It is becoming ever-more important to effectively manage the Crown’s large, growing and increasingly complex portfolio of assets and liabilities, Vicky Robertson, Deputy Chief Executive at the Treasury, said today.
"Better data informing better decisions on assets will help New Zealand make the most of its large balance sheet,” she said at the launch of the 2014 Investment Statement.
"The Crown’s assets and liabilities, its balance sheet, has expanded over the past two decades and its composition has changed. Financial assets, such as those held by the New Zealand Superannuation Fund, increasingly dominate the Crown’s balance sheet. These trends are projected to continue over the long term,” she said.
"The outlook for the size and composition of the balance sheet means that managing these assets well has growing implications for the security and living standards of New Zealanders as we meet challenges on the horizon,” she said.
"An important lesson arising out of the global financial crisis was that governments that failed to effectively understand and manage their public finances, including their balance sheet risks, were susceptible to having their funding needs for day-to-day operations disrupted when their economies took a turn for the worse. New Zealanders were protected from abrupt disruptions to social services and entitlements from two decades of prudent fiscal policy settings. This was undoubtedly facilitated by the high quality of our fiscal reporting framework.
"But one conclusion of the 2014 Investment Statement is that there is scope to further strengthen the quality of information-gathering and sharing on the Crown’s balance sheet and its many components,” Vicky Robertson said.
The Treasury will continue to work with other agencies to drive improved asset and liability performance measurement and benchmarking because the ongoing opportunity costs of any persistent weaknesses would be at the expense of higher living standards. In this regard, the Treasury has seen considerable improvement, but this needs to continue.
More effective and efficient balance sheet management could free-up resources to direct towards high priority public goods and services that New Zealanders value.
"This is important work for a couple of reasons. First, there is demographic change – the ageing of the population structure implies the Crown will require a different mix of assets to meet the changing dynamics of public service expectations likely in the decades ahead.
"Secondly, a large portion of the infrastructure held in social sectors, such as schools, courtrooms and social housing, is ageing and decisions will be required in the decades ahead on whether to replace assets, seek alternative provision arrangements, or to maintain assets by spending more and more on rising repair and maintenance expenses,” she said.
Link to 2014 Investment Statement.