scenarios show how the economy might evolve if some of the key judgements in the main forecast are altered (Table 3.1). The scenarios are only illustrative in that they are two of a large number of possible examples, and do not represent upper or lower bounds for the forecasts, with more extreme paths possible. They represent what are assessed to be key risks to the Budget Update forecast and illustrate the impact of relatively small changes in the assumptions on key economic and fiscal variables. Although not the most likely outcome, there is a realistic prospect that these scenarios could occur. The scenarios are based on their impact on nominal GDP and tax revenue over the forecast period and no judgement is made as to whether these would be beneficial or detrimental to the New Zealand economy over a longer period of time.

Table 3.1 - Summary of key economic variables for main forecasts and scenarios
March years 2012
Actual
2013
Estimate
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast

Real GDP (annual average % change)

           
Main forecast 1.9 2.5 2.4 3.0 2.6 2.2
Upside scenario 1.9 2.5 2.9 3.6 2.7 1.9
Downside scenario 1.9 2.5 2.4 2.9 2.6 2.1

Unemployment rate1

           
Main forecast 6.7 6.9 6.0 5.9 5.5 5.2
Upside scenario 6.7 6.9 5.9 5.6 5.2 5.0
Downside scenario 6.7 7.3 6.3 6.1 5.8 5.6

Nominal GDP (annual average % change)

           
Main forecast 3.8 2.7 6.4 4.6 4.3 3.9
Upside scenario 3.8 2.7 6.8 5.7 5.1 4.1
Downside scenario 3.8 2.7 5.7 3.7 3.7 3.2

Current account balance (% of GDP)

           
Main forecast -4.4 -4.8 -4.8 -5.2 -5.8 -6.5
Upside scenario -4.4 -4.8 -4.9 -5.6 -6.6 -7.3
Downside scenario -4.4 -4.8 -5.2 -5.4 -6.2 -7.0

90-day bank bill rate2

           
Main forecast 2.7 2.7 2.7 3.6 4.3 4.8
Upside scenario 2.7 2.7 3.0 4.1 5.4 6.0
Downside scenario 2.7 2.7 2.7 3.1 3.4 4.1

Notes:

  1. March quarter, seasonally adjusted
  2. March quarter average

Sources: Statistics New Zealand, the Treasury, RBNZ

Downside Scenario

Prices weaker over the forecast horizon…

While there are a number of downside risks to real GDP growth, as outlined in the Economic Risks section, the downside scenario is based primarily on weaker inflation, both internationally and domestically. In this scenario it is assumed some of the judgements made in the central forecast turn out different than expected. In particular, it is assumed that the high exchange rate places more downward pressure on tradables inflation, inflation expectations are lower than anticipated resulting in decreased non-tradables inflation, and the terms of trade are lower than assumed in the central track owing to weaker global demand and a greater global supply response to expected growth in emerging market demand. These developments lower nominal GDP and tax revenue over the forecast period.

In the central forecast it is assumed that the deflationary impact of the recent appreciation of the exchange rate dissipates and becomes inflationary as the exchange rate begins to depreciate. This results in rising tradables inflation over the forecast period. In the downside scenario it is assumed that the deflationary impact of the high exchange rate is more persistent and keeps tradables inflation lower for a longer period than in the central forecast (Figure 3.1). The positive outlook for the New Zealand economy relative to other developed countries and an increase in monetary easing by advanced-economy central banks holds the NZD up, despite a lesser increase in short-term interest rates over the forecast period in response to the weaker inflation outlook.

In the central forecast it is assumed that the labour market partially recovers in the first half of 2013 from the weak employment results in the second half of 2012. In the downside scenario employment remains weak in the first half of 2013 as firms are still not confident enough in the recovery to take on permanent staff and the unemployment rate rises. This weaker labour market and subsequent lower wage growth, along with the current low headline inflation rate, help to contain inflation expectations. Lower inflation expectations, along with marginally weaker real GDP growth, result in less domestically-generated inflation.

Figure 3.1 - Tradables CPI inflation
Figure 3.1 - Tradables CPI inflation.
Sources: Statistics New Zealand, the Treasury
Figure 3.2 - Merchandise terms of trade (SNA)
Figure 3.2 - Merchandise terms of trade (SNA).
Sources: Statistics New Zealand, the Treasury

In the central forecast it is assumed that the goods terms of trade increase sharply over 2013. This increase occurs as the price of the commodities New Zealand exports, especially dairy products, rises with global supply being constrained owing to dry conditions in New Zealand and adverse weather conditions and increased feed costs overseas. Over the medium term it is assumed that growth in emerging market demand results in a slight upward trend in the merchandise terms of trade. In the downside scenario a lesser recovery in New Zealand's export commodity prices in 2013 is assumed as the price of dairy products is not as affected by adverse global weather conditions as first thought and a re-emergence of global risks dampens demand for commodities. It is also assumed that the global supply response to increasing emerging market demand is strong enough to contain price increases, resulting in a flatter merchandise terms of trade in the medium term (Figure 3.2).

…causing weaker nominal GDP…

The combination of lower tradables and non-tradables inflation, as well as weaker terms of trade over the forecast period, result in lower inflation compared to the central scenario. These weaker prices, along with slightly lower real GDP, reduce nominal GDP by $19 billion over the forecast period, compared to the central track. The lower terms of trade in the downside scenario weaken the goods trade balance over the forecast period which, along with the lower nominal GDP, increases the current account deficit as a percentage of GDP relative to the main forecasts. The current account balance reaches a deficit of 7.0% of GDP by March 2017, compared to 6.5% in the central track. The assumption of a weaker labour market mentioned earlier only reduces the unemployment rate to 5.6% by March 2017, compared to 5.2% in the central scenario.

…as well as lower tax revenue and operating balance

Core Crown tax revenue is a cumulative $5.4 billion lower over the forecast period in the downside scenario. A weaker inflationary environment means that nominal consumption and residential investment are lower, which reduces GST revenue by a cumulative $800 million over the forecast period. The weaker labour market and less inflationary pressure mean that worker incomes are also lower, which reduces source deductions revenue by $2.4 billion over the forecast period. The economy's weaker nominal activity means that business profitability is reduced, resulting in corporate taxes being a cumulative $700 million lower. Resident withholding tax is $600 million lower over the forecast period with interest rates needing to increase less than in the central forecast as inflation remains in the bottom half of the target band.

Core Crown expenses are slightly lower than in the central forecast as an increase in debt servicing costs is more than offset by a reduction in welfare payments. The reduction in welfare payments, despite incorporating a higher number of recipients of unemployment-related benefits, is driven by lower rate adjustments to benefits and superannuation, reflecting both lower inflation and wage growth. In this scenario, the return to surplus of the operating balance (before gains and losses) is delayed by two years until the June 2017 year (Figure 3.3) and, consequently, net core Crown debt as a proportion of GDP is still rising at the end of the forecast period (June 2017), reaching 30.3% at that time.

Figure 3.3 - Operating balance (before gains and losses)
Figure 3.3 - Operating balance (before gains and losses).
Source: The Treasury

Upside Scenario

Higher house prices…

The upside scenario is based on higher prices for existing and new houses, along with an associated increase in complementary household spending. In this scenario it is assumed that the Canterbury rebuild generates more inflationary pressures than in the central forecast. Capacity constraints, including a shortage of skilled labour, require firms to pay higher wages to attract skilled workers to Canterbury in order to complete the rebuild in a timely fashion. These higher wages spill over into the rest of the country as other regions need to retain workers and these higher wages are passed on to customers in the form of higher house-building costs. Annual growth in residential investment prices peaks around 10%, compared with the central track where productivity increases resulting from the localised and repetitive nature of the rebuild are sufficient to keep pricing pressures in check and annual growth in residential investment prices peaks around 6%.

In the upside scenario, existing house prices rise by more over the forecast period, with peak growth around 14% in 2014 compared to close to 8% in 2013 in the central forecast. House price growth also takes longer to come off its peak and prices continue increasing in real terms over the forecast period, compared to the central scenario where prices are flat in real terms by the end of the forecast period (Figures 3.4 and 3.5). The stronger house price growth is driven by higher domestic confidence resulting in increased housing demand, and the increase in building costs spilling over into existing house prices.

Figure 3.4 - House prices and private consumption in central forecast
Figure 3.4 - House prices and private consumption in central forecast.
Sources: Quotable Value Limited, Statistics New Zealand, the Treasury
Figure 3.5 - House prices and private consumption in upside scenario
Figure 3.5 - House prices and private consumption in upside scenario.
Sources: Quotable Value Limited, Statistics New Zealand, the Treasury

...boost private consumption and residential investment...

In this scenario, households resume housing equity withdrawal to finance consumption, resulting in the strong positive relationship between house prices and consumption over the 2000s reasserting itself (Figure 3.5). The resulting stronger debt-funded real consumption growth allows retailers to increase prices by more and inflation picks up considerably faster from its current subdued rate. Higher inflation results in increased short-term interest rates as the RBNZ tightens monetary policy sooner to maintain price stability. Despite higher interest rates, the exchange rate does not appreciate significantly as financial market participants see the increased activity as being unsustainable, demonstrated by the widening current account deficit.

It is also assumed that there is more complementary consumption associated with the pick up in residential investment than in the central forecast. This occurs as households buy new contents to fit out their new homes, with some of this expenditure financed out of earthquake insurance payouts. As the higher consumption is partly financed by borrowing against the increased value of housing, rather than higher incomes, the household saving rate is significantly lower than in the central forecast. The household saving rate reaches a low of -4.3% of household disposable income in the March 2016 year compared to the main forecast where it is 0.0% in 2016. This negative saving rate, along with higher interest rates at the end of the forecast period, suggests a slight adjustment to household balance sheets will be required sometime beyond the forecast period, which would likely constrain future consumption growth.

...which increases GDP and tax revenue

Stronger private consumption and residential investment result in nominal GDP being $19 billion higher over the forecast period. The increased activity drives a stronger labour market, with the unemployment rate reaching a low of 5.0% in March 2017, 0.2% points lower than in the main forecasts. The annual current account deficit is wider and reaches 7.3% of GDP in March 2017, versus 6.5% in the central forecast. The current account deficit is wider as some of the increased consumption and investment is imported goods.

Core Crown tax revenue is a cumulative $6.6 billion higher over the forecast period, mainly as a result of the higher nominal GDP. The stronger nominal consumption and residential investment boost GST revenue by $2.1 billion over the forecast period. The stronger labour market and increased competition for workers pushes up wages and salaries, boosting source deductions revenue by a cumulative $1.6 billion. The stronger economic activity allows firms to increase their margins, boosting profitability and increasing corporate tax by $1.5 billion out to June 2017. Higher short-term interest rates, needed to control rising inflation, boost tax on interest by $800 million. The increase in tax revenue is higher in the upside scenario than the fall in the downside scenario, despite the change in nominal GDP being similar. This asymmetry is because much of the decrease in GDP in the downside scenario comes from exports, which are not taxed other than to the extent to which they contribute to firm profits, while most of the gain to GDP in the upside scenario comes from consumption and residential investment which are both taxed through GST.

Core Crown expenses are slightly lower than in the central forecast as a fall in debt servicing costs more than offsets an increase in welfare payments. The increase in welfare payments is driven by higher rate adjustments to benefits and superannuation, reflecting both increased inflation and wage growth. In this scenario, the OBEGAL records a surplus of 0.6% of GDP in the June 2015 year, the same year surplus is achieved in the central forecast. Net core Crown debt as a percentage of GDP peaks at 28.0% in the June 2014 year, compared to 28.7% in the June 2015 year in the central forecast (Figure 3.6).

Figure 3.6 - Net core Crown debt
Figure 3.6 - Net core Crown debt.
Source: The Treasury

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 risks to the performance of the economy and the Crown's fiscal position. For more on fiscal risks, see the Specific Fiscal Risks chapter on page 59.

Fiscal Sensitivities

Table 3.2 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 one percentage point faster than we have forecast each year up to June 2017, tax revenue would be expected to be around $3.0 billion (1.2% of GDP) higher than forecast in the June 2017 year as a result. The sensitivities are broadly symmetric and if nominal GDP growth is one percentage point slower each year than we expect, tax revenue would be around $2.9 billion lower than forecast in the June 2017 year. However, these figures can be influenced by the composition of growth as different types of activity have different effective tax rates; for example, the upside and downside scenario both have around a $19 billion impact on nominal GDP but their tax revenue impacts differ by $1.2 billion.

A different interest rate path than that forecast would also impact on the fiscal position. A one percentage point lower interest rate would result in interest income being $116 million lower in the June 2017 year. This would be more than offset by interest expenses being $434 million lower in the June 2017 year.

Table 3.2 - Fiscal sensitivity analysis
Year ending 30 June
($millions unless stated)
2013
Estimate
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast

1% higher nominal GDP growth per annum on

         
Tax revenue - 620 1,335 2,125 2,985
   (% of GDP) - 0.3 0.6 0.9 1.2

Tax revenue impact of a 1% increase in growth of

         
Wages and salaries - 270 565 900 1,270
   (% of GDP) - 0.1 0.2 0.4 0.5
Taxable business profits - 120 285 465 655
   (% of GDP) - 0.1 0.1 0.2 0.3

Impact of 1% point lower interest rates on

         
Interest income1 (42) (94 ) (119) (82) (116)
   (% of GDP)  (0.0)  (0.0)  (0.1)  (0.0)  (0.0)
Interest expenses1 (29) (155) (248) (367) (434)
   (% of GDP)  (0.0)  (0.1)  (0.1)  (0.1)  (0.2)
Overall operating balance (13) 61 129 285 318
   (% of GDP)  (0.0) 0.0 0.1 0.1 0.1

Note:

  1. Funds managed by the NZDMO 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 3.7 plots the main tax revenue forecast, along with confidence intervals around those forecasts based on the Treasury's historical tax forecast errors and the assumption of an even balance of risks around the central forecast.[9] The outermost shaded area captures the range (+/- $7.3 billion in the June 2017 year) within which actual tax outturns fall 80% of the time.[10]

The tax revenue forecasts from the upside and downside scenarios are also plotted. The recent global financial crisis showed that exogenous shocks can have severe impacts on government revenue. The recent drought is another example of a shock which is expected to decrease government revenue. Further adverse weather conditions or a global downturn would have a negative impact on the Government's fiscal position. Should any of the uncertainties outlined in the Economic Riskssection eventuate differently from the central forecast, government revenue would likely be different from forecast, with the upside and downside scenarios being examples of possible outcomes.

Figure 3.7 - Core Crown tax revenue uncertainty
Figure 3.7 - Core Crown tax revenue uncertainty.
Source: The Treasury

Based on average historical forecast errors and an even balance of risks, Figure 3.7 suggests that tax revenue over the forecast period would be weaker than shown in the downside scenario around one-third of the time. For the upside scenario, tax revenue over the forecast period would be stronger than shown about one-third of the time. Tax revenue would be between the two scenarios approximately one-third of the time.

There is also uncertainty around government revenue arising from the performance of SOEs and the path of interest rates as outlined in the Fiscal Sensitivities section.

Notes

  • [9]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 result, respectively.
  • [10]Previous Treasury analysis showed that a shock that has a significant and persistent impact on economic growth can result in tax revenues significantly beyond 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 regarding the effect of 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.

Meanwhile, the destructive seismic events of recent years have underlined the inherent exposure of the Crown's fiscal position to exogenous shocks. 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. An ageing population requires increased government expenditure, especially for health and superannuation spending.

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. This may result in an operating balance impact. Of the Crown's aggregate financial risk, roughly a third is estimated to be attributed to this “market risk”.[11] Three areas of the balance sheet are particularly susceptible:

  • Financial assets held by the Crown financial institutions (CFIs) are sensitive to financial-market volatility. CFIs diversify their portfolios across a range of financial assets to manage exposures to specific market risks. The Crown Ownership Monitoring Unit (COMU) estimates a 10% fall (rise) in world share markets would lead to a 4% to 5% 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 about variables such as interest and inflation rates, and risk margins.
  • Physical assets such as land, buildings, state highways and military equipment are susceptible to valuation movements through changes in property market conditions, interest rates and changes in the costs of construction. This 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 relatively small given NZDMO's ongoing management of the core Crown's liquidity position, as well as the Government's commitment to maintaining prudent debt levels.

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.

Notes

  • [11]Irwin, T and Parkyn, O (2009), “Improving the management of the Crown's exposure to risk”, New Zealand Treasury Working Paper 09/06.

Specific Fiscal Risks

The Statement of Specific Fiscal Risks is required by the Public Finance Act 1989 to set 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 a number of parties, including 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 and cost pressures. 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
  • the existing Crown balance sheet for capital expenditure, including the Future Investment Fund.

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

The specific fiscal risks are categorised into:

  • Potential policy decisions affecting revenue: For example, changes to tax policy or ACC levies could reduce or increase government income.
  • Potential policy decisions affecting expenses (expected to be funded from reprioritisation or 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 (expected to be funded from the existing Crown balance sheet, including the Future Investment Fund): Capital investment decisions are risks to the fiscal forecasts only to the extent that they cannot be managed within the existing Crown balance sheet, including the Future Investment Fund.
  • Matters dependent on external factors: The Crown's liability 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.
  • Business risks and volatility in the returns from the Crown's investments relating to the broader economic and commercial environment.
  • General cost pressures, such as those associated with demographic changes (eg, an ageing population).
  • Potential risks from changes in demand for government services or transfer payments owing to underlying structural factors (such as changes in demand for the Unemployment Benefit).
  • The costs of future individual natural disasters, and other major events, as they usually occur infrequently and their occurrence, nature and timing cannot be predicted. Once a disaster does occur, a number of choices arise about how to respond and when potential liabilities are recognised (eg, through setting aside an allocation of funding 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 after this Statement. Full descriptions of the risks listed below are set out in the next section. Where quantification is possible, this is included in the description of the risk.

Specific fiscal risks as at 29 April 2013
Specific fiscal risks as at 29 April 2013 Status [12]

Potential policy decisions affecting revenue

 
ACC - Levies Unchanged
ACC - Review of Funding Policy Changed
Revenue - Income-sharing Tax Credits Unchanged
Services Funded by Third Party Revenue Unchanged

Potential policy decisions affecting expenses (expected to be funded from reprioritisation or Budget allowances)

 
ACC - Work-related Gradual Process Disease and Infection Unchanged
Canterbury Earthquake Recovery - Christchurch City Council/Crown Cost Sharing Changed
Canterbury Earthquake Recovery - Christchurch Central Recovery Plan New
Defence Force - Funding Track Evaluation New
Government Response to Wai 262 Unchanged
Health - Payment of Family Caregivers Changed
Housing - Reform of Social Housing Unchanged
Revenue - KiwiSaver Auto-enrolment Unchanged
Revenue - Transformation and Technology Renewal Changed
Social Development - Vulnerable Children White Paper Unchanged
Social Development - Welfare Reform Costs Changed
Social Development - Welfare Reform Forecast Benefit Savings Unchanged
State Sector Employment Agreements Unchanged

Potential capital decisions (expected to be funded from the existing Crown balance sheet, including the Future Investment Fund)

 
Departmental Capital Intentions Unchanged
Earthquake Strengthening for Crown-owned Buildings Unchanged
Finance - Crown Overseas Properties Unchanged
Justice - Christchurch Justice and Emergency Services Precinct New
Primary Industries - Investment in Water Infrastructure Changed
Transport - Support for KiwiRail Changed

Matters dependent on external factors

 
ACC - Non-earners' Account Unchanged
Canterbury Earthquake Recovery - Residential Red Zone Unchanged
Communications - Potential Impairment in the Value of Broadband Investment Unchanged
Defence Force - Potential Rationalisation, Revaluation and Disposal of NZDF Assets Unchanged
Energy - Crown Revenue from Petroleum Royalties Unchanged
Environment - Post-2012 International Climate Change Obligations Changed
Finance - EQC Unchanged
Finance - Goodwill on Acquisition Unchanged
Finance - Government Commitments to International Finance Institutions Unchanged
Finance - New Zealand Aluminium Smelters Contract New
Finance - Sale of Part of the Crown's Shareholding in Certain Companies Changed
Finance - Solid Energy New
Finance - Southern Response Earthquake Services Support Package Unchanged
Health - Litigation in the Disability Support and Aged Care Sectors New
Housing - Divestment of Housing Unchanged
Revenue - Cash Held in Tax Pools Unchanged
Treaty Negotiations - Treaty Settlement Forecast Unchanged
Treaty Negotiations - Relativity Clause Unchanged

Potential Policy Decisions Affecting Revenue

ACC - Levies (Unchanged)

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 that could have a corresponding impact on the operating balance.

ACC - Review of Funding Policy (Changed)

The Government is undertaking a review of ACC's funding policy. An estimate of the cost of adopting a lower funding target band midpoint has been included in the fiscal forecasts. If levy rates differ from those assumed in the forecasts, this would impact Crown revenue and Crown assets, with a flow-on impact to the operating balance.

Revenue - Income-sharing Tax Credits (Unchanged)

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 year once the scheme is fully operational. The Finance and Expenditure Committee has recommended that the significant fiscal cost of the package be addressed before the Bill proceeds further.

Services Funded by Third Party Revenue (Unchanged)

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

Notes

  • [12]Unchanged - risks that have not materially changed since the previous Economic and Fiscal Update. Changed - risks that have changed substantively from the previous Economic and Fiscal Update. New - risks that have not been disclosed in the previous Economic and Fiscal Update.

