Back to top anchor
Economic and fiscal update

Half Year Economic and Fiscal Update 2012

The Half Year Economic and Fiscal Update (HYEFU) 2012 provides the Treasury's latest economic forecasts and the forecast financial statements of the Government, including the implications of Government financial decisions.

Read the related Treasury media statement: Recovery forecast to continue at moderate pace (18 December 2012).

HYEFU 2012 was published conjointly with the Budget Policy Statement (BPS) 2013.

There is Additional Information available as a PDF that is not included in the printed Update and a supplementary note titled Potential Output in the Half Year Update.

This document is available for viewing or download in Adobe PDF and HTML formats, with the exception of the Additional Information and Potential Output supplementary note. Charts and data from chapters 1 to 3 is also available in MS Excel format.
Using PDF Files

Statement of Responsibility

On the basis of the economic and fiscal information available to it, the Treasury has used its best professional judgement in supplying the Minister of Finance with this Economic and Fiscal Update. The Update incorporates the fiscal and economic implications both of Government decisions and other circumstances as at 26 November 2012 that were communicated to me by the Minister of Finance in accordance with the requirements of the Public Finance Act 1989 and of other economic and fiscal information available to the Treasury as at 26 November 2012. This Update does not incorporate any decisions, circumstances, or statements that the Minister of Finance has determined, in accordance with the Public Finance Act 1989, should not be incorporated in this Update.

 

Gabriel Makhlouf
Secretary to the Treasury

10 December 2012

To enable the Treasury to prepare this Economic and Fiscal Update I have ensured the Secretary to the Treasury has been advised, in accordance with the requirements of the Public Finance Act 1989, of all Government decisions and other circumstances as at 26 November 2012 of which I was aware and that had material economic or fiscal implications.

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

 

Hon Bill English
Minister of Finance

10 December 2012

Executive Summary

  • Economic growth is forecast to increase to 2.3% and 2.9% in the years ending March 2013 and 2014 respectively. Growth is expected to ease to 2.4% in the later forecast years - down from 3.0% in the Budget Update.
  • The Canterbury rebuild is one of the main drivers of the forecast pick-up in activity over the next two years, although its scale and timing remain key uncertainties.
  • Forecast trading partner growth is slower than in the Budget Update, but it is still expected to pick up across the forecast period.
  • Household and business spending growth is expected to pick up moderately as their financial positions improve, although compared with the past decade they are assumed to remain relatively cautious.
  • Monetary policy support for the economy is forecast to continue for some time. As activity accelerates and inflation pressures pick up, interest rates are expected to rise gradually. The exchange rate is likely to be a drag on growth over much of the forecast period.
  • The operating balance before gains and losses (OBEGAL) is forecast to move from its current deficit position to surplus in the year ending June 2015, with tax revenue expected to grow at a faster rate than expenditure.
  • A weaker economic outlook has resulted in lower tax revenue across the forecast period compared with the Budget Update. However, lower inflation and interest rate forecasts lead to lower welfare and finance expenses, partially offsetting the reduction in revenue.
  • Over the next four years the Crown is expected to spend around $17 billion on capital items such as the purchase of physical assets and student loan advances.
  • Net core Crown debt is forecast to peak at 29.5% of GDP in 2014/15 and 2015/16. Projections show debt declining thereafter, albeit more slowly than in the Budget Update.
  • Net worth attributable to the Crown begins to increase by the end of the forecast period, but remains below its level prior to the global financial crisis.
  • The Half Year Update contains two alternative scenarios to illustrate some of the risks to the main forecasts. While growth is higher in the upside scenario, OBEGAL returns to surplus in the same year as in the main forecasts. In the downside scenario, lower growth means that OBEGAL remains in deficit over the period ending June 2017.
Table 1 - Summary of the Treasury's main economic and fiscal forecasts
  2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast

Economic (March years, %)

           
Economic growth1 1.6 2.3 2.9 2.5 2.4 2.4
Unemployment rate2 6.7 6.9 6.2 5.9 5.6 5.1
CPI inflation3 1.6 1.5 1.9 2.2 2.2 2.2
Current account balance4 -4.5 -5.1 -4.6 -5.5 -6.2 -6.5

Fiscal (June years, % of GDP)

           
Operating balance5 -4.4 -3.4 -0.9 0.0 0.6 0.8
Net debt6 24.3 27.8 29.2 29.5 29.5 29.3
Net worth attributable to the Crown 28.5 26.1 24.7 24.6 25.1 25.9

Notes:

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

Sources: Statistics New Zealand, the Treasury

Finalisation Dates for the Update

 
Economic forecasts 19 November
Economic data 19 November
Tax revenue forecasts 22 November
Fiscal forecasts 26 November
Specific fiscal risks 26 November
Text finalised 10 December

Important Notice

The economic numbers and forecasts in the Economic Outlook chapter pre-date the release of annual national accounts data for the March 2012 year by Statistics New Zealand on 21 November 2012. These new data incorporated revisions and measurement changes which resulted in nominal GDP for the March 2012 year being revised higher by $3.6 billion (1.7%). The revised data will be fully incorporated into the Economic Outlook chapter of the 2013 Budget Update.

To reflect best practice, however, the revised nominal GDP data have been used in the calculation of the fiscal ratios to GDP throughout the Fiscal Outlook chapter. The higher denominator has the marginal impact of reducing the fiscal ratios, with an impact on core Crown net debt of 0.5% of GDP in the 2012 fiscal year.

Economic Outlook

Overview

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

Data released since the Budget Update was finalised show that the New Zealand economy continued its recovery from the 2008/09 recession in the first half of 2012.

Real GDP rose by 1.6% in the six months to the end of the June quarter. This strength reflected some temporary factors, including favourable growing conditions for the agriculture sector, as well as a recovery in residential investment.

The economy is likely to expand at a slower rate in the second half of the year. This reflects an observed softening in business confidence and activity indicators in the September quarter, elevated unemployment, and previous falls in the prices of our primary exports - mainly dairy products - finally showing up in the export data.

The Treasury expects the pace of GDP growth to strengthen throughout 2013, increasing to 2.9% in the year to March 2014. Despite this, growth will be uneven across the economy with variable outcomes across sectors and regions.

Growth will be supported by a substantial boost from the Canterbury rebuild, low borrowing costs, and ongoing solid demand and higher prices for our primary exports. For the first half of the forecast period, the high exchange rate will continue to constrain the New Zealand dollar earnings of exporters and import-competing firms. The tourism sector will be additionally constrained by ongoing weak income growth in traditional tourist source markets, the loss of tourism infrastructure in Christchurch, and New Zealanders taking advantage of the strong dollar to holiday abroad. In the retail sector, elevated unemployment and ongoing deleveraging are expected to see a continuation of moderate household consumption growth across the forecast period. Fiscal restraint will have a dampening effect on demand growth too.

As in most other advanced economies, the ongoing impacts of the global financial crisis are likely to constrain the pace of economic growth in the medium term. Economic growth is forecast to average 2.4% in the final years of the forecast period, down from 3.0% in the Budget Update.

The current account deficit is forecast to widen to 6.5% of GDP in the year ending March 2017, in part as a result of the Canterbury rebuild increasing investment. The assumed decline in the exchange rate towards the end of the forecast period contributes to the goods balance returning to surplus.

International outlook remains weak, with risks on the downside

Figure 1.2 - Trading partner growth
Figure 1.2 - Trading partner growth.
Sources:  IMF, the Treasury

The international economy broadly tracked in line with our Budget Update forecasts in the first six months of 2012, although the general trend since has been towards slower global economic growth. While New Zealand's increasing trade ties with China and other fast-growing Asian economies offset some weakness elsewhere, trading partner growth (TPG) in this Half Year Update is slower over the medium term than in the Budget Update forecasts.

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

Table 1.1 - Economic forecasts1
(Annual average % change,
March years)
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Private consumption 1.9 1.5 2.8 2.6 1.9 1.7
Public consumption 0.6 0.7 0.2 0.8 0.7 0.4
Total consumption 1.6 1.3 2.2 2.2 1.7 1.4
Residential investment -11.6 19.5 33.0 22.4 7.4 -0.6
Market investment 5.4 13.0 9.4 4.4 2.3 1.9
Non-market investment -12.1 -13.1 9.2 2.4 2.4 2.4
Total investment -1.0 12.9 14.4 7.7 3.5 1.5
Stock change2 0.7 -1.2 0.0 0.1 0.1 0.1
Gross national expenditure 2.2 1.6 5.1 3.7 2.3 1.5
Exports 2.6 1.9 0.5 1.2 2.1 2.7
Imports 6.3 2.0 6.6 4.2 1.6 0.3
GDP (expenditure measure) 1.1 1.7 3.0 2.5 2.4 2.4
GDP (production measure) 1.6 2.3 2.9 2.5 2.4 2.4
Real GDP per capita 0.7 1.5 2.1 1.6 1.4 1.4
Nominal GDP (expenditure measure) 3.4 3.6 5.9 4.7 4.1 4.1
GDP deflator 2.3 1.9 2.8 2.1 1.7 1.7
Output gap (% deviation, March quarter)3 -1.5 -1.5 -0.5 -0.3 -0.3 0.0
Employment 1.4 0.2 1.7 1.9 1.4 1.4
Unemployment4 6.7 6.9 6.2 5.9 5.6 5.1
Participation rate5 68.7 68.2 68.5 68.6 68.5 68.5
Nominal wages6 3.8 2.1 2.4 2.7 2.6 2.6
CPI inflation7 1.6 1.5 1.9 2.2 2.2 2.2
Merchandise terms of trade8 1.2 -2.6 5.2 1.2 0.8 0.9
House price inflation7 3.5 6.5 0.6 -1.3 0.4 1.6
Current account balance            
  $billion -9.1 -10.7 -10.2 -12.9 -15.1 -16.3
  % of GDP -4.5 -5.1 -4.6 -5.5 -6.2 -6.5
Net international investment position            
  % of GDP -71.9 -74.6 -75.0 -77.2 -80.3 -83.6
TWI9 72.5 73.0 72.8 70.6 67.3 63.2
90-day bank bill rate9 2.7 2.7 3.1 4.1 4.6 4.8
10-year bond rate9 4.0 3.6 3.6 4.5 5.0 5.2

Notes:

  1. Forecasts finalised 19 November
  2. Contribution to GDP growth
  3. Estimated as the percentage difference between actual real GDP and potential real GDP
  4. Percent of the labour force, March quarter, seasonally adjusted
  5. Percent of the working-age population, March quarter, seasonally adjusted
  6. Quarterly Employment Survey, average ordinary-time hourly earnings, annual percentage change
  7. Annual percentage change
  8. System of National Accounts (SNA) basis, annual average percentage change
  9. Average for the March quarter

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

Economic Developments

Figure 1.3 - Recovery in New Zealand real GDP compared to past slowdowns
Figure 1.3 - Recovery in New Zealand real GDP compared to past slowdowns.
Sources:  Statistics New Zealand, RBNZ, the Treasury

Economic recovery has been slow...

The New Zealand economy has experienced only a slow and gradual recovery from the 2008/09 recession.

This performance reflects the net impact of the major forces that have influenced activity in the economy over the past few years. These are:

  • slower growth in the global economy since the onset of the global financial crisis, with associated impacts on funding costs and the exchange rate
  • changes in household and firm behaviour following the build-up of debt over the mid-2000s
  • the Canterbury earthquakes and their impact on sentiment and activity, and
  • stimulatory fiscal and monetary policies.
Figure 1.4 - International real GDP comparisons
Figure 1.4 - International real GDP comparisons.
Sources:  Haver Analytics, the Treasury

The release of revised GDP data since the Treasury finalised the 2012 Budget Update forecasts reinforces the picture of the muted recovery from recession.

At the time of the 2012 Budget Update, the expenditure and production measures of GDP painted unusually divergent pictures of the pace of growth in the economy. This difference has since been revised away, and has influenced our judgement over the pace of potential economic growth over the coming years. (See ‘GDP Growth in the Half Year Update' box for further details.)

...in keeping with much of the developed world 

The New Zealand economy has not been alone in experiencing a slow recovery from the global financial crisis over recent years. A number of other OECD economies have experienced slower recoveries - notably the UK and the euro area - and are yet to surpass their pre-crisis levels of real output.

Solid growth in the first half of 2012 was influenced by temporary factors

Data released since the Budget Update was finalised show that the New Zealand economy continued its recovery from the 2008/09 recession in the first half of 2012. Real GDP rose by 1.6% in the six months to the end of the June quarter.

This strength reflected some temporary factors, including favourable growing conditions for the agriculture sector, as well as a recovery in residential investment.

The economy appears to have gone through a weak patch in the September quarter, reflecting a weak outturn from the labour market and an observed drop in confidence and activity indicators in the business sector. However, the early signs from the December 2012 quarter point to a pick-up in activity.

The Treasury's outlook for the most likely path for the economy over the forecast horizon is based on judgements on the impact and net interaction of the main forces that were identified earlier.

International Outlook

Extreme risks to the international economy have eased, but challenges remain

The European Central Bank's (ECB) announcement of Outright Monetary Transactions has helped to reduce the extreme downside risks to the global economy from a potential break-up of the euro area. Signs that the US housing market is starting to pick up also offer some encouragement, and growth is expected to rise in China in 2013 as well.

However, the economic outlook for the euro area remains weak, with further difficult structural reforms needed across much of the region. Meanwhile, in spite of the recent re-election of President Obama, the economic outlook in the US is overshadowed by political disagreements which could delay a credible medium-term path to fiscal sustainability. One large unknown is the extent to which ongoing economic challenges in the developed economies will constrain growth in the emerging markets, including China.

As Australia's largest export market, developments in China will also have significant knock-on implications for the economic prospects of our largest trading partner. The Australian outlook remains favourable by international standards, although the slowdown in mining investment is greater than previously forecast.

Trading partner growth (TPG) of 3.4% is expected in both the 2012 and 2013 calendar years - slightly below the 30-year average growth rate of 3.8%. In a reflection of New Zealand's increasing trade links with China and other Asian economies, TPG is expected to recover to its long-run average growth rate in the later years of the forecast period, albeit at a slightly slower pace than expected at the time of the Budget Update.

Table 1.2 - Trading partner growth (% change, calendar years)
  2012
Weights
2011
Actual
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Australia 28% 2.1 3.6 2.9 2.7 3.1 3.2 3.2
China 15% 9.3 7.7 7.8 7.6 7.3 7.0 7.0
United States 11% 1.8 2.2 2.0 2.3 2.4 2.5 2.5
Euro area 9% 1.5 -0.6 -0.2 1.0 1.2 1.3 1.4
Japan 9% -0.7 2.2 1.0 1.3 1.1 1.0 1.0
United Kingdom 4% 0.8 -0.1 1.0 1.4 1.8 2.0 2.0
Canada 2% 2.4 2.0 2.0 2.3 2.4 2.5 2.5
Other Asia* 23% 4.6 3.7 4.4 5.0 5.0 5.0 5.0
Trading partners 100% 3.2 3.4 3.4 3.6 3.7 3.8 3.8
Consensus (November 2012)   3.2 3.3 3.4 3.8 3.9 3.9 3.8
IMF(October WEO)   3.2 3.3 3.6 3.9 4.1 4.2 4.2

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

Sources: IMF, Consensus Economics, the Treasury

Domestic Outlook

New Zealand economy continues to recover...

The soft patch in domestic activity in the September 2012 quarter, combined with a weaker international outlook and a stronger New Zealand dollar (NZD), has led us to reduce forecast real GDP growth to 2.3% and 2.9% in the years ending March 2013 and March 2014 respectively (from 2.6% and 3.4% in the Budget Update forecasts). Growth across the later years of the forecast period averages 2.4% per year - down from 3.0% in the Budget Update forecasts, reflecting the Treasury's changed assessment of potential growth. (See ‘GDP Growth in the Half Year Update' box for further details.)

Figure 1.5 - Composition of GDP growth
Figure 1.5 - Composition of GDP growth.
Sources:  Statistics New Zealand, the Treasury

Investment relating to the Canterbury rebuild remains a strong driver of GDP growth across most of the forecast period. Total consumption also makes a solid contribution to growth across the forecast horizon, although growth in household consumption spending is constrained by ongoing consumer deleveraging, elevated unemployment, and subdued house price growth. Export volumes make only a modest contribution to growth over the next two years as the bumper agricultural conditions of recent years return to normal, international conditions remain weak, and an elevated exchange rate deters tourists. A pick-up in imports, in part relating to the Canterbury rebuild, means that net exports detract from real GDP growth until 2016. Thereafter, net exports begin to make a positive contribution to growth as the international outlook improves and growth in Canterbury rebuild activity slows.

GDP Growth in the Half Year Update

The Treasury's main forecast shows the economic recovery in New Zealand gathering momentum over the coming year, with accelerating GDP growth, falling unemployment and inflation returning to the centre of the Reserve Bank's target range. However, the economy is expected to grow more slowly over the forecast period than was expected at the time of the Budget Update.

In forming a view about the likely growth of the New Zealand economy, the Treasury must make a judgement about its underlying supply capacity. This is informed by an assessment of trends in the growth of the working-age population, the share of those willing and able to work and the productivity with which they do so. Together, these judgements provide an anchor for the forecast of GDP in the medium term.

This assessment is complemented by an examination of the margin of spare capacity in the economy and, therefore, the scope for the economy to grow faster than its underlying rate as those resources are put to use. This depends on the number of unemployed and the amount of equipment sitting idle, awaiting a pick-up in demand.

In the 2009 Budget Update, the Treasury took account of the impact of the global financial crisis by revising down its forecasts of GDP growth. Since then, the economic recovery in a number of advanced economies has disappointed, leading other forecasting institutions such as the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), and the Reserve Bank of New Zealand (RBNZ) to further revise down their growth forecasts.

Figure 1.6 - The level of real GDP
Figure 1.6 - The level of real GDP.
Sources:  The Treasury, Consensus Economics

Economic growth in the Half Year Update is forecast to be around 0.5% points lower, per year, than was expected in the 2012 Budget Update. This largely reflects a judgement that, while there is now slightly more spare capacity in the economy than was expected, owing to rising unemployment, the underlying growth rate of the New Zealand economy will be slower for longer. That is to say that the weaker growth over the forecast period is not expected to be offset by stronger growth in later years and, as a result, the level of GDP at the end of the forecast period will be around 2% lower than was anticipated in the Budget Update (after taking into account revisions to the GDP data).

Our updated assessment of the economy's growth prospects leaves our forecasts broadly consistent with those of other forecasters, following a downward revision to the average of those forecasts since the time of the Budget Update (Figure 1.6). Following a detailed assessment of the New Zealand economy's supply capacity, the risks to the main forecast are considered to be broadly balanced, albeit skewed to the downside. More information on this assessment can be found in the supplementary note ‘Potential Output in the Half Year Update' published online with this Half Year Update document. Alternative economic scenarios which explore the sensitivities of the forecast to illustrative upside and downside scenarios are presented in the Risks and Scenarios chapter.

...with the Canterbury rebuild set to boost residential investment...

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

The Canterbury rebuild remains a strong driver of demand growth in the Half Year Update forecasts, with earthquake-related residential rebuilding a key factor underpinning the near-term pick-up in residential investment in the Half Year Update. Once in full swing, the residential rebuild comprises over 15% of total real residential investment. Growth in residential investment accelerated sharply in the June quarter of 2012 and is forecast to rise further to an annual peak of over 34% in the final quarter of 2013.

Residential investment activity in the rest of the country is expected to increase over time as pent-up demand in some regions comes through. Demand for housing is likely to be supported by past population growth, expected future population increases, rising household incomes, a forecast gradual decline in unemployment, low interest rates, and some ongoing repairs of leaky homes. The level of residential investment activity in our forecasts peaks in the March 2016 year almost 50% higher than its average over the 2000s. The level of residential investment starts to normalise at the end of the period as the bulk of the Canterbury residential rebuild is completed.

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

...as well as business investment

Canterbury-related rebuild activity is also a strong driver of the expected pick-up in business investment over the forecast period. The Treasury's estimate for the damage to commercial and infrastructure assets from the Canterbury earthquake has been revised up to around $12 billion (in 2011 prices) from the previous $7 billion. (See ‘Economic Impact of the Canterbury Rebuild’ box for full details.)

In addition to the impact of the Canterbury rebuild, business investment receives ongoing support from low domestic interest rates, and a high exchange rate making imported capital equipment cheaper, during much of the forecast period - particularly over the next few years. Annual business investment growth is forecast to increase at double-digit rates until late-2013. Investment settles around a historically-high share of real GDP (22%) across the forecast period.

Economic Impact of the Canterbury Rebuild

This box provides an overview of the Treasury's updated estimates of the economic impact of the Canterbury earthquakes.

Damage and rebuild cost estimates revised higher...

Following new information compiled by the Canterbury Earthquake Recovery Authority (CERA), the Treasury has revised up its estimate of the damage caused by the Canterbury earthquakes to $25 billion from $20 billion in the Budget Update (Table 1.3).

Table 1.3 - Estimates of earthquake damage and rebuild costs ($billions, 2011 prices)
  Residential Commercial
& Social
Infrastructure Total
Budget Update 13 4 3 20
Half Year Update        
   Cost of damage 13 9 3 25
   Cost of rebuild 14 13 3 30

Source: The Treasury

This revision reflects better information about the extent of damage to commercial assets, as well as the inclusion of damage to social assets such as schools and hospitals. As in previous forecasts, the revised estimates remain a working assumption with much uncertainty.

The damage estimates represent damage to property, contents, and infrastructure in constant 2011 prices. Allowing for improvements to the previous capital stock, the Treasury estimates that the total amount of fixed capital investment stemming from the Canterbury rebuild may be around $30 billion. Factoring in additional costs such as business disruption and contents insurance could lift the total cost of recovery higher still.

...although the rebuild is not expected to be completed during the forecast period

Figure 1.9 - Canterbury rebuild profile
Figure 1.9 - Canterbury rebuild profile.
Source:  The Treasury

As in previous forecast rounds, resource constraints in the wider economy mean that not all of the rebuild-related investment is incorporated into the Treasury’s economic forecasts. Overall, just over half of the total expected rebuild cost is factored into the Half Year Update forecasts for the period ending June 2017.

The Treasury assumes that priority will be given to infrastructure and residential investment. All of the infrastructure activity is incorporated into the forecast period, while most of the expected residential rebuild activity is assumed to be completed before June 2017 too. Around $3 billion of commercial and/or social investment is incorporated into the Half Year Update forecasts.

Consumption a solid driver of growth...

Total consumption also makes a solid contribution to GDP growth across the forecast period. Annual household consumption growth is expected to increase from 1.5% over the year ending March 2013 to 2.8% in the year ending March 2014. Growth is underpinned by robust demand for durable goods, such as furniture and furnishings, associated with the expected rise in residential investment and newly constructed dwellings.

Figure 1.10 - Real private consumption growth
Figure 1.10 - Real private consumption growth.
Sources:  Statistics New Zealand, the Treasury

...notwithstanding offsetting factors...

As with overall GDP growth, a combination of factors is expected to impinge on household spending decisions over the forecast period.

First, following the build-up of household debt over the 2000s, households are likely to be less willing to take on additional consumer debt going forward than in the past. This change in behaviour is a necessary foundation for more sustainable growth in the medium and long term. However, it will require slower growth in consumer spending than was seen during the past decade.

The second factor that is expected to impinge on household spending decisions over the coming years is the subdued outlook for house price inflation, and weaker wealth effects in general. Following a 6.5% rise in the March 2013 year, driven in large part by the buoyant Auckland market, a pick-up in national supply and higher interest rates mean that house prices are forecast to increase by less than the pace of consumer price inflation over the forecast period.

...and loose labour market conditions...

Figure 1.11 - Labour market
Figure 1.11 - Labour market.
Sources:  Statistics New Zealand, the Treasury

The final factor that is likely to constrain the pace of growth in household spending over the forecast period is ongoing loose labour market conditions. Despite recent weak outturns, we continue to expect employment growth to pick up over the forecast horizon as the Canterbury rebuild and improvement in business confidence increase demand for labour. Employment growth rises to 1.9% in the March 2015 year - its fastest annual pace since the March 2007 year - and the unemployment rate is expected to decline to just below 5% in the June 2017 quarter.

Constraints on the Canterbury rebuild are likely to see construction sector wages rise more rapidly than those in other industries over the coming years. There is a risk that this exerts more upward pressure on wages in other industries than is factored into our forecasts, especially if rebuild activity exacerbates skills mismatches in the labour market.

Figure 1.12 - Average ordinary-time hourly earnings
Figure 1.12 - Average ordinary-time hourly earnings.
Sources:  Statistics New Zealand, the Treasury

Meanwhile, changes to the Government's welfare policies, which have strengthened job search incentives, have also been incorporated into our forecasts in the form of a slight increase in the labour force participation rate.

However, the surprise jump in the unemployment rate in the September 2012 quarter means that the starting point for the labour market forecasts in the Half Year Update is higher than at the time of the BudgetUpdate. Accordingly, the unemployment rate in the Half Year Update forecasts is higher across the forecast period than in the Budget Update, and the looser labour market conditions are reflected in weaker wage growth forecasts too. Annual wage growth eased to 2.8% in the September 2012 quarter, down from a peak of 3.8% in the March 2012 quarter, and is expected to average 2.5% over the forecast period.

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

On balance, we expect private consumption largely to grow in line with income growth over the forecast period. Given the forecast pick-up in residential investment, though, the overall borrowing requirement of households is likely to increase.

...as well as tighter fiscal policy

The Government's commitment to spending restraint in Budget 2012 and in earlier Budgets is reflected in low growth in real government consumption throughout the forecast horizon. With this forecast pace of growth lagging behind that of overall GDP, government spending on goods and services' share of real GDP falls from 18.5% at present to 16.7% in the June 2017 quarter. Combining this with the other components of government spending (transfer payments and capital spending) and the revenue it is receiving (mainly taxes), means the Government is forecast to be subtracting from domestic demand growth over much of the forecast period.[1]

External sector initially a drag on growth...

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

Turning to the external sector, a continuation of favourable weather conditions for our main commodity exports should support goods export growth in the March 2013 year. This is driven in the main by dairy exports, which appear to have been boosted by a run-down in inventories in the September 2012 quarter.

However, the overall pace of growth of goods exports is forecast to slow in the March 2014 year as agricultural conditions are assumed to ease back to normal. Given the discouraging effect of the strong exchange rate and weak economic conditions in our traditional tourist source markets, services exports are expected to remain subdued too. Total export growth is expected to slow to 0.5% in the March 2014 year - its slowest pace since the March 2009 year.

With this soft patch in export growth forecast to coincide with a pick-up in imports, net exports detract from real GDP growth in both the March 2014 and 2015 years. Growth in imports accelerates from 2.0% in the March 2013 year to 6.6% in the March 2014 year.

...but improves in the later forecast years

Figure 1.15 - Export and import volume growth
Figure 1.15 - Export and import volume growth.
Sources:  Statistics New Zealand, the Treasury

Thereafter, net export volumes begin to make a positive contribution to real growth, driven in part by a slowdown in the pace of the Canterbury rebuild and related imports as well as the assumed decline in the exchange rate. Import volumes growth in our Half Year Update forecasts slows to 1.6% and 0.3% in the March 2016 and 2017 years respectively. The turnaround in net exports also reflects a pick-up from the export side. Services exports will benefit from the expected gradual improvement in the global economy, and the forecast of a lower exchange rate will boost tourism exports as well. On the commodity export side, ongoing conversions of sheep and beef farms to dairying, as well as further productivity gains and investment, are expected to underpin dairy export growth of around 3% per year in the medium term. Meat and other commodity exports, including horticulture, wine, seafood, and minerals, are likely to benefit from deeper links with Asian export markets too.

Annual growth in export volumes surpasses that of imports from the March 2016 year onwards.

Notes

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

Goods terms of trade remain solid...

Meanwhile, the relative price of our goods exports to that of our goods imports - the goods terms of trade - are also forecast to remain at historically high levels throughout the forecast horizon.

The goods terms of trade have eased back from close to a 40-year high over the past year or so, on the back of increased global dairy supply and an easing in global commodity demand reflecting weak trading partner growth conditions. We forecast the goods terms of trade to weaken further in the short term.

However, the recovery in global dairy prices over the past six months is expected to be reflected in an increase in the goods terms of trade in the first quarter of 2013. The observed pick-up in dairy prices has in part reflected concerns over the impact of US drought conditions on dairy supply - a factor that should also help to support the price of our meat exports in the longer term. The goods terms of trade are expected to surpass their June 2011 quarter peak by late-2013.

...supported by structural factors...

Moreover, with global demand for our commodity exports expected to strengthen over time, the prices of our commodity exports are expected to be supported at or near historical highs.

Indeed, with Chinese per capita consumption of dairy products forecast to increase as Chinese incomes rise, global demand for dairy products is likely to strengthen over time. Global supply will respond, although there are biological constraints to the speed at which it can do so. Moreover, global production costs are expected to rise in reflection of tighter environmental standards and increased land-use competition from bio-fuel and other food industries. All told, this combination of factors is likely to continue to put upward pressure on global dairy prices in the coming years. The ongoing scarring impact of the US drought on global meat supply should support prices until the later years of the forecast period.

Part of the expected increase in our export prices is likely to be offset by higher goods import prices. However, crucially, goods import prices are expected to rise at a slower pace than exports over the forecast period. Indeed, rises in the prices of consumer and intermediate goods imports are expected to be outweighed partly by falls in the price of capital goods - in keeping with their long-run decline - and, to a lesser extent, mineral fuels too. West Texas Intermediate (WTI) oil market futures contracts, which form the basis for our oil price assumption, are pricing in a gradual decline in oil prices over the forecast period. WTI oil prices are assumed to fall to around $86 per barrel in the first quarter of 2017 - some 7% lower than their average in the September 2012 quarter.

