HYEFU 2009 was published conjointly with the Budget Policy Statement (BPS) 2010.

Statement of Responsibility

On the basis of the economic and fiscal information available to it, the Treasury has used its best professional judgement in supplying the Minister of Finance with this Economic and Fiscal Update. The Update incorporates the fiscal and economic implications both of Government decisions and circumstances as at 25 November 2009 that were communicated to me, and of other economic and fiscal information available to the Treasury in accordance with the provisions of the Public Finance Act 1989.

John Whitehead
Secretary to the Treasury

8 December 2009

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

To enable the Treasury to prepare this Update, I have ensured that the Secretary to the Treasury has been advised of all Government decisions and other circumstances as at 25 November 2009 of which I was aware and that had material economic or fiscal implications.

Hon Bill English
Minister of Finance

8 December 2009

1 - Economic and Fiscal Update

Overview

The economic and fiscal outlook is stronger...

The economic environment presented in this Half Year Update is stronger than predicted in Budget 2009, which means the Crown's fiscal deficits are expected to be smaller than anticipated earlier in the year.

However, the broad economic and fiscal challenges presented in the Budget persist. Imbalances in the economy are likely to return to the fore as domestic demand leads an anticipated upturn, while ongoing fiscal deficits are expected to push government debt levels significantly higher in the years ahead.

The heightened uncertainty surrounding the outlook for the world economy has diminished in recent months, but a degree of uncertainty remains and alternative scenarios are presented alongside the main predictions.

...as the world pulls out of its deepest recession in over 60 years...

The world economy has begun to recover from its most severe recession in more than 60 years, assisted by significant international government and central bank interventions, and the rebuilding of previously-depleted inventories by firms. Increased global optimism has already boosted the local economy through some easing of credit constraints, higher confidence levels and a recovery in world commodity prices. A stronger world economy is expected to raise New Zealand's terms of trade and thus national income, although a related rise in the exchange rate will continue to dampen the profits of some exporters.

A gradual recovery in the economy is now expected to be led initially by domestic demand rather than be export volume-led. After a 0.4% contraction in the March 2010 year, real GDP is forecast to rise 2.4% in the March 2011 year owing to higher consumer spending and a recovery in residential investment. Growth is forecast to accelerate to 3.2% in the March 2012 year owing to higher export volumes as the exchange rate is projected to fall, and the Rugby World Cup and stronger world growth boost tourism. Price inflation, combined with stronger real activity, is forecast to lift growth in nominal GDP from 1.7% in the March 2010 year to around 5% per annum for the rest of the forecast period. Over the four years to June 2013 as a whole, nominal GDP is predicted to be $44 billion or nearly 6% higher than expected at Budget 2009, of which a little under half reflects the impact of higher prices, including both higher terms of trade and domestic inflation.

...but the rise in tax revenue will initially be muted...

A stronger economy is expected to lead to more tax revenue over the forecast period as a whole. However, the initial recovery in tax revenue is expected to be muted by a lower starting position and by lags between economic activity and tax revenue, both of which are associated with business income tax. The recent recession led to declining profits and larger losses among firms than were expected at Budget. This accumulation of tax losses will likely hinder growth in income tax paid by firms in the recovery. Tax revenue is forecast to be $400 million lower than expected at Budget in the June 2010 year. With growth in PAYE and GST, tax revenue is forecast to behigher than previously expected in the following four June years.

Compared to pre-recession trends, there remains a permanent loss of future output and therefore tax revenue. Nominal GDP is $29 billion or nearly 4% smaller over the four years to June 2012 than had been forecast prior to the crisis in Budget 2008. This loss reflects the crisis itself; for example, by reducing business investment and thus growth in the stock of capital in the economy. It also reflects a re-evaluation of how sustainable previous growth in the economy actually was, particularly growth in consumption. The loss is smaller than expected in Budget 2009 largely because of higher population growth and stronger terms of trade.

...while core Crown expenses are higher and surpluses do not return until 2016/17...

Core Crown expenses remain high relative to revenue across the forecast period and are higher than expected in the Budget. The stronger economic outlook is expected to result in higher expenditure on benefit payments as higher inflation and wage growth raise payment rates. Overall, expenses are forecast to rise despite the Government's new operating allowance being kept unchanged at $1.1 billion from the June 2011 year (adjusted by 2% per annum to account for inflation thereafter). A larger economy, bigger population and stronger-than-foreseen wages and inflation will place more pressure on these operating allowances than had been anticipated at Budget time.

The operating balance (before gains and losses) is expected to remain in deficit over the forecast period, peaking at 4.0% of GDP in the June 2010 year before falling gradually to 2.2% by the June 2014 year. A large proportion of these forecast deficits is structural, reflecting the sharp rise in public spending and tax cuts in recent years and the effects of a smaller economy. Financing the deficits is expected to push core Crown net debt higher from 9.5% of GDP at 30 June 2009 to 29.0% of GDP at 30 June 2014, the end of the forecast period.

In the medium-term projections to 2024, the operating balance is not expected to return to surplus until the June 2017 year and net debt is projected to rise further to a peak of 30.4% of GDP at 30 June 2016. The projected return of surpluses allows net debt to fall over the remainder of the projection period - meeting the Government's long-term objective for net debt of around 20% - and, once the surplus is of sufficient size, leads to New Zealand Superannuation Fund (NZS Fund) contributions resuming in the June 2020 year.

Table 1.1 - Economic and fiscal forecasts: Half Year Update compared with Budget
 

2009
Actual

2010
Forecast

2011
Forecast

2012
Forecast

2013
Forecast

2014
Forecast

Real production GDP (Annual average % change, March year)            
Budget 2008 Forecasts 1.5 2.3 3.2 3.0 - -
Budget 2009 Forecasts -0.9 -1.7 1.8 2.9 4.0 -
Half Year Update 2009 Forecasts -1.1 -0.4 2.4 3.2 3.0 2.8
Nominal expenditure GDP ($billion, March year)            
Budget 2008 Forecasts 184 190 199 209 - -
Budget 2009 Forecasts 179 175 181 189 200 -
Half Year Update 2009 Forecasts 180 183 192 201 211 221
Unemployment rate (%, March quarter)            
Budget 2008 Forecasts 3.7 4.4 4.5 4.3 - -
Budget 2009 Forecasts 5.0 7.5 7.5 6.3 5.1 -
Half Year Update 2009 Forecasts 5.0 7.0 6.9 6.0 5.3 4.8
Operating balance1 (% GDP, June year)            
Budget 2008 Forecasts 0.7 0.5 0.2 0.1 - -
Budget 2009 Forecasts -1.6 -4.4 -5.1 -5.0 -4.2 -
Half Year Update 2009 Forecasts -2.2 -4.0 -3.4 -2.9 -2.7 -2.2
Net debt2 (% GDP, June year)            
Budget 2008 Forecasts 8.1 9.5 10.8 11.9 - -
Budget 2009 Forecasts 8.7 15.6 21.8 27.1 30.9 -
Half Year Update 2009 Forecasts 9.5 14.8 20.0 24.1 26.9 29.0
Net worth (% GDP, June year)            
Budget 2008 Forecasts 55.3 55.0 53.7 52.5 - -
Budget 2009 Forecasts 53.6 51.4 45.3 39.5 34.5 -
Half Year Update 2009 Forecasts 55.2 51.4 46.2 42.0 38.3 35.3

Notes:

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

Sources: Statistics New Zealand, the Treasury

...and uncertainty continues to surround the global and domestic outlook

The most significant risks to the outlook have eased since earlier in the year but uncertainty remains, particularly around the strength and sustainability of the recovery here and abroad. One of the key judgements made in the main forecasts is how private demand will respond when the restocking of inventories is complete and when governments and central banks around the world withdraw their stimulus measures. Another judgement concerns how imbalances are unwound. For nations such as New Zealand, imbalances that built up prior to the global crisis, such as large current account deficits and high household debt levels relative to income, are expected to continue to make the economy vulnerable to a loss of investor confidence.

Different paths of recovery are explored in the alternative scenarios. Small differences in economic growth can have a large impact on the level of economic activity and the fiscal position over time. Under a faster recovery scenario, higher trading partner growth and domestic demand in New Zealand in the short term would push nominal GDP higher by a cumulative $26 billion or 3% higher over the 2010-14 June years than in the main forecast. The additional tax revenue generated would flow through to a lower peak in the core Crown’s net debt levels of 24.4% of GDP in 2015. A more pessimistic assumption including a slower recovery and a weaker medium-term path for the economy would, in contrast, lower nominal GDP by a cumulative $18 billion or 2% over the June years 2010-14. The resulting lower tax revenue would raise net debt levels to a peak of 35% of GDP in 2016, which means this lower-output medium-term scenario is nearly as weak as the main fiscal outlook presented in Budget 2009.

Main Forecasts

The economic environment is stronger than previously expected

The Half Year Update forecasts higher economic activity and prices over the forecast period relative to the Budget. The Budget forecasts, which were finalised in mid-April, were made at a time of global pessimism and a large amount of uncertainty. The outlook incorporated in these forecasts reflects stronger economic activity and price inflation in New Zealand and abroad than was predicted in the Budget and a judgement that the recovery in the world economy will be faster than previously expected. The upward revision to real GDP growth is largely confined to the short term.

The New Zealand economy experienced its longest recession since the 1970s...

The New Zealand economy entered recession in early 2008 ahead of most of the developed world. Drought reduced agricultural production, high interest rates led to a fall in residential investment, a high exchange rate constrained exports and rising food and fuel prices curtailed consumer spending. The recession intensified in the December 2008 and March 2009 quarters reflecting the global financial crisis. New Zealand was vulnerable to this shock and the associated world economic downturn because of international linkages and the economy’s high level of reliance on overseas borrowing.

The impact on New Zealand was transmitted through the reduced availability and higher cost of credit, a sharp drop in business confidence to a 40-year low, and a smaller drop in consumer confidence. The global downturn also contributed to a fall in export demand and in export prices, which lowered New Zealand's terms of trade, and declines in equity and house prices, which reduced household wealth. As a result, real GDP fell by a total of 2.9% over five consecutive quarters in the deepest recession in New Zealand since 1991 and the longest since the 1970s.

...although, together with Australia, was less affected than most nations...

However, New Zealand's recession was one of the shallowest in the OECD. The most significant impacts of the global crisis were avoided as the Australasian financial system remained sound, notwithstanding the collapse of some finance companies in New Zealand. The Reserve Bank of New Zealand reduced the Official Cash Rate by nearly six percentage points from 8.25% as recently as July 2008 to 2.5% by April 2009, while the exchange rate fell from a peak above US$0.80 in early 2008 to below US$0.50 a year later. Fiscal policy was also stimulatory during the recession, partly reflecting personal income tax cuts on 1 October 2008 and 1 April 2009 and the bringing forward of infrastructure projects.

Additional factors underpinning the domestic economy were higher net migration inflows as departures fell when overseas job prospects weakened, a relatively small fall in house prices and an unemployment rate that remained well below levels seen in previous recessions despite rising sharply from 3.5% to 6.5%. Overall exports also held up owing to ongoing demand from China, a recovery in agricultural output from the previous year's drought and a lesser dependence on manufacturing exports than many other economies.

The Australian economy is expected to avoid contraction in 2009 for the 18th consecutive year and this relatively strong performance benefited New Zealand. In particular, the number of tourists from Australia rose strongly, also attracted here by factors such as a good ski season and a favourable exchange rate, which offset weakness in other markets caused by the global downturn and H1N1 influenza.

Table 1.2 - Economic forecasts1
(Annual average % change, March years) 2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Private consumption -0.8 -0.2 2.3 2.5 1.7 1.5
Public consumption 3.3 1.1 2.0 2.0 1.2 0.7
Total consumption 0.1 0.1 2.2 2.4 1.6 1.3
Residential investment -23.4 -7.3 24.5 16.1 6.6 1.9
Non-market investment 16.7 5.1 -3.1 -3.6 3.8 4.6
Market investment -4.7 -11.1 8.8 7.3 4.8 6.2
Total investment -8.8 -8.5 11.8 9.3 5.6 5.4
Stock change2 -0.2 -1.8 1.2 -0.1 0.0 0.2
Gross national expenditure -2.0 -3.2 4.9 3.9 2.6 2.6
Exports -3.3 0.4 -0.2 5.4 5.1 4.4
Imports -4.7 -13.3 9.7 7.7 3.7 3.7
GDP (expenditure measure) -1.5 0.8 2.5 3.1 3.0 2.8
GDP (production measure) -1.1 -0.4 2.4 3.2 3.0 2.8
Real GDP per capita -2.0 -1.5 1.1 2.2 2.1 1.9
Nominal GDP (expenditure basis) 1.1 1.7 4.8 5.2 4.9 4.9
GDP deflator 2.6 0.9 2.3 2.1 1.8 2.1
Output gap (% deviation, March year)3 0.2 -1.0 -1.0 -1.1 -0.8 -0.5
Employment 0.9 -1.8 -0.9 1.0 2.5 2.6
Unemployment4 5.0 7.0 6.9 6.0 5.3 4.8
Nominal wages5 5.3 2.8 3.1 2.8 2.7 2.9
CPI inflation6 3.0 2.5 2.3 2.2 2.3 2.0
Merchandise terms of trade7 -0.8 -8.1 3.6 2.2 1.0 1.3
Current account balance            
  - $billion -14.6 -5.2 -10.3 -13.6 -14.9 -15.7
  - % of GDP -8.1 -2.9 -5.4 -6.8 -7.1 -7.1
TWI8 53.7 66.5 63.5 58.1 55.1 53.2
90-day bank bill rate8 3.7 2.9 3.9 4.9 5.4 5.8
10-year bond rate8 4.6 5.8 5.8 5.8 5.9 6.0

Notes:

  1. Forecasts finalised 6 November 2009
  2. Contribution to GDP growth
  3. Estimated as the percentage difference between real GDP and potential GDP
  4. Household Labour Force Survey, percent of the labour force, March quarter, seasonally adjusted
  5. Quarterly Employment Survey, average ordinary-time hourly earnings, annual percentage change
  6. Annual percentage change
  7. SNA basis, annual average percentage change
  8. Average for the March quarter

A longer time series for these variables is provided on page 129.

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

...and began recovering in the June quarter, in line with global developments

The New Zealand economy began a tentative recovery from recession in the June 2009 quarter with a rise in real production-based GDP of 0.1% after five quarters of contraction. With most industries failing to expand, the slight rise was mainly owing to large increases in output in the forestry and mining industries as demand for logs from China rose and the Maari oilfield increased production. Dairy exports were also boosted by demand from China, but this demand was largely met from a rundown in dairy product stocks. The tentative recovery in New Zealand was in line with global developments.

The world economy reached a trough of activity in the March 2009 quarter and began to expand in the June quarter, with growth recorded in France, Germany, Japan and most emerging Asian economies. Other nations such as the United States returned to growth in the September quarter. The stabilisation in global output reflects the unprecedented loosening of monetary conditions, including quantitative easing by some central banks, large fiscal stimulus in most economies and steps to support financial institutions by authorities in the United States, United Kingdom and euro area. International financial markets have stabilised and many indicators, such as credit spreads in the United States, have returned to pre-crisis levels. Inventory restocking, after sharp falls in stock levels in late 2008, has also boosted output.

The recovery in the New Zealand economy is expected to continue...

The New Zealand economy is expected to recover further in the second half of this year with real GDP growth of around 0.5% per quarter. This pace of expansion is expected to continue until late 2010, which is also when the level of real GDP is expected to return to its December 2007 quarter peak. After a fall of 0.4% in the March 2010 year, annual average growth in real GDP is forecast to rise to 2.4% in the March 2011 year and accelerate further to 3.2% in the March 2012 year. As output approaches its potential level at the end of the forecast period, real GDP growth is expected to ease to 3.0% in the March 2013 year and 2.8% in the March 2014 year (Figure 1.1).

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

The recovery in the economy over the coming year is expected to be more gradual than in previous recoveries, owing to factors such as continued high levels of indebtedness among households, ongoing challenges in parts of the finance sector and the rebound in the exchange rate. Imbalances in the economy, which built up prior to the recession and made New Zealand vulnerable to external shocks, are expected to persist as domestic demand leads the recovery. For example, the current account deficit is forecast to widen back to 7% of GDPafter temporarily narrowing to 2.9% in the March 2010 year. The Treasury does not expect growth to be supported by stronger export volumes until the March 2012 year.

...broadly in line with the outlook for trading partner growth...

The path taken by the global economy continues to be the most important factor underpinning the outlook for the New Zealand economy, as it was at Budget. New Zealand's top-12 trading partners are expected to contract 1.5% in the calendar year 2009 and grow 2.9% in 2010 before settling at growth of around 3.2% per annum thereafter, below rates of around 4% per annum seen in the years before the crisis. This assumed growth is broadly in line with November 2009 Consensus Forecasts. The short-term outlook for real GDP in New Zealand's top-12 trading partners is notably higher than we assumed in the Budgetforecasts, which were prepared near the trough of the downturn (Figure 1.2).

Figure 1.2 - Trading partner real GDPFigure
Figure 1.2 - Trading partner real GDP.
Source:  IMF, the Treasury

Strong expansions in China and other emerging Asian economies are expected to continue to lead growth among New Zealand's trading partners. Australia is predicted to experience economic growth of over 3% per annum by 2011, while annual growth rises to around 2.5% in the United States but remains at or below 2% per annum in Europe and Japan. From 2011 to 2014, most trading partners are assumed to remain slightly below their trend growth rates because of the medium-term effects of the global financial crisis on both capital accumulation and employment.

However, uncertainty remains over the strength of the global recovery, particularly over the medium term. Key areas of uncertainty are how private sector demand responds when inventory restocking is over and monetary and fiscal stimulus is withdrawn. There are additional concerns around the need for re-balancing both within and between economies as households, businesses and governments in most advanced economies need to reduce debt and re-orient economic activity from consumption to production and exports. Some risks also remain to the stability of financial institutions. Alternative assumptions regarding the global outlook and the corresponding potential impacts on the New Zealand economy are considered as scenarios presented later in the chapter.

...which flows through into higher terms of trade

As the global economy has started to recover from the effects of the financial crisis, prices for New Zealand's export commodities have begun to rise from lows earlier in the year, especially for dairy products. International spot prices for New Zealand's key exports, as measured by the ANZ Commodity Price Index, rose 39% between February and November 2009, with a 75% rise for dairy products. The lag between spot prices and prices received by New Zealand producers should see increases in export prices occurring in late 2009 and early 2010.

World prices for imports are also likely to rise over the forecast period, particularly oil prices, which are assumed to rise from US$68 a barrel in the September 2009 quarter to US$87 a barrel in mid-2014. However, on balance, the merchandise terms of trade are expected to rise over the forecast period. This forecast increase in the terms of trade is expected to provide a boost to national incomes.

Higher profits fail to raise business income tax owing to the build-up of losses...

Firms faced a very challenging trading environment in 2008 and 2009 owing to lower world and domestic demand. Compressed margins, combined with lower volumes sold, have led to falling profits and losses for many businesses, particularly those in agriculture, construction, forestry and finance. Net operating surpluses, a proxy for business profits, are forecast to fall in both the March 2009 and 2010 years and the build-up of losses has important implications for tax revenue across the forecast period.

Firms are now experiencing higher demand as overseas and domestic consumers respond to the stronger economic environment. A rebuilding of margins and higher volumes are expected to result in rising profits, with net operating surpluses forecast to recover from the March 2011 year. However, the amount of income tax revenue from businesses does not rebound as quickly. Revenue from business income taxes (ie, corporate tax and other persons tax) fell sharply in the June 2009 year and is forecast to fall further this fiscal year before recovering in the remainder of the forecast period. Income tax paid by firms is forecast to be lower than expected at Budget across the forecast period because the accumulation of tax losses during the recession appears to have been larger than expected.

...and investment is expected to recover slowly…

Business investment is forecast to recover gradually from early 2010 after a period in which major investment plans had largely been shelved. Business surveys show investment intentions have rebounded from record lows earlier in the year but remain below historic average levels. The availability of finance remains constrained with banks and other lenders still cautious about the level of funds they provide, although large firms have sought funds by raising equity and issuing corporate bonds. Intangibles investment has been an area of relative strength owing to increased mining exploration and drilling, which is likely to continue based on recent reports. Investment over the next year is also expected to be supported by a high exchange rate lowering the cost of imported capital goods.

...while unemployment rises further...

Figure 1.3 - Unemployment rate
Figure  1.3 - Unemployment rate  .
Source:  Statistics New Zealand, the Treasury

Employment is expected to lag the recovery as many firms are likely to increase the hours of their staff before hiring new workers. Firms reduced working hours significantly in the recession, equivalent to the loss of nearly 50,000 full-time workers, through measures such as job sharing and extended leave. A lack of job creation is expected to lead to a further rise in the unemployment rate from 6.5% in the September 2009 quarter to a peak of 7.0% in the March 2010 quarter and the remainder of that year (Figure 1.3). This forecast is lower than a peak of 8.0% expected in the Budget.

Higher net migration inflows are expected to provide a boost to aggregate demand growth in the short term. Net migration inflows rose sharply from under 4,000 in 2008 to an expected 23,000 in 2009 as arrivals remained high and fewer New Zealanders departed after the global financial crisis led to weaker labour markets overseas. Net migration inflows are forecast to fall to 10,000 per annum by early 2012 as departures are assumed to rise in line with a recovery in offshore economies and labour markets, particularly in Australia.

...and wage growth flows through to PAYE tax

Wage growth, which tends to lag changes in the economy, is expected to ease sharply over the coming year before stabilising just below 3% per annum. Annual growth in average ordinary-time earnings rose to 5.1% in the September 2009 quarter, but this measure is overstating underlying wage pressure as it can be volatile on a quarterly basis and is subject to changes in the composition of the workforce. An easing in the rate of wage growth, and a gradual recovery in employment growth, are expected to deliver growth in PAYE tax of 5% per annum on average over the 2010-14 June years.

Consumer spending growth is expected to rebound from next year...

Consumer spending is expected to remain subdued in the second half of 2009, as a result of relatively subdued income growth and rising unemployment, but rebound with growth of 2.3% expected in the 2011 March year and 2.5% in the next year. This rebound reflects higher consumer confidence, a more stable employment market and a recovery in house prices. After a fall of over 9% in the year to March 2009, house prices are expected to rise nearly 10% in the March 2010 year, of which around half has already occurred on the back of historically low short-term interest rates, higher net migration inflows and a constraint on supply. Thereafter, an easing of house price growth to around 4% per annum, together with a tightening of monetary conditions and easing net migration inflows, is expected to lower private consumption growth to 1.7% and 1.5% in the final two years of the forecast period.

…and residential investment to recover, resulting in higher revenue from GST

Residential investment is expected to stage a recovery over the 2011 and 2012 March years from its current very low levels. This forecast reflects greater confidence in the sector by households owing to factors outlined above, including low floating mortgage rates and population growth. However, the volume of residential investment takes time to make up for the large 25% fall in the June 2009 year because funding for property developers remains constrained and building consents have only picked up recently after falling to their lowest level in over 25 years earlier in the year. Therefore, an undersupply of housing in some areas is also likely to contribute to higher house prices.

A strengthening of private consumption and residential investment is expected to underpin growth in GST of 7% in the June 2011 year and 4% per annum on average over the rest of the forecast period. This follows a lack of growth in the June 2010 year owing to weakness in both consumer spending and investment in residential buildings.

Fiscal policy continues to provide stimulus in the near term

Public consumption is expected to grow across the forecast period, but growth is forecast to slow from 2.3% in the June 2009 year to 1.7% in each of the next two years, reflecting the decision in Budget 2009 to reduce the operating allowance for new spending.

Figure 1.4 - Fiscal impulse
Figure  1.4 - Fiscal impulse  .
Source:  The Treasury

The fiscal impulse indicator provides a summary guide to the amount of fiscal stimulus across government consumption, investment, transfers and tax (where these last two areas affect household consumption).[1] As noted above, fiscal policy was stimulatory during the recession. In the June 2009 year, the fiscal impulse was 3.7% of GDP, which partly reflected policy decisions such as cuts in personal income taxes in October 2008 and April 2009, the bringing forward of infrastructure spending and other packages related to the recession (Figure 1.4). The fiscal impulse is estimated to reduce but remain expansionary at 2.2% of GDP in the June 2010 year and is forecast to be negligible in the June 2011 year, before fiscal stimulus begins to be withdrawn over the remainder of the forecast period.

Imports forecast to grow quickly as domestic demand rebounds…

Imports are forecast to begin strengthening in late 2009, led by a recovery of domestic demand in New Zealand and a higher exchange rate making imported goods and services relatively cheaper. This follows a very large fall in import volumes in the first half of 2009 across most categories, particularly capital goods, intermediate goods and services imports, which contributed to a narrowing of the trade balance. Imported services are expected to grow particularly strongly as more New Zealanders holiday overseas after having delayed their international trips during the recession, particularly with the high exchange rate.

…but the high exchange rate constrains exports over the next year

Exports are forecast to be relatively flat in the 2010 and 2011 March years owing to an assumption that the exchange rate remains high. The Trade Weighted Index (TWI) is assumed to remain at 66.5 in the first half of 2010, which dilutes the effect of stronger trading partner growth. However, the elevated exchange rate partly reflects high export commodity prices, which have boosted the terms of trade. Also, the New Zealand dollar is high against some currencies, particularly the United States dollar and United Kingdom pound, but is below its long-term average against the Australian dollar. A low cross rate against the Australian dollar and the strong Australian economy are particularly important for exporters of manufactured goods and of services.

Export growth is expected to accelerate to around 4% to 5% per annum over the 2012 to 2014 March years as global growth strengthens and the exchange rate is assumed to depreciate from mid-2010. The rebound in goods exports is not expected to be as large as in other nations because agricultural production is largely determined by supply constraints. However, service exports are expected to grow very strongly in 2011 as New Zealand hosts the Rugby World Cup towards the end of that year.

Inflation pressures contained as interest rates expected to rise from mid-2010

Consumers Price Index (CPI) inflation is expected to rebound from 1.7% in the year to September 2009 to 2.5% in the year to March 2010, largely because of past increases in retail fuel and food prices. Inflation is then expected to ease gradually to 2.0% per annum by March 2014 as inflationary pressures are contained by a rise in interest rates from mid-2010. As the economy recovers, interest rates are expected to increase with 90-day rates rising from below 3% towards 6% over the forecast period. The profile for inflation includes a revised assumption for the Emissions Trading Scheme, particularly the impact on stationary energy and liquid fuels from 1 July 2010. This assumption is outlined on page 45.

Current account deficit narrows temporarily before returning to 7% of GDP

Figure 1.5 - Annual current account balance
Figure   1.5 - Annual current account balance .
Source:  Statistics New Zealand, the Treasury

The annual current account deficit narrowed from 8.9% at December 2008 to 5.9% at June 2009 as exports were boosted by a rundown in stocks, imports fell and interest paid to foreign investors and profits going offshore fell. These factors are expected to drive a further fall to below 3% in the short term, partly as the fall in profits going overseas includes provisions by trading banks arising from their structured finance tax cases with Inland Revenue. However, the fall is expected to be largely temporary as the current account deficit is forecast to rise back to 7% of GDP by 2012 (Figure 1.5). The tax cases will only have a short-term impact, a recovery in domestic activity is forecast to lead to higher imports and a high exchange rate is expected to constrain exports.

The economy is larger than previously expected...

Figure 1.6 - Real production GDP per capita
Figure 1.6 - Real production GDP per capita.
Source:  Statistics New Zealand, the Treasury

Stronger real activity levels are expected over the forecast period compared to what was expected in Budget 2009 because of stronger terms of trade and higher population growth. However, higher population growth means forecasts of real activity per capita have not changed as much (Figure 1.6). Furthermore, there is still expected to be some permanent loss of future output compared to pre-recession trends. This loss partly reflects a re-evaluation of how sustainable previous growth in the economy actually was, particularly growth in consumption, both private and public. It also reflects the crisis itself; for example, by reducing business investment and thus growth in the stock of capital in the economy. These forecasts still incorporate a level of real GDP per capita that is 5.5% lower in the June 2012 quarter than had been forecast in Budget 2008, prior to the crisis. This judgement is subject to considerable uncertainty.

Figure 1.7 - Nominal expenditure GDP
Figure 1.7 - Nominal expenditure GDP.
Source:  Statistics New Zealand, the Treasury

Price developments, including higher terms of trade and domestic inflation, combined with stronger real activity levels, result in higher nominal GDP. Nominal GDP over the four years to June 2013 as a whole is expected to be around $44 billion or 5.9% higher than forecast in the Budget. However,the level of nominal GDP in the June 2012 quarter remains 3.7% below the level expected in Budget 2008 (Figure 1.7).

Notes

  • [1]See Additional Information to the Half Year Update on the Treasury website for details on the fiscal impulse.

...and generates more tax revenue...

The increase in core Crown tax revenue across the 2010 to 2013 June years is around $7 billion relative to the Budgetforecasts. As discussed above, weakness in business income taxes has muted the forecast increase in tax revenue compared to the increase in the size of the economy. However, most other taxes are higher than in the Budget forecasts. Forecasts of source deductions (mostly PAYE) and GST have increased in line with compensation of employees and domestic consumption respectively, and forecasts of resident withholding tax on interest have increased as a result of higher interest rates.

Table 1.3 - Movement in core Crown tax revenue
Year ended 30 June
$ billion
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Nominal GDP          
Budget 2008 Forecasts 192.1 201.8 211.8 - -
Forecast changes -17.1 -19.1 -20.3 - -
Budget 2009 Forecasts 175.1 182.7 191.5 202.5 -
Forecast changes 9.4 11.2 12.3 11.2 -
Half Year Update 2009 Forecasts 184.5 194.0 203.9 213.7 224.0
Core Crown tax revenue          
Budget 2008 Forecasts 58.2 60.3 62.7 - -
Forecast changes -5.5 -8.2 -7.9 - -
Policy changes -1.1 -0.3 -0.2 - -
Budget 2009 Forecasts 51.6 51.8 54.6 58.4 -
Forecast changes -0.4 2.5 2.6 2.0 -
Half Year Update 2009 Forecasts 51.2 54.3 57.2 60.4 63.8
Composition of Half Year Update 2009 Forecasts:          
Source deductions 22.4 22.8 24.0 25.4 27.1
Corporate tax 7.5 9.2 9.7 10.3 10.8
GST 11.4 12.2 12.9 13.4 13.9
Other taxes 9.9 10.1 10.5 11.3 12.0

Note: Forecast changes calculated from unrounded values so numbers may not add to total

Source: The Treasury

Inland Revenue tax forecasts

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

Table 1.4 - The Treasury and Inland Revenue core Crown tax revenue forecasts

Year ended 30 June
$ billion

2010
Forecast

2011
Forecast

2012
Forecast

2013
Forecast

2014
Forecast

Source deductions          
Treasury 22.4 22.8 24.0 25.4 27.1
Inland Revenue 22.1 22.6 23.8 25.3 27.1
Difference 0.3 0.2 0.2 0.1 -
Net other persons tax          
Treasury 2.5 2.7 2.9 3.1 3.3
Inland Revenue 2.4 2.6 2.7 2.9 3.3
Difference 0.1 0.1 0.2 0.2 -
Corporate taxes          
Treasury 7.5 9.2 9.7 10.3 10.8
Inland Revenue 8.0 9.5 9.8 10.2 10.5
Difference (0.5) (0.3) (0.1) 0.1 0.3
Goods and services tax          
Treasury 11.4 12.2 12.9 13.4 13.9
Inland Revenue 11.4 12.1 12.7 13.2 13.7
Difference - 0.1 0.2 0.2 0.2
Other taxes          
Treasury 7.4 7.4 7.6 8.2 8.7
Inland Revenue 7.1 7.2 7.8 8.3 8.6
Difference 0.3 0.2 (0.2) (0.1) 0.1
Total tax          
Treasury 51.2 54.3 57.2 60.4 63.8
Inland Revenue 51.0 54.0 56.8 59.9 63.2
Difference 0.2 0.3 0.3 0.5 0.6
Total tax (% of GDP)          
Treasury 27.8 28.0 28.0 28.3 28.5
Inland Revenue 27.6 27.8 27.8 28.0 28.2
Difference 0.2 0.2 0.2 0.3 0.3

Sources: The Treasury, Inland Revenue

As can be seen from the table above, the Treasury's tax forecasts are higher than those of Inland Revenue. The largest differences are that the Treasury has forecast higher taxation on individuals and GST across most of the forecast period and lower corporate taxes until the June 2013 year than Inland Revenue.