Potential Policy Decisions Affecting Expenses (Expected to be Funded from Reprioritisation or Budget Allowances)

ACC - Work-related Gradual Process Disease and Infection (Unchanged)

Under current legislation, the Government incurs an obligation for Work-related Gradual Process Disease and Infection claims when the claim is made, and an expense is recognised at that point. The liability for commercial accident and sickness insurance contracts would usually be recognised when exposure to conditions that will give rise to a claim occurs. An amendment to legislation would be required to recognise claims at the same time as for commercial contracts. There are currently no plans to make such a change. An initial adjustment to the liability, and an expense of about $1 billion would need to be reported if such an amendment was made.

Canterbury Earthquake Recovery - Christchurch City Council/Crown Cost Sharing (Changed)

The Crown is partially funding the recovery of local infrastructure in Canterbury. The extent of funding is dependent on the outcome of cost-sharing negotiations with the Christchurch City Council. The Crown’s contribution could differ from that included in the fiscal forecasts.

Canterbury Earthquake Recovery - Christchurch Central Recovery Plan (New)

The Crown is partially funding the construction of Anchor Projects as part of the Christchurch Central Recovery Plan. The extent of funding will vary from project to project, dependent on final project costs and the outcome of cost-sharing negotiations with the Christchurch City Council. Business cases for the development of Anchor Projects are in their early stages. Project costing for construction of the Anchor Projects will become increasingly clear during the business case process and the subsequent procurement phase. The Crown's contribution may differ from that included in the fiscal forecasts.

Defence Force - Funding Track Evaluation (New)

The Government is evaluating different funding tracks for the New Zealand Defence Force (NZDF) to assess the level of military capability and equipment that can be achieved with each track. The results of this work will be considered as an input into the next Defence White Paper. There is a risk that the funding provided to NZDF in the future could differ from that included in the fiscal forecasts.

Government Response to Wai 262 (Unchanged)

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

Health - Payment of Family Caregivers (Changed)

The Government has agreed to change its policy of not allowing payment to certain family carers (mainly parents and spouses of disabled adults) who deliver disability support services, following court rulings that have found this policy to be in breach of section 19 of the New Zealand Bill of Rights Act 1990. The Government has consulted the disability community and wider public on options for a new policy approach to be implemented in late 2013. The potential costs of the new policy are uncertain depending on how tightly payments are targeted and may differ from the level included in the fiscal forecasts.

Housing - Reform of Social Housing (Unchanged)

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. Some decisions have been announced and included in the fiscal forecasts but other plans for implementation remain under development, but may require reprioritisation or additional funding.

Revenue - KiwiSaver Auto-enrolment (Unchanged)

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. 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. 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 auto-enrolment takes place and are expected to be funded out of the operating allowances.

Revenue - Transformation and Technology Renewal (Changed)

The Government is exploring options that will fundamentally change the way IRD manages its processes and data. Any changes could have material costs to implement (with capital and operating implications) and/or impact tax revenue collections. The Government is currently considering a programme business case and is yet to finalise the scope of the programme.

Social Development - Vulnerable Children White Paper (Unchanged)

The Government is looking to implement proposals to better identify, and provide assistance to, vulnerable children. Costs of the proposals are likely to have impacts on the social development, education, health and justice areas, and are expected to be met through reprioritisation of current expenditure. However, uncertainty around the service costs and volumes as well as the implementation of new initiatives associated with the better identification and support of vulnerable children could mean additional funding is required.

Social Development - Welfare Reform Costs (Changed)

The Government has agreed to a package of changes to the benefit system. The extent of any additional costs of implementing welfare reform, such as providing more employment assistance related interventions to a broader range of clients, remain uncertain.

Social Development - Welfare Reform Forecast Benefit Savings (Unchanged)

A conservative estimate of the likely benefits from Welfare Reform has been included in the fiscal forecasts. The actual impact may differ owing to behavioural factors and the complexity of implementing the reforms, with a corresponding impact on benefit expenditure.

State Sector Employment Agreements (Unchanged)

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 and an expectation that agreements will be managed within the current fiscal forecasts.

Potential Capital Decisions (Expected to be Funded from the Existing Crown Balance Sheet, Including the Future Investment Fund)

Departmental Capital Intentions (Unchanged)

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. The Government expects that these intentions will be managed back through a range of measures such as prioritisation, changes to asset utilisation, alternative methods of service delivery and changes to policy settings. Departmental capital intentions are risks to the fiscal forecasts only to the extent that they cannot be managed through the existing Crown balance sheet.

Earthquake Strengthening for Crown-owned Buildings (Unchanged)

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 (Unchanged)

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. A rough-order cost estimate for this upgrade is $150 million over the period 2013/14 to 2015/16.

Justice - Christchurch Justice and Emergency Services Precinct (New)

The Government has set aside funding in the fiscal forecasts for the development of a Justice and Emergency Services Precinct in Christchurch. There is a risk that spending profile differs from the amount set aside.

Primary Industries - Investment in Water Infrastructure (Changed)

The Government has set aside an allocation of $80 million in the fiscal forecasts for a Crown-owned company to manage the Crown's investment in irrigation infrastructure for the first year. The Government will consider providing further capital of up to $320 million in future Budgets as schemes reach the “investment-ready” stage.

Transport - Support for KiwiRail (Changed)

KiwiRail has signalled its intention to seek $239 million of additional Crown funding over the next four years to complete the 10-year strategy for KiwiRail to achieve a commercially viable network. The Government has not considered its response to such a request.

Matters Dependent on External Factors

ACC - Non-earners' Account (Unchanged)

Funding for the Non-earners' Account is agreed as part of the annual Budget process. Claims experience, ACC's financial 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.

Canterbury Earthquake Recovery - Residential Red Zone (Unchanged)

The Crown purchased red zone properties in Canterbury in advance of insurance payments being made to owners. Some recoveries from EQC and private insurers remain outstanding and there is a risk that final recoveries may be less than forecast. In addition, potential costs associated with the future use of residential red zone land are uncertain. The current value of the land was assessed by external valuation as at 30 June 2012. The future value may change depending on any future alternate uses of the land.

Communications - Potential Impairment in Value of Broadband Investment (Unchanged)

The Government is progressively capitalising Crown Fibre Holdings with $1.345 billion so that it can invest with private partners in a new ultra-fast broadband 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.

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

The Government is considering the potential to dispose of a number of NZDF assets, including the Seasprite helicopters, Unimog trucks and light armoured vehicles. Depending on market conditions, the timing of disposal and sale price received could have an impact on the operating balance. The NZDF is also completing an analysis of inventory that is surplus to requirements and is over and above the existing provision for obsolescence. The existing provision is also being reviewed to ensure that all items comprising the provision are still relevant. In addition, the revaluation of NZDF assets on 30 June 2013 could see a change in asset values across NZDF.

Energy - Crown Revenue from Petroleum Royalties (Unchanged)

Crown revenue from petroleum royalties is very dependent upon extraction rates, the USD value per barrel and the USD/NZD exchange rate. Movements up or down in any of these variables could result in a significant decrease or increase in Crown revenue. The overall impact for the Crown could be negative or positive.

Environment - Post-2012 International Climate Change Obligations (Changed)

The Government is actively considering the responsibility target New Zealand will commit to post-2012 and taking part in international negotiations for a post-2020 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.

Finance - EQC (Unchanged)

The net financial position of 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, construction demand surge, land damage estimates, legal challenges, 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 can have a material impact on the fiscal forecasts.
  • Reinsurance market conditions - forecast reinsurance prices are very uncertain. The price of reinsurance comprises a substantial component of EQC's annual expenses.
  • EQC review and policy decisions - outcomes from the review of EQC or other policy decisions (eg, reinsurance purchases) may be implemented during the forecast period. Any significant decisions could have a material impact on the fiscal forecasts.
Finance - Goodwill on Acquisition (Unchanged)

As at 30 June 2012, the Government had goodwill on acquisition of a number of sub-entities totalling $746 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)

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 IMF being called increased as a result of ongoing global financial uncertainty.

Finance - New Zealand Aluminium Smelters Contract (New)

New Zealand Aluminium Smelters and its parent company Pacific Aluminium have approached Meridian Energy to renegotiate a “contract for difference” relating to the pricing of electricity supplied to the aluminium smelter at Tiwai Point. Any significant change in the terms of this contract could have an impact on the operating balance.

Finance - Sale of Part of the Crown's Shareholding in Certain Companies (Changed)

The Government has agreed to sell part of the Crown's shareholding in Mighty River Power and Meridian Energy. It is also proposing to sell part of the Crown's shareholding in Genesis Energy, Air New Zealand and Solid Energy. The fiscal forecasts include an estimate of the cash proceeds from the sale of part of the Crown's shareholding in these 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, forgone 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.

Finance - Solid Energy (New)

The Solid Energy board is working with advisors, banks and the Treasury on restructuring options to return the company to a sustainable financial position. The outcome of this process could have an impact on the operating balance or the Crown's balance sheet.

Finance - Southern Response Earthquake Services Support Package (Unchanged)

AMI's earthquake claims liability and the associated financial assets, reinsurance receivables and the Crown Support Package have 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. There is a risk that the actual cost could vary from this estimate.

Health - Litigation in the Disability Support and Aged Care Sectors (New)

Several related legal cases and funding claims in the disability support and aged care sectors may involve significant costs to the Crown.

Housing - Divestment of Housing (Unchanged)

The Government may undertake divestment or redevelopment of some housing property. Property sales are subject to market conditions and therefore there is an inherent level of uncertainty about the return to the Crown associated with any divestment and/or development.

Revenue - Cash Held in Tax Pools (Unchanged)

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

Treaty Negotiations - Treaty Settlement Forecast (Unchanged)

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

Treaty Negotiations - Relativity Clause (Unchanged)

The Deeds of Settlement negotiated with Waikato-Tainui and Ngāi Tahu include a relativity mechanism. Now that the total redress amount for all historical Treaty settlements exceeds $1 billion in 1994 present-value terms, the mechanism provides that the Crown is liable to make payments to maintain the real value of Ngāi Tahu's and Waikato-Tainui's settlements as a proportion of all Treaty settlements. The agreed relativity proportions are 17% for Waikato-Tainui and approximately 16% for Ngāi Tahu. There is a risk that the timing and the amount of the expense for the relativity payments may differ from that included in the fiscal forecasts. There is also uncertainty on how various disputes concerning the interpretation of the mechanism will be resolved.

Risks Removed Since the 2012 Half Year Update

The following risks have been removed since the 2012 Half Year Update:

Risks Removed Since the 2012 Half Year Update
Expired risks Reason
Canterbury Earthquake Recovery - Crown Christchurch Investment Included in fiscal forecasts
Communications - Radio Spectrum Income Following the Digital Switchover No longer material
Education - Early Childhood Education Funding Some decisions taken and included in fiscal forecasts, remaining risk not material
Environment - Kyoto Protocol Obligations No longer material
Finance - Investment into NZ Post Group (Kiwibank) Unlikely to occur
Social Development - Disability Allowance Savings Included in fiscal forecasts

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.[13]

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

Criteria for Including Matters in the Fiscal Forecasts

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

  • The matter can be quantified for particular years with reasonable certainty.
  • A decision has been taken, or a decision has not yet been taken but it is reasonably probable[14] the matter will be approved, or it is reasonably probable the situation will occur.

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

Rules for the Disclosure of Specific Fiscal Risks

Matters are disclosed as specific fiscal risks if:

  • the likely impact is more than $100 million over five years, and either
  • a decision has not yet been taken but it is reasonably possible[15] (but not probable) that the matter will be approved or the situation will occur, or
  • it is reasonably probable that the matter will be approved or the situation will occur, but the matter cannot be quantified or assigned to particular years with reasonable certainty.

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

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[16] 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
  • result in a material loss of value to the Crown.

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

Notes

  • [13]The Statement of Specific Fiscal Risks is a requirement set out in sections 26Q and 26U of the Public Finance Act 1989.
  • [14]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).
  • [15]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).
  • [16]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 assets 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 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 have been stated as at 31 March 2013, being the latest set of reported contingent liabilities.

Quantifiable Contingent Liabilities and Contingent Assets

Quantifiable Contingent Liabilities and Contingent Assets
Contingent liabilities Status [17] ($ millions)

Guarantees and indemnities

   
Other guarantees and indemnities Unchanged 183
    183

Uncalled capital

   
Asian Development Bank Unchanged 2,772
International Bank for Reconstruction and Development Unchanged 981
International Monetary Fund - arrangements to borrow Unchanged 978
International Monetary Fund - promissory notes Unchanged 1,089
Other uncalled capital Unchanged 44
    5,864

Legal proceedings and disputes

   
Tax disputes Unchanged 363
Other legal proceedings and disputes Unchanged 47
    410

Other quantifiable contingent liabilities

   
Unclaimed monies administered by IRD Unchanged 103
Other quantifiable contingent liabilities Unchanged 289
    392
 Total quantifiable contingent liabilities   6,849

Contingent assets

   
Tax disputes Unchanged 283
Other quantifiable contingent assets Unchanged 84
Total quantifiable contingent assets   367

Notes

  • [17]Relative to reporting in the Financial Statements of the Government of New Zealand for the year ended 30 June 2012.

Unquantifiable Contingent Liabilities and Contingent Assets

Unquantifiable Contingent Liabilities and Contingent Assets
Contingent liabilities  

Guarantees and indemnities:

Status

Air New Zealand Unchanged
Airways Corporation of New Zealand Unchanged
AsureQuality Limited Unchanged
Contact Energy Limited Unchanged
Earthquake Commission (EQC) Unchanged
Housing New Zealand Corporation Unchanged
Justices of the Peace, Community Magistrates and Disputes Tribunal Referees Unchanged
Maui Mining Companies Unchanged
Maui Partners Unchanged
Mighty River Power Initial Public Offering New
National Provident Fund Unchanged
New Zealand Aluminium Smelter and Comalco Unchanged
New Zealand Local Authorities 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
Westpac New Zealand Limited Unchanged

Legal claims and proceedings:

 
Accident Compensation Corporation (ACC) litigations Unchanged
Air New Zealand litigation Unchanged
Television New Zealand Unchanged
Treaty of Waitangi claims Unchanged

Other unquantifiable contingent liabilities:

 
Criminal Proceeds (Recovery) Act Unchanged
Environmental liabilities Unchanged
Landcorp Farming Limited Unchanged

Description of Contingent Liabilities

Quantifiable contingent liabilities over $100 million

Uncalled capital

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

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

The Crown's uncalled capital subscriptions are as follows:

Asian Development Bank

$2,772 million at 31 March 2013 ($2,988 million at 30 June 2012)

International Bank for Reconstruction and Development

$981 million at 31 March 2013 ($1,039 million at 30 June 2012)

International Monetary Fund - arrangements to borrow

$978 million at 31 March 2013 ($1,081 million at 30 June 2012)

International Monetary Fund - promissory notes

$1,089 million at 31 March 2013 ($1,174 million at 30 June 2012)

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. The contingent liability represents the outstanding debt of tax assessments raised against which an objection has been lodged and legal action is proceeding.

$363 million at 31 March 2013 ($365 million at 30 June 2012)

Other quantifiable contingent liabilities

Unclaimed monies

Administered by IRD under the Unclaimed Money Act 1971.

$103 million at 31 March 2013 ($79 million at 30 June 2012)

Unquantifiable contingent liabilities

This part of the Statement provides details of those contingent liabilities of the Crown that cannot be quantified (contingent liabilities that are considered remote are excluded).

Guarantees and indemnities

Air New Zealand 

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.

Airways Corporation of New Zealand

The Crown has indemnified Airways Corporation of New Zealand Limited as contained in Airways' contract with NZDF 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 sub-contractor.

Contact Energy Limited

The Crown and Contact Energy Limited 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.

Earthquake Commission (EQC)

The Crown is liable to meet any deficiency in EQC's assets that may be needed to cover 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.

EQC expects to have the necessary financing to meet its liabilities as they fall due over the next 12 months, hence a call on its Crown guarantee is not expected for the coming year. In the event that EQC cannot meet its obligations, however, the Crown would need to finance any shortfall and the Crown's net debt position would increase as a result. This support arrangement is discussed earlier in this chapter as a specific fiscal risk.

Housing New Zealand Corporation

The Crown has provided a warranty in respect of title to the assets transferred to Housing New Zealand Limited (HNZL) 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. The Crown 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.

Justices of the Peace, Community Magistrates and Disputes Tribunal Referees

Section 197 of the Summary Proceedings Act 1957 requires the Crown to indemnify Justices of the Peace and Community Magistrates against damages or costs awarded against them as a result of them exceeding their jurisdiction, provided a High Court Judge certifies that they have exceeded their jurisdiction in good faith and ought to be indemnified.

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

Maui Mining Companies

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.

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.

Mighty River Power Initial Public Offering

The Crown has indemnified Mighty River Power's directors and a number of external advisors against losses they may suffer as a result of any claims brought against them in relation to the Mighty River Power partial share sale.

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 Smelter and Comalco

The indemnity relates to costs incurred in removing aluminium dross and disposing of it at another site if 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.

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.

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.

Following the restructuring of KiwiRail Group, the New Zealand Railways Corporation Restructuring Act 1990 provides a statutory indemnity for the New Zealand Railways Corporation for the amount of the net equity lost in the vesting of assets and liabilities in KiwiRail Holdings Limited.

Persons exercising investigating powers

Section 63 of the Corporations (Investigation and Management) Act 1989 indemnifies the Financial Markets Authority (formerly Securities Commission), the Registrar and Deputy Registrar of Companies, members of advising committees within the Act, every statutory manager of a corporation, and persons appointed pursuant to sections 17 to 19 of the Act, in the exercise of investigating powers, unless the power has been exercised in bad faith.

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.

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.
  • For costs and expenses incurred by reason of third party claims against Westpac relating to indirect instructions, direct debits, third party cheques, departmental credit card merchant agreements, use of online banking products and IRD processing arrangements.

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).

Legal claims and proceedings

There are numerous legal actions that have been brought against the Crown. However, in the majority of these actions it is only considered a remote possibility that the Crown would lose the case, or if the Crown were to lose it would be unlikely to have greater than a $10 million impact. Based on these factors, not all legal actions are individually disclosed. The claims that are disclosed individually, while they cannot be quantified, have the potential to exceed $10 million in penalties.

Accident Compensation Corporation (ACC) litigations 

There are several legal actions against ACC in existence, arising in the main from challenges to operational decisions made by ACC. Given the stage of proceedings and uncertainty as to outcomes of the cases, no estimate of the financial effect can be made.

Air New Zealand litigation

Air New Zealand has been named in five class actions. 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. One class action (in the United States) alleges that Air New Zealand, together with many other airlines, conspired in respect of fares and surcharges on trans-Pacific routes. The likelihood of any liability in the other two cases is considered remote, so these are not disclosed.

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 third-party damages under the laws of the relevant jurisdictions.

Television New Zealand

The Company is subject to one legal claim before the courts. Given the stage of proceedings and uncertainty as to outcomes of the case, no estimate of the financial effect can be made and no provision for any potential liability has been made in the financial statements.

Treaty of Waitangi claims

Under the Treaty of Waitangi Act 1975, any Māori may lodge claims relating to land or actions counter to the principles of the Treaty with the Waitangi Tribunal. Where the Tribunal finds a claim is well founded, it may recommend to the Crown that action be taken to compensate those affected. The Tribunal can make recommendations that are binding on the Crown with respect to land which has been transferred by the Crown to 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 are currently two actions against the Crown, one being heard in the Court of Appeal and another action being heard in the High Court. Failure to successfully defend such actions may result in liability for historical Treaty grievances in excess of that currently anticipated.

Other unquantifiable contingent liabilities

Criminal Proceeds (Recovery) Act 2009

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

Environmental liabilities

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

In accordance with NZ IAS 37: Provisions, Contingent Liabilities and Contingent Assets any contaminated sites for which costs can be reliably measured have been included in the statement of financial position as provisions.

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 profits attributed to a Protected Land property 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, the amount of any outstanding equity payments on the initial value of the property.

Description of Contingent Assets

Quantifiable contingent assets over $100 million

Tax disputes

A contingent asset is recognised when IRD has advised, or was about to advise, a taxpayer of a proposed adjustment to their tax assessment. The taxpayer has the right to dispute this adjustment and a disputes resolution process can be entered into. The contingent asset is based on the likely outcome of the disputes process based on experience and similar prior cases.

$283 million at 31 March 2013 ($150 million at 30 June 2012)

Forecast Financial Statements

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

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

The forecasts have been prepared in accordance with the Statement of Responsibility and reflect the judgements and information known at the time they were prepared. They reflect all government decisions and circumstances communicated to 29 April 2013.

The finalisation dates and key assumptions that underpin the preparation of the Forecast Financial Statements are outlined on pages 41 to 43.

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 2013 Budget Update Additional Information document which can be found on the Treasury's website at www.treasury.govt.nz/budget/forecasts/befu2013.

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 in these forecasts. Factors that may lead to a material difference between information in these Forecast Financial Statements and the actual reported results in future years are set out in the Specific Fiscal Risks chapter on pages 59 to 81.

Key forecast assumptions used are set out on pages 41 to 43.