...helping to offset weakness in the services terms of trade

By contrast to the reasonably bright outlook for the goods terms of trade, the expected decline in the NZD increases the relative price of travel and other services imports for New Zealanders, and drives the expected weakening in the services terms of trade. Overall, the combined goods and services terms of trade remain at an historically high level throughout the forecast period, but deteriorate gradually from 2013 onwards.

Wider current account deficit...

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

The current account deficit is expected to widen to 6.5% of GDP in the year ending March 2017, from 4.9% in the year ending June 2012. This deterioration in part reflects a widening deficit on services, from 0.4% of GDP in the March 2013 year to 1.9% of GDP in the March 2017 year - in line with the declining services terms of trade.

The surplus on the goods balance, currently 0.9% of GDP, falls into a small deficit in the March 2015 year before recovering towards the end of the forecast period as the lower exchange rate helps to boost export earnings. The income deficit narrows to around 4% of GDP in the March 2014 and 2015 years as lower global interest rates outweigh stable company profits. However, the income deficit widens to over 5% of GDP by the end of the forecast period as interest rates rise and profits of overseas-owned local companies pick up.

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

The transfers balance is forecast to remain in deficit throughout the forecast horizon reflecting the impact of higher insurance premiums in the wake of the Canterbury earthquakes.

...although national saving rises over the forecast period

From a saving and investment perspective, the forecast widening in the current account deficit reflects the expected increase in investment driven by the Canterbury rebuild and part-financed by overseas reinsurance flows. Statistics New Zealand estimates a total of $17.9 billion of reinsurance claims from all Canterbury earthquakes. At the end of the June 2012 quarter, $5.1 billion of these claims had been settled with overseas reinsurers, with these inflows recorded in the capital account of the balance of payments.

National saving is forecast to rise, mainly as a result of higher government saving. Household saving is expected to consolidate around current levels.

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

Excluding earthquake-related investment, the current account in the Half Year Update forecasts would average around 4% of GDP over the forecast horizon, albeit widening slightly toward the end of the period.[2]

The net international liability position is forecast to rise from 72.6% of GDP at the end of June 2012 to 83.6% of GDP at the end of March 2017, reflecting a fall in international assets as insurance claims are settled.

Inflation is restrained...

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

Annual CPI inflation fell to 0.8% in the September 2012 quarter - its slowest rate since December 1999. The fall was largely caused by the ongoing influence of a strong NZD, falling global commodity prices, and subdued domestic demand reflected in heavy discounting in the retail sector. Inflation is forecast to rise as downward price pressure from the high exchange rate fades, excises on tobacco and transport increase, and spare capacity in the economy is reduced. The rise in building activity is also expected to result in an increase in price pressures in the construction sector.

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

The forecasts assume that monetary policy does not tighten to offset the temporary effects of the higher excises on the CPI. With inflation forecast to be weaker in the near term than at the Budget Update, the withdrawal of monetary stimulus in the forecasts is more gradual than at Budget too. Short-term 90-day interest rates are expected to remain around 2.7% until the September 2013 quarter. However, strengthening demand in the economy and diminishing spare capacity are forecast to lead to a gradual pick-up in inflation pressures. Short-term interest rates increase gradually from late 2013. Annual CPI inflation is expected to settle around the mid-point of the Reserve Bank's 1-3% target range from late 2013.

Notes

  • [2]Excluding rebuild-related investment gives only a partial assessment of the impact of the Canterbury earthquakes on the balance of payments. A full assessment of earthquake-related effects would require making a number of uncertain and difficult judgements, including the amount of investment that has been and will be displaced by rebuild activity, and any changes to household and/or public saving behaviour.

...but the pace of tightening is uncertain

Figure 1.20 - Exchange rate and 10-year interest rates
Figure 1.20 - Exchange rate and 10-year interest rates.
Sources:  RBNZ, the Treasury

The speed, timing and extent of future official interest rate rises will depend on a variety of factors including the strength of domestic demand, conditions in financial markets, and developments in the exchange rate. The transmission mechanism of official interest rates through the banking sector is also a key uncertainty. Banks continue to find the cost of funds elevated relative to their pre-global financial crisis levels, which has increased the margin between the Reserve Bank's OCR and retail interest rates. Ongoing uncertainty in international funding markets will remain an influence, while upward pressure on domestic funding costs is expected as domestic deposit growth slows and credit demand rises. All told, if these higher funding costs are passed on to borrowers, this would also lead to tighter monetary conditions than forecast.

Ten-year interest rates fell to an historical low of 3.5% in the September 2012 quarter, reflecting lower yields internationally, but also some specific factors such as an improvement in investor sentiment as New Zealand's economic outlook has remained favourable relative to a number of other countries, as well as diversification by overseas investors in their search for yield.

The exchange rate is forecast to remain close to its current level until the first half of 2014. As mentioned throughout the chapter, the exchange rate is forecast to depreciate steadily from then on, reflecting the adjustment required to reduce the current account deficit to a sustainable level over time.

Stronger income growth expected

Figure 1.21 - Nominal GDP growth
Figure 1.21 - Nominal GDP growth
Sources:  Statistics New Zealand, the Treasury

After falling to 3.4% in the March 2012 year, nominal GDP growth is forecast to increase only slightly to 3.6% in the March 2013 year reflecting the almost 7% peak-to-trough fall in the goods terms of trade. Nominal GDP growth accelerates strongly to just under 6% in the March 2014 year as the terms of trade rebound, before levelling off at around 4% in the final forecast years.

Nominal GDP is mainly comprised of compensation of employees, and business and agricultural operating surplus. These components are important for generating forecasts of tax revenue - a key consideration for the fiscal outlook.

Compensation of employees is forecast to grow by 3.5% in the year ending March 2013, and continues to grow at around 4% per year during the forecast horizon. This means that compensation of employees is stable as a share of GDP at around 45% from the March 2014 year onwards.

Having posted double-digit growth in the previous three March years, the agricultural operating surplus is expected to fall sharply in the year ending March 2013, with lower commodity prices and limited offset from the exchange rate. Agricultural operating surplus growth is expected to recover to around 13% per year in the later forecast years as prices for our commodity exports increase and the exchange rate falls.

Business operating surplus is expected to rise strongly in the March 2014 year reflecting an acceleration in Canterbury rebuild activity. Thereafter operating surplus growth slows to just under the pace of nominal GDP growth, in line with moderating non-agricultural activity.

Economic Forecast Assumptions

  • From an outflow of 3,000 in the year ending March 2012, net permanent and long-term migration rises to a small inflow of 1,000 in the year ending March 2013 before returning to a long-run assumption of a net inflow of 12,000 per year by the start of 2015 (in line with Statistics New Zealand's new population projections).
  • The non-accelerating inflation rate of unemployment (NAIRU) is assumed to be around 4.5% by 2017.
  • Average hours worked per week are assumed to be 33 (near their current level).
  • After rising to 2.6% in the March 2013 year, economy-wide labour productivity growth is assumed to average around 1% per year between the years ending March 2014 and March 2017.
  • The total cost of the rebuild from the Canterbury earthquakes is assumed to be around $30 billion (2011 dollars), spread across residential property and contents ($14 billion), commercial and social assets ($13 billion) and infrastructure ($3 billion). Rebuilding is expected to gather pace from now on. See ‘Economic Impact of the Canterbury Rebuild' box for further details.
  • WTI oil prices are assumed to fall from around US$92 per barrel in the September 2012 quarter to just under US$86 in the June 2017 quarter.
  • Ninety-day interest rates are assumed to increase in late 2013 to around 4.75% at the end of the forecast period. Ten-year interest rates are also assumed to rise gradually from their current historical lows over the forecast period, reaching 5.3% by the end.
  • The Trade Weighted Index (TWI) is assumed to remain around 73 until the start of 2014 before falling to just under 62 by the end of the forecast period in the June 2017 quarter.
  • Tobacco excise increases add 0.2% points to the CPI in each of the March quarters from 2013 to 2016.

Fiscal Outlook

Key Points

  • Tax revenue is forecast to grow at twice the rate of core Crown expenses as the economy grows and the Government continues to apply fiscal constraint.
  • Operating deficits narrow over the next two years and return to surplus in 2014/15.
  • Net core Crown debt peaks at 29.5% of GDP in 2014/15 and 2015/16.
  • Operating surpluses begin to rebuild the fiscal buffer against future shocks.
Table 2.1 - Fiscal indicators
Year ended 30 June 2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast

$billions

           
Core Crown tax revenue 55.1 57.4 61.9 65.6 68.9 71.9
Core Crown expenses 69.1 72.0 71.8 73.7 75.6 78.0
Total Crown OBEGAL1 (9.2) (7.3) (2.0) 0.1 1.4 2.0
Total Crown OBEGAL (excluding earthquake expenses) (7.3) (6.0) (2.1) 0.2 1.4 2.1
Total Crown operating balance (14.9) (3.3) 0.0 2.1 3.6 4.4
Core Crown residual cash (10.6) (9.8) (6.9) (4.6) (3.3) (2.9)
Net core Crown debt2 50.7 60.0 66.7 70.7 73.5 75.9
Gross debt3 79.6 80.2 88.4 86.3 90.1 95.9
Net worth attributable to the Crown 59.3 56.3 56.5 58.8 62.6 67.0

% of GDP

           
Core Crown tax revenue 26.5 26.6 27.0 27.4 27.7 27.7
Core Crown expenses 33.2 33.3 31.4 30.8 30.3 30.1
Total Crown OBEGAL1 (4.4) (3.4) (0.9) 0.0 0.6 0.8
Total Crown OBEGAL (excluding earthquake expenses) (3.5) (2.8) (0.9) 0.1 0.6 0.8
Total Crown operating balance (7.2) (1.5) 0.0 0.9 1.4 1.7
Core Crown residual cash (5.1) (4.5) (3.0) (1.9) (1.3) (1.1)
Net core Crown debt2 24.3 27.8 29.2 29.5 29.5 29.3
Gross debt3 38.2 37.1 38.7 36.0 36.2 37.0
Net worth attributable to the Crown 28.5 26.1 24.7 24.6 25.1 25.9

Notes:

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

A glossary and a longer time series for these indicators are provided on pages 120 and 126 respectively.

Source: The Treasury

Overview

The fiscal outlook sees revenue growing at a slightly faster rate than the economy over the next five years, while expenses decline in comparison as fiscal constraint applied in recent Budgets is forecast to take effect. As a result, operating deficits narrow over the next two years before the Crown returns to surplus in 2014/15.

Compared to the Budget Update, a weaker economic outlook has resulted in reductions in tax revenue across the forecast period. However, lower inflation and interest rate forecasts have meant that benefit and finance costs are also expected to decline, partially offsetting the reduction in revenue. As a result, the fiscal outlook is broadly similar to that forecast at the Budget Update. More detailed information about the return to surplus can be found on page 32.

The Canterbury Earthquake Recovery Fund remains at $5.5 billion based on the current estimate of the Crown's share of the costs. Policy decisions to date are expected to fully utilise the Fund (refer page 30).

With a return to surplus forecast, net worth is expected to begin to recover but remains below the levels that existed prior to the global financial crisis.

Net debt continues to increase in nominal terms across the forecast period, but peaks as a percentage of GDP in 2014/15 and 2015/16 at 29.5%. While operating cash flows are expected to be positive by 2015/16, over the five-year forecast period cash deficits total $10.0 billion. When capital payments of $17.4 billion over the period to 2016/17 (eg, purchasing assets and issuing student loans) are included, residual cash deficits continue across all periods of the forecasts (Table 2.2).

There are risks to these forecasts, particularly in relation to the uncertainty of the economic outlook and the cost of the Canterbury rebuild to the Crown. Both the Specific Fiscal Risks and the Risks and Scenarios chapters discuss these risks.

Table 2.2 - Reconciliation between OBEGAL and net debt
Year ended 30 June
$billions
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Core Crown revenue 60.6 62.9 67.8 71.8 75.0 78.3
Core Crown expenses (69.1) (72.0) (71.8) (73.7) (75.6) (78.0)
Net surpluses/(deficits) of SOEs and CEs (0.7) 1.8 2.0 2.0 2.0 1.7
Total Crown OBEGAL (9.2) (7.3) (2.0) 0.1 1.4 2.0
Net retained surpluses of SOEs, CEs and NZS Fund 0.4 (1.7) (2.1) (2.0) (2.1) (1.8)
Non-cash items and working capital movements 1.6 1.9 0.6 0.7 1.0 1.3
Net core Crown cash flow from operations (7.2) (7.1) (3.5) (1.2) 0.3 1.5
Net purchase of physical assets (1.3) (1.7) (2.2) (1.8) (1.4) (1.4)
Advances and capital injections (2.1) (2.3) (2.0) (2.2) (2.9) (2.0)
Forecast for future new capital spending (0.2) (0.7) (0.9) (0.8) (1.0)
Proceeds from Government share offers 1.5 1.5 1.5 1.5
Core Crown residual cash deficit (10.6) (9.8) (6.9) (4.6) (3.3) (2.9)
Opening net debt 40.1 50.7 60.0 66.7 70.7 73.5
Core Crown residual cash deficit 10.6 9.8 6.9 4.6 3.3 2.9
Other valuation changes in financial assets and financial liabilities (0.5) (0.2) (0.6) (0.5) (0.5)
Closing net debt 50.7 60.0 66.7 70.7 73.5 75.9
As a percentage of GDP 24.3% 27.8% 29.2% 29.5% 29.5% 29.3%

Source: The Treasury

Core Crown Tax Revenue

Tax revenue continues to recover and increase as a percentage of GDP...

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

Core Crown tax revenue is forecast to increase by $14.5 billion over the next four years and grow at a faster rate than the economy, reaching $71.9 billion (27.7% of GDP) in 2016/17 as shown in Figure 2.1.

Most of the increase in tax revenue is owing to growth in the economy, with nominal GDP forecast to grow by 24.5% (over the next five years), in part because of the rebuild of Canterbury. The increase in tax revenue over the forecast period mainly comes through four tax types:

  • Earnings growth means that wages increase and, because of the progressive nature of the personal tax scale (ie, higher marginal tax rates at higher incomes), average personal income tax rates increase, adding about 0.4% of GDP to source deductions through pay as you earn tax (PAYE).
Figure 2.2 - Core Crown tax revenue by type
Figure 2.2 - Core Crown tax revenue by type.
Source:  The Treasury
  • Increasing interest rates add about 0.2% of GDP to resident withholding tax (RWT) as the key 90-day rate is forecast to rise from 2.6% to 4.7%.
  • An increase in the assumed effective tax rate on total entrepreneurial income, owing to a number of influences flowing on from changes made in Budget 2010 (including base-broadening depreciation measures and the effect of increased enforcement activity by the Inland Revenue [IRD]), adds about 0.2% of GDP to other persons tax.
  • In addition to the impact of economic growth, the Half Year Update includes policy changes to fuel excise and road user charges, providing $1.1 billion of additional revenue (including 2016/17).

...but the tax forecasts have weakened since the last Budget Update

Weaker economic forecasts have reduced tax revenue since the Budget Update by $7.9 billion for the four years to 2015/16, as shown in Table 2.3 below.

Table 2.3 - Movement in core Crown tax revenue forecasts since the Budget Update
Affected tax type Economic driver 2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
Total impact
Source deductions Employees' compensation - (0.3) (0.6) (0.9) (1.8)
Other persons tax Entrepreneurial income (0.1) (0.2) (0.2) (0.4) (0.9)
Company tax Operating surplus (0.6) (0.4) (0.5) (0.6) (2.1)
Goods and services tax Consumption and residential investment (0.3) (0.4) (0.4) (0.6) (1.7)
RWT Interest rates (0.2) (0.2) (0.2) (0.2) (0.8)
All other taxes Other (0.1) (0.1) (0.2) (0.2) (0.6)
Total macroeconomic effect   (1.3) (1.6) (2.1) (2.9) (7.9)
Tax forecasting changes   0.2 0.4 0.5 0.2 1.3
Tax policy changes   - 0.2 0.3 0.4 0.9
Total changes in tax revenue since Budget 2012   (1.1) (1.0) (1.3) (2.3) (5.7)

Source: The Treasury

The tax forecasting changes, which were not directly related to changes in the macroeconomic forecast, were positive in each year. These changes were mainly caused by increases in:

  • the effective tax rate on other persons tax owing to changes made in Budget 2010, as discussed earlier, which has become apparent through recent tax outturns, and
  • the assumed level of tax on investment income as a result of the increasing popularity of savings schemes such as KiwiSaver.

The tax policy changes to road user charges and fuel excise duty are new decisions since Budget.

Treasury and IRD forecasts

In line with established practice, IRD has also prepared a set of tax forecasts which, like the Treasury's tax forecasts, is based on the Treasury's macroeconomic forecasts. In this Half Year Update, the two sets of tax forecasts are close to each other, with the largest difference in any one year being just over $300 million (around 0.5% of core Crown tax revenue). A full comparison of the Treasury and IRD forecasts can be found in the Additional Information on the Treasury website, at www.treasury.govt.nz/budget/forecasts/hyefu2012.

Core Crown Expenses

Core Crown expenses continue to increase over the forecast period but fall as a percentage of GDP...

Figure 2.3 - Core Crown expenses
Figure 2.3 - Core Crown expenses.
Source:  The Treasury

Core Crown expenses are expected to increase in nominal terms by $8.9 billion over the forecast period, from $69.1 billion in 2011/12 to $78.0 billion in 2016/17, as shown in Figure 2.3.

While expenses continue to increase, the growth is expected to be at a slower rate than economic growth. As a result, core Crown expenses fall as a percentage of GDP over the forecast period.

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

Figure 2.4 illustrates the slowing expense growth (excluding earthquake costs). Over the 10 years from 2002/03 through to 2011/12 the average annual increase in core Crown expenses was 6.1%, but over the next five years the average increase is forecast to halve to 3.0% per year. The fall in the growth rate is largely owing to fiscal constraint on spending in recent Budgets.

This fiscal constraint is projected to continue over the ten years following the forecast period and helps the Crown rebuild the fiscal buffer and resume contributions to the NZS Fund. See page 38 for details about the projection period.

Figure 2.5 - Future budget allowances
Figure 2.5 - Future budget allowances.
Source:  The Treasury

While the rate of expense growth declines, the nominal increase in core Crown expenses is $8.9 billion from 2011/12 to the end of the forecast period, as detailed in Table 2.4.

New operating initiatives are the largest component of the increase in core Crown expenses. Of the $5.0 billion of allowance increases, $0.6 billion relates to Budget 2012, with the remaining $4.4 billion relating to the next four Budgets, as shown in Figure 2.5.

Table 2.4 - Growth in core Crown expenses
Year ended 30 June $billions
Core Crown expenses 2011/12 69.1
Core Crown expenses 2016/17 78.0
Increase in core Crown expenses 8.9
New spending  
Budget allowances 5.0
Forecast changes  
Social assistance 3.4
Emissions Trading Scheme (0.3)
Finance costs 0.8
Debt impairments 0.7
One-off costs  
Weathertight homes 0.3
Earthquake expenses (1.2)
Other movements 0.2
Total change in expenses 8.9

Source: The Treasury

In addition to new spending, increases in benefit spending provide most of the remainder of expense growth. Social assistance benefits are expected to increase $3.4 billion over the next five years, with $3.1 billion of the increase related to New Zealand Superannuation payments (forecast to rise from $9.6 billion in 2011/12 to $12.7 billion by 2016/17). About two-thirds of the growth in superannuation payments is owing to an increase in recipient numbers, while the remaining third relates to payments rising with wage growth.

Finance costs are expected to increase by $0.8 billion over the next five years, largely reflecting the continued increases in gross debt and interest rates over the forecast period.

Debt impairments are expected to be $0.7 billion higher by 2016/17 than they were in 2011/12. The increase in these impairments is largely owing to the actual expense in 2011/12 being lower than expected, in part owing to one-off reductions to student loan impairments through policy changes to the level of repayments rising from 10% to 12%.

Offsetting these increases, costs of the Emissions Trading Scheme (ETS) are expected to be lower than in 2011/12 as the number of units issued and the costs of those units decrease across the forecast period.

There are some large “one-off” expenses that also contribute to the growth in expenses over the forecast period. The largest of these is a fall in earthquake costs, which are largely expected to be incurred in the first few years of the forecasts and fall to $0.1 billion in 2016/17; $1.2 billion lower than in 2011/12. Slightly offsetting the fall in earthquake costs was a one-off reduction in 2011/12 related to the weathertight homes provision to reflect the reduced take-up rates for the scheme.

...but are forecast to increase at a slower rate than forecast in the Budget Update

While core Crown expenses are forecast to rise over the next five years, they are less than those forecast at the Budget Update. For example, the forecast core Crown expenditure in the 2015/16 year was $77.3 billion in the Budget Update and this is now expected to be $75.6 billion in these forecasts (a $1.7 billion reduction).

The reduction in the expense forecasts is largely related to the weaker economic outlook, particularly in relation to inflation, wage growth and interest rates. In comparison to the Budget Update, with specific reference to the 2015/16 year, the two main reductions in core Crown expenses as a result of changes to the economic forecasts were:

  • Social assistance benefits are $0.6 billion less as lower tracks for inflation and average wage growth flow through to lower benefit payments. The average payment rates for the Accommodation Supplement is the other main source of reductions in benefit expenses, which reflect recent data on rental costs and are now expected to increase at a slower rate than previously expected. Slightly offsetting these reductions, the Half Year Update includes higher recipient numbers in each year of the forecasts other than in 2012/13.
  • The track for interest rates was also revised down in these forecasts, which meant that finance costs are $0.2 billion less than the Budget Update forecasts. The lower track for interest rates also impacts on the Government Superannuation Fund (GSF) expenses as the interest rate unwind of the long-term liability is expected to be lower.

In addition to the impact of economic forecasts, the cost of the ETS is expected to be $0.6 billion lower than was expected at Budget 2012. The reduction in the ETS costs was because the cost of units has decreased markedly since the Budget 2012 forecasts. However, while the expense forecasts are lower, these are largely offset by a reduction in revenue so there is minimal OBEGAL impact.

Overall, the lower expense forecasts compared to the Budget Update help contribute to the Government remaining on track to return to surplus in 2014/15, which is detailed on page 32.

Cost of Canterbury Earthquakes to the Crown

The Government is making a significant contribution to the rebuild in Canterbury, with latest estimates for the total cost to the Crown at $13.1 billion.

While the Canterbury Earthquake Recovery Fund remains at $5.5 billion, total estimates of existing policies are now expected to fully utilise the Fund. Of the $5.5 billion, the expected costs of policy decisions total $4.7 billion and $0.8 billion is set aside as an estimation contingency to reflect the significant uncertainty.

With the Fund fully allocated, new policy decisions, or increases in costs above the estimation contingency that are not managed within existing budget allowances, will adversely affect the Crown's fiscal position.

There remains a significant risk that the final cost to the Crown will exceed the $13.1 billion cost estimate included in these forecasts. The Specific Fiscal Risks chapter includes discussion on the risks associated with the Canterbury earthquakes (page 61).

The tables below show the latest estimates of the net impact of the earthquakes included in these forecasts.

Table 2.5 - Net earthquake expenses
Year ending 30 June
$millions
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Total
HYEFU
Total
BEFU
Local infrastructure 160 721 214 152 152 100 50 1,549 1,643
Welfare support 220 23 35 23 6 307 233
Southern Response support package 355 156 (98) (41) (33) (37) (2) 300 148
Land zoning 653 258 199 10 1,120 1,067
Other costs 205 121 589 593 (41) (37) 8 1,438 852
Estimation contingency 793 793
Yet to be allocated 1,564
Canterbury Earthquake Recovery Fund 1,593 1,279 1,732 737 84 26 56 5,507 5,507
EQC 7,471 662 (164) (255) (68) (114) 7,532 7,445
Other SOEs and CEs 23 (41) 24 (116) 80 57 22 49 23
Total Crown 9,087 1,900 1,592 366 96 (31) 78 13,088 12,975

Source: The Treasury

Table 2.6 - Net cash payments
Year ending 30 June
$millions
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Total
HYEFU
Total
BEFU
Canterbury Earthquake Recovery Fund 508 1,312 1,399 1,027 488 602 171 5,507 5,507
EQC 1,178 2,231 817 1,729 1,006 571 7,532 7,445
Other SOEs and CEs 23 (18) (2) (142) 28 79 31 (1) 23
Total Crown 1,709 3,525 2,214 2,614 1,522 1,252 202 13,038 12,975

Source: The Treasury

A discussion about the total economic impact of the Canterbury earthquakes can be found in the Economic Outlook chapter on page 13.

Operating Surplus

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

Figure 2.6 - Operating balance before gains and losses (OBEGAL)
Figure 2.6 - Operating balance before gains and losses (OBEGAL).
Source:  The Treasury

Overall, the Crown is forecasting two years of declining deficits, with the OBEGAL expected to reach a surplus of $66 million in 2014/15. Surpluses are then forecast to continue across the projection period (see page 38) as the Crown starts to strengthen its fiscal position. The Crown begins to rebuild a fiscal buffer against future adverse shocks and cost pressures and contributions to the NZS Fund are expected to resume in 2018/19.

The main driver of the return to surplus is fiscal constraint, with core Crown expenses forecast to grow at half the rate of core Crown tax revenue over the forecast period. In addition, the State-Owned Enterprise (SOE) and Crown Entity (CE) sectors contribute between $1.7 billion and $2.0 billion to the OBEGAL in each year of the forecasts.

The underlying nature of the operating balance can be seen using the cyclically-adjusted balance (CAB), which adjusts for business cycles and significant one-off expenses. As shown in Figure 2.6, the recent operating deficits have been largely structural, primarily reflecting the changed view of the underlying size of the economy following the global financial crisis. The resulting smaller economy reduced the tax base, while, in contrast, expenses continued to grow. As the forecast for expense and revenue flows (described earlier) occur, the CAB is expected to move from deficit to surplus in 2014/15.[3]

Figure 2.7 - Fiscal balance compared to other countries
Figure 2.7 - Fiscal balance compared to other countries.
Sources: IMF, the Treasury

...and the recovery has a similar profile to other countries

New Zealand's return to surplus track is similar to that of other countries, as shown in Figure 2.7. The fiscal balance[4] track shows the impact of the global financial crisis and that most other developed countries are also forecast to recover over the coming years. While New Zealand is forecast to return to surplus in 2014/15, some other countries were more severely affected by the global financial crisis and are forecast to face a period of longer deficits.

Changes in OBEGAL Since Budget 2012

Changes in the economic forecasts since the Budget Update have worsened the fiscal outlook.  However, the reductions in revenue were largely offset by reductions in expenses and tax policy changes that increased expected revenue.  Refer to page 26 for discussion on changes in tax revenue and page29 for discussion on the changes in core Crown expenses.  Overall, the OBEGAL track is broadly in line with the forecasts from the Budget Update.  A summary of the changes is shown in Table 2.7 below.

Table 2.7 - Changes in OBEGAL since Budget 2012
Year ended 30 June
$billions
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
OBEGAL - Budget Update (7.9) (2.0) 0.2 2.1

Changes in forecasts:

       

Economic forecasts

       
Tax revenue (1.3) (1.6) (2.1) (2.9)
Benefit expenses 0.3 0.2 0.5 0.6
Net finance costs - 0.2 0.2 0.1
GSF expenses - 0.1 0.1 0.1
Policy changes:        
Road user charges and fuel excise duty - 0.2 0.3 0.4
Transport-related expenses - (0.1) (0.1) (0.2)

Timing differences:

       
Earthquake expenses 0.7 0.3 0.1 0.1
Change in top-down 0.5 0.1 0.1 0.1

Other changes:

       
Tax forecasting changes 0.2 0.4 0.5 0.2
ACC (0.1) 0.1 0.2 0.3
Other 0.3 0.1 0.1 0.5
Total changes since Budget Update 0.6 (0.0) (0.1) (0.7)
OBEGAL - Half Year Update (7.3) (2.0) 0.1 1.4

Source:  The Treasury

Economic forecasts:

The downward revision in nominal GDP reduced tax revenue forecasts, but the impact of these was partially offset by reductions in forecasts for benefits and finance costs as inflation and interest rates are now forecast to be lower than at the Budget Update

Policy changes:

Increases in road user charges and fuel excise are expected with the increase in revenue used to fund transport-related operating and capital costs.

Timing differences: 

While the earthquake costs are expected to be similar to those forecast at Budget 2012, the profile has changed, with costs now being recognised earlier.  In addition, some costs are now capital in nature, reducing the impact on the OBEGAL.

The 2012/13 top-down adjustment[5] has been increased significantly from the Budget Update reflecting the large department underspends in 2011/12.

Other changes:

Changes to assumptions for tax revenue forecasts were made to incorporate recent evidence which represents a structural change in tax revenue. 

Recent improvements in rehabilitation rates for ACC recipients are now thought to be more structural than initially thought, and have reduced ACC insurance expense across the forecast period.

Notes

  • [3]For more details, see the Additional Information on the Treasury website.
  • [4]To enable comparison between countries, New Zealand’s generally accepted accounting practice (GAAP) based figures have been converted to a Government Financial Statistics (GFS) basis, therefore the fiscal balance differs from other indicators in this document.  New Zealand data are for June year estimates of the central government, while the international comparators are for general government (includes local government).  For more details about GFS, see the Additional Information on the Treasury website.
  • [5]The top-down adjustment is a central adjustment to reduce department forecasts for spending, reflecting the fact that departments tend to forecast upper limits of spending rather than best estimates.

Net Debt

Operating deficits result in cash shortfalls...

While the OBEGAL is expected to return to surplus in 2014/15, core Crown operating cash flows are expected to reach a small surplus one year later in 2015/16. Over the five-year forecast period, operating cash deficits total $10.0 billion.

In addition, the Crown is forecast to spend $23.4 billion on capital items, such as the purchase of physical assets and issuing student loans, over the next five years. When the estimated $6.0 billion of proceeds (see Table 2.11 on page 37) from the Government share offers are included, the net capital spend is $17.4 billion.