…although higher inflation contributes to a rise in government expenses...

Core Crown expenses, which represent the operating spending of the government excluding State-Owned Enterprises (SOEs) and Crown Entities (CEs), are forecast to rise by 19.1% from $64.0 billion in the June 2009 year to $76.2 billion in the June 2014 year (Figure 1.8). This forecast rise is an easing from growth of 52.8% in the five years to June 2009, mainly reflecting the decision in Budget 2009 to reduce the operating allowance for new spending to $1.1 billion per annum from the June 2011 year,growing at 2% per annum thereafter to account for inflation.

Figure 1.8 - Core Crown expenses and revenue
Figure  1.8 - Core Crown expenses and revenue.
Source:  The Treasury

The operating allowance for new spending is one of the main drivers of growth in core Crown expenses in the forecast period (Figure 1.9). Growth in expenses of a similar size comes from an increase in benefit costs. Excluding unemployment benefits, these benefit costs are expected to rise from $19.7 billion in the June 2009 year to $24.1 billion in the June 2014 year, largely reflecting payments being adjusted for inflation or wages. Expenses are also expected to be driven by higher unemployment benefit costs, as unemployment rises further, and higher finance costs, which are forecast to rise from $2.4 billion to $4.6 billion in the next five years as cash deficits are financed. Excluding unemployment benefits and finance costs, core Crown expenses are expected to rise by 15.9% or $9.7 billion between the years to June 2009 and 2014.

Figure 1.9 - Forecast new operating spending
Figure  1.9  - Forecast new operating spending .
Source:  The Treasury

Core Crown expenses are expected to be higher than in the Budget 2009 forecasts. In particular, benefit costs and New Zealand Superannuation are expected to be higher than previously forecast, owing to higher-than-expected inflation and wages, and education costs are above forecast, owing to increased demand for early childhood education and higher teacher salaries. Expenses have been revised higher despite operating allowances being unchanged. The larger economy, bigger population and stronger than previously forecast wage and price inflation are all expected to place more pressure on the operating allowances than anticipated in Budget 2009.

...leading to a sustained period of operating deficits...

With expenses exceeding revenue in the forecast period, the total Crown operating balance (before gains and losses) is expected to remain in deficit, peaking at $7.5 billion (4.0% of GDP) in the June 2010 year. By the June 2014 year, the operating deficit (before gains and losses) is expected to fall to $4.9 billion (2.2% of GDP) as a result of a rise in tax revenue, increased revenue generated from ACC levies, and slower spending growth. Compared with the Budget forecasts, the operating deficit was slightly larger than expected in the June 2009 year, but is now forecast to be smaller, reflecting the stronger economic outlook (Figure 1.10). The total Crown operating balance (including gains and losses) is also in deficit across the forecast period. The deficit is forecast to be smaller when gains and losses are included because Crown financial institutions such as the NZS Fund are forecasting to make gains on average over the forecast period.

Figure 1.10 - Total Crown operating balance (before gains and losses)
Figure 1.10 - Total Crown operating balance (before gains and losses)  .
Source:  The Treasury

The medium-term projections in the next section show the total Crown operating balance (before gains and losses) is projected to be in surplus from the June 2017 year, two years earlier than projected in the Budget.

Table 1.5 - Fiscal forecasts[2]
Year ended 30 June 2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
$ billion            
Core Crown revenue 59.5 56.8 60.0 63.1 66.9 70.3
Core Crown expenses 64.0 65.5 68.9 70.7 74.0 76.2
Core Crown operating balance (before gains & losses) -4.5 -8.8 -8.9 -7.6 -7.1 -5.9
Total Crown operating balance (before gains & losses) -3.9 -7.5 -6.7 -6.0 -5.8 -4.9
Total Crown operating balance incl. gains & losses -10.5 -4.8 -5.1 -4.2 -3.7 -2.7
Residual cash -8.6 -10.1 -11.3 -10.4 -8.7 -7.4
Net debtb 17.1 27.4 38.8 49.0 57.5 64.9
Gross debtc 43.4 53.7 64.4 69.1 73.4 80.5
Net worth 99.5 94.8 89.7 85.6 81.8 79.2
% of GDP            
Core Crown revenue 33.0 30.8 31.0 31.0 31.3 31.4
Core Crown expenses 35.5 35.5 35.5 34.7 34.6 34.0
Core Crown operating balance (before gains & losses) -2.5 -4.8 -4.6 -3.7 -3.3 -2.6
Total Crown operating balance (before gains & losses) -2.2 -4.0 -3.4 -2.9 -2.7 -2.2
Total Crown operating balance incl. gains & losses -5.8 -2.6 -2.6 -2.0 -1.7 -1.2
Residual cash -4.8 -5.5 -5.9 -5.1 -4.1 -3.3
Net debta 9.5 14.8 20.0 24.1 26.9 29.0
Gross debtb 24.1 29.1 33.2 33.9 34.3 36.0
Net worth 55.2 51.4 46.2 42.0 38.3 35.3

Notes:

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

A glossary and longer time series for these variables are provided on pages 124 to 128.

Source: The Treasury

Notes

  • [2]On 19 November 2009, after the economic forecasts were finalised, Statistics New Zealand released data, relating to March years, which revised up the level of annual nominal GDP. At the time of publication, these revisions have not been incorporated in the quarterly data and hence June year figures. Although the revised GDP numbers would not affect the dollar amounts in Table 1.5, the percentage of GDP figures would be slightly lower.

…and cash deficits are met by increased borrowing and so increase net debt

As with the operating balance, residual cash is expected to be in deficit over the forecast period. Residual cash deficits are predicted to rise from $8.6 billion in the June 2009 year to over $10 billion in the 2010-12 fiscal years before reducing to $7.4 billion in the June 2014 year (Table 1.6). Cash deficits are expected to be higher than operating deficits as the cash indicator is a core Crown measure and also includes capital spending. The recovery in cash deficits is weaker than the operating balance because the cash forecasts include the impact of expected defaults under the deposit guarantee scheme already provided for and exclude higher ACC revenue.

The Government is expected to invest close to $20.8 billion in capital over the forecast period. The capital spending comprises around $7.3 billion to purchase physical assets primarily so departments can maintain their current level of assets to deliver services. The government is also expected to provide loans and capital injections of around $9 billion. Around two-thirds of this funding is to SOEs and CEs, which is generally used to purchase physical assets in the health, education, housing and transport sectors. The rest of the funding primarily relates to student loans. In addition, the Government has set aside $4.5 billion for future new capital spending. The allowance for new capital spending is $1.45 billion for Budgets 2010to2012, increasing to $1.65 billion for Budget 2013.

Table 1.6 - Reconciliation from operating balance to residual core Crown cash
Year ending 30 June
$billion
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Core Crown revenue 59.5 56.8 60.0 63.1 66.9 70.3
Core Crown expenses (64.0) (65.5) (68.9) (70.7) (74.0) (76.2)
Core Crown gains/(losses) and other items (1.3) 1.8 1.2 1.2 1.2 1.2
Net surpluses/(deficits) of SOEs and CEs (4.7) 2.1 2.6 2.2 2.2 2.0
Operating balance (10.5) (4.8) (5.1) (4.2) (3.7) (2.7)
Net total Crown (gains)/losses and other items 6.6 (2.7) (1.6) (1.8) (2.1) (2.2)
Operating balance before gains and losses (3.9) (7.5) (6.7) (6.0) (5.8) (4.9)
Net retained surpluses of SOEs, Ces and NZS Fund (0.9) (1.4) (2.2) (1.6) (1.3) (1.1)
Non-cash items and working capital movements 2.8 3.4 1.9 1.3 2.5 2.6
Net core Crown cash flow from operations (2.0) (5.5) (7.0) (6.3) (4.6) (3.4)
Contribution to NZS Fund (2.2) (0.3)
Table 1.6 - Reconciliation from operating balance to residual core Crown cash - continued
Year ending 30 June
$billion
2009
Actual 
2010
Forecast 
2011
Forecast 
2012
Forecast 
2013
Forecast 
2014
Forecast 
5 Year Total
Net core Crown cash flow from operations after contributions to NZS Fund (4.2) (5.8) (7.0) (6.3) (4.6) (3.4) (27.1)
Purchase of physical assets (1.6) (1.8) (1.8) (1.4) (1.2) (1.1) (7.3)
Advances and capital injections (2.8) (2.5) (1.8) (1.6) (1.6) (1.5) (9.0)
Forecast for future new capital spending (0.7) (1.1) (1.3) (1.4) (4.5)
Core Crown residual cash (8.6) (10.1) (11.3) (10.4) (8.7) (7.4) (47.9)

Source: The Treasury

Cash deficits represent the amount the Government has to fund, either by raising debt or reducing financial assets. Over the forecast period as a whole, cash deficits are expected to be nearly $48 billion and, as a result, net debt is expected to rise from $17.1 billion (9.5% of GDP) at 30 June 2009 to $64.9 billion (29.0% of GDP) at 30 June 2014. Net debt at 30 June 2009 was slightly higher than expected in the Budget. Although forecasts of net debt are now lower than expected at Budget owing to slightly smaller cash deficits, a large rise in net debt is still expected (Figure 1.11). As a proportion of GDP, medium-term projections in the next section show that net debt is expected to continue rising to a peak of just over 30% at 30 June 2016.

Figure 1.11 - Net debt
Figure 1.11 - Net debt.
Source:  The Treasury

The expected cash shortfall is forecast to be met by additional borrowings and the run-down of financial assets held by the New Zealand Debt Management Office (NZDMO) which have been built up over recent years. The majority of the borrowing requirement will be met through the issuance of bonds (Table 1.7). Issuances total $53.7 billion over the forecast period (taking the current year into account). After meeting debt maturities, net bond issuances total $34.4 billion (including net non-market issuances to the Earthquake Commission).

Table 1.7 Net increase in domestic bonds
Year ended 30 June
$billion
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Total
Issue of domestic bonds (market) 10.8 10.8 12.6 12.5 7.0 53.7
Repayment of domestic bonds (market) (4.2) (8.0) (8.0) (20.2)
Net increase in domestic bonds (market) 6.6 10.8 4.6 4.5 7.0 33.5
Issue of domestic bonds (non-market) 0.8 0.2 1.1 1.3 0.2 3.6
Repayment of domestic bonds (non-market) (0.7) (0.9) (1.1) (2.7)
Net increase in domestic bonds (non-market) 0.1 0.2 0.2 0.2 0.2 0.9
Net bond issuance 6.7 11.0 4.8 4.7 7.2 34.4

Source: The Treasury

Net worth declines as operating deficits are ongoing

Net worth is forecast to fall from $99.5 billion (55.2% of GDP) as at 30 June 2009 to $79.2 billion (35.3% of GDP) as at 30 June 2014. The fall reflects the flow-on impact to assets and liabilities from the operating deficits expected in the forecast period. The forecast fall in net worth is slightly smaller than expected in the Budget owing to smaller operating deficits.

The underlying nature of these deficits can be measured by the cyclically-adjusted, or structural, balance, which gauges how much of the operating balance before gains and losses reflects temporary cyclical factors rather than long-lasting factors. The cyclically-adjusted balance is estimated to remain in deficit in the forecast period, rising from 1.8% in the June 2009 year to 3.7% in the June 2010 year before falling to 2.0% in the June 2014 year, which means that operating deficits are largely structural.[3]

Notes

  • [3]For more details, see the Additional Information to theHalf Year Update on the Treasury website.

Medium-term Projections

Projections take forecasts forward a further 10 years to 2024...

This section takes the main forecasts covering the period through to June 2014 in the previous section and projects them forward to June 2024. Projections differ from forecasts in both the manner they are produced and the sense of accuracy they portray. The projections grow forward economic and fiscal variables from the forecast base, using both demographic projections and assumptions, with the latter usually based on long-term averages. Some variables require a transitional period in the early projected years to reach stable, long-term values. These assumptions are discussed on page 46.

Projections are very sensitive to changes in the assumptions and changes in the forecast base. For this reason, and owing to inherent uncertainty in such medium-term projections, it is best to focus on the general trajectory over time, particularly the near term. Alternative medium-term scenarios are presented in the next section.

The main projections assume an easing of growth in real GDP from 2.8% in the June 2014 year to around 2% in the June 2024 year. Labour productivity growth is assumed to average around 1.5% per annum over the later years of the projection period, while annual labour force growth is projected to fall from 2% in June 2014 to 0.4% by June 2024 because of an ageing population. With real GDP growth projected to ease to around 2% and inflation of 2% per annum, projected growth in nominal GDP falls to 4% per annum from 2018.

...and show that surpluses are not projected to return until 2016/17...

The total Crown operating balance (before gains and losses) is projected to be zero in the June 2016 year and return to surplus in the June 2017 year for the first time since 2008. The projected operating balance returns to surplus two years earlier than was projected at Budget 2009, driven by changes in the forecast period that flow into projections of higher revenue that more than offset higher expenses. The core Crown operating balance returns to surplus in the June 2018 year and is of sufficient size for a full contribution to the NZS Fund in the June 2020 year, a year earlier than projected at Budget 2009.

...while net debt is projected to peak at around 30% of GDP...

Net debt is projected to continue lifting until the June 2016 year, when it peaks at just above 30% of nominal GDP (Figure 1.12). After this, it is projected to fall to just below 20% of GDP by June 2024. The peak of net debt is both lower and slightly earlier than was projected at Budget. By the June 2023 year, the last year shared by both projections, net debt is around 10 percentage points of GDP lower than the Budget projection.

Figure 1.12 - Net debt
Figure 1.12 - Net debt   .
Source:  The Treasury

The projections of net debt assume an operating allowance of $1.1 billion per annum from the June 2011 year, growing by 2% per annum in future years to account for inflation. This is significantly lower than operating allowances in recent years and will be challenging to maintain over the medium term. The net debt projections also assume full fiscal drag on tax on wages and salaries for the entire projection period. This assumption, combined with rising incomes, results in a substantial increase in tax revenue and would mean the average wage earner would have some of their income taxed at the top marginal tax rate by 2024.

Ongoing operating deficits are reflected in declining total net worth, until surpluses return in 2016/17 (Figure 1.13). To complement net worth, the Treasury is introducing a new fiscal indicator to provide a more complete picture of the Crown's position. Net worth excluding social assets provides the Government with an idea of how its assets that earn a financial return match the Government's liabilities. The measure consists of the financial assets of core Crown and CEs, all assets of SOEs and total liabilities, but excludes the physical assets of KiwiRail. Net worth excluding social assets follows a similar pattern to overall net worth.

Figure 1.13 - Net worth indicators
Figure 1.13 - Net worth indicators   .
Source:  The Treasury

...and then fall towards 20% of GDP, in line with the Government's long-term fiscal objectives

The decline in net debt to around 20% of GDP towards the end of the projection period is in line with the Government's long-term fiscal objective. Meeting this objective would mean the Crown is better placed to absorb economic shocks. It would also put New Zealand in a better position when the long-term fiscal pressures from an ageing population and other factors begin to escalate. The Treasury recently published its Long-term Fiscal Statement, which showed significant fiscal challenges posed by an ageing population and the unsustainable nature of growth in government spending in recent years. The Statement also showed ongoing cost pressures and an ageing population would likely require reductions in some areas of services, even with annual operating allowances of $1.1 billion (growing at 2% per annum) and growth in public sector productivity.

Given the uncertainty around the Half Year Update projections, and the forecasts these projections build on, the next section examines alternative scenarios that fall within the range of possible outcomes. Economic and fiscal indicators could turn out to be stronger than outlined in the main projections above. It is also possible to conceive a situation in which the fiscal position worsens by nearly as much as projected in Budget 2009.

Alternative Scenarios

The most significant risks to the outlook have eased since the Budget. However, the level of uncertainty associated with any forecast made in the current environment remains larger than has typically been the case. Particular uncertainty surrounds the strength and sustainability of recovery in the world economy, including New Zealand. The amount of stimulus from monetary and fiscal policy currently supporting the global recovery is unprecedented and the impact in the short and medium term is uncertain. Although activity may be stronger than forecast in the near term, growth could weaken more sharply further out if private demand falls when policy stimulus is removed and the restocking of inventories is complete.

Two alternative scenarios are presented below to show how the most significant risks to the main forecast could play out. The scenarios are extended into the projection period in the same way as the main forecasts were in the preceding section. While the scenarios below do not represent the most likely track for the economy, the possibility of such outcomes occurring should not be ignored and the scenarios should be considered an integral part of the Half Year Update. The scenarios below consider how the economy and fiscal position could differ from the main predictions presented above under different paths of recovery.

Upside Scenario

The upside scenario focuses on a stronger recovery. Real GDP in New Zealand's trading partners in this scenario is assumed to rise 3.6% in the 2010 calendar year after a smaller decline of 1.1% in 2009 owing to a greater response to monetary and fiscal stimulus and the recovery in confidence levels. Although less than in 2010, there is still uncertainty over real GDP in 2009 as actual outturns are currently only available for two to three quarters of the year. The stronger recovery could be led by growth in emerging markets, particularly China, and trading partners that would benefit from this growth, including Australia. There is also uncertainty as to how the New Zealand economy will recover. Therefore, the upside scenario includes a judgement that domestic demand in New Zealand rises more strongly over the next year in response to low interest rates and high confidence levels.

A stronger world economy raises the terms of trade…

A stronger global recovery would lead to higher demand for New Zealand's exports, particularly non-commodity goods and services, and to higher export prices. Higher export prices raise the terms of trade by around 6% on average over the next five years relative to the main forecast (Figure 1.14). Higher terms of trade are a distinct possibility, with world dairy prices as measured by Fonterra’s globalDairyTrade auction up 95% since July 2009.

Figure 1.14 - Merchandise terms of trade (SNA)
Figure 1.14 - Merchandise terms of trade (SNA)   .
Source:  Statistics New Zealand, the Treasury

…and domestic demand recovers earlier

In this scenario, domestic demand is also assumed to rebound more strongly than in the main forecast, reflecting greater momentum in consumer spending from higher levels of consumer confidence and rising house prices. Higher export incomes and confidence abroad are also assumed to flow through to domestic demand, including higher business investment. As a result, consumption would likely recover more quickly in the second half of the March 2010 year and then rise by just over 3% per annum in the following two years, compared with peak annual average growth of around 2.5% in the main forecasts. Investment also grows more strongly over the coming year in the upside scenario.

Table 1.8 - Key economic and fiscal features of the upside scenario
(Annual average % change,
Year ended 31 March)
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Real GDP components:            
Private consumption -0.8 0.0 3.1 3.2 2.4 1.9
Residential investment -23.4 -7.3 32.4 17.1 2.5 -1.4
Market investment -4.7 -10.8 11.6 11.2 4.5 3.8
Gross national expenditure -2.0 -3.0 6.2 5.2 2.9 2.3
Exports of goods and services -3.3 0.4 0.0 6.6 5.4 3.3
Imports of goods and services -4.7 -13.2 11.2 10.8 5.3 3.1
GDP (production measure) -1.1 -0.2 3.2 3.9 2.8 2.3
Unemployment rate1 5.0 7.0 6.3 5.3 4.7 4.6
90-day bank bill rate2 3.7 2.9 5.5 6.0 6.1 6.1
TWI2 53.7 66.5 65.1 62.2 59.1 56.7
CPI3 3.0 2.5 2.4 2.3 2.6 2.2
Current account balance (% GDP) -8.1 -2.5 -4.4 -5.5 -6.1 -6.6
Nominal GDP level (deviation from main forecast, $billion) 0.0 1.1 4.4 7.0 7.4 6.3
(% of GDP, Year ended 30 June)            
Operating balance before gains and losses -2.2 -3.8 -2.6 -1.5 -1.3 -1.0
Core Crown net debt 9.5 14.5 18.5 21.0 22.5 23.8

Notes:

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

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

A stronger recovery sees unemployment fall more rapidly...

The stronger outlook would flow through to higher real GDP than in the main economic forecasts, with a smaller contraction of 0.2% in the March 2010 year followed by a larger rebound in growth to 3.2% and 3.9% in the 2011 and 2012 March years. Higher levels of activity would result in the unemployment rate falling more quickly from a peak of 7.0% in the March 2010 quarter, the same as in the main forecast, to 6.3% a year later, compared with 6.9% in the main forecast.

...and leads to higher nominal GDP and more tax revenue…

Stronger real activity, higher terms of trade and increased inflation lead to nominal GDP being much higher than in the main forecasts. Nominal GDP in the final June year of the forecast period is $6.3 billion higher and the cumulative difference over the 2010 to 2014 June years is $27.5 billion. As a result, core Crown tax revenue would likely be $2.4 billion higher than in the main forecast by the end of the forecast period, with a cumulative difference of around $10 billion across the 2010 to 2014 June years. Higher tax revenue relative to the main forecast reflects higher personal and corporate income tax revenue owing to higher incomes, more GST revenue from stronger domestic demand and a larger increase in tax on interest income as interest rates rise by more. Fiscal drag also has a larger impact in this scenario than in the main predictions because of faster wage growth.

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

…resulting in lower deficits and a slower build-up of debt

Owing to the impact of higher tax revenue, the operating deficit would be slightly smaller than in the main forecast at 3.8% in the June 2010 year and would narrow over the following two years (Figure 1.15). The operating balance (before gains and losses) in the upside scenario reaches balance in the June 2015 year and returns to surplus in the following year, which would be one year earlier than predicted in the main projections. With smaller deficits in the upside scenario, core Crown net debt would be expected to rise by less than in the main predictions, rising to a peak of 24.4% in the June 2015 year before falling below 10% of GDP at the end of the projection period. However, it would be harder to live within the $1.1 billion operating allowance given a stronger economy would, for example, put more pressure on public sector wages.

Figure 1.15 - Operating balance (before gains and losses)
Figure 1.15 - Operating balance (before gains and losses)   .
Source:  The Treasury

Downside Scenario

The downside scenario outlined below centres on risks to medium-term growth in New Zealand and overseas. It assumes the recovery continues in the short term as in the main forecasts, but that growth in the New Zealand economy weakens in line with the world economy once monetary and fiscal stimulus are removed around the world, the inventory cycle is complete and household demand does not fill the gap because of a desire to deleverage and rebuild balance sheets. In this scenario, New Zealand's top-12 trading partners are assumed to contract by 1.5% in the 2009 calendar year as in the main forecasts, but grow only 2.6% in 2010 and 2.9% in 2011. This slower recovery could result from renewed credit difficulties or a larger impact from monetary and fiscal tightening. Domestic demand in New Zealand also weakens in late 2010 as stimulus begins to be removed. The implications of this scenario continue to flow through in the medium-term projections.

Table 1.9 - Key economic and fiscal features of the downside scenario
(Annual average % change,
Year ended 31 March)
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Real GDP components:            
Private consumption -0.8 -0.2 2.0 1.5 1.2 1.4
Residential investment -23.4 -7.3 22.6 13.6 5.7 2.5
Market investment -4.7 -11.1 7.1 3.3 5.3 9.4
Gross national expenditure -2.0 -3.2 4.4 2.5 2.3 3.0
Exports of goods and services -3.3 0.4 -0.4 4.5 4.9 5.0
Imports of goods and services -4.7 -13.3 9.1 5.0 2.6 4.5
GDP (production measure) -1.1 -0.4 2.0 2.5 3.0 3.2
Unemployment rate1 5.0 7.0 7.5 6.4 5.7 5.1
90-day bank bill rate2 3.7 2.8 2.9 3.2 3.9 4.8
TWI2 53.7 66.5 62.2 55.5 53.0 51.9
CPI3 3.0 2.4 2.1 1.8 1.7 1.5
Current account balance (% GDP) -8.1 -2.9 -5.6 -7.0 -6.7 -6.3
Nominal GDP level (deviation from main forecast, $billion) 0.0 0.0 -1.5 -4.3 -5.2 -5.5
(% of GDP, Year ended 30 June)            
Operating balance before gains and losses -2.2 -4.0 -3.8 -3.8 -3.7 -3.1
Core Crown net debt 9.5 14.8 20.5 25.6 29.5 32.4

Notes:

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

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

A weaker recovery in the world economy would impact on New Zealand's trade and contribute to a weakening of domestic demand in late 2010...

Lower growth in the world economy contributes to a smaller rise in the terms of trade relative to the main forecasts, with the terms of trade just over 2% lower than in the main forecasts on average over the forecast period. Lower demand from abroad would also adversely affect New Zealand's exports. As a result, export volumes are forecast to be weaker than in the main forecasts in the years to March 2011 and 2013, with tourism particularly affected. The more subdued recovery in the world economy would also flowthrough to weaker domestic demand in New Zealand via its impacts onconfidence and asset prices.

There are also questions about how sustainable the recovery in New Zealand is for anygiven level of global demand, particularly if there is lower growth in credit. Credit growth could be affected either because of difficulties accessing finance as banks and finance companies become more cautious in their lending or because of lower demand as households look to rebuild their balance sheets. With lower growth in credit, the downside scenarioincludes an assumption in the medium-term projections that labourproductivity growth takes longer to get back up to 1.5% per annum than in the main projections owing to lower growth in the stock of capital.

...resulting in slower economic growth…

Under the downside scenario, real GDP growth rebounds only to 2.0% in the 2011 March year and 2.5% the next year, compared to 2.4% and 3.2% respectively in the main forecasts. An eventual recovery in trading partner growth coupled with relatively low interest rates and a lower exchange rate would eventually result in increased investment, export and consumption growth at the end of the forecast period. However, the level of nominal GDP is predicted to be significantly lower than the main forecast across the entire forecast period. Over the 2010 to 2014 fiscal years, nominal GDP would be a cumulative $18 billion or nearly 2% lower.

…and lower tax revenue and higher net debt

The effect on tax revenue in the final year would be similar in magnitude, but in the opposite direction to that of the upside scenario as tax revenue is estimated to be $2.3 billion lower than the main forecast in the 2014 June year. However, the overall difference in revenue calculated across the forecast period, at around $6.5 billion, is smaller than in the upside scenario because this scenario has more effect in the medium term. Lower incomes and domestic demand in the downside scenario would produce less income tax and GST revenue, and a lower interest rate profile would result in less tax on interest income.

Figure 1.16 - Net debt
Figure 1.16 - Net debt   .
Source:  The Treasury

More people would receive benefits in the downside scenario, but the adjustments to benefit rates because of inflation would be lower. The operating deficit (before gains and losses) under the downside scenario in the June 2010 year is estimated at 4.0% of GDP, the same as in the main forecast, but declines more slowly to 3.1% of GDP by 2014. The downside scenario then shows the operating balance (before gains and losses) returning to surplus in the June 2017 year, the same as predicted in the main projections. However, these surpluses would be smaller, rising to around 3% of GDP in the June 2024 year. Larger deficits relative to the main predictions mean borrowing would be higher under the downside scenario and would result in net debt peaking at 35.0% of GDP by the June 2016 year (Figure 1.16). This scenario is not dissimilar to the main projections in Budget 2009, in which net debt peaked at 35.9% in the June 2017 year.

Other paths for the economy are also possible

Other paths for the economy are certainly possible. Global financial markets have experienced a high degree of volatility over the past two years, particularly since the global financial crisis in late 2008. A stronger recovery, led by higher domestic confidence and a stronger international recovery, is also possible. The situation has stabilised over the past six months, but there is a risk of further difficulties being experienced and New Zealand remains vulnerable to a loss of investor confidence because of its high reliance on overseas debt.

The exchange rate has been volatile in 2009. The TWI of the New Zealand dollar fell to a monthly trough of 52.3 in February 2009, but a recovery in the global outlook resulted in a return of risk appetite that saw the TWI rebound to 66.5 in October 2009, before easing slightly to 65.2 in November 2009. The Half Year Update assumes the exchange rate remains around 66.5 until mid-2010 but it is always a major uncertainty in economic forecasts and recent volatility highlights how quickly sentiment can change. The exchange rate could fall sooner than assumed in our main forecast, especially if there is renewed risk aversion among financial market participants. Conversely, increased appetite for risk among financial market participants, a resurgence in domestic demand or higher commodity prices could lift the exchange rate back to the post-float high reached in July 2007.

Fiscal Sensitivities

Table 1.10 provides some “rules of thumb” on the sensitivities of the fiscal position to changes in specific variables.

Table 1.10 - Fiscal sensitivity analysis
Year ended 30 June
($ million)
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
1% lower nominal GDP growth per annum on          
Tax revenue (535) (550) (580) (615) (650)
Revenue impact of a 1% decrease in growth of          
Wages and salaries (260) (525) (815) (1,140) (1,520)
Taxable business profits (125) (260) (405) (565) (735)
One percentage point lower interest rates          
Interest income (128) (173) (100) (35) 55
Expenses (128) (303) (381) (461) (521)
Impact of interest rates on the operating balance 0 130 281 426 576

Source: The Treasury

Finalisation dates and assumptions for the forecasts and projections

Economic and fiscal forecasts - finalisation dates
Economic forecasts 6 November
Tax revenue forecasts 12 November
Fiscal forecasts 25 November
Text finalised 8 December

Economic forecast assumptions

Trading partner growth - The global outlook has changed significantly since the low point in activity earlier in the year when Budgetforecasts were finalised. After an estimated contraction of 1.5% in 2009, the economies of New Zealand's top-12 trading partners are expected to grow 2.9% in 2010, 3.2% in 2011 and 3.4% in 2012, before settling at growth of 3.2% in the final two years of the forecast period. These are similar to growth rates in Consensus Forecasts forOctober 2009, although are slightly lower than those for November 2009 released after the economic forecasts were finalised. Given there is continued uncertainty around these numbers, we consider scenarios based on different rates of trading partner growth.

Global inflation and interest rates - Inflation has declined dramatically from a year ago in most economies and the outlook remains subdued as the recovery in the world economy is expected to be gradual. The subdued inflation environment is expected to lead to low interest rates over the forecast period, although they are expected to be gradually normalised over time.

Figure 1.17 - WTI oil prices
Figure 1.17 - WTI oil prices   .
Source:  Datastream, the Treasury

Oil prices - The average price of West Texas Intermediate (WTI) oil on a quarterly basis troughed at US$43/barrel in the March 2009 quarter and rose to US$68/barrel in the September quarter as demand picked up in line with the world economy. Based on the average futures prices for WTI oil in October 2009, the price of oil is assumed to rise to US$87/barrel by the end of the forecast period. Over most of the forecast period, the oil price assumption contained in the Half Year Update is approximately 25% above that assumed in the Budget forecasts(Figure 1.17).

Terms of trade - The merchandise terms of trade (as measured in the System of National Accounts) are estimated to trough in the September 2009 quarter, nearly 14% below their March 2008 peak. They are then assumed to rise gradually over the forecast period to be 11% higher in the June 2013 quarter than in the September 2009 quarter.

Monetary conditions - The New Zealand dollar exchange rate is expected to have appreciated to 66.5 on the TWI in the December 2009 quarter and is assumed to remain at this level throughout the first half of 2010. The TWI is then assumed to depreciate over the forecast period to 53. Ninety-day interest rates are expected to rise to 3.3% in the June quarter of 2010 and 4.3% a year later and continue to increase to 5.9% at the end of the forecast period.

External migration - The net inflow of permanent and long-term migrants is assumed to increase from just under 17,000 in the year to September 2009 to 24,400 in the year to March 2010 before falling to 10,000 per annum by early 2012.

Policy - The Emissions Trading Scheme (ETS) is assumed to impact on consumer prices both directly and indirectly over the forecast period. We estimate an impact on consumer price inflation of about 0.4 percentage points in the June 2011 year as the ETS impacts on the price of stationary energy (eg, coal, gas and geothermal) and fuel prices, with a further impact of about 0.4 percentage points in the 2013 calendar year, as waste is included from January 2013 and the transition phase ends.

Fiscal forecast assumptions

The fiscal forecasts are based on assumptions and judgements developed from the best information available on 25 November 2009, when the forecasts were finalised. Actual events are likely to differ from some of these assumptions and judgements. Furthermore, uncertainty around the forecast assumptions and judgements increases over the forecast period.

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

  • a nominal GDP forecast is needed in order to forecast tax revenue
  • a forecast of CPI inflation is needed because social assistance benefits are generally indexed to inflation
  • an unemployment forecast is needed to underpin the projected number of unemployment benefit recipients, and
  • forecasts of interest rates are needed to forecast finance costs, interest income and discount rates.