Government Reporting Entity as at 29 April 2013

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 Conservation
  • Department of Corrections
  • Department of Internal Affairs
  • Department of the Prime Minister and Cabinet
  • Education Review Office
  • Government Communications Security Bureau
  • Inland Revenue Department
  • Land Information New Zealand
  • Ministry for Culture and Heritage
  • Ministry for Primary Industries
  • Ministry for the Environment
  • Ministry of Business, Innovation and Employment
  • Ministry of Defence
  • Ministry of Education
  • Ministry of Foreign Affairs and Trade
  • Ministry of Health
  • Ministry of Justice
  • Ministry of Māori Development
  • Ministry of Pacific Island Affairs
  • 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

  • Airways Corporation of New Zealand Limited
  • Animal Control Products Limited
  • AsureQuality Limited
  • Electricity Corporation of New Zealand Limited
  • Genesis Power Limited
  • Kiwirail Holdings Limited
  • Kordia Group Limited
  • Landcorp Farming Limited
  • Learning Media Limited
  • Meridian Energy Limited
  • Meteorological Service of New Zealand 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
Organisations named or described in Schedule 5 of the Public Finance Act 1989
  • Mighty River Power Limited
Others
  • Air New Zealand Limited

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

Crown entities

  • Accident Compensation Corporation
  • Arts Council of New Zealand Toi Aotearoa
  • Broadcasting Commission
  • Broadcasting Standards Authority
  • Callaghan Innovation
  • Careers New Zealand
  • Children's Commissioner
  • Civil Aviation Authority of New Zealand
  • Commerce Commission
  • Crown Research Institutes (7)
  • District Health Boards (20)
  • Drug Free Sport New Zealand
  • Earthquake Commission
  • Education New Zealand
  • Electoral Commission
  • Electricity Authority
  • Energy Efficiency and Conservation Authority
  • Environmental Protection Authority
  • External Reporting Board
  • Families Commission
  • Financial Markets Authority
  • Government Superannuation Fund Authority
  • Guardians of New Zealand Superannuation
  • Health and Disability Commissioner
  • Health Promotion Agency
  • Health Quality and Safety Commission
  • Health Research Council of New Zealand
  • Housing New Zealand Corporation
  • Human Rights Commission
  • Independent Police Conduct Authority
  • Law Commission
  • Maritime New Zealand
  • Museum of New Zealand Te Papa Tongarewa Board
  • New Zealand Antarctic Institute
  • New Zealand Artificial Limb 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 (2,455)
  • 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
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
  • Māori Trustee
  • National Pacific Radio Trust
  • New Zealand Fish and Game Council
  • New Zealand Game Bird Habitat Trust Board
  • New Zealand Government Property Corporation
  • New Zealand Lottery Grants Board
  • Ngāi Tahu Ancillary Claims Trust
  • Pacific Co-operation Foundation
  • Pacific Island Business Development Trust
  • Research and Education Advanced Network New Zealand Limited
  • Reserves Boards (21)
  • Road Safety Trust
  • Sentencing Council
  • Southern Response Earthquake Services Limited
  • Tāmaki Redevelopment Company Limited
  • Te Ariki Trust
  • The Network for Learning Limited

Financial Statements

Forecast Statement of Financial Performance for the years ending 30 June
  Note 2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Revenue

               
Taxation revenue 1 54,665 57,663 57,839 61,773 65,394 68,903 71,982
Other sovereign revenue 1 5,130 5,446 5,126 5,296 5,435 5,379 5,531
Revenue contingency for ACC levy reductions   (300) (1,000) (1,000)
Total revenue levied through the Crown's sovereign power   59,795 63,109 62,965 67,069 70,529 73,282 76,513
Sales of goods and services   16,785 16,337 16,809 17,080 17,963 18,586 19,085
Interest revenue and dividends 2 2,763 3,376 3,051 3,588 4,031 4,330 5,064
Other revenue   4,140 3,481 3,638 3,867 3,683 3,766 3,832
Total revenue earned through the Crown's operations   23,688 23,194 23,498 24,535 25,677 26,682 27,981
Total revenue (excluding gains)   83,483 86,303 86,463 91,604 96,206 99,964 104,494

Expenses

               
Transfer payments and subsidies 3 22,354 23,218 22,918 23,485 24,010 24,685 25,408
Personnel expenses 4 19,475 19,676 20,156 20,172 20,406 20,719 20,894
Depreciation and amortisation 5 6,350 4,687 4,858 4,640 4,792 4,871 4,952
Other operating expenses 5 35,678 38,929 37,628 37,608 37,005 37,329 37,438
Interest expenses 6 4,290 4,663 4,301 4,516 4,934 5,031 5,595
Insurance expenses 7 4,576 3,289 3,165 3,215 3,710 4,215 4,141
Forecast new operating spending 8 348 42 461 1,324 2,347 3,408
Top-down expense adjustment 8 (700) (330) (600) (250) (300) (300)
Total expenses (excluding losses)   92,723 94,110 92,738 93,497 95,931 98,897 101,536
Forgone profits from Government share offers   (90) (10) (140) (200) (270) (340)
Operating balance before gains/(losses)   (9,240) (7,897) (6,285) (2,033) 75 797 2,618
Net gains/(losses) on financial instruments 9 692 1,735 5,859 1,748 1,869 1,988 2,126
Net gains/(losses) on non-financial instruments 10 (6,526) 201 2,088 443 558 488 457
Total gains/(losses)   (5,834) 1,936 7,947 2,191 2,427 2,476 2,583
Net surplus from associates and joint ventures   233 262 256 200 213 213 212
Attributable to minority interest   (56)
Operating balance 11 (14,897) (5,699) 1,918 358 2,715 3,486 5,413

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

Forecast Statement of Financial Performance (continued) - Functional Expense Analysis for the years ending 30 June
Total Crown expenses 2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By functional classification

             
Social security and welfare 25,457 26,912 26,439 27,510 28,293 29,281 29,801
GSF pension expenses 197 340 287 283 315 357 390
Health 13,650 14,013 13,895 14,351 14,237 14,210 14,075
Education 12,407 13,164 13,119 13,186 13,266 13,380 13,455
Core government services 5,305 6,459 5,537 4,588 4,216 4,219 4,142
Law and order 3,592 3,779 3,732 3,804 3,703 3,769 3,754
Defence 1,693 1,973 1,780 1,893 1,859 1,912 1,817
Transport and communications 10,259 8,801 8,805 8,596 8,930 9,121 9,485
Economic and industrial services 10,018 7,900 8,634 8,058 8,585 8,808 9,157
Primary services 1,588 1,830 1,732 1,962 1,897 1,873 1,847
Heritage, culture and recreation1 2,446 2,309 2,514 2,572 2,611 2,670 2,738
Housing and community development 627 1,115 1,098 1,116 1,130 1,098 1,061
Environmental protection1 769 713 496 473 404 417 407
Other 425 491 657 728 477 704 704
Finance costs 4,290 4,663 4,301 4,516 4,934 5,031 5,595
Forecast new operating spending 348 42 461 1,324 2,347 3,408
Top-down expense adjustment (700) (330) (600) (250) (300) (300)
Total Crown expenses excluding losses 92,723 94,110 92,738 93,497 95,931 98,897 101,536

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

Analysis of core Crown expenses by functional classification
Core Crown expenses 2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By functional classification

             
Social security and welfare 22,028 23,239 22,893 23,595 24,110 24,534 25,246
GSF pension expenses 192 329 278 274 306 347 380
Health 14,160 14,745 14,526 14,950 14,880 14,910 14,888
Education 11,654 12,387 12,355 12,389 12,462 12,556 12,610
Core government services 5,428 6,537 5,572 4,637 4,277 4,278 4,203
Law and order 3,403 3,558 3,511 3,561 3,450 3,508 3,481
Defence 1,736 2,016 1,822 1,933 1,900 1,952 1,857
Transport and communications 2,232 2,174 2,352 2,162 2,219 2,147 2,218
Economic and industrial services 2,073 2,134 2,052 2,152 2,093 2,112 2,125
Primary services 648 832 684 818 725 698 669
Heritage, culture and recreation1 863 835 842 854 808 801 799
Housing and community development (46) 328 317 335 320 261 200
Environmental protection1 769 713 519 496 428 440 430
Other 425 491 657 728 477 704 704
Finance costs 3,511 3,766 3,557 3,622 3,928 3,883 4,273
Forecast new operating spending 348 42 461 1,324 2,347 3,408
Top-down expense adjustment (700) (330) (600) (250) (300) (300)
Total core Crown expenses excluding losses 69,076 73,732 71,649 72,367 73,457 75,178 77,191
  1. Previously environmental protection expenses were included within the heritage, culture and recreation classification. These expenses have been reclassified to the new environmental protection functional classification.

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
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Operating balance (including minority interest) (14,841) (5,609) 1,928 498 2,915 3,756 5,753

Other comprehensive income

             
Revaluation of physical assets (6,461) (29)
Net change in hedging instruments entered into for cash flow hedges 143 (3) 74 (21) (6) (13) 3
Foreign currency translation differences for foreign operations (2) 55 4 39 (43)
Valuation gains/(losses) on investments available for sale taken to reserves 13 10 5 8 9 10 11
Other movements 1 2 (19) (38) (4) 1 1
Total other comprehensive income (6,306) 64 35 (12) (44) (2) 15
Total comprehensive income (21,147) (5,545) 1,963 486 2,871 3,754 5,768

Attributable to:

             
 - minority interest 84 90 10 140 200 270 340
 - the Crown (21,231) (5,635) 1,953 346 2,671 3,484 5,428
Total comprehensive income (21,147) (5,545) 1,963 486 2,871 3,754 5,768

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
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Opening net worth 80,887 70,303 59,780 63,270 65,182 69,429 74,503
Operating balance (excluding minority interest) (14,841) (5,699) 1,918 358 2,715 3,486 5,413
Net revaluations (6,461) (29)
Transfers to/(from) reserves 80 (1) 55 (59) (8) (13) 4
(Gains)/losses transferred to the Statement of Financial Performance 83 (4) (2) 1
Other movements (36) 65 13 47 (34) 10 11
Comprehensive income attributable to the Crown (21,231) (5,635) 1,953 346 2,671 3,484 5,428
Gain on Government share offers 200 175 175 175 175
Increase in minority interest from Government share offers 1,300 1,325 1,325 1,325 1,325
Transactions with minority interest 124 40 37 66 76 90 75
Closing net worth 59,780 66,208 63,270 65,182 69,429 74,503 80,006

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
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Cash flows from operations

             

Cash was provided from

             
Taxation receipts 53,582 56,856 56,738 60,695 64,535 68,018 71,036
Other sovereign receipts 4,890 4,729 4,758 4,747 4,853 5,044 5,158
Revenue contingency for ACC levy reductions (300) (1,000) (1,000)
Sales of goods and services 16,812 16,369 16,926 17,175 18,106 18,694 19,205
Interest and dividend receipts 2,603 3,106 2,821 3,175 3,642 3,835 4,464
Other operating receipts 4,395 7,172 5,773 5,443 4,786 3,987 3,691
Total cash provided from operations 82,282 88,232 87,016 91,235 95,622 98,578 102,554

Cash was disbursed to

             
Transfer payments and subsidies 22,840 23,284 22,937 23,877 24,154 24,707 25,424
Personnel and operating payments 59,107 62,535 60,608 62,622 61,556 60,310 59,765
Interest payments 3,954 4,797 4,366 4,629 5,104 4,948 5,391
Forecast new operating spending 348 42 461 1,324 2,347 3,408
Top-down expense adjustment (700) (330) (600) (250) (300) (300)
Total cash disbursed to operations 85,901 90,264 87,623 90,989 91,888 92,012 93,688
Net cash flows from operations (3,619) (2,032) (607) 246 3,734 6,566 8,866

Cash flows from investing activities

             

Cash was provided from/(disbursed to)

             
Net purchase of physical assets (5,766) (7,039) (5,923) (7,234) (5,950) (5,643) (5,701)
Net purchase of shares and other securities 424 7,480 8,981 (5,221) 4,810 (5,176) (7,871)
Net purchase of intangible assets (567) (515) (544) (516) (442) (392) (362)
Net repayment/(issues) of advances (1,284) (1,840) (1,205) (2,029) (2,065) (1,834) (1,958)
Net acquisition of investments in associates (115) 1,510 1,724 1,565 1,580 1,582 57
Forecast new capital spending (194) (2) (503) (707) (857) (1,000)
Top-down capital adjustment 100 280 50
Net cash flows from investing activities (7,308) (498) 3,311 (13,888) (2,774) (12,320) (16,835)
Net cash flows from operating and investing activities (10,927) (2,530) 2,704 (13,642) 960 (5,754) (7,969)

Cash flows from financing activities

             

Cash was provided from/(disbursed to)

             
Issues of circulating currency 203 144 264 141 145 150 154
Net issue/(repayment) of government stock1 7,554 3,921 5,572 10,245 (3,116) 4,624 6,426
Net issue/(repayment) of foreign-currency borrowings (6,422) (623) (2,327) (519) (1,285) (948) (581)
Net issue/(repayment) of other New Zealand dollar borrowings 10,353 (1,434) (263) 2,647 2,752 2,309 2,331
Dividends paid to minority interests (7) (50) (120) (170) (230) (290)
Net cash flows from financing activities 11,681 1,958 3,246 12,394 (1,674) 5,905 8,040
Net movement in cash 754 (572) 5,950 (1,248) (714) 151 71
Opening cash balance 9,801 14,899 10,686 16,492 15,244 14,530 14,681
Foreign-exchange gains/(losses) on opening cash 131 (144)
Closing cash balance 10,686 14,327 16,492 15,244 14,530 14,681 14,752
  1. Further information on the proceeds and repayments of government stock ("domestic bonds") is available in note 22.

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

Forecast Statement of Cash Flows (continued) for the years ending 30 June
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

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

             
Net cash flows from operations (3,619) (2,032) (607) 246 3,734 6,566 8,866
Items included in the operating balance but not in net cash flows from operations              

Gains/(losses)

             
Net gains/(losses) on financial instruments 692 1,735 5,859 1,748 1,869 1,988 2,126
Net gains/(losses) on non-financial instruments (6,526) 201 2,088 443 558 488 457
Total gains/(losses) (5,834) 1,936 7,947 2,191 2,427 2,476 2,583

Other non-cash items in operating balance

             
Depreciation and amortisation (6,350) (4,687) (4,858) (4,640) (4,792) (4,871) (4,952)
Write-down on initial recognition of financial assets (850) (748) (751) (723) (740) (757) (780)
Impairment on financial assets (excl. receivables) 248 181 15 23 28 28 30
Decrease/(increase) in defined benefit retirement plan liabilities 512 405 395 461 444 417 398
Decrease/(increase) in insurance liabilities 1,070 2,985 1,222 2,517 1,602 (462) (1,422)
Other 232 262 258 201 213 215 212
Total other non-cash Items (5,138) (1,602) (3,719) (2,161) (3,245) (5,430) (6,514)

Movements in working capital

             
Increase/(decrease) in receivables (242) (3,767) (1,381) (1,119) (1,217) (432) 109
Increase/(decrease) in accrued interest (175) 404 295 526 560 411 396
Increase/(decrease) in inventories (74) 59 14 73 75 58 20
Increase/(decrease) in prepayments 32 (44) 64 (29) (31) (39) (4)
Decrease/(increase) in deferred revenue (38) 32 132 26 (14) (13) (6)
Decrease/(increase) in payables/provisions 191 (685) (827) 605 426 (111) (37)
Total movements in working capital (306) (4,001) (1,703) 82 (201) (126) 478
Operating balance (14,897) (5,699) 1,918 358 2,715 3,486 5,413

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 2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Assets

               
Cash and cash equivalents 12 10,686 14,327 16,492 15,244 14,530 14,681 14,752
Receivables 12 20,956 16,799 19,189 18,070 16,857 16,432 16,552
Marketable securities, deposits and derivatives in gain 12 48,385 36,197 40,392 44,713 38,558 42,363 48,919
Share investments 12 14,385 15,853 16,616 18,176 19,814 21,576 23,425
Advances 12 21,766 23,895 23,432 25,312 27,751 30,309 33,131
Inventory   1,234 1,360 1,248 1,321 1,396 1,454 1,474
Other assets   2,134 2,051 2,064 2,061 1,841 1,804 1,799
Property, plant and equipment 14 108,584 121,335 109,334 112,627 114,633 115,829 117,417
Equity accounted investments1   9,483 9,967 9,509 9,642 9,783 9,905 10,018
Intangible assets and goodwill 15 2,705 2,571 2,687 2,837 2,860 2,852 2,826
Forecast for new capital spending 8 282 2 505 1,212 2,069 3,069
Top-down capital adjustment 8 (350) (280) (330) (330) (330) (330)
Total assets   240,318 244,287 240,685 250,178 248,905 258,944 273,052

Liabilities

               
Issued currency   4,457 4,704 4,756 4,897 5,042 5,192 5,346
Payables 17 11,604 13,503 11,822 12,360 12,333 12,529 12,694
Deferred revenue   1,712 1,399 1,579 1,553 1,567 1,581 1,587
Borrowings   100,534 103,207 100,780 112,201 109,677 115,228 123,122
Insurance liabilities 18 41,186 36,919 38,917 35,902 33,655 33,533 34,401
Retirement plan liabilities 19 13,539 11,481 12,227 11,766 11,322 10,905 10,507
Provisions 20 7,506 6,866 7,334 6,317 5,880 5,473 5,389
Total liabilities   180,538 178,079 177,415 184,996 179,476 184,441 193,046
Total assets less total liabilities   59,780 66,208 63,270 65,182 69,429 74,503 80,006

Net worth

               
Taxpayers' funds   3,520 2,144 5,601 6,230 9,225 13,040 18,621
Property, plant and equipment revaluation reserve   56,001 62,550 55,965 55,831 55,722 55,569 55,402
Other reserves   (173) (134) (90) (64) (104) (107) (93)
Total net worth attributable to the Crown   59,348 64,560 61,476 61,997 64,843 68,502 73,930
Net worth attributable to minority interest   432 1,648 1,794 3,185 4,586 6,001 6,076
Total net worth 21 59,780 66,208 63,270 65,182 69,429 74,503 80,006
  1. Tertiary education institutions constitute most equity accounted investments.

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

Forecast Statement of Borrowings as at 30 June

Forecast Statement of Borrowings as at 30 June
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Borrowings

             
Government bonds 53,850 57,296 58,713 68,469 64,407 68,374 74,050
Treasury bills 8,954 4,700 3,576 3,541 3,347 3,216 3,059
Government retail stock 229 251 204 204 204 204 204
Settlement deposits with Reserve Bank 5,917 6,244 7,183 7,183 7,183 7,183 7,183
Derivatives in loss 2,807 2,401 2,035 1,854 1,732 1,634 1,551
Finance lease liabilities 1,515 1,471 1,499 1,475 1,609 1,639 1,546
Other borrowings 27,262 30,844 27,570 29,475 31,195 32,978 35,529
Total borrowings 100,534 103,207 100,780 112,201 109,677 115,228 123,122
Total sovereign-guaranteed debt 75,701 76,212 74,924 84,580 80,112 83,614 88,829
Total non-sovereign-guaranteed debt 24,833 26,995 25,856 27,621 29,565 31,614 34,293
Total borrowings 100,534 103,207 100,780 112,201 109,677 115,228 123,122

Net debt:

             
Core Crown borrowings1 84,680 85,674 85,310 94,504 90,089 94,584 101,077
Add back NZS Fund holdings of sovereign-issued debt and NZS Fund borrowings (512) (884) (883) (1,027) (1,141) (1,288) (1,341)
Gross sovereign-issued debt2 84,168 84,790 84,427 93,477 88,948 93,296 99,736
Less core Crown financial assets3 64,017 56,569 61,257 65,786 60,092 65,888 74,101
Net core Crown debt 20,151 28,221 23,170 27,691 28,856 27,408 25,635
Core Crown advances 13,324 13,894 13,445 14,375 15,082 16,068 16,490
Net core Crown debt (incl. NZS Fund)4 33,475 42,115 36,615 42,066 43,938 43,476 42,125
Add back NZS Fund holdings of core Crown financial assets and NZS Fund financial assets5 17,196 19,150 21,330 22,699 24,295 26,204 28,150
Net core Crown debt (excl. NZS Fund and advances)6 50,671 61,265 57,945 64,765 68,233 69,680 70,275

Gross debt:

             
Gross sovereign-issued debt2 84,168 84,790 84,427 93,477 88,948 93,296 99,736
Less Reserve Bank settlement cash and bank bills (6,133) (6,418) (7,391) (7,391) (7,391) (7,391) (7,391)
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 79,635 79,972 78,636 87,686 83,157 87,505 93,945

Notes on borrowings

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

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

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

Statement of Actual Commitments as at 31 March 2013

Statement of Actual Commitments as at 31 March 2013
  As at 31 Mar
2013
$m
As at 30 June
2012
$m

Capital commitments

   
Specialist military equipment 111 239
Land and buildings 804 697
Other property, plant and equipment 6,373 6,001
Other capital commitments 661 572
Tertiary education institutions 255 255
Total capital commitments 8,204 7,764

Operating commitments

   
Non-cancellable accommodation leases 2,471 2,719
Other non-cancellable leases 3,431 3,549
Tertiary education institutions 282 282
Total operating commitments 6,184 6,550
Total commitments 14,388 14,314

Statement of Actual Contingent Liabilities and Assets as at 31 March 2013

Statement of Actual Contingent Liabilities and Assets as at 31 March 2013
  As at
31 Mar
2013
$m
As at
30 June
2012
$m

Quantifiable contingent liabilities

   
Guarantees and indemnities 183 430
Uncalled capital 5,864 6,327
Legal proceedings and disputes 410 411
Other contingent liabilities 392 584
Total quantifiable contingent liabilities 6,849 7,752

Total quantifiable contingent liabilities by segment

   
Core Crown 6,598 7,622
Crown entities 79 40
State-owned enterprises 172 90
Inter-segment eliminations
Total quantifiable contingent liabilities 6,849 7,752

Quantifiable contingent assets by segment

   
Core Crown 338 224
Crown entities 8 162
State-owned enterprises 21 24
Total quantifiable contingent assets 367 410

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

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

Notes to the Forecast Financial Statements

NOTE 1: Sovereign Revenue

NOTE 1: Sovereign Revenue (Accrual)
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Taxation revenue (accrual)

             