Combining the net operating results with the capital spend, residual cash remains in deficit across the forecast period and is the key driver for the increase in net debt, as shown in Table 2.8 below.

Table 2.8 - Movement in net core Crown debt
Year ended 30 June
$billions
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Opening net debt 40.1 50.7 60.0 66.7 70.7 73.5
Core Crown residual cash deficit 10.6 9.8 6.9 4.6 3.3 2.9
Other valuation changes in financial assets and financial liabilities (0.5) (0.2) (0.6) (0.5) (0.5)
Closing net debt 50.7 60.0 66.7 70.7 73.5 75.9
As a percentage of GDP 24.3% 27.8% 29.2% 29.5% 29.5% 29.3%

Source: The Treasury

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

Therefore, despite a return to surplus, the continued capital spending sees net debt[6] increase in nominal terms over the forecast period. However, net debt is expected to peak as a share of the economy at 29.5% of GDP in 2014/15 and 2015/16, as shown in Figure 2.8.

The increase in net debt over the forecast period has a negative impact on OBEGAL as net finance costs increase with the rising debt levels. However, the increase in finance costs is not as steep as the debt increase because interest rates are expected to remain at historically low levels across the forecast period.

...which are mostly funded by issuing government bonds

The residual cash deficit is mostly funded by raising debt, but can also be met by reducing financial assets. The New Zealand Debt Management Office (NZDMO) raises the Crown's debt through a number of programmes, the most significant being the domestic bond programme. Over the five-year forecast period, net issuance of government bonds is forecast to be $23.4 billion, with cash proceeds from the issuance being $48.4 billion (face value of $48.0 billion) and repayments of $25.0 billion ($22.8 billion of this from the market).

Table 2.9 - Net increase in government bonds
Year ending 30 June
$billions
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
5-year
Total
Face value of government bonds issued (market) 14.0 10.0 10.0 7.0 7.0 48.0

Cash proceeds

           
Cash proceeds from issue of government bonds (market) 15.8 10.4 9.7 6.3 6.2 48.4
Repayment of government bonds (market) (10.0) (11.0) (1.8) (22.8)
Net increase in government bonds (market) 5.8 10.4 (1.3) 4.5 6.2 25.6
Cash proceeds from issue of government bonds (non-market)
Repayment of government bonds (non-market) (0.5) (1.5) (0.2) (2.2)
Net increase in government bonds (non-market) (0.5) (1.5) (0.2) (2.2)
Net cash proceeds from bond issuance 5.3 8.9 (1.5) 4.5 6.2 23.4

Source: The Treasury

Notes

  • [6]Net debt is a core Crown measure excluding the NZS Fund and advances.

Total Crown Balance Sheet

Net worth recovers over the forecast period and the fiscal buffer begins to rebuild

Figure 2.9 - Net worth attributable to the Crown
Figure 2.9 - Net worth attributable to the Crown.
Source:  The Treasury

Largely owing to the forecast return to surplus, net worth attributable to the Crown increases over the forecast period and reaches $67.0 billion by 2016/17, as shown in Figure 2.9. However, net worth remains below the levels that existed prior to the global financial crisis when net worth attributable to the Crown peaked at $105.1 billion in 2007/08.

By 2016/17, total Crown assets are forecast to increase by $31.9 billion to $272.2 billion, outpacing the growth in liabilities which are forecast to reach $199.0 billion by 2016/17 (an increase of $18.5 billion).

Figure 2.10 - Total Crown assets by portfolio
Figure 2.10 - Total Crown assets by portfolio.
Source:  The Treasury

Assets are expected to increase...

Total assets are expected to increase $31.9 billion in net terms over the next five years as all portfolios grow, as shown in Figure 2.10.

Both the commercial and social portfolios increase steadily over the forecast period ($13.3 billion and $11.3 billion respectively). However, the financial portfolio declines in the early years of the forecasts, largely owing to reductions in assets to repay debt and to meet claims from the Canterbury earthquakes, before recovering in the later years as investment growth in the Crown financial institutions (CFIs) recovers.

While net asset growth is forecast to be $31.9 billion, the total investment in capital is expected to be $81.6 billion, as detailed in Table 2.10.

Table 2.10 - Gross asset growth
Year ending 30 June
$billions
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
5-year
Total
Opening total assets 245.2 240.3 237.8 246.8 248.2 258.5  

Increases in assets

             
Physical asset additions 6.5 7.5 7.7 7.0 6.8 7.1 36.1
Student loans issuance 1.6 1.6 1.7 1.7 1.7 1.8 8.5
CFI asset investment growth 3.9 6.2 3.7 4.4 4.7 5.1 24.1
Kiwibank mortgages 1.0 1.0 1.3 1.7 2.5 3.0 9.5
Forecast new capital spending 0.2 0.7 0.8 0.8 0.9 3.4
Total increase in assets 13.0 16.5 15.1 15.6 16.5 17.9 81.6

Reductions in assets

             
Depreciation on physical assets (3.8) (3.9) (4.1) (4.2) (4.3) (4.4) (20.9)
Asset disposals (0.3) (0.6) (0.7) (0.8) (0.6) (0.7) (3.4)
RBNZ and NZDMO activity (4.2) (9.2) 1.6 (6.8) 0.9 3.4 (10.1)
Student loans (0.8) (1.1) (1.2) (1.2) (1.3) (1.3) (6.1)
National disaster fund (2.1) (3.0) (2.6) (1.3) (0.3) (7.2)
Other changes1 (6.7) (1.2) 0.9 0.1 (0.6) (1.2) (2.0)
Total reduction in assets (17.9) (19.0) (6.1) (14.2) (6.2) (4.2) (49.7)
Net change in assets (4.9) (2.5) 9.0 1.4 10.3 13.7 31.9
Closing total assets 240.3 237.8 246.8 248.2 258.5 272.2  

Note

  1. 2011/12 includes asset valuations.

Source: The Treasury

The key areas of investment include:

  • the replacement of $36.1 billion of physical assets, largely in the priority areas (eg, transport, health and education) within the social portfolio
  • reinvestment of returns on financial assets by the NZS Fund and ACC totalling $24.1 billion, and
  • new capital spending of $3.4 billion over the next five years, which will be funded by the Future Investment Fund (discussed in more detail below).

Most of this investment is in the social portfolio, where capital investment of $37.2 billion is expected over the next five years. The investment is largely made up of the replacement of physical assets and investment into new capital initiatives.

Investment in the commercial portfolio largely comes from the growth in Kiwibank's mortgages (which are offset by an increase in their deposits) and growth in the physical assets of SOEs.

Growth in the financial portfolio is largely made up of the reinvestment of returns made by ACC and the NZS Fund as mentioned above, offset by the reduction in assets held by the NZDMO and the Earthquake Commission (EQC) as assets are realised to repay debt and insurance claims are paid.

...partly funded by the Future Investment Fund

Of the growth in social assets over the forecast period, $3.4 billion relates to new capital spending and is expected to be funded by the Future Investment Fund. The Fund is forecast to be built up from the proceeds of $6.0 billion from the Government share offers, which are forecast over the next four years as shown in Table 2.11. In Budget 2012, $0.5 billion of the Fund was pre-allocated, so together with the forecast spend of $3.4 billion the Fund is expected to hold $2.1 billion by the end of the forecast period, which will contribute towards capital spending after 2016/17.

Table 2.11 - Estimated fiscal impact of the Government share offers
Year ending 30 June
$millions
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
5-year
Total

Cash/Debt impact

           
Forecast cash proceeds 1,500 1,500 1,500 1,500 - 6,000
Forecast forgone dividends (100) (150) (200) (250) (700)
Estimated finance cost savings 12 82 163 254 238 749
Reduction in net debt 1,512 1,482 1,513 1,554 (12) 6,049

Accrual impact

           
Forecast forgone profits (20) (170) (250) (330) (420) (1,190)
Estimated finance cost savings 12 82 163 254 238 749
Net decrease in OBEGAL (8) (88) (87) (76) (182) (441)
Forecast gain on disposal recorded in taxpayers' funds 175 175 175 175 - 700
Increase in net worth attributable to the Crown 167 87 88 99 (182) 259

Source: The Treasury

The forecast fiscal impact of the Government share offers remains similar to the Budget Update despite the first sale now expected to occur between March and June 2013. As a result, the amount of foregone profits, dividends and finance cost savings has reduced in 2012/13. The other change from the Budget Update is that the forecast gain on disposal of the companies has reduced from $0.8 billion to $0.7 billion. While the forecast for cash proceeds has not changed, the book value of the companies has increased since the Budget Update, and so the expected gain on disposal recorded in taxpayers' funds has reduced. Further details about the assumptions surrounding the forecast for the Government share offers can be found in the assumptions note on page 40.

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

Liabilities are expected to grow over the forecast period, but at a slower rate than assets 

The value of total Crown liabilities is forecast to increase over the next five years by $18.5 billion, from $180.5 billion at 30 June 2012 to $199.0 billion by the end of the forecast period, as shown in Figure 2.11.

Most of the increase comes from the commercial portfolio, where liabilities increase $11.6 billion, from $28.1 billion to $39.7 billion. $9.5 billion is owing to growth in Kiwibank deposits (offset by an increase in their mortgages) with the remainder being an increase in SOE borrowings.

Liabilities in the financial portfolio are expected to increase $10.2 billion, largely owing to increased core Crown borrowing by the NZDMO, as discussed earlier. The increase in borrowings is offset by the reduction in insurance obligations in relation to the Canterbury earthquakes as claims are paid out.

Social liabilities are expected to reduce by $3.3 billion, from $17.5 billion to $14.2 billion. The reduction in these liabilities is largely owing to a reduction in earthquake related liabilities as the existing obligations are expected to be settled over the forecast period.

Medium-term Projections

Medium-term fiscal projections cover the decade subsequent to the forecasts up to and including the year ending June 2027. While the forecasts are based on comprehensive modelling of economic and fiscal conditions, projections differ in that they are potential paths for the future, largely based on historical values and reflecting only existing policy settings.

OBEGAL and net debt improve over the 10-year projection period, although to a lesser degree than in the Budget Update. Much of the change from the Budget Update arises from the fact that the latest projections start from a weaker forecast base. The increased levels of net debt over the forecast base translate to a higher net debt track over the projections. However, stronger labour force projections drive tax revenue growth at a faster rate than in the Budget Update and see the gap in the OBEGAL track nearly close by the end of the decade of projections.

OBEGAL

Figure 2.12 - OBEGAL projections
Figure 2.12 - OBEGAL projections.
Source:  The Treasury

Following on from the end of the forecast period, fiscal constraint continues into the projection period. As the level of growth of expenditure is lower than both historical averages and nominal GDP growth, this plays a large part in the continued improvement in OBEGAL.

In addition, in the first five years of the projections, tax revenue grows relatively strongly as the unemployment rate continues to fall and labour productivity growth is assumed to return to 1.5% per annum.

As a result, the OBEGAL steadily increases, with contributions to the NZS Fund projected to resume in 2018/19 (at $2.1 billion) when the core Crown OBEGAL is at a sufficient level to fund contributions.

Net debt

Figure 2.13 - Net debt projections
Figure 2.13 - Net debt projections.
Source:  The Treasury

Overall, net debt is forecast to peak at 29.5% of GDP in 2014/15 and 2015/16 before steadily declining over the projection period, as shown in Figure 2.13. The improving track is largely owing to continued fiscal consolidation and the forecast return to surplus. The repayment of debt in turn helps surpluses to increase as debt financing costs fall.

Fiscal Forecast Assumptions

The fiscal forecasts are based on assumptions and judgements developed from the best information available on 26 November 2012, when the forecasts were finalised. Actual events are likely to differ from some of these assumptions and judgements. Furthermore, uncertainty around the forecast assumptions and judgements increases over the forecast period. The Canterbury earthquakes add further uncertainty to the economic and fiscal forecasts.

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

  • A nominal GDP forecast is needed in order to forecast tax revenue.
  • A forecast of CPI inflation is needed because social assistance benefits are generally indexed to inflation.
  • Forecasts of interest rates are needed to forecast finance costs, interest income and discount rates.

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

Table 2.12 - Summary of key economic forecasts used in fiscal forecasts
Year ending 30 June 2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Real GDP1 (ann avg % chg) 2.0 2.3 3.0 2.5 2.4 2.4
Nominal GDP2 ($m) 208,219 216,048 228,797 239,279 249,023 259,149
CPI (ann avg % chg) 2.2 1.3 1.9 2.2 2.2 2.3
Govt 10-year bonds (ann avg %) 4.1 3.6 3.7 4.4 4.9 5.2
5-year bonds (ann avg %) 3.5 3.0 3.5 4.3 4.9 5.1
90-day bill rate (ann avg %) 2.7 2.7 3.0 3.9 4.5 4.8
Unemployment rate (ann avg %) 6.6 7.0 6.3 5.9 5.6 5.2
Employment (ann avg % chg) 1.0 0.2 2.0 1.8 1.4 1.5
Current account (% of GDP) (4.9) (4.9) (4.7) (5.8) (6.3) (6.4)

Notes:

  1. Production measure
  2. Expenditure measure

Source: The Treasury

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

 
Government decisions Incorporate government decisions and other circumstances known to the Government up to 26 November 2012.
Tax revenue

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

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

Earthquake costs Expenditure (accrual measure) is forecast based on estimates on when key decisions will be taken.  The timing of cash payments is based on estimates of when actual spending will take place.  Refer page 30 for further discussion.
Operating allowance

Net $800 million in Budget 2013.

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

Provision for new capital spending

Net $4.9 billion over the next five Budgets with $1.6 billion in Budget 2013, $1.0 billion in Budget 2014, $0.7 billion in Budgets 2015 and 2016, and $0.9 billion in Budget 2017.  For further details see note 8 of the Forecast Financial Statements.

Government share offers

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

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

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

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

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

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

Top-down adjustment to operating and capital as follows:

 
Year ending 30 June
$billions
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Operating 1.2 0.2 0.2 0.2 0.2
Capital 0.4 0.1 0.1 0.1 0.1
Borrowing requirements Forecast cash deficits will be met by reducing financial assets and issuing debt.
Property, plant and equipment For the purposes of the forecast financial statements, no revaluations of property, plant and equipment are projected beyond the current year. Valuations as recorded for the 2012 annual financial statements and any additional valuations that have occurred up to 30 September 2012 are included in these forecasts.
Student loans The carrying value of student loans is based on a valuation model adapted to reflect current student loans policy.  As such, the carrying value over the forecast period is sensitive to changes in a number of underlying assumptions, including future income levels, repayment behaviour and macroeconomic factors such as inflation and discount rates used to determine the effective interest rate for new borrowers.  Any change in these assumptions would affect the present fiscal forecast.
Investment rate of returns Incorporate the actual results to 30 September 2012.  Beyond this time, gains on financial instruments are based on long-term benchmark rates of return for each portfolio.
GSF and ACC liabilities

The GSF and ACC liabilities included in these forecasts have been valued as at 30 September 2012 and 30 June 2012 respectively.  The ACC liability has been adjusted for the 30 September 2012 discount rate.  Both liabilities are valued by projecting future cash payments, and discounting them to present value.  These valuations rely on historical data to predict future trends and use economic assumptions such as inflation and discount rates.  Any change in actual payments or economic assumptions would affect the present fiscal forecast.  For example, if the discount rate decreases, the value of the liabilities would increase.

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

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

Projection Assumptions

The projection period begins in 2017/18 and is based on the long-run technical and policy assumptions outlined below.

Table 2.13 - Summary of key economic and demographic assumptions in projections1
Year ending 30 June 2013 2014 2015 2016 2017 2018 2019 2020 2021 ... 2027
  Forecast Projections
Labour force 0.6 1.3 1.4 1.1 1.0 1.1 1.1 1.0 1.0 ... 0.7
Unemployment rate2 7.0 6.3 5.9 5.6 5.2 5.1 5.0 4.9 4.8 ... 4.5
Employment 0.2 2.0 1.8 1.4 1.5 1.2 1.2 1.1 1.1 ... 0.7
Labour productivity3 2.1 1.0 1.0 1.1 0.9 1.2 1.3 1.5 1.5 ... 1.5
Real GDP 2.3 3.0 2.5 2.4 2.4 2.4 2.5 2.6 2.5 ... 2.3
Consumers Price Index4 1.5 2.1 2.2 2.2 2.2 2.0 2.0 2.0 2.0 ... 2.0
Government 5-year bonds5 3.0 3.5 4.3 4.9 5.1 5.2 5.3 5.4 5.5 ... 5.5
Average hourly wage 2.5 2.4 2.7 2.6 2.6 3.2 3.3 3.5 3.5 ... 3.5

Notes:

  1. Figures are annual average percentage change unless otherwise stated
  2. Household Labour Force Survey (HLFS) basis, annual average
  3. Hours worked measure
  4. Annual percentage change
  5. Annual average

Source: The Treasury

Transition of economic variables from the end of forecast

With the lingering impacts of the global financial crisis, Canterbury earthquakes and uncertainty around growth prospects for many of our major trading partners, many economic variables have not recovered to long-term, on-trend, stable values by the end of the five year forecast horizon. As a consequence, the first few years of projections involve a degree of transition for many of these variables to return them to this state.

Over the long term the unemployment rate is expected to be 4.5% of the labour force. By the last year of the forecasts, 2016/17, it is higher than this, at 5.2%. Over the early projected years it is lowered to 4.5%, reaching it by 2023/24.

Labour productivity annual growth ends the forecasts at 0.9% and is brought up to its long-run assumption of 1.5% per annum by 2019/20.

The Government 5-year bond rate has an end-of-forecast level of 5.1%. It is increased to 5.5% by 2020/21, where it stabilises for the rest of the projected decade.

By the final forecast year the Consumers Price Index (CPI) measure of inflation is close to the stable assumption of 2% per annum, and reaches this in the first projected year.

The total labour force is projected from the end of the forecasts using the growth of the aggregate labour force projections produced by Statistics New Zealand. Since the previous projections were published, for the Budget Update, Statistics New Zealand has produced updated labour force projections. These projections are stronger than those used for the Budget Update, especially in the early years, owing to both increased demographic growth and higher labour force participation rates. As a consequence, while the end-of-forecast labour force levels are not markedly different between the two forecasts, the growth rate over the projections is higher than the Budget Update.

Age groups over 50 in particular are expected to have higher rates of participation in the labour force than was the case in the Budget Update projections. As these workers tend to work fewer hours on average, the assumed long run value for the average number of hours worked per worker in a week has been reduced from 33.2 to 33.0. This level is reached in 2020/21. As the labour force is a driver of both real and nominal GDP in the projections, these variables also grow more quickly in the latest projections than they did for the BudgetUpdate.

In addition, there are a number of other key assumptions that are critical in the preparation of the projections:

 
Tax revenue Linked to growth in nominal GDP. Source deductions (mainly PAYE tax on salary and wages) is grown using employment growth and nominal average hourly wage growth for the first five years of the projection period.  The latter is multiplied by a fiscal drag elasticity of 1.35.  Beyond the first five years of the projection period source deductions grow in line with GDP. The three other major tax categories (corporate tax, hypothecated transport taxes and other taxes, dominated by GST), are gradually returned to long-term constant ratios to GDP.  The long-term ratios are based on historical data, taking into account tax rate and policy changes.  Once the long-term ratios are reached' the tax types remain at these ratios in later projected years.
New Zealand Superannuation (NZS) Demographically adjusted and linked to net (of tax) wage growth, as is prescribed by legislation relating the annual indexation of weekly NZS rates to net average weekly earnings.  As tax on average weekly earnings, being a part of overall PAYE, increases owing to fiscal drag, the net average weekly earnings do not grow as quickly as the gross earnings in years where fiscal drag is assumed on PAYE growth.
Other benefits Demographically adjusted and linked to inflation.
Finance costs A function of debt levels and interest rates.
Core Crown expenditure (excluding benefits and finance costs) Held constant at the end-of-forecast values, because growth is assumed to come from a share of the projected Operating Allowance annual increment.  The exception is Transport spending, which grows in line with the hypothecated tax revenue dedicated to funding it.
Operating allowance $1.26 billion in 2017/18.  Operating Allowances for subsequent projected years grow at 2% per annum from this value.
Capital allowance $0.936 billion in 2017/18.  This is based on a track of $0.918 billion in Budget 2017 as the starting point, grown at 2% per annum.
NZS Fund Contributions to the Fund suspended until 2017/18.  Contributions begin again in 2018/19, and are consistent with the New Zealand Superannuation and Retirement Income Act 2001.

Risks and Scenarios

Overview

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

Economic risks

  • The global economic outlook remains uncertain and poses risks to the New Zealand economy. While the initial short-term challenges in Europe have been partly addressed, ongoing medium-term challenges for the global economy remain.
  • The uncertainties around the pace of growth in the domestic economy lie mainly with the timing and scale of the Canterbury earthquake rebuild, but also around the degree of household consolidation and changes in the exchange rate.
  • Two scenarios illustrate the risks to the Treasury's main forecasts. A generalised upside scenario shows the effect of a number of factors leading to a faster-than-expected recovery on the New Zealand economy. A downside scenario looks at the effect on the New Zealand economy of lower world and domestic potential growth, as well as greater cyclical weakness in the near term.
  • We note that the two scenarios discussed in this chapter are only examples of other possible outcomes and are not indicative of relative likelihood of occurrence. There are a large number of risks - both to the upside and downside - to the outlook, and each would have its own unique effect on the economy if it were to occur. However, the ways they impact on the New Zealand economy are similar, thus the scenarios remain a useful tool in analysing different possible outcomes.

Fiscal risks

  • The balance of these risks also means that the achievement of the Government's fiscal strategy will remain challenging, as illustrated by the scenarios presented in this chapter. In the downside scenario, nominal GDP is $26 billion lower than in the main forecasts, compared to $16 billion higher in the upside scenario. Also, the operating balance remains in deficit over the forecast period in the downside scenario. While the operating surplus in the upside scenario is larger than in the main forecasts, a surplus is achieved in the same year. However, it should be noted that to the extent economic conditions and tax revenue differ from forecast, the Government could make policy changes in future budgets.

Economic Risks

Global risks skewed to the downside... 

The global economy still faces several significant challenges. The euro area economy remains weak, as the sovereign debt crisis affects market confidence, impacting on business and household decisions alike. The US does not escape unscathed, with policy uncertainty around the “fiscal cliff” contributing to subdued business investment. While Asian growth has started to stabilise in the final quarter of 2012, significant weak patches remain. Risks to the Treasury's main forecasts have become slightly more balanced since Budget 2012, but remain skewed to the downside.

...with the euro area sovereign debt crisis yet to be resolved...

The euro area economy remains weak, having re-entered a technical recession in the September 2012 quarter. The weakness has mostly been caused by the sovereign debt crisis, which has negatively affected the region since late 2009. So far, policy makers have been able to “manage through” the crisis, with the area remaining intact. The Treasury's main forecasts assume that policy makers will continue to “manage through” the crisis, but with euro area output recovering only slowly. The likelihood of large-impact, low-probability events, such as a full or partial breakup of the euro area, has been reduced substantially during 2012, primarily owing to the Outright Monetary Transactions (OMT) programme announced by the European Central Bank (ECB) in August 2012. Nevertheless, risks remain to the outlook. The main one now is that the euro area crisis will remain unresolved, causing ongoing uncertainty. This would mean growth rates would remain lower for much longer than we expect, further impacting on global growth.

...and US and Asia still of some concern...

Another significant risk to the global economy is the so-called “fiscal cliff” in the US. This refers to a number of automatic tax increases and spending cuts (amounting to over 4% of GDP) due to take place in the first quarter of 2013 unless an agreement can be reached on alternative settings for tax rates and government spending to stabilise future government debt at an appropriate level. If legislators cannot reach agreement, the US economy is expected to re-enter recession. Most commentators expect this will be avoided, given the stakes, with only part of the fiscal tightening expected to occur. Nevertheless, it is possible that the issue is not addressed in time, negatively affecting world growth.

After a soft patch through the middle of 2012, growth in the Asian region has begun to stabilise. Nevertheless, significant risks remain in the second and third largest economies in the world: China and Japan. China faces downside risks from over-inflated house prices and debt-burdened local governments. However, risks are not all to the downside, with a faster-than-expected pickup in activity possible over 2013 if policy makers successfully navigate through the challenges ahead and implement additional reforms. Japan's situation is becoming more serious; public debt (although mostly held by domestic citizens) is at a record high and continues to grow, while an ageing population adds to the challenges. The Treasury expects only modest growth going forward (excluding the tsunami rebuild), with risks to the downside if these challenges are not met. As New Zealand's largest trading partner, the prospects for the Australian economy are important for New Zealand. The main risk for Australia is that a larger-than-expected fall in commodity prices leads to a further scaling back in mining investment and broader demand. This would lower growth in the mining and mining-related industries in Australia, reducing demand for manufactured goods exports from New Zealand.

A further downside risk, which is explored in more detail in the downside scenario, is that the recovery in global growth is slower than expected owing to weaker-than-expected global potential growth. Advanced nations' debt sustainability would become more of an issue, likely leading to further fiscal consolidation, adding to the slowing in growth. The effect on New Zealand would primarily be in the form of lower demand for exports, but also possibly through a higher cost of capital in the event that such developments see significant increases in global risk premiums and given central banks have little room to ease policy rates.

Global risks are not all to the downside, as hinted at above with China, but overall upside risks are smaller in magnitude than the downside risks. The OECD notes that possible upside risks include a comprehensive resolution of the euro crisis, a medium-term fiscal framework for the US and the benefits of structural reform being undertaken in Europe flowing through faster than currently anticipated. These would all drive higher global growth, and flow through to greater demand for New Zealand exports.

Other notable international risks include the ongoing conflict in the Middle East, which has the potential to push up oil prices and disrupt trade. Weather events, such as tropical cyclones, could also impact on growth rates.

...potentially impacting on New Zealand's economy through lower export demand...

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

...lower terms of trade...

Our main forecasts assume that the terms of trade decline modestly in the near term, but remain high relative to historical standards over the five-year forecast period. Should the terms of trade, in contrast, fall much further and reach their 30-year average, a sharp drop in incomes for agricultural producers would flow through into weaker domestic demand, less income for investment and debt repayment and a significantly wider current account deficit. This would negatively impact on nominal GDP, leading to lower tax revenues for the Government. Lower prices for commodities such as iron ore, minerals and coal could also affect New Zealand indirectly through Australia. Australia would experience a fall in its national income from international commodity sales, lowering demand for New Zealand's goods and services, although a depreciation in the NZD may provide an offset.

...and lower availability of credit and confidence

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

Finally, if any of the downside risks identified above were to materialise, this would lead to falls in consumer and business confidence. With lower confidence, households would lower their spending and increase their saving by more than assumed in the main forecasts. Similarly, businesses would invest less and hire fewer workers than assumed in the main forecasts.

Meanwhile, domestic challenges still lie ahead...

There are risks to our forecasts arising from domestic sources as well. However, unlike the global risks, domestically-sourced risks are more balanced. In our main forecasts, the Treasury expects private consumption growth to remain modest over the five-year forecast horizon, as households reduce their debt-to-income ratios to more comfortable levels. The risks to this outlook are to both the upside and downside. Given the greater potential for tighter conditions in global funding markets, there is a risk that the degree of household consolidation could be more intense than expected, with households seeking to move to an even lower level of debt than we have forecast. While this might bring forward some rebalancing in the economy from later years, such a scenario would involve weaker domestic activity in the near term. On the other hand, households may return to higher rates of consumption growth as confidence improves and house prices rise. If this were to occur, it would drive a stronger economy in the near term and defer household rebalancing until later years.

...including the exchange rate...

Another notable risk to the outlook is the exchange rate. The Treasury's main forecast expects the NZD to remain around current levels (on the trade-weighted index) until 2014 before depreciating thereafter. The exchange rate can be volatile, thus there are risks to either side of the main forecast. The NZD could potentially move higher than we have assumed, or hold up for longer. This could come about for a number of reasons, including New Zealand remaining a relatively attractive place to invest compared to other countries, the terms of trade rebounding higher than expected or a faster-than-expected domestic recovery leading to higher domestic interest rates. The result would be lower export incomes, flowing through to lower consumption. The current account deficit would also widen.

On the other hand, if, as a number of measures suggest, the NZD is overvalued at current levels, it could depreciate sooner and faster than the Treasury anticipates. A larger-than-expected decline in the terms of trade or an improvement in global growth leading to a closing of interest rate differentials are both possible reasons for a depreciating currency, but would have different implications for the New Zealand economy. Higher global growth (and thus demand) at the same time as a depreciating currency would boost exporter incomes. However, New Zealanders' purchasing power on a global comparison would be lower, as imports become more expensive. Inflationary pressures would also be higher, which may result in higher interest rates, dampening the benefits from a lower exchange rate. If falling terms of trade were the reason for the depreciating exchange rate, the lower NZD may partly offset lower prices on exported goods, cushioning the economy to some degree.

...and the Canterbury rebuild...

The timing and extent of the Canterbury earthquake rebuild is difficult to forecast. If large aftershocks cause further damage, the current $25 billion damage estimate factored into our main forecasts could rise, as would the risk that the rebuild could be slower and overall economic activity lower in the short term. Conversely, the rebuild could gather pace more quickly. Accordingly, residential and non-residential construction, imported goods volumes and employment would all be stronger than in the main forecasts. As a result, we would expect wages in and around the rebuild area to come under greater upward pressure, as well as prices for some goods - particularly housing construction-related goods and services.