A summary of the key economic forecasts that are particularly relevant to the fiscal forecasts is provided in the table below (on a June-year-end basis to align with the Government's balance date).

Table 1.11 - Summary of key economic forecasts used in fiscal forecasts
June years 2009/10 2011/12
Half Year Forecasts
2012/13
Half Year Forecasts
2013/14
Half Year Forecasts
2010/11
Half Year Forecasts
Budget Forecasts Half Year Forecasts
Real GDP (P) (ann avg % chg) -0.8 0.7 2.6 3.3 3.0 2.8
Nominal GDP (E) ($m) 175,051 184,466 193,966 203,873 213,738 223,980
CPI (annual avg % change) 1.9 2.2 2.1 2.2 2.2 2.1
Govt 10-year bonds (ann avg %) 5.2 5.8 5.8 5.8 5.9 6.0
5-year bonds (ann avg %) 4.4 5.0 5.4 5.6 5.8 5.9
90-day bill rate (ann avg %) 2.5 2.9 3.8 4.8 5.3 5.7
Unemployment rate (HLFS) basis ann avg %) 7.1 6.9 6.9 6.1 5.4 4.9
Total employment (ann avg % change) -3.8 -1.9 -0.5 1.5 2.7 2.5
Current account (% of GDP) -6.6 -3.6 -5.8 -6.9 -7.2 -6.8

Projection assumptions

The projection period begins in the June 2015 year. These post-forecast fiscal projections are based on long-run technical and policy assumptions outlined below. The projection model can be found on the Treasury website.

Table 1.12 - Summary of economic and demographic assumptions1
June year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2024
Forecasts Projections
Population 1.3 1.2 1.0 0.9 0.9 0.9 0.9 0.8 0.8 ... 0.7
Labour force 0.1 -0.5 0.7 1.8 2.0 1.6 1.5 1.4 0.5 ... 0.4
Unemployment rate2 6.9 6.9 6.1 5.4 4.9 4.5 4.5 4.5 4.5 ... 4.5
Employment -1.9 -0.5 1.5 2.7 2.5 2.0 1.5 1.4 0.5 ... 0.4
Labour productivity3 3.7 3.4 1.5 0.1 0.2 0.6 1.0 1.4 1.5 ... 1.5
Real GDP 0.7 2.6 3.3 3.0 2.8 2.9 2.8 3.1 2.0 ... 1.9
Consumer price index (annual % change) 2.3 2.4 2.2 2.3 1.9 2.0 2.0 2.0 2.0 ... 2.0
Government 5-year bonds (% rate) 5.0 5.4 5.6 5.8 5.9 6.0 6.0 6.0 6.0 ... 6.0
Average hourly wage 3.6 2.8 2.9 2.6 2.9 2.6 3.0 3.4 3.5 ... 3.5
 

Notes:

  1. Annual average % change unless otherwise stated
  2. Level of the unemployment rate (% of labour force)
  3. Hours worked measure

Source: The Treasury

Given the difficulty in projecting cycles and shocks beyond the forecast horizon, the projections use trend or long-run averages for the growth rates or levels of key economic variables. In the Half Year Update 2009, some of these variables are not predicted to return to their trend levels within the five-year forecast period because of the persistent effects of the recession. However, these variables are assumed to return to these trend rates or levels in the first few years of the projections. These variables are: age-and-gender group labour force participation rates; CPI inflation; unemployment rate; average hours worked; and labour productivity growth. For labour force participation rates, projections produced by Statistics New Zealand are targeted. For the other variables, a rate of transition to the long-run trend rate or level is determined. These variables all contribute to the projection of nominal GDP, which is both a driver of a number of important fiscal variables, such as tax revenue, and the denominator in key fiscal ratios (eg, debt-to-GDP).

Table 1.13 - Summary of fiscal assumptions for forecasts and projections
  Forecast period Projection period
Government decisions
  • Incorporate government decisions up to 25 November 2009.
  • Based on existing policy and do not assume policy change.
Operating allowance
  • Net $1.1 billion in 2010/11, growing by the rate of 2% per annum for subsequent Budgets.
  • Page 55 outlines indicative decisions against Budget 2010.
  • Also based on annual increments of a 2010/11 base of $1.1 billion, grown at 2% per annum.  Some expenditure
    (eg, health, education) has been allocated some of the allowance based on demographic growth.
Capital allowance
  • $1.45 billion from Budget 2010to 2012 and$1.65 billion for Budget 2013. 
Capital Allowance
$ billion 2010 2011 2012 2013 2014
Budget 10 0.02 0.63 0.45 0.35  
Budget 11 - 0.02 0.63 0.45 0.35
Budget 12 - - 0.02 0.63 0.45
Budget 13 - - - 0.02 0.73
  • Continues at $1.65 billion for one year, 2014/15.
  • Then resorts to a track of a $900 million starting point, in 2013/14, growing at 2% p.a. Value in 2015/16 is $936 million.
Emissions Trading Scheme (ETS)
  • The forecasts take into account recent legislative changes to the ETS and the effects of these changes on the predicted ETS position over the first commitment period (CP1).  These policy changes include: revised entry dates of 1 July 2010 for transport, energy and industrial sectors; a transitional phase until 1 January 2013 with 50% obligation price options for the transport, energy and industrial sectors; an intensity-based approach to allocations for trade-exposed, emissions-intensive businesses.
  • The carbon price assumption used is €10 at an exchange rate of 0.4915 (a carbon price of NZ$20.35).  The forecast assumes a 50% uptake of post-1989 foresters into the ETS over CP1.  Beyond 2012, ETS net revenues have been modelled as neutral (revenues equal expenses), as New Zealand currently has no international commitments beyond this period.  Net revenue (the value of credits received after free allocation of credits to participating industries and after meeting future emission liabilities) is assumed to be recycled back to the public through fiscally equivalent, unspecified tax reductions or spending increases.
  • Modelled to have no fiscal impact in projections, as a policy of full recycling of net revenue is assumed.
  • This assumes the government will be able to meet its post-2012 commitments without any net additional fiscal cost.
Kyoto position
  • The Kyoto position included in fiscal forecasts reflects the Government's obligation for CP1, which is for the period 2008 to 2012.
  • Kyoto Protocol ends in the forecast period, so no future provision is modelled in the projection period.
NZS Fund contributions
  • $250 million contribution in 2009/10.
  • Assume no contribution beyond the 2010 fiscal year.
  • Contributions calculated via separate NZS Fund model.
  • Assumed to recommence at $2.8 billion in 2019/20 when projected core Crown operating balance can cover the contribution.
Investment rates of return
  • Incorporate the actual results to 30 September 2009. Beyond 30 September 2009, gains on financial instruments are based on long-term benchmark rates of return for each portfolio.
  • NZS Fund returns are based on long-run average return rates, while other investment returns grow at the rate of the projected assets generating them.
Finance cost on new bond issuances
  • Based on 5-year rate from the central economic forecasts and adjusted for differing maturity.
  • Based on the projected 5-year Government bond rate.
Borrowing requirements
  • The forecast cash deficits would be met by reducing financial assets and issuing debt.
  • The cash position itself is not projected, but the growth of core Crown debt is based on the balance between asset growth and the operating balance.
Top-down adjustment
  • Top-down adjustment to operating and capital as follows:
Top-down adjustment
$ billion 2010 2011 2012 2013 2014
Operating 1.15 0.20 0.05 0.05 0.05
Capital 0.55 - - - -
  • The end-of-forecast values are projected as part of expenditure and physical asset growth respectively.
Property, plant and equipment
  • For the purposes of the forecast financial statements, no revaluations of property, plant and equipment are projected beyond the current year.  Valuations as recorded for the 2009 annual financial statements and any additional valuations that have occurred up to 30 September 2009 are included in these forecasts.
  • No revaluations are projected.
Student loans
  • The carrying value of student loans is based on a valuation model that has been adapted to reflect current student loans policy.  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 fiscal forecast.
  • All variables related to student loans are projected from the forecast base using growth rates from long-term projections provided by the Ministry of Education.
Government Superannuation Fund and ACC liabilities
  • The Government Superannuation Fund and ACC liabilities included in these forecasts have been valued as at 31 October 2009 and 30 June 2009 respectively, with the ACC valuation being adjusted for the 30 September 2009 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 of economic assumptions such as inflation and discount rates.  Any change in actual payments or economic assumptions would affect the present fiscal forecast (eg, if the discount rate decreases, the value of the liabilities would increase).  Pages 108 and 107 outline the key economic assumptions used for both valuations.  The Government Superannuation Fund's assets are offset against the gross liability and have been updated to reflect market values at 31 October 2009.  The value of assets over the forecast period reflects long-run rate of return assumptions appropriate to the forecast portfolio mix.
  • Projections of the Government Superannuation Fund are based on long-term tracks provided by the Government Actuary.
Fiscal Drag
  • Forecasts of source deductions tax, chiefly derived from salaries and wages, build in assumptions for growth beyond that assumed for compensation of employees. This extra growth relates to fiscal drag and the amount assumed may differ across the forecast horizon.
  • Projecting source deductions involves employed labour force growth plus nominal average wage growth, supplemented by a fiscal drag elasticity of 1.35.

2 - Fiscal Risks

Introduction

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

Legislative Requirements

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

The PFA requires the Minister of Finance and the Secretary to the Treasury to sign a statement of responsibility for each economic and fiscal update that:

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

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

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

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

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

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

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

All government decisions and other circumstances that may have a material effect on the fiscal and economic outlook are considered against the criteria and rules set out below to determine if they are to be incorporated into the fiscal forecasts, disclosed as specific fiscal risks, or in some circumstances excluded from disclosure.

Criteria for including matters in the fiscal forecasts

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

  • The quantum is more than $10 million in any one year.
  • The matter can be quantified for particular years with reasonable certainty.
  • A decision has been taken; or a decision has not yet been taken, but it is reasonably probable[4] the matter will be approved, or it is reasonably probable the situation will occur.

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

Rules for the disclosure of specific fiscal risks 

Matters are disclosed as specific fiscal risks if:

  • the likely cost is more than $10 million in any one year, and either
  • a decision has not yet been taken, but it is reasonably possible[5] (but not probable) that the matter will be approved or the situation will occur, or
  • it is reasonably probable that the matter will be approved or the situation will occur, but the matter cannot be quantified for or assigned to particular years with reasonable certainty.

Additionally, any other matters may be disclosed as specific fiscal risks if the Secretary to the Treasury considers, using his or her best professional judgement, that the matters may have a material effect (more than $10 million in any one year) on the fiscal and economic outlook, but are not certain enough to include in the fiscal forecasts.

Exclusions from disclosure

Matters are excluded from disclosure as specific fiscal risks if they fail to meet the materiality criteria (ie, are less than $10 million in every year), or if it is unlikely[6] they will be approved or occur within the forecasting period.

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

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

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

Information Relating to all Disclosed Risks

Allowances for additional operating and capital spending in future Budgets are incorporated into the fiscal forecasts. From Budget 2010 the operating allowance is $1.1 billion per Budget (grown forward at 2% per annum) and the capital allowance is $1.45 billion per Budget from 2010 to 2012, increasing to $1.65 billion in Budget 2013.

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

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

Notes

  • [4]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).
  • [5]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).
  • [6]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).

Charges Against the Fiscal Forecasts

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

ACC Non-Earner's Account

Based on the criteria outlined on pages 52 and 53 it is probable that additional funding for the ACC Non-Earners Account will be approved by the Government during the forecast period. Consequently, this matter has been incorporated into the fiscal forecasts as a potential charge against the operating allowances for future Budgets.

ACC updated its scheme valuation as at 30 June 2009 and has advised of potential changes to the Non-Earner's Account baselines in 2009/10 and outyears.

Budget to be Charged
Budget to be charged
($million)
2009/10 2010/11 2011/12 2012/13 2013/14
Budget 2010 139.829 81.324 56.324 80.984 123.886

ACC Levy Increases

The Government is yet to consider ACC's final advice on levy rates for 2010/11 and the levies ultimately approved may differ from those in ACC's consultation documents.

Based on the criteria outlined on pages 52 and 53 it is probable that increases to ACC levies will be approved by the Government during the forecast period. Consequently, the effects of these increases have been recognised in the fiscal forecasts as a potential increase in the operating balance.

It is important to note that the Government has not yet taken any decision on ACC levy rates for 2010/11. The amounts below that have been recognised in the fiscal forecasts are Treasury's best estimate (at this time) of the likely effect of proposed levy increases, inclusive of the legislative changes now before Parliament.

Amount to be Recognised
Amount to be recognised
($million)
2009/10 2010/11 2011/12 2012/13 2013/14
  687 1,180 1,159 1,264 1,431

An unquantified Specific Fiscal Risk has been included in this chapter (see page 61) to recognise the fact that the final 2010/11 levy rates may be different to those from which the amounts recognised in the forecasts were derived.

Specific Fiscal Risks

The matters listed below are disclosed as specific fiscal risks as they meet the rules for disclosure outlined on pages 52 and 53.

Quantified and unquantified risks are listed separately. Within each list the risks have been categorised as new or changed/unchanged since the last economic and fiscal update.

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

Fuller descriptions of the risks listed below are included on pages 61 to 73.

Quantified Risks

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

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

 
Quantified risks as at 25 November 2009 Impact on fiscal position Value of risk
($million)
New risks    
Economic Development - Large Budget Screen Production Fund Negative $34m in 2009/10
Justice - Family Court Professional Services Negative $8m operating in 2009/10 rising to $22m per annum by 2012/13
Changed risks    
Corrections - Community Probation and Psychological Services Negative $78m operating per annum by 2013/14 and $61m capital
Corrections - Prison Construction Negative $150m operating per annum by 2018/19 and $915m capital between 2009/10 and 2017/18
Customs - Joint Border Management System Replacement Negative $15m operating in 2011/12 reducing to $9m per annum from 2012/13 and $66m capital
Education - Additional Funding for School Property Negative $168m capital
Education - Broadband Investment: Schools Negative $116m capital
Education - Trades Academies Negative $10m to $20m capital
Immigration - Immigration New Zealand Change Programme Negative $65m capital
Justice - Review of the Legal Aid System Negative $18m operating in 2009/10 rising to $178m by 2013/14
New Zealand Defence Force - Future Operationally Deployed Forces Activity Negative $30m operating per annum from 2010/11
New Zealand Defence Force - Sale of Skyhawks and Aermacchi Trainers Positive $130m capital
Police - Digital Radio Network Full Implementation Negative $7m operating in 2011/12 rising to $18m in 2013/14 and $66m capital
Transport - NZRC Operating Support and Loans Negative Up to $260m in operating and/or capital
Unchanged risks    
Economic Development - Broadband Investment Initiative Negative $1,210m capital
Education - Early Childhood Education Ratio Changes Negative $55m operating per annum
Education - School Staffing Entitlements Negative $45m operating in 2011/12 and $50m in 2012/13 and outyears
Education - Youth Guarantee Negative Up to $51m operating per annum
Education, Social Development, Health and Revenue - Medical Training Places Negative $11m operating and $3m capital per annum by 2012/13, growing beyond the forecast period
Finance - Crown Overseas Properties Negative $150m capital between 2009/10 and 2013/14
Health - Additional WellChild Visits Negative $15m operating per annum
Health - Building Dedicated Elective Theatres Negative $20m operating in 2010/11, $40m operating per annum from 2011/12 and $36m capital
Health - Funding Increase for Subsidised Medicines Negative $60m operating in 2010/11, and $80m operating per annum from 2011/12
Immigration - Redevelopment of Mangere Refugee Centre Negative $5m operating, $25m capital one-off and $25m operating per annum
Justice - Greater Auckland Region Service Delivery Strategy Negative $265m operating or capital
Revenue - GST - Business to Business Transactions Positive $50m operating per annum
Revenue - Impairment of Crown Debt Administered by Inland Revenue Positive or Negative $200m capital decrease to $50m capital increase
Revenue - Reinstatement of Deferred Tax Cuts Negative $900m operating per annum
Social Development - Increasing the Abatement-free Income Threshold Negative $27m operating per annum

Unquantified Risks

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

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

 
Unquantified risks as at 25 November 2009 Impact on fiscal position
New risks  
ACC - Levy Increases Positive or Negative
Defence - Project Protector Warranty Issues Positive
Economic Development - Investment in Tourism Infrastructure Negative
Education - Additional Funding for Defective School Buildings Negative 
Finance - NZ Post Equity Injection Negative
Housing - Weathertight Homes Negative 
Revenue - Tax Issues Relating to Auckland Governance Reform Positive or Negative
Transport - Tauranga Eastern Corridor Negative 
Changed risks  
Climate Change - International Climate Change Obligations Positive or Negative
Economic Development - Radio Spectrum Rights Positive
Education - Demand for Tertiary Education Negative
Education - Early Childhood Education Funding Negative
Education - School Operational Grants Negative
Finance - Crown Retail Deposit Guarantee Scheme Negative
Health - Purchase of Pandemic Strain Vaccine Negative
Housing - Hobsonville Urban Development Negative
Housing - Tamaki Negative
Unchanged risks  
Education - Early Childhood Education Participation Negative
Education - Integrated School Property Negative
Education - Te Whare Wānanga o Awanuiārangi Negative
Finance - Government Commitments to International Financial Institutions Negative
Finance - New Zealand Superannuation Fund Positive or Negative
Health - Caregiver Employment Conditions Negative
Health - District Health Board Deficits Negative
Health - National Systems Development Programme Negative
Health - Payment of Family Caregivers Negative
New Zealand Defence Force - Defence Review 2009 Negative
Revenue - Cash Held in Tax Pools Negative
Revenue - Charitable Giving Negative
Revenue - Child Support - Shared Care Negative
Revenue - Imputation Negative
Revenue - International Tax Review Negative
Revenue - Investment in the Tax System and Related Business Positive
Revenue - KiwiSaver Positive or Negative
Revenue - Mutual Recognition and the Australian Tax Review Negative
Revenue - Possible Structural Tax Changes Positive
Revenue - Potential Tax Policy Changes Positive or Negative
Revenue - Reducing Compliance Costs for SMEs Negative
Revenue - Revenue Implications of Recommendations from the Capital Market Development Taskforce Positive or Negative
Revenue - Tax Treatment of Social Assistance Programmes Positive
Reviews of the Delivery of Public Services Positive
Risks to Third Party Revenue Negative
State Sector Employment Agreements Negative

Risks Removed Since the 2009 Budget Economic and Fiscal Update

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

 
Expired risks Reason
ACC - Revaluation of Outstanding Claim Liabilities Outstanding claim liabilities have been revalued and incorporated into forecasts.
Finance - Potential Merger of Lincoln University and AgResearch The Government has decided not to merge Lincoln University and AgResearch.
Health - Demographic and Cost Pressures This risk has been incorporated into the District Health Board Deficits risk.
Health - Sector Capital A general pressure rather than a specific risk
Housing - Gateway Housing This risk is no longer considered to be material
Police and Corrections - Property and Flow-on Impacts of Additional Police Staff Has been incorporated into the Prison Construction and Community Probation and Psychological Services risks
Revenue - Aligning PIE Rates with New Personal Tax Rates Approved by Cabinet, funding in baselines
Revenue - Inland Revenue Operations Has been incorporated into the Investment in the Tax System and Related Business risk
Revenue - Rebuild of the Student Loan IT System Approved by Cabinet, funding in baselines
Revenue - Renegotiation of Double Tax Agreements Cost of remaining DTAs expected to be less than $10m pa
Revenue - Resident Withholding Tax Alignment Approved by Cabinet, funding in baselines
Revenue - Revenue Implications of Recommendations from the Jobs Summit No longer relevant, all matters have been addressed.
Revenue - Tax Consequences of Residential Mortgage Backed Securities Legislation enacted, now in baselines
Social Development - Extending Part-Time Work Obligations No longer considered to be material.
Transport - Auckland Metro Rail  Approved by Cabinet, included in forecasts
Treaty Negotiations - Office of Treaty Settlements Landbank Approved by Cabinet, funding in baselines

Statement of Specific Fiscal Risks

ACC - Levy Increases (new, unquantified risk)

Treasury's best estimate of the likely effect of proposed levy increases (inclusive of the legislative changes now before Parliament) has been recognised in the fiscal forecasts. The finalised levy rates for 2010/11 may differ from the proposed rates on which the amounts recognised in the forecasts were derived, with either a positive or negative impact on revenue and expenses.

Climate Change - International Climate Change Obligations (changed, unquantified risk)

There is uncertainty in the level of fiscal impact the ETS and Kyoto obligation place on the Government. The net impact of variables including carbon prices, levels of net-emissions, the uptake of post-1989 foresters and allocation levels to emitters are unknown. The Government may need to purchase Kyoto Protocol emission units before 2015 to meet its Kyoto obligations.

Currently no obligation is recognised in the Government's accounts for any post 2012 international climate change agreement, given the Government has yet to ratify any such agreement and the high levels of uncertainty around its potential nature and size. Any agreement entered into will need to be recognised at the time of signing alongside ETS revenues and expenses.

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

The draft 2009-2017 Criminal Justice Forecast predicts a significant increase in the number of sentences and orders served in the community over the forecast period. The Department of Corrections estimates that this would require an additional 500 Probation Officers, Programme Facilitators and Psychologists over the forecast period based on current levels of service delivery. This would result in additional operating costs of $78 million per annum by 2013/14 and capital expenditure of $61 million.

Corrections - Prison Construction (changed, quantified risk)

The Government is considering options to address forecast growth in the prison population. The Department of Corrections faces prison capacity demands over the next 10 years, and has developed a plan to respond to this demand by increasing prison capacity and replacing obsolete capacity. If the Government's chosen response to the growth in the prison population is to increase prison capacity, it is estimated that this would cost up to $915 million capital over the next ten years, and up to $150 million operating per annum by 2018/19. These figures are subject to change depending on the procurement methods chosen by the Government.

Customs - Joint Border Management System Replacement (changed, quantified risk)

Customs is developing a proposal to replace the Border Management System. In accordance with the two-stage approval process for major information technology projects, funding is dependent on approval of a Stage 2 Business case, and the outcome of Budget 2010 funding decisions. The Stage 2 Business case is complete and is scheduled to be considered by Cabinet. The current funding requested is $66 million capital over the period 2009/10 to 2013/14, with operating funding of $15 million in 2011/12 and reducing to $9 million for 2012/13 and outyears.

Defence - Project Protector Warranty Issues (new, unquantified risk)

The Crown is currently in negotiations over warranty issues relating to the some of the Project Protector vessels. It has been agreed that both parties will go back to mediation to try and reach a final settlement. The likely outcome would result in an increase to revenue.

Economic Development - Broadband Investment Initiative (unchanged, quantified risk)

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

Economic Development - Investment in Tourism Infrastructure (new, unquantified risk)

The Government is considering investing in tourism infrastructure. This includes possibly funding the construction of a National Convention Centre and a cruise ship terminal in Auckland. These may be either wholly or partly funded by the Government.

Economic Development - Large Budget Screen Production Fund (new, quantified risk)

The Large Budget Screen Production Fund is a fund to assist film production companies. The appropriation is set at $35.556 million, however the Fund is a demand driven programme and actual costs are dependent upon the number of productions. In any given year the number of productions underway can vary and associated costs can vary. The estimated shortfall in the Fund in 2009/10 is around $34 million.

Economic Development - Radio Spectrum Rights (changed, unquantified risk)

The Government sets the processes for the renewal or auction of property rights to radio spectrum in consultation with industry. Offers for rights of renewal to existing owners of spectrum rights are set approximately five years in advance of rights expiring from 2010 onwards with settlement being required prior to granting the new right. If any offers are rejected then they will be allocated by way of auction on the open market. In this update estimated radio spectrum sales revenue has been included in the forecasts. However there is a portion of radio spectrum sales revenue which cannot be forecast at this time.

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

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

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

In Budget 2009 the Government provided $434.5 million in capital funding for the school property infrastructure programme. The Government has previously indicated that this programme could total $500 million and is considering providing a further $65.5 million for school property.

The Ministry of Education advises that an additional $168 million may be required over the next two financial years to meet roll growth and demographic change. In addition, the Ministry also advises that the annual property portfolio revaluation may increase the depreciation and therefore require further funding. The Government is also committed to increasing the range of schools that parents can choose to send their children to, which could potentially increase the level of property funding required.

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

Government has signalled an investment of $150 million to support the introduction of ultra-fast broadband into schools. The capital cost of upgrading school internal networks for all state, and state integrated schools has been estimated at $235 million. More comprehensive costings will be prepared as part of a Broadband in Schools business case prior to the 2010 budget process. The Government has to date committed $34 million towards this objective. The financial implications of the broadband investment in schools on other complementary actions will be reflected in the business case.

Education - Demand for Tertiary Education (changed, unquantified risk)

The current tuition subsidy baseline allows for some growth in participation, based upon demographic changes, and increases in participation in key areas. The demand for tertiary education has increased as a result of the labour market downturn. The Government will need to consider whether to manage these pressures through reprioritisation or investment of additional funding. Additional enrolments would result in flow-on student loan and allowance costs.

Education - Early Childhood Education Funding (changed, unquantified risk)

Cost pressures in early childhood education (ECE) may lead the Government to consider increasing rates in future years. Any costs would depend on the option chosen and the ability to fund proposals from within existing baselines. There is also a risk that unanticipated changes may cause forecasts to be too low (for example unanticipated increases in registered teachers and hours of participation) resulting in cost pressures for the Government.

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

The Government is considering ways in which ECE participation of groups which are currently under-represented might be increased. Any costs would depend on the option chosen and the ability of the proposal to be funded within existing baselines.

Education - Early Childhood Education Ratio Changes (unchanged, quantified risk)

The Government is considering decreasing the adult to child ratio in ECE centres for under-two-year-olds from 1:5 to 1:4. The Ministry of Education has estimated that the cost of implementing this ratio change would be approximately $55 million per annum.

Education - Integrated School property (unchanged, unquantified risk)

Requests have been made by integrated schools for the Government to provide funding support for property costs at new schools. The Government has not yet considered these proposals; any costs would depend on the decisions taken by the Government.

Education - School Operational Grants (changed, unquantified risk)

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

Education - School Staffing Entitlements (unchanged, quantified risk)

Budget 2009 provided for reductions in schooling appropriations of $45 million in 2011/12 and $50 million in 2012/13. If no policy changes are made in schooling, or wider education spending to realise these savings, the appropriations may have to be increased to their previous levels.

Education - Te Whare Wānanga o Awanuiārangi (unchanged, unquantified risk)

Te Whare Wānanga o Awanuiārangi has declared its wish to discuss in the context of the Wai 718 treaty settlement process the repatriation of funding from the Crown based on its concern that there may have been a breach of the Deed of Settlement. This is in addition to the $8.5 million that was agreed with Te Whare Wānanga o Awanuiārangi as part of its settlement with the Crown in 2003.

Education - Trades Academies (changed, quantified risk)

The Government intends to establish at least five (possibly eleven) trades academies by the end of 2011. Trades academies will offer secondary students new options for training towards vocational qualifications and transitions to employment. Capital funding of $6 million for the first Trades Academy at Southern Cross Campus was included in Budget 2009, subject to approval of a detailed business case and implementation plan. The cost of establishing the further trades academies will depend on how they are designed and operated, and to what extent they can be funded from existing capital and operating appropriations, but could range between $10 and $20 million. Work is ongoing to develop funding arrangements and establish their cost.

Education - Youth Guarantee (unchanged, quantified risk)

Decisions are required on the timing and nature of the full roll-out of the Youth Guarantee. The programme could eventually have an operating cost of as much as $65 million per annum. In Budget 2009 the Government provided $94 million between 2009/10 and 2013/14 for the Youth Guarantee programme. Any further funding would depend on the development of the Youth Guarantee programme and the ability to fund proposals within existing baselines.

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

The Government has considered funding 200 additional medical training places over five years. Sixty additional medical places have been funded in Budget 2009. Proceeding with the remaining 140 places would require additional funding, although final costs would depend on the option chosen and the ability of the proposal to be funded within existing baselines. This is currently estimated to be $10.9 million per annum operating and $2.5 million per annum capital by 2013/14, and grows beyond the forecast period.

Finance - Crown Overseas Properties (unchanged, quantified risk)

The Government holds New Zealand House in London on a long-term lease from the Crown Estate (UK). Depending on the Government's future intentions for this building, an upgrade may be required. Preliminary cost estimates for this upgrade total $150 million over the period 2009/10 to 2013/14.

Finance - Crown Retail Deposit Guarantee Scheme (changed, unquantified risk)[7]

The Government operates an opt-in Retail Deposit Guarantee Scheme over financial institution deposits. The objective of the scheme is to ensure ongoing retail depositor confidence in New Zealand's financial system, given the international financial market turbulence. A total of 73 financial institutions have been approved under the scheme. These are listed on the Treasury website. Deposits totalling $133.1 billion are under guarantee.

The Crown also continually updates the likelihood of further default actions triggering the guarantee and assesses the expected loss given default. Based on these assessments, the Crown has provided for a net loss given default of $899 million as at 31 October 2009, being the cost of future payments under this scheme after expected recoveries. The policy decision to extend and amend the Retail Deposit Guarantee Scheme to 31 December 2011 was announced on 25 August 2009.

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

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

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

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

A decision to fund New Zealand Post's business expansion through the Government underwriting New Zealand Post's balance sheet or through an equity injection is currently being sought.

Finance - New Zealand Superannuation Fund (unchanged, unquantified risk)

The Government has suspended contributions to the New Zealand Superannuation Fund for the period until the operating balance returns to a sufficient surplus. The Government made a one-off contribution to the fund of $250 million in 2009/10 and will consider, on an annual basis, whether to make any further one-off contributions before the required rates of contribution are resumed. The level of contribution to the fund, and any changes to the rate of return or remeasurements of the fund, would have fiscal implications which could increase or decrease net debt.

Health - Additional WellChild Visits (unchanged, quantified risk)

The Government is considering providing funding for three additional WellChild visits during the first nine weeks of a baby's life. The initiative has not been funded in Budget 2009, and has been deferred for consideration in future Budgets.

If approved, the indicative cost of this initiative would be $15.360 million operating in 2010/11 and outyears.

Health - Building Dedicated Elective Theatres (unchanged, quantified risk)

The Government is considering funding 20 dedicated elective surgery theatres, with associated beds and facilities. In Budget 2009, $20 million in 2009/10 and outyears has been allocated to ensure that the appropriate number and mix of staff for the new theatres are trained. However, funding has not been allocated for the operating costs and capital funding above what is being provisioned for these theatres in Budget 2009.

If approved, the indicative cost of this initiative would be $20 million operating in 2010/11 and $40 million in 2011/12 and outyears and $36 million capital.

Health - Caregiver Employment Conditions (unchanged, unquantified risk)

An Employment Court case regarding caregiver sleepover employment conditions for third party employed caregivers is currently awaiting judgement. A judgement in favour of the caregivers would require consideration of the repercussions for the Crown.

Notes

  • [7]The Government has also established a Wholesale Funding Guarantee Facility. This facility is not included as a specific fiscal risk as the Government assesses the likelihood of a call on this scheme as remote.
Health - District Health Board Deficits (unchanged, unquantified risk)

Several District Health Boards (DHBs) have projected operating deficits in 2009/10. The Government has stated that it does not view projected DHB operating deficits as acceptable and the Ministry of Health is working with DHBs to develop financial recovery plans. The Government has set aside funding in Vote Health to meet deficit requirements in 2009/10, anticipating that the DHB deficit position will improve in future years.

Health - Funding Increase for Subsidised Medicines (unchanged, quantified risk)

Budget 2009 provided $40 million per annum to increase spending on pharmaceuticals. The Government is considering an increase of $180 million over three years. If approved, the indicative cost of this initiative would be $60 million operating in 2010/11, and $80 million in 2011/12 and outyears.

Health - National Systems Development Programme (unchanged, unquantified risk)

The National Systems Development Programme (NSDP) is a major IT project to stabilise and upgrade core national health systems and collections. The project was originally scoped and signalled to Cabinet as a $104 million capital project, of which $35 million has been appropriated to date. The deliverables for the programme are currently under review and the scope and total cost may change.

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

A Human Rights Tribunal case regarding compensation for family member carers of disabled children is currently awaiting judgement. Further policy work will need to be developed should the Human Rights Tribunal find in favour of family caregivers.