Individuals

             
Source deductions 21,237 22,563 22,387 23,709 24,891 26,114 27,530
Other persons 4,232 4,386 5,026 5,083 5,438 5,620 5,737
Refunds (1,736) (1,567) (1,473) (1,488) (1,508) (1,523) (1,525)
Fringe benefit tax 462 458 460 477 499 518 540
Total individuals 24,195 25,840 26,400 27,781 29,320 30,729 32,282

Corporate tax

             
Gross companies tax 8,310 8,301 8,372 9,240 9,750 10,095 10,340
Refunds (202) (279) (197) (197) (204) (213) (222)
Non-resident withholding tax 500 455 448 447 497 558 606
Foreign-source dividend w/holding payments 4
Total corporate tax 8,612 8,477 8,623 9,490 10,043 10,440 10,724

Other direct income tax

             
Resident w/holding tax on interest income 1,679 1,673 1,602 1,671 1,869 2,329 2,685
Resident w/holding tax on dividend income 292 375 394 607 623 644 657
Total other direct income tax 1,971 2,048 1,996 2,278 2,492 2,973 3,342
Total direct income tax 34,778 36,365 37,019 39,549 41,855 44,142 46,348

Goods and services tax

             
Gross goods and services tax 25,199 26,795 25,490 27,220 28,866 30,633 32,463
Refunds (10,627) (11,052) (10,085) (10,695) (11,322) (12,184) (13,348)
Total goods and services tax 14,572 15,743 15,405 16,525 17,544 18,449 19,115

Other indirect taxation

             
Road user charges 1,045 1,152 1,062 1,164 1,264 1,363 1,426
Petroleum fuels excise – domestic production 847 939 878 931 991 1,056 1,083
Alcohol excise – domestic production 656 698 656 678 706 735 765
Tobacco excise – domestic production 244 223 288 277 282 289 300
Petroleum fuels excise – imports1 631 626 611 659 702 748 768
Alcohol excise – imports1 241 249 258 267 277 289 299
Tobacco excise – imports1 993 983 986 1,043 1,093 1,155 1,200
Other customs duty 173 179 182 172 164 154 148
Gaming duties 216 231 225 223 225 227 229
Motor vehicle fees 175 170 178 187 193 198 203
Approved issuer levy and cheque duty 58 69 55 62 62 62 62
Energy resources levies 36 36 36 36 36 36 36
Total other indirect taxation 5,315 5,555 5,415 5,699 5,995 6,312 6,519
Total indirect taxation 19,887 21,298 20,820 22,224 23,539 24,761 25,634
Total taxation revenue 54,665 57,663 57,839 61,773 65,394 68,903 71,982

Other sovereign revenue (accrual)

             
ACC levies 3,695 3,395 3,409 3,465 3,548 3,638 3,736
Fire Service levies 326 313 333 338 341 351 351
EQC levies 107 240 240 269 275 277 280
Child support 311 660 647 729 767 605 654
Court fines 176 178 173 173 173 173 173
Other miscellaneous items 515 660 324 322 331 335 337
Total other sovereign revenue 5,130 5,446 5,126 5,296 5,435 5,379 5,531
Revenue contingency for ACC levy reductions (300) (1,000) (1,000)
Total sovereign revenue 59,795 63,109 62,965 67,069 70,529 73,282 76,513
  1. Customs excise-equivalent duty.
NOTE 1 (continued): Sovereign Receipts (Cash)
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Taxation receipts (cash)

             

Individuals

             
Source deductions 21,010 22,450 22,240 23,584 24,761 25,980 27,395
Other persons 4,720 5,062 5,278 5,549 5,910 6,105 6,197
Refunds (2,468) (2,493) (2,252) (2,222) (2,193) (2,268) (2,223)
Fringe benefit tax 458 457 458 476 498 517 539
Total individuals 23,720 25,476 25,724 27,387 28,976 30,334 31,908

Corporate tax

             
Gross companies tax 8,792 8,737 8,754 9,495 10,112 10,530 10,716
Refunds (814) (756) (667) (766) (757) (793) (828)
Non-resident withholding tax 434 454 448 446 496 557 605
Foreign-source dividend w/holding payments 4
Total corporate tax 8,416 8,435 8,535 9,175 9,851 10,294 10,493

Other direct income tax

             
Resident w/holding tax on interest income 1,699 1,672 1,601 1,670 1,868 2,328 2,684
Resident w/holding tax on dividend income 290 375 394 607 623 644 657
Total other direct income tax 1,989 2,047 1,995 2,277 2,491 2,972 3,341
Total direct income tax 34,125 35,958 36,254 38,839 41,318 43,600 45,742

Goods and services tax

             
Gross goods and services tax 24,574 25,895 24,855 26,352 28,044 29,790 31,623
Refunds (10,435) (10,552) (9,785) (10,195) (10,822) (11,684) (12,848)
Total goods and services tax 14,139 15,343 15,070 16,157 17,222 18,106 18,775

Other indirect taxation

             
Road user charges 1,048 1,152 1,062 1,164 1,264 1,363 1,426
Petroleum fuels excise – domestic production 845 939 878 931 991 1,056 1,083
Alcohol excise – domestic production 654 698 656 678 706 735 765
Tobacco excise – domestic production 238 223 288 277 282 289 300
Customs duty 2,057 2,037 2,037 2,141 2,236 2,346 2,415
Gaming duties 216 231 224 223 225 227 229
Motor vehicle fees 169 170 178 187 193 198 203
Approved issuer levy and cheque duty 55 69 55 62 62 62 62
Energy resources levies 36 36 36 36 36 36 36
Total other indirect taxation 5,318 5,555 5,414 5,699 5,995 6,312 6,519
Total indirect taxation 19,457 20,898 20,484 21,856 23,217 24,418 25,294
Total taxation receipts 53,582 56,856 56,738 60,695 64,535 68,018 71,036

Other sovereign receipts (cash)

             
ACC levies 3,693 3,413 3,427 3,438 3,525 3,688 3,787
Fire Service levies 326 313 333 338 341 351 351
EQC levies 134 270 276 267 275 278 281
Child support 243 225 241 237 248 259 270
Court fines 157 144 161 148 137 137 137
Other miscellaneous items 337 364 320 319 327 331 332
Total other sovereign receipts 4,890 4,729 4,758 4,747 4,853 5,044 5,158
Revenue contingency for ACC levy reductions (300) (1,000) (1,000)
Total sovereign receipts 58,472 61,585 61,496 65,442 69,088 72,062 75,194

NOTE 2: Interest revenue and dividends

NOTE 2: Interest revenue and dividends
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By type

             
Interest revenue 2,293 2,885 2,517 3,006 3,392 3,627 4,291
Dividends 470 491 534 582 639 703 773
Total interest revenue and dividends 2,763 3,376 3,051 3,588 4,031 4,330 5,064

By source

             
Core Crown 1,795 2,397 2,196 2,639 2,908 3,045 3,504
Crown entities 1,181 1,123 1,204 1,242 1,340 1,377 1,438
State-owned enterprises 858 905 822 878 998 1,154 1,395
Inter-segment eliminations (1,071) (1,049) (1,171) (1,171) (1,215) (1,246) (1,273)
Total interest revenue and dividends 2,763 3,376 3,051 3,588 4,031 4,330 5,064

NOTE 3: Transfer payments and subsidies

NOTE 3: Transfer payments and subsidies
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
New Zealand Superannuation 9,584 10,243 10,235 10,894 11,495 12,102 12,712
Jobseeker Support and Emergency Benefit -   1,773 1,867 1,858 1,850
Supported Living Payment 1,392 1,435 1,443 1,456
Sole Parent Support 1,288 1,341 1,366 1,391
Domestic Purposes Benefit 1,811 1,820 1,738 67
Invalid's Benefit 1,325 1,321 1,329 53
Sickness Benefit 775 781 782 32
Unemployment Benefit 883 881 806 29
Family tax credit 2,071 2,113 2,047 2,026 1,993 1,950 1,932
Other working for families tax credits 599 595 572 539 521 511 510
Accommodation Assistance 1,195 1,243 1,178 1,191 1,211 1,228 1,244
Income related rents 580 626 637 662 683 719 762
Disability assistance 401 366 385 380 377 376 376
Student allowances 644 602 592 574 536 529 528
Other social assistance benefits 1,288 1,440 1,377 1,328 1,304 1,310 1,323
Total social assistance grants 21,156 22,031 21,678 22,228 22,763 23,392 24,084

Subsidies

             
KiwiSaver subsidies 688 688 738 748 727 746 777
Other transfer payments              
Official development assistance 510 499 502 509 520 547 547
Total transfer payments and subsidies 22,354 23,218 22,918 23,485 24,010 24,685 25,408

From 15 July 2013 the benefit categories Domestic Purposes Benefit, Invalid's Benefit, Unemployment and Emergency Benefit and Sickness Benefit, as well as Widow's Benefit, are being replaced by new benefit categories. These categories are Jobseeker Support and Emergency Benefit, Supported Living Payment and Sole Parent Support.

NOTE 4: Personnel expenses

NOTE 4: Personnel expenses
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By source

             
Core Crown 5,915 6,003 6,071 6,066 6,065 6,157 6,209
Crown entities 10,754 10,897 11,148 11,198 11,397 11,587 11,706
State-owned enterprises 2,819 2,786 2,947 2,919 2,955 2,986 2,990
Inter-segment eliminations (13) (10) (10) (11) (11) (11) (11)
Total personnel expenses 19,475 19,676 20,156 20,172 20,406 20,719 20,894

NOTE 5: Depreciation, amortisation and other operating expenses

NOTE 5: Depreciation, amortisation and other operating expenses
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By source

             
Core Crown 37,280 41,041 39,384 39,332 38,378 38,402 38,190
Crown entities 17,897 18,062 18,628 19,100 19,099 19,192 19,284
State-owned enterprises 13,174 11,173 11,668 11,219 11,923 12,467 12,907
Inter-segment eliminations (26,323) (26,660) (27,194) (27,403) (27,603) (27,861) (27,991)
Total depreciation, amortisation and other operating expenses 42,028 43,616 42,486 42,248 41,797 42,200 42,390

NOTE 6: Interest expenses

NOTE 6: Interest expenses
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By type

             
Interest on financial liabilities 4,223 4,610 4,255 4,465 4,889 4,978 5,536
Interest unwind on provisions 67 53 46 51 45 53 59
Total interest expenses 4,290 4,663 4,301 4,516 4,934 5,031 5,595

By source

             
Core Crown 3,511 3,766 3,557 3,622 3,928 3,883 4,273
Crown entities 246 247 236 239 242 245 256
State-owned enterprises 1,268 1,254 1,152 1,279 1,359 1,448 1,656
Inter-segment eliminations (735) (604) (644) (624) (595) (545) (590)
Total interest expenses 4,290 4,663 4,301 4,516 4,934 5,031 5,595

NOTE 7: Insurance expenses

 
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By entity

             
ACC 3,010 3,300 3,136 3,315 3,474 3,687 3,918
EQC 1,073 71 98 (19) 155 113 223
Southern Response 586 (93) (58) (95) (57) (49) (14)
Expense contingency for ACC levy reductions 125 450
Other (incl. inter-segment eliminations) (93) 11 (11) 14 13 14 14
Total insurance expenses 4,576 3,289 3,165 3,215 3,710 4,215 4,141

NOTE 8: Forecast new spending and top-down expense adjustment

NOTE 8: Forecast new spending and top-down expense adjustment
  2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Forecast new operating spending

           
Unallocated contingencies 348 42 461 324 327 348
Forecast new spending for Budget 2014 1,000 1,000 1,000
Forecast new spending for Budget 2015 1,020 1,020
Forecast new spending for Budget 2016 1,040
Total forecast new operating spending 348 42 461 1,324 2,347 3,408
Operating top-down adjustment (700) (330) (600) (250) (300) (300)

Unallocated contingencies represent expenses included in Budget 2013 and previous Budgets that have 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)
  2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Post-2017
Forecast
$m
Total
Forecast
$m

Forecast new capital spending (annual)

             
Unallocated contingencies 2 403 207 207 100 919
Forecast new spending for Budget 2014 100 400 250 250 1,000
Forecast new spending for Budget 2015 100 300 250 250 900
Forecast new spending for Budget 2016 100 300 500 900
Forecast new spending for Budget 2017 100 818 918
Total forecast new capital spending 2 503 707 857 1,000 1,568 4,637
Forecast new capital spending (cumulative) 2 505 1,212 2,069 3,069    
Capital top-down adjustment (cumulative) (280) (330) (330) (330) (330)    

Unallocated contingencies represent capital spending from Budget 2013 and previous Budgets that have yet to be allocated. Forecast new spending indicates the expected capital spending increases from future Budgets, which are funded from the Future Investment Fund.

NOTE 9: Gains and losses on financial instruments

NOTE 9: Gains and losses on financial instruments
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By source

             
Core Crown 526 1,685 3,944 1,663 1,759 1,816 1,887
Crown entities 930 288 1,529 252 302 364 448
State-owned enterprises 9 (46) 61 11 (11) (6) (13)
Inter-segment eliminations (773) (192) 325 (178) (181) (186) (196)
Net gains/(losses) on financial instruments 692 1,735 5,859 1,748 1,869 1,988 2,126

NOTE 10: Gains and losses on non-financial instruments

NOTE 10: Gains and losses on non-financial instruments
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By type

             
Actuarial gains/(losses) on GSF liability (3,896) 918
Actuarial gains/(losses) on ACC outstanding claims (2,942) 1,047 498 646 583 554
Other 312 201 123 (55) (88) (95) (97)
Net gains/(losses) on non-financial instruments (6,526) 201 2,088 443 558 488 457

By source

             
Core Crown (3,790) 7 1,121 (2) (1) (1) (1)
Crown entities (2,955) (11) 967 446 559 489 458
State-owned enterprises 220 205 (1) (1) (1) (1) (1)
Inter-segment eliminations (1) 1 1 1 1
Net gains/(losses) on non-financial instruments (6,526) 201 2,088 443 558 488 457

NOTE 11: Operating balance

NOTE 11: Operating balance
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By source

             
Core Crown (11,671) (7,774) (2,700) (2,249) 651 2,553 4,252
Crown entities (641) 1,873 4,307 2,646 2,065 1,023 1,259
State-owned enterprises (1,423) 890 456 732 840 859 834
Inter-segment eliminations (1,162) (688) (145) (771) (841) (949) (932)
Total operating balance (14,897) (5,699) 1,918 358 2,715 3,486 5,413

NOTE 12: Financial assets

NOTE 12: Financial assets
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Cash and cash equivalents 10,686 14,327 16,492 15,244 14,530 14,681 14,752
Tax receivables 7,257 6,974 7,323 7,831 7,873 7,755 7,770
Trade and other receivables 13,699 9,825 11,866 10,239 8,984 8,677 8,782
Student loans (refer note 13) 8,291 8,781 8,528 8,989 9,450 9,928 10,418
Kiwibank mortgages 12,445 13,830 13,261 14,544 16,323 18,340 20,690
Long-term deposits 2,422 1,697 2,013 2,089 2,375 2,456 2,356
IMF financial assets 2,249 2,445 2,191 2,404 2,430 2,454 2,280
Other advances 1,030 1,284 1,643 1,779 1,978 2,041 2,023
Share investments 14,385 15,853 16,616 18,176 19,814 21,576 23,425
Derivatives in gain 5,032 4,028 4,797 3,906 3,523 3,093 2,794
Other marketable securities 38,682 28,027 31,391 36,314 30,230 34,360 41,489
Total financial assets 116,178 107,071 116,121 121,515 117,510 125,361 136,779

Financial assets by entity

             
NZDMO 26,062 14,820 17,307 20,153 11,514 14,262 19,933
Reserve Bank of New Zealand 17,573 17,631 18,332 18,228 17,731 17,827 18,018
NZS Fund 18,815 20,445 22,624 23,891 25,371 27,143 29,047
Other core Crown 20,455 18,863 20,547 20,464 20,448 20,806 21,378
Intra-segment eliminations (7,924) (5,832) (7,194) (6,691) (4,706) (3,971) (4,037)
Total core Crown segment 74,981 65,927 71,616 76,045 70,358 76,067 84,339
ACC portfolio 25,340 28,440 29,686 32,161 34,844 37,673 40,630
EQC portfolio 7,252 3,781 5,687 2,597 383 58 59
Other Crown entities 11,168 8,191 10,368 9,735 8,561 6,859 5,834
Intra-segment eliminations (3,685) (3,503) (3,635) (3,625) (3,394) (2,868) (2,907)
Total Crown entities segment 40,075 36,909 42,106 40,868 40,394 41,722 43,616
Total state-owned enterprises segment 19,186 21,393 20,685 22,141 24,269 26,394 28,954
Inter-segment eliminations (18,064) (17,158) (18,286) (17,539) (17,511) (18,822) (20,130)
Total financial assets 116,178 107,071 116,121 121,515 117,510 125,361 136,779

NOTE 13: Student loans

NOTE 13: Student loans
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Nominal value (including accrued interest) 12,969 13,840 13,512 14,144 14,762 15,389 16,024
Opening book value 7,460 8,238 8,291 8,528 8,989 9,450 9,928
Amount borrowed in current year 1,586 1,644 1,553 1,632 1,681 1,733 1,802
Less initial write-down to fair value (701) (651) (528) (537) (554) (570) (593)
Repayments made during the year (877) (953) (1,149) (1,135) (1,199) (1,249) (1,314)
Interest unwind 526 601 581 600 631 663 695
(Impairment)/reversal of impairment 286 (110) (232) (110) (110) (110) (110)
Other movements 11 12 12 11 12 11 10
Closing book value 8,291 8,781 8,528 8,989 9,450 9,928 10,418

NOTE 14: Property, plant and equipment

NOTE 14: Property, plant and equipment
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By class of asset

             

Net carrying value

             
Land (valuation)1 33,626 35,551 34,021 34,759 35,070 34,990 35,143
Buildings (valuation) 25,046 25,528 25,015 25,312 25,840 25,665 25,501
State highways (valuation) 17,546 19,120 17,989 18,918 19,517 20,382 21,361
Electricity generation assets (valuation) 14,400 15,348 13,911 14,104 13,929 13,855 13,963
Electricity distribution network (cost) 3,476 3,835 3,989 4,273 4,355 4,454 4,572
Specialist military equipment (valuation) 3,220 3,346 3,196 3,330 3,529 3,474 3,501
Specified cultural and heritage assets (valuation) 2,514 2,506 2,481 2,502 2,526 2,552 2,580
Aircraft (excluding military) (valuation) 2,250 2,222 2,240 2,498 2,765 3,109 3,404
Rail network (valuation) 856 7,614 866 1,012 1,004 993 981
Other plant and equipment (cost) 5,650 6,265 5,626 5,919 6,098 6,355 6,411
Total property, plant and equipment 108,584 121,335 109,334 112,627 114,633 115,829 117,417

By source

             
Core Crown 29,377 30,140 29,561 30,565 31,369 31,036 30,966
Crown entities 49,939 51,182 50,715 52,207 53,334 54,597 55,874
State-owned enterprises 29,268 40,013 29,058 29,855 29,930 30,196 30,577
Inter-segment eliminations    -     -     -     -     -     -     - 
Total property, plant and equipment 108,584 121,335 109,334 112,627 114,633 115,829 117,417

Land breakdown by usage1

             
Housing 8,744 8,394 8,787 8,750 8,715 8,675 8,642
State highway corridor land 8,353 7,603 8,503 8,653 8,803 8,953 9,103
Conservation land 5,454 5,679 5,444 5,460 5,473 5,483 5,493
Rail network 3,260 5,641 3,386 3,418 3,446 3,475 3,497
Schools 2,726 2,747 2,726 2,724 2,719 2,714 2,709
Commercial (SOEs) excluding Rail 1,471 1,594 1,497 1,520 1,539 1,558 1,577
Other 3,618 3,893 3,678 4,234 4,375 4,132 4,122
Total land 33,626 35,551 34,021 34,759 35,070 34,990 35,143
  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
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Schedule of movements

             

Cost or valuation

             
Opening balance 126,601 133,898 121,717 126,589 133,765 139,758 144,899
Additions (refer below for further breakdown) 6,514 7,437 6,307 7,830 6,717 6,364 6,617
Disposals (941) (436) (692) (598) (612) (1,027) (756)
Net revaluations (9,793)    -  7    -     -     -     - 
Other1 (664) 248 (750) (56) (112) (196) (166)
Total cost or valuation 121,717 141,147 126,589 133,765 139,758 144,899 150,594

Accumulated depreciation and impairment

             
Opening balance 11,747 15,890 13,133 17,255 21,138 25,125 29,070
Eliminated on disposal (634) (40) (87) (42) (47) (172) (91)
Eliminated on revaluation (3,415)    -  (1)    -     -     -     - 
Impairment losses charged to operating balance 1,884    -     -     -     -     -     - 
Depreciation expense 3,803 4,070 4,263 4,011 4,125 4,208 4,289
Other1 (252) (108) (53) (86) (91) (91) (91)
Total accumulated depreciation and impairment 13,133 19,812 17,255 21,138 25,125 29,070 33,177
Total property, plant and equipment 108,584 121,335 109,334 112,627 114,633 115,829 117,417
  1. Other mainly includes transfers to/from other asset categories.
NOTE 14 (continued): Property, plant and equipment
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Additions - by functional classification

             
Transport 2,291 2,299 1,887 2,579 2,153 2,463 2,528
Economic 2,036 1,659 1,569 1,338 823 942 1,113
Education 442 931 805 862 827 836 788
Health 627 686 645 636 545 326 362
Defence 339 556 337 548 693 444 488
Other 779 1,306 1,064 1,867 1,676 1,353 1,338
Total additions to property, plant and equipment2 6,514 7,437 6,307 7,830 6,717 6,364 6,617
  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

NOTE 15: Intangible assets and goodwill
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By type