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

...as well as risks from non-economic events

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

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

Real GDP (annual average % change)

           
Main forecast 1.6 2.3 2.9 2.5 2.4 2.4
Upside scenario 1.6 2.5 3.2 3.1 2.7 2.3
Downside scenario 1.6 2.1 2.3 1.7 1.7 2.2

Unemployment rate1 

           
Main forecast 6.7 6.9 6.2 5.9 5.6 5.1
Upside scenario 6.7 6.6 5.7 5.3 5.0 4.6
Downside scenario 6.7 7.5 6.9 6.6 6.3 5.7

Nominal GDP (annual average % change)

           
Main forecast 3.4 3.6 5.9 4.7 4.1 4.1
Upside scenario 3.4 3.9 6.2 5.6 4.7 4.1
Downside scenario 3.4 3.1 4.8 4.1 3.4 3.7

Current account balance (% of GDP)

           
Main forecast -4.5 -5.1 -4.6 -5.5 -6.2 -6.5
Upside scenario -4.5 -4.7 -4.1 -5.5 -6.7 -7.2
Downside scenario -4.5 -5.5 -5.6 -6.2 -6.7 -6.7

Note:

  1. March quarter, seasonally adjusted

Sources: Statistics New Zealand, the Treasury

Downside Scenario

Global growth is weaker than expected over the forecast horizon…

While there are a large number of global downside risks, we have developed a downside scenario based on the International Monetary Fund's (IMF) lower global potential growth scenario from its October World Economic Outlook. This entails potential growth being approximately 0.5% per year lower than the IMF's central forecasts for advanced nations and 1% lower for Asian countries, with actual growth rates even lower as countries must make further fiscal cuts and trade is lower. Applied to New Zealand's top 16 trading partners, trading partner output is about 4% lower by 2017 compared to the IMF's central forecasts. Figure 3.1 illustrates the effect on New Zealand's trading partner growth rates.

We also assume for this scenario that New Zealand's potential growth rate is lower than in the main forecasts. While the Treasury has already lowered its potential output assumption for New Zealand in its main forecasts (see the ‘GDP Growth in the Half Year Update' box in the Economic Outlook chapter), we assume that New Zealand's potential output is even weaker than we anticipate, in part owing to the weaker world growth. In addition, we assume that the cyclical weakness evident in the September quarter in the New Zealand economy continues into the December quarter and beyond.

Slower-than-expected world growth and less liquidity in the world would mean Australian and New Zealand banks face a higher premium on their international wholesale borrowing. While part of these increased funding costs may be absorbed in falling bank margins and partly offset by a reduction in the policy rate, the remainder would be passed on to household and business borrowers. This scenario assumes that households and businesses are charged around an additional 40 basis point premium on their borrowing compared to the main forecasts.

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

Weaker-than-assumed global activity flows through to New Zealand in the form of lower prices for key commodity exports, particularly dairy, meat and forestry products. The good news for New Zealand is that the country is still exposed to the relatively faster growing parts of the global economy, such as emerging Asia and Australia, although they too experience lower growth. This means that New Zealand's terms of trade and demand for exports would not fall by as much as might otherwise be expected.

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

In this scenario, the merchandise terms of trade fall further, and do not rebound as sharply as in the main forecast (Figure 3.2), reflecting the lower international demand for commodities and other exports. The terms of trade are still expected to rise over the forecast period, in part reflecting increasing demand for dairy products in Asia as incomes continue to grow. The lower terms of trade result in a more rapid deterioration in the current account balance, with the deficit increasing to 5.6% of GDP in the March 2014 year compared to 4.6% in the main forecasts. However, the gap between the main economic forecasts and scenario closes by the March 2017 year, with the current account deficit only 0.2% points wider at 6.7% in the downside scenario, in part owing to a slightly lower exchange rate.

The lower terms of trade lead to lower incomes, resulting in a more subdued outlook for household spending. The increased cyclical weakness in the near term results in a higher unemployment rate than in the main forecast, dampening pressures on wage growth, further lowering incomes. Despite a cut in the OCR, retail rates remain similar to the main scenario until 2016 and 2017, owing to the higher overseas funding costs. Private consumption growth averages 1.3% per year over the five years to March 2017, compared to 2.1% in the main forecasts. Lower demand and profits reduce business investment, although not to the same extent as consumption. This is in part owing to the Canterbury rebuild, which will help to drive strong growth in business investment.

All in all, the lower world growth, lower New Zealand potential output and increased near-term cyclical weakness result in real GDP growth averaging only 2.0% per year in the five years to March 2017 in comparison to 2.5% in the main forecasts. Of importance to tax revenues, the level of nominal GDP is about $26 billion lower in total over the period to June 2017.

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

Core Crown revenue is a cumulative $7.9 billion lower in the downside scenario by June 2017. The weaker domestic economy reduces source deductions and corporate tax by about $3 billion and $2 billion respectively, compared to the main forecasts, while other persons tax falls by $0.4 billion. Also, lower private consumption and residential investment lead to $1.4 billion lower GST revenue, compared to the main forecasts, while resident withholding tax is only slightly lower as interest rates are similar.

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

Core Crown expenses (excluding financing costs) are $0.6 billion higher, as the weaker labour market flows through to increased Unemployment Benefit recipient numbers. In addition, finance costs are higher, owing to higher government borrowing.

In this scenario, the operating balance (before gains and losses) does not move into surplus within the forecast period and, consequently, net core Crown debt as a proportion of GDP is still rising at the end of the forecast period (June 2017), reaching 33.9% at that time.

Upside Scenario

As discussed in the earlier section of this chapter, there are a number of potential upside risks to the Treasury's main forecasts, but most are only modest in size. This scenario presents a generalised upside scenario, where a number of factors together lead to faster-than-expected growth over the forecast period, resulting in higher tax revenues and a larger surplus in 2014/15.

World growth is stronger, leading to higher terms of trade...

It is possible that New Zealand's trading partner growth will be stronger than forecast in the main economic forecasts. In this upside scenario we assume that trading partner growth is about 0.2% to 0.3% points higher than the main forecast in each year, with a number of factors that could lead to this, as mentioned earlier in the chapter. These include a faster-than-expected resolution in the euro crisis, a strong medium-term fiscal plan in the US or faster flow through of the benefits of structural reforms. Any one of these could be expected to improve global demand, leading to higher commodity prices and increased demand for New Zealand exports. New Zealand's terms of trade would be slightly higher across the forecast period, leading to higher incomes.

...with a faster Canterbury rebuild and stronger household spending...

There is a large degree of uncertainty around the timing and scale of the Canterbury rebuild. In this upside scenario, we allow for a faster rebuild compared to the main forecasts and bring more of the rebuild inside the forecast period ending March 2017. Net migration is higher, peaking at an annual 16,000 (and earlier) compared with 13,000 in the main forecasts. Most of the increase is assumed to be workers moving into Canterbury from abroad.

The faster rebuild leads to an increase in residential investment, with growth 3.8% points higher in the March 2014 year than in the main forecasts. As a result, inflationary pressures are higher, as capacity constraints are reached sooner. Wage rates in the region are higher (particularly in the construction sector), with modest spill-over to the rest of the country.

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

In addition, we assume stronger private consumption in the upside scenario, in part owing to the higher incomes from the higher terms of trade. Private consumption growth is 0.4% and 0.3% points higher in the March 2014 and 2015 years respectively than the main forecasts (Figure 3.4). This flows on to the labour market, with the unemployment rate coming down faster than the main forecasts, finishing at 4.6% in March 2017 compared to 5.1%. However, there is also lower household saving and higher imports than in the main forecasts.

A combination of higher incomes, a faster rebuild and stronger consumption leads to higher inflation than in the main forecasts. The Reserve Bank responds by increasing interest rates sooner than otherwise, leading to tighter monetary conditions. The level of nominal GDP is about $16 billion higher in total over the period to June 2017.

…leading to a modest increase in the operating surplus in 2015

Core Crown revenue is a cumulative $3.7 billion higher in the upside scenario than the main scenario by June 2017, led by a $1.6 billion increase in source deductions, attributable to the higher incomes of New Zealand households. More household spending leads to $800 million in additional GST revenue, while higher business profits contribute to a $500 million boost in corporate tax revenue. Higher interest rates in later periods lead to $300 million in additional resident withholding tax.

Core Crown expenses (excluding financing costs) are $0.2 billion lower, as the stronger labour market flows through to fewer Unemployment Benefit recipients. In addition, finance costs are lower, owing to less government borrowing.

In this scenario, the operating balance (before gains and losses) moves into surplus in the June 2015 year, the same year as the main forecasts, with the surplus 0.4% of GDP. Net core Crown debt as a proportion of GDP peaks at 28.7% of GDP in the June 2014 year.

General Fiscal Risks

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

Table 3.2 provides some rules of thumb on the sensitivities of the fiscal position to small changes in specific variables. For example, if for some reason nominal GDP growth is 1% point slower than we have forecast each year up to the year ending June 2017, we would expect tax revenue to be around $3.6 billion (1.4% of GDP) lower than forecast in the June 2017 year as a result. The sensitivities are broadly symmetric; that is, if nominal GDP growth is 1% point faster each year than we expect, tax revenue would be around $3.6 billion higher than forecast instead. For more on fiscal risks, see the Specific Fiscal Risks chapter.

Fiscal Sensitivities

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

1% lower nominal GDP growth per annum on

         
Tax revenue (590) (1,245) (1,975) (2,750) (3,575)
(% of GDP) (0.3) (0.5) (0.8) (1.1) (1.4)

Revenue impact of a 1% decrease in growth of

         
Wages and salaries (255) (525) (825) (1,150) (1,500)
(% of GDP) (0.1) (0.2) (0.3) (0.5) (0.6)
Taxable business profits (115) (265) (430) (605) (790)
(% of GDP) (0.1) (0.1) (0.2) (0.2) (0.3)

Impact of 1% point lower interest rates on

         
Interest income1 (89) (81) (110) (70) (81)
(% of GDP) (0.0) (0.0) (0.1) (0.0) (0.0)
Expenses1 (97) (184) (361) (454) (518)
(% of GDP) (0.0) (0.1) (0.2) (0.2) (0.2)
Overall operating balance 103  250  384  438 
(% of GDP) 0.0  0.1  0.1  0.2  0.2 

Note:

  1. Debt managed by the NZDMO only

Source: The Treasury

Revenue Risks

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

Figure 3.5 plots the main tax revenue forecast, along with confidence intervals around those forecasts based on the Treasury's historical tax forecast errors.[7] The outermost shaded area captures the range (+/- $5.7 billion in the June 2016 year) within which actual tax forecasts would typically fall for 80% of the time.[8] The tax revenue forecasts from the upside and downside scenarios are also plotted.

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

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

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

Expenditure Risks

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

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

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

Balance Sheet Risks

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

The largest source of balance sheet risk is volatility in asset and liability values owing to movements in market variables such as interest rates, exchange rates and equity prices. This may result in an operating balance impact. Of the Crown's aggregate financial risk, roughly a third is estimated to be attributed to this “market risk”.[9] Three areas of the balance sheet are particularly susceptible:

  • Financial assets held by the Crown financial institutions (CFIs) are sensitive to financial-market volatility. CFIs diversify their portfolios across a range of financial assets to manage exposures to specific market risks. The Crown Ownership Monitoring Unit (COMU) estimates a 10% fall (rise) in world share markets would lead to a 4% to 5% fall (rise) in the value of the Crown's financial portfolio.
  • Insurance and retirement liabilities and provisions are prone to market volatility through their actuarial valuations, which are sensitive to assumptions about variables such as interest and inflation rates, and risk margins. For example, a 1% fall in the risk-free discount rate used is estimated to result in a $7.3 billion increase in the combined value of the Crown's liabilities from ACC, EQC, Southern Response (formerly AMI) and the GSF.[10]
  • Physical assets such as land, buildings, state highways and military equipment are susceptible to movements through changes in property market conditions, interest rates and changes in the costs of construction. This will affect the recorded value of many Crown physical assets.

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

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

Funding Risks

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

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

Notes

  • [7]A full summary of the methodology and critical assumptions is included in New Zealand Treasury Working Paper 10/08. Standard deviation assumptions used for 0-, 1-, 2- and 3-year ahead forecasts are 0.9%, 3.2%, 5.3% and 6.6% of the actual, respectively.
  • [8]Recent Treasury analysis shows that a shock that has a significant and persistent impact on economic growth can result in tax revenues coming in significantly below the outermost shaded area. See Fookes, C (2011), “Modelling shocks to New Zealand’s fiscal position”, New Zealand Treasury Working Paper 11/02.
  • [9]Irwin, T and Parkyn, O (2009), “Improving the management of the Crown's exposure to risk”, New Zealand Treasury Working Paper 09/06.
  • [10]For more information, see the Notes to the Financial Statements of the Government of New Zealand 2012.

Specific Fiscal Risks

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

Overview

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

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

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

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

The specific fiscal risks are categorised into:

  • Potential policy decisions affecting revenue: For example, changes to tax policy or ACC levies could reduce or increase government income.
  • Potential policy decisions affecting expenses but expected to be funded from reprioritisation or Budget allowances: Costs of policy proposals could increase or decrease expenses depending on decisions taken, and they are risks to the fiscal forecasts only to the extent that they cannot be managed within existing baselines or Budget allowances.
  • Potential capital decisions but expected to be funded from the existing Crown balance sheet, including the Future Investment Fund: Capital investment decisions are risks to the fiscal forecasts only to the extent that they cannot be managed within the existing Crown balance sheet, including the Future Investment Fund.
  • Matters dependent on external factors: The liability of the Government for costs is sometimes dependent on external factors such as the outcome of negotiations or international obligations.

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

  • The most significant economic risks have been identified in Chapter 3.
  • Business risks relating to the broader economic and commercial environment.
  • General cost pressures, such as those associated with demographic changes (eg, an ageing population).
  • Potential risks from changes in demand for government services or transfer payments owing to underlying structural factors (such as changes in demand for the Unemployment Benefit).
  • The costs of future individual natural disasters, and other major events, are not recognised as specific fiscal risks in advance as they usually occur infrequently and their timing cannot be predicted. Once a disaster does occur, a number of choices arise about how to respond and when potential liabilities are recognised (eg, through setting aside an allocation of funding for the disaster). Specific risks are disclosed at this point based on the range of possible responses.

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

Statement of Specific Fiscal Risks

Summary Table

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

 
Specific fiscal risks as at 26 November 2012 Status [11] Value of risk

Potential policy decisions affecting revenue

ACC - Funding Policy Review New Unquantified
ACC - Levies Unchanged Unquantified
Revenue - Income-sharing Tax Credits Unchanged $500 million per annum
Services Funded by Third Party Revenue Unchanged Unquantified

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

ACC - Work-related Gradual Process Disease and Infection Changed Unquantified
Canterbury Earthquake - Christchurch City Council/ Crown Cost Sharing New Unquantified
Education - Early Childhood Education Funding New Unquantified
Government Response to Wai 262 Unchanged Unquantified
Health - Payment of Family Caregivers Changed Unquantified
Housing - Reform of Social Housing Unchanged Unquantified
Revenue - KiwiSaver Auto-enrolment  Unchanged $350 to $550 million operating expenses
Revenue - Transformation and Technology Renewal Unchanged Unquantified
Social Development - Disability Allowance Savings New Unquantified
Social Development - Vulnerable Children White Paper New Unquantified
Social Development - Welfare Reform Costs Changed Unquantified
Social Development - Welfare Reform Forecast Benefit Savings Changed Unquantified
State Sector Employment Agreements Unchanged Unquantified

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

Canterbury Earthquake - Crown Christchurch Investment New Unquantified
Departmental Capital Intentions Unchanged Unquantified
Earthquake Strengthening for Crown-owned Buildings Unchanged Unquantified
Finance - Crown Overseas Properties Unchanged $150 million capital expenditure
Finance - Investment into NZ Post Group (Kiwibank) Unchanged Unquantified
Primary Industries - Investment in Water Infrastructure Unchanged Unquantified
Transport - Support for KiwiRail Changed Up to $333 million capital expenditure

Matters dependent on external factors

ACC - Non-earners' Account Unchanged Unquantified
Canterbury Earthquake - EQC Unchanged Unquantified
Canterbury Earthquake - Residential Red Zone New Unquantified
Canterbury Earthquake - Southern Response Earthquake Services Support Package Changed Unquantified
Communications - Potential Impairment in Value of Broadband Investment Unchanged Unquantified
Communications - Radio Spectrum Income Following the Digital Switchover New Unquantified
Defence Force - Potential Rationalisation, Revaluation and Disposal of NZDF Assets Unchanged Unquantified
Energy - Crown Revenue from Petroleum Royalties Changed Unquantified
Environment - Kyoto Protocol Obligations Unchanged Unquantified
Environment - Post-2012 International Climate Change Obligations Unchanged Unquantified
Finance - Goodwill on Acquisition Changed Unquantified
Finance - Government Commitments to International Financial Institutions Unchanged Unquantified
Finance - Sale of Part of the Crown's Shareholding in Five Companies Unchanged Unquantified
Housing - Divestment of Housing New Unquantified
Revenue - Cash Held in Tax Pools Unchanged Unquantified
Treaty Negotiations - Treaty Settlement Forecast Unchanged Unquantified
Treaty Negotiations - Relativity Clause Unchanged Unquantified

Notes

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

Potential policy decisions affecting revenue

ACC - Funding Policy Review (New, Unquantified)

The Government is undertaking a review of ACC's funding policy. Adopting a lower funding target band midpoint would result in a reduction in levies and reduce Crown revenue and Crown assets, with a flow-on impact to the operating balance before gains and losses (OBEGAL).

ACC - Levies (Unchanged, Unquantified)

Levy rates for the Work, Earners' and Motor Vehicle accounts are set by Cabinet following a public consultation process. As at 26 November 2012, the Government has indicated that it is unlikely to agree to further reductions in ACC levy rates for the 2013/14 year as recommended by the ACC Board so the forecasts assume the current 2012/13 levy rates. Claims experience, ACC performance and economic assumptions (particularly discount rates) can impact insurance expenditure, both in the current year and the estimated future liability. If any of these factors differ from what is forecast the revenue collected may be more or less than required to cover the costs of claims, resulting in unplanned savings or costs which could have a corresponding impact on future years' levy rates.

Revenue - Income-sharing Tax Credits (Unchanged, Quantified)

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

Services Funded by Third Party Revenue (Unchanged, Unquantified)

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

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

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

Under current legislation, the Government incurs an obligation for Work-related Gradual Process Disease and Infection claims when the claim is made, and an expense is recognised at that point. As a result, the liability associated with Work-related Gradual Process Disease and Infection claims where exposure to the conditions that will give rise to a claim has occurred but where the claimant has not yet suffered incapacity or presented for treatment, are not recognised. An amendment to legislation would be required to recognise claims at the earlier point. An initial adjustment to the liability, and an expense of about $1 billion would need to be reported if such an amendment was made.

Canterbury Earthquake - Christchurch City Council/Crown Cost Sharing (New, Unquantified)

The Crown and Christchurch City Council are working on formalising a cost sharing arrangement for the implementation of the Christchurch Central Recovery Plan and to address local infrastructure costs. Assessment of infrastructure damage continues to progress, but is not yet complete. The Crown's current estimate has been included in forecasts, as has the amount it has already agreed to contribute to central city land acquisition and anchor projects. The lack of certainty on costs and cost sharing for local infrastructure, central city land acquisition and anchor projects could result in actual costs differing from those included in the forecasts.

Education - Early Childhood Education Funding (New, Unquantified)

The Government has committed to 98% of children starting school in 2016 having participated in quality early childhood education (ECE). Changes are also being made to welfare legislation to introduce an obligation for people on benefits caring for dependent children aged three years and over who are not yet in school to take all reasonable steps to ensure those children are enrolled in, and attending, an approved ECE programme. Any associated additional costs are expected to be funded through reprioritisation or existing Budget allowances.

Government Response to Wai 262 (Unchanged, Unquantified)

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

Health - Payment of Family Caregivers (Changed, Unquantified)

The Ministry of Health must change its policy of not allowing the payment to certain family carers (mainly parents and spouses of disabled adults) who deliver disability support services, as court rulings have found this policy to be in breach of section 19 of the New Zealand Bill of Rights Act 1990. The Government is currently consulting the disability community and wider public on options for a new policy approach to be implemented in 2013. The potential costs of a new policy are uncertain, but are likely to require a significant increase in disability support funding. There are also likely to be cost implications for services funded from Vote Social Development.

Housing - Reform of Social Housing (Unchanged, Unquantified)

The Government has decided to change the policy settings for social housing. This includes growing third party providers of social housing, increasing the effectiveness of financial assistance, and Housing New Zealand Corporation focusing on providing social housing to those with the greatest housing need. Plans for implementation remain under development, but may require reprioritisation or additional funding.

Revenue - KiwiSaver Auto-enrolment (Unchanged, Quantified)

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

Revenue - Transformation and Technology Renewal (Unchanged, Unquantified)

IRD is exploring options that will fundamentally change the way in which it manages its processes and data, in order to deliver smarter, modern services for less. Technology renewal is an integral part of IRD's future business model which focuses on sustaining current systems (ie, minimising known risks within existing technology), as well as significant business process and technology changes. Any changes could impact tax revenue collections and/or have material administrative costs to implement. Decisions on the size and scope of this programme are expected to be made as part of the Budget 2013 process.

Social Development - Disability Allowance Savings (New,Unquantified)

Savings in the Disability Allowance appropriation were agreed to in Budgets 2011 and 2012, and baselines were reduced. Policy decisions to deliver the savings have not yet been made and there is uncertainty around realising these savings.

Social Development - Vulnerable Children White Paper (New,Unquantified)

The Government is looking to implement proposals to better identify, and provide assistance to, vulnerable children. Costs of the proposals are likely to have impacts on the Social Development, Education, Health and Justice areas, and are expected to be met through reprioritisation of current expenditure. However, uncertainty around the service costs and volumes as well as the implementation of new initiatives associated with the better identification and support of vulnerable children could require additional funding.

Social Development - Welfare Reform Costs (Changed,Unquantified)

The Government has agreed to a package of changes to the benefit system. Some costs were agreed in Budget 2012, and implementation has commenced. This risk reflects uncertainty around the additional costs of Welfare Reform, for which funding decisions will be sought in Budget 2013 and possibly future Budgets.

Social Development - Welfare Reform Forecast Benefit Savings (Changed,Unquantified)

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

State Sector Employment Agreements (Unchanged, Unquantified)

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

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

Canterbury Earthquake - Crown Christchurch Investment (New, Unquantified)

A number of Crown-owned properties were either damaged in the Canterbury earthquakes or have previously been identified as requiring redevelopment. The following Christchurch investments are only risks to the fiscal forecasts to the extent that they cannot be managed through the existing Crown balance sheet:

  • Canterbury DHB New Facilities - a facilities redevelopment of Burwood and Christchurch Hospitals has been identified by the DHB as the preferred option to help deal with an ageing population and increasing bed shortages.
  • Canterbury School Property Network - the Government is considering options for the rebuild of education services in Christchurch. These options are likely to require funding over and above that received from insurance.
  • Canterbury Tertiary Education Institutions Recovery - the Government may decide to provide capital to the University of Canterbury, Lincoln University and CPIT over the next 10 years to help them recover from the Canterbury earthquakes, subject to them providing satisfactory project business cases.
  • Justice and Emergency Services Christchurch Hub - the Government is considering options for the rebuild of justice sector services in Christchurch, including a combined justice sector and emergency services precinct.
Departmental Capital Intentions (Unchanged, Unquantified)

The Government requires 16 capital-intensive agencies or sectors to identify their capital spending intentions over the next 10 years based on current policy settings and certain demographic and inflation assumptions. The Government expects that these intentions will be managed back through a range of measures such as prioritisation, changes to asset utilisation, alternative methods of service delivery and changes to policy settings. Departmental capital intentions are risks to the fiscal forecasts only to the extent that they cannot be managed through the existing Crown balance sheet.

Earthquake Strengthening for Crown-owned Buildings (Unchanged, Unquantified)

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

Finance - Crown Overseas Properties (Unchanged, Quantified)

The Government holds New Zealand House in London on a long-term lease from the Crown Estate (UK). Depending on the Government's future intentions for this building, an upgrade may be required. A rough-order cost estimate for this upgrade is $150 million over the period 2013/14 to 2015/16.

Finance - Investment into NZ Post Group (Kiwibank) (Unchanged, Unquantified)

Kiwibank has indicated that it may require new equity within the next three years mainly to meet the Basel III regulatory capital requirements, implementation of which commences in January 2013. New Zealand Post considers it is reaching constraints in its balance sheet to support Kiwibank.

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

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

Transport - Support for KiwiRail (Changed, Quantified)

KiwiRail has signalled its intention to seek up to $333 million of additional Crown funding over the next four years to complete the 10-year strategy for KiwiRail to achieve a commercially viable rail network. The Government has not considered its response to any such request.

Matters dependent on external factors

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

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

Canterbury Earthquake - EQC (Unchanged, Unquantified)

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

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

Some recoveries from the EQC and private insurers remain outstanding and there is a risk that final recoveries may be less than forecast. In addition, potential costs associated with the future use of residential red zone land are uncertain. The current value of the land has been assessed by external valuation as at 30 June 2012. The future value may change depending on any future alternate uses of the land.

Canterbury Earthquake - Southern Response Earthquake Services Support Package (Changed, Unquantified)

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

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

The Government has set aside $1.345 billion to progressively capitalise Crown Fibre Holdings so that it can invest with private partners in a new network delivering “ultra-fast” broadband services. Crown Fibre Holdings has entered into contracts with several partners. Given the contracts entered into, the extent of the recovery of this investment is particularly dependent on the number of connections made to the network. The fiscal forecasts include a provision for this impairment, but the final amount of the impairment may vary from this provision.

Communications - Radio Spectrum Income Following the Digital Switchover (New, Unquantified)

The Government has agreed to complete the switching off of analogue television signals by November 2013. The spectrum released by the digital switchover is now expected to be available from 1 December 2013. This will release a significant amount of radio spectrum for higher value uses such as 4G mobile. An estimated value of the spectrum of $119 million has been included in the Crown forecasts although the actual value is uncertain because the true value of the spectrum depends on the market conditions at the time of the sale.

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

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

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

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

Environment - Kyoto Protocol Obligations (Unchanged, Unquantified)

The fiscal impact of the Government's Kyoto Protocol obligations (2008 to 2012) is currently uncertain. An increase in New Zealand's net emissions or the future transfer of emission units offshore could reduce the net Kyoto position significantly. The fiscal impact of any changes is dependent on the carbon price. In the highly unlikely event that the Government needed to purchase emission units to meet its obligations, the purchase of units would result in a corresponding increase in net debt.

Environment - Post-2012 International Climate Change Obligations (Unchanged, Unquantified)

The Government is currently taking part in international negotiations for a post-2012 international climate change agreement. Currently no rights or obligations are included in the fiscal forecasts for any post-2012 agreement because of the high levels of uncertainty. Any New Zealand climate change commitments post-2012 could have significant financial implications, which will need to be recognised when the commitment is considered binding. New Zealand is considering decisions on the nature of any international commitments to 2020.

Finance - Goodwill on Acquisition (Changed, Unquantified)

As at 30 June 2012, the Government had goodwill on acquisition of a number of sub-entities totalling $746 million. Under New Zealand accounting standards (NZ IAS 36), such goodwill items are required to be assessed annually for impairment. If there is any indication that the goodwill may be impaired, the recoverable amount of the cash generating units to which the goodwill is allocated is required to be estimated. If the recoverable amount is less than the carrying amount of those units, the units and the goodwill allocated to them are regarded as impaired and the Government is required to recognise impairment losses in the operating statement. Such assessments will be conducted at the end of the financial year and the fiscal forecasts currently make no allowance for such impairment losses.

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

The forecast level of government commitments to international financial institutions is subject to change, depending on the Government's response to any changed financial plans on the part of these institutions. The risk of government commitments to the International Monetary Fund being called has increased owing to the global financial crisis and related world events, including in the euro area.

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

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

Housing - Divestment of Housing (New, Unquantified)

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

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

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

Treaty Negotiations - Treaty Settlement Forecast (Unchanged, Unquantified)

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

Treaty Negotiations - Relativity Clause (Unchanged, Unquantified)

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

Risks Removed Since the 2012 BEFU

The following risks have been removed since the 2012 Budget Economic and Fiscal Update:

 
Expired risks Reason
Canterbury Earthquake - Exceeding the CERF Individual Canterbury earthquake risks have been disclosed
Environment - Finance for Developing Countries No longer material
Environment - Review of the Emissions Trading Scheme Review completed and decisions included in the fiscal forecasts
Finance - Entities in Receivership under Crown Retail Deposit Guarantee Scheme No longer material
Housing - Weathertight Homes Unlikely to occur
Revenue - Salary Trade-offs Included in fiscal forecasts
Reviews of Public Services No longer material
Transport - KiwiRail Balance Sheet Restructure Included in fiscal forecasts

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

The Public Finance Act 1989 requires that the Statement of Specific Fiscal Risks sets out all government decisions, contingent liabilities or contractual obligations known to the Government and subject to specific requirements that may have a material effect on the economic or fiscal outlook.[12]

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

Criteria for Including Matters in the Fiscal Forecasts

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

  • The matter can be quantified for particular years with reasonable certainty.
  • A decision has been taken, or a decision has not yet been taken but it is reasonably probable[13] the matter will be approved, or it is reasonably probable the situation will occur.

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

Rules for the Disclosure of Specific Fiscal Risks

Matters are disclosed as specific fiscal risks if:

  • the likely impact is more than $100 million over five years, and either
  • a decision has not yet been taken but it is reasonably possible[14] (but not probable) that the matter will be approved or the situation will occur, or
  • it is reasonably probable that the matter will be approved or the situation will occur, but the matter cannot be quantified or assigned to particular years with reasonable certainty.

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

Exclusions from Disclosure

Matters are excluded from disclosure as specific fiscal risks if they fail to meet the materiality criterion (ie, are less than $100 million over five years), or if they are unlikely[15] to be approved or occur within the forecasting period.