Health - Purchase of Pandemic Strain Vaccine (changed, unquantified risk)

In the event of a H1N1 pandemic, the Government may review and widen the access and availability criteria of the seasonal influenza vaccination programme, which now includes H1N1. There may also be other fiscal impacts as a result of an increase in demand for Tamiflu and antibiotics, and an increase in the utilisation of medical facilities.

Housing - Hobsonville Urban Development (changed, unquantified risk)

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

Housing - Tamaki (changed, unquantified risk)

The Government is considering the Tamaki Transformation Programme, a multi-agency initiative to regenerate this Auckland suburb over 20 years. The initial phase of the redevelopment proposal will be undertaken over the next three years within the existing baselines of the agencies involved. There is a risk that some options for the remainder of the development, beyond the initial phase, may require additional capital and operating funding.

Housing - Weathertight Homes (new, unquantified risk)

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

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

The Immigration New Zealand Change Programme proposes an integrated approach to upgrading immigration services. Some work is already underway, but further work is proposed, particularly a significant upgrade of existing IT systems. Were the IT component to proceed, estimated capital costs are around $65 million. Ongoing costs of the project would be funded from fees.

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

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

Justice - Family Court Professional Services (new, quantified risk)

Trends in judicial sentencing have placed increased pressure on Family Court Professional Services resources in the Family Court.

If current trends continue, it is estimated that costs will increase by $8 million in 2009/10 rising to $22 million by 2012/13.

Justice - Greater Auckland Service Delivery Strategy (unchanged, quantified risk)

The Government is developing a strategy to address court needs in the greater Auckland region. A wide range of stakeholders are currently being consulted over a variety of service delivery options.

Initiatives that are likely to be put forward for consideration as part of this strategy include establishing dedicated civil and family courthouses, establishing specialist and purpose-built jury courthouses, establishing a service centre to deal with customer enquiries and process bulk work, moving to electronic filing and an electronic court record, moving file storage offsite to a specialist external provider and establishing Community Justice Centre(s). As the strategy develops, full business cases are expected to identify priority projects and provide detailed costings.

The total cost could be up to $265 million.

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

Current forecasts of overall expenditure on legal aid, within current policy settings, are substantially higher than the amounts included in the fiscal forecasts. Without any change to policy settings for legal aid, it is estimated that overall costs will increase by $18 million in 2009/10, $72 million in 2010/11, $96 million in 2011/2012, $135 million in 2012/2013 and $178 million in 2013/2014.

New Zealand Defence Force - Defence Review 2009 (unchanged, unquantified risk)

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

The Defence Review is likely to present a range of options with different funding implications.

New Zealand Defence Force - Future Operationally Deployed Forces Activity (changed, quantified risk)

There are currently over 400 New Zealand Defence Force personnel deployed overseas on peace-keeping and United Nations missions. Existing baseline funding is expected to provide for the deployments in Afghanistan, East Timor, the Solomon Islands and several other locations during 2009/10.

The forthcoming Defence Review 2009 will consider future funding requirements for a range of operational commitments in the context of Government's wider defence, foreign policy and fiscal position. Maintaining existing deployment levels would result in an increased annual operating balance impact of some $30 million from 2010/11 subject to any decisions to reduce existing deployments.

New Zealand Defence Force - Sale of Skyhawks and Aermacchi Trainers (changed, quantified risk)

New Zealand's application to sell the former Air Combat Force aircraft has been approved by the US Congress and now depends on the successful conclusion of commercial negotiations.

Should the sale proceed, at a contract value of US$110 million, the net proceeds from the sale are expected to be around NZ$130 million.

Police - Digital Radio Network Full Implementation (changed, quantified risk)

The Government has previously funded the partial implementation of a Digital Radio Network in Wellington, Auckland and Christchurch, to be completed by December 2010. Police are still considering options for the further rollout of a National Digital Radio Network, possibly beginning in the 2011/12 fiscal year.

Earlier estimates suggested costs of up to $150 million, comprised of $28 million in capital in 2011/12, rising to $38 million in 2013/14; and $7 million of operating in 2011/12, rising to $18 million in 2013/14.

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

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

Revenue - Charitable Giving (unchanged, unquantified risk)

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

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

A government discussion document will be released on shared care in the child support formula, including taking into account the incomes of both parents and the costs of children. Any changes would have administrative costs for Inland Revenue.

Revenue - Goods and Services Tax - Business to Business Transactions (unchanged, quantified risk)

The Government is considering options around GST on property transactions. The options considered include both administrative and legislative changes, and could increase revenue collections by up to $50 million per annum.

Revenue - Impairment of Crown Debt Administered by Inland Revenue (unchanged, quantified risk)

Inland Revenue administers Crown debt relating to general tax and family support. The Crown debt included in these forecasts was last tested for impairment at 30 June 2009. The asset will next be tested for impairment at 30 June 2010. The outcome of the valuation could have a negative impact of up to $200 million or a positive impact of up to $50 million.

Revenue - Imputation (unchanged, unquantified risk)

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

Revenue - International Tax Review (unchanged, unquantified risk)

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

Revenue - Investment in the Tax System and Related Business (unchanged, unquantified risk)

Inland Revenue is investigating options around investment in the tax system and related business processes, including replacing the FIRST tax system. Part of this work includes investigating options for transforming employer information and payments. Part of this work includes investigating options for modernising the tax system (FIRST) and redesigning the Pay As You Earn and Personal Tax Summary systems.

Revenue - KiwiSaver (unchanged, unquantified risk)

The forecasts in relation to KiwiSaver policies are dependent on a number of assumptions and projections, such as uptake and contribution rates, all of which may change through time. In the current economic environment, factors such as reduced automatic enrolment, financial market disruption and low consumer confidence increase forecast uncertainty.

Revenue - Mutual Recognition and the Australian Tax Review (unchanged, unquantified risk)

The Government made a submission in October 2008 to the review, Australia's Future Tax System, making a case for mutual recognition of imputation/franking credits. The review will be reported to the Australian Government in December 2009. The outcome of the review may affect tax revenue in New Zealand.

Revenue - Possible Structural Tax Changes (unchanged, unquantified risk)

The Government will consider the findings of the Tax Working Group, which is assessing the medium-term direction of the tax system and policy options. Options being considered include introducing new taxes to broaden and maintain the tax base and changes to the structure of personal tax and corporate tax. Any changes would either decrease or increase tax revenue, depending on the options chosen.

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

The Government is considering changes to various tax policies as indicated in the 18 month tax policy work programme. Measures on the current work programme are expected to be revenue neutral in aggregate. Measures enacted to date, and included in revenue forecasts, have increased tax revenue by around $50 million per annum. The remaining items are expected to be revenue negative up to the same extent. It is unclear exactly what additional policy changes, if any, will be made at this stage.

Revenue - Reducing Compliance Costs for Small- and Medium-sized Enterprises (unchanged, unquantified risk)

The Government is considering measures to simplify the tax rules for small- and medium-sized enterprises, pursuant to a government discussion document released in December 2007. Any measures that are pursued could have a material impact on tax revenue.

Revenue - Reinstatement of Deferred Tax Cuts (unchanged, quantified risk)

The Government has agreed to delay the April 2010 and April 2011 tranches of the planned tax cuts. The Government will reconsider these tax cuts when economic and fiscal conditions permit.

Reinstating these particular tax cuts would cost around $900 million per annum (dependent on when they are reintroduced).

Revenue - Revenue Implications of Recommendations from the Capital Market Development Taskforce (unchanged, unquantified risk)

The Capital Markets Development Taskforce is expected to report to Government later in the year. Recommendations could include tax changes and regulatory changes which impact on tax revenue.

Depending on the options chosen, any changes implemented would either decrease or increase tax revenue.

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

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

Revenue - Tax Treatment of Social Assistance Programmes (unchanged, unquantified risk)

The Government is investigating legislative solutions to fix loopholes in the tax treatment of social assistance programmes. Specific measures have not yet been identified but any changes are likely to have a positive impact on tax revenue.

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

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

Risk to Third Party Revenue (unchanged, unquantified risk)

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

Social Development - Increasing the Abatement-free Income Threshold (unchanged, quantified risk)

The Government is considering increasing the abatement-free income threshold for main benefits from $80 per week to $100 per week, including non-qualifying spouses of people receiving New Zealand Superannuation.

Increasing the abatement-free threshold to $100 would mean that people who receive a main benefit will be able to earn an additional $20 a week before their benefit payment is reduced.

If approved, the cost of this initiative would be approximately $26.5 million per annum.

State Sector Employment Agreements (unchanged, unquantified risk)

A number of large collective agreements are due to be renegotiated in the short to medium term. As well as direct fiscal implications from any changes to remuneration, the renegotiation of these agreements can have flow-on effects to remuneration in other sectors. The Government has signalled an expectation for restraint given the current economic environment and conditions in the private sector.

Transport - Tauranga Eastern Corridor (new, unquantified risk)

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

Contingent Liabilities

Contingent liabilities are costs that the Government will have to face if a particular event occurs. Typically, contingent liabilities consist of guarantees and indemnities, legal disputes and claims, and uncalled capital. The contingent liabilities facing the Government are a mixture of operating and balance sheet risks, and they can vary greatly in magnitude and likelihood of realisation.

In general, if a contingent liability were realised it would reduce the operating balance and increase net debt. However, in the case of contingencies for uncalled capital, the negative impact would be restricted to net debt.

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

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

Contingent liabilities have been stated as at 31 October 2009, being the latest set of contingent liabilities received.

Quantifiable Contingent Liabilities

Quantifiable Contingent Liabilities
Guarantees and indemnities Status [8] ($ million)
Air New Zealand - letters of credit and performance bonds Changed 32
Cook Islands – Asian Development Bank loans Changed 15
Indemnification of receivers and managers - Terralink Limited Unchanged 10
Ministry of Transport - funding guarantee Unchanged 10

Guarantees and indemnities of SOEs and Crown entities

Changed 21
Other guarantees and indemnities Changed 12
    100

Uncalled capital

   
Asian Development Bank Changed 1,070
Bank for International Settlements Changed 27
European Bank for Reconstruction and Development Changed 16
International Bank for Reconstruction and Development Changed 1,121
Other Changed 4
    2,238

Legal proceedings and disputes

   
Health - legal claims Unchanged 15
Kapiti West Link Road Unchanged 25
Tax in dispute Changed 1,655
Other legal claims Changed 51
    1,746

Other quantifiable contingent liabilities

   
Air New Zealand partnership Unchanged 68
Crown Health Financing Agency Unchanged 28
Inland Revenue - unclaimed monies Unchanged 46
International finance organisations Changed 1,561
Kyoto Protocol Units Changed 1,871
New Zealand Export Credit Office - export guarantees Changed 175
Reserve Bank - demonetised currency Unchanged 23
Other quantifiable contingent liabilities of SOEs and Crown entities Changed 80
Other quantifiable contingent liabilities Changed 24
    3,876
Total quantifiable contingent liabilities   7,960

Notes

  • [8]Relative to reporting in the 30 June 2009 Financial Statements of the Government of New Zealand.

Unquantifiable Contingent Liabilities

Unquantifiable Contingent Liabilities
Guarantees and indemnities Status
Airways New Zealand Unchanged
Asure Quality New Zealand Limited Unchanged
At Work Insurance Limited Unchanged
Bona Vacantia property Unchanged
Building Industry Authority Unchanged
Contact Energy Limited Unchanged
Earthquake Commission (EQC) Unchanged
Electricity Corporation of New Zealand Limited (ECNZ) Unchanged
Ministry of Fisheries - indemnity provided for delivery of registry services Changed
Genesis Power Ltd (Genesis Energy) Unchanged
Genesis Power Ltd - financial guarantees Unchanged
Genesis Power Ltd - Letters of credit and performance bonds Unchanged
Geothermal carbon tax indemnity Unchanged
Housing New Zealand Corporation (HNZC) Unchanged
Indemnities against acts of war and terrorism Unchanged
Justices of the Peace, Community Magistrates and
Disputes Tribunal Referees
Unchanged
Landcorp Farming Limited Unchanged
Maui Partners Unchanged
National Provident Fund Unchanged
New Zealand Railways Corporation Unchanged
Persons exercising investigating powers Unchanged
Public Trust Unchanged
Reserve Bank of New Zealand Unchanged
Synfuels-Waitara Outfall Indemnity Unchanged
Tainui Corporation Unchanged
Other unquantifiable contingent liabilities  
Abuse claims Unchanged
Accident Compensation Corporation (ACC) litigations Unchanged
Air New Zealand litigation Unchanged
Environmental liabilities Unchanged
Kordia Group Limited Unchanged
Maui Contracts Unchanged
Rugby World Cup 2011 – joint venture arrangements Unchanged
Television New Zealand Unchanged
Treaty of Waitangi claims Unchanged
Treaty of Waitangi claims - settlement relativity payments Unchanged
Westpac Banking Corporation Unchanged
Other contingencies  
Foreshore and seabed Unchanged

Contingent Liabilities: The following unquantified contingent liabilities have been removed from the above list:

  • Crown Retail Deposit guarantee scheme
  • Indemnification of touring exhibitions
  • State Insurance and Rural Bank - Tax liabilities

Statement of Contingent Liabilities

Quantifiable Contingent Liabilities

Guarantees and Indemnities

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

Air New Zealand - Letters of credit and performance bonds

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

$32 million at 31 October 2009 ($37 million at 30 June 2009)

Cook Islands - Asian Development Bank (ADB) loans 

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

$15 million at 31 October 2009 ($16 million at 30 June 2009)

Indemnification of receivers and managers - Terralink Limited

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

$10 million at 31 October 2009 ($10 million at 30 June 2009)

Ministry of Transport - funding guarantee 

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

$10 million at 31 October 2009 ($10 million at 30 June 2009)

Legal proceedings and disputes

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

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

Tax in dispute 

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

The Crown is currently in dispute with a number of financial institutions regarding the tax treatment of certain structured finance transactions. Due to a High Court ruling for one structured finance case, all structured finance assessments have been recognised as revenue in the 2009 financial year ($1,423 million). However, as legal proceedings are still ongoing, the assessed tax has been recognised as a contingent liability.

A contingent asset has also been disclosed in relation to these transactions (refer page 88).

$1,655 million at 31 October 2009 ($1,661 million at 30 June 2009)

Kapiti West Link Road

Court action has been filed against New Zealand Transport Agency to have the land held for the Kapiti West Link Road released for sale. The maximum liability is $25 million.

$25 million at 31 October 2009 ($25 million at 30 June 2009)

Health - legal claims

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

$15 million at 31 October 2009 ($15 million at 30 June 2009)

Other Quantifiable Contingent Liabilities

Kyoto protocol

During the first commitment period the Ministry of Agriculture and Fisheries estimate that 92.3 million tonnes of carbon credits will be generated by carbon removals via forests. To the extent that these forests are harvested in subsequent commitments periods there will be an associated liability generated that will need to be repaid.

$1,871 million at 31 October 2009 ($1,995 million at 30 June 2009)

International finance organisations 

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

$1,561 million at 31 October 2009 ($1,995 million at 30 June 2009)

New Zealand Export Credit Office - export guarantees

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

$175 million at 31 October 2009 ($155 million at 30 June 2009)

Air New Zealand Limited

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

$68 million at 31 October 2009 ($68 million at 30 June 2009)

Inland Revenue - Unclaimed monies

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

$46 million at 31 October 2009 ($46 million at 30 June 2009)

Crown Health Financing Agency

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

$28 million at 31 October 2009 ($28 million at 30 June 2009)

Reserve Bank - demonetised currency

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

$23 million at 31 October 2009 ($23 million at 30 June 2009)

Unquantifiable Contingent Liabilities

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

Guarantees and Indemnities

Airways New Zealand

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

AsureQuality Limited

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

At Work Insurance Limited

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

Bona Vacantia property

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

Building Industry Authority

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

Contact Energy Limited

The Crown and Contact Energy signed a number of documents to settle in full Contact'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 the EQC's assets in meeting the Commission's financial liabilities (section 16 of the Earthquake Commission Act 1993). In the event of a major natural disaster the Crown may be called upon to meet any financial shortfall incurred by the Commission.

Electricity Corporation of New Zealand Limited (ECNZ) 

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

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

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

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

  • existing debt and swap obligations
  • hedge contracts and obligations
  • any liabilities that arise out of the split itself.
Ministry of Fisheries - indemnity provided for delivery of registry services

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

Genesis Power Ltd (Genesis Energy)

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

Genesis Power Ltd (Genesis Energy) - Financial guarantees

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

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

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

Genesis Power Ltd (Genesis Energy) - Letters of credit and performance bonds

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

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

Geothermal carbon tax indemnity 

As part of the sale and purchase agreement between the Crown and Mighty River Power (MRP), the Crown has agreed to provide an indemnity for the payment of carbon taxes, should legislation be passed that does not allow for an automatic pass-through of the charges to end-users. The indemnity is time bound and contractually limited in the amount that can be claimed. The indemnity is not limited to MRP and will be available to any subsequent owner of the Crown's Kawerau geothermal assets.

Housing New Zealand Corporation (HNZC) 

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

The Crown has provided a warranty in respect of title to the assets transferred to Housing New Zealand Limited (HNZL) (HNZL was incorporated into the HNZC group as a subsidiary in 2001 as part of a legislated consolidation of government housing functions) and has indemnified HNZL against any breach of this warranty. In addition, the Crown has indemnified HNZL against any third-party claims that are a result of acts or omissions prior to 1 November 1992. It has also indemnified the directors and officers of HNZL against any liability consequent upon the assets not complying with statutory requirements, provided it is taking steps to rectify any non-compliance.

Indemnities against acts of war and terrorism

The Crown has indemnified Air New Zealand against claims arising from acts of war and terrorism that cannot be met from insurance, up to a limit of US$1 billion in respect of any one claim.

Justices of the Peace, Community Magistrates and Disputes Tribunal Referees

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

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

Landcorp Farming Ltd 

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

Maui Partners 

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

National Provident Fund

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

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

A provision has been made in these financial statements in respect of the actuarially assessed deficit in the DBP Annuitants' Scheme (refer page 109).

New Zealand Railways Corporation 

The Crown has indemnified the directors of NZ Railways Corporation against any liability arising from the surrender of the licence and lease of the Auckland rail corridor. The liability expires in 2009.

The Crown has further indemnified the directors of NZ Railways Corporation against all liabilities in connection with the Corporation taking ownership and/or responsibility for the national rail network and any associated assets and liabilities on 1 September 2004. Section 10 of the Finance Act 1990 guarantees all loan and swap obligations of the New Zealand Railways Corporation.

Persons exercising investigating powers 

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

Public Trust

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

Reserve Bank of New Zealand

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

Synfuels-Waitara Outfall Indemnity

As part of the 1990 sale of the Synfuels plant and operations to New Zealand Liquid Fuels Investment Limited (NZLFI), the Crown transferred to NZLFI the benefit and obligation of a Deed of Indemnity between the Crown and Borthwick-CWS Limited (and subsequent owners) in respect of the Waitara effluent transfer line which was laid across the Waitara meat processing plant site.

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

Tainui Corporation

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

Other Unquantifiable Contingent Liabilities

Abuse Claims

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

Accident Compensation Corporation (ACC) litigations

There are several legal actions against ACC in existence, arising in the main from challenges to operational decisions made by ACC. ACC will be vigorously defending these claims.

Air New Zealand litigation

Air New Zealand has been named in four class actions. One class action (in Australia) claims travel agents' commissions on fuel surcharges. Two class actions (one in Australia and the other in the United States) make allegations against more than 30 airlines, of anti competitive conduct in relation to pricing in the air cargo business. The allegations made in relation to the air cargo business are also the subject of investigations by regulators in a number of jurisdictions including the United States and the European Union. A formal Statement of Objections has been issued by the European Commission to 25 airlines including Air New Zealand and has been responded to. In the event that a court determined, or it was agreed with a regulator, that Air New Zealand had breached relevant laws, the Company would have potential liability for pecuniary penalties and to third party damages under the laws of the relevant jurisdictions. The fourth class action alleges (in the United States) that Air New Zealand together with 11 other airlines conspired in respect of fares and surcharges on trans-Pacific routes. All class actions are being defended.

Environmental liabilities

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

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

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

Kordia Group Limited

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

The Company makes advances to its subsidiary companies. The Company's loan facility comprises a syndicated revolving cash advance facility between three banks, committed to a maximum amount of $136 million (2008: $150 million). The facility is supported by a negative pledge by the Company and its guaranteeing subsidiaries over their assets and undertakings. Under the negative pledge, each guaranteeing subsidiary may be liable for indebtedness incurred by the Company and other guaranteeing subsidiaries. The Company considers the negative pledge to be an insurance contract. Such contracts and cross guarantees are treated as a contingent liability and only recognised as a liability if a payment is probable.

Maui Contracts

Contracts in respect of which the Crown purchases gas from Maui Mining companies and sells gas downstream to Contract Energy Limited, Vector Gas Limited and Methanex Waitara Valley Limited provide for invoices to be re-opened in certain circumstances within two years of their issue date as a result of revisions to indices. These revisions may result in the Crown refunding monies or receiving monies from those parties.

Rugby World Cup 2011

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

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

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

Television New Zealand

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

Treaty of Waitangi claims

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

Treaty of Waitangi claims - settlement relativity payments

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

Westpac Banking Corporation

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

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

Other contingencies

Foreshore and seabed

The Foreshore and Seabed Act 2004 (FSA):

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

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

The FSA codifies the nature of the Crown's ownership interest in the public foreshore and seabed on behalf of the public of New Zealand. Although full legal and beneficial ownership of the public foreshore and seabed has been vested in the Crown, there are significant limitations to the Crown's rights under the FSA. As well as recognising and protecting customary rights, the FSA significantly restricts the Crown's ability to alienate or dispose of any part of the public foreshore and seabed and significantly restricts the Crown's ability to exclude others from entering or engaging in recreational activities or navigating in, on or within the public foreshore and seabed. Because of the complex nature of the Crown's ownership interest in the public foreshore and seabed and because we are unable to obtain a reliable valuation of the Crown's interest, the public foreshore and seabed has not been recognised as an asset in these financial statements.

Contingent Assets

Contingent assets are potential assets dependent on a particular event occurring. As at 31 October 2009, the Crown held quantifiable contingent assets totalling $1,563 million ($1,582 million at 30 June 2009).

The major components being:

Inland Revenue - legal proceedings and disputes

Legal proceedings and disputes are contingent assets in relation to Inland Revenue pending assessments. Contingent assets arise where Inland Revenue has advised a taxpayer of a proposed adjustment to their tax assessment. There has been no amended assessment issued at this point or revenue recognised so these are recorded on page 79 as legal proceedings and disputes - non-assessed. The taxpayer has the right to dispute this adjustment and a disputes resolution process is entered into. Inland Revenue quantifies a contingent asset based on the likely outcome of the disputes process based on experience and similar prior cases.

A contingent asset of $1,171 million at 31 October 2009 ($1,191 million at 30 June 2009) has been disclosed in relation to use of money interest on the structured finance transactions discussed on page 79. The interest has been calculated based on the maximum amount which the taxpayers are due to pay to the department at that date. However some of these taxpayers may have money in the tax pooling account which they could transfer at an earlier date, thereby reducing the actual interest received.

Shortfall penalties that Inland Revenue may impose have not been quantified as they are too uncertain at this stage. These penalties would not meet the asset definition or recognition criteria due to the fundamental uncertainty as to what penalty would be applied and the value of the penalty that Inland Revenue would impose. Penalties would be recognised following a final court decision once all appeals are exhausted.

$1,488 million at 31 October 2009 ($1,502 million at 30 June 2009)

Ministry of Education - suspensory loans

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

$69 million at 31 October ($74 million at 30 June 2009)

3 - Forecast Financial Statements

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

They are based on the accounting policies and assumptions that follow. As with all such assumptions, there is a degree of uncertainty surrounding them. This uncertainty increases as the forecast horizon extends.

The forecasts have been prepared in accordance with the Statement of Responsibility and reflect the judgements and information known at the time they were prepared. They reflect all Government decisions and circumstances communicated to 25 November 2009.

The finalisation dates and key assumptions that underpin the preparation of the Forecast Financial Statements are outlined on pages 93 to 117.

Statement of Accounting Policies and Forecast Assumptions

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 New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), as appropriate for public benefit entities.

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).

Changes in Accounting Policies

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

Forecast Policies

These Forecast Financial Statements have been prepared on the basis of Treasury's best professional judgment. Key assumptions used are set out on pages 44 to 49.

For the purposes of the Forecast Financial Statements, no revaluations of property, plant and equipment are projected beyond the current year.

Detailed Accounting Policies and Forecast Assumptions

The specific accounting and forecasting policies are reproduced in full on Treasury's website at http://www.treasury.govt.nz/publications/guidance/instructions/2009.

Government Reporting Entity as at 25 November 2009

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

Departments

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

State-owned enterprises

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

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

(* KiwiRail Holdings was acquired on 1 July 2008 and in turn was transferred to New Zealand Railways Corporation on 1 October 2008 as its operating unit)

Others

New Zealand Superannuation Fund
Reserve Bank of New Zealand

Offices of Parliament

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

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

Agriculture and Marketing Research and Development Trust
Asia New Zealand Foundation
Auckland Transition Agency
Fish and game councils (12)
Leadership Development Centre Trust
National Pacific Radio Trust
New Zealand Fish and Game Council
New Zealand Game Bird Habitat Trust Board
New Zealand Government Property Corporation
New Zealand Lottery Grants Board
Ngāi Tahu Ancillary Claims Trust
Pacific Co-operation Foundation
Pacific Island Business Development Trust
Research and Education Advanced Network New Zealand Limited
Reserves boards (24)
Road Safety Trust
Sentencing Council
The Māori Trustee

Crown entities

Accident Compensation Corporation
Accounting Standards Review Board
Alcohol Advisory Council of New Zealand
Arts Council of New Zealand Toi Aotearoa
Broadcasting Commission
Broadcasting Standards Authority
Career Services
Charities Commission
Children's Commissioner
Civil Aviation Authority of New Zealand
Commerce Commission
Crown Health Financing Agency
Crown research institutes (8)
District health boards (21)
Drug Free Sport New Zealand
Earthquake Commission
Electoral Commission
Electricity Commission
Energy Efficiency and Conservation Authority
Environmental Risk Management Authority
Families Commission
Foundation for Research, Science and Technology
Government Superannuation Fund Authority
Guardians of New Zealand Superannuation
Health and Disability Commissioner
Health Research Council of New Zealand
Health Sponsorship Council
Housing New Zealand Corporation
Human Rights Commission
Independent Police Conduct Authority
Law Commission
Legal Services Agency
Maritime New Zealand
Mental Health Commission
Museum of New Zealand Te Papa Tongarewa Board
New Zealand Antarctic Institute
New Zealand Artificial Limb Board
New Zealand Blood Service
New Zealand Film Commission
New Zealand Fire Service Commission
New Zealand Historic Places Trust (Pouhere Taonga)
New Zealand Lotteries Commission
New Zealand Qualifications Authority
New Zealand Symphony Orchestra
New Zealand Teachers Council
New Zealand Tourism Board
New Zealand Trade and Enterprise
New Zealand Transport Agency
New Zealand Venture Investment Fund Limited
New Zealand Walking Access Commission
Office of Film and Literature Classification
Pharmaceutical Management Agency
Privacy Commissioner
Public Trust
Radio New Zealand Limited
Real Estate Agents Authority
Retirement Commissioner
School boards of trustees (2,454)
Securities Commission
Social Workers Registration Board
Sport and Recreation New Zealand
Standards Council
Takeovers Panel
Te Reo Whakapuaki Irirangi (Te Māngai Pāho)
Te Taura Whiri i te Reo Māori (Māori Language Commission)
Television New Zealand Limited
Tertiary Education Commission
Tertiary education institutions (31)
Testing Laboratory Registration Council
Transport Accident Investigation Commission

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

Forecast Statement of Financial Performance for the years ending 30 June

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

Revenue

               
Taxation revenue 1 54,145 51,052 50,843 53,897 56,653 59,822 63,111
Other sovereign revenue 1 4,118 4,860 4,634 5,847 6,047 6,422 6,804
Total revenue levied through the Crown's sovereign power   58,263 55,912 55,477 59,744 62,700 66,244 69,915
Sales of goods and services   15,356 16,049 14,005 15,135 16,122 16,861 17,309
Interest revenue and dividends 2 3,419 3,159 3,659 4,039 4,377 4,603 4,617
Other revenue   2,890 2,814 2,831 2,801 2,873 2,937 3,044
Total revenue earned through the Crown's operations   21,665 22,022 20,495 21,975 23,372 24,401 24,970
Total Revenue (excluding gains)   79,928 77,934 75,972 81,719 86,072 90,645 94,885

Expenses

               
Transfer payments and subsidies 3 19,962 21,175 21,533 22,456 23,230 24,061 24,773
Personnel expenses 4 18,064 18,324 18,201 18,545 18,925 19,070 19,162
Depreciation and amortisation 5 4,305 4,126 4,201 4,508 4,681 4,761 4,839
Other operating expenses 5 34,116 34,855 33,487 33,957 33,478 34,384 34,935
Interest expenses 6 3,492 3,349 3,906 4,626 5,366 6,011 6,344
Insurance expenses 7 3,882 3,890 3,246 3,483 4,265 4,898 5,358
Forecast new operating spending 8 254 13 1,028 2,177 3,285 4,391
Top-down expense adjustment 8 (300) (1,150) (200) (50) (50) (50)
Total Expenses (excluding losses)   83,821 85,673 83,437 88,403 92,072 96,420 99,752
Operating Balance before gains/(losses)   (3,893) (7,739) (7,465) (6,684) (6,000) (5,775) (4,867)
Net gains/(losses) on financial instruments 9 (2,634) 1,416 2,685 1,157 1,436 1,637 1,782
Net gains/(losses) on non-financial instruments 10 (4,167) 205 (112) 226 235 238 240
Total gains/(losses)   (6,801) 1,621 2,573 1,383 1,671 1,875 2,022
Net surplus from associates and joint ventures   212 390 99 174 177 173 173
Operating Balance from continuing activities   (10,482) (5,728) (4,793) (5,127) (4,152) (3,727) (2,672)
Gain/(loss) from discontinued operations   2 (1) (1) (1) (1) (1) (1)
Operating Balance (including minority interest)   (10,480) (5,729) (4,794) (5,128) (4,153) (3,728) (2,673)
Attributable to minority interest   (25)
Operating balance 11 (10,505) (5,729) (4,794) (5,128) (4,153) (3,728) (2,673)

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

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

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

Total Crown Expenses

             

By functional classification

             
Social security and welfare 23,273 25,073 24,268 25,699 27,374 28,825 29,937
GSF pension expenses 655 370 368 408 537 599 588
Health 12,042 12,815 12,889 12,859 12,795 12,769 12,811
Education 12,465 12,147 12,358 12,471 12,596 12,622 12,685
Core government services 5,137 3,582 3,957 3,982 3,800 3,831 3,830
Law and order 3,250 3,515 3,473 3,526 3,527 3,548 3,557
Defence 1,712 1,761 1,796 1,807 1,769 1,768 1,767
Transport and communications 9,023 8,868 8,421 8,237 8,314 8,541 9,000
Economic and industrial services 7,695 8,246 7,690 7,777 8,184 8,300 8,451
Primary services 1,487 1,510 1,628 1,541 1,555 1,565 1,548
Heritage, culture and recreation 2,397 2,806 2,358 2,804 2,761 3,405 3,188
Housing and community development 1,075 1,115 1,031 1,098 1,171 1,155 1,133
Other 118 562 431 740 196 246 572
Finance costs 3,492 3,349 3,906 4,626 5,366 6,011 6,344
Forecast for future new spending 254 13 1,028 2,177 3,285 4,391
Top-down expense adjustment (300) (1,150) (200) (50) (50) (50)
Total Crown Expenses excluding losses 83,821 85,673 83,437 88,403 92,072 96,420 99,752

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

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

Core Crown Expenses

             

By functional classification

             
Social security and welfare 19,382 21,139 21,155 22,243 23,055 23,876 24,591
GSF pension expenses 655 370 357 396 525 587 575
Health 12,368 13,397 13,434 13,452 13,415 13,387 13,407
Education 11,455 11,284 11,649 11,766 11,812 11,813 11,858
Core government services 5,293 3,620 4,071 4,034 3,856 3,891 3,888
Law and order 3,089 3,267 3,269 3,314 3,300 3,315 3,315
Defence 1,757 1,810 1,844 1,856 1,819 1,819 1,819
Transport and communications 2,663 2,253 2,807 2,217 2,051 2,042 2,051
Economic and industrial services 2,960 2,673 3,167 2,672 2,634 2,615 2,631
Primary services 534 611 589 524 532 539 519
Heritage, culture and recreation 1,002 1,507 1,142 1,470 1,355 1,962 1,708
Housing and community development 297 365 338 354 358 344 336
Other 118 562 431 740 196 246 572
Finance costs 2,429 2,470 2,404 3,080 3,686 4,303 4,617
Forecast for future new spending 254 13 1,028 2,177 3,285 4,391
Top-down expense adjustment (300) (1,150) (200) (50) (50) (50)
Total Core Crown Expenses excluding losses 64,002 65,282 65,520 68,946 70,721 73,974 76,228

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

Forecast Statement of Cash Flows for the years ending 30 June

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

Cash Flows From Operations

             

Cash was provided from

             
Taxation receipts 51,119 50,268 50,967 53,274 55,882 59,051 62,331
Other sovereign receipts 3,716 4,290 4,379 5,159 5,232 5,437 5,298
Sales of goods and services 16,592 16,472 14,704 15,410 16,516 17,173 17,765
Interest and dividend receipts 2,792 2,697 2,642 3,167 3,487 3,686 3,679
Other operating receipts 2,204 2,734 2,288 2,436 2,507 2,578 2,854
Total cash provided from operations 76,423 76,461 74,980 79,446 83,624 87,925 91,927

Cash was disbursed to

             
Transfer payments and subsidies 19,673 21,159 21,462 22,552 23,357 24,200 24,936
Personnel and operating payments 50,391 54,128 52,791 53,486 53,629 53,817 54,696
Interest payments 2,880 3,042 2,986 4,075 4,994 5,729 6,025
Forecast for future new spending 254 13 1,028 2,177 3,285 4,391
Top-down expense adjustment (300) (1,150) (200) (50) (50) (50)
Total cash disbursed to operations 72,944 78,283 76,102 80,941 84,107 86,981 89,998
Net cash flows from operations 3,479 (1,822) (1,122) (1,495) (483) 944 1,929

Cash Flows From Investing Activities

             

Cash was provided from/(disbursed to)

             
Net purchase of physical assets (5,437) (7,679) (7,357) (6,901) (6,223) (5,157) (4,545)
Net purchase of shares and other securities (2,338) 3,887 761 (2,003) 3,130 1,279 (1,956)
Net purchase of intangible assets (433) (350) (381) (330) (266) (233) (218)
Net repayment/(issues) of advances (1,129) (651) (801) (314) (916) (829) (968)
Net acquisition of investments in associates (399) (46) (127) (43) 29 (5) 190
Forecast for new capital spending (72) (38) (675) (1,120) (1,277) (1,377)
Top-down capital adjustment 100 550
Net cash flows from investing activities (9,736) (4,811) (7,393) (10,266) (5,366) (6,222) (8,874)
Net cash flows from operating and investing activities (6,257) (6,633) (8,515) (11,761) (5,849) (5,278) (6,945)

Cash Flows From Financing Activities

             

Cash was provided from/(disbursed to)

             
Issues of circulating currency 475 181 16 101 103 106 108
Net issue/(repayment) of Government stock1 2,344 3,870 6,721 10,867 4,772 4,642 7,112
Net issue/(repayment) of foreign-currency borrowing (1,836) (3,708) (5,098) (1,464) (899) (503) (287)
Net issue/(repayment) of other New Zealand dollar borrowing 7,752 5,968 8,885 2,397 1,944 1,304 271
Net cash flows from financing activities 8,735 6,311 10,524 11,901 5,920 5,549 7,204
Net movement in cash 2,478 (322) 2,009 140 71 271 259
Opening cash balance 3,804 5,353 6,268 7,997 8,023 7,980 8,137
Foreign-exchange gains/(losses) on opening cash (14) 11 (280) (114) (114) (114) (114)
Closing cash balance 6,268 5,042 7,997 8,023 7,980 8,137 8,282

1 Net issues of Government stock include movements in the government stock holdings of entities such as NZS Fund, ACC and EQC. Further information on the proceeds and repayments of Government stock ("domestic bonds") is available in note 22.