             
Net Kyoto position 202 189 3 3 3 3 3
Goodwill 746 431 744 744 744 744 744
Other intangible assets 1,757 1,951 1,940 2,090 2,113 2,105 2,079
Total intangible assets and goodwill 2,705 2,571 2,687 2,837 2,860 2,852 2,826

By source

             
Core Crown 1,112 1,294 1,071 1,175 1,193 1,186 1,165
Crown entities 494 472 504 534 526 516 497
State-owned enterprises 1,099 805 1,112 1,128 1,141 1,150 1,164
Inter-segment eliminations    -     -     -     -     -     -     - 
Total intangible assets and goodwill 2,705 2,571 2,687 2,837 2,860 2,852 2,826
Net Kyoto position

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 latest Net Position estimate 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

NOTE 16: NZS Fund
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Revenue 539 563 647 777 805 860 918
Less current tax expense 160 419 890 478 511 551 594
Less other expenses 132 160 146 148 160 171 185
Add gains/(losses) (204) 1,327 3,431 1,358 1,466 1,585 1,718
Operating balance 43 1,311 3,042 1,509 1,600 1,723 1,857
Opening net worth 18,652 18,777 18,703 21,752 23,283 24,918 26,679
Operating balance 43 1,311 3,042 1,509 1,600 1,723 1,857
Other movements in reserves 8 32 7 22 35 38 41
Closing net worth 18,703 20,120 21,752 23,283 24,918 26,679 28,577

Comprising:

             
Financial assets 18,815 20,445 22,624 23,891 25,371 27,143 29,047
Financial liabilities (1,317) (1,620) (1,966) (1,714) (1,729) (1,744) (1,764)
Net other assets 1,205 1,295 1,094 1,106 1,276 1,280 1,294
Closing net worth 18,703 20,120 21,752 23,283 24,918 26,679 28,577

NOTE 17: Payables

NOTE 17: Payables
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By type

             
Accounts payable 8,255 10,139 8,456 8,403 8,231 8,379 8,433
Taxes repayable 3,349 3,364 3,366 3,957 4,102 4,150 4,261
Total payables 11,604 13,503 11,822 12,360 12,333 12,529 12,694

By source

             
Core Crown 7,139 7,367 6,626 6,860 6,839 6,893 7,049
Crown entities 5,642 6,501 5,922 5,929 5,715 5,595 5,392
State-owned enterprises 4,968 5,523 5,435 5,663 5,893 6,127 6,326
Inter-segment eliminations (6,145) (5,888) (6,161) (6,092) (6,114) (6,086) (6,073)
Total payables 11,604 13,503 11,822 12,360 12,333 12,529 12,694

NOTE 18: Insurance liabilities

NOTE 18: Insurance liabilities
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By entity

             
ACC 30,648 30,651 30,767 31,423 31,999 32,733 33,617
EQC 8,877 5,210 7,114 3,743 1,169 164 166
Southern Response 2,062 992 1,439 698 313 14
Contingency for ACC levy reductions 125 575 575
Other (incl. inter-segment eliminations) (401) 66 (403) 38 49 47 43
Total insurance liabilities 41,186 36,919 38,917 35,902 33,655 33,533 34,401

ACC liability

Calculation information

PricewaterhouseCoopers Actuarial Pty Ltd have prepared an independent actuarial estimate of the ACC outstanding claims liability as at 31 December 2012. This estimate includes the expected future payments relating to accidents that occurred prior to balance date (whether or not the associated claims have been reported to, or accepted by, ACC) and also the expected future administrative expenses of managing these claims. The assumptions underpinning this valuation form the basis of the five-year forecast of the outstanding claims liability.

The key economic variables that impact on changes to the valuation are the long-term Labour Cost Index (LCI), average weekly earnings and the discount rate. Discount rates were derived from the yield curve for New Zealand Government bonds. For these forecast statements, the claims liability has been updated for the latest discount rates as at 31 March 2013. The equivalent single effective discount rate, taking into account ACC's projected future cash flow patterns, is a short-term discount rate of 4.66% and a long-term discount rate of 6.00% from 2035.

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, including an adjustment to reflect projected future actuarial releases ($338 million in 2013 and a further $498 million in 2014), is included within total liabilities. ACC has available to it a portfolio of assets that partially offset the claims liability. The assets (less cross-holdings of NZ Government stock) are included in the asset portion of the Government's Statement of Financial Position.

Levy reductions

The signalled levy reductions are not included in this note as the impact on specific levy rates has yet to be agreed. Instead the levy reductions have been included in the forecast as a contingency (refer to the ACC Levy Reduction box in the fiscal chapter for more information). The levy reduction will decrease the net ACC reserves.

NOTE 18: Insurance liabilities (continued)
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Gross ACC liability

             
Opening gross liability 26,939 29,433 30,648 30,767 31,423 31,999 32,733
Net change 3,709 1,218 119 656 576 734 884
Closing gross liability 30,648 30,651 30,767 31,423 31,999 32,733 33,617

Less net assets available to ACC

             
Opening net asset value 20,233 23,165 23,466 27,486 29,989 32,675 35,509
Net change 3,233 2,579 4,020 2,503 2,686 2,834 2,962
Closing net asset value 23,466 25,744 27,486 29,989 32,675 35,509 38,471

Net ACC reserves (net liability)

             
Opening reserves position (6,706) (6,268) (7,182) (3,281) (1,434) 676 2,776
Net change (476) 1,361 3,901 1,847 2,110 2,100 2,078
Closing reserves position (net liability) (7,182) (4,907) (3,281) (1,434) 676 2,776 4,854

EQC liability

Calculation information

Melville Jessup Weaver prepared an independent actuarial estimate of the EQC outstanding claims liability at 30 June 2012 by estimating the projected ultimate claims costs then deducting the payments made in relation to those claims on or before that date. Each component of the claims liability was split into separate groups depending upon the Canterbury earthquake event grouping or other “business as usual” claims. These event groups were further split into sub-claim valuation groups being land claims, building claims or contents claims. The assumptions underpinning the 30 June 2012 valuation form the basis of the five-year forecast of the outstanding claims liability.

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: cost apportionment across events; the potential for construction cost to exceed expectations; land damage estimates; reinsurance recoveries and profile of claims settlement.

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: Insurance liabilities (continued)
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

EQC liability

             
Opening gross liability 10,570 8,643 8,877 7,114 3,743 1,169 164
Net change (1,693) (3,433) (1,763) (3,371) (2,574) (1,005) 2
Closing gross liability 8,877 5,210 7,114 3,743 1,169 164 166

Less reinsurance receivable

             
Opening reinsurance receivable 4,185 4,040 4,066 2,616 1,378 327
Net change (119) (2,445) (1,450) (1,238) (1,051) (327)
Closing reinsurance receivable 4,066 1,595 2,616 1,378 327

Net EQC liability

             
Opening net position (6,385) (4,603) (4,811) (4,498) (2,365) (842) (164)
Net change 1,574 988 313 2,133 1,523 678 (2)
Closing net position (net liability) (4,811) (3,615) (4,498) (2,365) (842) (164) (166)

NOTE 19: Retirement plan liabilities

NOTE 19: Retirement plan liabilities
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Government Superannuation Fund 13,539 11,478 12,228 11,767 11,323 10,906 10,508
Other funds 3 (1) (1) (1) (1) (1)
Total retirement plan liabilities 13,539 11,481 12,227 11,766 11,322 10,905 10,507

The net liability of the Government Superannuation Fund (GSF) was calculated by GSF's actuary as at 28 February 2013. 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 28 February 2013, based on membership data as at 30 June 2012 with adjustments for cash flows to 28 February 2013. 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 28 February 2013.

Other principal long-term financial assumptions were an inflation rate, as measured by the Consumers Price Index, of 2.1% for the year to June 2013 and 2.4% for 2014, increasing to 2.5% in 2015, and an annual salary growth rate, before any promotional effects, of 3% (unchanged from 30 June 2012).

The 2012/13 projected decrease in the net GSF liability is $1,311 million, reflecting a decrease in the GSF liability of $1,053 million and an increase in the GSF assets of $258 million.

The decrease in the GSF liability of $1,053 million includes an actuarial gain between 1 July 2012 and 28 February 2013, of$690 million owing to movements in the discount rates and changes in demographic assumptions. The remaining $363 million reduction is owing to expected benefits paid to members (reduces the liability) offset by current service cost and interest unwind (increases the liability).

The increase in the value of the net assets of GSF of $258 million includes a gain of $228 million reflecting the updated market value of assets at 28 February 2013. The balance of $30 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 2012/13 onwards reflect the net of the expected current service cost, interest cost, investment returns and contributions.

NOTE 19: Retirement plan liabilities (continued)
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

GSF liability

             
Opening GSF liability 13,311 14,961 16,557 15,504 15,109 14,728 14,372
Net projected change 3,246 (355) (1,053) (395) (381) (356) (341)
Closing GSF liability 16,557 14,606 15,504 15,109 14,728 14,372 14,031

Less net assets available to GSF

             
Opening net asset value 3,159 3,078 3,018 3,276 3,342 3,405 3,466
Investment valuation changes (16) 188 390 177 181 184 187
Contribution and other income less pension payments (125) (138) (132) (111) (118) (123) (130)
Closing net asset value 3,018 3,128 3,276 3,342 3,405 3,466 3,523

Net GSF liability

             
Opening unfunded liability 10,152 11,883 13,539 12,228 11,767 11,323 10,906
Net projected change 3,387 (405) (1,311) (461) (444) (417) (398)
Closing unfunded liability 13,539 11,478 12,228 11,767 11,323 10,906 10,508

NOTE 20: Provisions

NOTE 20: Provisions
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Provision for employee entitlements 3,253 3,133 3,286 3,233 3,239 3,264 3,295
Provision for ETS credits 375 815 1 (1) (2) (3)
Provision for National Provident Fund guarantee 1,076 843 1,033 987 942 901 864
Provision for Canterbury Red Zone support package 745 462
Provision for infrastructure costs 530 1,350 837 362
Provision for weathertight services financial assistance package 189 306 71 62 40 15 2
Other provisions 1,338 1,769 1,131 1,198 1,298 1,295 1,231
Total provisions 7,506 6,866 7,334 6,317 5,880 5,473 5,389

By source

             
Core Crown 4,965 4,529 4,903 3,905 3,380 2,775 2,756
Crown entities 1,899 1,814 1,884 1,907 1,922 1,929 1,935
State-owned enterprises 1,103 925 986 963 1,058 1,062 996
Inter-segment eliminations (461) (402) (439) (458) (480) (293) (298)
Total provisions 7,506 6,866 7,334 6,317 5,880 5,473 5,389
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 surrender Kyoto compliant units to settle their obligation. The Kyoto compliant units collected through the ETS are recognised as revenue and as part of the net Kyoto Protocol position.

The carbon price used to calculate the ETS provision is assumed to remain constant over the forecast period and is based on the estimated March 2013 carbon price of €0.16 with an exchange rate of 0.65465 (a carbon price of NZ$0.24).

The ETS impact on the fiscal forecast is as follows:

ETS impact on the fiscal forecast
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Revenue 64 311 5 5 5 5 5
Expenses (334) (237) (8) (4) (4) (4) (4)
Gains/(losses) 507    -  377    -     -     -     - 
Operating balance 237 74 374 1 1 1 1

NOTE 21: Net worth

NOTE 21: Net worth
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Taxpayers' funds 3,520 2,144 5,601 6,230 9,225 13,040 18,621
Property, plant and equipment revaluation reserve 56,001 62,550 55,965 55,831 55,722 55,569 55,402
Investment revaluation reserve 71 79 76 84 93 103 114
Cash flow hedge reserve (195) (279) (121) (142) (148) (161) (158)
Foreign currency translation reserve (49) 66 (45) (6) (49) (49) (49)
Net worth attributable to minority interests 432 1,648 1,794 3,185 4,586 6,001 6,076
Total net worth 59,780 66,208 63,270 65,182 69,429 74,503 80,006

Taxpayers' funds

             
Opening taxpayers' funds 18,188 7,573 3,520 5,601 6,230 9,225 13,040
Operating balance excluding minority interest (14,897) (5,699) 1,918 358 2,715 3,486 5,413
Government share offers in SOEs 200 175 175 175 175
Transfers from/(to) other reserves 229 70 (12) 96 105 154 168
Closing taxpayers' funds 3,520 2,144 5,601 6,230 9,225 13,040 18,621

Property, plant and equipment revaluation reserve

             
Opening revaluation reserve 62,690 62,618 56,001 55,965 55,831 55,722 55,569
Net revaluations (6,461) (29)
Transfers from/(to) other reserves (228) (68) (7) (134) (109) (153) (167)
Closing property, plant and equipment revaluation reserve 56,001 62,550 55,965 55,831 55,722 55,569 55,402

Investment revaluation reserve

             
Opening investment revaluation reserve 58 69 71 76 84 93 103
Valuation gain/(losses) on investments available for sale taken to reserves 13 10 5 8 9 10 11
Closing investment revaluation reserve 71 79 76 84 93 103 114

Cash flow hedge reserve

             
Opening cash flow hedge reserve (310) (276) (195) (121) (142) (148) (161)
Transfer into reserve 80 (3) 74 (21) (4) (14) 3
Transfer to the Statement of Financial Performance 54 (4) (2) 1
Transfer to initial carrying value of hedged item (19) 4
Closing cash flow hedge reserve (195) (279) (121) (142) (148) (161) (158)

Foreign currency translation reserve

             
Opening foreign currency translation reserve (47) 11 (49) (45) (6) (49) (49)
Movement arising from translation of foreign operations (2) 55 4 39 (43)
Closing foreign currency translation reserve (49) 66 (45) (6) (49) (49) (49)

Net worth attributable to minority interests

             
Opening minority interest 308 308 432 1,794 3,185 4,586 6,001
Operating balance attributable to minority interests 56 90 10 140 200 270 340
Increase in minority interest from Government share offers 1,300 1,325 1,325 1,325 1,325
Forgone dividends from Government share offers (50) (120) (170) (230) (290)
Other 68 27 46 46 50 25
Closing minority interest 432 1,648 1,794 3,185 4,586 6,001 6,076

NOTE 22: Core Crown residual cash

NOTE 22: Core Crown residual cash
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Core Crown cash flows from operations

             
Tax receipts 54,249 57,762 57,699 62,056 65,677 69,276 72,398
Other sovereign receipts 670 653 662 644 651 667 679
Interest, profits and dividends 1,431 1,676 1,583 1,660 1,831 1,826 2,146
Sale of goods and services and other receipts 2,699 2,506 2,322 2,641 2,080 2,000 1,989
Transfer payments and subsidies (22,854) (23,334) (22,937) (23,877) (24,154) (24,707) (25,424)
Personnel and operating costs (40,036) (42,411) (41,754) (42,800) (41,538) (41,442) (40,766)
Finance costs (3,369) (3,918) (3,789) (3,680) (4,026) (3,784) (4,051)
Forecast for future new operating spending (348) (42) (461) (1,324) (2,347) (3,408)
Top-down expense adjustment 700 330 600 250 300 300
Net core Crown operating cash flows (7,210) (6,714) (5,926) (3,217) (553) 1,789 3,863

Core Crown capital cash flows

             
Net purchase of physical assets (1,262) (1,999) (1,782) (2,560) (1,942) (1,263) (1,514)
Net increase in advances (1,022) (926) (358) (990) (747) (998) (425)
Net purchase of investments (1,150) 62 38 334 281 (207) (1,477)
Forecast for future new capital spending (194) (2) (503) (707) (857) (1,000)
Top-down capital adjustment 100 280 50
Net core Crown capital cash flows (3,434) (2,957) (1,824) (3,669) (3,115) (3,325) (4,416)
Residual cash deficit (10,644) (9,671) (7,750) (6,886) (3,668) (1,536) (553)

The residual cash deficit is funded as follows:

             

Debt programme cash flows

             

Market:

             
    Issue of government bonds 15,146 14,122 15,554 10,245 7,839 6,441 6,426
    Repayment of government bonds (7,602) (9,982) (9,982) (10,955) (1,817)
    Net issue/(repayment) of short-term borrowing1 2,139 (3,701) (5,553) 90 (60)
Total market debt cash flows 9,683 439 19 10,335 (3,176) 4,624 6,426

Non-market:

             
    Issue of government bonds
    Repayment of government bonds (1,501) (499) (499) (757) (697)
    Net issue/(repayment) of short-term borrowing 430 (219) (249) (12)
Total non-market debt cash flows (1,071) (499) (499) (976) (946) (12)
Total debt programme cash flows 8,612 (60) (480) 9,359 (4,122) 4,612 6,426

Other borrowing cash flows

             
Net (repayment)/issue of other New Zealand dollar borrowing 5,880 741 4,118 724 1,559 1,065 599
Net (repayment)/issue of foreign currency borrowing (6,030) (620) (2,354) (512) (1,284) (940) (572)
Total other borrowing cash flows (150) 121 1,764 212 275 125 27

Investing cash flows

             
Other net sale/(purchase) of marketable securities and deposits 2,270 9,465 11,572 (2,826) 7,370 (3,350) (6,054)
Issues of circulating currency 203 144 264 141 145 150 154
Decrease/(increase) in cash (291) 1 (5,370) (1)
Total investing cash flows 2,182 9,610 6,466 (2,685) 7,515 (3,201) (5,900)
Residual cash deficit funding 10,644 9,671 7,750 6,886 3,668 1,536 553
  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 2012
  Core Crown
2012
Actual
$m
Crown entities
2012
Actual
$m
State-owned
enterprises
2012
Actual
$m
Inter-segment
eliminations
2012
Actual
$m
Total Crown
2012
Actual
$m

Revenue

         
Taxation revenue 55,081 (416) 54,665
Other sovereign revenue 935 5,384 (1,189) 5,130
Sales of goods and services 1,448 14,657 14,230 (13,550) 16,785
Interest revenue and dividends 1,795 1,181 858 (1,071) 2,763
Other revenue 1,306 13,249 943 (11,358) 4,140
Forecast revenue reduction contingency
Total revenue (excluding gains) 60,565 34,471 16,031 (27,584) 83,483

Expenses

         
Social assistance and official development assistance 22,367 (13) 22,354
Personnel expenses 5,915 10,754 2,819 (13) 19,475
Other operating expenses 37,280 17,897 13,174 (26,323) 42,028
Interest expenses 3,511 246 1,268 (735) 4,290
Insurance expenses 3 4,323 363 (113) 4,576
Forecast for future new spending and top-down adjustment
Total expenses (excluding losses) 69,076 33,220 17,624 (27,197) 92,723
Operating balance before gains/(losses) (8,511) 1,251 (1,593) (387) (9,240)
Total gains/(losses) (3,264) (2,025) 229 (774) (5,834)
Net surplus/(deficit) from associates and joint ventures 104 133 (3) (1) 233
Attributable to minority interest (56) (56)
Operating balance (11,671) (641) (1,423) (1,162) (14,897)

Expenses by functional classification

         
Social security and welfare 22,028 4,009 (580) 25,457
Health 14,160 11,907 (12,417) 13,650
Education 11,654 9,371 28 (8,646) 12,407
Transport and communications 2,232 2,130 8,102 (2,205) 10,259
Other 15,491 5,557 8,226 (2,614) 26,660
Finance costs 3,511 246 1,268 (735) 4,290
Forecast for future new spending and top-down adjustment
Total Crown expenses (excluding losses) 69,076 33,220 17,624 (27,197) 92,723
Statement of Financial Position as at 30 June 2012
  Core Crown
2012
Actual
$m
Crown entities
2012
Actual
$m
State-owned
enterprises
2012
Actual
$m
Inter-segment
eliminations
2012
Actual
$m
Total Crown
2012
Actual
$m

Assets

         
Cash and cash equivalents 6,756 3,105 1,396 (571) 10,686
Receivables 10,974 10,011 2,154 (2,183) 20,956
Other financial assets 57,251 26,959 15,636 (15,310) 84,536
Property, plant and equipment 29,377 49,939 29,268 108,584
Equity accounted investments 31,308 7,982 340 (30,147) 9,483
Intangible assets and goodwill 1,112 494 1,099 2,705
Inventory and other assets 1,632 411 1,364 (39) 3,368
Forecast for new capital spending and top-down adjustment
Total assets 138,410 98,901 51,257 (48,250) 240,318

Liabilities

         
Borrowings 84,510 5,325 25,374 (14,675) 100,534
Other liabilities 30,528 49,357 7,281 (7,162) 80,004
Total liabilities 115,038 54,682 32,655 (21,837) 180,538
Total assets less total liabilities 23,372 44,219 18,602 (26,413) 59,780

Net worth

         
Taxpayers' funds 7,844 17,458 7,956 (29,738) 3,520
Reserves 15,528 26,728 10,220 3,352 55,828
Net worth attributable to minority interest 33 426 (27) 432
Total net worth 23,372 44,219 18,602 (26,413) 59,780
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 58,286 (447) 57,839
Other sovereign revenue 1,085 5,307 (1,266) 5,126
Sales of goods and services 1,456 15,111 14,170 (13,928) 16,809
Interest revenue and dividends 2,196 1,204 822 (1,171) 3,051
Other revenue 786 13,249 1,135 (11,532) 3,638
Forecast revenue reduction contingency
Total revenue (excluding gains) 63,809 34,871 16,127 (28,344) 86,463