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

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

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

Notes

  • [12]The Statement of Specific Fiscal Risks is a requirement set out in sections 26Q and 26U of the Public Finance Act 1989.
  • [13]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).
  • [14]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).
  • [15]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).

Other Contingent Liabilities and Contingent Assets

Contingent liabilities are costs that the Crown will have to face if a particular event occurs, or present liabilities that are unable to be measured with sufficient reliability to be recorded in the financial statements (unquantifiable liabilities).

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

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

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

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

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

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

Contingent liabilities have been stated as at 31 October 2012, being the latest set of reported contingent liabilities, except where the contingent liability has already been disclosed as a specific fiscal risk.

Details of each of the following contingent liabilities can be accessed from the Treasury website at www.treasury.govt.nz/budget/forecasts/hyefu2012.

Quantifiable Contingent Liabilities and Contingent Assets

Contingent liabilities
Guarantees and indemnities Status[16] ($millions)
Other guarantees and indemnities Unchanged 186
    186
Uncalled capital    
Asian Development Bank Unchanged 2,904
International Bank for Reconstruction and Development Unchanged 999
International Monetary Fund - arrangements to borrow Unchanged 1,051
International Monetary Fund - promissory notes Unchanged 1,141
Other uncalled capital Unchanged 45
    6,140
Legal proceedings and disputes    
Tax disputes Unchanged 398
Other legal proceedings and disputes Unchanged 46
    444
Other quantifiable contingent liabilities    
Kyoto protocol units Unchanged 100
Other quantifiable contingent liabilities Unchanged 305
    405
Total quantifiable contingent liabilities   7,175
Contingent assets
Guarantees and indemnities Status[17] ($millions)
Insurance claims - Canterbury earthquakes Unchanged 166
Tax disputes Unchanged 149
Other quantifiable contingent assets Unchanged 67
Total quantifiable contingent assets   382

Unquantifiable Contingent Liabilities and Contingent Assets

Contingent liabilities
  Status

Guarantees and indemnities:

 
Air New Zealand Unchanged
Airways Corporation of New Zealand Unchanged
AsureQuality Limited Unchanged
Contact Energy Limited Unchanged
Earthquake Commission (EQC) Unchanged
Housing New Zealand Corporation Unchanged
Justices of the Peace, Community Magistrates and Disputes Tribunal Referees Unchanged
Maui Mining Companies Unchanged
Maui Partners Unchanged
National Provident Fund Unchanged

New Zealand Aluminium Smelter and Comalco

Unchanged

New Zealand Local Authorities Unchanged
New Zealand Railways Corporation Unchanged
Persons exercising investigating powers Unchanged
Public Trust Unchanged
Reserve Bank of New Zealand Unchanged
Synfuels-Waitara Outfall Indemnity Unchanged
Tainui Corporation Unchanged
Westpac New Zealand Limited Unchanged

Legal claims and proceedings:

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

Other unquantifiable contingent liabilities:

 
Criminal Proceeds (Recovery) Act 2009 Unchanged
Environmental liabilities Unchanged
Landcorp Farming Limited Unchanged

Notes

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

Description of Contingent Liabilities

Quantifiable contingent liabilities over $100 million

Uncalled capital

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

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

The Crown's uncalled capital subscriptions are as follows:

Asian Development Bank

$2,904 million at 31 October 2012 ($2,988 million at 30 June 2012)

International Bank for Reconstruction and Development

$999 million at 31 October 2012 ($1,039 million at 30 June 2012)

International Monetary Fund - arrangements to borrow

$1,051 million at 31 October 2012 ($1,081 million at 30 June 2012)

International Monetary Fund - promissory notes

$1,141 million at 31 October 2012 ($1,174 million at 30 June 2012)

Legal proceedings and disputes

Tax in dispute

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

$398 million at 31 October 2012 ($365 million at 30 June 2012)

Other quantifiable contingent liabilities

Kyoto Protocol

The Government has a contingent liability relating to 57.6 million forestry credits. During the first commitment period, the Net Kyoto Position of the Crown estimates that 92.2 million tonnes of carbon credits will be generated by carbon removals via forests. To the extent that these forests are harvested in subsequent commitment periods there will be an associated liability generated that will need to be repaid. The New Zealand ETS transfers a portion of the potential future liability to forest owners. As at 31 October 2012 approximately 34.6 million tonnes has been transferred to forest owners in the form of New Zealand Units. The Crown's contingent liability is calculated as the remaining credits the Crown is potentially liable for (57.6 million tonnes). Using the carbon price as at 31 October 2012, this contingent liability can be measured at $100 million.

$100 million at 31 October 2012 ($349 million at 30 June 2012)

Unquantifiable contingent liabilities

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

Air New Zealand 

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

Airways Corporation of New Zealand

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

AsureQuality Limited 

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

Contact Energy Limited

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

Earthquake Commission (EQC)   

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

EQC's liabilities as at 30 June 2012 are consolidated in the Financial Statements of the Government of New Zealand for the Year Ended 30 June 2012, including the impact of the Canterbury earthquakes. EQC estimates that its total liabilities may exceed its current level of assets by $1,592 million. EQC's outstanding claims costs and reinsurance recoverable are included in this figure.

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

Housing New Zealand Corporation

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

Justices of the Peace, Community Magistrates and Disputes Tribunal Referees

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

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

Maui Mining Companies

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

These revisions may result in the Crown refunding monies or receiving monies from those parties.

Maui Partners

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

National Provident Fund

Under the National Provident Fund (NPF) Restructuring Act 1990, the Crown guarantees:

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

New Zealand Aluminium Smelter and Comalco

The indemnity relates to costs incurred in removing aluminium dross and disposing of it at another site if required to do so by an appropriate authority. The Minister of Finance signed the indemnity on 24 November 2003. In February 2004 a similar indemnity was signed in respect of aluminium dross currently stored at another site in Invercargill.

New Zealand Local Authorities

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

New Zealand Railways Corporation 

The Crown has indemnified the directors of New Zealand Railways Corporation against any liability arising from the surrender of the licence and lease of the Auckland rail corridor. The Crown has further indemnified the directors of New Zealand Railways Corporation against all liabilities in connection with the Corporation taking ownership and/or responsibility for the national rail network and any associated assets and liabilities on 1 September 2004.

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

Persons exercising investigating powers

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

Public Trust

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

Reserve Bank of New Zealand

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

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 the Electricity Corporation of New Zealand to Genesis Power. The Crown has provided guarantees to Tainui Corporation relating to Genesis Power's obligations under the lease agreements.

Westpac New Zealand Limited

Under the Domestic Transaction Banking Services Master Agreement with Westpac Banking Corporation (Westpac's rights and obligations under this agreement were vested in Westpac New Zealand Limited under the Westpac New Zealand Act 2006), dated 30 November 2004, the Crown has indemnified Westpac:

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

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

Legal claims and proceedings

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

Accident Compensation Corporation (ACC) litigations 

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

Air New Zealand litigation

Air New Zealand has been named in five class actions. Two (one in Australia and the other in the US) make allegations against more than 30 airlines of anti-competitive conduct in relation to pricing in the air cargo business. One class action (in the US) alleges that Air New Zealand, together with many other airlines, conspired in respect of fares and surcharges on trans-Pacific routes. The likelihood of any liability in the other two cases is considered remote, so these are not disclosed.

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

Television New Zealand

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

Treaty of Waitangi claims

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

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

Other unquantifiable contingent liabilities

Criminal Proceeds (Recovery) Act 2009

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

Environmental liabilities

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

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

Landcorp Farming Limited

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

Description of Contingent Assets

Quantifiable contingent assets over $100 million

Insurance claims in respect of the Canterbury earthquakes

A number of entities within the government reporting entity have insurance proceeds receivable from claims in respect of the Canterbury earthquakes. Some of these have been quantified; however, there are other entities that have not yet been able to quantify these amounts.

$166 million at 31 October 2012 ($166 million at 30 June 2012)

Tax disputes

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

$149 million at 31 October 2012 ($150 million at 30 June 2012)

Forecast Financial Statements

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

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

The forecasts have been prepared in accordance with the Statement of Responsibility and reflect the judgements and information known at the time they were prepared. They reflect all government decisions and circumstances communicated to 26 November 2012.

The finalisation dates and key assumptions that underpin the preparation of the Forecast Financial Statements are outlined on pages 39 to 41.

Statement of Accounting Policies

Significant Accounting Policies

These Forecast Financial Statements have been prepared in accordance with the accounting policies that are expected to be used in the comparable audited actual financial statements of the Government.

These Forecast Financial Statements comply with generally accepted accounting practice (GAAP) as required by the Public Finance Act 1989 and have been prepared in accordance with Financial Reporting Standard 42: Prospective Financial Statements.

All forecasts use the accrual basis of accounting. Forecasts have been prepared for the consolidated financial statements of the government reporting entity, which includes all entities controlled by the Government (as defined by applicable financial reporting standards).

The specific accounting policies are included within the 2012 Half Year Update Additional Information document which can be found on the Treasury's website at http://www.treasury.govt.nz/budget/forecasts/hyefu2012

Changes in Accounting Policies

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

Forecast Policies

These Forecast Financial Statements have been prepared on the basis of the Treasury's best professional judgement. Actual financial results for the periods covered are likely to vary from the information presented in these forecasts. Factors that may lead to a material difference between information in these Forecast Financial Statements and the actual reported results in future years are set out in the Specific Fiscal Risks chapter on pages 59 to 82.

Key forecast assumptions used are set out on pages 39 to 41.

Government Reporting Entity as at 26 November 2012

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

Core Crown

Departments
  • Canterbury Earthquake Recovery Authority
  • Crown Law Office
  • Department of Conservation
  • Department of Corrections
  • Department of Internal Affairs
  • Department of the Prime Minister and Cabinet
  • Education Review Office
  • Government Communications Security Bureau
  • Inland Revenue Department
  • Land Information New Zealand
  • Ministry for Culture and Heritage
  • Ministry for Primary Industries
  • Ministry for the Environment
  • Ministry of Business, Innovation and Employment
  • Ministry of Defence
  • Ministry of Education
  • Ministry of Foreign Affairs and Trade
  • Ministry of Health
  • Ministry of Justice
  • Ministry of Māori Development
  • Ministry of Pacific Island Affairs
  • Ministry of Social Development
  • Ministry of Transport
  • Ministry of Women's Affairs
  • New Zealand Customs Service
  • New Zealand Defence Force
  • New Zealand Police
  • New Zealand Security Intelligence Service
  • Office of the Clerk of the House of Representatives
  • Parliamentary Counsel Office
  • Parliamentary Service
  • Serious Fraud Office
  • State Services Commission
  • Statistics New Zealand
  • The Treasury
Offices of Parliament
  • Controller and Auditor General
  • The Ombudsmen
  • Parliamentary Commissioner for the Environment
Others
  • New Zealand Superannuation Fund
  • Reserve Bank of New Zealand

State-Owned Enterprises (SOEs) 

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

*included for disclosure purposes as if they were an SOE

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

Crown entities

  • Accident Compensation Corporation
  • Arts Council of New Zealand Toi Aotearoa
  • Broadcasting Commission
  • Broadcasting Standards Authority
  • Careers New Zealand
  • Children's Commissioner
  • Civil Aviation Authority of New Zealand
  • Commerce Commisson
  • Crown Research Institutes (8)
  • District Health Boards (20)
  • Drug Free Sport New Zealand
  • Earthquake Commission
  • Education New Zealand
  • Electoral Commission
  • Electricity Authority
  • Energy Efficiency and Conservation Authority
  • Environmental Protection Authority
  • External Reporting Board
  • Families Commission
  • Financial Markets Authority
  • Government Superannuation Fund Authority
  • Guardians of New Zealand Superannuation
  • Health and Disability Commissioner
  • Health Promotion Agency
  • Health Quality and Safety Commission
  • Health Research Council of New Zealand
  • Housing New Zealand Corporation
  • Human Rights Commission
  • Independent Police Conduct Authority
  • Law Commission
  • Maritime Safety Authority of New Zealand
  • Museum of New Zealand Te Papa Tongarewa Board
  • New Zealand Antarctic Institute
  • New Zealand Artificial Limb Board
  • New Zealand Blood Service
  • New Zealand Film Commission
  • New Zealand Fire Service Commission
  • New Zealand Historic Places Trust (Pouhere Taonga)
  • New Zealand Lotteries Commission
  • New Zealand Productivity Commission
  • New Zealand Qualifications Authority
  • New Zealand Symphony Orchestra
  • New Zealand Teachers Council
  • New Zealand Tourism Board
  • New Zealand Trade and Enterprise
  • New Zealand Transport Agency
  • New Zealand Venture Investment Fund Limited
  • New Zealand Walking Access Commission
  • Office of Film and Literature Classification
  • Pharmaceutical Management Agency
  • Privacy Commissioner
  • Public Trust
  • Radio New Zealand Limited
  • Real Estate Agents Authority
  • Retirement Commissioner
  • School Boards of Trustees (2,459)
  • Social Workers Registration Board
  • Sport and Recreation New Zealand
  • Standards Council
  • Takeovers Panel
  • Te Reo Whakapuaki Irirangi (Māori Broadcasting Funding Agency)
  • Te Taura Whiri i te Reo Māori (Māori Language Commission)
  • Television New Zealand Limited
  • Tertiary Education Commission
  • Tertiary education institutions (29)
  • Testing Laboratory Registration Council
  • Transport Accident Investigation Commission
Organisations named or described in Schedule 4 of the Public Finance Act 1989
  • Agriculture and Marketing Research and Development Trust
  • Asia New Zealand Foundation
  • Crown Asset Management Limited
  • Crown Fibre Holdings Limited
  • Dispute Resolution Services Limited
  • Fish and Game Councils (12)
  • Health Benefits Limited
  • Leadership Development Centre Trust
  • Learning State Limited
  • Māori Trustee
  • National Pacific Radio Trust
  • New Zealand Fish and Game Council
  • New Zealand Game Bird Habitat Trust Board
  • New Zealand Government Property Corporation
  • New Zealand Lottery Grants Board
  • Ngai Tahu Ancillary Claims Trust
  • Pacific Co-operation Foundation
  • Pacific Island Business Development Trust
  • Research and Education Advanced Network New Zealand Limited
  • Reserves Boards (21)
  • Road Safety Trust
  • Sentencing Council
  • Southern Response Earthquake Services Limited
  • Tāmaki Redevelopment Company Limited
  • Te Ariki Trust
  • The Network for Learning Limited

Financial Statements

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

Revenue

               
Taxation revenue 1 54,665 57,663 56,874 61,248 64,878 68,079 71,022
Other sovereign revenue 1 5,130 5,446 5,128 5,320 5,454 5,394 5,544
Total revenue levied through the Crown's sovereign power   59,795 63,109 62,002 66,568 70,332 73,473 76,566
Sales of goods and services   16,785 16,337 15,735 16,131 17,010 17,671 18,294
Interest revenue and dividends 2 2,763 3,376 3,211 3,710 4,265 4,490 5,036
Other revenue   4,140 3,481 3,659 3,669 3,858 3,932 4,019
Total revenue earned through the Crown's operations   23,688 23,194 22,605 23,510 25,133 26,093 27,349
Total revenue (excluding gains)   83,483 86,303 84,607 90,078 95,465 99,566 103,915

Expenses

               
Transfer payments and subsidies 3 22,354 23,218 23,007 23,571 24,065 24,862 25,598
Personnel expenses 4 19,475 19,676 19,983 19,904 20,227 20,577 20,811
Depreciation and amortisation 5 6,350 4,687 4,531 4,720 4,876 4,963 5,043
Other operating expenses 5 35,678 38,929 37,455 34,867 35,113 35,160 35,748
Interest expenses 6 4,290 4,663 4,410 4,683 5,261 5,353 5,793
Insurance expenses 7 4,576 3,289 3,374 3,396 3,653 3,786 4,110
Forecast new operating spending 8 348 317 978 2,154 3,352 4,544
Top-down expense adjustment 8 (700) (1,150) (200) (200) (200) (200)
Total expenses (excluding losses)   92,723 94,110 91,927 91,919 95,149 97,853 101,447
Forgone profits from Government share offers   (90) (20) (170) (250) (330) (420)
Operating balance before gains/(losses)   (9,240) (7,897) (7,340) (2,011) 66 1,383 2,048
Net gains/(losses) on financial instruments 9 692 1,735 3,301 1,808 1,906 2,040 2,215
Net gains/(losses) on non-financial instruments 10 (6,526) 201 568 35 (90) (92) (95)
Total gains/(losses)   (5,834) 1,936 3,869 1,843 1,816 1,948 2,120
Net surplus from associates and joint ventures   233 262 196 217 219 219 217
Attributable to minority interest   (56)
Operating balance 11 (14,897) (5,699) (3,275) 49 2,101 3,550 4,385

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

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

Total Crown expenses

             

By functional classification

             
Social security and welfare 25,457 26,912 26,689 27,526 28,128 28,858 29,787
GSF pension expenses 197 340 287 267 298 333 367
Health 13,650 14,013 14,108 13,815 13,776 13,743 13,709
Education 12,407 13,164 13,262 13,055 13,172 13,302 13,349
Core government services 5,305 6,459 5,538 4,257 4,124 4,169 4,114
Law and order 3,592 3,779 3,864 3,698 3,678 3,760 3,749
Defence 1,693 1,973 1,815 1,783 1,790 1,830 2,103
Transport and communications 10,259 8,801 8,952 8,858 9,124 9,267 9,503
Economic and industrial services 10,018 7,900 7,479 7,150 7,703 7,939 8,445
Primary services 1,588 1,830 1,521 1,411 1,423 1,388 1,372
Heritage, culture and recreation1 2,446 2,309 2,477 2,555 2,624 2,683 2,753
Housing and community development 627 1,115 1,168 1,075 1,097 1,062 1,055
Environmental protection1 769 713 561 462 453 469 459
Other 425 491 629 546 544 545 545
Finance costs 4,290 4,663 4,410 4,683 5,261 5,353 5,793
Forecast new operating spending 348 317 978 2,154 3,352 4,544
Top-down expense adjustment (700) (1,150) (200) (200) (200) (200)
Total Crown expenses excluding losses 92,723 94,110 91,927 91,919 95,149 97,853 101,447

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

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

Core Crown expenses

             

By functional classification

             
Social security and welfare 22,028 23,239 22,878 23,598 24,113 24,661 25,399
GSF pension expenses 192 329 278 258 280 315 349
Health 14,160 14,745 14,741 14,629 14,596 14,573 14,542
Education 11,654 12,387 12,400 12,215 12,304 12,395 12,442
Core government services 5,428 6,537 5,640 4,354 4,223 4,266 4,209
Law and order 3,403 3,558 3,642 3,468 3,437 3,510 3,488
Defence 1,736 2,016 1,864 1,828 1,835 1,879 2,149
Transport and communications 2,232 2,174 2,435 2,073 2,212 2,145 2,217
Economic and industrial services 2,157 2,134 2,082 1,962 1,895 1,924 1,944
Primary services 648 832 846 726 719 681 658
Heritage, culture and recreation1 863 835 875 821 804 796 796
Housing and community development (130) 328 357 287 287 234 200
Environmental protection1 769 713 585 486 477 492 483
Other 425 491 629 546 544 545 545
Finance costs 3,511 3,766 3,579 3,752 3,972 3,989 4,279
Forecast new operating spending 348 317 978 2,154 3,352 4,544
Top-down expense adjustment (700) (1,150) (200) (200) (200) (200)
Total core Crown expenses excluding losses 69,076 73,732 71,998 71,781 73,652 75,557 78,044

1. Previously environmental protection expenses were included within the heritage, culture and recreation classification. These expenses have been reclassified to the new environmental protection functional classification.

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

Forecast Statement of Comprehensive Income for the years ending 30 June

Forecast Statement of Comprehensive Income for the years ending 30 June
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Operating balance (including minority interest) (14,841) (5,609) (3,255) 219 2,351 3,880 4,805

Other comprehensive income

             
Revaluation of physical assets (6,461) (16)
Net change in hedging instruments entered into for cash flow hedges 143 (3) (32) (1) 3 4 5
Foreign currency translation differences for foreign operations (2) 55 85 3
Valuation gains/(losses) on investments available for sale taken to reserves 13 10 4 9 9 11 12
Other movements 1 2 (4) 25 (8) 33 35
Total other comprehensive income (6,306) 64 37 36 4 48 52
Total comprehensive income (21,147) (5,545) (3,218) 255 2,355 3,928 4,857

Attributable to:

             
 - minority interest 84 90 20 170 250 330 420
 - the Crown (21,231) (5,635) (3,238) 85 2,105 3,598 4,437
Total comprehensive income (21,147) (5,545) (3,218) 255 2,355 3,928 4,857

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

Forecast Statement of Changes in Net Worth for the years ending 30 June
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Opening net worth 80,887 70,303 59,780 58,062 59,717 63,422 68,650
Operating balance (excluding minority interest) (14,841) (5,699) (3,275) 49 2,101 3,550 4,385
Net revaluations (6,461) (16)
Transfers to/(from) reserves 80 (1) (39) 24 (5) 38 39
(Gains)/losses transferred to the Statement of Financial Performance 83 (1) (1) 1
Other movements (8) 65 93 12 9 11 12
Total comprehensive income (21,147) (5,635) (3,238) 85 2,105 3,598 4,437
Gain on Government share offers 200 175 175 175 175
Increase in minority interest from Government share offers 1,300 1,325 1,325 1,325 1,325
Transactions with minority interest 40 40 20 70 100 130 170
Closing net worth 59,780 66,208 58,062 59,717 63,422 68,650 73,257

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

Forecast Statement of Cash Flows for the years ending 30 June

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

Cash flows from operations

             

Cash was provided from

             
Taxation receipts 53,582 56,856 55,817 60,413 64,025 67,047 70,098
Other sovereign receipts 4,890 4,729 4,694 4,709 4,819 5,005 5,119
Sales of goods and services 16,812 16,369 15,806 16,079 17,020 17,648 18,200
Interest and dividend receipts 2,603 3,106 2,924 3,451 3,991 4,200 4,750
Other operating receipts 4,395 7,172 6,785 4,816 4,515 4,170 3,938
Total cash provided from operations 82,282 88,232 86,026 89,468 94,370 98,070 102,105

Cash was disbursed to

             
Transfer payments and subsidies 22,840 23,284 23,077 23,982 24,199 24,883 25,612
Personnel and operating payments 59,107 62,535 61,567 58,712 58,314 57,793 57,345
Interest payments 3,954 4,797 4,622 4,903 5,626 5,560 6,006
Forecast new operating spending 348 317 978 2,154 3,352 4,544
Top-down expense adjustment (700) (1,150) (200) (200) (200) (200)
Total cash disbursed to operations 85,901 90,264 88,433 88,375 90,093 91,388 93,307
Net cash flows from operations (3,619) (2,032) (2,407) 1,093 4,277 6,682 8,798

Cash flows from investing activities

             

Cash was provided from/(disbursed to)

             
Net purchase of physical assets (5,766) (7,039) (6,837) (7,074) (5,871) (6,211) (6,413)
Net purchase of shares and other securities 424 7,480 8,964 (5,574) 2,497 (5,016) (7,511)
Net purchase of intangible assets (567) (515) (553) (517) (432) (384) (332)
Net repayment/(issues) of advances (1,284) (1,840) (1,539) (1,668) (1,702) (2,255) (2,213)
Net acquisition of investments in associates (115) 1,510 1,513 1,588 1,554 1,552 51
Forecast new capital spending (194) (179) (726) (821) (800) (910)
Top-down capital adjustment 100 400 100 100 50 50
Net cash flows from investing activities (7,308) (498) 1,769 (13,871) (4,675) (13,064) (17,278)
Net cash flows from operating and investing activities (10,927) (2,530) (638) (12,778) (398) (6,382) (8,480)

Cash flows from financing activities

             

Cash was provided from/(disbursed to)

             
Issues of circulating currency 203 144 160 231 242 255 267
Net issue/(repayment) of government stock1 7,554 3,921 5,711 10,353 (1,312) 4,442 6,099
Net issue/(repayment) of foreign-currency borrowings (6,422) (623) (2,292) (671) (1,256) (929) (575)
Net issue/(repayment) of other New Zealand dollar borrowings 10,353 (1,434) 481 2,379 2,442 2,652 2,644
Dividends paid to minority interests (7) (50) (100) (150) (200) (250)
Net cash flows from financing activities 11,681 1,958 4,060 12,192 (34) 6,220 8,185
Net movement in cash 754 (572) 3,422 (586) (432) (162) (295)
Opening cash balance 9,801 14,899 10,686 13,952 13,366 12,934 12,772
Foreign-exchange gains/(losses) on opening cash 131 (156)
Closing cash balance 10,686 14,327 13,952 13,366 12,934 12,772 12,477

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

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

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

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

             
Net cash flows from operations (3,619) (2,032) (2,407) 1,093 4,277 6,682 8,798
Items included in the operating balance but not in net cash flows from operations              

Gains/(losses)

             
Net gains/(losses) on financial instruments 692 1,735 3,301 1,808 1,906 2,040 2,215
Net gains/(losses) on non-financial instruments (6,526) 201 568 35 (90) (92) (95)
Total gains/(losses) (5,834) 1,936 3,869 1,843 1,816 1,948 2,120

Other non-cash items in operating balance

             
Depreciation and amortisation (6,350) (4,687) (4,531) (4,720) (4,876) (4,963) (5,043)
Write-down on initial recognition of financial assets (850) (748) (788) (830) (807) (837) (855)
Impairment on financial assets (excl. receivables) 248 181 33 34 35 39 41
Decrease/(increase) in defined benefit retirement plan liabilities 512 405 390 474 467 447 426
Decrease/(increase) in insurance liabilities 1,070 2,985 2,684 1,772 693 (104) (1,512)
Other 232 262 197 218 219 222 216
Total other non-cash Items (5,138) (1,602) (2,015) (3,052) (4,269) (5,196) (6,727)

Movements in working capital

             
Increase/(decrease) in receivables (242) (3,767) (3,459) (1,196) (627) (323) 86
Increase/(decrease) in accrued interest (175) 404 498 479 639 497 500
Increase/(decrease) in inventories (74) 59 (95) 46 50 32 2
Increase/(decrease) in prepayments 32 (44) (13) (41) 3 1 5
Decrease/(increase) in deferred revenue (38) 32 163 1 (35) (45) (36)
Decrease/(increase) in payables/provisions 191 (685) 184 876 247 (46) (363)
Total movements in working capital (306) (4,001) (2,722) 165 277 116 194
Operating balance (14,897) (5,699) (3,275) 49 2,101 3,550 4,385

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

Forecast Statement of Financial Position as at 30 June

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

Assets

               
Cash and cash equivalents 12 10,686 14,327 13,952 13,366 12,934 12,772 12,477
Receivables 12 20,956 16,799 17,627 15,994 15,372 15,052 15,146
Marketable securities, deposits and derivatives in gain 12 48,385 36,197 39,399 42,972 38,753 41,813 47,307
Share investments 12 14,385 15,853 16,302 17,995 19,802 21,757 23,855
Advances 12 21,766 23,895 23,398 25,295 27,607 30,633 34,136
Inventory   1,234 1,360 1,139 1,185 1,235 1,267 1,269
Other assets   2,134 2,051 1,972 2,080 1,818 1,819 1,824
Property, plant and equipment 14 108,584 121,335 111,719 114,692 116,643 118,500 120,474
Equity accounted investments1   9,483 9,967 9,825 9,982 10,122 10,248 10,374
Intangible assets and goodwill 15 2,705 2,571 2,708 2,795 2,774 2,723 2,640
Forecast for new capital spending 8 282 179 905 1,726 2,526 3,436
Top-down capital adjustment 8 (350) (400) (500) (600) (650) (700)
Total assets   240,318 244,287 237,820 246,761 248,186 258,460 272,238

Liabilities

               
Issued currency   4,457 4,704 4,617 4,848 5,090 5,345 5,612
Payables 17 11,604 13,503 12,423 11,704 11,763 11,947 12,298
Deferred revenue   1,712 1,399 1,548 1,548 1,582 1,627 1,663
Borrowings   100,534 103,207 102,749 113,669 112,494 117,733 125,419
Insurance liabilities 18 41,186 36,919 38,160 36,237 35,544 35,648 37,160
Retirement plan liabilities 19 13,539 11,481 12,960 12,485 12,019 11,572 11,146
Provisions 20 7,506 6,866 7,301 6,553 6,272 5,938 5,683
Total liabilities   180,538 178,079 179,758 187,044 184,764 189,810 198,981
Total assets less total liabilities   59,780 66,208 58,062 59,717 63,422 68,650 73,257

Net worth

               
Taxpayers' funds 21 3,520 2,144 486 812 3,199 7,079 11,632
Property, plant and equipment revaluation reserve 21 56,001 62,550 55,915 55,838 55,719 55,597 55,464
Other reserves 21 (173) (134) (116) (105) (93) (78) (61)
Total net worth attributable to the Crown   59,348 64,560 56,285 56,545 58,825 62,598 67,035
Net worth attributable to minority interest   432 1,648 1,777 3,172 4,597 6,052 6,222
Total net worth   59,780 66,208 58,062 59,717 63,422 68,650 73,257

1. Tertiary education institutions constitute most equity accounted investments.

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

Forecast Statement of Borrowings as at 30 June

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

Borrowings

             
Government bonds 53,850 57,296 57,159 66,165 63,365 66,290 70,755
Treasury bills 8,954 4,700 4,599 4,471 4,336 4,327 4,325
Government retail stock 229 251 221 221 221 221 221
Settlement deposits with Reserve Bank 5,917 6,244 6,855 6,855 6,855 6,855 6,855
Derivatives in loss 2,807 2,401 2,337 2,134 2,000 1,790 1,675
Finance lease liabilities 1,515 1,471 1,586 1,572 1,687 1,731 1,656
Other borrowings 27,262 30,844 29,992 32,251 34,030 36,519 39,932
Total borrowings 100,534 103,207 102,749 113,669 112,494 117,733 125,419
Total sovereign-guaranteed debt 75,701 76,212 76,400 85,345 82,368 85,075 89,478
Total non-sovereign-guaranteed debt 24,833 26,995 26,349 28,324 30,126 32,658 35,941
Total borrowings 100,534 103,207 102,749 113,669 112,494 117,733 125,419