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

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

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

             
Net Cash Flows from Operations 3,479 (1,822) (1,122) (1,495) (483) 944 1,929
Items included in the operating balance but not in net cash flows from operations              

Gains/(losses)

             
Gains/(losses) on other financial instruments (2,634) 1,416 2,685 1,157 1,436 1,637 1,782
Gains/(losses) on other non-financial instruments (4,167) 205 (112) 226 235 238 240
Total Gains/(losses) (6,801) 1,621 2,573 1,383 1,671 1,875 2,022

Other Non-cash Items in Operating Balance

             
Depreciation and amortisation (4,305) (4,126) (4,201) (4,508) (4,681) (4,761) (4,839)
Write-down on initial recognition of financial assets (630) (578) (847) (901) (918) (926) (935)
Impairment on financial assets (excl receivables) (851) 3 4
Decrease/(increase) in defined benefit retirement plan liabilities (41) 274 279 286 169 113 126
Decrease/(increase) in insurance liabilities (1,592) (1,209) (509) (811) (1,488) (2,029) (1,737)
Other 212 390 99 176 176 174 169
Total other non-cash Items (7,207) (5,246) (5,175) (5,758) (6,742) (7,429) (7,216)

Movements in Working Capital

             
Increase/(decrease) in receivables 461 305 (1,756) 67 259 258 (312)
Increase/(decrease) in accrued interest 16 155 98 321 518 635 620
Increase/(decrease) in inventories 118 67 50 62 17 25 54
Increase/(decrease) in prepayments 31 8 (36) (17) 2 3
Decrease/(increase) in deferred revenue (134) 5 124 105 67 30 24
Decrease/(increase) in payables (468) (822) 450 204 538 (66) 203
Total movements in working capital 24 (282) (1,070) 742 1,401 882 592
Operating Balance (10,505) (5,729) (4,794) (5,128) (4,153) (3,728) (2,673)

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

Forecast Statement of Comprehensive Income for the years ending 30 June

Forecast Statement of Comprehensive Income for the years ending 30 June
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Revaluation of physical assets 4,235 (1) 232
Effective portion of changes in value of cash flow hedges 333 (18) (148) 6 5 1 1
Net change in fair value of cash flow hedges transferred to operating balance 1 1
Net change in fair value of cash flow hedges transferred to the hedged item (153) 3 (21)
Foreign currency translation differences for foreign operations 15 25 13
Valuation gain/(losses) on investments available for sale taken to reserves 55 79 (7)
Other movements (1) 7 4
Other comprehensive income for the year 4,485 62 88 24 6 1 1
Operating Balance (including minority interest) (10,480) (5,729) (4,794) (5,128) (4,153) (3,728) (2,673)
Total comprehensive income (5,995) (5,667) (4,706) (5,104) (4,147) (3,727) (2,672)

Attributable to:

             
 - minority interest 34
 - the Crown (6,029) (5,667) (4,706) (5,104) (4,147) (3,727) (2,672)
Total comprehensive income (5,995) (5,667) (4,706) (5,104) (4,147) (3,727) (2,672)

This statement reports changes in net worth due to the operating balance, items of income or expense that are recognised directly in net worth, the effect of certain accounting changes and corrections of errors.

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

Forecast Statement of Financial Position as at 30 June

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

Assets

               
Cash and cash equivalents 12 6,268 5,042 7,997 8,023 7,980 8,137 8,282
Receivables 12 14,619 14,093 12,862 12,930 13,188 13,447 13,135
Marketable securities, deposits and derivatives in gain 12 45,708 49,683 45,149 45,275 41,767 40,093 42,905
Share investments 12 11,160 11,867 13,357 14,772 16,232 18,044 19,171
Advances 12 15,604 17,268 18,132 20,225 22,504 22,804 23,068
Inventory   1,082 1,165 1,132 1,194 1,211 1,236 1,290
Other assets   1,630 1,836 1,507 1,490 1,464 1,421 1,435
Property, plant & equipment 14 110,135 110,251 114,221 117,641 120,194 121,802 122,273
Equity accounted investments1   8,777 9,197 8,960 9,133 9,144 9,025 9,033
Intangible assets and goodwill 15 2,168 2,133 2,312 2,421 2,460 2,388 2,311
Forecast for new capital spending   72 38 713 1,833 3,110 4,487
Top-down capital adjustment   (375) (550) (550) (550) (550) (550)
Total assets   217,151 222,232 225,117 233,267 237,427 240,957 246,840

Liabilities

               
Issued currency   4,005 4,220 4,021 4,122 4,225 4,331 4,439
Payables 17 9,139 10,296 10,530 10,932 10,605 10,841 11,394
Deferred revenue   1,426 1,213 1,302 1,197 1,130 1,100 1,075
Borrowings   61,953 76,423 73,389 86,176 93,445 97,976 104,190
Insurance liabilities 18 26,567 25,345 27,037 27,848 29,336 31,365 33,102
Retirement plan liabilities 19 8,993 10,307 8,921 8,635 8,466 8,352 8,226
Provisions 20 5,553 4,479 5,108 4,652 4,662 5,161 5,255
Total liabilities   117,636 132,283 130,308 143,562 151,869 159,126 167,681
Total assets less total liabilities   99,515 89,949 94,809 89,705 85,558 81,831 79,159

Net Worth

               
Taxpayer funds 21 36,382 31,803 31,702 26,578 22,426 18,698 16,025
Property, plant and equipment revaluation reserve 21 62,612 57,723 62,737 62,737 62,736 62,736 62,736
Other reserves 21 74 41 (77) (57) (51) (50) (49)
Total net worth attributable to the Crown   99,068 89,567 94,362 89,258 85,111 81,384 78,712
Net worth attributable to minority interest   447 382 447 447 447 447 447
Total net worth   99,515 89,949 94,809 89,705 85,558 81,831 79,159

1 Tertiary education institutions constitute most equity accounted investments.

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

Forecast Statement of Borrowings as at 30 June

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

Borrowings

             
Government stock 21,164 25,629 27,033 37,535 41,809 45,905 52,602
Treasury bills 7,432 9,550 9,535 9,515 9,499 9,491 9,481
Government retail stock 491 581 435 435 435 435 435
Settlement deposits with Reserve Bank 6,908 9,432 6,338 6,338 6,338 6,338 6,338
Derivatives in loss 2,158 3,237 1,259 1,217 1,173 1,109 1,060
Finance lease liabilities 1,002 1,247 1,046 1,092 1,414 1,468 1,335
Other borrowings 22,798 26,747 27,743 30,044 32,777 33,230 32,939
Total borrowings 61,953 76,423 73,389 86,176 93,445 97,976 104,190
Total sovereign-guaranteed debt 44,448 58,076 53,007 64,117 68,746 73,099 80,039
Total non sovereign-guaranteed debt 17,505 18,347 20,382 22,059 24,699 24,877 24,151
Total borrowings 61,953 76,423 73,389 86,176 93,445 97,976 104,190

Net Debt:

             
Core Crown borrowings1 50,545 64,116 59,919 70,821 75,488 79,842 86,986
Add back NZS Fund holdings of sovereign-issued debt and NZS Fund borrowings 428 (559) 166 19 23 (7) (24)
Gross sovereign-issued debt2 50,973 63,557 60,085 70,840 75,511 79,835 86,962
Less core Crown financial assets3 55,769 61,467 58,600 59,398 55,192 52,623 53,794
Net core Crown debt (incl. NZS Fund)4 (4,796) 2,090 1,485 11,442 20,319 27,212 33,168
Add back NZS Fund holdings of core Crown financial assets and NZS Fund financial assets5 11,486 13,258 14,811 15,801 16,811 18,063 19,031
Net core Crown debt (excl. NZS Fund)4 6,690 15,348 16,296 27,243 37,130 45,275 52,199
Advances 10,429 11,971 11,075 11,545 11,903 12,271 12,711
Net core Crown debt (excl. NZS Fund and advances)6 17,119 27,319 27,371 38,788 49,033 57,546 64,910

Gross Debt:

             
Gross sovereign-issued debt2 50,973 63,557 60,085 70,840 75,511 79,835 86,962
Less Reserve Bank settlement cash and bank bills (9,217) (14,184) (8,034) (8,034) (8,034) (8,034) (8,034)
Add back changes to DMO borrowing due to settlement cash7 1,600 1,600 1,600 1,600 1,600 1,600 1,600
Gross sovereign-issued debt excluding Reserve Bank settlement cash and bank bills4 43,356 50,973 53,651 64,406 69,077 73,401 80,528
Notes on Borrowings

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

1. Core Crown borrowings in this instance includes unsettled purchases of securities (classified as accounts payable in the statement of financial position).

2. Gross Sovereign-Issued Debt (GSID) represents debt issued by the sovereign (the core Crown) and includes Government stock held by the New Zealand Superannuation Fund (NZS Fund), ACC and EQC.

3. Core Crown financial assets exclude receivables.

4. Net Core Crown Debt represents GSID less financial assets. This can provide information about the sustainability of the Government's accounts, and is used by some international agencies when determining the credit-worthiness of a country.

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

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

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

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

Statement of Actual Commitments as at 31 October 2009

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

Capital Commitments

   
Specialist military equipment 699 699
Land and buildings 1,358 699
Other property, plant and equipment 4,668 4,859
Other capital commitments 609 429
Tertiary Education Institutions 245 245
Total capital commitments 7,579 6,931

Operating Commitments

   
Non-cancellable accommodation leases 2,816 2,366
Other non-cancellable leases 2,135 2,630
Non-cancellable contracts for the supply of goods and services 2,309 2,256
Other operating commitments 10,311 9,731
Tertiary Education Institutions 335 335
Total operating commitments 17,906 17,318
Total commitments 25,485 24,249

Total Commitments by Segment

   
Core Crown 16,903 20,300
Crown entities 17,489 15,972
State-owned Enterprises 5,473 5,706
Inter-segment eliminations (14,380) (17,729)
Total commitments  25,485 24,249

Statement of Actual Contingent Liabilities and Assets as at 31 October 2009

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

Quantifiable Contingent Liabilities

   
Guarantees and indemnities 100 96
Uncalled capital 2,238 2,506
Legal proceedings and disputes 1,746 1,754
Other contingent liabilities 3,876 4,133
Total quantifiable contingent liabilities 7,960 8,489

Total Quantifiable Contingent Liabilities by Segment

   
Core Crown 7,704 8,287
Crown entities 145 90
State-owned Enterprises 111 112
Inter-segment eliminations
Total quantifiable contingent liabilities 7,960 8,489

Quantifiable Contingent Assets by Segment

   
Core Crown 1,560 1,579
Crown entities 3 3
Total quantifiable contingent assets 1,563 1,582

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

More information on contingent liabilities (quantified and unquantified) is outlined on pages 74 to 88 of the Fiscal Risks chapter.

Notes to the Forecast Financial Statements

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

Taxation Revenue (accrual)

             

Individuals

             
Source deductions 22,587 21,699 22,353 22,763 23,983 25,354 27,045
Other persons 4,408 4,387 4,428 4,469 4,762 5,058 5,366
Refunds (1,636) (1,651) (1,886) (1,782) (1,857) (1,957) (2,073)
Fringe benefit tax 500 487 501 505 535 562 580
Total individuals 25,859 24,922 25,396 25,955 27,423 29,017 30,918

Corporate Tax

             
Gross companies tax 8,245 7,077 6,301 7,802 8,096 8,635 9,027
Refunds (430) (345) (360) (345) (344) (371) (378)
Non-resident withholding tax 1,451 1,107 1,060 1,086 1,154 1,201 1,250
Foreign-source dividend w/holding payments 10 13 3 13 13 13 13
Total corporate tax 9,276 7,852 7,004 8,556 8,919 9,478 9,912

Other Direct Income Tax

             
Resident w/holding tax on interest income 2,571 2,049 1,872 1,681 1,810 2,161 2,452
Resident w/holding tax on dividend income 65 211 146 293 304 312 320
Estate and gift duties 1 2 1 1 1 1 1
Total other direct income tax 2,637 2,262 2,019 1,975 2,115 2,474 2,773
Total direct income tax 37,772 35,036 34,419 36,486 38,457 40,969 43,603

Goods and Services Tax

             
Gross goods and services tax 20,551 21,121 18,835 20,397 22,369 24,057 25,428
Refunds (9,000) (9,960) (7,428) (8,156) (9,495) (10,653) (11,511)
Total goods and services tax 11,551 11,161 11,407 12,241 12,874 13,404 13,917

Other Indirect Taxation

             
Road user charges 868 885 900 916 959 1,010 1,059
Petroleum fuels excise - domestic production 781 802 856 929 984 1,017 1,053
Alcohol excise - domestic production 616 657 640 663 684 706 730
Tobacco excise - domestic production 172 172 185 186 188 190 193
Petroleum fuels excise - imports1 514 547 594 629 651 674
Alcohol excise - imports1 213 219 227 234 242 250
Tobacco excise - imports1 891 904 910 919 930 941
Other customs duty 262 1,818 235 211 191 170 154
Gaming duties 215 224 239 241 243 247 252
Motor vehicle fees 171 167 166 167 165 163 162
Energy resources levies 39 38 38 38 38 36 36
Approved issuer levy and cheque duty 80 92 88 88 88 87 87
Total other indirect taxation 4,822 4,855 5,017 5,170 5,322 5,449 5,591
Total indirect taxation 16,373 16,016 16,424 17,411 18,196 18,853 19,508
Total taxation revenue 54,145 51,052 50,843 53,897 56,653 59,822 63,111

Other Sovereign Revenue (accrual)

             
ACC levies 2,880 3,226 3,248 4,050 4,214 4,362 4,515
Fire Service levies 299 307 302 309 322 333 345
EQC levies 86 88 88 89 90 91 91
Other miscellaneous items 853 1,239 996 1,399 1,421 1,636 1,853
Total other sovereign revenue 4,118 4,860 4,634 5,847 6,047 6,422 6,804
Total sovereign revenue 58,263 55,912 55,477 59,744 62,700 66,244 69,915

1. Customs excise-equivalent duty.

Note 1 (continued): Receipts Collected Through the Crown's Sovereign Power
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Income Tax Receipts (cash)

             

Individuals

             
Source deductions 22,567 21,630 22,305 22,723 23,942 25,311 27,004
Other persons 4,988 4,983 4,939 4,888 5,153 5,437 5,703
Refunds (2,488) (2,393) (2,537) (2,435) (2,492) (2,580) (2,638)
Fringe benefit tax 506 487 491 494 529 555 575
Total individuals 25,573 24,707 25,198 25,670 27,132 28,723 30,644

Corporate Tax

             
Gross companies tax 7,742 7,801 8,111 8,665 8,891 9,484 9,885
Refunds (2,013) (1,379) (1,501) (1,221) (1,290) (1,368) (1,410)
Non-resident withholding tax 1,437 1,106 1,059 1,085 1,153 1,200 1,249
Foreign-source dividend w/holding payments (2) 13 13 13 13 13 13
Total corporate tax 7,164 7,541 7,682 8,542 8,767 9,329 9,737

Other Direct Income Tax

             
Resident w/holding tax on interest income 2,593 2,051 1,838 1,679 1,808 2,159 2,450
Resident w/holding tax on dividend income 97 210 146 293 304 312 320
Estate and gift duties 2 2 2 1 1 1 1
Total other direct income tax 2,692 2,263 1,986 1,973 2,113 2,472 2,771
Total direct income tax 35,429 34,511 34,866 36,185 38,012 40,524 43,152

Goods and Services Tax

             
Gross goods and services tax 19,715 20,252 18,525 20,095 22,063 23,751 25,119
Refunds (8,894) (9,360) (7,428) (8,156) (9,495) (10,653) (11,511)
Total goods and services tax 10,821 10,892 11,097 11,939 12,568 13,098 13,608

Other Indirect Taxation

             
Petroleum fuels excise 786 802 836 909 964 997 1,033
Tobacco excise 170 172 185 186 188 190 193
Customs duty 1,957 1,818 1,905 1,942 1,973 1,993 2,019
Road user charges 864 885 900 916 959 1,010 1,059
Alcohol excise 587 657 640 663 684 706 730
Gaming duties 227 224 240 241 243 247 252
Motor vehicle fees 165 167 166 167 165 163 162
Energy resources levies 36 38 44 38 38 36 36
Approved issuer levy and cheque duty 77 102 88 88 88 87 87
Total other indirect taxation 4,869 4,865 5,004 5,150 5,302 5,429 5,571
Total indirect taxation 15,690 15,757 16,101 17,089 17,870 18,527 19,179
Total tax receipts collected 51,119 50,268 50,967 53,274 55,882 59,051 62,331

Other Sovereign Receipts (cash)

             
ACC levies 2,792 3,170 3,362 4,130 4,218 4,368 4,216
Fire Service levies 300 308 302 309 322 333 345
EQC levies 87 88 88 89 90 91 91
Other miscellaneous items 537 724 627 631 602 645 646
Total other sovereign receipts 3,716 4,290 4,379 5,159 5,232 5,437 5,298
Total sovereign receipts 54,835 54,558 55,346 58,433 61,114 64,488 67,629
NOTE 2:  Interest Revenue and Dividends
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

By type

             
Interest revenue 3,000 2,765 3,228 3,535 3,821 3,999 3,984
Dividends 419 394 431 504 556 604 633
Total interest revenue and dividends 3,419 3,159 3,659 4,039 4,377 4,603 4,617

By source

             
Core Crown 1,872 2,076 2,312 2,240 2,492 2,715 2,671
Crown entities 1,248 832 881 1,026 1,131 1,240 1,342
State-owned enterprises 1,193 927 1,530 1,600 1,727 1,732 1,747
Inter-segment eliminations (894) (676) (1,064) (827) (973) (1,084) (1,143)
Total interest revenue and dividends 3,419 3,159 3,659 4,039 4,377 4,603 4,617
NOTE 3:  Transfer Payments and Subsidies
New Zealand superannuation 7,744 8,246 8,296 8,770 9,314 9,901 10,503
Domestic purposes benefit 1,530 1,647 1,696 1,784 1,843 1,887 1,933
Unemployment benefit 586 1,078 974 1,092 1,060 977 904
Invalids benefit 1,260 1,297 1,309 1,363 1,411 1,449 1,491
Family tax credit 2,062 2,158 2,186 2,204 2,217 2,313 2,281
Accommodation supplement 989 1,166 1,170 1,261 1,290 1,292 1,299
Sickness benefit 613 692 723 794 805 810 815
Student allowances 444 462 534 546 549 546 535
Disability allowances 390 417 416 438 461 481 502
Other social assistance benefits 2,605 2,632 2,617 2,708 2,773 2,837 2,925
Total social assistance grants 18,223 19,795 19,921 20,960 21,723 22,493 23,188

Subsidies

             
KiwiSaver subsidies 1,281 919 1,138 1,010 997 1,009 1,026

Other transfer payments

             
Official development assistance 458 461 474 486 510 559 559
Total transfer payments and subsidies 19,962 21,175 21,533 22,456 23,230 24,061 24,773
NOTE 4:  Personnel Expenses
Crown entities 9,592 9,902 9,884 10,091 10,275 10,290 10,316
State-owned enterprises 2,447 2,501 2,425 2,473 2,552 2,600 2,673
Inter-segment eliminations (12) (3) (7) (7) (8) (8) (8)
Total personnel expenses 18,064 18,324 18,201 18,545 18,925 19,070 19,162
NOTE 5:  Depreciation and Amortisation and Other Operating Expenses
Core Crown 35,293 35,487 36,549 36,335 35,321 35,938 36,069
Crown entities 17,332 17,172 18,146 17,721 17,688 17,895 18,112
State-owned enterprises 10,172 11,506 9,493 10,181 10,908 11,190 11,680
Inter-segment eliminations (24,376) (25,184) (26,500) (25,772) (25,758) (25,878) (26,087)
Total depreciation and amortisation and other operating expenses 38,421 38,981 37,688 38,465 38,159 39,145 39,774
NOTE 6:  Interest Expenses
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

By type

             
Interest on financial liabilities 3,404 3,233 3,830 4,539 5,243 5,853 6,153
Interest unwind on provisions 88 116 76 87 123 158 191
Total interest expenses 3,492 3,349 3,906 4,626 5,366 6,011 6,344

By source

             
Core Crown 2,429 2,470 2,404 3,080 3,686 4,303 4,617
Crown entities 185 140 136 164 179 178 182
State-owned Enterprises 1,392 1,198 1,741 1,831 2,002 2,080 2,119
Inter-segment eliminations (514) (459) (375) (449) (501) (550) (574)
Total interest expenses 3,492 3,349 3,906 4,626 5,366 6,011 6,344
NOTE 7:  Insurance Expenses

By entity

             
ACC 3,762 3,834 3,190 3,426 4,208 4,841 5,300
Earthquake Commission 88 39 39 39 39 39 39
Other 32 17 17 18 18 18 19
Total insurance expenses 3,882 3,890 3,246 3,483 4,265 4,898 5,358
NOTE 8:  Forecast New Operating Spending
Forecast new spending up to Budget 10 249 13 13 13 13 13
Forecast for future new spending 5 1,015 2,164 3,272 4,378
Total Forecast new operating spending 254 13 1,028 2,177 3,285 4,391
Top-down expense adjustment (300) (1,150) (200) (50) (50) (50)

Forecast new spending up to Budget 10 represents the unallocated allowance from Budget 2009.

Forecast for future new spending indicates expected spending increases that will be introduced in future budgets.

NOTE 9:  Gains and Losses on Financial Instruments
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

By source

             
Core Crown (1,616) 1,256 2,117 1,064 1,059 1,084 1,116
Crown entities (669) 117 682 278 576 761 875
State-owned enterprises (138) 140 7 (46) (50) (51) (49)
Inter-segment eliminations (211) (97) (121) (139) (149) (157) (160)
Net gains/(losses) on financial instruments (2,634) 1,416 2,685 1,157 1,436 1,637 1,782
NOTE 10:  Gains and Losses on Non-Financial Instruments

By type

             
Actuarial gains/(losses) on GSF liability (695) (12) (206)
Actuarial gains/(losses) on ACC liability (4,491) 39
Other 1,019 217 55 226 235 238 240
Net gains/(losses) on non-financial instruments (4,167) 205 (112) 226 235 238 240

By source

             
Core Crown 125 39 (287) 49 46 42 39
Crown entities (4,475) (12) 17
State-owned enterprises 200 178 158 177 189 195 201
Inter-segment eliminations (17) 1
Net Gains/(Losses) on Non-Financial Instruments (4,167) 205 (112) 226 235 238 240
NOTE 11: Source of Operating Balance
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Core Crown (5,862) (7,119) (6,914) (7,699) (6,384) (5,861) (4,693)
Crown entities (4,727) 328 1,966 2,165 1,877 1,674 1,573
State-owned enterprises 911 1,351 987 858 913 1,062 1,081
Inter-segment eliminations (827) (289) (833) (452) (559) (603) (634)
Total operating balance (10,505) (5,729) (4,794) (5,128) (4,153) (3,728) (2,673)
NOTE 12:  Financial Assets
Cash and cash equivalents 6,268 5,042 7,997 8,023 7,980 8,137 8,282
Tax receivables 7,649 7,378 6,245 5,723 5,576 5,444 5,324
Trade and other receivables 6,970 6,715 6,617 7,207 7,612 8,003 7,811
Student loans (refer note 13) 6,553 7,658 6,937 7,312 7,659 7,962 8,211
Kiwibank mortgages 8,492 8,843 10,632 12,411 14,411 14,411 14,411
Long-term deposits 3,136 2,635 2,480 2,311 2,397 2,611 2,999
Reserve position at the IMF 454 901 2,261 2,261 2,262 2,262 2,262
Other advances 559 767 563 502 434 431 446
Share investments 11,160 11,867 13,357 14,772 16,232 18,044 19,171
Derivatives in gain 3,745 1,176 2,575 2,061 1,851 1,531 1,224
Other marketable securities 38,373 44,971 37,833 38,642 35,257 33,689 36,420
Total financial assets 93,359 97,953 97,497 101,225 101,671 102,525 106,561

Financial assets by entity

             
NZDMO 22,831 15,593 22,956 22,132 15,571 10,896 10,524
Reserve Bank of New Zealand 22,372 28,661 19,862 20,117 19,836 19,513 19,425
NZ Superannuation Fund 12,877 13,340 14,836 15,704 16,716 17,973 18,927
Other core Crown 17,399 17,470 17,503 16,937 16,968 17,062 17,135
Intra-segment eliminations (9,866) (4,722) (8,598) (7,589) (5,914) (4,842) (4,449)
Total core Crown segment 65,613 70,342 66,559 67,301 63,177 60,602 61,562
ACC portfolio 14,281 14,543 16,069 18,456 21,340 24,511 27,246
EQC portfolio 5,639 6,148 5,968 6,384 6,834 7,314 7,832
Other Crown entities 6,929 6,288 6,489 6,207 6,239 6,308 6,373
Intra-segment eliminations (1,521) (1,425) (1,513) (1,510) (1,517) (1,524) (1,529)
Total Crown entities segment 25,328 25,554 27,013 29,537 32,896 36,609 39,922
Total State-owned enterprises segment 14,702 14,451 16,755 17,738 19,547 19,863 20,347
Inter-segment eliminations (12,284) (12,394) (12,830) (13,351) (13,949) (14,549) (15,270)
Total financial assets 93,359 97,953 97,497 101,225 101,671 102,525 106,561
NOTE 13:  Student Loans
Nominal value (including accrued interest) 10,259 11,110 11,107 11,958 12,776 13,540 14,242
Opening book value 6,741 7,131 6,553 6,937 7,312 7,659 7,962
Amount borrowed during the year 1,350 1,478 1,549 1,631 1,667 1,684 1,703
Initial fair value write down on new borrowings (532) (573) (739) (778) (795) (803) (812)
Repayments made during the year (710) (794) (801) (887) (963) (1,042) (1,128)
Interest unwind 465 516 475 508 537 563 586
Impairment (779) (110) (110) (110) (110) (110) (110)
Other movements 18 10 10 11 11 11 10
Closing book value 6,553 7,658 6,937 7,312 7,659 7,962 8,211
NOTE 14:  Property, Plant and Equipment
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

By Class of asset

             

Net Carrying Value

             
Land (valuation) 16,289 17,348 16,618 16,701 16,771 16,912 16,996
Buildings (valuation) 23,719 23,179 24,490 25,188 25,420 25,306 25,138
Electricity distribution network (cost) 2,046 2,572 2,297 2,896 3,366 3,648 3,812
Electricity generation assets (valuation) 11,664 12,221 12,103 12,503 12,919 13,188 13,169
Aircraft (excluding military) (valuation) 1,952 2,344 2,171 2,542 3,071 3,420 3,412
State highways (valuation) 24,067 22,628 24,830 25,489 26,246 26,999 27,798
Rail network (valuation) 12,506 12,720 12,882 13,288 13,509 13,652 13,573
Specialist military equipment (valuation) 3,927 3,464 4,087 3,983 3,791 3,571 3,306
Specified cultural and heritage assets (valuation) 8,582 7,990 8,614 8,633 8,652 8,668 8,688
Other plant and equipment (cost) 5,383 5,785 6,129 6,418 6,449 6,438 6,381
Total property, plant and equipment 110,135 110,251 114,221 117,641 120,194 121,802 122,273

By source

             
Core Crown 30,487 29,740 31,401 31,655 31,469 31,181 30,763
Crown entities 46,553 45,757 48,212 49,479 50,519 51,356 52,206
State-owned enterprises 33,095 34,755 34,607 36,505 38,205 39,265 39,303
Inter-segment eliminations    -  (1) 1 2 1    -  1
Total property, plant and equipment 110,135 110,251 114,221 117,641 120,194 121,802 122,273
NOTE 15:  Intangible Assets and Goodwill

By type

             
Net Kyoto position1 207 231 184 184 184 184 184
Goodwill 461 183 456 456 456 456 456
Other intangible assets 1,500 1,719 1,672 1,781 1,820 1,748 1,671
Total intangible assets and goodwill 2,168 2,133 2,312 2,421 2,460 2,388 2,311

By source

             
Core Crown 1,135 1,036 1,198 1,225 1,205 1,169 1,129
Crown entities 425 404 440 444 441 415 394
State-owned enterprises 607 693 674 752 813 805 787
Inter-segment eliminations 1    -     -     -  1 (1) 1
Total intangible assets and goodwill 2,168 2,133 2,312 2,421 2,460 2,388 2,311

Analysis of Provision for Kyoto

1. A full copy of the Net Position Report 2009 can be found on the Ministry for the Environment's website: www.mfe.govt.nz

NOTE 16:  NZ Superannuation Fund
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Revenue 383 397 355 385 405 430 456
Less current tax expense 4 117 274 289 299 316
Less other expenses (323) 461 481 129 130 138 144
Add gains/(losses) (3,495) 1,129 1,880 877 924 967 1,020
Operating balance (2,793) 1,065 1,637 859 910 960 1,016
Opening net worth 14,212 13,275 13,688 15,573 16,431 17,342 18,301
Gross contribution from the Crown 2,242 250 250
Operating balance (2,793) 1,065 1,637 859 910 960 1,016
Other movements in reserves 27 (2) (1) 1 (1) -  
Closing net worth 13,688 14,590 15,573 16,431 17,342 18,301 19,317

comprising:

             
Financial assets 12,877 13,340 14,836 15,704 16,716 17,973 18,927
Net other assets 811 1,250 737 727 626 328 390
Closing net worth 13,688 14,590 15,573 16,431 17,342 18,301 19,317
NOTE 17:  Payables
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

By type

             
Accounts payable 5,380 5,845 6,771 7,173 6,846 7,082 7,635
Taxes repayable 3,759 4,451 3,759 3,759 3,759 3,759 3,759
Total payables 9,139 10,296 10,530 10,932 10,605 10,841 11,394

By source

             
Core Crown 6,885 7,373 7,707 7,967 7,426 7,541 7,934
Crown entities 3,968 3,457 3,667 3,597 3,604 3,662 3,752
State-owned enterprises 4,324 4,715 4,782 4,990 5,209 5,328 5,467
Inter-segment eliminations (6,038) (5,249) (5,626) (5,622) (5,634) (5,690) (5,759)
Total payables 9,139 10,296 10,530 10,932 10,605 10,841 11,394
NOTE 18:  Insurance Liabilities

By entity

             
ACC liability 26,446 25,171 26,919 27,728 29,215 31,272 33,010
EQC property damage claims 87 91 86 86 86 86 86
Other insurance liabilities 34 83 32 34 35 7 6
Total insurance liabilities 26,567 25,345 27,037 27,848 29,336 31,365 33,102

ACC liability

Calculation information

PricewaterhouseCoopers Actuarial Pty Ltd have prepared an independent actuarial estimate of the ACC outstanding claims liability as at 30 June 2009. This estimate includes the expected future payments relating to accidents that occurred prior to balance date (whether or not the associated claims have been reported to, or accepted by, ACC) and also the expected future administrative expenses of managing these claims. The estimate has been updated as at 30 September 2009 to reflect material changes to those expected future payments identified since 30 June 2009.