Expenses

         
Social assistance and official development assistance 22,917 1 22,918
Personnel expenses 6,071 11,148 2,947 (10) 20,156
Other operating expenses 39,384 18,628 11,668 (27,194) 42,486
Interest expenses 3,557 236 1,152 (644) 4,301
Insurance expenses 8 3,178 6 (27) 3,165
Forecast for future new spending and top-down adjustment (288) (288)
Total expenses (excluding losses) 71,649 33,190 15,773 (27,874) 92,738
Forgone profits from Government share offers (10) (10)
Operating balance before gains/(losses) (7,840) 1,681 344 (470) (6,285)
Total gains/(losses) 5,065 2,496 60 326 7,947
Net surplus/(deficit) from associates and joint ventures 75 130 52 (1) 256
Operating balance (2,700) 4,307 456 (145) 1,918

Expenses by functional classification

         
Social security and welfare 22,893 4,129 (583) 26,439
Health 14,526 12,201 (12,832) 13,895
Education 12,355 9,579 27 (8,842) 13,119
Transport and communications 2,352 2,314 6,919 (2,780) 8,805
Other 16,254 4,731 7,675 (2,193) 26,467
Finance costs 3,557 236 1,152 (644) 4,301
Forecast for future new spending and top-down adjustment (288) (288)
Total Crown expenses (excluding losses) 71,649 33,190 15,773 (27,874) 92,738
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 11,811 3,954 933 (206) 16,492
Receivables 10,360 8,664 2,311 (2,146) 19,189
Other financial assets 49,445 29,488 17,441 (15,934) 80,440
Property, plant and equipment 29,561 50,715 29,058 109,334
Equity accounted investments 32,635 8,134 216 (31,476) 9,509
Intangible assets and goodwill 1,071 504 1,112 2,687
Inventory and other assets 1,549 410 1,387 (34) 3,312
Forecast for new capital spending and top-down adjustment (278) (278)
Total assets 136,154 101,869 52,458 (49,796) 240,685

Liabilities

         
Borrowings 85,309 5,156 25,884 (15,569) 100,780
Other liabilities 28,882 47,351 7,556 (7,154) 76,635
Total liabilities 114,191 52,507 33,440 (22,723) 177,415
Total assets less total liabilities 21,963 49,362 19,018 (27,073) 63,270

Net worth

         
Taxpayers' funds 6,419 22,628 8,293 (31,739) 5,601
Reserves 15,544 26,673 10,289 3,369 55,875
Net worth attributable to minority interest 61 436 1,297 1,794
Total net worth 21,963 49,362 19,018 (27,073) 63,270
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 62,383 (610) 61,773
Other sovereign revenue 1,165 5,237 (1,106) 5,296
Sales of goods and services 1,397 15,431 14,394 (14,142) 17,080
Interest revenue and dividends 2,639 1,242 878 (1,171) 3,588
Other revenue 798 13,644 1,022 (11,597) 3,867
Forecast revenue reduction contingency
Total revenue (excluding gains) 68,382 35,554 16,294 (28,626) 91,604

Expenses

         
Social assistance and official development assistance 23,485 23,485
Personnel expenses 6,066 11,198 2,919 (11) 20,172
Other operating expenses 39,332 19,100 11,219 (27,403) 42,248
Interest expenses 3,622 239 1,279 (624) 4,516
Insurance expenses 1 3,203 9 2 3,215
Forecast for future new spending and top-down adjustment (139) (139)
Total expenses (excluding losses) 72,367 33,740 15,426 (28,036) 93,497
Forgone profits from Government share offers (140) (140)
Operating balance before gains/(losses) (3,985) 1,814 728 (590) (2,033)
Total gains/(losses) 1,661 698 10 (178) 2,191
Net surplus/(deficit) from associates and joint ventures 75 134 (6) (3) 200
Operating balance (2,249) 2,646 732 (771) 358

Expenses by functional classification

         
Social security and welfare 23,595 4,503 (588) 27,510
Health 14,950 12,424 (13,023) 14,351
Education 12,389 9,676 27 (8,906) 13,186
Transport and communications 2,162 2,294 6,922 (2,782) 8,596
Other 15,788 4,604 7,198 (2,113) 25,477
Finance costs 3,622 239 1,279 (624) 4,516
Forecast for future new spending and top-down adjustment (139) (139)
Total Crown expenses (excluding losses) 72,367 33,740 15,426 (28,036) 93,497
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 11,730 2,932 786 (204) 15,244
Receivables 10,260 7,099 2,358 (1,647) 18,070
Other financial assets 54,055 30,837 18,997 (15,688) 88,201
Property, plant and equipment 30,565 52,207 29,855 112,627
Equity accounted investments 33,609 8,290 214 (32,471) 9,642
Intangible assets and goodwill 1,175 534 1,128 2,837
Inventory and other assets 1,692 404 1,319 (33) 3,382
Forecast for new capital spending and top-down adjustment 175 175
Total assets 143,261 102,303 54,657 (50,043) 250,178

Liabilities

         
Borrowings 94,504 5,416 27,733 (15,452) 112,201
Other liabilities 27,743 43,921 7,790 (6,659) 72,795
Total liabilities 122,247 49,337 35,523 (22,111) 184,996
Total assets less total liabilities 21,014 52,966 19,134 (27,932) 65,182

Net worth

         
Taxpayers' funds 5,461 26,319 8,247 (33,797) 6,230
Reserves 15,553 26,540 10,311 3,363 55,767
Net worth attributable to minority interest 107 576 2,502 3,185
Total net worth 21,014 52,966 19,134 (27,932) 65,182
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 66,080 (686) 65,394
Other sovereign revenue 1,212 5,413 (1,190) 5,435
Sales of goods and services 1,357 15,501 15,247 (14,142) 17,963
Interest revenue and dividends 2,908 1,340 998 (1,215) 4,031
Other revenue 722 13,554 1,044 (11,637) 3,683
Forecast revenue reduction contingency (300) (300)
Total revenue (excluding gains) 72,279 35,508 17,289 (28,870) 96,206

Expenses

         
Social assistance and official development assistance 24,011 (1) 24,010
Personnel expenses 6,065 11,397 2,955 (11) 20,406
Other operating expenses 38,378 19,099 11,923 (27,603) 41,797
Interest expenses 3,928 242 1,359 (595) 4,934
Insurance expenses 1 3,699 9 1 3,710
Forecast for future new spending and top-down adjustment 1,074 1,074
Total expenses (excluding losses) 73,457 34,437 16,246 (28,209) 95,931
Forgone profits from Government share offers (200) (200)
Operating balance before gains/(losses) (1,178) 1,071 843 (661) 75
Total gains/(losses) 1,758 861 (12) (180) 2,427
Net surplus/(deficit) from associates and joint ventures 71 133 9 213
Operating balance 651 2,065 840 (841) 2,715

Expenses by functional classification

         
Social security and welfare 24,110 4,763 (580) 28,293
Health 14,880 12,400 (13,043) 14,237
Education 12,462 9,805 27 (9,028) 13,266
Transport and communications 2,219 2,359 7,184 (2,832) 8,930
Other 14,784 4,868 7,676 (2,131) 25,197
Finance costs 3,928 242 1,359 (595) 4,934
Forecast for future new spending and top-down adjustment 1,074 1,074
Total Crown expenses (excluding losses) 73,457 34,437 16,246 (28,209) 95,931
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 11,769 2,344 622 (205) 14,530
Receivables 10,268 5,871 2,412 (1,694) 16,857
Other financial assets 48,321 32,179 21,235 (15,612) 86,123
Property, plant and equipment 31,369 53,334 29,930 114,633
Equity accounted investments 34,631 8,454 212 (33,514) 9,783
Intangible assets and goodwill 1,193 526 1,141 2,860
Inventory and other assets 1,520 393 1,356 (32) 3,237
Forecast for new capital spending and top-down adjustment 882 882
Total assets 139,953 103,101 56,908 (51,057) 248,905

Liabilities

         
Borrowings 90,090 5,491 29,562 (15,466) 109,677
Other liabilities 26,870 41,461 8,159 (6,691) 69,799
Total liabilities 116,960 46,952 37,721 (22,157) 179,476
Total assets less total liabilities 22,993 56,149 19,187 (28,900) 69,429

Net worth

         
Taxpayers' funds 7,433 29,564 8,148 (35,920) 9,225
Reserves 15,560 26,433 10,263 3,362 55,618
Net worth attributable to minority interest 152 776 3,658 4,586
Total net worth 22,993 56,149 19,187 (28,900) 69,429
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 69,679 (776) 68,903
Other sovereign revenue 1,054 5,574 (1,249) 5,379
Sales of goods and services 1,352 15,567 15,798 (14,131) 18,586
Interest revenue and dividends 3,045 1,377 1,154 (1,246) 4,330
Other revenue 715 13,744 1,086 (11,779) 3,766
Forecast revenue reduction contingency (1,000) (1,000)
Total revenue (excluding gains) 75,845 35,262 18,038 (29,181) 99,964

Expenses

         
Social assistance and official development assistance 24,686 (1) 24,685
Personnel expenses 6,157 11,587 2,986 (11) 20,719
Other operating expenses 38,402 19,192 12,467 (27,861) 42,200
Interest expenses 3,883 245 1,448 (545) 5,031
Insurance expenses 3 4,203 9 4,215
Forecast for future new spending and top-down adjustment 2,047 2,047
Total expenses (excluding losses) 75,178 35,227 16,910 (28,418) 98,897
Forgone profits from Government share offers (270) (270)
Operating balance before gains/(losses) 667 35 858 (763) 797
Total gains/(losses) 1,815 853 (7) (185) 2,476
Net surplus/(deficit) from associates and joint ventures 71 135 8 (1) 213
Operating balance 2,553 1,023 859 (949) 3,486

Expenses by functional classification

         
Social security and welfare 24,534 5,341 (594) 29,281
Health 14,910 12,382 (13,082) 14,210
Education 12,556 9,915 27 (9,118) 13,380
Transport and communications 2,147 2,415 7,416 (2,857) 9,121
Other 15,101 4,929 8,019 (2,222) 25,827
Finance costs 3,883 245 1,448 (545) 5,031
Forecast for future new spending and top-down adjustment 2,047 2,047
Total Crown expenses (excluding losses) 75,178 35,227 16,910 (28,418) 98,897
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 11,947 2,463 476 (205) 14,681
Receivables 10,181 5,318 2,472 (1,539) 16,432
Other financial assets 53,939 33,941 23,446 (17,078) 94,248
Property, plant and equipment 31,036 54,597 30,196 115,829
Equity accounted investments 35,924 8,597 212 (34,828) 9,905
Intangible assets and goodwill 1,186 516 1,150 2,852
Inventory and other assets 1,537 359 1,396 (34) 3,258
Forecast for new capital spending and top-down adjustment 1,739 1,739
Total assets 147,489 105,791 59,348 (53,684) 258,944

Liabilities

         
Borrowings 94,582 5,957 31,630 (16,941) 115,228
Other liabilities 26,026 41,224 8,440 (6,477) 69,213
Total liabilities 120,608 47,181 40,070 (23,418) 184,441
Total assets less total liabilities 26,881 58,610 19,278 (30,266) 74,503

Net worth

         
Taxpayers' funds 11,311 32,130 7,977 (38,378) 13,040
Reserves 15,570 26,277 10,255 3,360 55,462
Net worth attributable to minority interest 203 1,046 4,752 6,001
Total net worth 26,881 58,610 19,278 (30,266) 74,503
Statement of Financial Performance for the year ended 30 June 2017
  Core Crown
2017
Forecast
$m
Crown entities
2017
Forecast
$m
State-owned
enterprises
2017
Forecast
$m
Inter-segment
eliminations
2017
Forecast
$m
Total Crown
2017
Forecast
$m

Revenue

         
Taxation revenue 72,820 (838) 71,982
Other sovereign revenue 1,105 5,682 (1,256) 5,531
Sales of goods and services 1,345 15,631 16,231 (14,122) 19,085
Interest revenue and dividends 3,504 1,438 1,395 (1,273) 5,064
Other revenue 714 13,841 1,116 (11,839) 3,832
Forecast revenue reduction contingency (1,000) (1,000)
Total revenue (excluding gains) 79,488 35,592 18,742 (29,328) 104,494

Expenses

         
Social assistance and official development assistance 25,408 25,408
Personnel expenses 6,209 11,706 2,990 (11) 20,894
Other operating expenses 38,190 19,284 12,907 (27,991) 42,390
Interest expenses 4,273 256 1,656 (590) 5,595
Insurance expenses 3 4,129 10 (1) 4,141
Forecast for future new spending and top-down adjustment 3,108 3,108
Total expenses (excluding losses) 77,191 35,375 17,563 (28,593) 101,536
Forgone profits from Government share offers (340) (340)
Operating balance before gains/(losses) 2,297 217 839 (735) 2,618
Total gains/(losses) 1,886 906 (14) (195) 2,583
Net surplus/(deficit) from associates and joint ventures 69 136 9 (2) 212
Operating balance 4,252 1,259 834 (932) 5,413

Expenses by functional classification

         
Social security and welfare 25,246 5,160 (605) 29,801
Health 14,888 12,353 (13,166) 14,075
Education 12,610 9,957 27 (9,139) 13,455
Transport and communications 2,218 2,495 7,597 (2,825) 9,485
Other 14,848 5,154 8,283 (2,268) 26,017
Finance costs 4,273 256 1,656 (590) 5,595
Forecast for future new spending and top-down adjustment 3,108 3,108
Total Crown expenses (excluding losses) 77,191 35,375 17,563 (28,593) 101,536
Statement of Financial Position as at 30 June 2017
  Core Crown
2017
Forecast
$m
Crown entities
2017
Forecast
$m
State-owned
enterprises
2017
Forecast
$m
Inter-segment
eliminations
2017
Forecast
$m
Total Crown
2017
Forecast
$m

Assets

         
Cash and cash equivalents 12,086 2,486 385 (205) 14,752
Receivables 10,239 5,362 2,544 (1,593) 16,552
Other financial assets 62,014 35,768 26,025 (18,332) 105,475
Property, plant and equipment 30,966 55,874 30,577 117,417
Equity accounted investments 37,370 8,732 210 (36,294) 10,018
Intangible assets and goodwill 1,165 497 1,164 2,826
Inventory and other assets 1,533 359 1,415 (34) 3,273
Forecast for new capital spending and top-down adjustment 2,739 2,739
Total assets 158,112 109,078 62,320 (56,458) 273,052

Liabilities

         
Borrowings 101,075 5,916 34,336 (18,205) 123,122
Other liabilities 25,891 41,894 8,606 (6,467) 69,924
Total liabilities 126,966 47,810 42,942 (24,672) 193,046
Total assets less total liabilities 31,146 61,268 19,378 (31,786) 80,006

Net worth

         
Taxpayers' funds 15,563 34,929 7,736 (39,607) 18,621
Reserves 15,583 26,111 10,256 3,359 55,309
Net worth attributable to minority interest 228 1,386 4,462 6,076
Total net worth 31,146 61,268 19,378 (31,786) 80,006

Core Crown Expense Tables

Core Crown Expense Tables
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Social security and welfare 17,877 19,382 21,185 22,005 22,028 22,893 23,595 24,110 24,534 25,246
GSF pension expenses 690 655 328 305 192 278 274 306 347 380
Health 11,297 12,368 13,128 13,753 14,160 14,526 14,950 14,880 14,910 14,888
Education 9,551 11,455 11,724 11,650 11,654 12,355 12,389 12,462 12,556 12,610
Core government services 3,371 5,293 2,974 5,563 5,428 5,572 4,637 4,277 4,278 4,203
Law and order 2,894 3,089 3,191 3,382 3,403 3,511 3,561 3,450 3,508 3,481
Defence 1,562 1,757 1,814 1,809 1,736 1,822 1,933 1,900 1,952 1,857
Transport and communications 2,244 2,663 2,345 2,281 2,232 2,352 2,162 2,219 2,147 2,218
Economic and industrial services 2,889 2,960 2,806 2,542 2,073 2,052 2,152 2,093 2,112 2,125
Primary services 541 534 507 706 648 684 818 725 698 669
Heritage, culture and recreation 561 586 630 741 863 842 854 808 801 799
Housing and community development 260 297 339 943 ( 46) 317 335 320 261 200
Environmental protection 546 416 651 1,225 769 519 496 428 440 430
Other 254 118 80 479 425 657 728 477 704 704
Finance costs 2,460 2,429 2,311 3,066 3,511 3,557 3,622 3,928 3,883 4,273
Forecast for future new spending  ..   ..   ..   ..   ..  42 461 1,324 2,347 3,408
Top-down expense adjustment  ..   ..   ..   ..   ..  ( 330) ( 600) ( 250) ( 300) ( 300)
Core Crown expenses 56,997 64,002 64,013 70,450 69,076 71,649 72,367 73,457 75,178 77,191

Source: The Treasury

Table 6.1 - Social security and welfare expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Welfare benefits (see below) 16,288 17,366 18,961 19,781 20,375 20,842 21,610 21,968 22,602 23,293
Social rehabilitation and compensation 199 336 331 119 81 107 173 159 153 156
Departmental expenses 850 1,092 1,130 1,127 1,122 1,183 1,174 1,140 1,122 1,120
Child support impairment 193 205 371 281 72 318 392 408 229 253
Other non-departmental expenses1 347 383 392 697 378 443 246 435 428 424
Social security and welfare expenses 17,877 19,382 21,185 22,005 22,028 22,893 23,595 24,110 24,534 25,246
  1. Other non-departmental expenses and other expenses include costs associated with the Canterbury earthquakes.

Source: The Treasury

Table 6.2 - Welfare benefit expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
New Zealand Superannuation 7,348 7,744 8,290 8,830 9,584 10,235 10,894 11,495 12,102 12,712
Jobseeker Support and Emergency Benefit ..  ..  ..  ..  ..  ..  1,773 1,867 1,858 1,850
Supported living payment ..  ..  ..  ..  ..  ..  1,392 1,435 1,443 1,456
Sole parent support ..  ..  ..  ..  ..  ..  1,288 1,341 1,366 1,391
Domestic Purposes Benefit 1,478 1,530 1,693 1,757 1,811 1,738 67 ..  ..  .. 
Invalid's Benefit 1,216 1,260 1,303 1,306 1,325 1,329 53 ..  ..  .. 
Sickness Benefit 582 613 710 743 775 782 32 ..  ..  .. 
Unemployment Benefit 458 586 930 943 883 806 29 ..  ..  .. 
Family Tax Credit 1,897 2,062 2,168 2,139 2,071 2,047 2,026 1,993 1,950 1,932
Other working for families tax credits 614 619 628 616 599 572 539 521 511 510
Accommodation Assistance 891 989 1,154 1,197 1,195 1,178 1,191 1,211 1,228 1,244
Income-Related Rents 465 512 522 553 580 637 662 683 719 762
Disability Assistance 278 390 411 409 401 385 380 377 376 376
Benefits paid in Australia 58 50 45 40 37 22 19 15 12 34
Paid Parental Leave 135 143 154 154 158 167 176 183 196 196
Childcare Assistance 150 159 178 188 188 186 184 183 184 184
War Disablement Pensions 134 125 137 135 128 126 122 124 124 118
Veteran's Pension 161 176 179 178 177 171 167 159 154 148
Other benefits 423 408 459 593 463 461 616 381 379 380
Benefit expenses 16,288 17,366 18,961 19,781 20,375 20,842 21,610 21,968 22,602 23,293

Source: The Treasury

Table 6.2 - Welfare benefit expenses (continued)
Beneficiary numbers
(Thousands)
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
New Zealand Superannuation 508 522 540 561 585 612 637 660 682 704
Jobseeker Support and Emergency Benefit ..  ..  ..  ..  ..  ..  143 143 139 137
Supported living payment ..  ..  ..  ..  ..  ..  94 92 91 91
Sole parent support ..  ..  ..  ..  ..  ..  83 81 81 81
Domestic Purposes Benefit 97 101 110 114 114 109 ..  ..  ..  .. 
Invalid's Benefit 82 86 88 88 87 87 ..  ..  ..  .. 
Sickness Benefit 48 50 58 60 60 60 ..  ..  ..  .. 
Unemployment Benefit 37 48 78 80 73 74 ..  ..  ..  .. 
Accommodation Supplement 245 267 312 320 311 305 304 305 305 306

Source: Ministry of Social Development

From July 2013, changes to the benefit system and existing benefit categories will take place. Three new categories of benefit; Supported living payment, Sole parent support and Jobseeker Support and Emergency Benefit; will replace the following existing categories: Domestic Purposes Benefit, Invalid's Benefit, Unemployment Benefit, Sickness Benefit and Widow's Benefit. Due to the changes, there is no historical data for the new benefit categories and no forecast data for the existing categories beyond July 2013.

Table 6.3 - Health expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Departmental outputs 206 206 211 199 186 172 184 185 185 185
Health services purchasing (see below) 10,503 11,354 12,077 12,530 13,018 13,355 13,717 13,626 13,613 13,614
Other non-departmental outputs 97 98 106 120 119 233 285 263 271 253
Health payments to ACC 463 667 691 849 744 719 715 758 791 786
Other expenses 28 43 43 55 93 47 49 48 50 50
Health expenses 11,297 12,368 13,128 13,753 14,160 14,526 14,950 14,880 14,910 14,888

Source: The Treasury

Table 6.4 - Health services purchasing
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Payments to District Health Boards 9,312 10,038 10,670 11,133 11,542 11,942 12,179 12,164 12,157 12,164
National disability support services 834 889 930 971 1,029 1,036 1,103 1,089 1,089 1,089
Public health services purchasing 357 427 477 426 447 377 435 373 367 361
Health services purchasing 10,503 11,354 12,077 12,530 13,018 13,355 13,717 13,626 13,613 13,614

Source: The Treasury

Table 6.5 - Education expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Early childhood education 860 1,030 1,184 1,340 1,355 1,443 1,506 1,527 1,559 1,586
Primary and secondary schools (see below) 4,552 4,936 5,157 5,354 5,443 5,644 5,606 5,740 5,813 5,810
Tertiary funding (see below) 3,266 4,564 4,465 3,991 3,795 4,119 4,123 4,087 4,104 4,133
Departmental expenses 828 888 898 923 988 1,061 1,069 1,024 1,006 1,007
Other education expenses 45 37 20 42 73 88 85 84 74 74
Education expenses 9,551 11,455 11,724 11,650 11,654 12,355 12,389 12,462 12,556 12,610

Source: The Treasury

Table 6.5 - Education expenses (continued)
Number of places provided1 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Early childhood education 134,155 142,135 152,862 159,619 165,126 173,074 176,317 178,933 183,112 185,995
  1. Full-time equivalent based on 1,000 funded child hours per calendar year.