Net debt:

             
Core Crown borrowings1 84,680 85,674 86,282 94,689 92,598 96,571 102,450
Add back NZS Fund holdings of sovereign-issued debt and NZS Fund borrowings (512) (884) (671) (812) (911) (1,056) (1,111)
Gross sovereign-issued debt2 84,168 84,790 85,611 93,877 91,687 95,515 101,339
Less core Crown financial assets3 64,017 56,569 59,177 62,981 59,328 63,203 68,921
Net core Crown debt 20,151 28,221 26,434 30,896 32,359 32,312 32,418
Core Crown advances 13,324 13,894 13,898 14,558 15,353 16,345 16,749
Net core Crown debt (incl. NZS Fund)4 33,475 42,115 40,332 45,454 47,712 48,657 49,167
Add back NZS Fund holdings of core Crown financial assets and NZS Fund financial assets5 17,196 19,150 19,666 21,295 22,973 24,820 26,693
Net core Crown debt (excl. NZS Fund and advances)6 50,671 61,265 59,998 66,749 70,685 73,477 75,860

Gross debt:

             
Gross sovereign-issued debt2 84,168 84,790 85,611 93,877 91,687 95,515 101,339
Less Reserve Bank settlement cash and bank bills (6,133) (6,418) (7,035) (7,035) (7,035) (7,055) (7,080)
Add back changes to DMO borrowing owing to settlement cash7 1,600 1,600 1,600 1,600 1,600 1,600 1,600
Gross sovereign-issued debt excluding Reserve Bank settlement cash and bank bills4 79,635 79,972 80,176 88,442 86,252 90,060 95,859

Notes on borrowings

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

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

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

Statement of Actual Commitments as at 31 October 2012

Statement of Actual Commitments as at 31 October 2012
  As at
31 Oct
2012
$m
As at
30 June
2012
$m

Capital commitments

   
Specialist military equipment 166 239
Land and buildings 719 697
Other property, plant and equipment 6,261 6,001
Other capital commitments 744 572
Tertiary education institutions 255 255
Total capital commitments 8,145 7,764

Operating commitments

   
Non-cancellable accommodation leases 2,668 2,719
Other non-cancellable leases 3,496 3,549
Tertiary education institutions 282 282
Total operating commitments 6,446 6,550
Total commitments 14,591 14,314

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

Statement of Actual Contingent Liabilities and Assets as at 31 October 2012
  As at
31 Oct
2012
$m
As at
30 June
2012
$m

Quantifiable contingent liabilities

   
Guarantees and indemnities 186 430
Uncalled capital 6,140 6,327
Legal proceedings and disputes 444 411
Other contingent liabilities 405 584
Total quantifiable contingent liabilities 7,175 7,752

Total quantifiable contingent liabilities by segment

   
Core Crown 6,983 7,622
Crown entities 81 40
State-owned enterprises 111 90
Inter-segment eliminations
Total quantifiable contingent liabilities 7,175 7,752

Quantifiable contingent assets by segment

   
Core Crown 221 224
Crown entities 161 162
State-owned enterprises 24
Total quantifiable contingent assets 382 410

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

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

Notes to the Forecast Financial Statements

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

Taxation revenue (accrual)

             

Individuals

             
Source deductions 21,237 22,563 22,038 23,117 24,301 25,487 26,750
Other persons 4,232 4,386 4,641 4,740 4,935 5,116 5,314
Refunds (1,736) (1,567) (1,564) (1,426) (1,414) (1,418) (1,463)
Fringe benefit tax 462 458 439 454 490 509 529
Total individuals 24,195 25,840 25,554 26,885 28,312 29,694 31,130

Corporate tax

             
Gross companies tax 8,310 8,301 8,487 9,310 9,735 10,082 10,477
Refunds (202) (279) (214) (217) (231) (242) (252)
Non-resident withholding tax 500 455 396 461 529 585 622
Foreign-source dividend w/holding payments 4
Total corporate tax 8,612 8,477 8,669 9,554 10,033 10,425 10,847

Other direct income tax

             
Resident w/holding tax on interest income 1,679 1,673 1,515 1,650 1,988 2,337 2,606
Resident w/holding tax on dividend income 292 375 382 589 613 634 655
Total other direct income tax 1,971 2,048 1,897 2,239 2,601 2,971 3,261
Total direct income tax 34,778 36,365 36,120 38,678 40,946 43,090 45,238

Goods and services tax

             
Gross goods and services tax 25,199 26,795 25,814 27,467 29,410 31,314 33,525
Refunds (10,627) (11,052) (10,512) (10,699) (11,626) (12,809) (14,442)
Total goods and services tax 14,572 15,743 15,302 16,768 17,784 18,505 19,083

Other indirect taxation

             
Road user charges 1,045 1,152 1,114 1,245 1,360 1,469 1,535
Petroleum fuels excise – domestic production 847 939 905 979 1,056 1,122 1,148
Alcohol excise – domestic production 656 698 672 701 732 764 799
Tobacco excise – domestic production 244 223 248 251 257 272 285
Petroleum fuels excise – imports1 631 626 656 709 765 813 831
Alcohol excise – imports1 241 249 235 245 255 267 278
Tobacco excise – imports1 993 983 964 1,011 1,064 1,122 1,172
Other customs duty 173 179 168 159 151 143 136
Gaming duties 216 231 225 225 227 229 231
Motor vehicle fees 175 170 179 184 188 190 193
Approved issuer levy and cheque duty 58 69 50 57 57 57 57
Energy resources levies 36 36 36 36 36 36 36
Total other indirect taxation 5,315 5,555 5,452 5,802 6,148 6,484 6,701
Total indirect taxation 19,887 21,298 20,754 22,570 23,932 24,989 25,784
Total taxation revenue 54,665 57,663 56,874 61,248 64,878 68,079 71,022

Other sovereign revenue (accrual)

             
ACC levies 3,695 3,395 3,427 3,472 3,560 3,649 3,743
Fire Service levies 326 313 325 328 334 346 351
EQC levies 107 240 242 272 275 277 280
Child support 311 660 596 706 743 577 625
Court fines 176 178 178 181 183 186 186
Other miscellaneous items 515 660 360 361 359 359 359
Total other sovereign revenue 5,130 5,446 5,128 5,320 5,454 5,394 5,544
Total sovereign revenue 59,795 63,109 62,002 66,568 70,332 73,473 76,566

1. Customs excise-equivalent duty.

Sovereign Receipts (Cash)
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

Taxation receipts (cash)

             

Individuals

             
Source deductions 21,010 22,450 21,924 22,999 24,177 25,359 26,621
Other persons 4,720 5,062 4,944 5,154 5,452 5,579 5,802
Refunds (2,468) (2,493) (2,212) (2,108) (2,153) (2,177) (2,251)
Fringe benefit tax 458 457 438 453 489 508 528
Total individuals 23,720 25,476 25,094 26,498 27,965 29,269 30,700

Corporate tax

             
Gross companies tax 8,792 8,737 8,660 9,682 10,056 10,349 10,879
Refunds (814) (756) (665) (682) (711) (747) (780)
Non-resident withholding tax 434 454 395 460 528 584 621
Foreign-source dividend w/holding payments 4
Total corporate tax 8,416 8,435 8,390 9,460 9,873 10,186 10,720

Other direct income tax

             
Resident w/holding tax on interest income 1,699 1,672 1,514 1,649 1,987 2,336 2,605
Resident w/holding tax on dividend income 290 375 382 589 613 634 655
Total other direct income tax 1,989 2,047 1,896 2,238 2,600 2,970 3,260
Total direct income tax 34,125 35,958 35,380 38,196 40,438 42,425 44,680

Goods and services tax

             
Gross goods and services tax 24,574 25,895 24,997 26,614 28,565 30,447 32,659
Refunds (10,435) (10,552) (10,012) (10,199) (11,126) (12,309) (13,942)
Total goods and services tax 14,139 15,343 14,985 16,415 17,439 18,138 18,717

Other indirect taxation

             
Road user charges 1,048 1,152 1,114 1,245 1,360 1,469 1,535
Petroleum fuels excise – domestic production 845 939 905 979 1,056 1,122 1,148
Alcohol excise – domestic production 654 698 672 701 732 764 799
Tobacco excise – domestic production 238 223 248 251 257 272 285
Customs duty 2,057 2,037 2,023 2,124 2,235 2,345 2,417
Gaming duties 216 231 225 225 227 229 231
Motor vehicle fees 169 170 179 184 188 190 193
Approved issuer levy and cheque duty 55 69 50 57 57 57 57
Energy resources levies 36 36 36 36 36 36 36
Total other indirect taxation 5,318 5,555 5,452 5,802 6,148 6,484 6,701
Total indirect taxation 19,457 20,898 20,437 22,217 23,587 24,622 25,418
Total taxation receipts 53,582 56,856 55,817 60,413 64,025 67,047 70,098

Other sovereign receipts (cash)

             
ACC levies 3,693 3,413 3,424 3,440 3,532 3,694 3,789
Fire Service levies 326 313 325 328 334 346 351
EQC levies 134 270 277 271 275 278 281
Child support 243 225 227 230 241 253 264
Court fines 157 144 144 144 143 140 140
Other miscellaneous items 337 364 297 296 294 294 294
Total other sovereign receipts 4,890 4,729 4,694 4,709 4,819 5,005 5,119
Total sovereign receipts 58,472 61,585 60,511 65,122 68,844 72,052 75,217

NOTE 2: Interest revenue and dividends

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

By type

             
Interest revenue 2,293 2,885 2,676 3,148 3,643 3,801 4,274
Dividends 470 491 535 562 622 689 762
Total interest revenue and dividends 2,763 3,376 3,211 3,710 4,265 4,490 5,036

By source

             
Core Crown 1,795 2,397 2,261 2,586 2,833 2,888 3,151
Crown entities 1,181 1,123 1,114 1,248 1,347 1,461 1,585
State-owned enterprises 858 905 864 1,028 1,239 1,342 1,550
Inter-segment eliminations (1,071) (1,049) (1,028) (1,152) (1,154) (1,201) (1,250)
Total interest revenue and dividends 2,763 3,376 3,211 3,710 4,265 4,490 5,036

NOTE 3: Transfer payments and subsidies

NOTE 3: Transfer payments and subsidies
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
New Zealand Superannuation 9,584 10,243 10,228 10,850 11,415 12,073 12,686
Family tax credit 2,082 2,113 2,062 2,037 1,993 1,961 1,976
Domestic Purposes Benefit 1,811 1,820 1,751 1,762 1,776 1,811 1,840
Invalid's Benefit 1,325 1,321 1,323 1,305 1,277 1,273 1,274
Accommodation Supplement 1,195 1,243 1,197 1,229 1,248 1,271 1,288
Unemployment Benefit 883 881 836 839 814 804 783
Sickness Benefit 775 781 784 809 845 868 878
In-work tax credit 567 565 541 511 493 483 479
Student allowances 644 602 623 572 526 503 489
Income related rents 580 626 614 660 707 759 808
Disability allowances 401 366 363 358 356 358 358
Other social assistance benefits 1,309 1,470 1,442 1,442 1,424 1,432 1,446
Total social assistance grants 21,156 22,031 21,764 22,374 22,874 23,596 24,305

Subsidies

             
KiwiSaver subsidies 688 688 710 702 696 721 748

Other transfer payments

             
Official development assistance 510 499 533 495 495 545 545
Total transfer payments and subsidies 22,354 23,218 23,007 23,571 24,065 24,862 25,598

NOTE 4: Personnel expenses

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

By source

             
Core Crown 5,915 6,003 6,067 6,016 6,025 6,108 6,152
Crown entities 10,754 10,897 11,100 11,060 11,329 11,563 11,747
State-owned enterprises 2,819 2,786 2,827 2,839 2,884 2,917 2,923
Inter-segment eliminations (13) (10) (11) (11) (11) (11) (11)
Total personnel expenses 19,475 19,676 19,983 19,904 20,227 20,577 20,811

NOTE 5: Depreciation, amortisation and other operating expenses

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

By source

             
Core Crown 37,280 41,041 40,171 37,663 37,636 37,445 37,669
Crown entities 17,897 18,062 18,792 18,476 18,466 18,534 18,543
State-owned enterprises 13,174 11,173 10,272 10,349 11,048 11,528 12,086
Inter-segment eliminations (26,323) (26,660) (27,249) (26,901) (27,161) (27,384) (27,507)
Total depreciation, amortisation and other operating expenses 42,028 43,616 41,986 39,587 39,989 40,123 40,791

NOTE 6: Interest expenses

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

By type

             
Interest on financial liabilities 4,223 4,610 4,361 4,635 5,218 5,295 5,725
Interest unwind on provisions 67 53 49 48 43 58 68
Total interest expenses 4,290 4,663 4,410 4,683 5,261 5,353 5,793

By source

             
Core Crown 3,511 3,766 3,579 3,752 3,972 3,989 4,279
Crown entities 246 247 245 249 257 264 275
State-owned enterprises 1,268 1,254 1,181 1,393 1,591 1,685 1,875
Inter-segment eliminations (735) (604) (595) (711) (559) (585) (636)
Total interest expenses 4,290 4,663 4,410 4,683 5,261 5,353 5,793

NOTE 7: Insurance expenses

NOTE 7: Insurance expenses
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m

By entity

             
ACC 3,010 3,300 3,388 3,458 3,541 3,724 3,904
EQC 1,073 71 101 (21) 147 100 205
Southern Response 586 (93) (108) (55) (49) (52) (13)
Other (incl. inter-segment eliminations) (93) 11 (7) 14 14 14 14
Total insurance expenses 4,576 3,289 3,374 3,396 3,653 3,786 4,110

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

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

Forecast new operating spending

           
Unallocated contingencies 348 317 267 292 267 268
Forecast new spending for Budget 2013 711 672 681 634
Forecast new spending for Budget 2014 1,190 1,190 1,190
Forecast new spending for Budget 2015 1,214 1,214
Forecast new spending for Budget 2016 1,238
Total forecast new operating spending 348 317 978 2,154 3,352 4,544
Operating top-down adjustment (700) (1,150) (200) (200) (200) (200)

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

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

Forecast new capital spending (annual)

             
Unallocated contingencies 79 26 21 126
Forecast new spending for Budget 2013 100 600 300 250 150 150 1,550
Forecast new spending for Budget 2014 100 400 200 250 950
Forecast new spending for Budget 2015 100 250 160 210 720
Forecast new spending for Budget 2016 100 250 370 720
Forecast new spending for Budget 2017 100 818 918
Total forecast new capital spending 179 726 821 800 910 1,548 4,984
Forecast new capital spending (cumulative) 179 905 1,726 2,526 3,436    
Capital top-down adjustment (cumulative) (400) (500) (600) (650) (700)    

Unallocated contingencies represent capital spending from Budget 2012 and previous Budgets that has yet to be allocated. Forecast new spending indicates the expected capital spending increases from future Budgets.

NOTE 9: Gains and losses on financial instruments

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

By source

             
Core Crown 526 1,685 2,573 1,683 1,790 1,841 1,939
Crown entities 930 288 789 269 316 375 457
State-owned enterprises 9 (46) 92 33 20 12 13
Inter-segment eliminations (773) (192) (153) (177) (220) (188) (194)
Net gains/(losses) on financial instruments 692 1,735 3,301 1,808 1,906 2,040 2,215

NOTE 10: Gains and losses on non-financial instruments

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

By type

             
Actuarial gains/(losses) on GSF liability (3,896) 190
Actuarial gains/(losses) on ACC outstanding claims (2,942) 343 150
Other 312 201 35 (115) (90) (92) (95)
Net gains/(losses) on non-financial instruments (6,526) 201 568 35 (90) (92) (95)

By source

             
Core Crown (3,790) 7 255 (1) (1) (1) (1)
Crown entities (2,955) (11) 314 35 (89) (92) (94)
State-owned enterprises 220 205
Inter-segment eliminations (1) (1) 1 1
Net gains/(losses) on non-financial instruments (6,526) 201 568 35 (90) (92) (95)

NOTE 11: Operating balance

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

By source

             
Core Crown (11,671) (7,774) (6,159) (2,240) 33 1,323 2,228
Crown entities (641) 1,873 2,520 2,099 1,943 2,044 2,040
State-owned enterprises (1,423) 890 1,025 859 1,051 1,090 1,029
Inter-segment eliminations (1,162) (688) (661) (669) (926) (907) (912)
Total operating balance (14,897) (5,699) (3,275) 49 2,101 3,550 4,385

NOTE 12: Financial assets

NOTE 12: Financial assets
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Cash and cash equivalents 10,686 14,327 13,952 13,366 12,934 12,772 12,477
Tax receivables 7,257 6,974 7,328 7,238 7,244 7,232 7,201
Trade and other receivables 13,699 9,825 10,299 8,756 8,128 7,820 7,945
Student loans (refer note 13) 8,291 8,781 8,813 9,268 9,720 10,196 10,693
Kiwibank mortgages 12,445 13,830 13,433 14,756 16,462 18,962 21,962
Long-term deposits 2,422 1,697 1,388 1,602 1,587 1,689 1,799
IMF financial assets 2,249 2,445 2,381 2,429 2,453 2,478 2,299
Other advances 1,030 1,284 1,152 1,271 1,425 1,475 1,481
Share investments 14,385 15,853 16,302 17,995 19,802 21,757 23,855
Derivatives in gain 5,032 4,028 3,899 3,292 2,929 2,544 2,262
Other marketable securities 38,682 28,027 31,731 35,649 31,784 35,102 40,947
Total financial assets 116,178 107,071 110,678 115,622 114,468 122,027 132,921

Financial assets by entity

             
NZDMO 26,062 14,820 16,482 18,071 11,649 12,468 15,554
Reserve Bank of New Zealand 17,573 17,631 17,964 17,981 17,578 17,664 17,935
NZS Fund 18,815 20,445 21,491 22,544 24,132 25,828 27,657
Other core Crown 20,455 18,863 20,237 19,925 20,046 20,474 21,079
Intra-segment eliminations (7,924) (5,832) (6,435) (5,846) (4,376) (3,576) (3,675)
Total core Crown segment 74,981 65,927 69,739 72,675 69,029 72,858 78,550
ACC portfolio 25,340 28,440 28,871 31,505 34,332 37,322 40,561
EQC portfolio 7,252 3,781 4,256 1,625 362 55 56
Other Crown entities 11,168 8,191 9,691 9,219 8,657 7,829 7,959
Intra-segment eliminations (3,685) (3,503) (3,693) (3,697) (3,411) (2,874) (2,931)
Total Crown entities segment 40,075 36,909 39,125 38,652 39,940 42,332 45,645
Total state-owned enterprises segment 19,186 21,393 20,053 21,684 23,941 26,870 30,247
Inter-segment eliminations (18,064) (17,158) (18,239) (17,389) (18,442) (20,033) (21,521)
Total financial assets 116,178 107,071 110,678 115,622 114,468 122,027 132,921

NOTE 13: Student loans

NOTE 13: Student loans
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Nominal value (including accrued interest) 12,969 13,840 13,711 14,372 15,002 15,648 16,300
Opening book value 7,460 8,238 8,291 8,813 9,268 9,720 10,196
Amount borrowed in current year 1,586 1,644 1,607 1,668 1,689 1,737 1,786
Less initial write-down to fair value (701) (651) (586) (610) (617) (635) (653)
Repayments made during the year (877) (953) (1,004) (1,140) (1,193) (1,233) (1,279)
Interest unwind 526 601 603 637 671 706 743
(Impairment)/reversal of impairment 286 (110) (110) (110) (110) (110) (110)
Other movements 11 12 12 10 12 11 10
Closing book value 8,291 8,781 8,813 9,268 9,720 10,196 10,693

NOTE 14: Property, plant and equipment

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

By class of asset

             

Net carrying value

             
Land (valuation)1 33,626 35,551 34,159 34,840 34,993 35,087 35,252
Buildings (valuation) 25,046 25,528 25,306 25,642 25,927 25,974 25,836
State highways (valuation) 17,546 19,120 18,253 19,149 20,014 21,110 22,317
Electricity generation assets (valuation) 14,400 15,348 14,810 15,235 15,102 15,178 15,493
Electricity distribution network (cost) 3,476 3,835 3,906 4,015 4,160 4,297 4,445
Specialist military equipment (valuation) 3,220 3,346 3,148 3,142 3,310 3,248 3,240
Specified cultural and heritage assets (valuation) 2,514 2,506 2,481 2,502 2,526 2,552 2,580
Aircraft (excluding military) (valuation) 2,250 2,222 2,273 2,542 2,811 3,160 3,459
Rail network (valuation) 856 7,614 1,059 1,120 1,124 1,137 1,144
Other plant and equipment (cost) 5,650 6,265 6,324 6,505 6,676 6,757 6,708
Total property, plant and equipment 108,584 121,335 111,719 114,692 116,643 118,500 120,474

By source

             
Core Crown 29,377 30,140 29,994 30,757 31,342 31,232 31,124
Crown entities 49,939 51,182 51,247 52,705 53,900 55,444 56,933
State-owned enterprises 29,268 40,013 30,478 31,230 31,401 31,824 32,417
Inter-segment eliminations    -     -     -     -     -     -     - 
Total property, plant and equipment 108,584 121,335 111,719 114,692 116,643 118,500 120,474

Land breakdown by usage1

             
Housing 8,744 8,394 8,756 8,720 8,685 8,644 8,611
State highway corridor land 8,353 7,603 8,503 8,653 8,803 8,953 9,103
Conservation land 5,454 5,679 5,444 5,460 5,472 5,482 5,492
Rail network 3,260 5,641 3,260 3,260 3,260 3,260 3,260
Schools 2,726 2,747 2,743 2,771 2,813 2,819 2,819
Commercial (SOEs) excluding Rail 1,471 1,594 1,491 1,508 1,528 1,547 1,565
Other 3,618 3,893 3,962 4,468 4,432 4,382 4,402
Total land 33,626 35,551 34,159 34,840 34,993 35,087 35,252

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

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

Schedule of movements

             

Cost or valuation

             
Opening balance 126,601 133,898 121,717 128,684 135,718 141,825 147,802
Additions (refer below for further breakdown) 6,514 7,437 7,495 7,722 6,955 6,807 7,066
Disposals (941) (436) (616) (756) (750) (741) (741)
Net revaluations (9,793)    -  15    -     -     -     - 
Other (664) 248 73 68 (98) (89) (61)
Total cost or valuation 121,717 141,147 128,684 135,718 141,825 147,802 154,066

Accumulated depreciation and impairment

             
Opening balance 11,747 15,890 13,133 16,965 21,026 25,182 29,302
Eliminated on disposal (634) (40) (31) (41) 41 (148) (53)
Eliminated on revaluation (3,415)    -  (1)    -     -     -     - 
Impairment losses charged to operating balance 1,884    -     -     -     -     -     - 
Depreciation expense 3,803 4,070 3,908 4,085 4,219 4,295 4,372
Other (252) (108) (44) 17 (104) (27) (29)
Total accumulated depreciation and impairment 13,133 19,812 16,965 21,026 25,182 29,302 33,592
Total property, plant and equipment 108,584 121,335 111,719 114,692 116,643 118,500 120,474

Additions - by functional classification

             
Transport 2,291 2,299 2,128 2,394 2,394 2,683 2,750
Economic 2,036 1,659 1,750 1,467 932 1,126 1,340
Education 442 931 827 753 659 759 756
Health 627 686 804 681 590 492 489
Defence 339 556 449 590 752 431 471
Other 779 1,306 1,537 1,837 1,628 1,316 1,260
Total additions to property, plant and equipment1 6,514 7,437 7,495 7,722 6,955 6,807 7,066

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

NOTE 15: Intangible assets and goodwill

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

By type

             
Net Kyoto position 202 189 114 114 114 114 114
Goodwill 746 431 735 713 691 691 691
Other intangible assets 1,757 1,951 1,859 1,968 1,969 1,918 1,835
Total intangible assets and goodwill 2,705 2,571 2,708 2,795 2,774 2,723 2,640

By source

             
Core Crown 1,112 1,294 1,176 1,287 1,318 1,288 1,257
Crown entities 494 472 526 520 490 480 436
State-owned enterprises 1,099 805 1,006 988 966 955 947
Inter-segment eliminations    -     -     -     -     -     -     - 
Total intangible assets and goodwill 2,705 2,571 2,708 2,795 2,774 2,723 2,640

Net Kyoto position

The New Zealand Government has committed under the Kyoto Protocol to ensuring that New Zealand's average net emissions of greenhouse gases from 2008 to 2012 (the first commitment period of the Kyoto Protocol, or CP1) are reduced to gross 1990 emission levels, or to take responsibility for the difference. New Zealand can meet its commitment through emissions reductions and use of the Kyoto Protocol flexibility mechanisms such as Joint Implementation, the Clean Development Mechanism, and offsetting increased emissions against carbon removed by forests.

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

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

The latest Net Position estimate for 2012 can be found on the Ministry for the Environment's website: www.mfe.govt.nz/issues/climate/greenhouse-gas-emissions/net-position

NOTE 16: NZS Fund

NOTE 16: NZS Fund
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Revenue 539 563 642 665 693 738 786
Less current tax expense 160 419 602 456 490 528 570
Less other expenses 132 160 182 160 164 178 192
Add gains/(losses) (204) 1,327 2,110 1,382 1,495 1,620 1,757
Operating balance 43 1,311 1,968 1,431 1,534 1,652 1,781
Opening net worth 18,652 18,777 18,703 20,690 22,151 23,716 25,403
Operating balance 43 1,311 1,968 1,431 1,534 1,652 1,781
Other movements in reserves 8 32 19 30 31 35 38
Closing net worth 18,703 20,120 20,690 22,151 23,716 25,403 27,222

Comprising:

             
Financial assets 18,815 20,445 21,491 22,544 24,132 25,828 27,657
Financial liabilities (1,317) (1,620) (1,964) (1,513) (1,528) (1,542) (1,562)
Net other assets 1,205 1,295 1,163 1,120 1,112 1,117 1,127
Closing net worth 18,703 20,120 20,690 22,151 23,716 25,403 27,222

NOTE 17: Payables

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

By type

             
Accounts payable 8,255 10,139 8,990 8,033 7,946 8,097 8,328
Taxes repayable 3,349 3,364 3,433 3,671 3,817 3,850 3,970
Total payables 11,604 13,503 12,423 11,704 11,763 11,947 12,298

By source

             
Core Crown 7,139 7,367 7,434 6,509 6,459 6,430 6,576
Crown entities 5,642 6,501 5,701 5,810 5,666 5,592 5,559
State-owned enterprises 4,968 5,523 5,332 5,517 5,756 6,007 6,246
Inter-segment eliminations (6,145) (5,888) (6,044) (6,132) (6,118) (6,082) (6,083)
Total payables 11,604 13,503 12,423 11,704 11,763 11,947 12,298

NOTE 18: Insurance liabilities

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

By entity

             
ACC 30,648 30,651 31,598 32,710 34,014 35,424 36,943
EQC 8,877 5,210 5,785 2,815 1,140 156 158
Southern Response 2,062 992 1,042 662 341 13
Other (incl. inter-segment eliminations) (401) 66 (265) 50 49 55 59
Total insurance liabilities 41,186 36,919 38,160 36,237 35,544 35,648 37,160

ACC liability

Calculation information

PricewaterhouseCoopers Actuarial Pty Ltd have prepared an independent actuarial estimate of the ACC outstanding claims liability as at 30 June 2012. This estimate includes the expected future payments relating to accidents that occurred prior to balance date (whether or not the associated claims have been reported to, or accepted by, ACC) and also the expected future administrative expenses of managing these claims. The assumptions underpinning this valuation form the basis of the five-year forecast of the outstanding claims liability.

The key economic variables that impact on changes to the valuation are the long-term Labour Cost Index (LCI), average weekly earnings and the discount rate. Discount rates were derived from the yield curve for New Zealand Government bonds. For these forecast statements, the claims liability has been updated for the latest discount rates as at 30 September 2012. The equivalent single effective discount rate, taking into account ACC's projected future cash flow patterns, is a short-term discount rate of 4.65% and a long-term discount rate of 6.00% from 2035.

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

Presentation approach

The projected outstanding claims liability, including an adjustment to reflect projected future actuarial releases ($300 million in 2013 and a further $150 million in 2014), is included within total liabilities. ACC has available to it a portfolio of assets that partially offset the claims liability. The assets (less cross-holdings of NZ Government stock) are included in the asset portion of the Crown's Statement of Financial Position.

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

Gross ACC liability

             
Opening gross liability 26,939 29,433 30,648 31,598 32,710 34,014 35,424
Net change 3,709 1,218 950 1,112 1,304 1,410 1,519
Closing gross liability 30,648 30,651 31,598 32,710 34,014 35,424 36,943

Less net assets available to ACC

             
Opening net asset value 20,233 23,165 23,466 26,565 29,207 32,036 35,047
Net change 3,233 2,579 3,099 2,642 2,829 3,011 3,228
Closing net asset value 23,466 25,744 26,565 29,207 32,036 35,047 38,275

Net ACC reserves (net liability)

             
Opening reserves position (6,706) (6,268) (7,182) (5,033) (3,503) (1,978) (377)
Net change (476) 1,361 2,149 1,530 1,525 1,601 1,709
Closing reserves position (net liability) (7,182) (4,907) (5,033) (3,503) (1,978) (377) 1,332

Calculation information

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

Critical assumptions used in projecting the ultimate costs include cost of apportionment across earthquake events, the profile of claims settlement, claims inflation rate per annum, risk margins and claims handling costs.