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 of 5.79% (5.86% at 30 June 2009). Other key variables in each valuation are the forecast increases in claim costs over and above the economic variables above, and the assumed rate at which long-term claimants will leave the scheme over the period. This assessment is largely based on scheme history.

Presentation approach

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

The fiscal forecasts include indicative amounts for the likely impact of increases in ACC levy rates now before parliament.

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

Gross ACC liability

             
Opening gross liability 20,374 23,958 26,446 26,919 27,728 29,215 31,272
Net change 6,072 1,213 473 809 1,487 2,057 1,738
Closing gross liability 26,446 25,171 26,919 27,728 29,215 31,272 33,010

Less net assets available to ACC

             
Opening net asset value 12,397 13,135 13,695 15,736 18,234 21,114 24,277
Net change 1,298 1,253 2,041 2,498 2,880 3,163 2,725
Closing net asset value 13,695 14,388 15,736 18,234 21,114 24,277 27,002

Net ACC reserves (net liability)

             
Opening reserves position (7,977) (10,823) (12,751) (11,183) (9,494) (8,101) (6,995)
Net change (4,774) 40 1,568 1,689 1,393 1,106 987
Closing reserves position (net liability) (12,751) (10,783) (11,183) (9,494) (8,101) (6,995) (6,008)
Note 19:  Retirement Plan Liabilities
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Government Superannuation Fund 8,988 10,307 8,916 8,633 8,464 8,350 8,224
Other funds 5 5 2 2 2 2
Total retirement plan liabilities 8,993 10,307 8,921 8,635 8,466 8,352 8,226

The net liability of the Government Superannuation Fund (the Fund) liabilities have been calculated by the Government Actuary as at 31 October 2009. These liabilities arise from closed schemes for past and present public sector employees as set out in the Government Superannuation Fund Act 1956. A Projected Unit Credit method is used to calculate the liabilities as at 31 October 2009, based on membership data as at that date. The funding method requires the benefits payable from the Fund in respect of past service to be calculated and then discounted back to the valuation date.

The Fund liabilities at this valuation were calculated using discount rates derived from the market yield curve as at the balance date and then blended to the long-term pre-tax discount rate of 6.00% (unchanged from 30 June 2009). Other principal long-term financial assumptions were an inflation rate, as measured by the increase in the Consumer Price Index, of 2.25% reducing to 2% over the five years to 2025 (unchanged from 30 June 2009) and an annual salary growth rate, before any promotional effects, of 3.0% (unchanged from 30 June 2009).

The 2009/10 projected movement in the net liability is $72 million, reflecting an increase in the GSF liability of $110 million and an increase in the GSF assets of $182 million.

The unfunded liability increased in the four months to 31 October 2009 by $101 million. This was principally due to the change in the financial assumptions (a loss of $236 million) offset by investment performance ($161 million).

The changes in the projected GSF net liability from 2010/11 onwards reflect the net of the expected current service cost, interest cost, investment returns and contributions.

GSF net defined benefit retirement liability

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

GSF liability

             
Opening GSF liability 11,831 13,115 11,792 11,902 11,628 11,458 11,337
Net projected change (39) (282) 110 (274) (170) (121) (138)
Closing GSF liability 11,792 12,833 11,902 11,628 11,458 11,337 11,199

Less net assets available to GSF

             
Opening net asset value 3,574 2,559 2,804 2,986 2,995 2,994 2,987
Investment valuation changes (583) 121 168 140 140 139 139
Contribution and other income less membership payments (187) (153) 14 (131) (141) (146) (151)
Closing net asset value 2,804 2,527 2,986 2,995 2,994 2,987 2,975

Net GSF liability

             
Opening unfunded liability 8,257 10,556 8,988 8,916 8,633 8,464 8,350
Net projected change 731 (250) (72) (283) (169) (114) (126)
Closing unfunded liability 8,988 10,307 8,916 8,633 8,464 8,350 8,224
Note 20:  Provisions
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Provision for ETS credits 173 7 109 105 523 523
Provision for future retail deposit guarantee scheme payments 831 470
Provision for National Provident Fund guarantee 954 919 922 883 843 802 761
Provision for employee entitlements 2,580 2,369 2,496 2,539 2,558 2,564 2,577
Other provisions 1,188 1,018 1,213 1,121 1,156 1,272 1,394
Total provisions 5,553 4,479 5,108 4,652 4,662 5,161 5,255

By source

             
Core Crown 3,081 2,231 2,612 2,226 2,218 2,607 2,578
Crown entities 1,598 1,496 1,623 1,581 1,609 1,617 1,636
State-owned enterprises 919 798 925 904 920 1,035 1,139
Inter-segment eliminations (45) (46) (52) (59) (85) (98) (98)
Total provisions 5,553 4,479 5,108 4,652 4,662 5,161 5,255

Provision for ETS credits

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

The ETS impact on the fiscal forecast is as follows:

  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Revenue 321 31 408 408 598 790
Expenses 471 38 510 404 1,016 790
OBEGAL (150) (7) (102) 4 (418)
Provision for ETS credits 173 7 109 105 523 523
Note 21: Net Worth attributable to the Crown
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m
Taxpayers funds 36,382 31,803 31,702 26,578 22,426 18,698 16,025
Property, plant and equipment revaluation reserve 62,612 57,723 62,737 62,737 62,736 62,736 62,736
Investment revaluation reserve 56 80 49 49 49 49 49
Cash flow hedge reserve 18 (98) (151) (144) (138) (137) (136)
Foreign currency translation reserve 59 25 38 38 38 38
Total net worth attributable to the Crown 99,068 89,567 94,362 89,258 85,111 81,384 78,712

Taxpayers Funds

             
Opening taxpayers funds 46,700 37,534 36,382 31,702 26,578 22,426 18,698
Operating balance excluding minority interest (10,505) (5,729) (4,794) (5,128) (4,153) (3,728) (2,673)
Transfers from/(to) other reserves 187 (2) 114 4 1
Closing taxpayers funds 36,382 31,803 31,702 26,578 22,426 18,698 16,025

Property, Plant and Equipment Revaluation Reserve

             
Opening revaluation reserve 58,566 57,723 62,612 62,737 62,737 62,736 62,736
Net revaluations 4,235 (1) 232
Transfers from/(to) other reserves (189) 1 (107) (1)
Closing property, plant and equipment revaluation reserve 62,612 57,723 62,737 62,737 62,736 62,736 62,736

Investment Revaluation Reserve

             
Opening investment revaluation reserve 1 1 56 49 49 49 49
Valuation gain/(losses) on investments available for sale taken to reserves 55 79 (7)
Closing investment revaluation reserve 56 80 49 49 49 49 49

Cash Flow Hedge Reserve

             
Opening cash flow hedge reserve (151) (83) 18 (151) (144) (138) (137)
Transfer into reserve 322 (18) (148) 6 5 1 1
Transfer to the statement of financial performance 1 1
Transfer to initial carrying value of hedged item (153) 3 (21)
Closing cash flow hedge reserve 18 (98) (151) (144) (138) (137) (136)

Foreign Currency Translation Reserve

             
Opening foreign currency translation reserve (17) 59 25 38 38 38
Movement arising from translation of foreign operations 17 25 13
Closing foreign currency translation reserve 59 25 38 38 38 38
Note 22:  Reconciliation of core Crown operating cash flows to residual core Crown cash
  2009
Actual
$m
2010
Previous
Budget
$m
2010
Forecast
$m
2011
Forecast
$m
2012
Forecast
$m
2013
Forecast
$m
2014
Forecast
$m

Core Crown Cash Flows from Operations

             
Total tax receipts 51,362 50,742 51,503 53,946 56,613 59,897 63,260
Total other sovereign receipts 489 678 577 578 549 591 593
Interest, profits and dividends 1,441 1,338 1,637 1,489 1,711 1,884 1,788
Sale of goods & services and other receipts 2,288 1,943 2,308 1,964 2,009 2,118 2,229
Transfer payments and subsidies (19,953) (21,536) (21,733) (22,810) (23,607) (24,447) (25,182)
Personnel and operating costs (35,394) (37,724) (38,857) (38,541) (37,862) (37,191) (37,248)
Finance costs (2,200) (2,159) (2,032) (2,776) (3,546) (4,258) (4,517)
Forecast for future new operating spending (254) (13) (1,028) (2,177) (3,285) (4,391)
Top-down expense adjustment 300 1,150 200 50 50 50
Net cash flows from core Crown operations (1,967) (6,672) (5,460) (6,978) (6,260) (4,641) (3,418)
Net purchase of physical assets (1,625) (2,375) (2,370) (1,835) (1,358) (1,223) (1,082)
Net increase in advances (860) (953) (1,244) (804) (700) (692) (739)
Net purchase of investments (1,944) (1,643) (1,279) (1,057) (915) (848) (827)
Contribution to NZ Superannuation Fund (2,243) (250) (250)
Forecast for future new capital spending (72) (38) (675) (1,120) (1,277) (1,377)
Top-down capital adjustment 100 550
Residual Cash (8,639) (11,865) (10,091) (11,349) (10,353) (8,681) (7,443)

Financed by:

             
Other net sale/(purchase) of marketable securities and deposits (512) 4,579 871 322 5,713 4,068 181
Total operating and investing activities (9,151) (7,286) (9,220) (11,027) (4,640) (4,613) (7,262)

Used in:

             
Net (repayment)/issue of other New Zealand-dollar borrowing 9,359 6,056 8,151 1,636 717 435 346
Net (repayment)/issue of foreign currency borrowing (1,973) (3,783) (5,137) (1,464) (899) (503) (287)
Issues of circulating currency 475 181 16 101 103 106 108
Decrease/(increase) in cash (1,761) (116) (578) (218) (142) (137) (114)
  6,100 2,338 2,452 55 (221) (99) 53
Net cash inflow/(outflow) to be offset by domestic bonds (3,051) (4,948) (6,768) (10,972) (4,861) (4,712) (7,209)

Gross Cash Proceeds from Domestic Bonds

             
Domestic bonds (market) 5,775 8,919 10,818 10,756 12,614 12,504 6,962
Domestic bonds (non-market) 541 948 803 216 1,091 1,313 247
Total gross cash proceeds from domestic bonds 6,316 9,867 11,621 10,972 13,705 13,817 7,209
Repayment of domestic bonds (market) (2,750) (4,247) (4,197) (7,967) (8,000)
Repayment of domestic bonds (non-market) (515) (672) (656) (877) (1,105)
Net cash proceeds from domestic bonds 3,051 4,948 6,768 10,972 4,861 4,712 7,209

Forecast Statement of Segments

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

Revenue

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

Expenses

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

Expenses by functional classification

         
Social security and welfare 11,455 4,727 (15,527) 655
Health 3,089 10,839 (1,463) 12,465
Education 1,757 8,757 22 (5,399) 5,137
Transport and communications 1,002 2,032 6,767 (2,106) 7,695
Other 44,270 4,421 5,859 (173) 54,377
Finance costs 2,429 185 1,392 (514) 3,492
Forecast for future new spending and top down adjustment
Total Crown Expenses excluding losses 64,002 30,961 14,040 (25,182) 83,821
Statement of Financial Position as at 30 June 2009
  Core Crown
2009
Actual
$m
Crown Entities
2009
Actual
$m
State-owned
Enterprises
2009
Actual
$m
Inter-segment
eliminations
2009
Actual
$m
Total Crown
2009
Actual
$m

Assets

         
Cash and cash equivalents 3,375 2,526 583 (216) 6,268
Receivables 10,243 4,725 1,846 (2,195) 14,619
Other financial assets 51,995 18,072 12,273 (9,868) 72,472
Property, plant & equipment 30,487 46,553 33,095 110,135
Equity accounted investments 27,536 7,468 257 (26,484) 8,777
Intangible assets and goodwill 1,449 425 607 (313) 2,168
Other assets 1,116 306 1,000 290 2,712
Forecast for new capital spending and top down adjustment
Total Assets 126,201 80,075 49,661 (38,786) 217,151

Liabilities

         
Borrowings 49,889 4,939 16,963 (9,838) 61,953
Other liabilities 23,242 32,358 6,239 (6,156) 55,683
Total Liabilities 73,131 37,297 23,202 (15,994) 117,636
Total Assets less Total Liabilities 53,070 42,778 26,459 (22,792) 99,515

Net Worth

         
Taxpayer funds 36,766 16,460 8,898 (25,742) 36,382
Reserves 16,304 26,318 17,008 3,056 62,686
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 53,070 42,778 26,459 (22,792) 99,515
Statement of Financial Performance for the year ended 30 June 2010
  Core Crown
2010
Forecast
$m
Crown Entities
2010
Forecast
$m
State-owned
Enterprises
2010
Forecast
$m
Inter-segment
eliminations
2010
Forecast
$m
Total Crown
2010
Forecast
$m

Revenue

         
Taxation revenue 51,248 (405) 50,843
Other sovereign revenue 951 4,980 (1,297) 4,634
Sales of goods and services 1,386 14,205 11,592 (13,178) 14,005
Interest revenue and dividends 2,312 881 1,530 (1,064) 3,659
Other revenue 854 12,543 1,352 (11,918) 2,831
Total Revenue (excluding gains) 56,751 32,609 14,474 (27,862) 75,972

Expenses

         
Social assistance and official development assistance 21,802 (269) 21,533
Personnel expenses 5,899 9,884 2,425 (7) 18,201
Other operating expenses 36,552 21,375 9,509 (26,502) 40,934
Interest expenses 2,404 136 1,741 (375) 3,906
Forecast for future new spending and top down adjustment (1,137) (1,137)
Total Expenses (excluding losses) 65,520 31,395 13,675 (27,153) 83,437
Operating Balance before gains/(losses) (8,769) 1,214 799 (709) (7,465)
Total Gains/(losses) 1,830 699 165 (121) 2,573
Net surplus/(deficit) from associates and joint ventures 25 51 25 (3) 99
Gain/(loss) from discontinued operations (1) (1)
Attributable to minority interest in Air NZ
Operating Balance (6,914) 1,964 988 (833) (4,794)

Expenses by functional classification

         
Social security and welfare 21,155 4,147 (1,034) 24,268
Health 13,434 11,019 (11,564) 12,889
Education 11,649 9,055 23 (8,369) 12,358
Transport and communications 2,807 2,222 6,048 (2,656) 8,421
Other 15,208 4,816 5,863 (3,155) 22,732
Finance costs 2,404 136 1,741 (375) 3,906
Forecast for future new spending and top down adjustment (1,137) (1,137)
Total Crown Expenses excluding losses 65,520 31,395 13,675 (27,153) 83,437
Statement of Financial Position as at 30 June 2010
  Core Crown
2010
Forecast
$m
Crown Entities
2010
Forecast
$m
State-owned
Enterprises
2010
Forecast
$m
Inter-segment
eliminations
2010
Forecast
$m
Total Crown
2010
Forecast
$m

Assets

         
Cash and cash equivalents 5,269 2,413 525 (210) 7,997
Receivables 7,962 4,707 2,073 (1,880) 12,862
Other financial assets 53,329 19,893 14,157 (10,741) 76,638
Property, plant & equipment 31,401 48,212 34,607 1 114,221
Equity accounted investments 28,810 7,530 354 (27,734) 8,960
Intangible assets and goodwill 1,199 440 674 (1) 2,312
Other assets 1,415 306 947 (29) 2,639
Forecast for new capital spending and top down adjustment (512) (512)
Total Assets 128,873 83,501 53,337 (40,594) 225,117

Liabilities

         
Borrowings 59,031 4,919 20,232 (10,793) 73,389
Other liabilities 23,590 32,526 6,535 (5,732) 56,919
Total Liabilities 82,621 37,445 26,767 (16,525) 130,308
Total Assets less Total Liabilities 46,252 46,056 26,570 (24,069) 94,809

Net Worth

         
Taxpayer funds 29,960 19,663 9,139 (27,060) 31,702
Reserves 16,292 26,393 16,878 3,097 62,660
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 46,252 46,056 26,570 (24,069) 94,809
Statement of Financial Performance for the year ended 30 June 2011
  Core Crown
2011
Forecast
$m
Crown Entities
2011
Forecast
$m
State-owned
Enterprises
2011
Forecast
$m
Inter-segment
eliminations
2011
Forecast
$m
Total Crown
2011
Forecast
$m

Revenue

         
Taxation revenue 54,330 (433) 53,897
Other sovereign revenue 1,350 5,783 (1,286) 5,847
Sales of goods and services 1,381 14,184 12,680 (13,110) 15,135
Interest revenue and dividends 2,240 1,026 1,600 (827) 4,039
Other revenue 744 12,283 914 (11,140) 2,801
Total Revenue (excluding gains) 60,045 33,276 15,194 (26,796) 81,719

Expenses

         
Social assistance and official development assistance 22,712 (256) 22,456
Personnel expenses 5,988 10,091 2,473 (7) 18,545
Other operating expenses 36,338 21,186 10,197 (25,773) 41,948
Interest expenses 3,080 164 1,831 (449) 4,626
Forecast for future new spending and top down adjustment 828 828
Total Expenses (excluding losses) 68,946 31,441 14,501 (26,485) 88,403
Operating Balance before gains/(losses) (8,901) 1,835 693 (311) (6,684)
Total Gains/(losses) 1,113 278 131 (139) 1,383
Net surplus/(deficit) from associates and joint ventures 87 51 36 174
Gain/(loss) from discontinued operations (1) (1)
Attributable to minority interest in Air NZ
Operating Balance (7,701) 2,164 860 (451) (5,128)

Expenses by functional classification

         
Social security and welfare 22,243 4,411 (955) 25,699
Health 13,452 11,002 (11,595) 12,859
Education 11,766 9,066 23 (8,384) 12,471
Transport and communications 2,217 2,090 6,142 (2,212) 8,237
Other 15,360 4,708 6,505 (2,890) 23,683
Finance costs 3,080 164 1,831 (449) 4,626
Forecast for future new spending and top down adjustment 828 828
Total Crown Expenses excluding losses 68,946 31,441 14,501 (26,485) 88,403
Statement of Financial Position as at 30 June 2011
  Core Crown
2011
Forecast
$m
Crown Entities
2011
Forecast
$m
State-owned
Enterprises
2011
Forecast
$m
Inter-segment
eliminations
2011
Forecast
$m
Total Crown
2011
Forecast
$m

Assets

         
Cash and cash equivalents 5,260 2,402 570 (209) 8,023
Receivables 7,902 4,764 2,116 (1,852) 12,930
Other financial assets 54,140 22,371 15,053 (11,292) 80,272
Property, plant & equipment 31,655 49,479 36,505 2 117,641
Equity accounted investments 29,873 7,583 473 (28,796) 9,133
Intangible assets and goodwill 1,225 444 752 2,421
Other assets 1,434 299 979 (28) 2,684
Forecast for new capital spending and top down adjustment 163 163
Total Assets 131,652 87,342 56,448 (42,175) 233,267

Liabilities

         
Borrowings 69,930 4,857 22,703 (11,314) 86,176
Other liabilities 23,170 33,221 6,726 (5,731) 57,386
Total Liabilities 93,100 38,078 29,429 (17,045) 143,562
Total Assets less Total Liabilities 38,552 49,264 27,019 (25,130) 89,705

Net Worth

         
Taxpayer funds 22,260 22,865 9,574 (28,121) 26,578
Reserves 16,292 26,399 16,892 3,097 62,680
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 38,552 49,264 27,019 (25,130) 89,705
Statement of Financial Performance for the year ended 30 June 2012
  Core Crown
2012
Forecast
$m
Crown Entities
2012
Forecast
$m
State-owned
Enterprises
2012
Forecast
$m
Inter-segment
eliminations
2012
Forecast
$m
Total Crown
2012
Forecast
$m

Revenue

         
Taxation revenue 57,149 (496) 56,653
Other sovereign revenue 1,372 5,983 (1,308) 6,047
Sales of goods and services 1,397 14,256 13,573 (13,104) 16,122
Interest revenue and dividends 2,492 1,131 1,727 (973) 4,377
Other revenue 737 12,269 911 (11,044) 2,873
Total Revenue (excluding gains) 63,147 33,639 16,211 (26,925) 86,072

Expenses

         
Social assistance and official development assistance 23,480 (250) 23,230
Personnel expenses 6,106 10,275 2,552 (8) 18,925
Other operating expenses 35,322 21,935 10,925 (25,758) 42,424
Interest expenses 3,686 179 2,002 (501) 5,366
Forecast for future new spending and top down adjustment 2,127 2,127
Total Expenses (excluding losses) 70,721 32,389 15,479 (26,517) 92,072
Operating Balance before gains/(losses) (7,574) 1,250 732 (408) (6,000)
Total Gains/(losses) 1,106 576 139 (150) 1,671
Net surplus/(deficit) from associates and joint ventures 81 51 46 (1) 177
Gain/(loss) from discontinued operations (1) (1)
Attributable to minority interest in Air NZ
Operating Balance (6,387) 1,877 916 (559) (4,153)

Expenses by functional classification

         
Social security and welfare 23,055 5,247 (928) 27,374
Health 13,415 11,006 (11,626) 12,795
Education 11,812 9,087 23 (8,326) 12,596
Transport and communications 2,051 2,074 6,406 (2,217) 8,314
Other 14,575 4,796 7,048 (2,919) 23,500
Finance costs 3,686 179 2,002 (501) 5,366
Forecast for future new spending and top down adjustment 2,127 2,127
Total Crown Expenses excluding losses 70,721 32,389 15,479 (26,517) 92,072
Statement of Financial Position as at 30 June 2012
  Core Crown
2012
Forecast
$m
Crown Entities
2012
Forecast
$m
State-owned
Enterprises
2012
Forecast
$m
Inter-segment
eliminations
2012
Forecast
$m
Total Crown
2012
Forecast
$m

Assets

         
Cash and cash equivalents 5,313 2,461 414 (208) 7,980
Receivables 7,984 4,908 2,219 (1,923) 13,188
Other financial assets 49,881 25,527 16,913 (11,818) 80,503
Property, plant & equipment 31,469 50,519 38,205 1 120,194
Equity accounted investments 30,698 7,633 509 (29,696) 9,144
Intangible assets and goodwill 1,205 441 813 1 2,460
Other assets 1,419 301 984 (29) 2,675
Forecast for new capital spending and top down adjustment 1,283 -   1,283
Total Assets 129,252 91,790 60,057 (43,672) 237,427

Liabilities

         
Borrowings 74,600 5,009 25,691 (11,855) 93,445
Other liabilities 22,484 34,743 6,964 (5,767) 58,424
Total Liabilities 97,084 39,752 32,655 (17,622) 151,869
Total Assets less Total Liabilities 32,168 52,038 27,402 (26,050) 85,558

Net Worth

         
Taxpayer funds 15,876 25,636 9,956 (29,042) 22,426
Reserves 16,292 26,402 16,893 3,098 62,685
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 32,168 52,038 27,402 (26,050) 85,558
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 60,390 (568) 59,822
Other sovereign revenue 1,587 6,171 (1,336) 6,422
Sales of goods and services 1,482 14,290 14,202 (13,113) 16,861
Interest revenue and dividends 2,715 1,240 1,732 (1,084) 4,603
Other revenue 737 12,404 820 (11,024) 2,937
Total Revenue (excluding gains) 66,911 34,105 16,754 (27,125) 90,645

Expenses

         
Social assistance and official development assistance 24,305 (244) 24,061
Personnel expenses 6,188 10,290 2,600 (8) 19,070
Other operating expenses 35,943 22,774 11,208 (25,882) 44,043
Interest expenses 4,303 178 2,080 (550) 6,011
Forecast for future new spending and top down adjustment 3,235 3,235
Total Expenses (excluding losses) 73,974 33,242 15,888 (26,684) 96,420
Operating Balance before gains/(losses) (7,063) 863 866 (441) (5,775)
Total Gains/(losses) 1,126 761 145 (157) 1,875
Net surplus/(deficit) from associates and joint ventures 73 50 50 173
Gain/(loss) from discontinued operations (1) (1)
Attributable to minority interest in Air NZ
Operating Balance (5,864) 1,674 1,060 (598) (3,728)

Expenses by functional classification

         
Social security and welfare 23,876 5,933 (984) 28,825
Health 13,387 10,991 (11,609) 12,769
Education 11,813 9,123 23 (8,337) 12,622
Transport and communications 2,042 2,185 6,572 (2,258) 8,541
Other 15,318 4,832 7,213 (2,946) 24,417
Finance costs 4,303 178 2,080 (550) 6,011
Forecast for future new spending and top down adjustment 3,235 3,235
Total Crown Expenses excluding losses 73,974 33,242 15,888 (26,684) 96,420
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 5,364 2,505 475 (207) 8,137
Receivables 7,979 5,064 2,362 (1,958) 13,447
Other financial assets 47,261 29,040 17,026 (12,386) 80,941
Property, plant & equipment 31,181 51,356 39,265 121,802
Equity accounted investments 31,316 7,683 555 (30,529) 9,025
Intangible assets and goodwill 1,169 415 805 (1) 2,388
Other assets 1,379 301 1,006 (29) 2,657
Forecast for new capital spending and top down adjustment 2,560 2,560
Total Assets 128,209 96,364 61,494 (45,110) 240,957

Liabilities

         
Borrowings 78,954 5,001 26,435 (12,414) 97,976
Other liabilities 22,948 36,837 7,201 (5,836) 61,150
Total Liabilities 101,902 41,838 33,636 (18,250) 159,126
Total Assets less Total Liabilities 26,307 54,526 27,858 (26,860) 81,831

Net Worth

         
Taxpayer funds 10,015 28,124 10,412 (29,853) 18,698
Reserves 16,292 26,402 16,893 3,099 62,686
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 26,307 54,526 27,858 (26,860) 81,831
Statement of Financial Performance for the year ended 30 June 2014
  Core Crown
2014
Forecast
$m
Crown Entities
2014
Forecast
$m
State-owned
Enterprises
2014
Forecast
$m
Inter-segment
eliminations
2014
Forecast
$m
Total Crown
2014
Forecast
$m

Revenue

         
Taxation revenue 63,767 (656) 63,111
Other sovereign revenue 1,804 6,380 (1,380) 6,804
Sales of goods and services 1,333 14,353 14,767 (13,144) 17,309
Interest revenue and dividends 2,671 1,342 1,747 (1,143) 4,617
Other revenue 737 12,521 852 (11,066) 3,044
Total Revenue (excluding gains) 70,312 34,596 17,366 (27,389) 94,885

Expenses

         
Social assistance and official development assistance 25,019 (246) 24,773
Personnel expenses 6,181 10,316 2,673 (8) 19,162
Other operating expenses 36,070 23,451 11,698 (26,087) 45,132
Interest expenses 4,617 182 2,119 (574) 6,344
Forecast for future new spending and top down adjustment 4,341 4,341
Total Expenses (excluding losses) 76,228 33,949 16,490 (26,915) 99,752
Operating Balance before gains/(losses) (5,916) 647 876 (474) (4,867)
Total Gains/(losses) 1,155 875 152 (160) 2,022
Net surplus/(deficit) from associates and joint ventures 70 50 55 (2) 173
Gain/(loss) from discontinued operations (1) (1)
Attributable to minority interest in Air NZ
Operating Balance (4,691) 1,572 1,082 (636) (2,673)

Expenses by functional classification

         
Social security and welfare 24,591 6,444 (1,098) 29,937
Health 13,407 11,006 (11,602) 12,811
Education 11,858 9,195 23 (8,391) 12,685
Transport and communications 2,051 2,245 6,948 (2,244) 9,000
Other 15,363 4,877 7,400 (3,006) 24,634
Finance costs 4,617 182 2,119 (574) 6,344
Forecast for future new spending and top down adjustment 4,341 4,341
Total Crown Expenses excluding losses 76,228 33,949 16,490 (26,915) 99,752
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 5,393 2,557 536 (204) 8,282
Receivables 7,768 4,897 2,476 (2,006) 13,135
Other financial assets 48,403 32,468 17,335 (13,062) 85,144
Property, plant & equipment 30,763 52,206 39,303 1 122,273
Equity accounted investments 32,191 7,733 450 (31,341) 9,033
Intangible assets and goodwill 1,129 394 787 1 2,311
Other assets 1,392 301 1,061 (29) 2,725
Forecast for new capital spending and top down adjustment 3,937 3,937
Total Assets 130,976 100,556 61,948 (46,640) 246,840

Liabilities

         
Borrowings 86,097 4,998 26,181 (13,086) 104,190
Other liabilities 23,265 38,681 7,446 (5,901) 63,491
Total Liabilities 109,362 43,679 33,627 (18,987) 167,681
Total Assets less Total Liabilities 21,614 56,877 28,321 (27,653) 79,159

Net Worth

         
Taxpayer funds 5,322 30,475 10,874 (30,646) 16,025
Reserves 16,292 26,402 16,894 3,099 62,687
Net worth attributable to minority interest in Air NZ 553 (106) 447
Total Net Worth 21,614 56,877 28,321 (27,653) 79,159

4 - Core Crown Expense Tables

[9]

($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Social security and welfare 14,682 15,598 16,768 17,877 19,382 21,155 22,243 23,055 23,876 24,591
GSF 718 761 645 690 655 357 396 525 587 575
Health 8,813 9,547 10,355 11,297 12,368 13,434 13,452 13,415 13,387 13,407
Education 7,930 9,914 9,269 9,551 11,455 11,649 11,766 11,812 11,813 11,858
Core government services 2,567 2,507 4,816 3,371 5,293 4,071 4,034 3,856 3,891 3,888
Law and order 1,977 2,235 2,699 2,894 3,089 3,269 3,314 3,300 3,315 3,315
Defence 1,275 1,383 1,517 1,562 1,757 1,844 1,856 1,819 1,819 1,819
Transport and communications 1,635 1,818 2,405 2,244 2,663 2,807 2,217 2,051 2,042 2,051
Economic and industrial services 1,444 1,592 1,595 2,889 2,960 3,167 2,672 2,634 2,615 2,631
Primary services 394 467 438 541 534 589 524 532 539 519
Heritage, culture and recreation 991 891 844 1,107 1,002 1,142 1,470 1,355 1,962 1,708
Housing and community development 163 202 255 260 297 338 354 358 344 336
Other 32 49 68 254 118 431 740 196 246 572
Finance costs 2,274 2,356 2,329 2,460 2,429 2,404 3,080 3,686 4,303 4,617
Forecast for future new spending  ..   ..   ..   ..   ..  13 1,028 2,177 3,285 4,391
Top- down expense adjustment  ..   ..   ..   ..   ..  ( 1,150) ( 200) ( 50) ( 50) ( 50)
Core Crown expenses 44,895 49,320 54,003 56,997 64,002 65,520 68,946 70,721 73,974 76,228

Source: The Treasury

Table 4.1 - Social security and welfare expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Welfare benefits 13,326 14,246 15,435 16,288 17,366 19,108 20,130 20,883 21,664 22,364
Social rehabilitation & compensation 152 145 163 199 336 329 319 315 315 314
Departmental expenses 781 858 845 850 1,092 1,146 1,126 1,105 1,104 1,104
Other non-departmental expenses 423 349 325 540 588 572 668 752 793 809
Social security and welfare expenses 14,682 15,598 16,768 17,877 19,382 21,155 22,243 23,055 23,876 24,591

Source: The Treasury

Notes

  • [9]Historical data contained in the expense tables have been restated on a NZ IFRS basis for material changes.

Table 4.2 - New Zealand superannuation and welfare benefit expenses

Table 4.2 - New Zealand superannuation and welfare benefit expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
New Zealand Superannuation 6,083 6,414 6,810 7,348 7,744 8,296 8,770 9,314 9,901 10,503
Domestic Purposes Benefit 1,547 1,493 1,468 1,478 1,530 1,696 1,784 1,843 1,887 1,933
Unemployment Benefit 831 712 613 458 586 974 1,092 1,060 977 904
Invalids Benefit 1,026 1,073 1,132 1,216 1,260 1,309 1,363 1,411 1,449 1,491
Family Tax Credit 846 1,285 1,699 1,897 2,062 2,186 2,204 2,217 2,313 2,281
Accommodation Supplement 750 843 877 891 989 1,170 1,281 1,290 1,292 1,299
Sickness Benefit 510 541 573 582 613 723 794 805 810 815
Disability Allowance 267 261 270 278 390 416 438 461 481 502
Income Related Rents 370 395 434 465 512 533 575 622 667 712
In Work Tax Credit ..  70 461 563 584 604 597 576 591 599
Child Tax Credit 141 154 44 11 6 4 3 3 2 2
Special Benefit 175 162 106 71 ..  ..  ..  ..  ..  .. 
Benefits paid in Australia 91 80 71 58 50 45 39 37 21 17
Paid Parental Leave 76 96 122 135 143 153 163 170 179 188
Childcare Assistance 79 110 139 150 159 178 195 212 224 236
War Disablement Pensions 107 113 122 134 125 144 145 145 143 140
Veteran's Pension 119 128 143 161 176 180 180 180 179 178
Other benefits 308 316 351 392 437 497 507 537 548 564
Benefit expenses 13,326 14,246 15,435 16,288 17,366 19,108 20,130 20,883 21,664 22,364

Source: The Treasury

Table 4.3 - Beneficiary numbers

Table 4.3 - Beneficiary numbers
(Thousands) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
New Zealand Superannuation 469 482 495 508 522 540 556 576 600 621
Domestic Purposes Benefit 109 106 100 97 101 110 113 113 114 114
Unemployment Benefit 78 64 52 37 48 80 88 83 76 69
Accommodation Supplement 243 249 251 245 267 315 333 335 332 330
Invalids Benefit 74 76 78 82 86 88 90 91 92 93
Sickness Benefit 45 47 48 48 50 59 63 63 62 61

Source: Ministry of Social Development

Table 4.4 - GSF pension expenses

Table 4.4 - GSF pension expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Pension expenses 718 761 645 690 655 357 396 525 587 575
Core Crown GSF 718 761 645 690 655 357 396 525 587 575

Source: The Treasury

Table 4.5 - Health expenses

Table 4.5 - Health expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Departmental outputs 157 174 180 206 206 213 213 213 213 213
Health service purchasing 8,113 8,805 9,614 10,503 11,354 12,233 12,284 12,245 12,214 12,213
Other non-departmental outputs 160 135 99 97 98 108 102 102 99 99
Health payments to ACC 356 372 425 463 667 832 804 805 810 832
Other expenses 27 61 37 28 43 48 49 50 51 50
Health expenses 8,813 9,547 10,355 11,297 12,368 13,434 13,452 13,415 13,387 13,407

Source: The Treasury

Table 4.6 - Health service purchasing

Table 4.6 - Health service purchasing
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Payments to District Health Boards 7,262 7,814 8,547 9,312 10,038 10,760 10,850 10,852 10,846 10,861
National Disability Support Services 620 699 755 834 889 934 937 937 937 937
Public Health Service Purchasing 231 292 312 357 427 539 497 457 431 415
Health service purchasing 8,113 8,805 9,614 10,503 11,354 12,233 12,284 12,245 12,214 12,213

Source: The Treasury

Table 4.7 - Education expenses

Table 4.7 - Education expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Early childhood education 444 555 617 860 1,030 1,148 1,268 1,361 1,386 1,399
Primary and secondary schools 3,934 4,153 4,325 4,552 4,939 5,179 5,202 5,195 5,226 5,261
Tertiary funding 2,496 4,047 3,322 3,266 4,319 4,283 4,272 4,242 4,222 4,220
Departmental expenses 737 821 875 828 904 946 934 931 909 909
Other education expenses 319 338 130 45 263 93 90 83 70 69
Education expenses 7,930 9,914 9,269 9,551 11,455 11,649 11,766 11,812 11,813 11,858
Places 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Early childhood education1 113,009 115,903 123,196 133,903 137,542 144,793 153,028 159,876 161,373 162,221

1 Full-time equivalent based on 1,000 funded child hours per year.

Sources: Ministry of Education, The Treasury

Table 4.8 - Primary and secondary education expenses

Table 4.8 - Primary and secondary education expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Primary 1,964 2,062 2,141 2,262 2,485 2,622 2,643 2,637 2,663 2,690
Secondary 1,524 1,618 1,682 1,761 1,900 1,980 1,987 1,980 1,979 1,978
School transport 109 118 125 131 152 159 162 167 172 180
Special needs support 231 245 263 278 290 302 307 310 311 312
Professional Development 95 101 104 108 101 102 89 87 87 87
Schooling Improvement 11 9 10 12 11 14 14 14 14 14
Primary and secondary education expenses 3,934 4,153 4,325 4,552 4,939 5,179 5,202 5,195 5,226 5,261
Places 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Primary1 482,570 480,586 477,967 475,820 474,630 476,890 478,594 484,766 491,244 498,767
Secondary1 274,245 275,869 277,619 277,582 280,062 280,254 279,929 278,240 278,789 278,695

1. From 1999, these have been restated and are now snapshots based as at 1 July for primary year-levels (years 1 to 8) and 1 March for secondary year-levels (years 9 to 15). These numbers include special school rolls but exclude health camps, hospital schools and home schooling.

Sources: Ministry of Education, The Treasury

Table 4.9 - Tertiary education expenses

Table 4.9 - Tertiary education expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Tuition 1,647 1,865 1,962 2,172 2,211 2,359 2,332 2,290 2,284 2,283
Other tertiary funding 68 110 339 358 543 540 505 497 479 479
Tertiary student allowances 359 354 382 386 444 534 546 549 537 535
Initial fair value change in student loans ..  1,415 ..  ..  ..  ..  ..  ..  ..  .. 
Student loans 422 303 639 350 1,121 850 889 906 922 923
Tertiary education expenses 2,496 4,047 3,322 3,266 4,319 4,283 4,272 4,242 4,222 4,220
Places (year) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
EFT students1 242,986 226,891 230,319 229,276 234,434 243,087 237,357 237,642 237,225 237,277

1. Tertiary EFTS numbers from 2000 to 2008 include all delivered EFTS. EFTS numbers from 2009 onwards have been estimated on the basis of funded EFTS. Note that historical EFTS numbers have been revised so will differ from previous published EFU numbers.
EFTS numbers are based on calendar years rather than fiscal years.

Sources: Ministry of Education, The Treasury

Table 4.10 - Core Government service expenses

Table 4.10 - Core Government service expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Official development assistance 297 330 330 362 458 484 486 510 559 559
Indemnity and guarantee expenses ..  ..  ..  ..  992 62 60 59 58 58
Departmental expenses 1,570 1,403 1,402 1,557 1,668 1,683 1,679 1,669 1,643 1,638
Non-Departmental Expenses     237 277 117 274 245 269 280 287
Tax receivable write-down and impairments 350 338 2,479 701 1,654 1,210 1,210 1,005 1,005 1,005
Science expenses 170 157 163 168 179 194 196 195 195 195
Other expenses 180 279 205 306 225 164 158 149 151 146
Core Government service expenses 2,567 2,507 4,816 3,371 5,293 4,071 4,034 3,856 3,891 3,888

Source: The Treasury

Table 4.11 - Law and order expenses

Table 4.11 - Law and order expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Police 896 976 1,086 1,198 1,326 1,336 1,376 1,368 1,370 1,370
Ministry of Justice 257 299 454 367 379 402 388 391 390 390
Department of Corrections 483 572 662 787 829 936 974 971 985 985
Department for Courts ..  ..  ..  ..  ..  ..  ..  ..  ..  .. 
Other departments 72 76 60 91 92 105 109 109 109 109
Department expenses 1,708 1,923 2,262 2,443 2,626 2,779 2,847 2,839 2,854 2,854
Non-departmental outputs 218 262 354 326 380 397 364 359 359 359
Other expenses 51 50 83 125 83 93 103 102 102 102
Law and order expenses 1,977 2,235 2,699 2,894 3,089 3,269 3,314 3,300 3,315 3,315

Source: The Treasury

Table 4.12 - Defence expenses

Table 4.12 - Defence expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
NZDF Core expenses 1,203 1,306 1,459 1,517 1,697 1,779 1,788 1,764 1,763 1,763
Other expenses 72 77 58 45 60 65 68 55 56 56
Defence expenses 1,275 1,383 1,517 1,562 1,757 1,844 1,856 1,819 1,819 1,819

Source: The Treasury

Table 4.13 - Transport and communication expenses

Table 4.13 - Transport and communication expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
New Zealand Transport Agency 1,346 1,482 1,874 1,966 1,562 1,835 1,714 1,712 1,826 1,885
Departmental outputs 97 101 113 137 83 68 63 63 63 63
Other non-departmental expenses 79 109 221 104 170 163 101 80 75 75
Asset impairments 47 47 47 ..  320 ..  ..  ..  ..  .. 
Rail write-offs         ..  ..  ..  ..  ..  ..  
Rail costs 63 77 142 24 507 715 315 172 53 3
Other expenses 3 2 8 13 21 26 24 24 25 25
Transport and communication expenses 1,635 1,818 2,405 2,244 2,663 2,807 2,217 2,051 2,042 2,051

Source: The Treasury

Table 4.14 - Economic and industrial services expenses

Table 4.14 - Economic and industrial services expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Departmental outputs 508 549 546 603 389 410 390 383 381 381
Employment initiatives 224 202 207 186 185 222 176 168 166 166
Non-departmental outputs 549 751 873 822 809 976 800 774 774 770
Reserve Electricity Generation ..  26 16 81 20 111 27 26 17 17
Flood relief 52 8 ..  ..  ..   ..  ..  ..  ..  .. 
KiwiSaver ..  ..  ..  1,102 1,281 1,138 1,013 1,002 1,016 1,037
Research & Development tax credits ..  ..  ..  37 154 ..  ..  ..  ..  .. 
Other expenses 111 56 (47) 58 122 310 266 281 261 260
Economic and industrial services expenses 1,444 1,592 1,595 2,889 2,960 3,167 2,672 2,634 2,615 2,631

Source: The Treasury

Table 4.15 - Employment initiatives

Table 4.15 - Employment initiatives
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Training incentive allowance 36 32 29 27 30 23 20 16 15 15
Community employment projects 6 ..  ..  ..  ..  ..  ..  ..  ..  .. 
Subsidised work 102 84 88 67 63 107 64 60 59 59
Employment support for disabled 74 82 86 88 88 88 88 88 88 88
Other employment assistance schemes 6 4 4 4 4 4 4 4 4 4
Employment initiatives 224 202 207 186 185 222 176 168 166 166

Source: The Treasury

Table 4.16 - Primary service expenses

Table 4.16 - Primary service expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Departmental expenses 272 350 342 354 360 382 363 362 362 361
Non-departmental outputs 114 97 80 109 89 172 147 156 162 143
Other expenses 8 20 16 78 85 35 14 14 15 15
Primary service expenses 394 467 438 541 534 589 524 532 539 519

Source: The Treasury

Table 4.17 - Heritage, culture and recreation expenses

Table 4.17 - Heritage, culture and recreation expenses
($ million) 2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Community grants 6 7 7 7 8 8 8 10 10 10
Kyoto protocol 310 42 ..  ..  ..  ..  ..  ..  ..  .. 
Emmission Trading Scheme ..  ..  ..  ..  17 38 510 404 1,016 790
Departmental outputs 292 322 357 392 426 442 418 426 429 430
Non-departmental outputs 317 351 411 469 467 441 426 400 394 395
Other expenses 66 169 69 239 84 213 108 115 113 83
Heritage, culture and recreation expenses 991 891 844 1,107 1,002 1,142 1,470 1,355 1,962 1,708

Source: The Treasury

Table 4.18 - Housing and community development expenses

($ million)

Table 4.18 - Housing and community development expenses
  2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Housing subsidies 31 23 25 28 37 37 60 66 58 51
Departmental outputs 100 117 134 141 148 158 151 149 143 142
Other non-departmental expenses 32 62 96 91 112 143 143 143 143 143
Housing and community development expenses 163 202 255 260 297 338 354 358 344 336

Source: The Treasury

Glossary of Terms

ACC insurance liability

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

Baselines

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

Consumers Price Index (CPI)

A measure of change in the prices of goods and services bought by households.

Contingent liability

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

Contingent assets

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

Core Crown

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

Core Crown revenue

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

Core Crown expenses

The day-to-day spending (eg, salaries, welfare benefit payments, finance costs and maintaining national defence etc) that does not build physical assets for the Government. This is an accrual measure of expenses and includes items such as depreciation on physical assets.

Corporate tax

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

Current account (Balance of Payments)

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

Cyclically adjusted or structural fiscal balance

An estimate of the fiscal balance (eg, operating balance (before gains and losses)) adjusted for short-term fluctuations of actual GDP around trend GDP. The estimate provides a picture of the underlying trend fiscal position and an indication of 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. For example the age, sex or ethnic make-up of the population.

Domestic bond programme

The amount and timing of new government stock expected to be issued over the financial year.

Excise duties

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

Financial assets

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

Fiscal impulse

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

Fiscal intentions (short-term)

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

Fiscal objectives (long-term)

The Government's long-term goals for operating expenses, operating revenue, the operating balance, debt and net worth, as required by the Public Finance Act 1989. The objectives must be consistent with the principles of responsible fiscal management outlined in the Act and cover a period of ten or more years.

Forecast new capital spending

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

Forecast new operating spending

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

Gains and Losses

Gains and losses typically arise from the revaluation of assets and liabilities, such as investments in financial assets and long-term liabilities for ACC and GSF. Gains and losses are reported directly as a movement in net worth (eg, asset revaluation reserves) or indirectly through the Statement of Financial Performance. The impact of gains and losses on the operating balance can be volatile so the operating balance (before gains and losses) indicator can provide a more useful measure of underlying stewardship.

Gross domestic product (GDP)

A measure of the value of all goods and services produced in New Zealand; changes in GDP measure growth in economic activity or output. GDP can be measured as the actual dollar value of goods and services measured at today's prices (nominal GDP), or excluding the effects of price changes over time (real GDP).

Gross domestic product (expenditure)

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

Gross national expenditure (GNE)

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

Gross sovereign-issued debt (GSID)

Debt issued by the sovereign (the core Crown) including Government stock held by the NZS Fund, ACC and EQC.

Labour force participation rate

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

Labour productivity

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

Line-by-line consolidation

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

Marketable securities

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

Monetary conditions

The combination of interest rates and the exchange rate.

Monetary policy

Action taken by the Reserve Bank to affect interest rates and the exchange rate in order to control inflation. Tightening monetary policy refers to actions taken by the Reserve Bank to raise interest rates (which can influence the exchange rate) in order to moderate aggregate demand pressures and so reduce inflationary pressures.

Net core Crown cash flow from operations

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

Net core Crown debt

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

Net core Crown debt (incl NZS Fund)

Represents net core Crown debt plus the financial assets of the New Zealand Superannuation Fund.

Net worth

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

Net worth excluding social assets

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

NZ IFRS

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

Operating allowance

The amount included in the Fiscal Strategy Report projections for new initiatives, including spending and cost pressures. The allowance is a projection assumption. The projections in the Fiscal Strategy Report also include an allowance for capital spending.

Operating balance

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

Operating balance before gains and losses

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

Projections

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

Residual cash

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

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

Settlement cash

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

Specific fiscal risks

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

System of National Accounts (SNA)

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

Tax revenue

The accrual, rather than the cash (“tax receipts”) measure of taxation. It is a measure of tax due, regardless of whether or not it has actually been paid.

Top-down adjustment

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

Total borrowings

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

Trade weighted index (TWI)

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

Unit labour costs

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

Year ended

Graphs and tables use different expressions of the timeframe. For example, 2008/09 or 2009 will generally mean “year ended 30 June” unless otherwise stated.

Time Series of Fiscal and Economic Indicators

Fiscal Indicators

June Years
$ millions
1997
Actual
1998 Actual 1999 Actual 2000 Actual 2001 Actual 2002 Actual 2003 Actual 2004 Actual 2005 Actual 2006 Actual 2007 Actual 2008 Actual 2009 Actual 2010 Forecast 2011 Forecast 2012 Forecast 2013 Forecast 2014 Forecast
Fiscal Indicators
Nominal GDP ($ million) 99,046 101,558 104,664 111,046 118,358 125,824 132,750 143,187 152,079 158,713 169,400 179,024 180,210 184,466 193,966 203,873 213,738 223,980

 

Fiscal Indicators
June Years 1997
Actual
1998 Actual 1999 Actual 2000 Actual 2001 Actual 2002 Actual 2003 Actual 2004 Actual 2005 Actual 2006 Actual 2007 Actual 2008 Actual 2009 Actual 2010 Forecast 2011 Forecast 2012 Forecast 2013 Forecast 2014 Forecast

$ millions

                                   

Revenue and Expenses

                                   
Core Crown revenue 33,131 34,242 32,880 34,946 37,842 39,945 43,440 46,219 51,045 55,735 58,211 61,819 59,482 56,751 60,045 63,147 66,911 70,312
Core Crown expenses 31,368 32,982 33,939 34,829 36,559 37,513 39,897 41,882 44,895 49,320 54,003 56,997 64,002 65,520 68,946 70,721 73,974 76,228

Surpluses

                                   
Total Crown OBEGAL 1,801 2,345 128 594 1,422 2,471 4,366 5,573 7,075 7,091 5,860 5,637 (3,893) (7,465) (6,684) (6,000) (5,775) (4,867)
Total Crown operating balance 1,863 2,048 1,705 1,405 1,208 2,286 1,621 7,309 5,931 9,542 8,023 2,384 (10,505) (4,794) (5,128) (4,153) (3,728) (2,673)

Cash Position

                                   
Core Crown residual cash 3,913 484 2,048 (386) 349 216 1,217 520 3,104 2,985 2,877 2,057 (8,639) (10,091) (11,349) (10,353) (8,681) (7,443)

Debt

                                   
GSID (excluding liquidity mgmt) 36,236 38,475 37,307 36,580 37,194 36,650 36,617 36,017 35,478 33,903 30,647 31,390 43,356 53,651 64,406 69,077 73,401 80,528
Net core Crown debt (incl NZS Fund)1 30,317 30,472 25,923 25,895 24,908 24,773 22,647 19,902 13,324 6,302 1,620 (2,676) 5,633 12,560 22,987 32,222 39,483 45,879
Net core Crown debt1 30,317 30,472 25,923 25,895 24,908 25,388 24,531 23,858 19,879 16,163 13,380 10,258 17,119 27,371 38,788 49,033 57,546 64,910

Net Worth

                                   
Total Crown net worth 12,570 14,579 10,121 12,605 15,450 22,825 28,012 39,595 54,240 83,971 96,827 105,514 99,515 94,809 89,705 85,558 81,831 79,159
NZS Fund net worth ..  ..  ..  ..  ..  615 1,884 3,956 6,555 9,861 12,973 14,212 13,688 15,573 16,431 17,342 18,301 19,317

% GDP

                                   

Revenue and Expenses

                                   
Core Crown revenue 33.5 33.7 31.4 31.5 32.0 31.7 32.7 32.3 33.6 35.1 34.4 34.5 33.0 30.8 31.0 31.0 31.3 31.4
Core Crown expenses 31.7 32.5 32.4 31.4 30.9 29.8 30.1 29.2 29.5 31.1 31.9 31.8 35.5 35.5 35.5 34.7 34.6 34.0

Surpluses

                                   
Total Crown OBEGAL 1.8 2.3 0.1 0.5 1.2 2.0 3.3 3.9 4.7 4.5 3.5 3.1 (2.2) (4.0) (3.4) (2.9) (2.7) (2.2)
Total Crown operating balance 1.9 2.0 1.6 1.3 1.0 1.8 1.2 5.1 3.9 6.0 4.7 1.3 (5.8) (2.6) (2.6) (2.0) (1.7) (1.2)

Cash Position

                                   
Core Crown residual cash 4.0 0.5 2.0 (0.3) 0.3 0.2 0.9 0.4 2.0 1.9 1.7 1.1 (4.8) (5.5) (5.9) (5.1) (4.1) (3.3)

Debt

                                   
GSID (excluding liquidity mgmt) 36.6 37.9 35.6 32.9 31.4 29.1 27.6 25.2 23.3 21.4 18.1 17.5 24.1 29.1 33.2 33.9 34.3 36.0
Net core Crown debt (incl NZS Fund) 30.6 30.0 24.8 23.3 21.0 19.7 17.1 13.9 8.8 4.0 1.0 (1.5) 3.1 6.8 11.9 15.8 18.5 20.5
Net core Crown debt 30.6 30.0 24.8 23.3 21.0 20.2 18.5 16.7 13.1 10.2 7.9 5.7 9.5 14.8 20.0 24.1 26.9 29.0

Net Worth

                                   
Total Crown net worth 12.7 14.4 9.7 11.4 13.1 18.1 21.1 27.7 35.7 52.9 57.2 58.9 55.2 51.4 46.2 42.0 38.3 35.3
NZS Fund net worth ..  ..  ..  ..  ..  0.5 1.4 2.8 4.3 6.2 7.7 7.9 7.6 8.4 8.5 8.5 8.6 8.6

1 Excludes advances

Economic Indicators

Economic Indicators
March Years
Annual average % change
1997
Actual
1998
Actual
1999
 Actual
2000
Actual
2001
Actual
2002
Actual
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Actual
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Private consumption 4.3 2.3 3.1 3.3 1.4 2.8 4.9 6.4 5.0 4.6 2.8 3.2 (0.8) (0.2) 2.3 2.5 1.7 1.5
Public consumption 1.4 7.4 (0.4) 5.8 (2.1) 4.1 1.3 4.9 4.0 5.1 3.9 4.2 3.3 1.1 2.0 2.0 1.2 0.7

TOTAL CONSUMPTION

3.7 3.5 2.3 3.8 0.6 3.1 4.1 6.1 4.8 4.7 3.0 3.5 0.1 0.1 2.2 2.4 1.6 1.3
Residential investment                 4.9 3.0 (13.0) 19.5 (13.3) 2.0 23.6 15.0 2.9 (5.2) (2.3) 4.3 (23.4) (7.3) 24.5 16.1 6.6 1.9
Non-market investment                 18.3 14.0 (4.8) 13.0 (13.8) 21.9 13.7 15.6 14.2 (0.3) (5.6) 7.4 16.7 5.1 (3.1) (3.6) 3.8 4.6
Market investment                     4.3 (2.2) 2.6 6.9 8.0 6.9 2.3 12.2 11.9 8.2 0.7 4.5 (4.7) (11.1) 8.8 7.3 4.8 6.2

TOTAL INVESTMENT

5.1 0.2 (2.3) 10.6 0.4 6.8 7.8 13.1 9.2 4.4 (0.6) 4.2 (8.8) (8.5) 11.8 9.3 5.6 5.4
Stock change (contribution to growth) (0.4) (0.2) (0.3) 1.2 (0.3) 0.1 (0.1) 0.2 0.3 (0.4) (0.7) 0.6 (0.2) (1.8) 1.2 (0.1) 0.0 0.2

GROSS NATIONAL EXPENDITURE

3.5 2.6 0.9 6.3 0.3 3.9 4.7 7.6 6.1 4.2 1.5 4.2 (2.0) (3.2) 4.9 3.9 2.6 2.6
Exports 4.7 3.9 2.9 7.4 6.3 3.0 7.8 1.1 4.8 (0.1) 2.9 3.1 (3.3) 0.4 (0.2) 5.4 5.1 4.4
Imports 6.4 2.5 2.1 11.3 (0.7) 4.0 7.2 12.7 12.5 4.2 (1.6) 10.0 (4.7) (13.3) 9.7 7.7 3.7 3.7

EXPENDITURE ON GDP

3.1 2.9 1.2 5.2 2.4 3.5 5.0 4.0 3.9 3.0 2.9 2.1 (1.5) 0.8 2.5 3.1 3.0 2.8

GDP (production measure)

3.5 1.7 0.5 5.3 2.4 3.6 4.9 4.3 3.8 3.0 1.8 3.1 (1.1) (0.4) 2.4 3.2 3.0 2.8
 - annual % change 2.0 0.3 2.6 6.4 0.7 4.6 4.6 5.3 2.3 2.9 2.4 2.0 (2.6) 1.6 2.7 3.3 2.9 2.7
Real GDP per capita 1.9 0.5 (0.3) 4.7 1.8 2.7 3.0 2.4 2.3 1.8 0.6 2.1 (2.0) (1.5) 1.1 2.2 2.1 1.9
Nominal GDP (expenditure basis) 4.9 3.7 1.7 6.0 5.7 7.5 5.1 6.8 7.2 4.9 5.5 7.1 1.1 1.7 4.8 5.2 4.9 4.9
GDP deflator 1.8 0.8 0.5 0.9 3.2 3.9 0.2 2.7 3.2 1.9 2.6 4.9 2.6 0.9 2.3 2.1 1.8 2.1
Output gap (% deviation, March year average) 0.6 0.2 (1.9) 0.6 0.0 0.1 1.1 1.5 1.8 2.0 1.6 3.0 0.2 (1.0) (1.0) (1.1) (0.8) (0.5)
Employment 2.2 0.3 (0.6) 1.9 2.0 2.9 2.8 3.0 3.6 2.8 2.2 1.3 0.9 (1.8) (0.9) 1.0 2.5 2.6
Unemployment (% March quarter s.a.)          6.5 7.4 7.5 6.5 5.5 5.3 5.0 4.3 3.9 4.0 3.8 3.8 5.0 7.0 6.9 6.0 5.3 4.8
Wages (average ordinary-time hourly, ann % change)         4.3 2.5 3.1 1.7 3.1 3.6 2.2 3.4 3.5 5.2 4.6 4.5 5.3 2.8 3.1 2.8 2.7 2.9
CPI inflation (ann % change)      1.8 1.3 (0.1) 1.5 3.1 2.6 2.5 1.5 2.8 3.3 2.5 3.4 3.0 2.5 2.3 2.2 2.3 2.0
Merchandise terms of trade (SNA basis)       0.0 (1.8) 0.9 0.2 3.4 4.0 (5.6) 4.3 3.5 (2.1) (1.1) 8.5 (0.8) (8.1) 3.6 2.2 1.0 1.3
Current account balance - $billion           (5.8) (5.4) (4.4) (7.0) (5.1) (3.9) (4.5) (6.6) (10.1) (14.5) (13.5) (14.1) (14.6) (5.2) (10.3) (13.6) (14.9) (15.7)
Current account balance - % of GDP           (6.0) (5.3) (4.2) (6.4) (4.4) (3.1) (3.4) (4.7) (6.7) (9.2) (8.1) (7.9) (8.1) (2.9) (5.4) (6.8) (7.1) (7.1)
TWI (March quarter)                          68.4 61.2 57.6 54.1 50.5 51.6 60.6 66.9 69.6 68.3 68.8 71.9 53.7 66.5 63.5 58.1 55.1 53.2
90-day bank bill rate (March quarter)        7.5 8.9 4.5 6.0 6.4 5.0 5.8 5.5 6.9 7.6 7.8 8.8 3.7 2.9 3.9 4.9 5.4 5.8
10-year bond rate (March quarter)            7.5 6.8 5.7 7.3 6.0 6.7 6.0 5.9 6.0 5.7 5.9 6.3 4.6 5.8 5.8 5.8 5.9 6.0

Additional Information

The following information forms part of the Half Year Economic and Fiscal Update 2009 (“Half Year Update”), released by the Treasury on 15 December 2009.  This information provides further details on the Half Year Update and should be read in conjunction with the published document.  The additional information includes:

  • Detailed economic forecast information - these tables provide detailed breakdowns of the economic forecasts.
  • Tax tables - detailed tax revenue and receipts tables comparing Treasury's forecasts with IRD's forecasts.
  • Additional fiscal indicators - estimates of the cyclically-adjusted balance and fiscal impulse.
  • Accounting policies and forecast assumptions - outline of the specific Crown accounting policies and forecast assumptions. The published Forecast Financial Statements only provide a summary.

Detailed Economic Forecast Information

The following tables provide additional detail on the economic forecasts presented in the Half Year Update.