Source: Ministry of Education

Table 6.6 - Primary and secondary education expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Primary 2,262 2,484 2,622 2,731 2,771 2,865 2,836 2,910 2,960 2,955
Secondary 1,761 1,898 1,972 2,051 2,085 2,166 2,149 2,199 2,214 2,209
School transport 131 152 160 163 172 177 179 185 191 198
Special needs support 278 290 297 310 323 340 335 340 342 342
Professional development 108 101 95 90 85 88 97 97 97 97
Schooling improvement 12 11 11 9 7 8 10 9 9 9
Primary and secondary education expenses 4,552 4,936 5,157 5,354 5,443 5,644 5,606 5,740 5,813 5,810

Source: The Treasury

Table 6.6 - Primary and secondary education expenses (continued)
Number of places provided1 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Primary 475,820 474,630 473,431 474,149 474,821 476,445 479,165 484,931 489,043 491,097
Secondary 277,582 280,062 281,095 281,999 279,554 277,615 274,923 272,243 269,211 268,003
  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.

Source: Ministry of Education

Table 6.7 - Tertiary education expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Tuition 2,172 2,287 2,398 2,354 2,306 2,329 2,433 2,421 2,421 2,423
Other tertiary funding 452 522 489 429 430 438 469 466 474 479
Student allowances 386 444 570 620 644 592 574 536 529 528
Student loans 256 1,311 1,008 588 415 760 647 664 680 703
Tertiary education expenses 3,266 4,564 4,465 3,991 3,795 4,119 4,123 4,087 4,104 4,133

Source: The Treasury

Table 6.7 - Tertiary education expenses (continued)
Number of places provided1 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Estimated funded places 225,836 234,230 239,978 238,721 245,014 244,516 241,366 240,946 241,001 241,020
Actual delivered places 229,224 246,041 250,440 240,618 250,526          
  1. Tertiary places are the number of equivalent full time (EFT) students in: student achievement component; adult and community education; and youth guarantee programmes. Note that historical place numbers have been revised so may differ from previous published EFU numbers. Place numbers are based on calendar years rather than fiscal years.

Source: Ministry of Education

Table 6.8 - Core government service expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Official development assistance 362 458 435 495 510 502 509 520 547 547
Indemnity and guarantee expenses ..  992 7 319 59 24 26 25 28 32
Departmental expenses 1,557 1,668 1,324 1,492 1,518 1,650 1,725 1,579 1,573 1,536
Non-departmental expenses1 277 117 236 471 524 363 476 533 521 553
Tax receivable write-down and impairments 701 1,654 590 1,010 1,003 1,144 1,197 1,153 1,200 1,200
Science expenses 168 179 191 174 116 120 120 123 123 123
Other expenses1 306 225 191 1,602 1,698 1,769 584 344 286 212
Core government service expenses 3,371 5,293 2,974 5,563 5,428 5,572 4,637 4,277 4,278 4,203
  1. Non-departmental expenses and other expenses include costs associated with the Canterbury earthquakes.

Source: The Treasury

Table 6.9 - Law and order expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Police 1,198 1,326 1,349 1,393 1,394 1,407 1,425 1,401 1,398 1,390
Ministry of Justice 367 379 372 397 440 474 491 440 449 447
Department of Corrections 787 829 903 956 988 995 1,013 983 1,036 1,020
NZ Customs Service1 12 12 13 120 126 142 150 151 151 151
Other departments 79 80 102 237 103 96 88 87 88 88
Department expenses 2,443 2,626 2,739 3,103 3,051 3,114 3,167 3,062 3,122 3,096
Non-departmental outputs 326 380 399 261 315 342 335 330 325 323
Other expenses 125 83 53 18 37 55 59 58 61 62
Law and order expenses 2,894 3,089 3,191 3,382 3,403 3,511 3,561 3,450 3,508 3,481
  1. Prior to 2010/11 the majority of NZ Customs Service expenses were classified as core government services.

Source: The Treasury

Table 6.10 - Defence expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
NZDF core expenses 1,517 1,697 1,747 1,736 1,678 1,756 1,876 1,842 1,889 1,794
Other expenses 45 60 67 73 58 66 57 58 63 63
Defence expenses 1,562 1,757 1,814 1,809 1,736 1,822 1,933 1,900 1,952 1,857

Source: The Treasury

Table 6.11 - Transport and communication expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
New Zealand Transport Agency 1,966 1,562 1,778 1,696 1,744 1,819 1,868 1,926 1,982 2,053
Departmental outputs 137 83 63 65 60 45 46 46 46 46
Other non-departmental expenses 104 170 58 105 62 284 190 120 91 90
Asset impairments ..  320 ..  ..  ..  ..  ..  ..  ..  .. 
Rail funding 24 507 418 386 305 169 25 93 3 3
Other expenses 13 21 28 29 61 35 33 34 25 26
Transport and communication expenses 2,244 2,663 2,345 2,281 2,232 2,352 2,162 2,219 2,147 2,218

Source: The Treasury

Table 6.12 - Economic and industrial services expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Departmental outputs 603 389 382 420 346 368 381 370 361 354
Employment initiatives (see below) 186 185 220 214 206 201 210 183 184 184
Non-departmental outputs 822 809 894 689 614 633 715 722 730 720
Reserve electricity generation 81 20 23 9 5 ..  ..  ..  ..  .. 
KiwiSaver (includes housing deposit subsidy) 1,102 1,281 1,024 1,045 698 754 767 749 768 799
Research and development tax credits 37 154 ..  ..  ..  ..  ..  ..  ..  .. 
Other expenses 58 122 263 165 204 96 79 69 69 68
Economic and industrial services expenses 2,889 2,960 2,806 2,542 2,073 2,052 2,152 2,093 2,112 2,125

Source: The Treasury

Table 6.13 - Employment initiatives
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Training incentive allowance 27 30 19 11 8 14 15 15 15 15
Subsidised work 67 63 109 112 106 94 102 75 76 76
Employment support for the disabled 88 88 88 87 88 90 89 89 89 89
Other employment assistance schemes 4 4 4 4 4 3 4 4 4 4
Employment initiatives 186 185 220 214 206 201 210 183 184 184

Source: The Treasury

Table 6.14 - Primary service expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Departmental expenses 363 364 352 354 348 358 372 366 372 364
Non-departmental outputs 95 82 123 142 134 138 157 131 107 104
Biological research1 ..  ..  ..  167 102 106 101 95 95 95
Other expenses 83 88 32 43 64 82 188 133 124 106
Primary service expenses 541 534 507 706 648 684 818 725 698 669
  1. Prior to 2011, biological research was classified as an economic and industrial services expense.

Source: The Treasury

Table 6.15 - Heritage, culture and recreation expenses1
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Departmental outputs 109 120 115 133 172 272 293 266 264 264
Non-departmental outputs 430 422 405 455 444 443 479 465 460 460
Other expenses 22 44 110 153 247 127 82 77 77 75
Heritage, culture and recreation expenses 561 586 630 741 863 842 854 808 801 799
  1. Previously environmental protection expenses were included as a separate line item within the heritage, culture and recreation classification. These expenses have been reclassified to the new environmental protection functional classification.

Source: The Treasury

Table 6.16 - Housing and community development expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Financial assistance package1 ..  ..   ..  567 (407) (85) ..  ..  ..  .. 
Housing subsidies 28 29 30 31 22 6 8 12 14 15
Departmental outputs 141 148 140 136 98 101 107 101 96 85
Other non-departmental expenses 91 112 122 105 113 158 129 125 86 81
Warm up New Zealand2 ..  ..  33 67 84 81 44 33 28 .. 
Other expenses ..  8 14 37 44 56 47 49 37 19
Housing and community development expenses 260 297 339 943 (46) 317 335 320 261 200
  1. Financial assistance package for 2012 actual and 2013 forecast includes the impact of a revised estimate of the weathertight homes financial assistance package provision.
  2. Previously Warm up New Zealand had been classified under economic and industrial services. For Budget 2013, it has been reclassified to the housing and community development functional classification. Comparative numbers have been restated to align with this change.

Source: The Treasury

Table 6.17 - Environmental protection expenses1
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Emissions Trading Scheme ..  17 80 838 334 8 4 4 4 4
Departmental outputs 283 306 300 301 342 363 356 338 337 338
Non-departmental outputs 38 47 231 26 46 64 87 41 54 44
Other expenses 225 46 40 60 47 84 49 45 45 44
Environmental protection expenses 546 416 651 1,225 769 519 496 428 440 430
  1. Environmental protection expenses were previously included as a separate line item within the heritage, culture and recreation classification.

Source: The Treasury

Glossary of Terms

Accruals basis of accounting

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

Appropriations

Appropriations are legal authorities granted by Parliament to the Crown or an Office of Parliament to use public resources.

Baselines

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

Commercial portfolio

Consists of the portfolio of companies held with purely commercial objectives.

Consumers Price Index (CPI)

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

Contingent assets

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

Contingent liabilities

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

Core Crown

A reporting segment consisting of the Crown, departments, Offices of Parliament, the NZS Fund and RBNZ. For a list of all entities included in this segment, refer to the Government Reporting Entity (pages 85 to 86).

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 core 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 of the core Crown.

Corporate tax

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

Current account (Balance of Payments)

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

Cyclically-adjusted balance (CAB) or structural balance

An estimate of the fiscal balance (eg, operating balance before gains and losses) adjusted for fluctuations of actual GDP around trend GDP. CAB provides a picture of the underlying fiscal position and the effects of policy decisions. 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 government bonds expected to be issued or redeemed.

Excise duties

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

Financial assets

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

Financial liabilities

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

Financial portfolio

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

Fiscal drag

The additional tax revenue generated from source deductions as an individual's average tax rate increases as their income increases.

Fiscal impulse

A summary measure of how changes in the fiscal position affect aggregate demand. 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 GSF. These valuation changes are reported directly as a movement in net worth (eg, asset revaluation reserves) or indirectly through the statement of financial performance.

GDP deflator

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

Generally accepted accounting practice (GAAP)

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

Government Finance Statistics (GFS)

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

Gross debt (or Gross sovereign-issued debt [GSID])

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

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.

Insurance liabilities

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

Inter-segment eliminations

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

Labour force participation rate

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, RBNZ, SOEs, Crown entities and other entities controlled by the Government.

Marketable securities

Assets held with financial institutions. These assets are held for both cash flow and investment purposes. Examples are bonds, commercial papers and debentures.

Monetary conditions

Aggregate monetary conditions measure the degree to which short-term interest rates and the exchange rate either support or restrict economic growth.

Monetary policy

The policies that RBNZ uses to regulate the supply of money in New Zealand. RBNZ implements its monetary policy decisions by adjusting its Official Cash Rate (OCR) in an effort to maintain stability in the rate of CPI inflation within a defined target range.

Tightening monetary policy means raising the OCR in order to moderate aggregate demand pressures and reduce inflationary pressures. Easing monetary policy has the reverse effect.

National saving

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

Net core Crown cash flow from operations

The cash impact of core Crown operating results. It is represented by the operating balance (before gains and losses) less retained items (eg, net surplus of SOEs, Crown entities and NZS Fund net revenue) less non-cash items (eg, depreciation).

Net core Crown debt

Net core Crown debt provides information about the sustainability of the Government's accounts, and is used by some international rating agencies when determining the creditworthiness of a country. It represents gross debt less core Crown financial assets (excluding advances and financial assets held by the NZS Fund). Advances and financial assets held by the NZS Fund are excluded as these assets are less liquid and/or they are made for public policy reasons rather than for the purposes associated with government financing.

Net international investment position (NIIP)

Measures the net value of New Zealand's international assets and liabilities at a point in time.

Net worth

Total assets less total liabilities. The change in net worth in any given forecast year is largely driven by the operating balance and property, plant and equipment revaluations.

Net worth attributable to the Crown

Represents the Crown's share of total assets and liabilities and excludes minority interests' share of those assets and liabilities.

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

Represents OBEGAL (refer below) plus gains and losses. The operating balance includes gains and losses not reported directly as a movement against net worth. The impact of gains and losses on the operating balance can be subject to short-term market volatility and revaluations of long-term liabilities.

Operating balance before gains and losses (OBEGAL)

Represents total Crown revenue less total Crown expenses. OBEGAL can provide a more useful measure of underlying stewardship than the operating balance as short-term market fluctuations are not included in the calculation.

Output gap

The difference between actual and potential GDP. Potential GDP is the level of output an economy can sustain without acceleration of inflation.

Outputs

Outputs are the goods and services commissioned by Ministers from public, non-governmental and private sector producers. Outputs may include the supply of policy advice, enforcement of regulations (such as speed limits in transport), provision of a range of services (in health, education, etc), negotiation and management of contracts and administration of benefits.

Productivity

The amount of output (eg, GDP) per unit of input.

Projections

Projections relate to the period beyond the five-year forecast period and are based on long-run economic and fiscal assumptions. For example, the projections assume no economic cycle and constant long-run interest, inflation and unemployment rates.

Residual cash

The level of money the Government has available to repay debt or, alternatively, needs to borrow in any given year. Residual cash is alternatively termed “Cash available/(shortfall to be funded)”.

Residual cash is equal to net core Crown cash flow from operations excluding NZS Fund activity less core Crown capital payments (eg, purchase of assets, loans to others).

Settlement cash

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

Social portfolio

Consists of the assets and liabilities held primarily to provide public services or to protect assets for future generations.

Specific fiscal risks

All government decisions or other circumstances known to the Government which may have a material impact on the fiscal and economic outlook, but are not included in the fiscal forecasts. 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 volume of imports that can be funded by a fixed volume of exports, and are calculated as the ratio of the total export price index to the total import price index. New Zealand's headline terms of trade series is derived from export and import price indices from Statistics New Zealand's quarterly Overseas Trade Index release. The Treasury forecasts the terms of trade on an SNA-basis, using implicit export and import price indices derived from quarterly national accounts data.

Top-down adjustment

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

Total borrowings

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

Total Crown

Includes the core Crown (defined above) plus Crown entities and SOEs. Also known as the Government Reporting Entity. (Refer pages 85 to 86.)

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.

Votes

When Parliament considers legislation relating to appropriations, the appropriations are grouped within “Votes”. Generally, a Vote groups similar or related appropriations together (eg, Vote Health includes all health- related appropriations administered by the Ministry of Health).

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 2012/13 or 2013 will mean the end of the financial year.

Time Series of Fiscal and Economic Indicators

Fiscal Indicators
June Years 2003
Actual
2004
 Actual
2005
 Actual
2006
 Actual
2007
 Actual
2008
 Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast

$ millions

                             

Revenue and Expenses

                             
Core Crown revenue 43,440 46,219 51,045 55,735 58,211 61,819 59,482 56,216 57,550 60,565 63,809 68,382 72,279 75,845 79,488
Core Crown expenses 39,897 41,882 44,895 49,320 54,003 56,997 64,002 64,013 70,450 69,076 71,649 72,367 73,457 75,178 77,191

Surpluses

                             
Total Crown OBEGAL 4,366 5,573 7,075 7,091 5,860 5,637 (3,893) (6,315) (18,396) (9,240) (6,285) (2,033) 75 797 2,618
Total Crown operating balance 1,621 7,309 5,931 9,542 8,023 2,384 (10,505) (4,509) (13,360) (14,897) 1,918 358 2,715 3,486 5,413

Cash Position

                             
Core Crown residual cash 1,217 520 3,104 2,985 2,877 2,057 (8,639) (9,000) (13,343) (10,644) (7,750) (6,886) (3,668) (1,536) (553)

Debt

                             
Gross debt1 36,617 36,017 35,478 33,903 30,647 31,390 43,356 53,591 72,420 79,635 78,636 87,686 83,157 87,505 93,945
Gross debt incl RB settlement cash and bank bills 36,617 36,017 35,478 35,867 36,805 37,745 50,973 58,891 77,290 84,168 84,427 93,477 88,948 93,296 99,736
Net core Crown debt (incl NZS Fund)2 22,647 19,902 13,324 6,302 1,620 (2,676) 5,633 12,549 23,969 33,475 36,615 42,066 43,938 43,476 42,125
Net core Crown debt2 24,531 23,858 19,879 16,163 13,380 10,258 17,119 26,738 40,128 50,671 57,945 64,765 68,233 69,680 70,275

Net Worth

                             
Total Crown net worth 28,012 39,595 54,240 83,971 96,827 105,514 99,515 94,988 80,887 59,780 63,270 65,182 69,429 74,503 80,006
Total net worth attributable to the Crown 27,918 39,456 54,025 83,678 96,531 105,132 99,068 94,586 80,579 59,348 61,476 61,997 64,843 68,502 73,930
Nominal GDP 135,716 146,344 155,358 163,232 173,214 185,678 185,487 191,798 200,234 208,467 213,844 227,892 237,954 248,004 257,219

% GDP

                             

Revenue and Expenses

                             
Core Crown revenue 32.0 31.6 32.9 34.1 33.6 33.3 32.1 29.3 28.7 29.1 29.8 30.0 30.4 30.6 30.9
Core Crown expenses 29.4 28.6 28.9 30.2 31.2 30.7 34.5 33.4 35.2 33.1 33.5 31.8 30.9 30.3 30.0

Surpluses

                             
Total Crown OBEGAL 3.2 3.8 4.6 4.3 3.4 3.0 (2.1) (3.3) (9.2) (4.4) (2.9) (0.9) 0.0 0.3 1.0
Total Crown operating balance 1.2 5.0 3.8 5.8 4.6 1.3 (5.7) (2.4) (6.7) (7.1) 0.9 0.2 1.1 1.4 2.1

Cash Position

                             
Core Crown residual cash 0.9 0.4 2.0 1.8 1.7 1.1 (4.7) (4.7) (6.7) (5.1) (3.6) (3.0) (1.5) (0.6) (0.2)

Debt

                             
Gross debt1 27.0 24.6 22.8 20.8 17.7 16.9 23.4 27.9 36.2 38.2 36.8 38.5 34.9 35.3 36.5
Gross debt incl RB settlement cash and bank bills 27.0 24.6 22.8 22.0 21.2 20.3 27.5 30.7 38.6 40.4 39.5 41.0 37.4 37.6 38.8
Net core Crown debt (incl NZS Fund)2 16.7 13.6 8.6 3.9 0.9 (1.4) 3.0 6.5 12.0 16.1 17.1 18.5 18.5 17.5 16.4
Net core Crown debt2 18.1 16.3 12.8 9.9 7.7 5.5 9.2 13.9 20.0 24.3 27.1 28.4 28.7 28.1 27.3