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

Presentation approach

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

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

EQC liability

             
Opening gross liability 10,570 8,643 8,877 5,785 2,815 1,140 156
Net change (1,693) (3,433) (3,092) (2,970) (1,675) (984) 2
Closing gross liability 8,877 5,210 5,785 2,815 1,140 156 158

Less reinsurance receivable

             
Opening reinsurance receivable 4,185 4,040 4,066 1,897 909 307
Net change (119) (2,445) (2,169) (988) (602) (307)
Closing reinsurance receivable 4,066 1,595 1,897 909 307

Net EQC liability

             
Opening net position (6,385) (4,603) (4,811) (3,888) (1,906) (833) (156)
Net change 1,574 988 923 1,982 1,073 677 (2)
Closing net position (net liability) (4,811) (3,615) (3,888) (1,906) (833) (156) (158)

NOTE 19: Retirement plan liabilities

NOTE 19: Retirement plan liabilities
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Government Superannuation Fund 13,539 11,478 12,950 12,476 12,009 11,563 11,137
Other funds 3 10 9 10 9 9
Total retirement plan liabilities 13,539 11,481 12,960 12,485 12,019 11,572 11,146

The net liability of the Government Superannuation Fund (GSF) was calculated by GSF's actuary as at 30 September 2012. The liability arises from closed schemes for past and present public sector employees as set out in the Government Superannuation Fund Act 1956. A Projected Unit Credit method was used to calculate the liability as at 30 September 2012, based on membership data as at 30 June 2012 with allowance for subsequent movements to 30 September 2012. The funding method requires the benefits payable from GSF in respect of past service to be calculated and then discounted back to the valuation date.

For these Forecast Financial Statements, the net GSF liability was updated for the latest discount rates derived from the market yield curve for New Zealand Government bonds as at 30 September 2012.

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

The 2012/13 projected decrease in the net GSF liability is $589 million, reflecting a decrease in the GSF liability of $494 million and an increase in the GSF assets of $95 million.

The decrease in the GSF liability of $494 million includes an actuarial loss between 1 July 2012 and 30 September 2012, of $104 million owing to movements in the discount rates and changes in demographic assumptions. The remaining $390 million reduction is owing to expected benefits paid to members (reduces the liability) offset by current service cost and interest unwind (increases the liability).

The increase in the value of the net assets of GSF of $95 million includes a gain of $87 million reflecting the updated market value of assets at 30 September 2012. The balance of $8 million is the total of the expected investment returns and contributions received, offset by the benefits paid to members.

The changes in the projected net GSF liability from 2012/13 onwards reflect the net of the expected current service cost, interest cost, investment returns and contributions.

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

GSF liability

             
Opening GSF liability 13,311 14,961 16,557 16,063 15,646 15,235 14,840
Net projected change 3,246 (355) (494) (417) (411) (395) (378)
Closing GSF liability 16,557 14,606 16,063 15,646 15,235 14,840 14,462

Less net assets available to GSF

             
Opening net asset value 3,159 3,078 3,018 3,113 3,170 3,226 3,277
Investment valuation changes (16) 188 249 168 171 174 177
Contribution and other income less pension payments (125) (138) (154) (111) (115) (123) (129)
Closing net asset value 3,018 3,128 3,113 3,170 3,226 3,277 3,325

Net GSF liability

             
Opening unfunded liability 10,152 11,883 13,539 12,950 12,476 12,009 11,563
Net projected change 3,387 (405) (589) (474) (467) (446) (426)
Closing unfunded liability 13,539 11,478 12,950 12,476 12,009 11,563 11,137

NOTE 20: Provisions

NOTE 20: Provisions
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Provision for employee entitlements 3,253 3,133 3,239 3,165 3,177 3,200 3,234
Provision for ETS credits 375 815 215 211 208 207 207
Provision for National Provident Fund guarantee 1,076 843 1,033 987 942 901 864
Provision for Canterbury Red Zone support package 745 316
Provision for infrastructure costs 530 409 289 169
Provision for weathertight services financial assistance package 189 306 156 128 92 66 43
Other provisions 1,338 1,769 1,933 1,773 1,684 1,564 1,335
Total provisions 7,506 6,866 7,301 6,553 6,272 5,938 5,683

By source

             
Core Crown 4,965 4,529 4,746 3,993 3,659 3,092 2,911
Crown entities 1,899 1,814 2,010 2,041 2,078 2,087 2,096
State-owned enterprises 1,103 925 992 986 1,024 1,052 980
Inter-segment eliminations (461) (402) (447) (467) (489) (293) (304)
Total provisions 7,506 6,866 7,301 6,553 6,272 5,938 5,683

Provision for ETS credits

The Emissions Trading Scheme (ETS) was established to encourage reduction in greenhouse gas emissions. The ETS creates a limited number of tradable units (the NZ Unit) which the Government can allocate. The allocation of NZ Units creates a provision (and an expense if allocated for free). The provision is reduced, and revenue recognised, as NZ Units are surrendered to the Crown by emitters. Emitters can also use international Kyoto Units to settle their emission obligation and can also currently use the NZ$25 price option to settle their emission obligation. The Kyoto compliant units collected through the ETS are recognised as part of the net Kyoto Protocol position.

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

The carbon price used to calculate the ETS provision is assumed to remain constant over the forecast period and is based on the estimated September 2012 month average carbon price of €2.17 with an exchange rate of 0.6453 (a carbon price of NZ$3.36).

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

The ETS impact on the fiscal forecast is as follows:

NOTE 20: Provisions (continued)
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Revenue 64 311 65 66 66 66 66
Expenses (334) (237) (59) (61) (63) (65) (66)
Gains/(losses) 507    -  155    -     -     -     - 
Operating balance 237 74 161 5 3 1

NOTE 21: Net worth attributable to the Crown

NOTE 21: Net worth attributable to the Crown
  2012
Actual
$m
2013
Previous
Budget
$m
2013
Forecast
$m
2014
Forecast
$m
2015
Forecast
$m
2016
Forecast
$m
2017
Forecast
$m
Taxpayers' funds 3,520 2,144 486 812 3,199 7,079 11,632
Property, plant and equipment revaluation reserve 56,001 62,550 55,915 55,838 55,719 55,597 55,464
Investment revaluation reserve 71 79 75 84 93 104 116
Cash flow hedge reserve (195) (279) (227) (228) (225) (221) (216)
Foreign currency translation reserve (49) 66 36 39 39 39 39
Total net worth attributable to the Crown 59,348 64,560 56,285 56,545 58,825 62,598 67,035

Taxpayers' funds

             
Opening taxpayers' funds 18,188 7,573 3,520 486 812 3,199 7,079
Operating balance excluding minority interest (14,897) (5,699) (3,275) 49 2,101 3,550 4,385
Government share offers in SOEs 200 175 175 175 175
Transfers from/(to) other reserves 229 70 66 102 111 155 168
Closing taxpayers' funds 3,520 2,144 486 812 3,199 7,079 11,632

Property, plant and equipment revaluation reserve

             
Opening revaluation reserve 62,690 62,618 56,001 55,915 55,838 55,719 55,597
Net revaluations (6,461) (16)
Transfers from/(to) other reserves (228) (68) (70) (77) (119) (122) (133)
Closing property, plant and equipment revaluation reserve 56,001 62,550 55,915 55,838 55,719 55,597 55,464

Investment revaluation reserve

             
Opening investment revaluation reserve 58 69 71 75 84 93 104
Valuation gain/(losses) on investments available for sale taken to reserves 13 10 4 9 9 11 12
Closing investment revaluation reserve 71 79 75 84 93 104 116

Cash flow hedge reserve

             
Opening cash flow hedge reserve (310) (276) (195) (227) (228) (225) (221)
Transfer into reserve 80 (3) (35) (1) 3 5 4
Transfer to the Statement of Financial Performance 54 (1) (1) 1
Transfer to initial carrying value of hedged item (19) 4
Closing cash flow hedge reserve (195) (279) (227) (228) (225) (221) (216)

Foreign currency translation reserve

             
Opening foreign currency translation reserve (47) 11 (49) 36 39 39 39
Movement arising from translation of foreign operations (2) 55 85 3
Closing foreign currency translation reserve (49) 66 36 39 39 39 39

NOTE 22: Core Crown residual cash

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

Core Crown cash flows from operations

             
Tax receipts 54,249 57,762 56,962 61,369 65,193 68,340 71,481
Other sovereign receipts 670 653 653 657 667 677 688
Interest, profits and dividends 1,431 1,676 1,471 1,611 1,796 1,721 1,881
Sale of goods and services and other receipts 2,699 2,506 2,600 2,415 2,075 2,061 2,016
Transfer payments and subsidies (22,854) (23,334) (23,077) (23,982) (24,199) (24,883) (25,612)
Personnel and operating costs (40,036) (42,411) (42,767) (41,020) (40,517) (40,332) (40,218)
Finance costs (3,369) (3,918) (3,778) (3,760) (4,273) (4,141) (4,431)
Forecast for future new operating spending (348) (317) (978) (2,154) (3,352) (4,544)
Top-down expense adjustment 700 1,150 200 200 200 200
Net core Crown operating cash flows (7,210) (6,714) (7,103) (3,488) (1,212) 291 1,461

Core Crown capital cash flows

             
Net purchase of physical assets (1,262) (1,999) (2,061) (2,373) (1,883) (1,455) (1,483)
Net increase in advances (1,022) (926) (777) (758) (858) (1,029) (426)
Net purchase of investments (1,150) 62 (62) 296 119 (330) (1,563)
Forecast for future new capital spending (194) (179) (726) (821) (800) (910)
Top-down capital adjustment 100 400 100 100 50 50
Net core Crown capital cash flows (3,434) (2,957) (2,679) (3,461) (3,343) (3,564) (4,332)
Residual cash deficit (10,644) (9,671) (9,782) (6,949) (4,555) (3,273) (2,871)

The residual cash deficit is funded as follows:

             

Debt programme cash flows

             
Market:              
    Issue of government bonds 15,146 14,122 15,799 10,367 9,675 6,343 6,198
    Repayment of government bonds (7,602) (9,982) (9,982) (10,955) (1,836)
    Net issue/(repayment) of short-term borrowing1 2,139 (3,701) (4,501)
Total market debt cash flows 9,683 439 1,316 10,367 (1,280) 4,507 6,198
Non-market:              
    Issue of government bonds
    Repayment of government bonds (1,501) (499) (499) (1,490)
    Net issue/(repayment) of short-term borrowing 430 (232) (214) (34)
Total non-market debt cash flows (1,071) (499) (499) (1,722) (214) (34)
Total debt programme cash flows 8,612 (60) 817 8,645 (1,494) 4,473 6,198

Other borrowing cash flows

             
Net (repayment)/issue of other New Zealand dollar borrowing 5,880 741 3,684 919 1,540 1,087 631
Net (repayment)/issue of foreign currency borrowing (6,030) (620) (2,318) (666) (1,255) (920) (567)
Total other borrowing cash flows (150) 121 1,366 253 285 167 64
Investing cash flows              
Other net sale/(purchase) of marketable securities and deposits 2,270 9,465 10,338 (2,214) 5,517 (1,617) (3,646)
Issues of circulating currency 203 144 160 231 242 255 267
Decrease/(increase) in cash (291) 1 (2,899) 34 5 (5) (12)
Total investing cash flows 2,182 9,610 7,599 (1,949) 5,764 (1,367) (3,391)
Residual cash deficit funding 10,644 9,671 9,782 6,949 4,555 3,273 2,871

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

Forecast Statement of Segments

Statement of Financial Performance for the year ended 30 June 2012
  Core Crown
2012
Actual
$m
Crown entities
2012
Actual
$m
State-Owned
Enterprises
2012
Actual
$m
Inter-segment
eliminations
2012
Actual
$m
Total Crown
2012
Actual
$m

Revenue

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

Expenses

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

Expenses by functional classification

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

Assets

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

Liabilities

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

Net worth

         
Taxpayers' funds 7,844 17,458 7,956 (29,738) 3,520
Reserves 15,528 26,728 10,220 3,352 55,828
Net worth attributable to minority interest 33 426 (27) 432
Total net worth 23,372 44,219 18,602 (26,413) 59,780
Statement of Financial Performance for the year ended 30 June 2013
  Core Crown
2013
Forecast
$m
Crown entities
2013
Forecast
$m
State-Owned
Enterprises
2013
Forecast
$m
Inter-segment
eliminations
2013
Forecast
$m
Total Crown
2013
Forecast
$m

Revenue

         
Taxation revenue 57,376 (502) 56,874
Other sovereign revenue 1,121 5,266 (1,259) 5,128
Sales of goods and services 1,409 15,159 13,135 (13,968) 15,735
Interest revenue and dividends 2,261 1,114 864 (1,028) 3,211
Other revenue 772 13,267 1,251 (11,631) 3,659
Total revenue (excluding gains) 62,939 34,806 15,250 (28,388) 84,607

Expenses

         
Social assistance and official development assistance 23,009 (2) 23,007
Personnel expenses 6,067 11,100 2,827 (11) 19,983
Other operating expenses 40,171 18,792 10,272 (27,249) 41,986
Interest expenses 3,579 245 1,181 (595) 4,410
Insurance expenses 5 3,384 9 (24) 3,374
Forecast for future new spending and top-down adjustment (833) (833)
Total expenses (excluding losses) 71,998 33,521 14,289 (27,881) 91,927
Forgone profits from Government share offers (20) (20)
Operating balance before gains/(losses) (9,059) 1,285 941 (507) (7,340)
Total gains/(losses) 2,828 1,103 92 (154) 3,869
Net surplus/(deficit) from associates and joint ventures 72 132 (8) 196
Operating balance (6,159) 2,520 1,025 (661) (3,275)

Expenses by functional classification

         
Social security and welfare 22,878 4,432 (621) 26,689
Health 14,741 12,274 (12,907) 14,108
Education 12,400 9,764 27 (8,929) 13,262
Transport and communications 2,435 2,308 6,590 (2,381) 8,952
Other 16,798 4,498 6,491 (2,448) 25,339
Finance costs 3,579 245 1,181 (595) 4,410
Forecast for future new spending and top-down adjustment (833) (833)
Total Crown expenses (excluding losses) 71,998 33,521 14,289 (27,881) 91,927
Statement of Financial Position 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

Assets

         
Cash and cash equivalents 9,162 3,475 1,491 (176) 13,952
Receivables 10,564 7,056 2,033 (2,026) 17,627
Other financial assets 50,013 28,594 16,529 (16,037) 79,099
Property, plant and equipment 29,994 51,247 30,478 111,719
Equity accounted investments 32,747 8,098 586 (31,606) 9,825
Intangible assets and goodwill 1,176 526 1,006 2,708
Inventory and other assets 1,532 368 1,244 (33) 3,111
Forecast for new capital spending and top-down adjustment (221) (221)
Total assets 134,967 99,364 53,367 (49,878) 237,820

Liabilities

         
Borrowings 86,280 5,304 26,363 (15,198) 102,749
Other liabilities 30,144 46,359 7,409 (6,903) 77,009
Total liabilities 116,424 51,663 33,772 (22,101) 179,758
Total assets less total liabilities 18,543 47,701 19,595 (27,777) 58,062

Net worth

         
Taxpayers' funds 3,010 21,035 8,848 (32,407) 486
Reserves 15,533 26,633 10,301 3,332 55,799
Net worth attributable to minority interest 33 446 1,298 1,777
Total net worth 18,543 47,701 19,595 (27,777) 58,062
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
2013
Forecast
$m

Revenue

         
Taxation revenue 61,857 (609) 61,248
Other sovereign revenue 1,236 5,357 (1,273) 5,320
Sales of goods and services 1,373 15,208 13,458 (13,908) 16,131
Interest revenue and dividends 2,586 1,248 1,028 (1,152) 3,710
Other revenue 734 13,017 1,090 (11,172) 3,669
Total revenue (excluding gains) 67,786 34,830 15,576 (28,114) 90,078

Expenses

         
Social assistance and official development assistance 23,570 1 23,571
Personnel expenses 6,016 11,060 2,839 (11) 19,904
Other operating expenses 37,663 18,476 10,349 (26,901) 39,587
Interest expenses 3,752 249 1,393 (711) 4,683
Insurance expenses 2 3,385 9 3,396
Forecast for future new spending and top-down adjustment 778 778
Total expenses (excluding losses) 71,781 33,170 14,590 (27,622) 91,919
Forgone profits from Government share offers (170) (170)
Operating balance before gains/(losses) (3,995) 1,660 816 (492) (2,011)
Total gains/(losses) 1,682 304 33 (176) 1,843
Net surplus/(deficit) from associates and joint ventures 73 135 10 (1) 217
Operating balance (2,240) 2,099 859 (669) 49

Expenses by functional classification

         
Social security and welfare 23,598 4,565 (637) 27,526
Health 14,629 12,076 (12,890) 13,815
Education 12,215 9,640 27 (8,827) 13,055
Transport and communications 2,073 2,304 6,704 (2,223) 8,858
Other 14,736 4,336 6,466 (2,334) 23,204
Finance costs 3,752 249 1,393 (711) 4,683
Forecast for future new spending and top-down adjustment 778 778
Total Crown expenses (excluding losses) 71,781 33,170 14,590 (27,622) 91,919
Statement of Financial Position 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
2013
Forecast
$m

Assets

         
Cash and cash equivalents 9,169 3,051 1,322 (176) 13,366
Receivables 9,705 6,041 2,040 (1,792) 15,994
Other financial assets 53,801 29,560 18,322 (15,421) 86,262
Property, plant and equipment 30,757 52,705 31,230 114,692
Equity accounted investments 33,755 8,241 622 (32,636) 9,982
Intangible assets and goodwill 1,287 520 988 2,795
Inventory and other assets 1,660 382 1,256 (33) 3,265
Forecast for new capital spending and top-down adjustment 405 405
Total assets 140,539 100,500 55,780 (50,058) 246,761

Liabilities

         
Borrowings 94,687 5,396 28,330 (14,744) 113,669
Other liabilities 28,196 44,260 7,615 (6,696) 73,375
Total liabilities 122,883 49,656 35,945 (21,440) 187,044
Total assets less total liabilities 17,656 50,844 19,835 (28,618) 59,717

Net worth

         
Taxpayers' funds 2,095 24,270 8,918 (34,471) 812
Reserves 15,561 26,541 10,301 3,330 55,733
Net worth attributable to minority interest 33 616 2,523 3,172
Total net worth 17,656 50,844 19,835 (28,618) 59,717
Statement of Financial Performance for the year ended 30 June 2015
  Core Crown
2015
Forecast
$m
Crown entities
2015
Forecast
$m
State-Owned
Enterprises
2015
Forecast
$m
Inter-segment
eliminations
2015
Forecast
$m
Total Crown
2015
Forecast
$m

Revenue

         
Taxation revenue 65,643 (765) 64,878
Other sovereign revenue 1,275 5,464 (1,285) 5,454
Sales of goods and services 1,337 15,264 14,317 (13,908) 17,010
Interest revenue and dividends 2,833 1,347 1,239 (1,154) 4,265
Other revenue 729 13,198 1,246 (11,315) 3,858
Total revenue (excluding gains) 71,817 35,273 16,802 (28,427) 95,465

Expenses

         
Social assistance and official development assistance 24,063 2 24,065
Personnel expenses 6,025 11,329 2,884 (11) 20,227
Other operating expenses 37,636 18,466 11,048 (27,161) 39,989
Interest expenses 3,972 257 1,591 (559) 5,261
Insurance expenses 2 3,642 9 3,653
Forecast for future new spending and top-down adjustment 1,954 1,954
Total expenses (excluding losses) 73,652 33,694 15,532 (27,729) 95,149
Forgone profits from Government share offers (250) (250)
Operating balance before gains/(losses) (1,835) 1,579 1,020 (698) 66
Total gains/(losses) 1,789 227 20 (220) 1,816
Net surplus/(deficit) from associates and joint ventures 79 137 11 (8) 219
Operating balance 33 1,943 1,051 (926) 2,101

Expenses by functional classification

         
Social security and welfare 24,113 4,668 (653) 28,128
Health 14,596 12,068 (12,888) 13,776
Education 12,304 9,794 27 (8,953) 13,172
Transport and communications 2,212 2,338 6,869 (2,295) 9,124
Other 14,501 4,569 7,045 (2,381) 23,734
Finance costs 3,972 257 1,591 (559) 5,261
Forecast for future new spending and top-down adjustment 1,954 1,954
Total Crown expenses (excluding losses) 73,652 33,694 15,532 (27,729) 95,149
Statement of Financial Position for the year ended 30 June 2015
  Core Crown
2015
Forecast
$m
Crown entities
2015
Forecast
$m
State-Owned
Enterprises
2015
Forecast
$m
Inter-segment
eliminations
2015
Forecast
$m
Total Crown
2015
Forecast
$m

Assets

         
Cash and cash equivalents 9,163 2,333 1,616 (178) 12,934
Receivables 9,726 5,423 2,114 (1,891) 15,372
Other financial assets 50,140 32,184 20,211 (16,373) 86,162
Property, plant and equipment 31,342 53,900 31,401 116,643
Equity accounted investments 34,940 8,379 644 (33,841) 10,122
Intangible assets and goodwill 1,318 490 966 2,774
Inventory and other assets 1,434 379 1,273 (33) 3,053
Forecast for new capital spending and top-down adjustment 1,126 1,126
Total assets 139,189 103,088 58,225 (52,316) 248,186

Liabilities

         
Borrowings 92,597 5,596 30,025 (15,724) 112,494
Other liabilities 27,585 43,459 7,929 (6,703) 72,270
Total liabilities 120,182 49,055 37,954 (22,427) 184,764
Total assets less total liabilities 19,007 54,033 20,271 (29,889) 63,422

Net worth

         
Taxpayers' funds 3,453 27,563 9,100 (36,917) 3,199
Reserves 15,554 26,437 10,305 3,330 55,626
Net worth attributable to minority interest 33 866 3,698 4,597
Total net worth 19,007 54,033 20,271 (29,889) 63,422
Statement of Financial Performance for the year ended 30 June 2016
  Core Crown
2016
Forecast
$m
Crown entities
2016
Forecast
$m
State-Owned
Enterprises
2016
Forecast
$m
Inter-segment
eliminations
2016
Forecast
$m
Total Crown
2016
Forecast
$m

Revenue

         
Taxation revenue 68,914 (835) 68,079
Other sovereign revenue 1,113 5,577 (1,296) 5,394
Sales of goods and services 1,330 15,336 14,906 (13,901) 17,671
Interest revenue and dividends 2,888 1,461 1,342 (1,201) 4,490
Other revenue 722 13,383 1,288 (11,461) 3,932
Total revenue (excluding gains) 74,967 35,757 17,536 (28,694) 99,566

Expenses

         
Social assistance and official development assistance 24,861 1 24,862
Personnel expenses 6,108 11,563 2,917 (11) 20,577
Other operating expenses 37,445 18,534 11,528 (27,384) 40,123
Interest expenses 3,989 264 1,685 (585) 5,353
Insurance expenses 2 3,775 9 3,786
Forecast for future new spending and top-down adjustment 3,152 3,152
Total expenses (excluding losses) 75,557 34,136 16,139 (27,979) 97,853
Forgone profits from Government share offers (330) (330)
Operating balance before gains/(losses) (590) 1,621 1,067 (715) 1,383
Total gains/(losses) 1,840 283 12 (187) 1,948
Net surplus/(deficit) from associates and joint ventures 73 140 11 (5) 219
Operating balance 1,323 2,044 1,090 (907) 3,550

Expenses by functional classification

         
Social security and welfare 24,661 4,866 (669) 28,858
Health 14,573 12,046 (12,876) 13,743
Education 12,395 9,931 27 (9,051) 13,302
Transport and communications 2,145 2,403 7,101 (2,382) 9,267
Other 14,642 4,626 7,326 (2,416) 24,178
Finance costs 3,989 264 1,685 (585) 5,353
Forecast for future new spending and top-down adjustment 3,152 3,152
Total Crown expenses (excluding losses) 75,557 34,136 16,139 (27,979) 97,853
Statement of Financial Position for the year ended 30 June 2016
  Core Crown
2016
Forecast
$m
Crown entities
2016
Forecast
$m
State-Owned
Enterprises
2016
Forecast
$m
Inter-segment
eliminations
2016
Forecast
$m
Total Crown
2016
Forecast
$m

Assets

         
Cash and cash equivalents 9,120 2,265 1,587 (200) 12,772
Receivables 9,703 4,903 2,187 (1,741) 15,052
Other financial assets 54,035 35,164 23,096 (18,092) 94,203
Property, plant and equipment 31,232 55,444 31,824 118,500
Equity accounted investments 36,348 8,518 650 (35,268) 10,248
Intangible assets and goodwill 1,288 480 955 2,723
Inventory and other assets 1,454 379 1,287 (34) 3,086
Forecast for new capital spending and top-down adjustment 1,876 1,876
Total assets 145,056 107,153 61,586 (55,335) 258,460

Liabilities

         
Borrowings 96,569 6,073 32,564 (17,473) 117,733
Other liabilities 26,798 43,498 8,253 (6,472) 72,077
Total liabilities 123,367 49,571 40,817 (23,945) 189,810
Total assets less total liabilities 21,689 57,582 20,769 (31,390) 68,650

Net worth

         
Taxpayers' funds 6,101 31,257 9,266 (39,545) 7,079
Reserves 15,588 26,292 10,307 3,332 55,519
Net worth attributable to minority interest 33 1,196 4,823 6,052
Total net worth 21,689 57,582 20,769 (31,390) 68,650
Statement of Financial Performance for the year ended 30 June 2017
  Core Crown
2017
Forecast
$m
Crown entities
2017
Forecast
$m
State-Owned
Enterprises
2017
Forecast
$m
Inter-segment
eliminations
2017
Forecast
$m
Total Crown
2017
Forecast
$m

Revenue

         
Taxation revenue 71,904 (882) 71,022
Other sovereign revenue 1,161 5,679 (1,296) 5,544
Sales of goods and services 1,330 15,416 15,440 (13,892) 18,294
Interest revenue and dividends 3,151 1,585 1,550 (1,250) 5,036
Other revenue 721 13,521 1,329 (11,552) 4,019
Total revenue (excluding gains) 78,267 36,201 18,319 (28,872) 103,915

Expenses

         
Social assistance and official development assistance 25,598 25,598
Personnel expenses 6,152 11,747 2,923 (11) 20,811
Other operating expenses 37,669 18,543 12,086 (27,507) 40,791
Interest expenses 4,279 275 1,875 (636) 5,793
Insurance expenses 2 4,098 9 1 4,110
Forecast for future new spending and top-down adjustment 4,344 4,344
Total expenses (excluding losses) 78,044 34,663 16,893 (28,153) 101,447
Forgone profits from Government share offers (420) (420)
Operating balance before gains/(losses) 223 1,538 1,006 (719) 2,048
Total gains/(losses) 1,938 363 13 (194) 2,120
Net surplus/(deficit) from associates and joint ventures 67 139 10 1 217
Operating balance 2,228 2,040 1,029 (912) 4,385

Expenses by functional classification

         
Social security and welfare 25,399 5,056 (668) 29,787
Health 14,542 12,038 (12,871) 13,709
Education 12,442 9,947 27 (9,067) 13,349
Transport and communications 2,217 2,488 7,290 (2,492) 9,503
Other 14,821 4,859 7,701 (2,419) 24,962
Finance costs 4,279 275 1,875 (636) 5,793
Forecast for future new spending and top-down adjustment 4,344 4,344
Total Crown expenses (excluding losses) 78,044 34,663 16,893 (28,153) 101,447
Statement of Financial Position for the year ended 30 June 2017
  Core Crown
2017
Forecast
$m
Crown entities
2017
Forecast
$m
State-Owned
Enterprises
2017
Forecast
$m
Inter-segment
eliminations
2017
Forecast
$m
Total Crown
2017
Forecast
$m

Assets

         
Cash and cash equivalents 9,043 2,255 1,405 (226) 12,477
Receivables 9,711 4,963 2,276 (1,804) 15,146
Other financial assets 59,796 38,427 26,566 (19,491) 105,298
Property, plant and equipment 31,124 56,933 32,417 120,474
Equity accounted investments 37,887 8,658 656 (36,827) 10,374
Intangible assets and goodwill 1,257 436 947 2,640
Inventory and other assets 1,456 379 1,292 (34) 3,093
Forecast for new capital spending and top-down adjustment 2,736 2,736
Total assets 153,010 112,051 65,559 (58,382) 272,238

Liabilities

         
Borrowings 102,450 6,023 35,854 (18,908) 125,419
Other liabilities 26,604 44,985 8,456 (6,483) 73,562
Total liabilities 129,054 51,008 44,310 (25,391) 198,981
Total assets less total liabilities 23,956 61,043 21,249 (32,991) 73,257

Net worth

         
Taxpayers' funds 8,329 34,874 9,324 (40,895) 11,632
Reserves 15,627 26,136 10,309 3,331 55,403
Net worth attributable to minority interest 33 1,616 4,573 6,222
Total net worth 23,956 61,043 21,249 (32,991) 73,257

Core Crown Expense Tables 

Core Crown Expense Tables
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Social security and welfare 17,877 19,382 21,185 22,005 22,028 22,878 23,598 24,113 24,661 25,399
GSF pension expenses 690 655 328 305 192 278 258 280 315 349
Health 11,297 12,368 13,128 13,753 14,160 14,741 14,629 14,596 14,573 14,542
Education 9,551 11,455 11,724 11,650 11,654 12,400 12,215 12,304 12,395 12,442
Core government services 3,371 5,293 2,974 5,563 5,428 5,640 4,354 4,223 4,266 4,209
Law and order 2,894 3,089 3,191 3,382 3,403 3,642 3,468 3,437 3,510 3,488
Defence 1,562 1,757 1,814 1,809 1,736 1,864 1,828 1,835 1,879 2,149
Transport and communications 2,244 2,663 2,345 2,281 2,232 2,435 2,073 2,212 2,145 2,217
Economic and industrial services 2,889 2,960 2,839 2,609 2,157 2,082 1,962 1,895 1,924 1,944
Primary services 541 534 507 706 648 846 726 719 681 658
Heritage, culture and recreation 561 586 630 741 863 875 821 804 796 796
Housing and community development 260 297 306 876 ( 130) 357 287 287 234 200
Environmental protection1 546 416 651 1,225 769 585 486 477 492 483
Other 254 118 80 479 425 629 546 544 545 545
Finance costs 2,460 2,429 2,311 3,066 3,511 3,579 3,752 3,972 3,989 4,279
Forecast for future new spending  ..   ..   ..   ..   ..  317 978 2,154 3,352 4,544
Top-down expense adjustment  ..   ..   ..   ..   ..  ( 1,150) ( 200) ( 200) ( 200) ( 200)
Core Crown expenses 56,997 64,002 64,013 70,450 69,076 71,998 71,781 73,652 75,557 78,044
  1. In previous Economic and Fiscal Updates, expenses relating to environmental protection were included within the heritage, culture and recreation classification. From HYEFU 12, environmental protection expenses are separated out into their own functional classification.