Table 1: Real Gross Domestic Product

Chain-volume series expressed in 1995/96 prices

Table 1: Real Gross Domestic Product
  Actual Seasonally Adjusted
  $ million Annual
% change
Annual Average
% change
$million Quarterly
% change
2007Q1 33,061 2.4 1.8 33,322 1.3
2007Q2 32,924 3.3 2.3 33,605 0.8
2007Q3 33,423 3.4 2.8 33,822 0.6
2007Q4 35,458 3.7 3.2 34,102 0.8
2008Q1 33,737 2.0 3.1 34,005 -0.3
2008Q2 33,182 0.8 2.5 33,858 -0.4
2008Q3 33,294 -0.4 1.5 33,696 -0.5
2008Q4 34,697 -2.1 0.0 33,369 -1.0
2009Q1 32,855 -2.6 -1.1 33,116 -0.8
2009Q2 32,480 -2.1 -1.8 33,143 0.1
2009Q3 32,879 -1.2 -2.0 33,276 0.4
2009Q4 34,807 0.3 -1.4 33,475 0.6
2010Q1 33,377 1.6 -0.4 33,642 0.5
2010Q2 33,155 2.1 0.7 33,832 0.6
2010Q3 33,627 2.3 1.5 34,033 0.6
2010Q4 35,641 2.4 2.1 34,277 0.7
2011Q1 34,272 2.7 2.4 34,545 0.8
2011Q2 34,110 2.9 2.6 34,806 0.8
2011Q3 34,706 3.2 2.8 35,125 0.9
2011Q4 36,892 3.5 3.1 35,480 1.0
2012Q1 35,414 3.3 3.2 35,695 0.6
2012Q2 35,232 3.3 3.3 35,951 0.7
2012Q3 35,787 3.1 3.3 36,220 0.7
2012Q4 37,939 2.8 3.1 36,487 0.7
2013Q1 36,457 2.9 3.0 36,747 0.7
2013Q2 36,263 2.9 3.0 37,003 0.7
2013Q3 36,809 2.9 2.9 37,254 0.7
2013Q4 38,996 2.8 2.9 37,503 0.7
2014Q1 37,450 2.7 2.8 37,748 0.7
2014Q2 37,225 2.7 2.8 37,985 0.6

Source: Statistics New Zealand, The Treasury

Table 2: Consumer Price Index and Exchange Rates

Table 2: Consumer Price Index and Exchange Rates
  Consumers Price Index Exchange rates
  Index Quarterly
% change
Annual
% change
TWI USD
2007Q1 1010 0.5 2.5 68.8 0.70
2007Q2 1020 1.0 2.0 72.0 0.74
2007Q3 1025 0.5 1.8 71.3 0.74
2007Q4 1037 1.2 3.2 71.0 0.76
2008Q1 1044 0.7 3.4 71.9 0.79
2008Q2 1061 1.6 4.0 69.2 0.78
2008Q3 1077 1.5 5.1 65.5 0.71
2008Q4 1072 -0.5 3.4 57.8 0.58
2009Q1 1075 0.3 3.0 53.7 0.53
2009Q2 1081 0.6 1.9 58.4 0.60
2009Q3 1095 1.3 1.7 62.6 0.67
2009Q4 1099 0.3 2.5 66.5 0.74
2010Q1 1102 0.3 2.5 66.5 0.74
2010Q2 1106 0.4 2.3 66.5 0.74
2010Q3 1114 0.7 1.7 65.7 0.73
2010Q4 1121 0.7 2.0 64.7 0.71
2011Q1 1127 0.5 2.3 63.5 0.69
2011Q2 1133 0.5 2.4 62.0 0.66
2011Q3 1139 0.5 2.3 60.5 0.63
2011Q4 1145 0.5 2.2 59.2 0.61
2012Q1 1151 0.6 2.2 58.1 0.59
2012Q2 1158 0.5 2.2 57.2 0.57
2012Q3 1164 0.5 2.2 56.4 0.56
2012Q4 1169 0.5 2.1 55.7 0.55
2013Q1 1178 0.7 2.3 55.1 0.54
2013Q2 1185 0.6 2.3 54.5 0.53
2013Q3 1190 0.5 2.3 54.0 0.52
2013Q4 1196 0.5 2.3 53.6 0.51
2014Q1 1202 0.5 2.0 53.2 0.51
2014Q2 1208 0.5 1.9 52.9 0.50

Source: Statistics New Zealand, The Treasury

Table 3: Gross Domestic Expenditure and Income

March Year 2009
Actual
2010
Estimate
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
  $ mill %vol %pr   $ mill     %vol      %pr   $ mill     %vol      %pr   $ mill     %vol      %pr   $ mill     %vol      %pr   $ mill
Consumption:                                
- Private 106,501 -0.2 2.4 108,877 2.3 1.8 113,367 2.5 1.8 118,199 1.7 1.7 122,297 1.5 1.8 126,391
- Public 35,789 1.1 2.9 37,223 2.0 2.7 38,976 2.0 2.1 40,628 1.2 2.5 42,150 0.7 2.7 43,586
Gross Fixed Capital Formation:                                
- Residential 9,309 -7.3 0.6 8,688 24.5 2.2 11,060 16.1 4.9 13,476 6.6 4.8 15,050 1.9 4.6 16,048
- Market * 25,899 -11.1 1.5 23,389 8.8 0.0 25,473 7.3 2.8 28,093 4.8 1.8 29,980 6.2 1.7 32,370
- Non-market ** 3,797 5.1 2.2 4,080 -3.1 1.6 4,011 -3.6 1.5 3,927 3.8 1.4 4,136 4.6 1.4 4,386
- Total all sectors 38,956 -8.5 1.4 36,150 11.8 0.3 40,544 9.3 2.6 45,497 5.6 2.4 49,166 5.4 1.9 52,804
Change in Stocks 1,022     -1,322     73     34     68     529
Gross National Expenditure 182,271 -3.2 2.5 180,927 4.9 1.7 192,960 3.9 1.9 204,357 2.6 1.9 213,680 2.6 1.9 223,311
Exports 56,916 0.4 -12.7 49,962 -0.2 3.7 51,687 5.4 10.8 60,324 5.1 8.4 68,760 4.4 5.8 75,981
Imports 59,366 -13.3 -6.6 48,182 9.7 0.6 53,226 7.7 10.6 63,401 3.7 8.6 71,405 3.7 5.3 77,940
Expenditure on GDP 179,822 0.8 0.9 182,794 2.5 2.3 191,506 3.1 2.1 201,386 3.0 1.8 211,155 2.8 2.1 221,496
Statistical Discrepancy -466     -464     -458     -451     -445     -438
Gross Domestic Product 179,356     182,330     191,048     200,935     210,710     221,058
Compensation of employees 82,809   1.8 84,309   1.0 85,189   4.3 88,874   5.4 93,713   5.5 98,898
Operating Surplus, net:                                 
- Agriculture 5,690   -10.3 5,102   4.6 5,335   6.0 5,656   5.5 5,967   5.6 6,303
- Other 41,385   -0.1 41,357   11.1 45,935   5.9 48,644   3.3 50,254   3.6 52,056
- Total all sectors 47,075   -1.3 46,459   10.4 51,270   5.9 54,300   3.5 56,221   3.8 58,359
Consumption of fixed capital 26,587   6.0 28,182   6.0 29,873   6.0 31,665   6.0 33,565   6.0 35,579
Indirect Taxes 23,498   2.1 23,992   5.6 25,328   5.4 26,707   4.2 27,822   3.6 28,834
Less subsidies 612   0.0 612   0.0 612   0.0 612   0.0 612   0.0 612
Gross Domestic Product 179,356   1.7 182,330   4.8 191,048   5.2 200,935   4.9 210,710   4.9 221,058

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

Source: Statistics New Zealand, The Treasury

Table 4 & 5: Labour Market Indicators

Annual Average Percentage Change
Table 4: Labour Market Indicators - Annual Average Percentage Change
March Year  2009
Actual
2010
Estimate
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Real GDP (production basis) -1.1 -0.4 2.4 3.2 3.0 2.8
Working Age Population 1.1 1.4 1.5 1.2 1.1 1.0
Labour Force 1.8 0.5 -0.6 0.3 1.6 2.0
Employment - Full Time Equivalents* 0.8 -2.0 -0.9 1.0 2.5 2.6
Labour Productivity* -1.9 1.7 3.3 2.3 0.5 0.2
Labour Productivity ** -1.5 3.1 3.8 2.0 0.3 0.2
CPI (annual percentage change) 3.0 2.5 2.3 2.2 2.3 2.0
Average Ordinary Time Hourly Wages 5.3 4.0 2.7 3.0 2.6 2.8
Average Weekly Earnings 4.9 4.6 2.8 3.0 2.6 2.8
Real Wages 1.4 1.8 0.6 0.8 0.4 0.5
Compensation of Employees 5.8 1.8 1.0 4.3 5.4 5.5
Unit Labour Costs (Hours worked basis) 6.8 1.0 -1.1 1.0 2.3 2.6
Real Unit Labour Costs 2.8 -1.1 -3.1 -1.2 0.1 0.4

* Full time equivalent basis
** Hours worked basis

Table 5: Labour Market Indicators - Number (000's)
As at March Quarter 2009
Actual
2010
Estimate
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Total Population 4,306 4,359 4,408 4,452 4,493 4,533
     Natural Increase 35 28 31 33 31 30
     Net  Migration 7 24 19 10 10 10
     Annual Change 42 53 50 43 41 40
Working Age Population      3,361 3,412 3,459 3,498 3,535 3,570
     Annual Change          38 51 46 39 37 36
Not in the labour force     1,059 1,095 1,154 1,175 1,170 1,161
     Annual Change          -11 36 59 21 -5 -9
Labour Force                2,302 2,317 2,305 2,323 2,365 2,410
     Annual Change          49 16 -12 18 42 45
Total Employment            2,173 2,136 2,128 2,167 2,225 2,280
     Annual Change          16 -37 -7 39 58 54
Unemployment                129 181 176 156 139 130
     Annual Change          33 53 -5 -21 -16 -9
Participation Rate (%sa)    68.3 67.5 66.2 66.1 66.6 67.3
Unemployment Rate (%sa)     5.0 7.0 6.9 6.0 5.3 4.8

Source: Statistics New Zealand, The Treasury

Table 6: Current Account

Table 6: Current Account
  $NZ Million Percent of Nominal GDP
Year ended March  2009
Actual
2010
Estimate
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
2009
  Actual
2010
Estimate
2011
Forecast
2012
Forecast
2013
Forecast
2014
Forecast
Exports Goods 44,259 38,222 39,867 46,669 52,888 58,004            
annual % Change 14.3 -13.6 4.3 17.1 13.3 9.7            
Imports Goods 45,591 35,982 39,985 47,691 53,661 58,771            
annual % Change 12.5 -21.1 11.1 19.3 12.5 9.5            
Balance on Goods -1,337 2,237 -118 -1,022 -773 -767 -0.7 1.2 -0.1 -0.5 -0.4 -0.3
Exports Services 12,658 11,790 11,805 13,696 15,914 18,018            
annual % change -1.2 -6.9 0.1 16.0 16.2 13.2            
Imports Services 13,776 12,200 13,241 15,710 17,744 19,169            
annual % change 9.0 -11.4 8.5 18.6 12.9 8.0            
Balance on services -1,119 -410 -1,437 -2,015 -1,830 -1,152 -0.6 -0.2 -0.8 -1.0 -0.9 -0.5
Balance on goods & services -2,456 1,828 -1,555 -3,036 -2,603 -1,919 -1.4 1.0 -0.8 -1.5 -1.2 -0.9
Int'l investment income and transfers balance          -12,116 -7,053 -8,739 -10,570 -12,338 -13,735 -6.7 -3.9 -4.6 -5.2 -5.8 -6.2
Current account balance    -14,568 -5,225 -10,294 -13,606 -14,941 -15,654 -8.1 -2.9 -5.4 -6.8 -7.1 -7.1

Source: Statistics New Zealand, The Treasury

Table 7: Exports - SNA basis

Breakdown of Exports
Table 7: Exports - SNA basis
  Dairy Products Meat and Meat Products Non-Commodity*
March Years %v %p $ mn       %v       %p     $ mn %v %p     $ mn
2006 -2.4 6.1 5,993 -2.2 -3.0 4,611 -0.5 2.5 10,332
2007 22.3 2.1 7,455 6.7 2.5 5,037 0.6 10.7 11,681
2008 -0.9 25.7 9,434 -2.9 -5.1 4,656 0.7 8.8 12,468
2009 -15.1 27.8 10,101 1.5 23.2 5,797 1.8 15.8 14,827
2010 26.2 -34.5 8,374 -11.4 -5.0 4,910 -5.5 -13.0 12,283
2011 -5.5 6.3 8,448 -1.3 -0.7 4,802 4.5 4.6 13,351
2012 1.5 14.6 9,826 6.6 9.5 5,602 4.5 13.8 15,888
2013 1.9 9.8 10,973 3.8 7.7 6,264 4.1 11.1 18,386
2014 2.0 5.8 11,837 1.8 4.7 6,671 2.9 8.9 20,617
Table 7: Exports - SNA basis (continued)
  Total Goods** Services Total Exports
March Years %v %p     $ mn   %v   %p     $ mn %v %p     $ mn
2006 0.7 0.9 31,581 -2.2 1.9 12,350 -0.1 1.1 43,931
2007 4.9 7.5 35,636 -2.1 4.6 12,639 2.9 6.8 48,275
2008 4.5 3.9 38,720 -1.0 2.3 12,818 3.1 3.3 51,535
2009 -1.8 16.7 44,259 -7.7 7.0 12,658 -3.3 14.5 56,916
2010 1.9 -15.5 38,222 -7.7 1.0 11,790 0.4 -12.7 49,962
2011 0.1 4.4 39,867 -1.6 1.7 11,805 -0.2 3.7 51,687
2012 3.4 13.2 46,669 13.7 1.9 13,696 5.4 10.8 60,324
2013 3.2 9.8 52,888 12.2 3.6 15,914 5.1 8.4 68,760
2014 2.9 6.6 58,004 9.7 3.3 18,018 4.4 5.8 75,981

* Consists of 'Metal Products and Machinery Equipment', 'Chemicals, Rubber and Other Non-Metallic Goods' and 'Textile, Apparel and Leather'
** Note that Statistics NZ withholds data for some components of exports for confidentaility reasons. As a result we have not published the "Wood and Wood Products' and 'Other Goods' components of exports.

Table 8: Imports - SNA basis

Breakdown of Imports
Table 8: Imports - SNA basis
  Capital Goods (VFD) Mineral Fuel* (VFD) Intermediate Goods** (VFD) Consumption Goods (VFD)
March Years       %v       %p     $ mn       %v       %p     $ mn       %v       %p     $ mn       %v       %p     $ mn
2006 16.3 -5.1 7,301 0.3 37.3 5,250 -1.4 0.7 14,365 8.1 -1.0 8,703
2007 -3.2 2.3 7,223 -8.0 21.2 5,872 -2.8 12.5 15,717 5.8 3.7 9,544
2008 10.1 -9.7 7,183 15.8 3.1 7,014 9.9 -6.5 16,143 6.9 -2.9 9,908
2009 3.7 13.3 8,280 -6.3 25.9 8,196 -6.5 21.6 18,277 -3.0 12.7 10,788
2010 -26.5 -3.2 6,006 -8.3 -28.6 5,366 -16.4 -7.3 14,225 -1.8 -3.4 10,232
2011 21.1 -6.7 6,806 -1.8 18.7 6,306 6.7 4.6 15,890 7.9 -2.4 10,831
2012 10.2 4.5 7,816 8.6 12.9 7,731 8.6 12.0 19,330 4.4 11.5 12,608
2013 2.7 2.8 8,244 5.5 9.5 8,928 5.5 8.3 22,086 2.3 9.9 14,171
2014 7.0 4.0 9,184 3.1 6.4 9,798 3.1 5.4 24,014 2.6 7.1 15,567
Table 8: Imports - SNA basis
  Total Goods (VFD) Services Total
March Years       %v       %p     $ mn       %v       %p     $ mn       %v       %p     $ mn
2006 3.9 3.1 35,685 5.0 0.7 11,830 4.2 2.5 47,515
2007 -0.9 8.7 38,464 -3.7 7.0 12,206 -1.6 8.3 50,671
2008 10.0 -4.3 40,515 9.9 -5.8 12,633 10.0 -4.7 53,148
2009 -4.3 17.7 45,591 -5.7 16.7 13,776 -4.7 17.5 59,366
2010 -14.3 -8.0 35,982 -9.9 -2.6 12,200 -13.3 -6.6 48,182
2011 10.2 0.7 39,985 8.1 0.4 13,241 9.7 0.6 53,226
2012 7.7 10.8 47,691 7.6 10.3 15,710 7.7 10.6 63,401
2013 3.6 8.7 53,661 4.2 8.4 17,744 3.7 8.6 71,405
2014 4.1 5.2 58,771 2.1 5.8 19,169 3.7 5.3 77,940

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

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

Tax Tables

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

Direct tax

                     

Individuals

                     
Source deductions 22,966 22,734 22,460 23,172 22,956 24,399 24,224 25,773 25,740 27,465 27,484
Other persons tax 4,408 4,428 4,308 4,469 4,537 4,762 4,707 5,058 4,868 5,366 5,204
Refunds (1,636) (1,886) (1,950) (1,782) (1,970) (1,857) (1,965) (1,957) (1,955) (2,073) (1,905)
Fringe benefit tax 500 501 508 505 515 535 538 562 565 580 593
Subtotal: Individuals 26,238 25,777 25,326 26,364 26,038 27,839 27,504 29,436 29,218 31,338 31,376
Company tax (net) 8,294 6,417 6,980 8,111 8,372 8,481 8,607 9,073 9,025 9,562 9,296

Withholding taxes on:

                     
Resident interest income 2,571 1,872 1,716 1,681 1,542 1,810 1,820 2,161 2,089 2,452 2,351
Non-resident income 1,451 1,060 1,059 1,086 1,129 1,154 1,208 1,201 1,257 1,250 1,294
Foreign-source dividends 10 3 9 13 9 13 9 13 9 13 9
Resident dividend income 65 146 114 293 246 304 249 312 249 320 246
Subtotal: Withholding tax 4,097 3,081 2,898 3,073 2,926 3,281 3,286 3,687 3,604 4,035 3,900
Total income tax 38,629 35,275 35,204 37,548 37,336 39,601 39,397 42,196 41,847 44,935 44,572
Other: Estate and gift duties 1 1 2 1 1 1 1 1 1 1 1
Total direct tax 38,630 35,276 35,206 37,549 37,337 39,602 39,398 42,197 41,848 44,936 44,573

Indirect tax

                     

GST

                     
GST (Customs) 6,056 5,503 5,457 5,746 5,649 6,802 6,771 7,615 7,697 8,264 8,435
GST (IRD) 10,052 10,683 10,717 11,429 11,375 11,115 10,965 10,940 10,675 10,959 10,543
Subtotal: GST 16,108 16,186 16,174 17,175 17,024 17,917 17,736 18,555 18,372 19,223 18,978

Excise duties on:

                     
Alcoholic drinks 616 640 640 663 667 684 693 706 720 730 745
Tobacco products 172 185 172 186 173 188 174 190 175 193 175
Petroleum fuels 781 856 840 929 906 984 965 1,017 1,003 1,053 1,042
Subtotal: excise duties 1,569 1,681 1,652 1,778 1,746 1,856 1,832 1,913 1,898 1,976 1,962

Other indirect tax

                     
Customs duty 1,880 1,905 1,757 1,942 1,949 1,973 1,979 1,993 2,005 2,019 2,020
Road user charges 868 900 900 916 955 959 1,000 1,010 1,050 1,059 1,105
Gaming duties 264 279 280 286 283 292 286 297 290 303 294
Motor vehicle fees 171 166 170 167 175 165 180 163 185 162 190
Exhaustible resource levy 39 38 35 38 33 38 32 36 32 36 33
Approved issuer levy, cheque duty & other 98 103 97 103 94 103 89 102 84 102 79
Subtotal: Other indirect tax 3,320 3,391 3,239 3,452 3,489 3,530 3,566 3,601 3,646 3,681 3,721
Total indirect tax 20,997 21,258 21,065 22,405 22,259 23,303 23,134 24,069 23,916 24,880 24,661
Total tax 59,627 56,534 56,271 59,954 59,596 62,905 62,532 66,266 65,764 69,816 69,234
Total tax (% of GDP) 33.1% 30.6% 30.5% 30.9% 30.7% 30.9% 30.7% 31.0% 30.8% 31.2% 30.9%

less Core Crown tax eliminations

                     
Core Crown income tax 4 117 117 274 274 289 289 299 299 316 316
GST on Crown expenses and departmental outputs 4,557 4,779 4,779 4,934 4,934 5,043 5,043 5,151 5,151 5,306 5,306
Crown ESCT 368 374 374 402 402 408 408 411 411 412 412
Crown AIL 18 15 15 15 15 15 15 15 15 15 15
Core Crown taxation 54,680 51,249 50,986 54,329 53,971 57,150 56,777 60,390 59,888 63,767 63,185
Core Crown tax (% of GDP) 30.3% 27.8% 27.6% 28.0% 27.8% 28.0% 27.8% 28.3% 28.0% 28.5% 28.2%

less Total Crown tax eliminations

                     
Income tax from SOEs and CEs 475 359 359 380 380 440 440 510 510 597 597
Other Crown GST ..  ..  ..  ..  ..  ..  ..  ..  ..  ..  .. 
ESCT from SOEs and CEs 11 7 7 7 7 8 8 8 8 8 8
Lottery duty 49 40 40 45 45 49 49 50 50 51 51
Total Crown taxation 54,145 50,843 50,580 53,897 53,539 56,653 56,280 59,822 59,320 63,111 62,529
Total Crown tax (% of GDP) 30.0% 27.6% 27.4% 27.8% 27.6% 27.8% 27.6% 28.0% 27.8% 28.2% 27.9%
Nominal GDP 180,210 184,466 184,466 193,966 193,966 203,873 203,873 213,738 213,738 223,980 223,980

Sources: Inland Revenue, The Treasury

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

Direct tax

                     

Individuals

                     
Source deductions 22,945 22,640 22,369 23,085 22,869 24,311 24,136 25,684 25,651 27,377 27,396
Other persons tax 4,988 4,939 4,980 4,888 5,030 5,153 5,190 5,437 5,350 5,703 5,720
Refunds (2,488) (2,537) (2,800) (2,435) (2,700) (2,492) (2,695) (2,580) (2,685) (2,638) (2,645)
Fringe benefit tax 506 491 501 494 509 529 531 555 558 575 586
Subtotal: Individuals 25,951 25,533 25,050 26,032 25,708 27,501 27,162 29,096 28,874 31,017 31,057
Company tax (net) 5,909 7,116 7,470 8,071 8,210 8,280 8,375 8,905 8,815 9,348 9,080

Withholding taxes on:

                     
Resident interest income 2,593 1,838 1,716 1,679 1,542 1,808 1,820 2,159 2,089 2,450 2,351
Non-resident income 1,437 1,059 1,059 1,085 1,129 1,153 1,208 1,200 1,257 1,249 1,294
Foreign-source dividends (2) 13 9 13 9 13 9 13 9 13 9
Resident dividend income 97 146 114 293 246 304 249 312 249 320 246
Subtotal: Withholding tax 4,125 3,056 2,898 3,070 2,926 3,278 3,286 3,684 3,604 4,032 3,900
Total income tax 35,985 35,705 35,418 37,173 36,844 39,059 38,823 41,685 41,293 44,397 44,037
Other: Estate and gift duties 2 2 2 1 1 1 1 1 1 1 1
Total direct tax 35,987 35,707 35,420 37,174 36,845 39,060 38,824 41,686 41,294 44,398 44,038

Indirect tax

                     

GST

                     
GST (Customs) 6,081 5,503 5,457 5,696 5,649 6,752 6,771 7,565 7,697 8,214 8,435
GST (IRD) 9,311 10,368 10,414 11,170 11,081 10,855 10,670 10,676 10,376 10,698 10,247
Subtotal: GST 15,392 15,871 15,871 16,866 16,730 17,607 17,441 18,241 18,073 18,912 18,682

Excise duties on:

                     
Alcoholic drinks 587 640 640 663 667 684 693 706 720 730 745
Tobacco products 170 185 172 186 173 188 174 190 175 193 175
Petroleum fuels 786 836 840 909 906 964 965 997 1,003 1,033 1,042
Subtotal: Excise duties 1,543 1,661 1,652 1,758 1,746 1,836 1,832 1,893 1,898 1,956 1,962

Other indirect tax

                     
Customs duty 1,957 1,905 1,757 1,942 1,949 1,973 1,979 1,993 2,005 2,019 2,020
Road user charges 864 900 900 916 955 959 1,000 1,010 1,050 1,059 1,105
Gaming duties 276 280 280 286 283 292 286 297 290 303 294
Motor vehicle fees 165 166 170 167 175 165 180 163 185 162 190
Exhaustible resource levy 36 44 35 38 33 38 32 36 32 36 33
Approved issuer levy, cheque duty & other 95 103 97 103 94 103 89 102 84 102 79
Subtotal: Other indirect tax 3,393 3,398 3,239 3,452 3,489 3,530 3,566 3,601 3,646 3,681 3,721
Total indirect tax 20,328 20,930 20,762 22,076 21,965 22,973 22,839 23,735 23,617 24,549 24,365
Total tax 56,315 56,637 56,182 59,250 58,810 62,033 61,663 65,421 64,911 68,947 68,403
Total tax (% of GDP) 31.2% 30.7% 30.5% 30.5% 30.3% 30.4% 30.2% 30.6% 30.4% 30.8% 30.5%

less Core Crown tax eliminations

                     
Core Crown income tax (152) 136 136 274 274 289 289 299 299 316 316
GST on Crown expenses and departmental outputs 4,567 4,783 4,783 4,931 4,931 5,042 5,042 5,139 5,139 5,299 5,299
Crown ESCT 367 332 332 359 359 366 366 370 370 370 370
Crown AIL 18 15 15 15 15 15 15 15 15 15 15
Core Crown taxation 51,515 51,371 50,916 53,671 53,231 56,321 55,951 59,598 59,088 62,947 62,403
Core Crown tax (% of GDP) 28.6% 27.8% 27.6% 27.7% 27.4% 27.6% 27.4% 27.9% 27.6% 28.1% 27.9%

less Total Crown tax eliminations

                     
Income tax from SOEs and CEs 332 370 370 353 353 390 390 490 490 557 557
Other Crown GST 4 (9) (9) (4) (4) (3) (3) 4 4 5 5
ESCT from SOEs and CEs 11 3 3 3 3 3 3 3 3 3 3
Lottery duty 49 40 40 45 45 49 49 50 50 51 51
Total Crown taxation 51,119 50,967 50,512 53,274 52,834 55,882 55,512 59,051 58,541 62,331 61,787
Total Crown tax (% of GDP) 28.4% 27.6% 27.4% 27.5% 27.2% 27.4% 27.2% 27.6% 27.4% 27.8% 27.6%
Nominal GDP 180,210 184,466 184,466 193,966 193,966 203,873 203,873 213,738 213,738 223,980 223,980

Sources: Inland Revenue, The Treasury

Additional Fiscal Indicators

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

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

The cyclically-adjusted balance and fiscal impulse

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

Fiscal balance = CAB + cyclical component

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

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

Limitations of summary fiscal indicators

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

The 2009 Budget Forecasts incorporated a downward revision to potential output relative to the 2008 December Forecasts. The combination of lower potential output and lower inflation mean that the level of nominal GDP, and hence taxes, displayed a level shift between the forecasts. If this change is permanent, then the change in tax revenue will be treated as a non-policy driven structural shift (although the ratio of tax to potential output will be less affected). On the spending side, lower inflation will reduce the rise in some government expenses (eg, benefits). Spending on unemployment benefits increases as the unemployment rate rises. However, the majority of government expenses are more structural in nature and do not respond immediately or directly to movements in nominal GDP (and so the ratio to potential will rise if potential output is falling).[4]

The effect of non-policy related structural shifts was noted as affecting the summary fiscal indicators in the 2008 Pre-election Forecasts, the 2008 December Forecasts, and the 2009 Budget forecasts. Although the level of potential output is somewhat higher in the HYEFU forecasts when compared to Budget 2009 (partly due to higher net migration), there has still been a substantial shift relative to Budget 2008.

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

Treasury's fiscal impulse indicator

Consistent with the CAB, the fiscal impulse measure is now estimated using an output gap derived from a combination of a multivariate (MV) filter and New Zealand Treasury Model (NZTM) estimates. This means that HYEFU fiscal impulse figures are not exactly comparable to BEFU figures. However, comparisons can still be made due to the relatively similar results obtained when each output gap filter is used.

Based on the 2009 HYEFU Forecasts, the estimate of fiscal impulse for the 2010 fiscal year has decreased from an expansionary 3.3% of GDP at the 2009 Budget to 2.2% of GDP. The change from 3.3% of GDP to 2.2% of GDP largely reflects the stronger economy as opposed to discretionary policy changes. This reinforces the level of uncertainty surrounding these indicators.

Treasury's cyclically-adjusted balance indicator

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

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

Notwithstanding the changes to potential output, output in the 2009 Budget Forecasts was below potential across the forecast period, with the gap closing in 2014. Now the output gap troughs at -1.2% and the CAB indicates a structural deficit in 2013 of around 2.5% of GDP compared to around 4% at BEFU. There is now less difference between the operating balance and CAB.

OECD estimates of fiscal stimulus packages

In its March 2009 Interim Economic Outlook, the OECD, collated information on fiscal stimulus packages across member economies using a bottom-up approach. The OECD note that this approach involves judgement as to what counts as fiscal stimulus and when the counting starts. Using information available before the 2009 Budget, the OECD estimated New Zealand's fiscal stimulus package, across the calendar years 2008 to 2010, at 4.3% of 2008 GDP. It later revised this figure in its June 2009 Economic Outlook to 3.7% of GDP. In its most recent country survey of New Zealand, the OECD note that estimates of the fiscal stimulus package differ from the Treasury fiscal impulse indicator because of the ongoing impacts of past spending and tax measures and the non-policy related structural shifts discussed above.

Figure 1 - Operating balance before gains and losses and cyclically-adjusted indicator (% GDP)
Figure 1 - Operating balance before gains and losses and cyclically-adjusted indicator.
Source: The Treasury

Notes

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

Table 11 - Additional fiscal indicators

Operating balance before gains and losses (Year ended June, % GDP)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2.3 0.1 0.5 1.2 2.0 3.3 3.9 4.7 4.5 3.5 3.1 -2.2 -4.0 -3.4 -2.9 -2.7 -2.2
Cyclically-adjusted operating balance before gains and losses (Year ended June, % GDP)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2.6 1.0 0.0 1.3 1.8 2.8 2.9 3.8 3.6 2.5 1.9 -1.8 -3.7 -2.9 -2.5 -2.4 -2.0
Output gap (Year ended June, % deviation)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-0.7 -1.8 1.0 -0.1 0.3 1.0 2.0 1.8 1.7 2.0 2.7 -0.7 -0.7 -1.2 -1.0 -0.7 -0.4
Fiscal impulse (Year ended June, % GDP)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0.3 1.0 0.7 -1.1 -0.8 -0.3 0.4 -1.7 0.5 0.3 0.5 3.7 2.2 0.5 -0.7 -1.1 -0.8

Source: The Treasury

Figure 2 - Fiscal impulse (% GDP)
Figure 2 - Fiscal impulse.
Source: The Treasury

Accounting Policies and Forecast Assumptions

The forecast financial statements contained in the published Half Year Update are based on the following accounting polices and forecast assumptions.

Statement of Compliance

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

For the purposes of these forecast statements, the government reporting entity has been designated as a public benefit entity. The forecast statements comply with the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as appropriate for public benefit entities.

Reporting Entity

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

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

Basis of Preparation

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

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

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

Judgements and Estimations

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

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

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

Standards and Interpretations Issued But Not Yet Effective

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

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

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

Reporting and Forecast Period

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

The “2009 Actual” figures reported in the statements are the audited results reported in the Financial Statements of Government for the year ended 30 June 2009. The “2010 previous budget” figures are the original forecasts to 30 June 2010, as presented in the 2009 Budget.

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

Basis of Combination

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

Core Entities

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

Other entities

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

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

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

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

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

Accounting Policies

The accounting policies set out below have been applied consistently to all periods in the 2009 Half Year Update.

Income

Taxation revenue levied through the Crown's sovereign power

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

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

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

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

Interest income

Interest income is accrued using the effective interest rate method.

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

Dividend income

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

Rental income

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

Donated or Subsidised Assets

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

Expenses

General

Expenses are recognised in the period to which they relate.

Welfare benefits and entitlements

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

Grants and subsidies

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

Interest expense

Interest expense is accrued using the effective interest rate method.

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

Foreign currency

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

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

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

Sovereign receivables and taxes repayable

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

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

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

Financial instruments

Financial assets

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

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

 
Major financial asset type Designation
Trade and other receivables All designated as loans and receivables
Student loans All designated as loans and receivables
KiwiBank mortgages Generally designated as fair value through profit and loss
Other advances Generally designated as loans and receivables
Reserve position at the IMF Generally designated as available for sale
Share Investments Generally designated as fair value through profit and loss
Marketable securities Generally designated as fair value through profit and loss

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

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

The data for valuation of student loans has been integrated from files provided by Inland Revenue Department, Ministry of Social Development and the Ministry of Education. The current data is up to 31 March 2008, and contains information on borrowings, repayments, income, educational factors, and socio-economic factors amongst others and has been analysed and incorporated into the valuation model. This integrated data has been supplemented by less detailed, but more recent data to value student loans at balance date. Given the lead time required to compile and analyse the detailed, integrated data, it is expected that there is a lag between the availability of this data set and balance date.

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

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

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

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

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

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

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

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

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

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

Derivatives

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

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

Hedging

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

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

(a) Cash flow hedge

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

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

(b) Fair value hedge

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

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

Financial Instruments - forecasting policies

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

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

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

Derivatives held for trading are measured at fair value, which is nil when initially entered into. That is, fair value changes are only recognised a