Net Worth

                             
Total Crown net worth 20.6 27.1 34.9 51.4 55.9 56.8 53.7 49.5 40.4 28.7 29.6 28.6 29.2 30.0 31.1
Total net worth attributable to the Crown 20.6 27.0 34.8 51.3 55.7 56.6 53.4 49.3 40.2 28.5 28.7 27.2 27.3 27.6 28.7
  1. Excludes Reserve Bank settlement cash and bank bills
  2. Excludes advances
Economic Indicators
March Years
Annual average % change
2003
 Actual
2004
 Actual
2005
 Actual
2006
 Actual
2007
 Actual
2008
 Actual
2009
 Actual
2010
 Actual
2011
 Actual
2012
 Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Private consumption 4.9 6.5 4.7 4.7 2.8 3.5 -1.6 0.6 2.0 2.4 1.9 2.8 2.8 2.5 2.0
Public consumption 0.7 5.1 4.6 4.7 3.4 4.9 4.5 0.2 1.4 1.8 0.4 0.2 0.1 0.6 0.6
TOTAL CONSUMPTION 4.0 6.2 4.7 4.7 2.9 3.8 -0.3 0.5 1.9 2.3 1.6 2.2 2.2 2.1 1.7
Residential investment                23.6 14.7 2.3 -5.0 -2.1 1.8 -21.3 -9.1 1.8 -10.6 16.8 29.2 21.0 11.8 2.4
Non-market investment                 10.7 15.5 10.8 5.7 1.8 -8.0 22.6 0.0 -2.9 -14.8 -14.2 -0.4 2.4 2.4 2.4
Market investment                     2.8 12.4 11.6 11.0 -2.9 10.6 -5.2 -15.2 5.4 8.7 7.9 14.8 6.3 1.9 0.3
TOTAL INVESTMENT 7.9 13.2 8.3 6.5 -2.8 7.1 -8.1 -11.6 3.0 2.3 8.0 19.7 9.6 4.1 0.9
Stock change (contribution to growth) -0.1 0.3 0.3 -0.5 -1.1 1.2 -0.5 -1.2 1.2 0.5 -0.7 0.1 -0.2 0.0 0.0
GROSS NATIONAL EXPENDITURE 4.6 7.8 5.7 4.7 0.3 5.6 -2.1 -3.0 2.5 3.2 2.1 6.1 3.9 2.6 1.5
Exports 8.0 0.9 4.8 -0.1 3.3 3.5 -2.7 5.0 2.7 2.5 2.6 -2.8 2.6 2.3 2.6
Imports 6.9 12.8 12.2 4.4 -1.3 10.6 -4.0 -8.9 11.3 6.2 -0.5 7.6 6.2 3.1 1.3
EXPENDITURE ON GDP 5.0 4.1 3.6 3.4 1.6 3.5 -1.8 1.5 0.2 2.2 2.9 2.4 2.7 2.6 2.2
GDP (production measure) 4.7 4.3 3.6 3.4 3.1 2.9 -1.9 -0.4 1.5 1.9 2.5 2.4 3.0 2.6 2.2
 - annual % change 4.4 5.3 2.3 3.4 3.7 1.2 -3.0 1.8 0.8 2.8 2.6 2.3 2.8 2.5 2.2
Real GDP per capita 3.2 2.4 2.0 2.2 1.9 1.8 -2.8 -1.5 0.3 1.0 1.7 1.4 2.0 1.7 1.3
Nominal GDP (expenditure basis) 5.2 6.9 7.0 5.5 5.0 8.3 0.9 2.3 4.6 3.8 2.7 6.4 4.6 4.3 3.9
GDP deflator 0.2 2.6 3.3 2.0 3.3 4.6 2.7 0.7 4.5 1.6 -0.2 3.9 1.9 1.6 1.6
Output gap (% deviation, March year average) 0.4 0.9 1.2 1.5 2.0 2.9 -0.3 -2.0 -1.9 -1.9 -1.3 -0.6 0.0 0.3 0.1
Employment 2.8 3.0 3.6 2.8 2.2 1.3 0.9 -1.3 1.2 1.4 -0.5 1.5 2.7 1.4 1.2
Unemployment (% March quarter s.a.)          5.0 4.3 3.9 4.0 3.9 3.9 5.2 6.1 6.6 6.7 6.9 6.0 5.9 5.5 5.2
Wages (average ordinary-time hourly, ann % change)         2.3 3.5 3.6 5.4 4.6 4.7 5.5 1.0 2.6 3.8 2.0 2.8 2.2 2.8 3.3
CPI inflation (ann % change)      2.5 1.5 2.8 3.3 2.5 3.4 3.0 2.0 4.5 1.6 0.9 1.9 2.0 2.0 2.2
Merchandise terms of trade (SNA basis)       -5.6 4.4 3.4 -1.9 -1.2 8.4 0.0 -7.6 10.2 1.2 -6.6 10.0 0.9 1.2 1.0
Current account balance - $billion           -4.2 -6.2 -9.5 -14.0 -13.5 -14.6 -14.6 -3.4 -7.2 -9.1 -10.1 -10.9 -12.3 -14.3 -16.6
Current account balance - % of GDP           -3.1 -4.3 -6.2 -8.6 -8.0 -7.9 -7.9 -1.8 -3.6 -4.4 -4.8 -4.8 -5.2 -5.8 -6.5
TWI (March quarter)                          60.6 66.9 69.6 68.3 68.8 71.9 53.7 65.3 67.2 72.5 75.9 77.0 76.1 73.5 69.2
90-day bank bill rate (March quarter)        5.8 5.5 6.9 7.6 7.8 8.8 3.7 2.7 3.0 2.7 2.7 2.7 3.6 4.3 4.8
10-year bond rate (March quarter)            6.0 5.9 6.0 5.7 5.9 6.4 4.6 5.9 5.6 4.0 3.7 4.2 4.6 4.9 5.2

Based on data available at 17 April 2013. CPI, TWI and interest rate figures are actuals.

Additional Information

The following information forms part of the Budget Economic and Fiscal Update 2013 (Budget Update), released by the Treasury on 16 May 2013. 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

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

Table 1  Real gross domestic product

Table 2  Consumers price index and exchange rates

Table 3  Gross domestic expenditure and income

Table 4  Labour market indicators

Table 5  Exports - SNA basis

Table 6  Imports - SNA basis

Table 7  Balance of payments - current account

Table 1 - Real gross domestic product

Chain-volume series expressed in 1995/96 prices
Seasonally Adjusted

Table 1 - Real gross domestic product
  $ million Quarterly
% change
Annual
% change
Annual Average
% change
2010Q1 34,842 0.1 1.8 -0.4
2010Q2 35,098 0.7 3.0 0.9
2010Q3 34,999 -0.3 2.1 1.9
2010Q4 34,863 -0.4 0.1 1.8
2011Q1 35,124 0.7 0.8 1.5
2011Q2 35,312 0.5 0.6 0.9
2011Q3 35,598 0.8 1.7 0.8
2011Q4 35,750 0.4 2.5 1.4
2012Q1 36,112 1.0 2.8 1.9
2012Q2 36,201 0.2 2.5 2.4
2012Q3 36,262 0.2 1.9 2.4
2012Q4 36,806 1.5 3.0 2.5
2013Q1 37,064 0.7 2.6 2.5
2013Q2 37,138 0.2 2.6 2.5
2013Q3 37,278 0.4 2.8 2.7
2013Q4 37,564 0.8 2.1 2.5
2014Q1 37,914 0.9 2.3 2.4
2014Q2 38,208 0.8 2.9 2.5
2014Q3 38,442 0.6 3.1 2.6
2014Q4 38,711 0.7 3.1 2.8
2015Q1 38,958 0.6 2.8 3.0
2015Q2 39,255 0.8 2.7 2.9
2015Q3 39,487 0.6 2.7 2.8
2015Q4 39,713 0.6 2.6 2.7
2016Q1 39,951 0.6 2.5 2.6
2016Q2 40,173 0.6 2.3 2.5
2016Q3 40,360 0.5 2.2 2.4
2016Q4 40,600 0.6 2.2 2.3
2017Q1 40,822 0.5 2.2 2.2
2017Q2 41,041 0.5 2.2 2.2

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
  Index Quarterly % change Annual % change TWI USD
2010Q1 1097 0.4 2.0 65.3 0.71
2010Q2 1099 0.2 1.7 66.8 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 1168 0.3 1.0 71.3 0.79
2012Q3 1171 0.3 0.8 72.7 0.81
2012Q4 1169 -0.2 0.9 73.6 0.82
2013Q1 1174 0.4 0.9 75.9 0.83
2013Q2 1180 0.5 1.0 77.2 0.83
2013Q3 1185 0.4 1.2 77.0 0.83
2013Q4 1190 0.4 1.8 77.0 0.83
2014Q1 1197 0.6 1.9 77.0 0.83
2014Q2 1202 0.5 1.9 76.9 0.83
2014Q3 1207 0.5 1.9 76.7 0.82
2014Q4 1213 0.5 2.0 76.5 0.82
2015Q1 1221 0.6 2.0 76.1 0.81
2015Q2 1224 0.3 1.9 75.6 0.81
2015Q3 1231 0.5 1.9 75.0 0.80
2015Q4 1237 0.5 2.0 74.3 0.79
2016Q1 1245 0.6 2.0 73.5 0.78
2016Q2 1251 0.5 2.2 72.5 0.76
2016Q3 1258 0.5 2.2 71.5 0.75
2016Q4 1265 0.5 2.2 70.4 0.73
2017Q1 1272 0.6 2.2 69.2 0.72
2017Q2 1279 0.6 2.2 68.2 0.70

Source: RBNZ, Statistics New Zealand, The Treasury

Table 3 - Gross domestic expenditure and income

Table 3 - Gross domestic expenditure and income
March Year 2012
Estimate
2013 Forecast 2014 Forecast 2015 Forecast 2016 Forecast 2017 Forecast
  $million %volume %price $million %volume %price $million %volume %price $million %volume %price $million %volume %price $million
Consumption:                                
- Private 123,492 1.9 1.1 127,184 2.8 1.3 132,438 2.8 1.6 138,321 2.5 1.7 144,190 2.0 1.9 149,965
- Public 41,553 0.4 1.8 42,464 0.2 1.4 43,157 0.1 1.9 44,023 0.6 2.3 45,289 0.6 2.4 46,641
Gross Fixed Capital Formation:                                
- Residential 8,102 16.8 3.0 9,749 29.2 5.5 13,302 21.0 4.0 16,715 11.8 2.8 19,196 2.4 3.5 20,360
- Market * 25,930 7.9 -0.9 27,732 14.8 1.5 32,319 6.3 2.2 35,084 1.9 1.7 36,355 0.3 1.9 37,152
- Non-market ** 3,258 -14.2 5.1 2,939 -0.4 2.5 3,005 2.4 2.4 3,153 2.4 2.4 3,307 2.4 2.4 3,469
- Total all sectors 37,282 8.0 0.1 40,285 19.7 1.0 48,736 9.6 3.1 55,032 4.1 2.9 58,938 0.9 2.6 61,061
Change in Stocks 1,827     1,105     1,141     552     388     432
Gross National Expenditure 204,111 2.1 1.3 211,062 6.1 0.6 225,476 3.9 1.6 237,932 2.6 1.9 248,809 1.5 2.2 258,104
Exports 62,460 2.6 -5.9 60,327 -2.8 1.4 59,462 2.6 0.1 61,063 2.3 4.0 64,994 2.6 7.2 71,488
Imports 60,647 -0.5 -0.8 59,868 7.6 -7.1 59,848 6.2 -0.1 63,514 3.1 4.0 68,135 1.3 7.8 74,404
Expenditure on GDP 206,033 2.9 -0.2 211,675 2.4 3.9 225,128 2.7 1.9 235,412 2.6 1.6 245,534 2.2 1.6 255,000
Statistical Discrepancy 513     514     515     517     518     519
Gross Domestic Product 206,546     212,189     225,643     235,928     246,052     255,519
Compensation of employees 91,468     94,143     97,810     102,424     106,282     110,930
Operating Surplus, net:                                 
- Agriculture 7,214     6,694     6,147     7,052     7,467     8,108
- Other 51,041     51,817     59,035     60,499     63,059     64,082
- Total all sectors 58,255     58,510     65,182     67,551     70,525     72,190
Consumption of fixed capital 29,155     30,613     32,143     33,751     35,438     37,210
Indirect Taxes 28,669     29,923     31,508     33,203     34,807     36,190
Less subsidies 1001     1001     1001     1001     1001     1001
Gross Domestic Product 206,546     212,189     225,643     235,928     246,052     255,519

* Includes Local Government and Non-profit Organisations

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

Source: Statistics New Zealand, The Treasury

Table 4 - Labour market indicators

Annual Average Percentage Change
March Year 2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Real GDP (production basis) 1.9 2.5 2.4 3.0 2.6 2.2
Working Age Population 1.0 0.8 1.0 1.1 1.1 1.1
Labour Force 1.3 0.0 0.9 2.1 1.2 0.8
Employment 1.4 -0.5 1.5 2.7 1.4 1.2
Labour Productivity* 0.7 3.2 0.0 0.8 1.4 1.1
CPI  (annual percentage change) 1.6 0.9 1.9 2.0 2.0 2.2
Average Ordinary Time Hourly Wages 3.2 2.6 2.7 2.5 2.5 3.2
Average Weekly Earnings 3.6 2.9 2.3 2.0 2.3 3.1
Real Wages -0.1 1.7 1.2 0.5 0.6 1.0
Compensation of Employees 4.0 2.9 3.9 4.7 3.8 4.4
Unit Labour Costs (Hours worked basis) 2.5 -0.6 2.7 1.7 1.1 2.1
Real Unit Labour Costs -0.8 -1.5 1.2 -0.2 -0.8 -0.1

* Hours worked basis

Number (000's)
As at March Quarter 2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Total Population 4,431 4,461 4,502 4,544 4,587 4,629
     Natural Increase 31 29 29 31 30 30
     Net  Migration -3 1 12 12 12 12
     Annual Change 28 30 41 43 42 42
Working Age Population 3,482 3,511 3,549 3,590 3,629 3,667
     Annual Change     26 30 38 40 40 38
Not in the labour force (s.a.)     1,093 1,145 1,131 1,128 1,145 1,162
     Annual Change     2 52 -14 -2 17 17
Labour Force (s.a.) 2,389 2,367 2,419 2,462 2,485 2,505
     Annual Change     24 -22 52 43 23 20
Total Employment (s.a.)      2,229 2,203 2,273 2,316 2,347 2,374
     Annual Change     20 -26 71 43 30 27
Unemployment (s.a.)        160 164 145 145 138 131
     Annual Change     5 4 -18 0 -7 -7
Participation Rate (%sa)    68.7 67.4 68.1 68.6 68.5 68.3
Unemployment Rate (%sa)     6.7 6.9 6.0 5.9 5.5 5.2

Source: Statistics New Zealand, The Treasury

Table 5 - Exports - SNA basis

Breakdown of Exports
March
Years
Dairy Products Meat and Meat Products Non-Commodity*
%volume %price $million %volume %price $million %volume %price $million
2009 -14.8 28.5 10,033 1.8 23.3 5,837 1.5 15.8 15,110
2010 32.7 -32.1 9,048 -1.9 -7.5 5,291 -5.3 -7.4 13,269
2011 -0.7 29.7 11,667 -2.6 6.5 5,496 6.7 2.3 14,481
2012 8.9 0.5 12,771 -5.2 10.4 5,759 3.5 2.1 15,313
2013 17.9 -15.7 12,642 10.4 -9.6 5,732 -3.1 -6.3 13,895
2014 -11.8 11.2 12,457 -4.5 -5.7 5,178 1.8 1.9 14,412
2015 5.2 -5.2 12,421 3.9 2.6 5,518 0.3 4.0 15,040
2016 3.1 4.0 13,312 2.4 3.9 5,873 0.7 7.5 16,280
2017 3.2 7.0 14,707 2.3 7.1 6,440 2.7 10.8 18,534
Breakdown of Exports (continued)
March Years Total Goods** Services Total Exports
%volume %price $million %volume %price $million %volume %price $million
2009 -2.7 17.6 44,289 -2.8 7.1 13,982 -2.7 14.9 58,271
2010 6.9 -15.4 40,067 -1.0 -1.2 13,684 5.0 -12.1 53,751
2011 3.3 10.1 45,577 0.6 -0.5 13,704 2.7 7.4 59,280
2012 2.7 3.2 48,300 2.2 1.1 14,159 2.5 2.8 62,460
2013 4.6 -7.8 46,548 -4.0 1.4 13,778 2.6 -5.9 60,327
2014 -3.0 1.1 45,683 -0.6 0.6 13,778 -2.8 1.4 59,462
2015 2.9 0.1 47,050 1.2 0.5 14,013 2.6 0.1 61,063
2016 2.3 5.0 50,540 2.1 1.0 14,454 2.3 4.0 64,994
2017 2.6 8.7 56,384 2.2 2.2 15,104 2.6 7.2 71,488

* 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 6 - Imports - SNA basis

Breakdown of Imports
March
Years
Capital Goods (Value for Duty) Mineral Fuel* (VFD) Intermediate Goods** (VFD) Consumption Goods (VFD)
%volume %price $million %volume %price $million %volume %price $million %volume %price $million
2009 3.4 12.1 8,274 -5.8 25.6 8,186 -6.6 21.5 18,350 -2.6 12.4 10,785
2010 -27.1 1.3 6,203 1.6 -27.4 6,059 -10.7 -9.8 14,833 -4.0 -1.0 10,279
2011 25.5 -4.4 7,422 -1.7 16.4 6,945 13.5 0.5 16,957 7.5 -4.5 10,559
2012 14.0 -5.8 7,970 5.8 19.5 8,795 6.3 0.4 18,077 3.8 -1.8 10,758
2013 5.1 -6.2 7,882 -2.5 -0.9 8,443 -0.2 -1.1 17,837 2.9 -1.1 10,953
2014 15.3 -9.8 8,174 0.4 -11.6 7,533 7.7 -4.8 18,316 7.4 -5.4 11,129
2015 10.7 -3.6 8,734 4.2 -3.4 7,583 5.4 1.9 19,666 5.3 1.9 11,943
2016 3.8 1.0 9,157 2.7 0.9 7,864 2.6 5.8 21,355 3.5 5.5 13,038
2017 0.6 4.2 9,590 1.6 4.9 8,381 1.5 9.3 23,690 2.3 8.5 14,471
Breakdown of Imports (continued)
March
Years
Total Goods (VFD) Services Total
%volume %price $million %volume %price $million %volume %price $million
2009 -4.2 17.7 45,646 -3.2 16.1 14,649 -4.0 17.3 60,293
2010 -10.4 -8.4 37,510 -4.2 -6.0 13,244 -8.9 -7.8 50,754
2011 12.3 -0.2 42,088 8.5 -1.1 14,230 11.3 -0.4 56,317
2012 6.3 2.0 45,652 5.7 -0.3 14,995 6.2 1.4 60,647
2013 0.2 -1.3 45,169 -2.4 0.4 14,700 -0.5 -0.8 59,868
2014 8.9 -8.1 45,215 2.6 -3.0 14,633 7.6 -7.1 59,848
2015 6.9 -0.8 47,990 3.6 2.4 15,524 6.2 -0.1 63,514
2016 3.4 3.8 51,479 2.2 5.0 16,656 3.1 4.0 68,135
2017 1.4 7.7 56,195 0.9 8.3 18,209 1.3 7.8 74,404

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

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

Table 7 - Balance of payments – current account

Balance of payments – current account
$NZ Million
Year ended March
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Exports Goods 48,300 46,548 45,683 47,050 50,540 56,384
annual % change 6.0 -3.6 -1.9 3.0 7.4 11.6
Imports Goods 45,652 45,169 45,215 47,990 51,479 56,195
annual % change 8.5 -1.1 0.1 6.1 7.3 9.2
Balance on Goods 2,648 1,379 468 -940 -939 189
% of nominal GDP 1.3 0.7 0.2 -0.4 -0.4 0.1
Exports Services 14,159 13,778 13,778 14,013 14,454 15,104
annual % change 3.3 -2.7 0.0 1.7 3.1 4.5
Imports Services 14,995 14,700 14,633 15,524 16,656 18,209
annual % change 5.4 -2.0 -0.5 6.1 7.3 9.3
Balance on services -836 -921 -855 -1,511 -2,202 -3,105
% of nominal GDP -0.4 -0.4 -0.4 -0.6 -0.9 -1.2
Balance on goods & services 1,812 458 -387 -2,451 -3,141 -2,916
% of nominal GDP 0.9 0.2 -0.2 -1.0 -1.3 -1.1
Int'l investment income and transfers balance     -10,920 -10,554 -10,525 -9,814 -11,187 -13,698
% of nominal GDP -5.3 -5.0 -4.7 -4.2 -4.6 -5.4
Current account balance    -9,096 -10,101 -10,912 -12,266 -14,328 -16,614
% of nominal GDP -4.4 -4.8 -4.8 -5.2 -5.8 -6.5

Source: Statistics New Zealand, The Treasury

Treasury and Inland Revenue Tax Forecasts

In line with established practice, the Inland Revenue Department (IRD) has also prepared a set of tax forecasts, which, like the Treasury's tax forecasts, were based on the Treasury's macroeconomic forecasts. The two sets of forecasts 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 quite close to each other, with the largest difference in any one year being just under $400 million (0.2% of GDP). Neither agency's forecasts are consistently higher or lower than the other agency's forecasts, and the differences are spread across a number of tax types.

The following two tables detail the respective forecasts by the Treasury and the IRD for tax revenue and receipts across each of the various sources:

Table 8  Treasury and IRD forecasts of tax revenue (accrual)

Table 9  Treasury and IRD forecasts of tax receipts (cash)

Table 8 - Treasury and IRD forecasts of tax revenue (accrual)

Table 8 - Treasury and IRD forecasts of tax revenue (accrual)
$ million 2011/12
Actual
2012/13
Forecast
2013/14
Forecast
2014/15
Forecast
2015/16
Forecast
2016/17
Forecast
Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference Treasury IRD Difference
Direct tax                                
Individuals                                
Source deductions 21,632 22,815 22,770 45 24,138 24,113 25 25,327 25,316 11 26,558 26,526 32 27,980 27,940 40
Other persons tax 4,232 5,026 4,945 81 5,083 5,045 38 5,438 5,302 136 5,620 5,437 183 5,737 5,512 225
Refunds (1,736) (1,473) (1,500) 27 (1,488) (1,510) 22 (1,508) (1,495) (13) (1,523) (1,495) (28) (1,525) (1,470) (55)
Fringe benefit tax 462 460 474 (14) 477 478 (1) 499 497 2 518 511 7 540 525 15
Subtotal: Individuals 24,590 26,828 26,689 139 28,210 28,126 84 29,756 29,620 136 31,173 30,979 194 32,732 32,507 225
Company tax (net) 8,617 9,451 9,723 (272) 10,067 10,184 (117) 10,674 10,521 153 11,137 10,944 193 11,476 11,222 254
Withholding taxes on:                                
Resident interest income 1,679 1,602 1,636 (34) 1,671 1,601 70 1,869 1,831 38 2,329 2,371 (42) 2,685 2,951 (266)
Non-resident income 500 448 417 31 447 464 (17) 497 512 (15) 558 569 (11) 606 612 (6)
Foreign-source dividends 4 ..  1 (1) ..  1 (1) ..  1 (1) ..  1 (1) ..  1 (1)
Resident dividend income 292 394 400 (6) 607 582 25 623 593 30 644 607 37 657 613 44
Subtotal: Withholding tax 2,475 2,444 2,454 (10) 2,725 2,648 77 2,989 2,937 52 3,531 3,548 (17) 3,948 4,177 (229)
Total income tax 35,682 38,723 38,866 (143) 41,002 40,958 44 43,419 43,078 341 45,841 45,471 370 48,156 47,906 250
Other: Estate and gift duties ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  .. 
Total direct tax 35,682 38,723 38,866 (143) 41,002 40,958 44 43,419 43,078 341 45,841 45,471 370 48,156 47,906 250
Indirect tax                                
GST (net) 20,646 21,602 21,677 (75) 22,830 22,805 25 23,971