Source: The Treasury

Table 6.1 - Social security and welfare expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Welfare benefits (see below) 16,288 17,366 18,961 19,781 20,375 20,861 21,512 22,059 22,806 23,529
Social rehabilitation and compensation 199 336 331 119 81 107 128 119 109 103
Departmental expenses 850 1,092 1,130 1,127 1,122 1,103 1,081 1,055 1,051 1,050
Child support impairment 193 205 371 281 72 296 392 408 226 252
Other non-departmental expenses1 347 383 392 697 378 511 485 472 469 465
Social security and welfare expenses 17,877 19,382 21,185 22,005 22,028 22,878 23,598 24,113 24,661 25,399
  1. Other non-departmental expenses in the 2011 actuals include costs associated with the Canterbury earthquakes.

Source: The Treasury

Table 6.2 - New Zealand superannuation and welfare benefit expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
New Zealand Superannuation 7,348 7,744 8,290 8,830 9,584 10,228 10,850 11,415 12,073 12,686
Domestic Purposes Benefit 1,478 1,530 1,693 1,757 1,811 1,751 1,762 1,776 1,811 1,840
Unemployment Benefit 458 586 930 943 883 836 839 814 804 783
Invalid's Benefit 1,216 1,260 1,303 1,306 1,325 1,323 1,305 1,277 1,273 1,274
Family Tax Credit 1,897 2,062 2,168 2,139 2,082 2,062 2,037 1,993 1,961 1,976
Accommodation Supplement 891 989 1,154 1,197 1,195 1,197 1,229 1,248 1,271 1,288
Sickness Benefit 582 613 710 743 775 784 809 845 868 878
Disability Allowance 278 390 411 409 401 363 358 356 358 358
Income-Related Rents 465 512 522 553 580 614 660 707 759 808
In Work Tax Credit 563 584 595 585 567 541 511 493 483 479
Child Tax Credit 11 6 4 3 2 2 1 1 1 1
Special Benefit 71 ..  ..  ..  ..  ..  ..  ..  ..  .. 
Benefits paid in Australia 58 50 45 40 37 22 19 15 12 34
Paid Parental Leave 135 143 154 154 158 163 170 178 194 195
Childcare Assistance 150 159 178 188 188 186 181 182 186 188
War Disablement Pensions 134 125 137 135 128 122 120 121 122 116
Veteran's Pension 161 176 179 178 177 172 167 159 155 148
Other benefits 392 437 488 621 482 495 494 479 475 477
Benefit expenses 16,288 17,366 18,961 19,781 20,375 20,861 21,512 22,059 22,806 23,529

Source: The Treasury

Table 6.3 - Beneficiary numbers
(Thousands) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
New Zealand Superannuation 508 522 540 561 585 612 635 658 680 702
Domestic Purposes Benefit 97 101 110 114 114 110 109 107 107 107
Unemployment Benefit 37 48 78 80 73 68 67 64 62 59
Accommodation Supplement 245 267 312 320 311 309 311 311 312 312
Invalid's Benefit 82 86 88 88 87 87 85 82 80 80
Sickness Benefit 48 50 58 60 60 61 62 63 64 63

Source: Ministry of Social Development

Table 6.4 - Health expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Departmental outputs 206 206 211 199 186 186 185 186 186 186
Health services purchasing (see below) 10,503 11,354 12,077 12,530 13,018 13,565 13,459 13,425 13,399 13,361
Other non-departmental outputs 97 98 106 120 119 234 176 179 181 182
Health payments to ACC 463 667 691 849 744 689 761 758 759 765
Other expenses 28 43 43 55 93 67 48 48 48 48
Health expenses 11,297 12,368 13,128 13,753 14,160 14,741 14,629 14,596 14,573 14,542

Source: The Treasury

Table 6.5 - Health services purchasing
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Payments to District Health Boards 9,312 10,038 10,670 11,133 11,542 12,070 12,036 12,011 11,991 11,953
National disability support services 834 889 930 971 1,029 1,059 1,053 1,053 1,053 1,053
Public health services purchasing 357 427 477 426 447 436 370 361 355 355
Health services purchasing 10,503 11,354 12,077 12,530 13,018 13,565 13,459 13,425 13,399 13,361

Source: The Treasury

Table 6.6 - Education expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Early childhood education 860 1,030 1,184 1,340 1,355 1,430 1,465 1,490 1,511 1,548
Primary and secondary schools (see below) 4,552 4,936 5,157 5,354 5,443 5,649 5,543 5,642 5,715 5,720
Tertiary funding (see below) 3,266 4,564 4,465 3,991 3,795 4,183 4,150 4,126 4,132 4,137
Departmental expenses 828 888 898 923 988 1,045 981 971 963 963
Other education expenses 45 37 20 42 73 93 76 75 74 74
Education expenses 9,551 11,455 11,724 11,650 11,654 12,400 12,215 12,304 12,395 12,442
Table 6.6 - Education expenses (continued)
Places 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Early childhood education1 134,155 142,135 152,862 159,619 165,126 170,849 173,469 176,861 179,216 185,725
  1. Full-time equivalent based on 1,000 funded child hours per calendar year.

Sources: Ministry of Education, the Treasury

Table 6.7 - Primary and secondary education expenses

($millions)

2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Primary 2,262 2,484 2,622 2,731 2,771 2,873 2,828 2,894 2,946 2,944
Secondary 1,761 1,898 1,972 2,051 2,085 2,160 2,102 2,124 2,136 2,135
School transport 131 152 160 163 172 180 188 195 201 209
Special needs support 278 290 297 310 323 338 328 333 336 336
Professional development 108 101 95 90 85 89 87 87 87 87
Schooling improvement 12 11 11 9 7 9 10 9 9 9
Primary and secondary education expenses 4,552 4,936 5,157 5,354 5,443 5,649 5,543 5,642 5,715 5,720
Table 6.7 - Primary and secondary education expenses (continued)
Places 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Primary1 475,820 474,630 473,431 474,149 474,821 476,445 479,165 484,931 489,043 491,097
Secondary1 277,582 280,062 281,095 281,999 279,554 277,615 274,923 272,243 269,211 268,003
  1. These are snapshots based as at 1 July for primary year levels (years 1 to 8) and 1 March for secondary year levels (years 9 to 13). These numbers include special school rolls but exclude health camps, hospital schools and home schooling.

Sources: Ministry of Education, the Treasury

Table 6.8 - Tertiary education expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Tuition 2,172 2,287 2,398 2,354 2,306 2,410 2,399 2,403 2,406 2,407
Other tertiary funding 452 522 489 429 430 454 459 470 478 478
Tertiary student allowances 386 444 570 620 644 623 572 526 503 489
Student loans 256 1,311 1,008 588 415 696 720 727 745 763
Tertiary education expenses 3,266 4,564 4,465 3,991 3,795 4,183 4,150 4,126 4,132 4,137
Table 6.8 - Tertiary education expenses
Places (year) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Estimated funded places1 225,836 234,230 239,978 238,721 245,014 244,098 242,618 242,353 242,389 242,389
Actual delivered places1 229,224 246,041 250,440 240,618 250,526        
  1. Tertiary places are the number of equivalent full time (EFT) students in: student achievement component; adult and community education; and youth guarantee programmes. Note that historical place numbers have been revised so may differ from previous published EFU numbers. Place numbers are based on calendar years rather than fiscal years.

Sources: Ministry of Education, the Treasury

Table 6.9 - Core government service expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Official development assistance 362 458 435 495 510 533 495 495 545 545
Indemnity and guarantee expenses ..  992 7 319 59 24 26 25 28 32
Departmental expenses 1,557 1,668 1,324 1,492 1,518 1,768 1,610 1,550 1,543 1,510
Non-departmental expenses1 277 117 236 471 524 517 537 552 560 584
Tax receivable write-down and impairments 701 1,654 590 1,010 1,003 1,141 1,197 1,153 1,200 1,200
Science expenses 168 179 191 174 116 120 121 124 124 124
Other expenses1 306 225 191 1,602 1,698 1,537 368 324 266 214
Core government service expenses 3,371 5,293 2,974 5,563 5,428 5,640 4,354 4,223 4,266 4,209
  1. Non-departmental expenses and other expenses in the forecast period include costs associated with the Canterbury earthquakes.

Source: The Treasury

Table 6.10 - Law and order expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Police 1,198 1,326 1,349 1,393 1,394 1,423 1,404 1,392 1,392 1,389
Ministry of Justice 367 379 372 397 440 509 450 436 446 444
Department of Corrections 787 829 903 956 988 1,011 984 978 1,036 1,020
NZ Customs Service1 12 12 13 120 126 154 149 150 151 151
Other departments 79 80 102 237 103 96 88 88 89 88
Department expenses 2,443 2,626 2,739 3,103 3,051 3,193 3,075 3,044 3,114 3,092
Non-departmental outputs 326 380 399 261 315 379 326 325 328 325
Other expenses 125 83 53 18 37 70 67 68 68 71
Law and order expenses 2,894 3,089 3,191 3,382 3,403 3,642 3,468 3,437 3,510 3,488
  1. Previously the majority of NZ Customs Service expenses were classified as core government services.

Source: The Treasury

Table 6.11 - Defence expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
NZDF core expenses 1,517 1,697 1,747 1,736 1,678 1,801 1,770 1,777 1,815 2,085
Other expenses 45 60 67 73 58 63 58 58 64 64
Defence expenses 1,562 1,757 1,814 1,809 1,736 1,864 1,828 1,835 1,879 2,149

Source: The Treasury

Table 6.12 - Transport and communication expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
New Zealand Transport Agency1 1,966 1,562 1,778 1,696 1,744 1,836 1,873 1,929 1,982 2,054
Departmental outputs 137 83 63 65 60 47 46 46 46 46
Other non-departmental expenses 104 170 58 105 62 333 119 118 88 88
Asset impairments ..  320 ..  ..  ..  ..  ..  ..  ..  .. 
Rail funding 24 507 418 386 305 186 9 93 3 3
Other expenses 13 21 28 29 61 33 26 26 26 26
Transport and communication expenses 2,244 2,663 2,345 2,281 2,232 2,435 2,073 2,212 2,145 2,217
  1. Since 2008/09 funding has been provided to New Zealand Transport Agency (NZTA). From 2004/05 to 2007/08 funding was provided to Land Transport NZ. Prior to 2008/09, all NZTA funding was recognised as operating expenditure. However, from 2008/09 some funding is now classified as capital, resulting in a reduction to operating expenditure.

Source: The Treasury

Table 6.13 - Economic and industrial services expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Departmental outputs 603 389 382 420 346 379 372 368 361 355
Employment initiatives (see below) 186 185 220 214 206 201 197 171 171 171
Non-departmental outputs 822 809 927 756 698 669 607 577 588 588
Reserve electricity generation 81 20 23 9 5 1 ..  ..  ..  .. 
KiwiSaver (includes housing deposit subsidy) 1,102 1,281 1,024 1,045 698 723 715 709 734 761
Research and development tax credits 37 154 ..  ..  ..  ..  ..  ..  ..  .. 
Other expenses 58 122 263 165 204 109 71 70 70 69
Economic and industrial services expenses 2,889 2,960 2,839 2,609 2,157 2,082 1,962 1,895 1,924 1,944

Source: The Treasury

Table 6.14 - Employment initiatives
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Training incentive allowance 27 30 19 11 8 14 15 15 15 15
Subsidised work 67 63 109 112 106 93 89 63 63 63
Employment support for the disabled 88 88 88 87 88 90 89 89 89 89
Other employment assistance schemes 4 4 4 4 4 4 4 4 4 4
Employment initiatives 186 185 220 214 206 201 197 171 171 171

Source: The Treasury

Table 6.15 - Primary service expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Departmental expenses 363 364 352 354 348 395 361 363 367 363
Non-departmental outputs 95 82 123 142 134 145 141 132 99 99
Biological research1 ..  ..  ..  167 102 113 102 102 102 102
Other expenses 83 88 32 43 64 193 122 122 113 94
Primary service expenses 541 534 507 706 648 846 726 719 681 658
  1. Biological research was previously classified as an economic and industrial services expense.

Source: The Treasury

Table 6.16 - Heritage, culture and recreation expenses1
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Community grants 8 9 8 8 7 ..  ..  ..  ..  .. 
Departmental outputs 109 120 115 133 172 288 271 265 263 263
Non-departmental outputs 430 422 405 455 444 464 467 465 459 460
Other expenses 14 35 102 145 240 123 83 74 74 73
Heritage, culture and recreation expenses 561 586 630 741 863 875 821 804 796 796
  1. Previously environmental protection expenses were included as a separate line item within the heritage, culture and recreation classification. These expenses have been reclassified to the new environmental protection functional classification.

Source: The Treasury

Table 6.17 - Housing and community development expenses
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Financial assistance package1 ..  ..  ..  567 (407) ..  ..  ..  ..  .. 
Housing subsidies 28 29 30 31 22 6 6 6 6 6
Departmental outputs 141 148 140 136 98 124 109 103 103 93
Other non-departmental expenses 91 112 122 105 113 170 125 128 87 81
Other expenses ..  8 14 37 44 57 47 50 38 20
Housing and community development expenses 260 297 306 876 (130) 357 287 287 234 200
  1. Financial assistance package for 2012 actual includes the impact of a revised estimate of the weathertight homes financial assistance package provision.

Source: The Treasury

Table 6.18 - Environmental protection expenses1
($millions) 2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Emissions Trading Scheme ..  17 80 838 334 59 61 63 65 66
Departmental outputs 283 306 300 301 342 362 335 329 330 330
Non-departmental outputs 38 47 231 26 46 38 47 42 54 44
Other expenses 225 46 40 60 47 126 43 43 43 43
Environmental protection expenses 546 416 651 1,225 769 585 486 477 492 483
  1. Environmental protection expenses were previously included as a separate line item within the heritage, culture and recreation classification.

Source: The Treasury

Glossary of Terms

Accruals basis of accounting

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

Appropriations

Appropriations are legal authorities granted by Parliament to the Crown or an Office of Parliament to use public resources. Most appropriations are set out in Appropriation Acts.

Baselines

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

Commercial portfolio

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

Consumers Price Index (CPI)

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

Contingent assets

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

Contingent liabilities

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

Core Crown

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

Core Crown expenses

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

Core Crown revenue

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

Corporate tax

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

Current account (Balance of Payments)

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

Cyclically-adjusted balance (CAB) or structural 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 useful picture of the underlying trend fiscal position and helps measure the effects of policy decisions. Because it is based on a number of assumptions and is sensitive to new information, the estimate is subject to some uncertainty.

Demographic changes

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

Domestic bond programme

The amount and timing of government bonds expected to be issued or redeemed.

Excise duties

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

Financial assets

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

Financial liabilities

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

Financial portfolio

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

Fiscal drag

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

Fiscal impulse

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

Fiscal intentions (short-term)

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

Fiscal objectives (long-term)

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

Forecast new capital spending

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

Forecast new operating spending

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

Gains and losses

Gains and losses typically arise from the revaluation of assets and liabilities, such as investments in financial assets and long-term liabilities for ACC and the Government Superannuation Fund. These valuation changes are reported directly as a movement in net worth (eg, asset revaluation reserves) or indirectly through the statement of financial performance.

GDP deflator

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

Generally accepted accounting practice (GAAP)

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

Government Finance Statistics (GFS)

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

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

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

Gross domestic product (GDP)

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

Gross domestic product (expenditure)

The sum of total expenditure on final goods and services in the economy.

Gross national expenditure (GNE)

A measure of total expenditure on final goods and services by New Zealand residents.

Insurance liabilities

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

Inter-segment eliminations

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

Labour force participation rate

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

Labour productivity

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

Line-by-line consolidation

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

Marketable securities

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

Monetary conditions

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

Monetary policy

The policies which the Reserve Bank uses to regulate the supply of money in New Zealand. The Reserve Bank implements its monetary policy decisions by adjusting its Official Cash Rate (OCR) in an effort to maintain stability in general level of prices within a defined annual CPI target range.

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

National saving

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

Net core Crown cash flow from operations

The cash impact of operating results. It is represented by the 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

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

Net international investment position (NIIP)

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

Net worth

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

Net worth attributable to the Crown

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

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

The reporting and measurement framework under which these forecast financial statements are prepared. These standards are approved by the External Reporting Board in New Zealand, based on requirements of the international financial reporting standards issued by the International Accounting Standards Board, adjusted where appropriate for entities that are not profit oriented.

Operating balance

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

Operating balance before gains and losses (OBEGAL)

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

Output gap

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

Outputs

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

Productivity

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

Projections

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

Residual cash

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

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

Settlement cash

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

Social portfolio

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

Specific fiscal risks

All government decisions or other circumstances known to the Government which may have a material impact on the fiscal and economic outlook, but are not included in the fiscal forecasts. They are not included in the main forecasts because their fiscal impact cannot be reasonably quantified, the likelihood of realisation is uncertain and/or the timing is uncertain.

System of National Accounts (SNA)

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

Tax revenue

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

Terms of trade

The terms of trade measures the volume of imports that can be funded by a fixed volume of exports, and is calculated as the ratio of the total export price index to the total import price index. New Zealand's terms of trade is derived from export and import price indices from Statistics New Zealand's quarterly Overseas Trade Index release.

Top-down adjustment

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

Total borrowings

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

Total Crown

Includes the core Crown (defined above) plus CEs and SOEs. Also known as the Government Reporting Entity.

Tradable/non-tradable output

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

Trade-weighted index (TWI)

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

Votes

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

Year ended

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

Time Series of Fiscal and Economic Indicators

Fiscal Indicators
June Years 2001
 Actual
2002
 Actual
2003
 Actual
2004
 Actual
2005
 Actual
2006
 Actual
2007
 Actual
2008
 Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast

$ millions

                                 

Revenue and Expenses

                                 
   Core Crown revenue 37,842 39,945 43,440 46,219 51,045 55,735 58,211 61,819 59,482 56,216 57,550 60,565 62,939 67,786 71,817 74,967 78,267
   Core Crown expenses 36,559 37,513 39,897 41,882 44,895 49,320 54,003 56,997 64,002 64,013 70,450 69,076 71,998 71,781 73,652 75,557 78,044

Surpluses

                                 
   Total Crown OBEGAL 1,422 2,471 4,366 5,573 7,075 7,091 5,860 5,637 (3,893) (6,315) (18,396) (9,240) (7,340) (2,011) 66 1,383 2,048
   Total Crown operating balance 1,208 2,286 1,621 7,309 5,931 9,542 8,023 2,384 (10,505) (4,509) (13,360) (14,897) (3,275) 49 2,101 3,550 4,385

Cash Position

                                 
   Core Crown residual cash 349 216 1,217 520 3,104 2,985 2,877 2,057 (8,639) (9,000) (13,343) (10,644) (9,782) (6,949) (4,555) (3,273) (2,871)

Debt

                                 
   Gross debt1 37,194 36,650 36,617 36,017 35,478 33,903 30,647 31,390 43,356 53,591 72,420 79,635 80,176 88,442 86,252 90,060 95,859
   Gross debt incl RB settlement cash and bank bills 37,194 36,650 36,617 36,017 35,478 35,867 36,805 37,745 50,973 58,891 77,290 84,168 85,611 93,877 91,687 95,515 101,339
   Net core Crown debt (incl NZS Fund)2 24,908 24,773 22,647 19,902 13,324 6,302 1,620 (2,676) 5,633 12,549 23,969 33,475 40,332 45,454 47,712 48,657 49,167
   Net core Crown debt2 24,908 25,388 24,531 23,858 19,879 16,163 13,380 10,258 17,119 26,738 40,128 50,671 59,998 66,749 70,685 73,477 75,860

Net Worth

                                 
   Total Crown net worth 15,450 22,825 28,012 39,595 54,240 83,971 96,827 105,514 99,515 94,988 80,887 59,780 58,062 59,717 63,422 68,650 73,257
   Total net worth attributable to the Crown 15,450 22,766 27,918 39,456 54,025 83,678 96,531 105,132 99,068 94,586 80,579 59,348 56,285 56,545 58,825 62,598 67,035
Nominal GDP 120,911 128,629 135,709 146,318 155,331 163,296 173,203 185,917 185,838 191,314 200,641 208,219 216,048 228,797 239,279 249,023 259,149

% GDP

                                 

Revenue and Expenses

                                 
   Core Crown revenue 31.3 31.1 32.0 31.6 32.9 34.1 33.6 33.3 32.0 29.4 28.7 29.1 29.1 29.6 30.0 30.1 30.2
   Core Crown expenses 30.2 29.2 29.4 28.6 28.9 30.2 31.2 30.7 34.4 33.5 35.1 33.2 33.3 31.4 30.8 30.3 30.1

Surpluses

                                 
   Total Crown OBEGAL 1.2 1.9 3.2 3.8 4.6 4.3 3.4 3.0 (2.1) (3.3) (9.2) (4.4) (3.4) (0.9) 0.0 0.6 0.8
   Total Crown operating balance 1.0 1.8 1.2 5.0 3.8 5.8 4.6 1.3 (5.7) (2.4) (6.7) (7.2) (1.5) 0.0 0.9 1.4 1.7

Cash Position

                                 
   Core Crown residual cash 0.3 0.2 0.9 0.4 2.0 1.8 1.7 1.1 (4.6) (4.7) (6.7) (5.1) (4.5) (3.0) (1.9) (1.3) (1.1)

Debt

                                 
   Gross debt1 30.8 28.5 27.0 24.6 22.8 20.8 17.7 16.9 23.3 28.0 36.1 38.2 37.1 38.7 36.0 36.2 37.0
   Gross debt incl RB settlement cash and bank bills 30.8 28.5 27.0 24.6 22.8 22.0 21.2 20.3 27.4 30.8 38.5 40.4 39.6 41.0 38.3 38.4 39.1
   Net core Crown debt (incl NZS Fund)2 20.6 19.3 16.7 13.6 8.6 3.9 0.9 (1.4) 3.0 6.6 11.9 16.1 18.7 19.9 19.9 19.5 19.0
   Net core Crown debt2 20.6 19.7 18.1 16.3 12.8 9.9 7.7 5.5 9.2 14.0 20.0 24.3 27.8 29.2 29.5 29.5 29.3

Net Worth

                                 
   Total Crown net worth 12.8 17.7 20.6 27.1 34.9 51.4 55.9 56.8 53.5 49.7 40.3 28.7 26.9 26.1 26.5 27.6 28.3
   Total net worth attributable to the Crown 12.8 17.7 20.6 27.0 34.8 51.2 55.7 56.5 53.3 49.4 40.2 28.5 26.1 24.7 24.6 25.1 25.9
  1. Excludes Reserve Bank settlement cash and bank bills
  2. Excludes advances
Economic Indicators
March Years
Annual average % change
2001
Actual
2002
 Actual
2003
 Actual
2004
 Actual
2005
 Actual
2006
 Actual
2007
 Actual
2008
 Actual
2009
 Actual
2010
 Actual
2011
 Actual
2012
 Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
Private consumption 1.5 2.7 4.6 6.2 4.4 4.4 2.7 3.4 -1.7 0.4 1.6 1.9 1.5 2.8 2.6 1.9 1.7
Public consumption -2.0 4.2 1.4 4.9 4.6 4.7 4.1 5.2 4.6 0.2 0.4 0.6 0.7 0.2 0.8 0.7 0.4
TOTAL CONSUMPTION 0.7 3.1 3.9 5.9 4.5 4.5 3.0 3.8 -0.3 0.3 1.3 1.6 1.3 2.2 2.2 1.7 1.4
Residential investment                -13.6 2.2 23.6 14.8 2.3 -5.0 -1.9 1.6 -22.5 -12.0 3.7 -11.6 19.5 33.0 22.4 7.4 -0.6
Non-market investment                 -13.5 22.0 10.7 15.5 10.8 5.7 1.8 -8.0 22.6 -1.8 -14.7 -12.1 -13.1 9.2 2.4 2.4 2.4
Market investment                     7.1 7.1 2.8 12.4 11.6 11.0 -2.9 10.6 -5.1 -16.0 9.3 5.4 13.0 9.4 4.4 2.3 1.9
TOTAL INVESTMENT -0.3 7.1 7.9 13.2 8.3 6.6 -2.7 7.0 -8.5 -13.3 6.2 -1.0 12.9 14.4 7.7 3.5 1.5
Stock change (contribution to growth) -0.3 0.1 -0.1 0.3 0.3 -0.5 -1.2 1.2 -0.5 -1.3 1.2 0.7 -1.2 0.0 0.1 0.1 0.1
GROSS NATIONAL EXPENDITURE 0.2 3.9 4.6 7.6 5.6 4.6 0.3 5.6 -2.3 -3.6 2.6 2.2 1.6 5.1 3.7 2.3 1.5
Exports 6.3 3.1 7.8 1.0 4.9 -0.1 3.2 3.6 -2.6 4.9 2.7 2.6 1.9 0.5 1.2 2.1 2.7
Imports -0.4 4.2 7.0 12.9 12.3 4.4 -1.4 10.6 -4.1 -9.0 11.5 6.3 2.0 6.6 4.2 1.6 0.3
EXPENDITURE ON GDP 2.3 3.6 4.9 4.0 3.5 3.3 1.7 3.6 -1.9 0.9 0.3 1.1 1.7 3.0 2.5 2.4 2.4
GDP (production measure) 2.5 3.8 4.6 4.2 3.6 3.3 2.2 2.5 -1.3 -1.3 1.6 1.6 2.3 2.9 2.5 2.4 2.4
 - annual % change 0.7 5.0 4.0 5.2 2.3 3.1 2.9 1.4 -3.1 1.2 1.1 2.3 2.1 3.0 2.5 2.4 2.4
Real GDP per capita 1.9 3.1 3.0 2.2 2.0 2.1 1.0 1.4 -2.3 -2.3 0.4 0.7 1.5 2.1 1.6 1.4 1.4
Nominal GDP (expenditure basis) 5.7 7.5 5.2 6.9 7.1 5.6 5.0 8.4 0.8 1.5 4.7 3.4 3.6 5.9 4.7 4.1 4.1
GDP deflator 3.3 3.8 0.3 2.8 3.5 2.2 3.3 4.7 2.7 0.5 4.5 2.3 1.9 2.8 2.1 1.7 1.7
Output gap (% deviation, March year average) -0.9 -0.7 0.2 0.7 1.1 1.6 1.5 2.1 -0.4 -2.6 -2.2 -2.0 -1.6 -0.7 -0.4 -0.3 -0.1
Employment 2.0 2.9 2.8 3.0 3.6 2.8 2.2 1.3 0.9 -1.3 1.2 1.4 0.2 1.7 1.9 1.4 1.4
Unemployment (% March quarter s.a.)          5.5 5.3 5.0 4.3 3.9 4.0 3.9 3.9 5.1 6.1 6.5 6.7 6.9 6.2 5.9 5.6 5.1
Wages (average ordinary-time hourly, ann % change)         3.2 3.7 2.3 3.5 3.6 5.3 4.6 4.7 5.5 1.0 2.6 3.8 2.1 2.4 2.7 2.6 2.6
CPI inflation (ann % change)      3.1 2.6 2.5 1.5 2.8 3.3 2.5 3.4 3.0 2.0 4.5 1.6 1.5 1.9 2.2 2.2 2.2
Merchandise terms of trade (SNA basis)       3.5 3.8 -5.5 4.4 3.4 -1.9 -1.2 8.4 0.0 -7.6 10.2 1.2 -2.6 5.2 1.2 0.8 0.9
Current account balance - $billion           -4.5 -3.6 -4.2 -6.2 -9.5 -14.0 -13.5 -14.6 -14.6 -3.4 -7.2 -9.1 -10.7 -10.2 -12.9 -15.1 -16.3
Current account balance - % of GDP           -3.8 -2.9 -3.1 -4.4 -6.2 -8.7 -8.0 -8.0 -7.9 -1.8 -3.7 -4.5 -5.1 -4.6 -5.5 -6.2 -6.5
TWI (March quarter)                          50.5 51.6 60.6 66.9 69.6 68.3 68.8 71.9 53.7 65.3 67.2 72.5 73.0 72.8 70.6 67.3 63.2
90-day bank bill rate (March quarter)        6.4 5.0 5.8 5.5 6.9 7.6 7.8 8.8 3.7 2.7 3.0 2.7 2.7 3.1 4.1 4.6 4.8
10-year bond rate (March quarter)            6.0 6.7 6.0 5.9 6.0 5.7 5.9 6.4 4.6 5.9 5.6 4.0 3.6 3.6 4.5 5.0 5.2

Data for 2013 and subsequently are forecasts. Data for 2012 and prior years are those that were available on 19 November when the forecasts were finalised.

Last updated: