Year end financial statements

Financial Statements of the Government of New Zealand for the Year Ended 30 June 2007

Prepared and furnished to the House of Representatives in accordance with Part III of the Public Finance Act 1989.

Statement of Responsibility#

These financial statements have been prepared by the Treasury in accordance with the provisions of the Public Finance Act 1989. The financial statements comply with generally accepted accounting practice.

The Treasury is responsible for establishing and maintaining a system of internal control designed to provide reasonable assurance that the transactions recorded are within statutory authority and properly record the use of all public financial resources by the Government. To the best of my knowledge, this system of internal control has operated adequately throughout the reporting period.

 

John Whitehead
Secretary to the Treasury

28 September 2007

 

 

I accept responsibility for the integrity of these financial statements, the information they contain and their compliance with the Public Finance Act 1989.

In my opinion, these financial statements fairly reflect the financial position of the Government as at 30 June 2007 and its operations for the year ended on that date.

 

Hon Dr Michael Cullen
Minister of Finance

28 September 2007

Ministerial Statement#

Continued economic growth and rising employment provide the means for New Zealand’s society to create a higher standard of living and a better quality of life.

The Government’s fiscal position is strong. This is no accident. It reflects many years of sound and prudent economic and fiscal management and a period of strong, sustained economic growth. This positive position is the result of the Government’s commitment over the last three terms to reduce debt and more recently build up financial assets.

The financial statements for the year ended 30 June 2007 will be the last set prepared on a current GAAP basis, with future reporting being on an NZ IFRS basis. They show an Operating Balance excluding Revaluations and Accounting Changes (OBERAC) surplus of $7.9 billion or 4.8 percent of gross domestic product (GDP). This compares with $8.6 billion (5.5 percent) for the previous year. After allowing for capital investment the government recorded a cash surplus of $2.6 billion, down from $3.0 billion in the year ended 30 June 2006. Most of the cash surplus has already been built into spending and tax plans.

The New Zealand Superannuation Fund earned $1.1 billion for the year ended 30 June 2007, once again exceeding expectation and meaning the Fund’s balance has grown faster than expected. At 30 June 2007 the NZS Fund assets stood at $13.0 billion.

Gross sovereign-issued debt (GSID) increased by $0.7 billion in 2006/07 to $36.2 billion, but fell as a percentage of GDP. At 21.7 percent of GDP, GSID is consistent with the Government’s long term debt objective of GSID broadly stable at 20 percent of GDP over the next 10 years, especially if looking through the Settlement Cash levels held by the Reserve Bank. When the Government took office in 1999 GSID was close to 35% of GDP – having met the challenge of reducing debt to prudent levels, the next challenge is to maintain fiscal discipline by keeping debt around current levels.

Net core Crown debt was $3.4 billion (2.1 percent of GDP). Including the assets of the NZS Fund, the Crown was in a net financial asset position of $9.6 billion (5.7 percent of GDP).

The financial results show the Government is implementing fiscal policy in line with its stated fiscal strategy of strengthening the fiscal position so that it is well placed to respond to future challenges such as those associated with population ageing and to have a buffer against external shocks. Along with some unexpected delays in departmental spending, progress against the Government’s fiscal intentions was faster than expected as a result of stronger economic activity and inflation over the latter part of the fiscal year. Allowing revenue to increase is consistent with our policy of letting automatic stabilisers operate and looking through the temporary effects of the economic cycle. The net result of these developments is that the Government was removing significantly more demand from the economy than forecast at Budget time – it would be difficult to argue that the Government is contributing to inflationary pressure.

Looking forward we will continue to strengthen our fiscal position to help meet future spending pressures, but at a much slower pace than experienced over recent years. We continue to expect the OBERAC surplus to fall and net cash flows to move from surplus to deficit over the forecast horizon reflecting a combination of policy intentions and solid but slower economic growth.

 

Hon Dr Michael Cullen
Minister of Finance

28 September 2007

Commentary on the Financial Statements#

Introduction#

The Government's fiscal strategy (outlined in more detail in the 2007 Fiscal Strategy Report) is to strengthen its fiscal position so that it is well placed to respond to future challenges such as those associated with population ageing. The strategy is summarised in Figure 1.

The Government intends to implement this strategy primarily by building up financial assets in the New Zealand Superannuation (NZS) Fund and maintaining gross debt at around 20% of GDP. In order to keep debt stable, the Government has said that it intends to run its core cash position so that core borrowing tracks in line with GDP over time. In practice, this means running operating surpluses sufficient to cover the contributions to the NZS Fund and some other capital spending needs.

The Financial Statements of the Government provide a record of the Government's financial performance over the 2006/07 financial year and its financial position as at 30 June 2007. They provide a comparison with the fiscal forecasts in the 2007 Budget Economic and Fiscal Update and with the 2005/06 financial statements. These Financial Statements will be the last set prepared on a current GAAP basis, with future reporting being on an NZ IFRS basis. They also provide the public with a snapshot of the progress the Government has made in implementing its fiscal strategy, as set out in the Short Term Fiscal Intentions and Long Term Objectives of the Fiscal Strategy Report.

Figure 1 - Fiscal strategy at a glance
Figure 1 – Fiscal strategy at a glance.

Summary#

The Government has recorded an Operating Balance excluding Revaluation and Accounting Changes (OBERAC) of $7.9 billion compared to a Budget forecast of $7.4 billion.

Including revaluation changes the operating balance for the total Crown for 2006/07 was $8.7 billion against a Budget forecast of $6.6 billion.

Taxation revenue was $0.7 billion ahead of forecast, primarily in relation to GST ($0.3 billion) and corporate tax ($0.4 billion).

Core Crown expenses were $0.8 billion below forecast and net surpluses of State-owned enterprises and Crown entities were $0.7 billion ahead of forecast. Decreases in the valuations of the Accident Compensation Corporation (ACC) and Government Superannuation Fund (GSF) liabilities of $0.7 billion and $1.2 billion respectively had a significant impact on these variances.

Core Crown residual cash at $2.6 billion was $0.9 billion ahead of forecast.This was primarily due to higher than expected tax receipts of $0.5 billion, and core Crown operating and capital and underspending of $0.5 billion and $0.3 billion respectively. These variances were offset by lower than expected other operating receipts of $0.4 billion.

Gross sovereign-issued debt at $36.2 billion has increased by $0.7 billion since 2005/06, but fell as a percentage of GDP. At 21.7% of GDP this is consistent with the Government’s long term debt objective of GSID being broadly stable at 20% of GDP over the next 10 years. Looking through the Settlement Cash balances of $7.5 billion held by the Reserve Bank, GSID was $28.7 million or 17.2% of GDP.

Net core Crown debt has fallen to $3.4 billion, or 2.1% of GDP. Including the assets of the New Zealand Superannuation (NZS) Fund, the Government was in a net financial asset position of $9.6 billion or 5.7% of GDP. At 30 June 2007 NZS Fund assets stood at $13.0 billion, following the statutory contribution of $2.0 billion and income after tax of $1.1 billion.

Table 1 – Summary of fiscal indicators
  30 June 2007 actual Estimated actual 30 June 2006 actual
  $million % of GDP $million % of GDP $million % of GDP
Operating Balance 8,663 5.2 6,568 4.0 11,473 7.3
OBERAC 7,920 4.8 7,380 4.5 8,648 5.5
Residual cash 2,648 1.6 1,720 1.0 2,985 1.9
Gross Sovereign Issued Debt 36,150 21.7 37,217 22.6 35,461 22.5
Net core Crown Debt 3,433 2.1 4,612 2.8 7,745 4.9
Net core Crown debt with NZS Fund assets (9,556) (5.7) (8,306) (5.0) (2,116) (1.3)
Net Worth 95,836 57.5 88,460 53.7 71,403 45.4

GAAP (old GAAP) and NZ IFRS (new GAAP)#

These financial statements have been prepared in accordance with Generally Accepted Accounting Practice (GAAP) which encompasses approved Financial Reporting Standards – so called “old GAAP”. These are the last set of Government Financial Statements to be prepared under old GAAP. From 1 July 2007 the Financial Statements of the Government will be prepared in accordance with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS – “new GAAP”). Information on the impact of NZ IFRS on the financial statement is on page 89.

 

Comparison with Estimated Actual#

This section compares the actual 2006/07 financial results for key fiscal indicators with the 2007 estimated actual forecast released in the 2007 Budget Update.

It follows the fiscal strategy framework, looking first at variances in the operating balance for the whole of Crown ie, including SOEs and Crown entities [see page 6]. It then identifies adjustments to the operating balance necessary to strip out valuation and accounting changes (OBERAC changes), and how these have changed since the estimated actual forecast, and then looks at variances in residual cash compared with forecast.

How operating balance flows translate to OBERAC, which includes SOE and Crown entity activity, and then to the residual cash available to the core Crown is explained in the following table.

Table 2 – Reconciliation to residual core Crown cashOperating balance to core Crown cash position reconciliation
    30 June 2007 30 June 2007   30 June 2006
    Actual Estimated Actual Variance Actual
    $million $million $million $million
  Core Crown revenue 60,880 60,241 639 59,508
Less Core Cown expenses 53,742 54,514 772 50,238
Plus Net surpluses/(deficits) of SOEs and Crown entities 1,525 841 684 2,203
Equals Operating balance 8,663 6,568 2,095 11,473
Less OBERAC adjustments        
  Revaluation changes 743 (812) 1,555 1,471
  Accounting changes 1,354
Equals OBERAC 7,920 7,380 540 8,648
Less Net return on the NZS Fund (excluding revaluation changes) 675 718 (43) 580
Equals OBERAC less NZS Fund retained earnings 7,245 6,662 583 8,068
Less Net retained surpluses of SOEs and Crown entities 2,316 1,835 (481) 1,179
  Non-cash items and working capital movements (3,605) (3,105) 500 (1,970)
Equals Net core Crown cashflow from operations 8,534 7,932 602 8,859
Less Contribution to NZS Fund 2,049 2,049 2,337
Equals Net core Crown cashflow from operations after contributions to NZS Fund 6,485 5,883 602 6,522
Less Purchase of physical assets 1,806 2,141 (335) 1,826
  Advances and Capital injections 2,031 2,022 9 1,711
Equals Residual Cash 2,648 1,720 928 2,985

Revenue and Expenses#

The key drivers of revenue and expense variances against forecast are as follows:

  Variance Key drivers
Total Crown operating balance
(2007 Estimated actual)
$6.6 billion  
Core Crown    
Taxation revenue +$0.7 billion

GST +$0.3 billion – higher than expected nominal consumption, reflecting growth in prices (inflation) and some increased volumes.

Corporate Tax +$0.4 billion – higher than forecast tax assessments across a number of sectors, plus an increase in tax due to a reduction in the provision against tax due in respect of certain structured finance transactions.

Other revenue -$0.1 billion  
Expenses -$0.8 billion

GSF -$1.2 billion – The GSF pension liability movement was lower than expected primarily due to an increase in valuation discount rates since the time of the Budget Update.

Education -$0.2 billion – Primarily relates to the reversal of previous impairments of the Student Loan  portfolio based on updated data received on the collectability of Student Loans  at year end.

Health -$0.2 billion – Underspends generally in relation to Health Services funding and Primary Care funding.

Economic and industrial services -$0.1 billion – Represents underspends in relation to lower operating costs to run the Whirinaki power station and lower spending on funding provided to large budget screen productions due to applicants not meeting milestones.

Transport -0.1 billion – Slower than expected implementation on rail projects.

Core government services +$0.5 billion – Primarily relates to an increase in the provision for tax doubtful debts. 

Defence +$0.1 billion – Relates to revaluation losses on military equipment driven by foreign exchange rate movements since the Budget Update.

Top- down adjustment +$0.5 billion - The forecast included an adjustment of $0.5 billion to account for timing delays in departmental operating spending.

Total core Crown +$1.4 billion  

Net SOE/CE returns

 

+$0.7 billion

 

ACC +$0.7 billion – ACC unfunded liability movement was lower than expected primarily due to an increase in valuation discount rates since the time of the Budget Update.

Land Transport NZ +$0.2 billion – Relates to timing delays in roading providers making funding claims.  This is partly due to delays in obtaining resource consents for certain projects.

Air New Zealand -$0.2 billion – Primarily due to devaluation of aircraft assets due to changes in foreign exchange rates since the time of the Budget Update.

Total variance +$2.1 billion  
Total Crown operating balance(2007 Actual) $8.7 billion  

OBERAC#

The operating balance of $8.7 billion includes the impact of revaluation and accounting changes. Removing these items gives us an OBERAC of $7.9 billion. The following table outlines the adjustments made to the operating balance to arrive at the OBERAC.

Table 3 – Reconciliation between the operating balance to OBERAC
  Actual Estimated actual Variance against
estimated actual
  $million $million $million
Operating balance 8,663 6,568 2,095
Add back accounting changes and valuation items      
  Net GSF valuation movement (1,129) 108 (1,237)
  ACC valuation movement 301 1,023 (722)
  NPF guarantee (49) (49)
  Kyoto liability movement 48 48
  Loss on asset revaluations 284 284
  Other equity investment gains and currency exposure (198) (319) 121
OBERAC 7,920 7,380 540

Residual cash#

The operating balance represents the difference between total operating revenue and total operating expenses. Not all of the operating balance reported by the Government is available to assist in the Government’s capital expenditure programme. This is because:

  • Some parts of the Government’s operations are restricted and are not available for redistribution. For example, the activity of the NZS Fund is retained by the Fund to help build assets to meet future NZS payments and SOE retain their surpluses for the purpose of achieving their long-term objectives.
  • Some transactions do not materialise into cash. For example, depreciation and revaluations movements do not have any cash impact.

Net core Crown cashflows from operations represents the amount available for meeting contributions into the NZS Fund and for funding other capital initiatives.

Residual cash is the balance after taking into account capital payments and therefore it is the flow that contributes to the change in net core Crown debt.

The following table key residual cash variances are as follows.

  Variance Key drivers
Residual cash estimated actual $1.7 billion  
Taxation receipts +$0.5 billion Similar to the revenue variance this has been driven by higher than forecast GST of $0.3 billion and Corporate Tax of 0.2 billion.
Other operating receipts -$0.4 billion

Health -$0.2 billion – Relates to timing delays in revenue receipts from Crown entities.  The cash was subsequently received in July.

The rest of the variance was due to lower than forecast investment income namely by Treasury and NZDMO.

Operating payments -$1.0 billion

There are two main factors driving this variance:

  • Underspends by departments account for around half the variance.  Underspends were spread across a number of departments of particular note Health ($0.2 billion), Economic Development ($0.1 billion) and Treasury ($0.1 billion).
  • The balance of the variance represents a lag between when expenses are incurred and cash payments are made.  These will reverse out in the 2007/08 financial year.
Operating top-down adjustment +$0.5 billion The forecast included an adjustment of $0.5 billion to account for timing delays in departmental operating spending.
Operating cash flow +$0.6 billion  
Capital payments -$0.5 billion

Defence -$0.1 billion – Underspend relates to payments being withheld when milestones are not reached by suppliers.

Education -$0.1 billion – Primarily relate to delays in school property work programmes.

Corrections -$0.1 billion – Primarily relate to timing delays of building infrastructure at Rimutaka Prison.

Health -$0.1 billion – Delays in capital projects including Wellington Regional Hospital.  Additionally deficit support to DHB’s was lower than expected.

Capital top-down adjustment +$0.2 billion The forecast included an adjustment of $0.2 billion to account for timing delays in departmental capital spending.
Investing cash flow +$0.3 billion  
Total variance +$0.9 billion  
Residual cash $2.6 billion  

Application of core Crown Cash Flows#

Application of core Crown Cash Flows
Application of core Crown Cash Flows.

Debt indicators#

 

Table 4 – Comparison of debt indicators
  Actual Estimated
actual forecast
Variance against
estimated actual
2006 actual
  $ million $ million $ million $ million
Gross Sovereign-Issued Debt 36,150 37,217 1,067 35,461
   % of GDP 21.7 22.6 1.0 22.5
GSID (excl Reserve Bank Settlement Cash) 28,646 29,694 1,048 33,497
   % of GDP 17.2 18.0 0.8 21.3
Net Core Crown Debt 3,433 4,612 1,179 7,745
   % of GDP 2.1 2.8 0.7 4.9
Net debt with NZS Fund assets (9,556) (8,306) 1,250 (2,116)
   % of GDP  (5.7)  (5.0) 0.7  (1.3)

Gross sovereign-issued debt (GSID) as at 30 June 2007 was $36.2 billion or 21.7 percent of GDP. Compared to forecast GSID was lower by $1.1 billion. Around $0.6 billion is due to a decline in demand for government securities near the end of the financial year, in part due to the Reserve Bank changes to collateral arrangements for banks. The remainder of the variance is a result of lower than expected Reserve Bank borrowing.

The increase in the current year residual cash position has not led to a change in the level of GSID at 30 June 2007, as the borrowing programme is generally set at the time of the Budget Update. However it does have a flow on impact to net core Crown debt, which can be seen in the increase in marketable securities and deposits.

Net core Crown debt was $3.4 billion or 2.1 percent of GDP, and $1.2 billion lower than forecast due primarily to the increase in the residual cash position since the time of the Budget Update.

Net Worth#

 

Table 5 – Comparison of net worth
  Actual Estimated
actual forecast
Variance against
estimated actual
2006 Actual
  $ million $ million $million $million
Financial assets 66,384 65,688 696 56,446
Property, plant and equipment 96,543 93,258 3,285 79,441
Other assets 22,049 20,167 1,882 22,384
Total Assets 184,976 179,113 5,863 158,271
Gross debt 41,385 42,367 982 39,427
GSF pension liability 14,311 15,554 1,243 15,231
ACC claims liability 13,735 14,457 722 12,715
Other liabilities 19,709 18,275 (1,434) 19,495
Total Liabilities 89,140 90,653 1,513 86,868
Net Worth 95,836 88,460 7,376 71,403

Net worth was $95.8 billion as at 30 June 2007, which was higher than forecast by $7.4 billion.

An increase against forecast of $5.2 billion was due to the impact of revaluations of property, plant and equipment. These revaluations are not forecast beyond the base month used for deriving the estimated actual. The main factors that have caused the increases in valuation are continuing appreciation of property prices and price increases.

The rest of the increase against forecast has resulted from the higher than expected operating balance.

The New Zealand Superannuation Fund#

The assets of NZS Fund are the Government’s means of building up assets to partially pre-fund future New Zealand Superannuation expenses and may only be used for New Zealand Superannuation.

The Government’s contributions to the NZS Fund are calculated over a 40 year rolling horizon to ensure that superannuation entitlements over the next 40 years can be met.

The fund balance as at 30 June 2007 was $13.0 billion. Since the inception of the NZS Fund it has received Government contributions of $10.2 billion and has accumulated retained income of $2.8 billion.

  2002 2003 2004 2005 2006 2007
  $m $m $m $m $m $m
Opening balance 615 1,884 3,956 6,555 9,861
Annual contributions 600 1,200 1,879 2,107 2,337 2,049
Retained income - (after tax) 15 69 193 492 969 1,079
Closing balance 615 1,884 3,956 6,555 9,861 12,989

Physical Assets#

The Government’s net worth has grown by $24.6 billion over the 2006/07 financial year. Around 70% of this the increase since last year is attributable to growth in physical assets which is mainly due to revaluations and new acquisitions.

  $billion
Opening Balance - at 1 July 2006 79.4
New acquisitions 5.8
Disposal of assets (0.3)
Depreciation (3.1)
Revaluations 14.7
Closing Balance - at 30 June 2007 96.5

The new acquisition is spread reasonably evenly across the three reporting segments

$billion 2007 2006
Core Crown 1.9 2.0
Crown entities 2.0 2.0
State-owned enterprises 1.9 1.9
Total 5.8 5.9

The following graphs illustrates the functional areas in which capital spending occurs, focusing on the core Crown and Crown entity segments. A significant portion of the Crown entities purchase of physical assets is funded from core Crown activities (eg, the Ministry of Transport provide funding to maintain and improve state highways).

 

 

Prior Year Comparison#

This section compares the 2006/07 financial results for the key indicators with the 2005/06 financial results.

 

Table 6 – Comparison to 2005/06 results
 

30 June 2007
actual

30 June 2006
actual

Variance  
  $million $million $million %
Statement of Financial Performance        
Core Crown revenue        
Taxation revenue 53,411 52,782 629 1.2
Other revenue 7,469 6,726 743 11.0
Total core Crown revenue 60,880 59,508 1,372 2.3
Core Crown expenses        
Social security and welfare 16,853 15,598 (1,255) (8.0)
GSF pension expenses 302 1,671 1,369 81.9
Health 10,327 9,547 (780) (8.2)
Education 9,289 9,914 625 6.3
Other functional classifications 14,213 11,447 (2,766) (24.2)
Forecast for future new spending
Finance costs and FX losses/(gains) 2,758 2,061 (697) (33.8)
Total core Crown expenses 53,742 50,238 (3,504) (7.0)
ACC liability expenses 1,020 1,321 301 22.8
Net surplus of SOE/Ces 2,545 3,524 (979) (27.8)
Core Crown Operating Balance 8,663 11,473 (2,810) (24.5)
OBERAC 7,920 7,380 540 7.3
Cash available 2,648 2,985 (337) (11.3)
Statement of Financial Position        
Property, plant and equipment 96,543 79,441 17,102 21.5
Financial assets 66,384 56,446 9,938 17.6
Other assets 22,049 22,384 (335) (1.5)
Total Assets 184,976 158,271 26,705 16.9
Total debt 41,385 39,427 (1,958) (5.0)
Other liabilities 47,755 47,441 (314) (0.7)
Total Liabilities 89,140 86,868 (2,272) (2.6)
Net Worth 95,836 71,403 24,433 34.2
Debt indicators        
Gross sovereign-issued debt 36,150 35,461 (689) (1.9)
Net core Crown debt 3,433 7,745 4,312 55.7
Net debt with NZS Fund assets (9,556) (2,116) 7,440 351.6

Revenue and Expenses#

The key revenue and expenses changes since the 2005/06 financial year are as follows:

  Variance Key drivers
Core Crown    
Tax revenue +$0.6 billion

Source deductions +$1.1 billion – Due to employment and wage growth.

GST +0.5 billion – Due to growth in consumption during the year.

   

RWT +$0.4 billion – Primarily due to growth in the deposit base and higher interest rates in 2006/07 compared to 2005/06.

The above increases in tax revenue since last year are offset by the fact that the prior year tax revenue numbers included a one-off adjustment relating to changes in provisional tax revenue recognition.

Other revenue +0.7 billion Investment income +$0.6 billion – higher returns on the NZS Fund and GSF assets.
Expenses +2.7 billion

Social security and welfare +$1.3 billion – The main factors resulting in the increase were:

  • annual indexation of welfare benefits
  • policy decisions made as part of Budget 2006, in particular the extension to the Working for Families package, and
  • write off of benefit debts.

GSF Pension -$1.4 billion  – The main driver was changes in the unfunded liability due to discount rate movements.

Health +$0.8 billion – Relates to increase in funding (as part of Budget 2006) allocated to maintain and increase existing services levels and the impact of demographic changes.

Education -$0.6 billion – There are two main offsetting factors:

  • last years accounts included  a one-off write of the Student Loan debt to fair value of $1.4 billion, offset by
  • increases due to roll growth and new policy initiatives.

Other functional expenses +2.8 billion – The key drivers were:

  • core government services expenses were higher by $1.9 billion compared to last year, primarily due to the one-off write-off of tax receivables and an increase in the tax provision for doubtful debts this year
  • transport expenses were higher by $0.6 billion compared to last year, due to increases in funding to maintain and improve state highways and rail assets
  • heritage and culture expenses were lower by $0.4 billion.  Last years accounts included an one-off expense in relation to the Kyoto Protocol obligation resulting from the government’s decision not to proceed with introducing a carbon tax
  • the remaining increase is primarily driven by policy decisions made as part of previous year Budget packages.
Finance cost and FX +$0.7 billion

Foreign exchange losses +0.4 billion – Due to movement in foreign exchange rates since last year.

Finance cost +0.3 billion – Combination of higher interest rates and increase in debt holding since last year.

Total core Crown -$2.1 billion  

Net SOE/CE returns (excluding valuation changes)

-$0.7 billion

 

  • EQC -$0.7 billion – Lower investment income earned this year and also large foreign exchange losses incurred due to an appreciation in the NZ dollar against the US dollar since last year.
  • Air New Zealand -$0.5 billion – Lower returns this year due to devaluation of aircraft assets (a gain of $0.3 billion was recorded last year).
Total Crown operating balance - $2.8 billion  

Other indicators#

Gross sovereign issued debt was $0.7 billion higher than last year. The main changes in debt this year were:

  • An increase of around $5.5 billion due to the Reserve Bank raising the Settlement Cash Levels.
  • A reduction of around $2.8 billion due to a reduction in the issuance of Treasury Bills.
  • A reduction in debt due to repayments made during the year.

Net core Crown debt was $4.3 billion lower than last year due primarily to the flow on impact of the residual available from the current year cash flow.

Indicators of the Government’s Fiscal Performance#

This section aims to help readers better understand the Government’s fiscal performance.

Each indicator gives valid insights into the government’s historical, current and forecast fiscal performance, but no one indicator gives a complete picture. Individual indicators do, however, come into greater or lesser focus as circumstances change.

When, for example, the New Zealand Government’s net worth was low and net and gross debt levels were high, much of the focus of government and public commentary at that time was on eliminating annual operating deficits and on the need to attain, and later to lock in, annual operating surpluses.

However, as net worth has risen, and gross and net debt levels have fallen, the Government in more recent years has increasingly focused on how to maintain debt levels around current levels and, accordingly, has given more focus to the Government’s annual cash balance.

Most of the indicators in this section may be useful regardless of the particular fiscal strategy being followed. In a few cases (such as the formulation of OBERAC excluding NZS Fund returns), the indicator is used to throw light on the impact of a particular fiscal strategy (in this case the build-up of financial assets in the NZS Fund).

Flow indicators

  • Core Crown revenues – core Crown expenses + net surplus of SOEs (ie, after dividends) and Crown entities = Operating balance.
  • Core Crown revenues are mainly taxes. Core Crown expenses represent most of the Government’s spending, but not all of it. There are the day-to-day spending (salaries, benefit payments, etc) that does not create Government assets. They also include the amount for new initiatives in forecast years.
  • Operating balance – revaluation movements – accounting changes = OBERAC.
  • The OBERAC is the residual from revenues and expenses less removal of valuation movements. The OBERAC and operating balance are the same in forecast years.
  • OBERAC – retained items (eg, net surplus of SOEs/CEs and net investment returns of the NZS Fund) – non-cash items (eg, depreciation) = Core Crown net cash flow from operations.
  • Retained items such as the net surplus of SOEs/Crown entities and the net investment returns of the NZS Fund are retained by these entities. The surpluses generated (unless withdrawn from the entities) cannot be used for other purposes so do not aid in funding other government spending.
  • Depreciation expense is also removed as it is non-cash (it is captured in the actual purchase of assets below). Additionally, actual working capital movements such as payment of creditor impacts on the level of net cash flows from operations.
  • Core Crown net cash flow from operations – net investing activities (eg, contributions to NZS Fund, purchases of assets, loans to others) = Residual cash.

Cash flows from core Crown operations (excluding the NZS Fund) are the cash equivalent of the operating surplus. They are available to assist funding the capital spending.

Net investment activities include: Contributions to the NZS Fund – the Government’s annual contribution to the NZS Fund to build up assets to contribute to future NZS payments; Purchase of assets – departments buy assets including computer equipment, new buildings (eg, prisons) and defence equipment; Loans to others (advances) – these are mainly student loans (the Government is committed to help students access tertiary education by funding student loans) and refinancing private sector debt of DHBs and HNZC; Net capital injections – investments in Crown entities such as DHBs and Reserve Bank reserves.

Residual cash is the amount that needs to be funded if there is a shortfall. Funding is provided by selling surplus financial assets (because of surplus cash from prior years) or borrowing more.

Stock indicators

  • Gross sovereign-issued debt (GSID) = debt issued by the core Crown. (Residual cash available over time is the main factor affecting borrowing requirements and hence gross sovereign-issued debt.)
  • Core Crown net debt = gross sovereign-issued debt – core Crown’s financial assets.
  • Net worth (NW) = Crown’s total assets – Crown’s total liabilities.

Ratio of core Crown revenue to GDP#

Ratio of core Crown revenue to GDP
Ratio of core Crown revenue to GDP.

The revenue collected is used to meet the Government’s spending needs. It is important to look at this alongside expenses, operating balance and gross debt indicators for insights into the sustainability of current policy settings.

Ratio of core Crown expenses to GDP#

Ratio of core Crown expenses to GDP
Ratio of core Crown expenses to GDP.

This shows the day-to-day spending of the core Crown – ie, it excludes spending by SOEs and Crown entities – and highlights the size of government in the economy and potential scope for crowding out the private sector. This also excludes GSF valuation changes.

By reducing gross debt, the Government has also reduced finance costs.

Operating balance#

Operating balance
Operating balance.

The operating balance shows whether the government sector has generated enough revenues to cover its expenses in any given year.

This measure can be volatile from year to year due to events outside of the Government’s direct control (such as changes in interest rates and revaluations etc); therefore, it is generally not used as a measure of the Government’s short-term fiscal stewardship.

OBERAC#

OBERAC
OBERAC.

By excluding revaluations and accounting changes, or things that are outside of the Government’s direct control, the OBERAC gives a more direct indication of the underlying stewardship of the Government.

The current Government wishes to retain the NZS Fund investment returns in the Fund. Therefore, to ensure the Government is meeting its fiscal objectives, the Government has stated that it will be focusing on the OBERAC excluding NZS Fund returns.

Residual cash available and domestic bond programme#

Residual cash available and domestic bond programme
Residual cash available and domestic bond programme.

The residual cash measure includes capital investment and NZS Fund contributions; therefore, it is the flow contributing to the changes in debt (in the current year net core Crown debt).

The domestic bond programme raises term debt for the Government, the proceeds of which contribute to funding operating and investing activity, and the repayment of maturing debt. The programme tends to be different to the cash residual figure in any given year as financing activity, such as the repayment of debt, needs to be considered.

Gross debt#

Gross debt
Gross debt.

Total gross debt and GSID are often expressed as a percentage of GDP to put the level of debt into perspective, in terms of a country’s ability to generate growth to repay the debt and/or income to service this debt.

Total gross debt represents the complete picture of whole-of-government obligations to external parties. However, debt issued by SOEs and Crown entities is not explicitly guaranteed by the Crown. The debt that is issued by the sovereign and guaranteed by the sovereign is in GSID. The Government’s long-term debt objective is formulated in terms of GSID.

A high ratio of debt to GDP can have an adverse impact on credit ratings and perceived sustainability of current policy settings. So as a general rule, a relatively low ratio is considered to be prudent. A low ratio of debt to GDP can also provide the Government with more flexibility in their accounts to respond to adverse shocks through increasing debt.

Core Crown financial assets#

Core Crown financial assets
Core Crown financial assets.

These are either cash or shares (equity) or a right to receive a financial instrument, which can be converted to cash. The assets of the New Zealand Superannuation (NZS) Fund are becoming the dominant feature of the Crown’s financial assets. The NZS Fund is the Government’s means of building up assets to partially pre-fund future NZS expenses. The Government’s contributions to the NZS Fund are calculated over a 40-year rolling horizon to ensure superannuation entitlements over the next 40 years can be met.

Established under the New Zealand Superannuation and Retirement Income Act 2001, the NZS Fund was created to partially provide for the future cost of NZS, which is expected to almost double in cost due to population ageing.

The Government plans to allocate around $2 billion a year to the NZS Fund over the next 20 years. The NZS Fund’s mandate is to invest money in a way that maximises its returns, without undue risk.

As the cost of providing NZS increases, future governments will draw on the NZS Fund to help smooth the impact of the cost of NZS on their finances.

Core Crown net debt#

Core Crown net debt
Core Crown net debt.

By including financial assets, net debt can provide additional information about the sustainability of the Government’s accounts. Many international agencies believe the quantity of off-setting financial assets is important when determining the credit-worthiness of a country. That is, if a country has a high ratio of financial assets to GDP, they are better able to justify a high ratio of debt to GDP.

However, as some financial assets are not very liquefiable (or easily converted into cash), it is important to view net debt alongside GSID.

Net worth#

Net worth
Net worth.

Total Crown net worth is one indicator of the degree to which current government activities are sustainable. This indicator should be considered alongside the Crown’s debt position, as relatively high debt to GDP ratios may still be considered sustainable if the Crown has relatively high ratios of saleable or commercial assets to GDP.

Building up net worth is also consistent with preparing for population ageing.

Historical Information#

  2007 2006 2005 2004 2003 2002 2001 2000 1999 1998
  $million $million $million $million $million $million $million $million $million $million
  2007 2006 2005 2004 2003 2002 2001 2000 1999 1998
  $million $million $million $million $million $million $million $million $million $million
Statement of Financial Performance                    
Tax revenue 52,938 52,311 46,624 42,532 39,785 36,215 34,744 32,000 30,227 31,161
% of GDP 31.8% 33.3% 30.9% 29.8% 30.0% 28.8% 29.3% 28.8% 28.9% 30.7%
Other revenue 24,628 24,608 20,441 17,855 17,242 13,764 10,762 9,557 11,758 9,931
Total Revenue 77,566 76,919 67,065 60,387 57,027 49,979 45,506 41,557 41,985 41,092
% of GDP 46.5% 48.9% 44.4% 42.3% 43.0% 39.7% 38.4% 37.4% 40.1% 40.5%
Total Expenses 69,017 65,422 60,910 53,057 55,224 47,653 44,213 40,128 40,280 39,044
% of GDP 41.4% 41.6% 40.3% 37.2% 41.6% 37.9% 37.3% 36.1% 38.5% 38.5%
Net surplus of TEIs 120 54 133 139 151 78 65 74 58 79
Minority interest (6) (78) (41) (45) 12 (13)
Operating Balance 8,663 11,473 6,247 7,424 1,966 2,391 1,358 1,503 1,763 2,127
% of GDP 5.2% 7.3% 4.1% 5.2% 1.5% 1.9% 1.1% 1.4% 1.7% 2.1%
OBERAC 7,920 8,648 8,873 6,629 5,580 2,751 2,115 884 246 2,191
% of GDP 4.8% 5.5% 5.9% 4.6% 4.2% 2.2% 1.8% 0.8% 0.2% 2.2%
Core Crown Revenue 60,880 59,508 52,065 46,932 43,624 39,907 38,005 34,891 34,899 34,222
Core Crown Expenses                    
Social security and welfare 16,853 15,598 14,682 14,252 13,907 13,485 13,207 12,883 12,889 12,497
GSF pension expenses 302 1,671 2,442 660 2,625 1,409 1,112 736 1,372 735
Health 10,327 9,547 8,813 8,111 7,501 7,032 6,660 6,146 5,875 5,361
Education 9,289 9,914 7,930 7,585 7,016 6,473 6,136 5,712 5,337 5,162
Core government services 4,357 2,507 2,217 1,741 1,780 1,540 1,798 1,642 1,634 1,508
Other 9,856 8,940 7,911 7,000 6,442 5,838 5,529 5,274 4,940 4,903
Finance costs 2,653 2,356 2,274 2,252 2,360 2,118 2,304 2,205 2,367 2,673
Net foreign exchange losses/(gains) 105 (295) (35) 7 118 75 (47) (62) (47) 13
Total Core Crown Expenses 53,742 50,238 46,234 41,608 41,749 37,970 36,699 34,536 34,367 32,852
Core Crown Cash Flows                    
Net cash flow from core operating and investing activity 2,648 2,985 3,104 520 1,217 (111) (652) 1,597 864 (554)
Statement of Financial Position                    
Property, plant and equipment 96,543 79,441 67,494 57,940 52,667 50,536 45,954 43,609 42,102 40,877
Financial assets 66,384 56,446 45,308 35,531 30,338 24,408 21,848 19,921 19,659 17,547
Other assets 22,049 22,384 18,029 17,201 16,846 13,116 9,878 9,731 9,588 10,961
Total Assets 184,976 158,271 130,831 110,672 99,851 88,060 77,680 73,261 71,349 69,385
Gross debt 41,385 39,427 36,864 36,825 38,285 36,564 34,760 34,759 35,833 38,125
% of GDP 24.8% 25.1% 24.4% 25.8% 28.8% 29.1% 29.4% 31.3% 34.2% 37.6%
Other liabilities 47,755 47,441 43,984 38,384 37,785 32,676 31,457 29,919 29,494 21,339
Total Liabilities 89,140 86,868 80,848 75,209 76,070 69,240 66,217 64,678 65,327 59,464
Net Worth 95,836 71,403 49,983 35,463 23,781 18,820 11,463 8,583 6,022 9,921
% of GDP 57.5% 45.4% 33.1% 24.8% 17.9% 15.0% 9.7% 7.7% 5.8% 9.8%
Net Core Crown Debt 3,433 7,745 10,771 15,204 17,577 19,250 19,971 21,396 21,701 24,069
% of GDP 2.1% 4.9% 7.1% 10.7% 13.2% 15.3% 16.9% 19.3% 20.7% 23.7%
Gross Sovereign-Issued Debt 36,150 35,461 35,045 35,527 36,086 36,202 36,761 36,041 36,712 37,892
% of GDP 21.7% 22.5% 23.2% 24.9% 27.2% 28.8% 31.0% 32.4% 35.1% 37.3%
GDP[1] 166,714 157,325 150,990 142,746 132,730 125,795 118,407 111,079 104,730 101,524

Notes

  • [1] GDP for 2006/07 is actual data to 30 June 2007. Previous years' GDP figures have been restated where appropriate with updated data.

 

Report of the Auditor General#

To the Readers of the Financial Statements of the Government of New Zealand for the year ended 30 June 2007#

I have audited the financial statements of the Government of New Zealand for the year ended 30 June 2007, using my staff, resources and appointed auditors and their staff.

Unqualified opinion

In our opinion the financial statements of the Government of New Zealand on pages 30 to 100:

  • comply with generally accepted accounting practice in New Zealand; and
  • fairly reflect:
  • the Government of New Zealand’s financial position as at 30 June 2007; and
  • the results of its operations and cash flows for the year ended on that date.

The audit was completed on 28 September 2007, and is the date at which our opinion is expressed.

The basis of the opinion is explained below. In addition, we outline the responsibilities of the Government and the Auditor, and explain our independence.

Basis of opinion

We carried out the audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the New Zealand Auditing Standards.

We planned and performed our audit to obtain all the information and explanations we considered necessary in order to obtain reasonable assurance that the financial statements did not have material misstatements, whether caused by fraud or error.

Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of the financial statements. If we had found material misstatements that were not corrected, we would have referred to them in our opinion.

The audit involved performing procedures to test the information presented in the financial statements. We assessed the results of those procedures in forming our opinion.

Audit procedures generally include:

  • determining whether significant financial and management controls are working and can be relied on to produce complete and accurate data;
  • verifying samples of transactions and account balances;
  • performing analysis to identify anomalies in the reported data;
  • reviewing significant estimates and judgements made;
  • confirming year-end balances;
  • determining whether accounting policies are appropriate and consistently applied; and
  • determining whether all financial statement disclosures are adequate.

We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements.

We evaluated the overall adequacy of the presentation of information in the financial statements. We obtained all the information and explanations we required to support our opinion above.

Responsibilities of the Government and the Auditor

The Treasury is responsible for preparing financial statements for the Government in accordance with generally accepted accounting practice in New Zealand. Those financial statements must fairly reflect the financial position of the Government as at 30 June 2007. They must also fairly reflect the results of its operations and cash flows for the year ended on that date. The Minister of Finance is responsible for forming an opinion that those financial statements fairly reflect the financial position and operations of the Government for that year. The responsibilities of the Treasury and the Minister of Finance arise from the Public Finance Act 1989.

We are responsible for expressing an independent opinion on the financial statements and reporting that opinion to you. This responsibility arises from section 15 of the Public Audit Act 2001 and section 30 of the Public Finance Act 1989.

Independence

The Auditor-General, as an Officer of Parliament, is constitutionally and operationally independent of the Government. Other than in exercising functions and powers under the Public Audit Act 2001 as the auditor of public entities, the Auditor-General has no relationship with or interest in the Government.

 

K B Brady
Controller and Auditor-General
Wellington
New Zealand

 

Matters relating to the electronic presentation of the audited financial statements

This audit report relates to the financial statements of the Government of New Zealand for the year ended 30 June 2007 included on Treasury web site. The Secretary to the Treasury is responsible for the maintenance and integrity of the Treasury’s web site. We have not been engaged to report on the integrity of the Treasury’s web site. We accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.

The audit report refers only to the financial statements named above. It does not provide an opinion on any other information which may have been hyperlinked to/from these financial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited financial statements and related audit report dated 28 September 2007 to confirm the information included in the audited financial statements presented on this web site.

Legislation in New Zealand governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Financial Statements#

Statement of Financial Performance#

(for the year ended 30 June 2007)

Forecast              Actual

Original Budget[1]

Estimated Actual

  Note

30 June 2007

30 June 2006

$m $m     $m $m
    Revenue      
    Levied through the Crown’s Sovereign Power      
51,408 52,278 Taxation revenue[2] 1 52,938 52,311
3,179 3,508 Levies, fees, fines and penalties 1 3,568 3,411
54,587 55,786 Total Revenue Levied through the Crown's Sovereign Power 1 56,506 55,722
    Earned through the Crown’s operations      
12,715 13,111 Sales of goods and services 2 13,085 13,337
3,687 5,807 Investment income 3 5,819 5,828
2,361 2,238 Other revenue 4 2,156 2,032
18,763 21,156 Total Revenue Earned through  the Crown’s Operations   21,060 21,197
73,350 76,942 Total Crown Revenue   77,566 76,919
    Expenses      
    By Input Type      
18,189 18,430 Subsidies and transfer payments 5 18,307 16,850
15,136 15,352 Personnel expenses 6 15,647 15,116
30,559 31,938 Operating expenses[2] 7 31,778 29,615
320 80 Forecast for future new spending  
(500) Top-down expense adjustment  
2,854 3,023 Finance costs   3,069 2,652
38 Net foreign-exchange losses/(gains)   116 (411)
(17) 323 Movement in total GSF liability 16 (920) 279
674 1,742 Movement in total ACC liability 17 1,020 1,321
67,715 70,426 Total Crown Expenses   69,017 65,422
5,635 6,516 Revenue less Expenses   8,549 11,497
133 52 Net surplus of TEIs 13 120 54
5,768 6,568 Operating Balance (including minority interest)   8,669 11,551
Minority interest   (6) (78)
5,768 6,568 Operating Balance   8,663 11,473

Notes

  • [1] The original Budget is the forecast for the 2007 financial year, as presented in the 2006 Budget on 18 May 2006.
  • [2] There has been a change in the disclosure of bad debt write-offs of tax receivables. Tax write-offs are now shown as an expense rather than netted off against revenue. To ensure consistency comparative figures have been adjusted to conform with this change in presentation.

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

Analysis of Expenses of the Statement of Financial Performance#

(for the year ended 30 June 2007)

Below is an analysis of total Crown expenses and core Crown expenses by functional classification.

This information reconciles with the segment information within the Statement of Segments.

Forecast   Actual

Original Budget

Estimated Actual

 

30 June 2007

30 June 2006

$m $m   $m $m
    Total Crown Expenses    
    By Functional Classification    
19,706 21,063 Social security and welfare 20,239 18,969
1,051 1,471 GSF pension expenses 302 1,671
10,305 10,037 Health 9,932 9,262
9,892 10,041 Education 9,836 10,430
2,770 3,550 Core government services[1] 4,088 2,384
2,604 2,872 Law and order 2,825 2,420
1,405 1,456 Defence 1,557 1,339
6,853 7,240 Transport and communications 7,473 5,986
5,896 5,684 Economic and industrial services 5,324 6,334
1,198 1,365 Primary services 1,265 1,219
1,900 1,995 Heritage, culture and recreation 2,036 2,361
851 913 Housing and community development 889 758
110 98 Other 66 48
2,854 3,023 Finance costs 3,069 2,652
38 Net foreign-exchange losses/(gains) 116 (411)
320 80 Forecast for future new spending
(500) Top-down expense adjustment
67,715 70,426 Total Crown Expenses 69,017 65,422
    Core Crown Expenses    
    By Functional Classification    
16,956 16,920 Social security and welfare 16,853 15,598
1,051 1,471 GSF pension expenses 302 1,671
10,732 10,492 Health 10,327 9,547
9,068 9,530 Education 9,289 9,914
3,040 3,822 Core government services[1] 4,357 2,507
2,393 2,658 Law and order 2,653 2,235
1,457 1,508 Defence 1,602 1,383
2,524 2,549 Transport and communications 2,461 1,818
1,721 1,605 Economic and industrial services 1,501 1,592
441 584 Primary services 477 467
812 778 Heritage, culture and recreation 838 1,194
278 277 Housing and community development 257 202
110 97 Other 67 49
2,090 2,553 Finance costs 2,653 2,356
90 Net foreign-exchange losses/(gains) 105 (295)
320 80 Forecast for future new spending
(500) Top-down expense adjustment
52,993 54,514 Total Core Crown Expenses 53,742 50,238

Notes

  • [1] There has been a change in the disclosure of bad debt write-offs of tax receivables. Tax write-offs are now shown as an expense rather than netted off against revenue. To ensure consistency comparative figures have been adjusted to conform with this change in presentation.

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

Statement of Cash Flows#

(for the year ended 30 June 2007)

Forecast   Actual
Original Budget Estimated Actual   30 June 2007 30 June 2006
$m $m   $m $m
    Cash Flows from Operations    
    Cash was provided from    
50,738 51,823 Total taxation receipts (refer Note 1) 52,138 49,706
3,047 3,387 Levies, fees, fines and penalties (refer Note 1) 3,418 3,246
1,422 2,148 Interest 2,241 1,622
90 133 Dividends 435 117
13,089 13,357 Sales of goods and services 13,515 13,457
2,393 2,091 Other operating receipts 2,147 1,919
70,779 72,939 Total Cash Provided from Operations 73,894 70,067
    Cash was disbursed to    
18,665 18,592 Subsidies and transfer payments 18,509 16,944
41,670 41,189 Personnel and operating payments 40,261 38,964
2,441 2,428 Finance costs 2,504 2,047
320 80 Forecast for future new spending
(500) Top-down operating cash adjustment
63,096 61,789 Total Cash Disbursed to Operations 61,274 57,955
7,683 11,150 Net Cash Flows from Operations 12,620 12,112
    Cash Flows From Investing Activities    
    Cash was provided from    
246 Sale of physical assets 322 1,865
246 Total Cash Provided from Investing Activities 322 1,865
    Cash was disbursed to    
6,713 6,782 Purchase of physical assets 5,853 5,909
1,808 2,409 Net increase in advances 1,791 1,637
(527) 9,656 Net purchase/(sale) of marketable securities, deposits and equity investments 8,273 5,859
256 Forecast for future new capital spending
(200) Top-down capital cash adjustment
8,250 18,647 Total Cash Disbursed to Investing Activities 15,917 13,405
(8,250) (18,401) Net Cash Flows from Investing Activities (15,595) (11,540)
(567) (7,251) Net Cash Flows from Operating and Investing Activities (2,975) 572
    Cash Flows from Financing Activities    
    Cash was provided from    
273 Issues of circulating currency 81 165
394 6,692 Net issue/(repayment) of other New Zealand-dollar borrowing 4,009 1,856
394 6,965 Total Cash Provided from Financing Activities 4,090 2,021
    Cash was disbursed to    
(412) 272 Net repayment/(issue) of foreign-currency borrowing 219 2,300
656 128 Net repayment/(issue) of Government stock[1] 334 (151)
244 400 Total Cash Disbursed to Financing Activities 553 2,149
150 6,565 Net Cash Flows from Financing Activities 3,537 (128)
(417) (686) Net Movement in Cash 562 444
3,319 4,168 Opening Cash Balance 4,168 3,710
(4) Foreign-exchange gains/(losses) on opening cash (101) 14
2,902 3,478 Closing Cash Balance 4,629 4,168

Notes

  • [1] Net (repayments)/issues of Government stock is after elimination of Government stock holdings of entities such as NZS Fund, GSF, ACC and EQC. The bonds reconciliation reconciles core Crown activity to New Zealand Debt Management Office (NZDMO) bond issues (refer page 92).

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

Reconciliation of Net Cash Flows From Operations to Operating Balance#

(for the year ended 30 June 2007)

Forecast   Actual
Original Budget Estimated Actual   30 June 2007 30 June 2006
$m $m   $m $m
    Reconciliation Between the Net Cash Flows from Operations and the Operating Balance    
7,683 11,150 Net Cash Flows from Operations 12,620 12,112
    Items included in the operating balance but not in net cash flows from operations    
    Valuation Changes    
17 (323) Decrease/(increase) in GSF pension liabilities 920 (279)
(674) (1,742) (Increase)/decrease in ACC liabilities (1,020) (1,321)
Decrease/(increase)/decrease NPF guarantee 49 (54)
Increase/(decrease) in commercial forests 27 15
(4) (281) Unrealised net foreign-exchange gains/(losses) 42 502
548 525 Other valuation changes 516 1,242
(113) (1,821) Total Valuation Changes 534 105
   

Property, Plant and Equipment Asset Movements

   
(2,918) (3,099) Depreciation (3,144) (2,708)
(Losses)/gains on sale of physical assets (316) 811
(2,918) (3,099) Total Property, Plant and Equipment Movements (3,460) (1,897)
    Other Non-Cash Items    
(167) (817) Student loans (225) (1,671)
(89) (89) Amortisation of goodwill (99) (75)
808 1,060 Other 1,193 945
552 154 Total Other Non-Cash Items 869 (801)
    Movements in Working Capital    
22 (1,402) (Decrease)/increase in taxes receivable (1,145) 3,225
307 (825) (Decrease)/increase in other receivables (136) 366
161 194 Increase/(decrease) in inventories 85 (39)
74 2,217 (Increase)/decrease in payables (704) (1,598)
564 184 Total Movements in Working Capital (1,900) 1,954
5,768 6,568 Operating Balance 8,663 11,473

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

Statement of Financial Position#

(as at 30 June 2007)

Forecast     Actual
Original Budget Estimated Actual   Note 30 June 2007 30 June 2006
$m $m     $m $m
    Assets      
2,902 3,478 Cash and bank 8 4,629 4,168
43,232 52,015 Marketable securities, deposits & equity investments 8 51,489 43,520
10,021 10,195 Advances 9 10,266 8,758
10,534 12,247 Receivables 10 13,193 14,474
1,182 1,101 Inventories   992 907
286 289 Other investments 11 376 323
73,863 93,258 Property, plant and equipment 12 96,543 79,441
232 550 Commercial forests   575 575
5,301 5,586 Investment in TEIs 13 6,305 5,475
398 594 Intangible assets (including goodwill) 14 608 630
256 Forecast for new capital spending  
(200) Top-down capital adjustment  
148,207 179,113 Total Assets   184,976 158,271
    Liabilities      
13,559 14,725 Payables and provisions 15 16,349 16,133
3,408 3,550 Currency issued   3,360 3,362
28,560 30,819 Borrowing - sovereign guaranteed   30,353 29,879
9,828 11,548 Borrowing - non-sovereign guaranteed   11,032 9,548
15,344 15,554 GSF Pension liability 16 14,311 15,231
13,255 14,457 ACC claims liability 17 13,735 12,715
83,954 90,653 Total Liabilities   89,140 86,868
64,253 88,460 Total Assets less Total Liabilities   95,836 71,403
    Net Worth      
36,049 40,022 Taxpayer funds   42,140 33,477
27,989 48,145 Revaluation reserve 18 53,327 37,633
215 293 Minority interest   369 293
64,253 88,460 Net Worth   95,836 71,403

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

Analysis of Key Components of the Statement of Financial Position#

(as at 30 June 2007)

Following is an analysis of the New Zealand Superannuation (NZS) Fund and Gross and Net Debt information.

The notes to the financial statements provide a breakdown of other key balance sheet items.

New Zealand Superannuation Fund (NZS Fund)#

Within marketable securities, deposits and equity investments is the NZS Fund (except for cross holdings of investments with other parts of the Crown, for example the NZS Fund may hold NZ Government Stock). The following information includes all investments and income, including cross-holdings of NZ Government Stock and accrued interest on such stock.

Forecast   Actual
Original Budget Estimated Actual   30 June 2007 30 June 2006
$m $m   $m $m
10,015 9,861 Opening balance 9,861 6,555
2,049 2,049 Gross contribution 2,049 2,337
675 1,008 Income after tax 1,079 969
12,739 12,918 NZS Fund Balance 12,989 9,861

Gross and Net Debt information#

Definitions of debt:

Total Crown gross debt is the total borrowings (both sovereign guaranteed and non-sovereign guaranteed) of the total Crown. This equates to the amount in the total Crown balance sheet and represents the complete picture of whole-of-Crown debt obligations to external parties (ie, after eliminations of internal cross-holdings).

The balance sheet splits total Crown debt into sovereign-guaranteed and non-sovereign-guaranteed debt. This split reflects the fact that debt held by SOEs and Crown entities is not explicitly guaranteed by the Crown. Any such debt that may be guaranteed is included in the sovereign-guaranteed total. No debt of SOEs and Crown entities is currently guaranteed by the Crown.

Gross sovereign-issued debt is debt issued by the sovereign (ie, core Crown) and includes Government stock held by the NZS Fund, GSF, ACC or EQC for example. In other words, the gross sovereign-issued debt indicator does not eliminate any internal cross-holdings of entities listed above. The Government's debt objective uses this measure of debt.

Net core Crown debt is borrowings (financial liabilities) less cash and bank balances, marketable securities and deposits, and advances (financial assets). Net core Crown debt excludes the assets of the NZS Fund and GSF because they are restricted in their use. It is a measure of the core Crown.

Forecast   Actual
Original Budget Estimated Actual   30 June 2007 30 June 2006
$m $m   $m $m
38,388 42,367 Total Crown Gross Debt 41,385 39,427
33,356 35,876 Core Crown sovereign guaranteed borrowings 35,450 34,477
1,657 1,341 Add back cross holdings of NZS Fund and GSF 700 984
35,013 37,217 Gross Sovereign-Issued Debt 36,150 35,461
41,028 48,192 Core Crown financial assets 49,036 40,599
15,224 15,587 Excluding NZS Fund and GSF financial assets 16,319 12,883
25,804 32,605 Financial assets excluding NZS Fund and GSF 32,717 27,716
35,013 37,217 Gross Sovereign-Issued Debt 36,150 35,461
25,804 32,605 Financial assets excluding NZS Fund and GSF 32,717 27,716
9,209 4,612 Net core Crown Debt 3,433 7,745

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

Statement of Movements in Equity#

(for the year ended 30 June 2007)

Forecast   Actual
Original Budget Estimated Actual   30 June 2007 30 June 2006
$m $m   $m $m
58,485 71,403 Opening Net Worth 71,403 49,983
5,768 6,568 Operating balance (excl. minority interest) 8,663 11,473
Minority interest in operating balance 6 78
Increase in minority interest 70
10,489 Net revaluations 15,694 9,869
5,768 17,057 Total Recognised Revenues and Expenses 24,433 21,420
64,253 88,460 Closing Net Worth 95,836 71,403

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

Statement of Borrowings#

(as at 30 June 2007)

Forecast   Actual
Original Budget Estimated Actual   30 June 2007 30 June 2006
$m $m   $m $m
    Sovereign Guaranteed Debt    
    New Zealand-Dollar Debt    
15,982 16,337 Government stock[1] 16,833 17,002
5,259 2,577 Treasury bills 2,080 4,860
(10,131) 8,944 Foreign-exchange contracts and loans[2] 16,366 (11,247)
482 472 Retail stock 471 532
11,592 28,330 Total New Zealand-Dollar Debt 35,750 11,147
    Foreign-Currency Debt[2]    
9,309 122 United States dollars (3,937) 14,430
508 (196) Japanese yen (603) 404
7,151 2,563 European and other currencies (857) 3,898
16,968 2,489 Total Foreign-Currency Debt (5,397) 18,732
28,560 30,819 Total Sovereign-Guaranteed Debt 30,353 29,879
    Non-Sovereign-Guaranteed Debt[3]    
7,827 9,391 New Zealand dollars 8,900 7,198
1,988 2,015 United States dollars 1,564 1,794
Japanese yen 133 279
13 142 European and other currencies 435 277
9,828 11,548 Total Non-Sovereign Guaranteed Debt 11,032 9,548
38,388 42,367 Total Borrowings 41,385 39,427
    Less    
    Financial Assets (including restricted assets)    
    Marketable Securities, Deposits and Equity Investments    
5,213 19,072 New Zealand dollars[2] 44,554 8,003
11,608 11,221 United States dollars[2] (10,860) 11,080
1,173 719 Japanese yen[2] (286) 615
7,255 4,288 European and other currencies[2] (191) 7,970
275 221 Reserve position at International Monetary Fund (IMF) 183 458
3,643 2,547 New Zealand equity investments 3,598 2,721
14,065 13,947 Foreign equity investments 14,491 12,673
43,232 52,015 Total Marketable Securities, Deposits and Equity Investments 51,489 43,520
    Advances and Cash and Bank    
5,868 5,761 Student loans 6,011 5,569
4,153 4,434 Other advances 4,255 3,189
2,902 3,478 Cash 4,629 4,168
12,923 13,673 Total Advances and Cash 14,895 12,926
56,155 65,688 Total Financial Assets 66,384 56,446
(17,767) (23,321) Borrowings less Financial Assets (24,999) (17,019)
(3,562) 1,256 Net New Zealand-dollar (assets)/debt (18,829) (5,569)
(14,205) (24,577) Net foreign-currency (assets)/debt (6,170) (11,450)
(17,767) (23,321) Borrowings less Financial Assets (24,999) (17,019)

Notes

  • [1] Government stock includes $50 million of infrastructure bonds.
  • [2] Included within these categories are associated derivative transactions. Each transaction is recorded as an asset or a liability based on its year-end value. Where derivatives (currency swaps and foreign exchange contracts) involve NZ dollar and foreign-currency flows, the flows are separately classified with the result that both positive and negative values are reported within assets and liabilities.
  • [3] Non-sovereign guaranteed debt is a mixture of secured and non-secured debt. Where debt is secured it is over assets of the particular entity or by way of a negative pledge that while any of the stock issued under the relevant deed remains outstanding the entity will not, subject to certain exceptions, create or permit to exist any charge or lien over any of their respective assets.

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

Statement of Commitments#

(as at 30 June 2007)

 

As at
30 June
2007

As at
30 June
2006

  $m $m
Capital Commitments    
Specialist military equipment 823 535
Land and buildings (including electricity assets) 605 945
Other property, plant and equipment 2,563 2,530
Investments 184 818
TEIs 90 124
Total Capital Commitments 4,265 4,952
Operating Commitments    
Non-cancellable accommodation leases 2,296 1,940
Other non-cancellable leases 2,355 2,466
Non-cancellable contracts for the supply of goods and services 1,626 1,908
Other operating commitments 7,314 6,462
TEIs 303 303
Total Operating Commitments 13,894 13,079
Total Commitments 18,159 18,031
Total Commitments by Institutional Segment    
Core Crown 4,857 4,824
Crown entities 9,848 9,627
SOEs 3,454 3,580
Total Commitments  18,159 18,031
By Term    
Capital Commitments    
One year or less 1,767 3,140
From one year to two years 609 651
From two to five years 1,352 1,152
Over five years 537 9
Capital Commitments  4,265 4,952
Operating Commitments    
One year or less 6,029 5,856
From one year to two years 2,709 2,348
From two to five years 2,908 2,861
Over five years 2,248 2,014
Operating Commitments  13,894 13,079
Total Commitments 18,159 18,031

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

Statement of Quantifiable Contingent Liabilities and Contingent Assets#

(as at 30 June 2007)

 

As at
30 June
2007

As at
30 June
2006

  $m $m
Guarantees and indemnities 171 405
Uncalled capital 2,076 2,592
Legal proceedings and disputes 1,170 1,032
Other contingent liabilities 1,829 2,073
Total Quantifiable Contingent Liabilities 5,246 6,102
Total Quantifiable Contingent Liabilities by
Institutional Segment
   
Core Crown 5,071 5,921
Crown entities 45 63
SOEs 130 118
Total Quantifiable Contingent Liabilities 5,246 6,102
Quantifiable Contingent Assets    
Total Crown 86 106
Total Quantifiable Contingent Assets 86 106

Note 21 contains a breakdown of the material contingent liabilities and a description of non-quantifiable contingent liabilities and contingent assets.

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

Statement of Segments#

Statement of Financial Performance (institutional form)

for the year ended 30 June 2007 (actual to forecast)

  Current Year Actual vs Forecast
  Core Crown Crown entities
 

Actual
2007

Estimated
Actual

Actual
2007

Estimated
Actual

  $m $m $m $m
Revenue        
Taxation revenue 53,411 52,853
Levies, fees, fines and penalties 633 604 3,012 2,946
Sales of goods and services 955 955 1,909 1,845
Investment income 5,144 5,104 1,279 1,372
Other revenue 737 725 20,513 20,587
Total Revenue 60,880 60,241 26,713 26,750
Expenses by Input Type        
Subsidies and transfer payments 16,447 16,579 1,967 1,959
Personnel expenses 5,508 5,497 8,137 7,897
Operating expenses 29,949 29,472 13,925 14,394
Finance costs 2,653 2,553 337 307
Net Foreign exchange losses/(gains) 105 90 107 44
GSF and ACC liability revaluation movements (920) 323 1,020 1,742
Total Expenses 53,742 54,514 25,493 26,343
Expenses by Functional Classification        
Social security and welfare 16,853 16,920 3,776 4,525
Health 10,327 10,492 8,986 8,812
Education 9,289 9,530 6,913 6,890
Other functional classifications 14,515 15,349 5,374 5,765
Forecast for future new spending and top-down adjustment (420)
Finance costs and net FX losses/(gains) 2,758 2,643 444 351
Total expenses 53,742 54,514 25,493 26,343
Net surplus of TEIs (10) 120 62
Minority interest
Operating balance 7,138 5,717 1,340 469

Statement of Financial Position (institutional form)

as at 30 June 2007 (actual to forecast)

  Core Crown Crown entities
 

Actual
2007

Estimated
Actual

Actual
2007

Estimated
Actual

  $m $m $m $m
Assets        
Financial assets 49,036 48,192 18,614 18,847
Physical assets 26,432 26,279 41,504 38,970
Investment in SOEs & Crown entities (including TEIs) 24,450 24,776 6,305 5,586
Other assets 11,076 10,457 2,703 2,308
Total Assets 110,994 109,704 69,126 65,711
Liabilities        
Borrowings 35,450 35,875 4,285 4,394
Other liabilities 27,651 27,955 18,231 18,675
Total Liabilities 63,101 63,830 22,516 23,069
Net Worth 47,893 45,874 46,610 42,642
Taxpayer funds 36,089 34,678 22,704 21,883
Revaluation reserves 11,804 11,196 23,906 20,759
Minority interest
Net Worth 47,893 45,874 46,610 42,642
Analysis of Financial Assets and Borrowings        
Advances and cash 10,214 9,187 2,508 2,423
MSDs and equity investments 38,822 39,005 16,106 16,424
Total Financial Assets 49,036 48,192 18,614 18,847
Borrowings - Sovereign guaranteed 35,450 35,875
Borrowings - Non-sovereign guaranteed 4,285 4,394
Total Borrowings 35,450 35,875 4,285 4,394
Borrowings less Financial Assets (13,586) (12,317) (14,329) (14,453)
Net core Crown Debt 3,433 4,612 Net core Crown debt and gross
sovereign-issued debt differ from
the analysis above due to elimination
of cross-holdings of Govt stock and
adding back the NZS Fund and GSF
assets.
Gross Sovereign-Issued Debt 36,150 37,217

Statement of Segments (continued)#

Statement of Financial Performance (institutional form)

for the year ended 30 June 2007 (actual to forecast)

  Current Year Actual vs Forecast
  SOE's Inter-segment elimins Total Crown
 

Actual
2007

Estimated
Actual

Actual
2007

Estimated
Actual

Actual
2007

Estimated
Actual

  $m $m $m $m $m $m
Revenue            
Taxation revenue (473) (575) 52,938 52,278
Levies, fees, fines and penalties (77) (42) 3,568 3,508
Sales of goods and services 10,908 10,921 (687) (610) 13,085 13,111
Investment income 504 513 (1,108) (1,182) 5,819 5,807
Other revenue 618 770 (19,712) (19,844) 2,156 2,238
Total Revenue 12,030 12,204 (22,057) (22,253) 77,566 76,942
Expenses by Input Type            
Subsidies and transfer payments (107) (108) 18,307 18,430
Personnel expenses 2,008 1,964 (6) (6) 15,647 15,352
Operating expenses 8,814 8,638 (20,910) (20,986) 31,778 31,518
Finance costs 552 633 (473) (470) 3,069 3,023
Net Foreign exchange losses/(gains) (96) (96) 116 38
GSF and ACC liability revaluation movements 100 2,065
Total Expenses 11,278 11,139 (21,496) (21,570) 69,017 70,426
Expenses by Functional Classification            
Social security and welfare (390) (382) 20,239 21,063
Health (9,381) (9,267) 9,932 10,037
Education 24 23 (6,390) (6,402) 9,836 10,041
Other functional classifications 10,798 10,579 (4,862) (5,049) 25,825 26,644
Forecast for future new spending and top-down adjustment (420)
Finance costs and net FX losses/(gains) 456 537 (473) (470) 3,185 3,061
Total expenses 11,278 11,139 (21,496) (21,570) 69,017 70,426
Net surplus of TEIs 120 52
Minority interest (6) (6)
Operating balance 746 1,065 (561) (683) 8,663 6,568

Statement of Financial Position (institutional form)

as at 30 June 2007 (actual to forecast)

  SOE's Inter-segment elimins Total Crown
 

Actual
2007

Estimated
Actual

Actual
2007

Estimated
Actual

Actual
2007

Estimated
Actual

  $m $m $m $m $m $m
Assets            
Financial assets 6,888 7,028 (8,154) (8,379) 66,384 65,688
Physical assets 28,607 28,009 96,543 93,258
Investment in SOEs & Crown entities (including TEIs) (24,450) (24,776) 6,305 5,586
Other assets 2,713 2,506 (748) (690) 15,744 14,581
Total Assets 38,208 37,543 (33,352) (33,845) 184,976 179,113
Liabilities            
Borrowings 9,804 10,477 (8,154) (8,379) 41,385 42,367
Other liabilities 3,272 3,037 (1,399) (1,381) 47,755 48,286
Total Liabilities 13,076 13,514 (9,553) (9,760) 89,140 90,653
Net Worth 25,132 24,029 (23,799) (24,085) 95,836 88,460
Taxpayer funds 7,111 7,546 (23,764) (24,085) 42,140 40,022
Revaluation reserves 17,617 16,190 53,327 48,145
Minority interest 404 293 (35) 369 293
Net Worth 25,132 24,029 (23,799) (24,085) 95,836 88,460
Analysis of Financial Assets and Borrowings            
Advances and cash 5,340 5,396 (3,167) (3,333) 14,895 13,673
MSDs and equity investments 1,548 1,632 (4,987) (5,046) 51,489 52,015
Total Financial Assets 6,888 7,028 (8,154) (8,379) 66,384 65,688
Borrowings - sovereign guaranteed (5,097) (5,056) 30,353 30,819
Borrowings - non-sovereign guaranteed 9,804 10,477 (3,057) (3,323) 11,032 11,548
Total Borrowings 9,804 10,477 (8,154) (8,379) 41,385 42,367
Borrowings less Financial Assets 2,916 3,449 (24,999) (23,321)

Statement of Segments (continued)#

Statement of Financial Performance (institutional form)

for the year ended 30 June 2007 (compared with actual 30 June 2006)

  Current Year Actual vs Prior Year Actual
  Core Crown Crown entities
 

Actual
2007

Actual
2006

Actual
2007

Actual
2006

  $m $m $m $m
Revenue        
Taxation revenue 53,411 52,782
Levies, fees, fines and penalties 633 663 3,012 2,811
Sales of goods and services 955 884 1,909 1,865
Investment income 5,144 4,496 1,279 1,962
Other revenue 737 683 20,513 18,677
Total Revenue 60,880 59,508 26,713 25,315
Expenses by Input Type        
Subsidies and transfer payments 16,447 15,243 1,967 1,708
Personnel expenses 5,508 5,656 8,137 7,591
Operating expenses 29,949 26,999 13,925 12,967
Finance costs 2,653 2,356 337 302
Net foreign exchange losses/(gains) 105 (295) 107 (113)
GSF and ACC liability revaluation movements (920) 279 1,020 1,321
Total Expenses 53,742 50,238 25,493 23,776
Expenses by Functional Classification        
Social security and welfare 16,853 15,598 3,776 3,740
Health 10,327 9,547 8,986 8,227
Education 9,289 9,914 6,913 6,539
Other functional classifications 14,515 13,118 5,374 5,081
Forecast for future new spending
Finance costs and net FX losses/(gains) 2,758 2,061 444 189
Total expenses 53,742 50,238 25,493 23,776
Net surplus of TEIs 120 54
Minority interest
Operating balance 7,138 9,270 1,340 1,593

Statement of Financial Position (institutional form)

as at 30 June 2007 (compared with actual 30 June 2006)

  Core Crown Crown entities
 

Actual
2007

Actual
2006

Actual
2007

Actual
2006

  $m $m $m $m
Assets        
Financial assets 49,036 40,599 18,614 17,554
Physical assets 26,432 25,223 41,504 37,987
Investment in SOEs & Crown entities (including TEIs) 24,450 24,169 6,305 5,475
Other assets 11,076 12,293 2,703 2,433
Total Assets 110,994 102,284 69,126 63,449
Liabilities        
Borrowings 35,450 34,477 4,285 4,124
Other liabilities 27,651 27,730 18,231 17,503
Total Liabilities 63,101 62,207 22,516 21,627
Net Worth 47,893 40,077 46,610 41,822
Taxpayer funds 36,089 28,929 22,704 21,086
Revaluation reserves 11,804 11,148 23,906 20,736
Minority interest
Net Worth 47,893 40,077 46,610 41,822
Analysis of Financial Assets and Borrowings        

Advances and cash

10,214 8,797 2,508 2,308
MSDs and equity investments 38,822 31,802 16,106 15,246
Total Financial Assets 49,036 40,599 18,614 17,554
Borrowings - Sovereign guaranteed 35,450 34,477
Borrowings - Non-sovereign guaranteed 4,285 4,124
Total Borrowings 35,450 34,477 4,285 4,124
Borrowings less Financial Assets (13,586) (6,122) (14,329) (13,430)
Net core Crown Debt 3,433 7,745 Net core Crown debt and gross
sovereign-issued debt differ from the
analysis above due to elimination of
cross-holdings of Govt stock and
adding back the NZS Fund and GSF
assets.
Gross Sovereign-Issued Debt 36,150 35,461

Statement of Segments (continued)#

Statement of Financial Performance (institutional form)

for the year ended 30 June 2007 (compared with actual 30 June 2006)

  Current Year Actual vs Prior Year Actual
  State-owned enterprises Inter-segment elimins Total Crown
 

Actual
2007

Actual
2006

Actual
2007

Actual
2006

Actual
2007

Actual
2006

  $m $m $m $m $m $m
Revenue            
Taxation revenue (473) (471) 52,938 52,311
Levies, fees, fines and penalties (77) (63) 3,568 3,411
Sales of goods and services 10,908 11,206 (687) (618) 13,085 13,337
Investment income 504 1,008 (1,108) (1,638) 5,819 5,828
Other revenue 618 537 (19,712) (17,865) 2,156 2,032
Total Revenue 12,030 12,751 (22,057) (20,655) 77,566 76,919
Expenses by Input Type            
Subsidies and transfer payments (107) (101) 18,307 16,850
Personnel expenses 2,008 1,876 (6) (7) 15,647 15,116
Operating expenses 8,814 8,558 (20,910) (18,909) 31,778 29,615
Finance costs 552 443 (473) (449) 3,069 2,652
Net foreign exchange losses/(gains) (96) (3) 116 (411)
GSF and ACC liability revaluation movements 100 1,600
Total Expenses 11,278 10,874 (21,496) (19,466) 69,017 65,422
Expenses by Functional Classification            
Social security and welfare (390) (369) 20,239 18,969
Health (9,381) (8,512) 9,932 9,262
Education 24 22 (6,390) (6,045) 9,836 10,430
Other functional classifications 10,798 10,412 (4,862) (4,091) 25,825 24,520
Forecast for future new spending
Finance costs and net FX losses/(gains) 456 440 (473) (449) 3,185 2,241
Total expenses 11,278 10,874 (21,496) (19,466) 69,017 65,422
Net surplus of TEIs 120 54
Minority interest (6) (78) (6) (78)
Operating balance 746 1,799 (561) (1,189) 8,663 11,473

Statement of Financial Position (institutional form)

as at 30 June 2007 (compared with actual 30 June 2006)

  State-owned enterprises Inter-segment elimins Total Crown
 

Actual
2007

Actual
2006

Actual
2007

Actual
2006

Actual
2007

Actual
2006

  $m $m $m $m $m $m
Assets            
Financial assets 6,888 5,368 (8,154) (7,075) 66,384 56,446
Physical assets 28,607 16,231 96,543 79,441
Investment in SOEs & Crown entities (including TEIs) (24,450) (24,169) 6,305 5,475
Other assets 2,713 2,421 (748) (238) 15,744 16,909
Total Assets 38,208 24,020 (33,352) (31,482) 184,976 158,271
Liabilities            
Borrowings 9,804 7,901 (8,154) (7,075) 41,385 39,427
Other liabilities 3,272 3,004 (1,399) (796) 47,755 47,441
Total Liabilities 13,076 10,905 (9,553) (7,871) 89,140 86,868
Net Worth 25,132 13,115 (23,799) (23,611) 95,836 71,403
Taxpayer funds 7,111 7,073 (23,764) (23,611) 42,140 33,477
Revaluation reserves 17,617 5,749 53,327 37,633
Minority interest 404 293 (35) 369 293
Net Worth 25,132 13,115 (23,799) (23,611) 95,836 71,403
Analysis of Financial Assets and Borrowings            
Advances and cash 5,340 4,148 (3,167) (2,327) 14,895 12,926
MSDs and equity investments 1,548 1,220 (4,987) (4,748) 51,489 43,520
Total Financial Assets 6,888 5,368 (8,154) (7,075) 66,384 56,446
Borrowings - Sovereign guaranteed (5,097) (4,598) 30,353 29,879
Borrowings - Non-sovereign guaranteed 9,804 7,901 (3,057) (2,477) 11,032 9,548
Total Borrowings 9,804 7,901 (8,154) (7,075) 41,385 39,427
Borrowings less Financial Assets 2,916 2,533 (24,999) (17,019)

Statement of Segments (continued)#

Statement of Financial Performance (functional classification)

for the year ended 30 June 2007

  Actual 2007 Actual 2006
  Total revenue Total expenses Net segment Total revenue Total expenses Net segment
  $m $m $m $m $m $m
Total Crown by Functional Classification            
Social security and welfare 4,745 20,239 (15,494) 4,655 18,969 (14,314)
GSF pension expenses 654 302 352 566 1,671 (1,105)
Health 324 9,932 (9,608) 313 9,262 (8,949)
Education 697 9,836 (9,139) 670 10,430 (9,760)
Core government services 189 4,088 (3,899) 72 2,384 (1,974)
Law and order 382 2,825 (2,443) 385 2,420 (2,035)
Defence 1,557 (1,557) 1,339 (1,339)
Transport and communications 5,898 7,473 (1,575) 5,164 5,986 (822)
Economic and industrial services 5,833 5,324 509 7,503 6,334 1,169
Primary services 798 1,265 (467) 700 1,219 (519)
Heritage, culture and recreation 1,393 2,036 (643) 1,352 2,361 (1,009)
Housing and community development 877 889 (12) 806 758 48
Other 66 (66) 48 (48)
Finance costs 2,257 3,069 (812) 1,819 2,652 (833)
Net foreign-exchange losses/(gains) 116 (116) (411) 411
Unallocated revenues (tax revenue) 53,519 53,519 52,914 52,576
Net surplus of TEIs 120 54
Minority interest (6) (78)
Total Crown 77,566 69,017 8,663 76,919 65,422 11,473

Statement of Financial Position (functional classification)

as at 30 June 2007

  Actual 2007 Actual 2006
  Physical assets Total assets Total borrowings Total liabilities Physical assets Total assets Total borrowings Total liabilities
  $m $m $m $m $m $m $m $m
Total Crown by Functional Classification                
Social security and welfare 522 24,332 645 15,488 488 20,593 756 15,323
GSF pension expenses 4,354 14,313 4,172 15,231
Health 4,055 5,866 539 1,090 3,836 6,137 650 2,400
Education 10,332 18,508 42 2,557 10,561 17,771 54 954
Core government services 2,378 34,876 30,303 39,807 2,211 32,139 29,787 38,905
Law and order 3,381 5,378 10 663 2,856 4,395 13 622
Defence 4,530 5,183 270 4,514 5,020 195
Transport and communications 33,428 40,789 6,220 8,816 21,649 27,313 4,554 6,918
Economic and industrial services 13,464 17,935 3,267 3,985 11,464 15,877 2,897 3,943
Primary services 1,699 2,548 128 428 1,610 2,424 203 439
Heritage, culture and recreation 7,506 8,750 117 1,311 6,740 7,943 117 1,262
Housing and community development 15,001 16,200 114 354 13,335 14,305 396 639
Other 247 257 58 177 182 37
Total Crown  96,543 184,976 41,385 89,140 79,441 158,271 39,427 86,868

Statement of Accounting Policies#

Reporting Entity#

The Financial Statements of the Government of New Zealand have been prepared in accordance with the requirements of the Public Finance Act 1989.

The Government reporting entity as specified in Part III of the Public Finance Act 1989 comprises:

  • Ministers of the Crown
  • Reserve Bank of New Zealand
  • Offices of Parliament
  • State owned enterprises
  • Crown entities
  • Departments
  • Government Superannuation Fund
  • New Zealand Superannuation Fund
  • Air New Zealand Limited

A more detailed listing of the components of the Government reporting entity is set out in the supplementary information on pages 102 and 103.

Accounting Policies#

These financial statements comply with generally accepted accounting practice. The measurement base applied is historical cost adjusted for revaluations of certain property, plant and equipment, commercial forests and marketable securities held for trading purposes. The accrual basis of accounting has been used unless otherwise stated.

Reporting and forecast period#

The reporting and forecast period for these financial statements is the year ended 30 June 2007.

The Budget forecast is the original forecast for the financial year, as presented in the 2006 Budget on 18 May 2006. The estimated actual forecast, as presented in the 2007 Budget on 17 May 2007, has been prepared using actual data which was available at the time of the finalisation of the Budget forecasts (9 May 2007).

Basis of combination#

Ministers of the Crown, departments, Offices of Parliament, the Reserve Bank of New Zealand, the GSF, the NZS Fund, SOEs (including Air New Zealand Limited) and Crown entities (excluding TEIs) are combined using the purchase method of combination. Corresponding assets, liabilities, revenues and expenses are added together line by line. Transactions and balances between these sub-entities are eliminated on combination.

TEIs are equity accounted, which recognises these entities’ net assets, including asset revaluation movements and surpluses and deficits.

Note 13 outlines in more detail why there is a difference in the accounting treatment of TEIs from other Crown entities.

Revenue#

Revenue levied through the Crown’s sovereign power

The Government provides many services and benefits that do not give rise to revenue. Further, payment of tax does not, of itself, entitle a taxpayer to an equivalent value of services or benefits, as there is no direct relationship between paying tax and receiving Crown services and transfers.

Such revenue is received through the exercise of the Crown’s sovereign power. Where possible, revenue is recognised at the time the debt to the Crown arises.

Revenue type Revenue recognition point
Source deductions When an individual earns income that is subject to PAYE
Fringe benefit tax (FBT) When benefits are provided that give rise to FBT
Provisional tax[2] When taxable income is earned
Terminal tax[2] Assessment filed date
Resident withholding tax[1] When an individual is paid interest or dividends subject to deduction at source
Goods and services tax When the liability to the Crown is incurred
Excise duty When goods are subject to duty
Road user charges and motor vehicle fees When payment for the fee or charge is made
Stamp, cheque and credit card duties Assessment filed date
Other indirect taxes When the debt to the Crown arises
Levies (eg, ACC levies) When the obligation to pay the levy to the Crown is incurred

Notes

  • [1] Corresponds to withholding taxes on residents’ interest and dividend income in Note 1 to the financial statements.
  • [2] Provisional and terminal taxes are paid by “other persons” and companies (refer to Note 1 to the financial statements)

Revenue earned through operations

If revenue has been earned by the Government in exchange for the provision of outputs (products or services) to third parties, the Government receives its revenue through operations. Such revenue is recognised when it is earned.

Investment income

Investment income is recognised in the period in which it is earned.

Premiums and discounts

Premiums arising on the issue of a debt instrument are treated as a reduction in finance cost. Discounts arising on the purchase of a monetary asset are treated as an increase in investment income.

Premiums and discounts are recognised in the Statement of Financial Position on issue, and are amortised over the period of the instrument on a yield-to-maturity basis.

For floating rate debt instruments, the amortisation is over the first interest period. Discounts on monetary assets deemed short-term securities are amortised on a straight-line basis.

The forward margin associated with forward foreign-exchange contracts is amortised over the period of the contract on a straight-line basis.

Gains

Realised gains arising from sales of assets or the early repurchase of liabilities are recognised in the Statement of Financial Performance in the period in which the transaction occurs.

Unrealised foreign-exchange gains on monetary assets and liabilities, and unrealised gains on marketable securities held for trading purposes and listed equity investments, are recognised in the Statement of Financial Performance.

Unrealised and realised gains related to hedging activity are recognised in the Statement of Financial Performance in the same period in which losses on the underlying hedged position are recognised.

Unrealised gains arising from changes in the value of property, plant and equipment are recognised in the Statement of Financial Performance to the extent that a gain reverses a loss previously charged to the Statement of Financial Performance. Otherwise, gains are credited to an asset revaluation reserve for that class of asset.

Unrealised gains arising from changes in the value of commercial forests are credited to the Statement of Financial Performance.

Unrealised gains (excluding foreign-exchange gains) arising from changes in the value of investments and marketable securities held for investment and unlisted equity investments are recognised only to the extent that they reverse a loss previously charged to the Statement of Financial Performance. Gains effecting such a reversal are credited to the Statement of Financial Performance.

Expenses#

General

Expenses are recognised in the period to which they relate.

Welfare benefits

Welfare benefits are recognised in the period when an application for a benefit has been received and the eligibility criteria met.

Grants and subsidies

Where grants and subsidies are discretionary until payment, the expense is recognised when the payment is made. Otherwise, the expense is recognised when the eligibility criteria have been met and notice has been given to the Government.

Discounts and premiums

Discounts arising on the issue of a debt instrument are treated as an increase in finance cost. Premiums arising on the purchase of a monetary asset are treated as a reduction in investment income.

Discounts and premiums are recognised in the Statement of Financial Position on issue, and are amortised over the period of the instrument on a yield-to-maturity basis.

For floating rate debt instruments, the amortisation is over the first interest period. Premiums on monetary assets deemed short-term securities are amortised on a straight-line basis.

The forward margin associated with forward foreign-exchange contracts is amortised over the period of the contract on a straight-line basis.

Losses

Realised losses arising from sales of assets or the early repurchase of liabilities are recognised in the Statement of Financial Performance in the period in which the transaction occurs.

Unrealised foreign-exchange losses on monetary assets and liabilities, and unrealised losses on marketable securities held for trading purposes and listed equity investments, are recognised in the Statement of Financial Performance.

Unrealised and realised losses related to hedging activity are recognised in the Statement of Financial Performance in the same period in which gains on the underlying hedged position are recognised.

Unrealised losses (excluding foreign-exchange losses) arising from changes in the value of property, plant and equipment (including state highways), and investments and marketable securities held for investment and unlisted equity investments are recognised at balance date. Unrealised losses are first applied against any revaluation reserve for that class of asset. The balance, if any, is charged to the Statement of Financial Performance.

Unrealised losses arising from changes in the value of commercial forests are charged to the Statement of Financial Performance.

Foreign-currency transactions

Short-term transactions covered by forward exchange contracts are translated into New Zealand dollars using the forward rates specified in those contracts.

Other transactions in foreign currencies are translated into New Zealand dollars using the exchange rate on the date of the transaction. Exchange differences arising on settlement of these transactions are recognised in the Statement of Financial Performance.

Outstanding foreign-exchange contracts are translated at the closing exchange rate. Exchange gains and losses are included in the Statement of Financial Performance in the period in which they arise.

Depreciation

Depreciation is charged on a straight-line basis at rates calculated to allocate the cost or valuation of an item of property, plant and equipment, less any estimated residual value, over its estimated useful life. Typically, the estimated useful lives of different classes of property, plant and equipment are as follows:

Freehold buildings 25 to 60 years
Specialist military equipment 5 to 25 years
Other plant and equipment 3 to 25 years
Aircraft (ex specialist military equipment) 10 to 20 years
Electricity distribution network 2 to 80 years
Electricity generation assets 25 to 55 years
State highways:  
Pavement (surfacing) 7 years
Pavement (other) 36 years
Bridges 90 to 100 years
Rail network:  
Track and ballast 40 years
Tunnels and bridges 80 years
Overhead traction and signalling 20 years

Goodwill amortisation

Goodwill and identifiable intangible assets are amortised on a systematic basis to the Statement of Financial Performance over their period of expected benefit. The maximum period of amortisation is 20 years.

Assets#

Foreign monetary assets#

Where short-term foreign monetary assets are subject to forward exchange contracts, they are translated into New Zealand dollars at the contract rate. Otherwise, foreign monetary assets are translated at the closing exchange rate.

Exchange gains and losses are included in the Statement of Financial Performance in the period in which they arise.

Receivables and advances excluding student loans#

Receivables and advances excluding student loans are recorded at the amounts expected to be ultimately collected in cash.

Student loans#

Student loans are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method, less any impairment loss. The effective interest rate discounts estimated future cash receipts through the expected life of the loan to the net carrying amount of the loan but does not consider future credit losses. Interest is recognised on the loan evenly in proportion to the amount outstanding over the period to repayment.

Allowances for estimated irrecoverable amounts are recognised when there is objective evidence that the loan is impaired. Impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan and that a ‘loss’ event (or events) has an impact on the estimated future cash flows of the student loan book that can be reliably measured.

Interest and impairment losses are recognised in the Statement of Financial Performance.

Inventories#

Inventories are recorded at the lower of cost and net realisable value. Where inventories acquired are recorded at cost, the weighted average cost method is used. Appropriate allowance has been made for obsolescence.

Investments#

Marketable securities held for trading purposes

Marketable securities held for trading purposes are recorded at fair value.

Equity investments

Listed equity investments (other than those forming part of the reporting entity) are recorded at fair value.

Other equity investments (other than those forming part of the reporting entity) are recorded at lower of cost and fair value.

Other investments and marketable securities held for investment purposes

Other investments, including marketable securities held for investment purposes, are recorded at the lower of cost and fair value.

Investments held for hedging purposes are recorded on the same basis as the item being hedged.

Items of property, plant and equipment#

Items of property, plant and equipment are initially recorded at cost.

For each property, plant and equipment asset project, borrowing costs incurred during the period required to complete and prepare the asset for its intended use are expensed.

Revaluations are carried out for the classes of property, plant and equipment noted below to reflect the service potential or economic benefit obtained through control of the asset. Revaluation is based on the fair value of the asset. Where an asset is recorded using depreciated replacement cost, depreciated replacement cost is based on the estimated present cost of construction, reduced by factors for age and deterioration of the asset.

Classes of property, plant and equipment assets that are revalued, are revalued at least every five years.

Classes of property, plant and equipment assets that are revalued are regularly reviewed to ensure the carrying value is not materially different from fair value.

Land and buildings

Land and buildings are recorded at fair value less accumulated depreciation on buildings. In cases where valuations conducted in accordance with the New Zealand Property Institute’s standards are not available, valuations conducted in accordance with the Rating Valuation Act 1998, which have been confirmed as appropriate by an independent valuer, have been used.

Specialist military equipment

Specialist military equipment is recorded at fair value based on depreciated replacement cost less accumulated depreciation. Valuations have been obtained through specialist assessment by New Zealand Defence Force advisers, and the basis of these valuations have been confirmed as appropriate by an independent valuer.

State highways

State highways are recorded at fair value based on depreciated replacement cost less accumulated depreciation. Replacement costs are based on the estimated present cost of constructing the existing asset by the most appropriate method of construction. Land associated with the state highways is valued using an opportunity cost based on adjacent use, as an approximation of fair value.

Rail network assets

Rail network assets are recorded at fair value based on depreciated replacement cost less accumulated depreciation. Replacement costs are based on the estimated present cost of constructing the existing asset by the most appropriate method of construction. Land associated with the rail network is valued using an opportunity cost based on adjacent use, as an approximation of fair value.

Aircraft (excluding specialist military equipment)

Aircraft (excluding SME) are recorded at fair value less accumulated depreciation.

Electricity distribution network

Electricity distribution network assets are recorded at cost less accumulated depreciation.

Electricity generation assets

Electricity generation assets are recorded at fair value less accumulated depreciation.

Other items of property, plant and equipment – at cost

Other property, plant and equipment, which include motor vehicles and office equipment, are recorded at cost less accumulated depreciation.

Other physical assets for which an objective estimate of market value is difficult to obtain

Such physical assets (national parks, for example) are recorded at fair value less accumulated depreciation.

Commercial forests#

Commercial forests are recorded at fair value less estimated point-of-sale costs. This takes into account age, quality of timber and the forest management plan.

Goodwill and intangible assets#

The excess of cost over the fair value of the net assets of entities acquired (subsidiaries) at the date of acquisition is recognised as goodwill. The balance of goodwill is assessed annually for evidence of impairment in excess of annual amortisation.

Identifiable intangible assets which have been purchased are initially recorded at cost and thereafter either at cost less accumulated amortisation and any accumulated impairment losses or, where in the rare case where an active market exists, at a revalued amount being fair value at the date of the revaluation less any subsequent accumulated amortisation and any subsequent accumulated impairment losses.

Liabilities#

Borrowings#

In the Statement of Financial Position, borrowings (including currency swaps) are recorded at nominal value adjusted for the unamortised portion of the premium or discount on issue.

Foreign monetary liabilities#

Where short-term foreign monetary liabilities are subject to forward exchange contracts, they are translated into New Zealand dollars at the contract rate. Otherwise, foreign monetary liabilities are translated at the closing exchange rate.

Exchange gains and losses are recognised in the Statement of Financial Performance in the period in which they arise.

Pension liabilities#

Pension liabilities in respect of the contributory service of superannuation scheme members are recorded at the latest actuarial value of the Crown's liability for pension payments. Movements of the liability are reflected in the Statement of Financial Performance.

ACC claims liabilities#

The future cost of ACC claims liabilities is revalued annually based on the latest actuarial information. Movements of the liability are reflected in the Statement of Financial Performance.

Currency issued#

Currency issued represents a liability in favour of the holder. Currency issued for circulation, including an amount to cover expected future redemption of demonetised currency, is recognised at face value.

Leases#

Finance leases transfer to the Government as lessee substantially all the risks and rewards incident on the ownership of a leased asset. The obligations under such leases are capitalised at the present value of the minimum lease payments. The capitalised values are amortised over the period in which the Government expects to receive benefits from their use.

Operating leases, where the lessors substantially retain the risks and rewards of ownership, are recognised in a systematic manner over the term of the lease.

Leasehold improvements are capitalised and the cost is amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is shorter.

Employee entitlements#

Employee entitlements to salaries and wages, annual leave, long service leave, retiring leave and other similar benefits are recognised when they accrue to employees. The liability for employee entitlements is carried as the present value of the estimated future cash outflows.

Other liabilities#

All other liabilities are recorded at the estimated obligation to pay.

Commitments#

Commitments are future expenses and liabilities to be incurred on contracts that have been entered into at balance date. Commitments include those operating and capital commitments arising from non-cancellable contractual or statutory obligations. Interest commitments on debts and commitments relating to employment contracts are not included in the Statement of Commitments.

Contingent liabilities and contingent assets#

Contingent liabilities and contingent assets are recorded in the Statement of Contingent Liabilities and Contingent Assets at the point at which the contingency is evident.

Changes in Accounting Policies#

The measurement basis for recording rail network assets has changed from historical cost to fair value using depreciated replacement cost. This basis provides a more current value of the rail network and is more consistent with the approach taken to other significant items of property, plant and equipment. The financial impact of this change increases property, plant and equipment by $10.3 billion and increases net worth by the same amount. The Statement of Financial Performance is consequently impacted by increases in depreciation of $155 million.

There has also been a change in the disclosure of bad debt write-offs of tax receivables. Tax write-offs are now shown as an expense rather than netted off against revenue. The impact of this change in presentation has no impact on the operating balance but does result in an increase in both revenue and expenses of $0.7 billion ($0.3 billion in 2005/06).

There have been no other changes in accounting policies. All other policies have been applied on a basis consistent with the previous year.

Comparatives#

To ensure consistency with the current period, comparative figures have been restated where appropriate.

Notes to the Financial Statements#

Note 1:  Tax and Levies Collected through the Crown’s Sovereign Power (Accrual)#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
    Direct Income Tax Revenue (accrual) [1]    
    Individuals    
20,595 21,073 Source deductions 21,085 19,985
4,533 4,614 Other persons 4,440 5,075
(962) (1,085) Refunds (1,080) (953)
426 456 Fringe benefit tax 468 451
24,592 25,058 Total Individuals 24,913 24,558
    Corporate Tax    
8,353 8,265 Gross companies tax 8,618 9,439
(205) (252) Refunds (296) (270)
874 1,142 Non-resident withholding tax 1,189 1,096
220 146 Foreign-source dividend withholding payments 149 160
9,242 9,301 Total Corporate Tax 9,660 10,425
    Other Income Tax    
2,079 2,156 Resident withholding tax on interest income 2,227 1,880
56 89 Resident withholding tax on dividend income 89 74
2 4 Estate and gift duties 2 3
2,137 2,249 Total Other Income Tax 2,318 1,957
35,971 36,608 Total Direct Income Tax 36,891 36,940
    Indirect Tax Revenue (accrual)    
    Goods and Services Tax    
18,692 19,203 Gross goods and services tax 19,527 18,367
(8,028) (8,332) Refunds (8,325) (7,664)
10,664 10,871 Total Goods and Services Tax 11,202 10,703
    Other Indirect Taxation    
914 881 Petroleum fuels excise 819 852
145 244 Tobacco excise 238 834
1,773 1,760 Customs duty 1,836 1,083
793 785 Road user charges 786 731
537 559 Alcohol excise 553 516
256 230 Gaming duties 245 275
223 220 Motor vehicle fees 222 221
58 49 Energy resources levies 54 73
74 71 Approved issuer levy and cheque duty 92 83
4,773 4,799 Total Other Indirect Taxation 4,845 4,668
15,437 15,670 Total Indirect Taxation 16,047 15,371
51,408 52,278 Total Taxation Revenue 52,938 52,311
    Levies, fees, fines and penalties (accrual)    
2,189 2,454 ACC levies 2,476 2,326
253 259 Fire Service levies 265 254
83 84 EQC levies 84 82
654 711 Other 743 749
3,179 3,508 Total levies, fees, fines and penalties 3,568 3,411
54,587 55,786 Total Sovereign Revenue 56,506 55,722

Notes

  • [1] There has been a change in the disclosure of bad debt write-offs of tax receivables. Tax write-offs are now shown as an expense rather than netted off against revenue. To ensure consistency comparative figures have been adjusted to conform with this change in presentation.

Note 1:  Tax and Levies Collected through the Crown’s Sovereign Power (Cash)#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
    Direct Income Tax Receipts (cash)    
    Individuals    
20,534 21,034 Source deductions 21,069 19,897
5,189 5,296 Other persons 5,121 4,883
(1,780) (1,858) Refunds (1,850) (1,503)
421 469 Fringe benefit tax 482 450
24,364 24,941 Total Individuals 24,822 23,727
    Corporate Tax    
8,602 8,865 Gross companies tax 9,016 8,512
(746) (1,091) Refunds (1,153) (833)
874 1,092 Non-resident withholding tax 1,135 1,093
220 148 Foreign-source dividend withholding payments 141 157
8,950 9,014 Total Corporate Tax 9,139 8,929
    Other Income Tax    
2,078 2,154 Resident withholding tax on interest income 2,192 1,862
56 91 Resident withholding tax on dividend income 90 74
2 4 Estate and gift duties 3 2
2,136 2,249 Total Other Income Tax 2,285 1,938
35,450 36,204 Total Direct Income Tax 36,246 34,594
    Indirect Tax Receipts (cash)    
    Goods and Services Tax    
18,183 18,415 Gross goods and services tax 18,713 17,705
(7,669) (7,604) Refunds (7,625) (7,216)
10,514 10,811 Total Goods and Services Tax 11,088 10,489
    Other Indirect Taxation    
914 881 Petroleum fuels excise 835 847
145 244 Tobacco excise 265 842
1,773 1,760 Customs duty 1,778 1,074
793 785 Road user charges 780 721
537 559 Alcohol excise 549 514
257 235 Gaming duties 246 273
223 220 Motor vehicle fees 208 199
58 53 Energy resources levies 55 73
74 71 Approved issuer levy and cheque duty 88 80
4,774 4,808 Total Other Indirect Taxation 4,804 4,623
15,288 15,619 Total Indirect Taxation 15,892 15,112
50,738 51,823 Total Taxation Receipts 52,138 49,706
    Levies, fees, fines and penalties (cash)    
2,105 2,401 ACC levies 2,416 2,256
253 262 Fire Service levies 268 254
83 85 EQC levies 84 83
606 639 Other 650 653
3,047 3,387 Total levies, fees, fines and penalties 3,418 3,246
53,785 55,210 Total Sovereign Receipts 55,556 52,952

Note 2:  Sale of Goods and Services#

The Statement of Segments shows the sale of goods and services as a total for each area of the Crown (ie, total sales for core Crown, Crown entities and SOEs). The total for Crown entities includes such items as lottery sales, housing rental and Crown research institutes (CRI) sales. The total sales of SOEs (including Air NZ) represents the majority of their income from electricity generation and distribution services, postal services, advertising and air travel sales.

Note 3:  Investment Income#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
    Investment Income    
856 1,410 NZS Fund Investment Income 1,640 1,139
1,873 2,852 Interest income 2,768 2,145
269 452 Student loans 451 344
71 147 Dividends 157 117
Gain on Sale of Southern Hydro 630
599 878 Gains/(losses) on marketable securities, deposits and equity investments 775 1,436
19 68 Other 28 17
3,687 5,807 Total Investment Income 5,819 5,828

Note 4:  Other Revenue#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
Unrealised (losses)/gains arising from changes in the value of commercial forests 27 15
75 79 GSF contributions 96 104
55 62 Petroleum royalties 66 61
30 28 Cost recovery income from fisheries 30 29
2,201 2,069 Other 1,937 1,823
2,361 2,238 Total Other Operational Revenue 2,156 2,032

Note 5:  Subsidies and Transfer Payments#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
    Social Assistance Grants    
6,782 6,807 New Zealand Superannuation 6,810 6,414
1,504 1,467 Domestic purposes benefit 1,468 1,493
1,845 1,959 ACC payments 1,967 1,708
783 615 Unemployment benefit 613 712
1,131 1,136 Invalids benefit 1,132 1,073
1,725 1,779 Family support 1,699 1,285
883 882 Accommodation supplement 877 843
575 573 Sickness benefit 573 541
364 385 Student allowances 382 354
286 270 Disability allowances 270 261
2,047 2,028 Other social assistance grants 2,020 1,675
140 117 Subsidies 101 127
    Other Transfer Payments    
88 374 Official development assistance 356 330
36 38 Other 39 34
18,189 18,430 Total Subsidies and Transfer Payments 18,307 16,850

 

Note 6:  Personnel Expenses#

The Statement of Segments shows the personnel expenses as a total for each area of total Crown (ie, total personnel expenses for core Crown, Crown entities and SOEs).

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
1,068 1,148 GSF pension costs 1,222 1,392
131 139 Other pension expenses 227 206
13,937 14,065 Other personnel expenses 14,198 13,518
15,136 15,352 Total Personnel Expenses 15,647 15,116

Personnel expenses include salaries and allowances to Ministers of the Crown totalling $7.0 million (30 June 2006: $6.7 million). In addition, Ministers are provided with ministerial accommodation in Wellington and receive allowances when travelling in New Zealand.

Note 7:  Operating Expenses#

Operating expenses relate to those expenses incurred in the course of undertaking the functions and activities of entities included in the Government financial statements, excluding those expenses separately identified in the Statement of Financial Performance and other notes.Items disclosed separately below are those required by Financial Reporting Standards.

Other operating costs is the large residual item. Most of these costs represent payments made for services provided by third parties (roading maintenance for example) or for raw materials (fuel, medicines or inventory for example). They also include other day-to-day operating costs.

Forecast   Actual
Original
Budget
Estimated
Actual
  30 June
2007
30 June
2006
$m $m   $m $m
    Depreciation    
900 920 Buildings 940 880
118 97 Electricity distribution networks 110 109
216 241 Electricity generation assets 229 198
216 239 Specialist military equipment (SME) 238 187
236 242 State highways 299 252
152 Rail network 155
246 223 Aircraft (excluding SME) 173 102
913 910 Other plant and equipment 954 905
73 75 Other assets 46 75
2,918 3,099 Total Depreciation 3,144 2,708
    Other Operating Expenses    
787 843 Rental and leasing costs 887 820
254 150 Change in provision for doubtful debts 508 429
800 2,225 Write-off of bad debts[1] 1,929 419
89 89 Goodwill amortised 99 75
21 25 Audit fees 31 28
2 3 Fees paid to auditors for other services 3 4
Asset impairment losses 33 90
1,162 1,771 Grants paid 1,688 1,578
371 397 Lottery prize payments 414 398
Loss/(gain) on sale of assets 34 93
Net revaluation losses/(gains) 282 (274)
Write down of existing student loans to fair value 1,415
381 496 Write down of new loans to fair value 488 328
23,774 22,840 Other operating costs 22,238 21,504
30,559 31,938 Total Operating Expenses (including depreciation) 31,778 29,615

Notes

  • [1] The Inland Revenue and Ministry of Justice have updated their doubtful debt methodology to incorporate revised debt collectibility percentages that were developed as part of historical debt modelling work undertaken for the transition to NZ IFRS. This re-assessment lead to one-off accounting adjustment of $1.2 billion reflecting the economic collectibility of receivables based on newly available historical data. In addition there has been a change in the disclosure of bad debt write-offs of tax receivables. Tax write-offs are now shown as an expense rather than netted off against revenue. To ensure consistency comparative figures have been adjusted to conform with this change in presentation.

 

Note 8:  Cash and Marketable Securities, Deposits and Equity Investments#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
    By Category    
2,902 3,478 Total Cash 4,629 4,168
25,249 35,300 Marketable securities and deposits (MSD) 33,270 27,668
17,708 16,494 Equity investments (eg, shares) 18,036 15,394
275 221 Reserve position at the IMF 183 458
43,232 52,015 Total MSDs and Equity Investments 51,489 43,520
46,134 55,493 Cash and MSDs and Equity Investments 56,118 47,688
    MSDs and Equity Investments
by Portfolio Management:
   
16,693 23,317 Reserve Bank and NZDMO managed funds 22,884 19,284
11,765 11,576 NZS Fund 11,841 8,555
3,449 4,112 Government Superannuation Fund 4,093 3,959
7,940 8,661 ACC portfolio 8,366 7,882
2,390 1,963 EQC portfolio 1,894 1,943
995 2,386 Other holdings 2,411 1,897
43,232 52,015 Total MSDs and Equity Investments 51,489 43,520

The asset values above are net of any cross-holdings. For example, the asset portfolios of the NZS Fund, GSF, EQC and ACC currently all hold amounts of New Zealand Government stock. For financial reporting purposes these amounts are eliminated within the combined financial statements. The total portfolios, including cross-holdings of New Zealand Government stock, are shown below, along with commentary on the restricted nature of some of the assets (for example the GSF assets are only available for the payment of GSF benefits – because of the restricted nature of these assets they are excluded from the definition of net core Crown debt).

Nature of financial assets – some are restricted

Within the financial assets above, several portfolios are restricted in their nature in that they are only available to meet very specified purposes and are not available (by statute or other reasons) for general use by the Crown. It is for this reason that such assets are excluded from the definition of net core Crown debt – one of the Crown’s key fiscal policy indicators.

New Zealand Superannuation Fund

The assets of the NZS Fund is the Government’s means of building up assets to partially pre-fund future New Zealand superannuation expenses and may only be used for New Zealand Superannuation. The assets in this fund total $12.989 billion as at 30 June 2007. The Government’s contributions to the NZS Fund are calculated over a 40-year rolling horizon to ensure superannuation entitlements over the next 40 years can be met.

Government Superannuation Fund

The GSF Authority administers the asset portfolio of the GSF totalling $4.2 billion. These assets result from contributions by beneficiaries built up through time and can only be applied to the ongoing payment of GSF benefits (as provided by the GSF Act). Also refer Note 16.

ACC portfolio

ACC manages the ACC scheme. At present there is a substantial outstanding claims liability associated with past claims of around $13.7 billion. To manage the payment of these claims in the future, ACC is building up a matching portfolio of assets. The target is to have the residual claims fully funded by 2014. Also refer Note 17.

EQC – Natural Disaster Fund (NDF)

The EQC is New Zealand's primary provider of seismic disaster insurance to residential property owners. The EQC administers the NDF, comprising capital and reserves. The EQC draws on the NDF money to pay out claims for damage caused by natural disasters.

Individual Portfolio Information (including cross-holdings of New Zealand Government stock)

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
13,038 12,946 NZS Fund 12,809 9,726
3,833 4,083 GSF financial assets 4,211 4,166
9,443 10,061 ACC portfolio 9,727 9,080
5,638 5,433 EQC portfolio 5,291 5,232

Note 9:  Advances#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
5,868 5,761 Student loans (see analysis below) 6,011 5,569
3,425 3,817 Kiwibank mortgages 3,632 2,609
75 8 Residential care loans 67 71
63 68 Māori development rural lending 47 80
Forestry encouragement loans 24 24
Catchment authorities 3 5
590 541 Other 482 400
10,021 10,195 Total Advances 10,266 8,758
    Analysis of Student Loans    
    Outstanding balance    
8,784 9,107 Nominal value Student Loans (including interest) 9,412 8,370
5,868 5,761 Carrying value Student Loans 6,011 5,569
    Movement during the year    
5,472 5,569 Opening balance 5,569 6,465
Initial fair value write down (1,415)
(15) (411) Other impairment (151) (13)
1,157 1,206 Amount borrowed in current year 1,176 1,046
(381) (496) Fair value write down on new borrowings (488) (328)
(634) (559) Repayments made during the year (555) (550)
87 362 Interest unwind 360 358
182 90 Other movements 100 6
5,868 5,761 Closing balance 6,011 5,569

Student Loans Book Value#

Student loans are recognised initially at fair value plus transaction costs, and subsequently measured at amortised cost using the effective interest rate method, less any impairment loss.

Fair value on initial recognition of student loans is determined by projecting forward contractually agreed (promised) repayments required under the scheme and discounting them back at an appropriate discount rate. The subsequent measurement at amortised cost is determined using the effective interest rate calculated at initial recognition. This rate is used to spread the Crown’s interest income across the life of the loan and determines the loan’s carrying value at each reporting date.

  30 June 2007 30 June 2006
Weighted average effective interest rate 7.12% 6.63%
Interest rate applied to loans for overseas borrowers 6.7% - 7.2% 6.9% (6.7% outyears)
Cost of administration as a % of the average outstanding loan balance 0.15% 0.15%
CPI 2.4% - 2.6% 3.2%
Future salary inflation 3.4% - 3.6% 3.6%

The valuation model has been adapted to reflect current student loans policy. As such, the carrying value is sensitive to changes on a number of underlying assumptions, including future income levels, repayment behaviour and macro economic factors such as inflation and the discount rates used to determine the effective interest rate on new borrowers. The significant assumptions are shown below.

Note 9:  Advances (continued)#

The data for student loans has been integrated from files provided by Inland Revenue Department, Ministry of Social Development and the Ministry of Education. The current data is up to 31 March 2006, and contains information on borrowings, repayments, income, educational factors, socio-economic factors amongst others and has been analysed and incorporated into the valuation model.

Given the lead time required between analysing the raw data and its availability for use in the valuation model, it is expected that there will always be a 15 month lag between the available data set and the valuation reported in the annual financial statements.

Student Loans Fair Value#

Fair value is the amount for which the loan book could be exchanged between knowledgeable, willing parties in an arms length transaction. It is determined by discounting the estimated cash flows at an appropriate discount rate. The estimated fair value of the student loan debt at 30 June 2007 has been determined to be approximately $5,443 million ($5,538 million at 30 June 2006).

Fair values will differ from carrying values due to changes in market interest rates, as the carrying value is not adjusted for such changes. They will also differ in the treatment of credit losses, as carrying values adjust for credit losses that have been incurred while fair values capture adjustments for expected future credit losses. The difference between fair value and carrying value does not represent an impairment of the asset.

The fair value calculated is sensitive to the underlying assumptions. For example a 1% increase in the discount rate would decrease fair value by approximately $232 million, whereas a 1% decrease in the discount rate would increase fair value by approximately $258 million

Despite the increase in the nominal value of student loans outstanding, the fair value of the student loan portfolio is lower than that calculated last year (and lower than the carrying value) because of an increase in the risk free discount rates used in the fair value calculation and an increase in expected future credit losses. The risk free rates are determined by calculating forward rates from the yields and coupons of NZ Government Stock. Forward rate yield projections move from 7.7% in 2007 to 6.2% from 2016 and thereafter (projections as at June 2006 were 6.9% in 2006 to 5.8% from 2016 and thereafter).

The Student Loan Annual Report contains more information on the student loan scheme.

Through the everyday operations of the student loan scheme the Government is exposed to the risk that borrowers will default on their obligation to repay their loans or die before their loan is repaid, causing the scheme to incur a loss.

The student loan scheme policy does not require borrowers to provide any collateral or security to support advances made. As the total sum advanced is widely dispersed over a large number of borrowers, the scheme does not have any material individual concentrations of credit risk.

The credit risk is reduced by collection of repayments through the tax system.

Note 10:  Receivables#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
5,607 7,318 Taxes receivable 7,575 8,720
4,706 4,619 Accounts receivable 5,268 5,259
32 36 Receivable from the sale and purchase of Maui gas 36 74
189 274 Prepayments 314 421
10,534 12,247 Total Receivables 13,193 14,474

Included in taxes receivable at gross value less provision for doubtful debts are general tax receivables administered by the Inland Revenue Department. The net book value was $6,089 million ($7,925 million in 2005/06). The estimated fair value of the portfolio as at 30 June 2007 has been calculated as $5,849 million. The fair value has been determined by forecasting the expected repayments based on analysis of historical debt data deducting an estimate of service costs and discounting at an appropriate rate (11%). If the discount rate was 2% higher the fair value would reduce by $21 million, if the discount rate was 2% lower the fair value would increase by $19 million

Included in accounts receivables at gross value less provision for doubtful debts are debtor portfolios held by the Ministries of Social Development and Justice. Due to the nature of these portfolios the collection of outstanding amounts takes place over a significant period of time.

The debtor portfolio held by the Ministry of Justice largely relates to court fines and the associated court costs and enforcement fees. The net book value as at 30 June 2007 was $312 million ($424 million in 2005/06). The estimated fair value of the portfolio as at 30 June 2007 has been calculated as $195 million. The fair value calculation has been determined on an actuarial basis by discounting the expected flow of cash repayments, net of servicing costs, at a discount rate of 12%. If the discount rate was 2% higher the fair value would reduce by $6 million; if the discount rate was 2% lower the fair value would increase by $7 million.

The debtor portfolio held by the Ministry of Social Development largely relates to benefit overpayments, advances on benefits and recoverable special needs grant. The gross book value was $832 million. Net book value was $409 million ($413 million in 2005/06) after allowing for doubtful debts reflecting the nature of the collectability of the debtors. The estimated fair value of the portfolio at 30 June 2007 was $358 million. The fair value is determined by discounting forecast expected repayments, (using Government's bond yield rates at 30 June 2007) and deducting the estimated collection costs.

The fair values of these debtor portfolios will differ to carrying values due to changes in market interest rates, as the carrying value is not adjusted for such changes, and in the treatment of credit losses. Carrying values adjust for credit losses that have been incurred while fair values capture adjustments for future credit losses as well. The difference between fair value and carrying value does not represent an impairment of the asset.

Note 11:  Other Investments#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
76 86 International Bank for Reconstruction and Development 67 86
81 92 Asian Development Bank 75 92
129 111 Other 234 145
286 289 Total Other Investments 376 323

Note 12:  Property, Plant and Equipment#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
    By Type    
    Gross Carrying Value    
11,801 14,111 Land (valuation) 15,639 13,803
22,487 23,092 Buildings (valuation) 22,631 21,859
2,668 2,540 Electricity distribution network (cost) 2,517 2,311
8,428 9,378 Electricity generation assets (valuation) 10,285 8,536
2,566 2,339 Aircraft (ex SME) (valuation) 2,115 2,068
16,757 19,339 State highways (valuation) 20,193 17,948
10,786 Rail network (valuation) 10,573
4,013 4,092 Specialist Military Equipment (valuation) 3,648 3,422
10,211 10,589 Other plant and equipment (cost) 10,870 9,692
7,250 8,368 Other assets (valuation) 8,288 7,965
454 417 Properties intended for sale (lower of book value or NRV) 462 467
86,635 105,051 Total Gross Carrying Value 107,221 88,071
    Accumulated Depreciation    
2,883 2,135 Buildings 1,374 1,307
421 388 Electricity distribution network 407 299
525 347 Electricity generation assets 255 111
444 223 Aircraft (ex SME)
689 719 State highways 776
155 Rail network 155
1,017 587 Specialist military equipment 573 344
6,420 6,626 Other plant and equipment 6,806 6,008
373 613 Other assets 332 561
12,772 11,793 Total Accumulated Depreciation 10,678 8,630
    Net Carrying Value    
11,801 14,111 Land (valuation) 15,639 13,803
19,604 20,957 Buildings (valuation) 21,257 20,552
2,247 2,152 Electricity distribution network (cost) 2,110 2,012
7,903 9,031 Electricity generation assets (valuation) 10,030 8,425
2,122 2,116 Aircraft (ex SME) (valuation) 2,115 2,068
16,068 18,620 State highways (valuation) 19,417 17,948
10,631 Rail network (valuation) 10,418
2,996 3,505 Specialist military equipment (valuation) 3,075 3,078
3,791 3,963 Other plant and equipment (cost) 4,064 3,684
6,877 7,755 Other assets (valuation) 7,956 7,404
454 417 Properties intended for sale (lower of book value or NRV) 462 467
73,863 93,258 Total Net Carrying Value 96,543 79,441
    By holding    
72,839 91,683 Freehold assets 94,507 77,858
1,024 1,575 Leasehold assets 2,036 1,583
73,863 93,258 Total Net Carrying Value 96,543 79,441

Note 12: Property, Plant and Equipment Assets (continued)#

State highways#

State highways comprise the land, formation works, road structure, drainage works and traffic facilities of the roads, plus bridges, culverts, tunnels, stock and pedestrian underpasses, protection works and retaining structures. The land, including that held for future highway development, was valued on a fair value basis while other elements of the state highways were valued on the basis of depreciated replacement cost. After allowing for new works and depreciation during the year to 30 June 2007, the depreciated replacement cost is assessed at $19,417 million ($17,948 million as at 30 June 2006).

Replacement costs were determined by estimating the costs of new construction of the network by the most appropriate method of construction. The methodology applied used information from the road assessment and maintenance management (RAMM) database and the bridge inventory held by Transit New Zealand. This information was supplemented by local knowledge and expertise of the valuers: Opus International Consultants and land and property valuations supplied by DTZ New Zealand Limited.

Rail network assets#

In 2004 the Crown purchased the national rail infrastructure and some related assets for $1. Effective from 1 July 2006 the measurement basis of rail network assets changed to depreciated replacement cost from historical cost.

The rail network assets comprise land, building, bridges, tunnels, tracks, level crossings, signals and electrification. The land was valued on a fair value basis while other elements of the rail network were valued on the basis of depreciated replacement cost. After allowing for new works and depreciation during the year to 30 June 2007, the net book value is assessed at $10,418 million ($256 million as at 30 June 2006[1]).

Replacement costs were determined by estimating the costs of new construction of the network by the most appropriate method of construction. This information was supplemented by Ontrack personnel knowledge and expertise of the valuers (DTZ New Zealand Limited).

Other assets#

There are difficulties associated with obtaining an objective valuation for some of the Crown’s assets. These are discussed below:

National Archives Holdings

Archives in the possession of Archives New Zealand have been valued and recorded at a best estimate of fair value as at 30 June 2007. Determination of the fair value of $564 million at 30 June 2007 ($559 million as at 30 June 2006) was based on a valuation in December 2003 using a methodology that divided the collection into categories by format and age, to associate records that could be said to have a broad commonality of value. Benchmark valuations were obtained from an independent valuer, Dunbar Sloane, through market assessments and from other collections of a similar nature to Government archives. Accessions since the date of the valuation are valued on the basis of these benchmarks. The value of the Treaty of Waitangi and other exceptional items were based on a valuation from an international auction house, Sotheby’s in December 2004 and from Dunbar Sloane in January 2005 respectively, through market assessments and from other collections of similar nature.

National library collections

The Heritage Collections are valued at fair value. The valuation was performed by National Library staff at 30 June 2003, with the valuation methodology reviewed by an independent valuer. The carrying value of $861 million as at 30 June 2007 ($858 million as at 30 June 2006) includes the value of purchases for the collections since the last revaluation and the value of material received through donation and legal deposit. Section 11 of the National Library of New Zealand (Te Puna Mātauranga o Aotearoa) Act 2003 requires the Crown to own the collections of the Alexander Turnbull Library in perpetuity. The Heritage Collections are not depreciated.

The General and Schools Collections are recorded at net book value of $20 million as at 30 June 2007 ($20 million as at 30 June 2006).

National parks, forest parks, conservation areas and recreational facilities

The Conservation Estate was recorded at their valuation of $4,667 million as at 30 June 2007 ($3,963 million as at 30 June 2006). The valuation of the Conservation Estate was based on rateable valuations prepared by Quotable Value New Zealand and was independently reviewed by valuersnet.nz.

The Department of Conservation recreational facilities were recorded at their fair valuation of $266 million as at 30 June 2007 ($256 million as at 30 June 2006). The recreational facilities are subject to an asset management plan and are recorded in the Visitor Assets Management System (VAMS).

The fences that border Conservation Estate areas or form part of the recreational facilities have been fair valued and recorded at $87 million as at 30 June 2007 ($75 million as at 30 June 2006). Fencing on land managed by 47 out of 51 Area Offices were sampled and valued by Department of Conservation staff, with the valuation methodology reviewed by an independent valuer. This was extrapolated to provide a national value.

The use and disposal of all the Crown land managed by the Department of Conservation is determined by legislation, in particular the Reserves Act 1977 and the National Parks Act 1980 and the Conservation Act 1987.

The Crown land managed by the Department is not subject to mortgages or other charges or treaty claims. Specific areas may, however, be included in the Treaty settlements if the Crown decides to offer those areas to claimants. Some areas may be subject to leases, licences or permits issued by the Department under concession provisions of the relevant legislation.

Parliamentary Library

The Parliamentary Library has been valued and recorded at $25 million ($25 million as at 30 June 2006). The reference collection is valued at historical cost and the heritage collection at current market value on a three yearly basis by the Service’s Library staff in accordance to guidelines released by the Zealand Library Association and the National Library of New Zealand.

Crown Research Institutes “collection type” asset values

The Crown, when establishing Crown Research Institutes in 1992, transferred various national databases and reference collections to individual Institutes at nil value. No reliable valuation is able to be obtained for these assets, and so they remain at nil value. Many of the databases and collections were specifically identified by the Foundation for Research, Science and Technology as being of significant importance and as such have covenants attached to them restricting an Institute’s ability to deal with them.

Notes

  • [1] Rail assets were recorded at historical cost less any accumulated depreciation as at 30 June 2006.

Note 13: Accounting Treatment of TEIs#

Section 27 (2) of the Public Finance Act 1989 (the Act) requires the Crown to prepare financial statements in accordance with generally accepted accounting practice. Section 27 (3) of the Act also requires the Crown to record its interest in entities such as Offices of Parliament and Crown entities within its financial statements.

The applicable financial reporting standards (FRSs) that determine the basis of combination of entities that make up the Government reporting entity are FRS 37: Consolidating Investments in Subsidiaries and FRS 38: Accounting for Investments in Associates.

FRS 37 provides the basis for establishing whether the Crown’s interest in an entity should be line-by-line combined. The control test in FRS 37 requires consideration of both the Crown’s level of power and the benefit in relation to entities.

FRS 37 is not clear about how the definition of control in FRS 37 should be applied in some circumstances in the public sector, particularly where legislation provides certain public sector entities with some statutory autonomy and independence. Treasury’s view is that line-by-line combination of such entities would provide a more conceptually complete and consistent picture of the Government’s financial activities and position. However, given the lack of clarity in applying FRS 37, the 2007 Financial Statements of the Government equity account the TEIs as the Crown cannot unilaterally determine their operating and financing policies, but does have a number of powers in relation to these entities.

The following table shows the financial effect if the revenue, expenses, assets and liabilities of TEIs were line-by-line combined and contrasts this with the treatment in the financial statements of equity accounting TEIs’ net surpluses and net assets. If TEIs were line-by-line combined there would be an increase in total revenues and expenses, total Crown debt and total assets and liabilities. The operating balance and net worth are the same under both accounting treatments.

Note that the “impact on total Crown” column in the following table represents 3rd party revenue and expenses of TEIs. This is because the impact on total Crown from combining TEIs line by line would be to increase revenues and expenses, but only to the extent the TEI totals were not funded by the Crown. The Statement of Financial Performance and Statement of Financial Position would alter as indicated in the following table.

TEIs as at 30 June 2007 $ millions Equity accounting
(current treatment)
2007
Impact on
total Crown[2] 
Equity accounting
(current treatment)
2006
Impact on
total Crown
Operating Results       ( ) = reduce item
Revenues - 1,804 - 1,843
Expenses - 1,684 - 1,789

Net surplus of TEIs

120 - 54

-

Operating Balance (no change) 120 120 54 54
Assets and Liabilities        
Assets        
Financial assets - 994 - 867
Property, plant and equipment - 6,484 - 5,684
Other assets   261   249
Net investment in TEIs 6,305 (6,305) 5,475 (5,475)

Total assets

6,305

1,434

5,475

1,325

Liabilities        
Gross debt   252   226
Other liabilities   1,182   1,099

Total Liabilities

 

1,434

 

1,325

Net Worth (no change) 6,305 - 5,475 -

Notes

  • [2] This is the impact on the total Crown results if a full line by line combination approach was adopted.

Note 14: Intangible Assets (including goodwill)#

Goodwill and intangible assets as at 30 June 2007 total $608 million ($630 million as at 30 June 2006). Intangible assets (including goodwill) comprise:

  30 June 2007
$m
30 June 2006
$m
Intangible assets 282 228
Goodwill 326 402
Total Intangible Assets 608 630

Goodwill is primarily made up of:

  • remaining goodwill on acquisition of Air New Zealand of $211 million ($258 million as at 30 June 2006). It is amortised over a 10-year period. This results in an expense of $47 million per year
  • goodwill on acquisitions by SOEs.

The following table reconciles the movement in goodwill during the year.

Description ($million) 30 June 2007 30 June 2006
Opening balance    
Gross goodwill 748 717
Accumulated amortisation (346) (259)
Net opening balance 402 458
Goodwill acquired during the period 23 19
Goodwill amortised during the period (99) (75)
Closing balance    
Gross goodwill 771 748
Accumulated amortisation (445) (346)
 Net closing balance 326 402

Note 15: Payables and Provisions#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
7,380 7,570 Accounts payable and accruals 8,451 8,899
2,742 3,570 Taxes repayable 4,000 3,570
514 486 Provisions 509 477
582 557 Provision for Kyoto Protocol 704 656
944 998 National Provident Fund guarantee 949 998
1,397 1,544 Provision for employee entitlements 1,736 1,533
13,559 14,725 Total Payables and Provisions 16,349 16,133

The Crown guarantees the payment of benefits by the Board of Trustees of the National Provident Fund. The annual report of these schemes as at 31 March 2007 (prepared in June 2007) and updated for discount rates at 30 June 2007, has indicated the DBP Annuitants Scheme, which contains pensioners only, has a deficit of $949 million, a decrease of $49 million from 30 June 2006.

Forecast   Actual
Original
Budget
Estimated
Actual
  30 June
2007
30 June
2006
$m $m   $m $m
    Analysis of Provisions    
488 477 Opening balance 477 466
142 244 Additional provisions made in the year 359 469
(112) (232) Provisions used in period (300) (360)
(4) (3) Reversal of previous provision (27) (98)
514 486 Closing Balance 509 477
    Analysis of Provision for Kyoto Protocol    
582 656 Opening balance 656 310
(99) Additional provisions made in the year 48 346
582 557 Closing Balance 704 656

Note 15: Payables and Provisions (continued)#

Provision for New Zealand’s obligation under the Kyoto Protocol#

  Actual
30 June 2007
Actual
30 June 2006
 

Emission Units [3]
million tonnes (Mt)

Emission Units
million tonnes (Mt)

Kyoto Target (Assigned Amount Units) 309.5 307.6
Less AAUs allocated to emission reducing projects 7.5 7.5
Total commitment target 302.0 300.1
Projected emission units    
Agriculture 203.1 198.7
Energy (including transport) and industrial processes 195.1 193.0
Waste 7.0 6.5
Solvent and other product use 0.3 0.3
Total projected emission units 405.5 398.5
Removals via forest 79.0 78.2
Deforestation Emissions (21.0) (21.0)
Less net removals via forests 58.0 57.2
Net projected emission units 347.5 341.3
Deficit in units 45.5 41.2
Deficit in $ millions 704 656

New Zealand ratified the Kyoto Protocol in December 2002. This international agreement commits New Zealand to reducing its average net emissions of greenhouse gases over 2008-2012 (the first commitment period of the Kyoto Protocol or CP1) to 1990 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.

The estimate of New Zealand’s net obligation as at 30 June 2007 is $NZ704 million (2006: $NZ656 million). This obligation is based on a deficit of 45.5 million emission units and a carbon price of $US11.90 per unit. The carbon price in New Zealand dollars equates to $NZ15.48, using the 30 June 2007 exchange rate of $US0.7689 = $NZ1. (30 June 2006: $US0.6063 = $NZ1, and carbon price $US9.65 per unit).

Provisions by their nature are more uncertain than most other items in the statement of financial position. Fluctuations in the value of the estimate may occur through changes in the assumptions underlying the quantum, movements in the price of carbon and the exchange rate with the United States dollar.

The quantum of the deficit has been compiled from agricultural, forest sink and deforestation projections provided by the Ministry of Agriculture and Forestry, energy (including transport) and industrial processes projections from the Ministry of Economic Development and waste projections from the Ministry for the Environment. The estimate includes the effects of refinements in modelling processes and updated assumptions on variables such as economic growth, population growth and oil prices as at May 2007. The projections use the latest information from the national inventory of greenhouse gas emissions and removals submitted to the United Nations Framework Convention on Climate Change Secretariat on 4 May 2007. Due to improvements in the Greenhouse Gas Inventory, New Zealand’s Assigned Amount Units have increased by 1.9 million. The new assigned amount has now been submitted to the Kyoto Protocol Compliance Committee and is unlikely to change from 309.5 million units.

Net removals via forests are reported after deducting 21 million tonnes for estimated deforestation of pre-1990 forests. This estimate assumes policy interventions to operationalise the Government’s current policy (established in October 2002) to cap its liability for deforestation at this amount. In the absence of policy interventions, and assuming current market conditions prevail, a deforestation intentions survey conducted in 2006 indicated likely deforestation of 41 million tonnes, which would result in a deficit for the Crown of 65.5 million units, and increase the liability to $NZ1.014 billion.

AEA Technology, an independent UK based firm, has assessed the robustness of the assumptions and methodologies underpinning the projections and found them to be sound and reasonable.

The carbon price has been determined by the Treasury. The Allen Consulting Group have reviewed this work and are satisfied that the methodology (and data sources) applied is a robust high level approach, and that $US11.90 is a reasonable carbon price estimate at this time for valuing New Zealand’s possible future liabilities under the Kyoto Protocol.

No liability or contingent liability for periods beyond 2012 has been recognised, as New Zealand currently has no specific obligations beyond the First Commitment Period. The architecture of any obligations in future periods has yet to be negotiated.

Subsequent to 30 June 2007, the Government has agreed in-principle that as part of its climate change response an Emissions Trading Scheme (ETS) will be implemented. The Government is engaging with stakeholders on the proposed ETS before final decisions are taken. The proposed ETS is a “cap and trade” scheme; that is, the level of emissions is capped with responsibility devolved to emitters to reduce emissions and/or trade emission units to ensure the net position (total emissions less purchased emission units) meet this cap. The impact on the Crown’s net obligation cannot be quantified at this stage as final decisions such as volume and allocation of units have not yet been taken. For further information on the proposed ETS, please refer to http://www.climatechange.govt.nz/.

Notes

  • [3] One emission unit is equivalent to one tonne of greenhouse gas emissions converted to carbon dioxide equivalents by the global warming potential.

Note 16: Government Superannuation Fund (GSF) Liability#

The GSF liabilities have been calculated by the Government Actuary as at 30 June 2007. The liabilities arise from closed schemes for past and present public sector employees (set out in the GSF Act 1956). A Projected Aggregate Funding Method, based on balance-date membership data, is used for the valuation. This method requires the benefits payable from the GSF in respect of past service to be estimated and then discounted back to the valuation date.

The GSF net unfunded liability as at 30 June 2007 was $10,309 million. This is a decrease of $1,129 million compared with 30 June 2006.

The 2007 movement in the net unfunded liability of $1,129 million reflects a decrease in the gross liability of $920 million and an increase in net assets of $209 million.

The main driver of the movement in the net unfunded liability are changes to the economic assumptions since 30 June 2006 of $1,090 million.

The significant economic assumption change was an increase in the average pre-tax discount rate to 6.34% (5.63% at 30 June 2006). Other principal long-term economic assumptions used in the calculation remained unchanged, which were an inflation rate of of 2.25% and an annual salary increase rate, before any promotional effects, of 3.0%. The remaining $39 million change in the net unfunded liability is due to actual fund experience.

If the discount rate at 30 June 2007 was 1% higher (for each future year) the gross past service liability would reduce by $1,615 million, if the discount rate was 1% lower (for each future year) the gross past service liability would increase by $1,996 million.

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
    GSF Liability and Asset Information    
    Gross GSF Liability    
15,361 15,231 Opening gross liability 15,231 14,952
(17) 323 Net projected change (920) 279
15,344 15,554 Closing Gross Liability 14,311 15,231
    Less Net Assets Available to the GSF Scheme    
3,768 3,793 Opening asset value 3,793 3,521
    Net projected change:    
186 382 -  Investment valuation changes 465 368
(97) (167) - Contributions and other income less
membership payments
(256) (96)
89 215 Total projected change 209 272
3,857 4,008 Closing Net Asset Values 4,002 3,793
    Net Unfunded Liability of the GSF Schemes    
11,593 11,438 Opening unfunded liability 11,438 11,431
(106) 108 Net projected change (1,129) 7
11,487 11,546 Net Unfunded Liability 10,309 11,438

Reconciliation of the movement in Unfunded Liability between years

  Actual
  30 June
2007
30 June
2006
  $m $m
Opening balance 11,438 11,431
Expected service cost 213 221
Expected interest cost 669 622
Change in underlying valuation assumptions (1,090) 359
Experience gains and asset gains (131) (197)
Expected return on assets (219) (207)
Change in data 86 (152)
Expected contributions (657) (639)
Closing Balance 10,309 11,438

Note 16: Government Superannuation Fund (GSF) Liability (continued)#

 

30 June
2007

30 June
2006

  $m $m
Liabilities to Pensioners    
Pensioners 8,789 9,054
Deferred pensioners 848 943
Liabilities to Contributors    
General Government Superannuation Fund members 3,738 4,051
Police 488 635
Armed Forces 305 389
Judges 48 58
Prison Services 39 41
Islands 41 45
Members of Parliament 15 15
Total Liabilities in respect of Past Services 14,311 15,231
Less Assets available to schemes 4,002 3,793
Total Net Pension Liabilities 10,309 11,438

Note 17: ACC Claims Liability#

Claims Obligation

The ACC claims liability is the amount of funds required to be invested now, so that together with the future investment earnings on those funds ACC has enough funding to meet the estimated future payment obligations on its current claims.

Liability Calculation

PricewaterhouseCoopers Actuarial Pty Limited have prepared the independent actuarial estimate of the ACC claims liability as at 30 June 2007. 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 administrative expenses of managing these claims.

The estimate of the claims liability as at 30 June 2007 was $13,735 million. This is an increase of

$1,020 million compared with 30 June 2006. The primary drivers of the increase were inflation, claims experience and forecast future claims costs, partially offset by an increase in the discount rate applied from 5.83% at 30 June 2006 to 6.61% at 30 June 2007.

Superimposed inflation is the increase in the cost of claims that is above general inflation. This is due to other influencing factors such as new medical treatment being available. A key assumption, which has financial significance, is the superimposed inflation for social rehabilitation for serious injury claims (which represents around 50% of rehabilitation liability) which has an allowance for superimposed inflation of 5% p.a. over the next five years and 1% thereafter. If superimposed inflation is assumed to be 0% after five years instead of 1% thereafter, this will decrease the gross liability by $442 million. If it is assumed to be 2.0%, this will increase the gross liability by $481 million.

Valuation Movement Due to Experience and Assumption Changes

If the assumptions underlying the 30 June 2006 valuation were used, the estimated 30 June 2007 valuation would be $13,434 million. The actual valuation for 30 June 2007 was $13,735 million. The difference in the two numbers was $301 million. This is shown in the following table:

 

As at
30 June
2007

As at
30 June
2006

Change
2007

  $m $m $m
30 June 2006 liability 12,715 12,715
30 June 2007 liability 13,735 13,434 (301)
Change in Liability 1,020 719 (301)

Components of the 2006/07 changes in gross liability

  $m
Expected change in gross liability valuation 719
Adjusted for actual inflation 143
Adjusted for claims experience and modelling 1,280
Adjusted for future economic assumptions (e.g. interest rates) (1,122)
  1,020

Note 17: ACC Claims Liability (continued)#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
    ACC Liability and Asset Information    
    Gross ACC Liability    
12,581 12,715 Opening gross liability 12,715 11,384
674 1,742 ACC claims liability movement 1,020 1,321
Transfer from other insurers 10
13,255 14,457 Closing Gross Liability 13,735 12,715
    Less Net Assets Available to ACC    
8,813 8,880 Opening net asset value 8,880 7,217
802 1,290 Net change 1,291 1,663
9,615 10,170 Closing Net Asset Values 10,171 8,880
    Net ACC Reserves (net liability)    
(3,768) (3,835) Opening reserves position (3,835) (4,167)
128 (452) Net change 271 332
(3,640) (4,287) Closing Reserves Position (net liability) (3,564) (3,835)
  Actual
  30 June
2007
30 June
2006
  $m $m
ACC Reserves by Account    
Residual Claims Account (1,694) (1,882)
Motor Vehicle Account (1,673) (1,660)
Non-Earners' Account (1,485) (1,309)
Treatment Injury Account (365) (352)
Earners' Account 558 532
Work Account 1,088
Self-Employed Work Account 76
Employers' Account 757
Account Reserves (3,571) (3,838)
Subsidiaries and revaluation reserves 7 3
Total Closing Reserves (3,564) (3,835)

The Self-Employed and Employers's Accounts have been merged and their reserves transferred into the Work Account on 1 April 2007. In addition, the Medical Misadventure Account has been renamed to the Treatment Injury Account in 2006/07.

The ACC reserves disclosed above represent the net assets and liabilities for each of the various accounts operated by ACC. Details on how the unfunded liability of each Account will be managed in the future are contained in the 2007 ACC Annual Report (broadly the policy is to fully fund the major Accounts by 2014).

Note 18: Revaluation Reserves#

Forecast   Actual
Original
Budget
Estimated
Actual
  30 June
2007
30 June
2006
$m $m   $m $m
27,989 37,633 Opening Balance 37,633 27,988
    Net Revaluations    
134 Land and buildings 2,545 2,386
State highways 868 2,559
10,329 Rail network 10,285
TEIs 692 1,705
Electricity generation assets 1,455 1,800
  Specialist Military Equipment (170) 406
26 Other assets 19 1,013
10,489 Total Net Revaluations 15,694 9,869
23 Transfers to taxpayer funds (224)
27,989 48,145 Closing Asset Revaluation Reserve 53,327 37,633
    Asset Revaluation Reserve (by component total)    
16,194 18,513 Land and buildings 20,901 18,356
4,683 7,242 State highways 8,110 7,242
10,329 Rail network 10,285
1,315 3,020 TEIs 3,712 3,020
2,695 4,495 Electricity generation assets 5,950 4,495
406 Specialist Military Equipment 236 406
3,102 4,140 Other assets 4,133 4,114
27,989 48,145 Closing Asset Revaluation Reserve 53,327 37,633

Note 19: Foreign Currencies#

All monetary amounts in these financial statements are expressed in New Zealand dollars. The New Zealand dollar closing rates for major currencies were:

  30 June 2007 30 June 2006
United States dollar 0.76890 0.60630
Japanese yen 94.80500 69.68000
British pound 0.38420 0.33075
Euro 0.57260 0.47695

Note 20: Risk Management#

The Crown is subject to a number of financial risks which arise as a result of its debt portfolios, investment funds and transactions with foreign and domestic suppliers that are undertaken by the entities that make up the Government reporting entity.

Individual entities that form the Government reporting entity are responsible for ensuring appropriate risk management strategies and policies are in place within any mandate provided by legislation (eg, the Public Finance Act has requirements on borrowing, investing and financial powers applying to departments). Information and risk disclosures for individual entities are disclosed in the relevant entity’s annual report. Key risk management strategies across the Crown include:

Core Crown#

The core Crown is risk averse and seeks to minimise net finance costs associated with its debt and maximise returns on its specific investment funds. Key strategies of material entities forming the core Crown segment include:

  • New Zealand Debt Management Office (NZDMO) is responsible for the efficient management of Crown debt and associated assets. NZDMO’s strategic objective is to maximise the long-term economic return on the Crown’s financial assets and debt in the context of the Government’s fiscal strategy, particularly its aversion to risk.
  • The Crown has a foreign-reserve policy that requires the Reserve Bank to manage sufficient levels of foreign currency reserves to intervene in New Zealand’s currency markets.
  • The Government Superannuation Fund and New Zealand Superannuation Fund are required to invest assets on a prudent commercial basis. In doing so they manage and administer the assets in a manner consistent with best practice portfolio management and maximising return without undue risk to the respective Fund as a whole.

SOEs and Crown entities#

  • The State-Owned Enterprises Act 1986 requires SOEs to operate commercially. With the varying nature of the activities of SOEs, each individual entity has its own risk management strategies (eg, the electricity industry is exposed to electricity spot rate movements).
  • As with SOEs, individual Crown entities are responsible for ensuring that they have risk management strategies appropriate to their operations. For example, ACC and the EQC will have specific policies in relation to the investment portfolios they manage.

Detailed risk management policy disclosure of Government reporting entities can be found in an individual entity’s Annual Report.

Credit risk

Credit risk refers to the risk of a loss due to the non-performance by counterparties to discharge an obligation.

Financial instruments which subject the Crown to credit risk include bank balances, receivables, advances, investments, interest rate options, forward rate agreements, foreign exchange forward contracts, foreign exchange swaps, interest rate swaps and foreign currency options.

The entities within the Crown reporting entity manage their exposure to credit risk by:

  • Maintaining credit exposure only with highly rated institutions, for which the probability of default is low. The creditworthiness of counterparties is continuously monitored.
  • Ensuring diversification of credit exposure by limiting the exposure to any one financial institution.
  • In some instances requiring a form of collateral from counterparties.

In addition the Crown is exposed to risk in relation to its holding of equity investments held largely by NZSF, GSF, ACC and EQC.

Concentration risk of credit exposure#

As at 30 June 2007 the concentrations of credit exposure by industry type were as follows:

  30 June 2007
$m
30 June 2006
$m
Sovereign issuers (excluding New Zealand sovereign-guaranteed) 6,311 5,762
Supranational financial institutions 405 1,337
Foreign banks 11,024 11,838
Other 38,378 28,751
Total Credit Exposure 56,118 47,688

As at 30 June 2007 the concentrations of credit exposure by geographical area were as follows:

  30 June 2007
$m
30 June 2006
$m
USA 12,462 14,411
Europe 16,482 11,612
Japan 1,786 1,722
Australia 3,719 2,363
New Zealand 18,596 12,894
Supranational 405 1,810
Other 2,668 2,876
Total Credit Exposure 56,118 47,688

As at 30 June 2007 the concentrations of credit exposure by credit rating using the lower rating of Standard & Poor’s or Moody’s were as follows:

  30 June 2007
$m
% of 2007
credit exposure
30 June 2006
$m
% of 2006
credit exposure
AAA 17,761 31.7% 16,681 35.0%
AA 15,180 27.1% 11,165 23.4%
A 2,784 5.0% 2,085 4.4%
IMF reserve position 183 0.2% 341 0.7%
Non-rated and other[4] 20,210 36.0% 17,416 36.5%
Total Credit Exposure 56,118 100% 47,688 100%

Interest rate risk#

Interest rate risk refers to the risk of loss due to adverse movement in interest rates. In general interest rate risk is managed strategically by issuing a mix of fixed and floating rate debt, including interest rate swaps. Derivative transactions outstanding as at 30 June 2007 are disclosed on page 78.

Foreign exchange risk#

Foreign exchange risk refers to the risk of loss due to adverse movements in foreign exchange rates. The range of instruments currently being used to minimise the Crown’s exposure to foreign exchange risk includes currency and interest rate swaps, foreign-exchange contracts and futures contracts. ACC, EQC, GSF and NZSF are exposed to foreign exchange risk through their foreign currency-denominated investments. The extent to which the foreign exchange exposure is hedged depends on the best practice and prudent policies adopted by each entity.

Refinancing/repricing risk#

Refinancing/repricing risk refers to the risk that maturing debt is refinanced, maturing assets are reinvested or instruments repriced are at an unacceptable yield.

As at 30 June 2007 assets and liabilities will mature or reprice within the following periods:

  Effective interest rate
%
Total 30 June 2007
$m
0-12 months
$m
1-2 years
$m
2-5 years
$m
5-10 years
$m
>10 years
$m
Domestic Assets              
Cash and deposits   3,618 3,618 - - - -
Marketable securities 4.6-8.2 25,005 20,235 1,879 1,073 869 949
Others 5.3-8.2 3,642 2,890 618 1 - 133
Foreign Assets              
Cash and deposits   1,098 1,098 - - - -
Marketable securities 4.0-4.2 6,952 4,684 184 490 1,122 472
Others   15,803 15,799 - - - 4
Total Assets   56,118 48,324 2,681 1,564 1,991 1,558
Domestic Liabilities              
Government stock 6.1 16,834 - 2,571 6,135 5,608 2,520
Treasury bills 7.5 2,080 2,080        
Retail stock 6.5 471 430 33 8    
Other 5-8.3 25,266 30,257 (1,195) (1,270) (1,328) (1,198)
Foreign Liabilities              
Foreign currency debt 3.2-7.9 (3,266) (5,774) 354 837 940 377
Total Liabilities   41,385 26,993 1,763 5,710 5,220 1,699

As at 30 June 2006 assets and liabilities were to mature or reprice within the following periods:

  Effective interest
rate [5]
%
Total 30 June 2006
$m
0-12 months
$m
1-2 years
$m
2-5 years
$m
5-10 years
$m
>10 years
$m
Domestic Assets              
Cash and deposits   3,770 3,770        
Marketable securities 5.8-8.2 2,036 (1,393) 184 1,797 1,437 11
Others 5.3 2,851 2,020 520 33 35 243
Foreign Assets              
Cash and deposits   1,243 1,243        
Marketable securities 2.4-4.3 24,604 21,192 693 718 1,500 501
Others   13,184 13,180       4
Total Assets   47,688 40,012 1,397 2,548 2,972 759
Domestic Liabilities              
Government stock 6.3 17,002 2,611   4,878 7,882 1,631
Treasury bills 6.9 4,860 4,860        
Retail stock 6.0 532 471 40 21    
Other 5.0-8.0 (4,049) (3,749) 2,791 (670) (1,338) (1,083)
Foreign Liabilities              
Foreign currency debt 6.0-7.6 21,082 17,402 855 835 1,418 572
Total Liabilities   39,427 21,595 3,686 5,064 7,962 1,120

Notes

  • [4] The non-rated and other credit rating amount largely relate to equity investments held by the NZS Fund, GSF, ACC and EQC.
  • [5] Where ranges of effective interest rates are provided above these are based on the weighted average rates provided by reporting entities.

Liquidity risk#

Liquidity risk refers to the loss due to the lack of liquidity preventing quick or cost-effective liquidation of products, positions or portfolios.

Liquidity risk is managed on an individual entity basis, which generally requires entities to hold assets of appropriate quantity and quality to meet all their obligations as they fall due.

Derivatives#

The Crown’s involvement in derivatives comprises currency and interest rate swaps, foreign exchange and futures contracts, foreign exchange and interest rate options outstanding.

Derivatives as at 30 June 2007

  30 June 2007
Book value
$m
30 June 2007  
Fair value
$m
30 June 2007
Notional value
$m
Foreign exchange contracts 653 565 43,055
Foreign exchange options 62 71 337
Currency swaps in gain position 1,298 1,251 16,122
Currency swaps in loss position (183) (479) 2,416
Net currency swaps 1,115 772 18,538
Interest rate options - 2 167
Interest rate swaps in gain position 129 452 15,070
Interest rate swaps in loss position (29) (433) 8,488
Net interest rate swaps 100 19 23,558
Futures in gain position 14 28 242
Futures in loss position (4) (9) 62
Net futures 10 19 304
Net Derivative Instruments 1,940 1,448 85,959

Derivatives as at 30 June 2006

  30 June 2006
Book value
$m
30 June 2006  
Fair value
$m
30 June 2006
Notional value
$m
Foreign exchange contracts 104 253 21,118
Foreign exchange options (537) (520) 11,568
Currency swaps in gain position 257 285 3,668
Currency swaps in loss position (793) (813) (1,078)
Net currency swaps (536) (528) 2,590
Interest rate options 1 1 125
Interest rate swaps in gain position 149 269 14,177
Interest rate swaps in loss position (48) (148) 3,635
Net interest rate swaps 101 121 17,812
Futures in gain position 43 85 635
Futures in loss position (11) (15) 365
Net futures 32 70 1,000
Net Derivative Instruments (835) (603) 54,213

Fair value of financial instruments#

As at 30 June 2007 the fair values of assets and liabilities were as follows:

  30 June 2007
Book value
$m
30 June 2007
Fair value
$m 
30 June 2006
Book value
$m
30 June 2006
Fair value
$m
Domestic Assets        
Cash and deposits 3,618 3,618 3,770 3,770
Marketable securities 25,006 23,824 2,036 1,598
Others 3,642 4,462 2,851 3,422
Foreign Assets        
Cash and deposits 1,098 1,098 1,243 1,243
Marketable securities 6,951 7,300 24,604 24,603
Others 15,803 15,803 13,184 13,184
Total Assets 56,118 56,105 47,688 47,820
Domestic Liabilities        
Government stock 16,834 16,397 17,002 17,546
Treasury bills 2,080 2,098 4,860 4,859
Retail stock 471 468 532 530
Other 25,266 24,852 (4,049) (4,346)
Foreign Liabilities        
Foreign currency debt (3,266) (2,586) 21,082 21,218
Total Liabilities 41,385 41,229 39,427 39,807

Refer to note 9 (student loans) and note 10 (accounts receivable) for discussion on carrying amounts compared to estimated fair values.

Note 21: Contingent Liabilities and Contingent Assets#

 

 

30 June 2007
$m
30 June 2006
$m
Guarantees and indemnities 171 405
Uncalled capital 2,076 2,592
Legal proceedings and disputes 1,170 1,032
Other quantifiable contingent liabilities 1,829 2,073
Total Quantifiable Contingent Liabilities 5,246 6,102
Total Quantifiable Contingent Assets 86 106

Only contingent liabilities involving amounts of over $10 million are separately disclosed. Contingent liabilities below $10 million are included in the “other quantifiable contingent liabilities” total. Comparatives have been adjusted where appropriate to align with the disclosure of new “material” contingent liabilities. The total amount of prior years’ contingent liabilities remains unchanged.

Contingent liabilities are costs that the Crown will have to face if a particular event occurs. Typically, contingent liabilities consist of guarantees and indemnities, legal disputes and claims, and uncalled capital. The contingent liabilities facing the 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 was realised it would reduce the operating balance and net worth and increase gross sovereign issued debt. However, in the case of contingencies for uncalled capital, the negative impact would be restricted to gross sovereign issued debt.

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

Contingent assets are potential assets dependent on a particular event occurring. As at 30 June 2007, the Crown had quantifiable contingent assets totalling $86 million ($106 million at 30 June 2006). $85 million relates to suspensory loans issued by the Ministry of Education to integrated schools.

Guarantees and indemnities#

Guarantees and indemnities are disclosed in accordance with FRS 15 Provisions, Contingent Liabilities and Contingent Assets.

Cook Islands – Asian Development Bank (ADB) loans 

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

$13 million at 30 June 2007 ($17 million at 30 June 2006).

Indemnification of receivers and managers – Terralink Limited

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

$10 million at 30 June 2007 ($10 million at 30 June 2006).

Ministry of Justice – Treaty settlements, tax liabilities

Under Deeds of Settlement completed in the Treaty settlement process the Crown has indemnified the appropriate governance entity against any goods and services tax or income tax liability arising from the payment of tangible redress.

$105 million at 30 June 2007 ($87 million at 30 June 2006).

Ministry of Transport – funding guarantee 

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

$10 million at 30 June 2007 ($10 million at 30 June 2006).

Guarantees and indemnities of SOEs and Crown entities

$18 million at 30 June 2007 ($19 million at 30 June 2006).

Other Guarantees and indemnities 

$15 million at 30 June 2007 ($262 million at 30 June 2006).

Uncalled capital #

The Crown’s uncalled capital subscriptions are as follows: Uncalled capital at
30 June 2007
$m
Uncalled capital at
30 June 2006
$m
Asian Development Bank 996 1,223
European Bank for Reconstruction and Development 12 15
International Bank for Reconstruction and Development  1,068 1,354

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

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

Health – legal claims

Claims against the Crown in respect of people allegedly contracting hepatitis C through contaminated blood and blood products.

$70 million at 30 June 2007 ($90 million at 30 June 2006).

Tax in dispute 

Represents the outstanding debt of those tax assessments raised, against which an objection has been lodged and legal action is proceeding.

$941 million at 30 June 2007 ($784 million at 30 June 2006).

Other legal claims against SOEs and Crown entities

$33 million at 30 June 2007 ($25 million at 30 June 2006).

Other legal claims

$126 million at 30 June 2007 ($133 million at 30 June 2006).

Other quantifiable contingent liabilities#

International finance organisations 

The Crown has lodged promissory notes with the International Monetary Fund.

$1,431 million at 30 June 2007 ($1,806 million at 30 June 2006).

Payment of the notes depends upon the operation of the rules of the organisation.

Ministry of Economic Development

The Crown has agreed to contribute funding to increase finals venue stadium capacity in preparation for the 2011 Rugby World Cup.

$146 million at 30 June 2007 (nil at 30 June 2006).

Reserve Bank – demonetised currency

The Crown has a contingent liability for the face value of the demonetised $1 and $2 notes issued which have yet to be repatriated.

$23 million at 30 June 2007 ($37 million at 30 June 2006).

Social Development – claim for judicial review

Claim for Judicial Review of the Ministry's interpretation and application of Special Benefit Direction. Proceeding is brought representatively - on behalf of all applicants for Special Benefit from 12 December 2000 to date, who have been declined special benefit for reasons of "no special or unusual circumstances".

$79 million at 30 June 2007 ($67 million at 30 June 2006).

Transpower New Zealand Limited – other quantifiable contingent liabilities

In the current self-regulating environment, Transpower operates its revenue setting methodology with an Economic Value (EV) framework that analyses economic gains and losses between those attributable to shareholders and those attributable to customers. The balance of the accumulated gain (loss) from monopoly activities attributable to customers (the EV balance) may be passed on to customers over time. Any such transfer would occur after consideration by Directors of the balance of this account and its likely future movement in order to preserve stability and predictability of prices.

$98 million at 30 June 2007 ($99 million at 30 June 2006).

Other quantified contingent liabilities of SOEs and Crown entities

$26 million at 30 June 2007 ($38 million at 30 June 2006).

Other quantifiable contingent liabilities

$26 million at 30 June 2007 ($26 million at 30 June 2006).

Unquantifiable Contingent Liabilities#

Accounting standard FRS 15 requires that contingent liabilities be disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Disclosure of remote contingent liabilities is only required if knowledge of the transaction or event is necessary to achieve the objectives of general purpose financial reporting. This part of the Statement provides details of those contingent liabilities of the Crown which cannot be quantified (remote contingent liabilities are excluded).

Guarantees and indemnities#

Asure New Zealand Limited

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

At Work Insurance Limited

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

Auckland Rail Lease

The Crown has indemnified Toll NZ Limited against any losses arising from breaches of the Sale and Purchase Agreement with the Crown relating to the purchase of the Auckland rail lease and infrastructure assets.

Bona Vacantia property

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

Building Industry Authority

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

District Court Judges, Justices of the Peace, Coroners and Disputes Tribunal

Section 119 of the District Courts Act 1947 indemnifies District Court Judges acting in their civil jurisdiction. Section 196A of the Summary Proceedings Act 1957 also indemnifies District Court Judges for any liabilities arising as a result of an act done by a Judge in excess of, or without, jurisdiction.

Section 117 of the Coroners Act 2006 confers on Coroners acting within the Coroner Act 2006 the same privileges and immunities as District Court Judges under the Summary Proceedings Act 1957.

Under section 197 of the Summary Proceedings Act 1957, Justices of the Peace are similarly covered as long as a High Court Judge certifies that they have acted in good faith and ought to be indemnified.

Section 58 of the Disputes Tribunal Act 1988 confers on Disputes Tribunal referees acting within the Disputes Tribunal Act 1988 the same protection as Justices of the Peace under the Summary Proceedings Act 1957.

Earthquake Commission (EQC) 

The Crown is liable to meet any deficiency in the EQC’s assets in meeting the Commission’s financial liabilities (section 16 of the Earthquake Commission Act 1993).

Electricity Corporation of New Zealand Limited (ECNZ) 

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

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

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

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

  • existing debt and swap obligations
  • hedge contracts and obligations
  • any liabilities that arise out of the split itself.

Ministry of Fisheries – indemnity provided for delivery of registry services

The Crown has indemnified Commercial Fisheries Services Limited against claims made by third parties arising from Commercial Fisheries Services undertaking registry services under contract to the Chief Executive of the Ministry of Fisheries. This indemnity, provided under the Fisheries Acts 1983 and 1996, expires on 30 September 2009.

Genesis Power Ltd (Genesis Energy)

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

Geothermal carbon tax indemnity 

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

Housing New Zealand Corporation (HNZC) 

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

HNZC has provided a Lender’s Mortgage Insurance Indemnity under a Mortgage Guarantee Scheme.The Minister of Finance is deemed under section 24(2) of the Housing Corporation Act 1974 to have guaranteed HCNZ in respect of Homebuy first mortgages insured by HCNZ through contracted insurance agents. HNZC ceased providing mortgage guarantees from 1 November 1991.

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

Indemnities against acts of war and terrorism

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

Maui Partners 

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

National Provident Fund

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

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

A provision has been made in these financial statements in respect of the actuarially assessed deficit in the DBP (Annuitants’) Scheme (refer Note 15 of the financial statements).

New Zealand Railways Corporation 

The Crown has indemnified the directors of the 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 any liability arising from the transfer of the rail network and associated assets and liabilities to the Corporation on 1 September 2004.

Persons exercising investigating powers 

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

Ports of Auckland

The Crown has entered into a confidentiality agreement with Ports of Auckland in relation to the purchase of two marinas. The agreement contains an indemnity against any losses arising from a breach of the agreement.

Public Trust

The Crown is liable to meet any deficiency in the Public Trust’s Common Fund (section 52 of the Public Trust Act 2001).

State Insurance and Rural Bank – Tax liabilities 

The Crown has granted to the purchasers of the State Insurance Office Limited and the Rural Banking and Finance Corporation Limited an indemnity for certain potential tax liabilities.

Synfuels-Waitara Outfall Indemnity

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

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

Tainui Corporation

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

Toll NZ Ltd – purchase of rail network assets

The agreement between the Crown and Toll NZ Ltd for the Crown’s purchase of the rail network and associated assets on 30 June 2004 contains the following provisions:

  • the Crown has indemnified Toll NZ Ltd against any liability arising from the assigned contracts, leases, etc after their assignment dates
  • the Crown has indemnified Toll NZ Ltd against certain potential claims by employees
  • the Crown has an option to purchase the Tranz Scenic Stations from Toll NZ Ltd for a period of three years (to 30 June 2007).

Other unquantifiable contingent liabilities#

Abuse Claims#

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

Accident Compensation Corporation (ACC) litigations#

There are several legal actions against ACC in existence, arising in the main from challenges to operational decisions made by ACC. No accrual has been made for such contingent liabilities as ACC will be vigorously defending these claims.

A particular issue before the courts is access of ACC claimants to lump sum compensation for asbestos related illnesses. On 3 June 2005 the High Court overturned a decision by the District Court made in 2004 that had upheld an interpretation that a lump sum payment was required to be paid in respect of one claimant. Leave to appeal this decision to the Court of Appeal has been granted to the claimant.

If the Court of Appeal overturns the decision made in the High Court, ACC could be exposed to substantial future liability in respect of claims for asbestosis and possibly other illnesses listed under Schedule 2 of the Injury Prevention Rehabilitation and Compensation Act 2001.

Environmental Liabilities#

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

During 2002/03 departments managing significant Crown properties undertook exercises to establish the nature and quantity of any contaminated sites. These exercises continued into the 2006/07 year. Where appropriate, departmental systems have been implemented to identify, monitor and assess potential contaminated sites.

In accordance with FRS 15: 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.

Rugby World Cup 2011#

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

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

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

Treaty of Waitangi claims#

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

Settlement relativity payments

The Deeds of Settlement negotiated with Waikato-Tainui and Ngai Tahu include a relativity mechanism. The mechanism provides that, where the total redress amount for all historical Treaty settlements exceeds $1 billion in 1994 present-value terms, the Crown is liable to make payments to maintain the real value of Ngai Tahu’s and Waikato-Tainui’s settlements as a proportion of all Treaty settlements. The agreed relativity proportions are 17% for Waikato-Tainui and approximately 16% for Ngai Tahu. The non-quantifiable contingent liability relates to the risk that total settlement redress, including binding recommendations from the Waitangi Tribunal, will trigger these relativity payments.

Foreshore and seabed

The Foreshore and Seabed Act 2004 (FSA):

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

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

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

Note 22: Impact of the Adoption of NZ IFRS#

This note outlines the process for adopting New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) for the Government reporting entity.

The Accounting Standards Review Board announced in December 2002 that reporting entities must adopt NZ IFRS for periods beginning after 1 January 2007, with earlier adoption optional. The Minister of Finance announced in 2003 that the Crown will first adopt NZ IFRS for its financial year beginning 1 July 2007.

Treasury is managing the adoption of NZ IFRS for the consolidated financial statements of the Government reporting entity. Individual entities included within the consolidated financial statements of the Government reporting entity are responsible for ensuring their own NZ IFRS preparedness. Treasury provides guidance to these entities and facilitates implementation on common issues.

The NZ IFRS adoption timetable required determination of the opening financial position at 1 July 2006. Comparative NZ IFRS financial information has been collected throughout 2006/07. Forecasts in Budget 2007 have been prepared on an NZ IFRS basis as will interim financial statements prepared in the 2007/08 financial year. The first set of audited financial statements prepared under NZ IFRS will be for the year ending 30 June 2008. The impact of NZ IFRS on the opening net worth at 1 July 2006 is detailed below. The impact of NZ IFRS on the financial year ended 30 June 2007 has yet to be established. A forecast of the impact was included in Budget 2007.

Draft NZ IFRS accounting policies for the Government reporting entity are available at www.treasury.govt.nz/nzifrs/. Significant changes to existing policies include:

  • initial recognition of all financial instruments at fair value
  • applying a risk premium to the valuation of the ACC liability, and
  • valuing the GSF liability on a pay-as-needed basis.

The impact of adopting NZ IFRS will only be finalised when the first set of audited financial statements are prepared for 30 June 2008.Until this time the NZ IFRS standards, and the application of these standards, may change and any consequential impact on net worth may be material.

Estimated impact on opening net worth#

($ million) Notes

As at
1 July 2006

Net worth per published accounts at 30 June 2006   71,403
Rail network valuation a 10,330
Net worth per existing GAAP at 1 July 2006   81,733
Changes as a result of transition to NZ IFRS    
Revaluation of GSF b 3,133
Inclusion of a risk premium on ACC liability c (1,603)
Inclusion of derivatives d 304
Fair value adjustments to receivables e (369)
Revaluation of NPF liability f 195
Other movements   196
Net worth per NZ IFRS   83,589

Notes

  1. On 1 July 2006 the accounting policy regarding the measurement basis of the rail network changed under existing GAAP to depreciated replacement cost. Previously this asset was reported at historical cost.
  2. The reporting of the Government Superannuation Fund (GSF) has changed due to applying a specific standard for employee benefits, including pension schemes, under NZ IFRS. The main changes to the financial statements are:
    • a reduction of $3.1 billion in the net liability of GSF due to valuing the liability on the basis that the Government meets its obligation on a pay-as-needed basis, rather than the amount to be invested today to fully fund future contributions under existing GAAP. This latter approach assumes the Fund would invest in assets that would generate revenue on which there would be an additional obligation to pay tax, and
    • a netting of GSF plan assets of $3.8 billion against the pension liability (nil impact on net worth).
  3. The reporting of the ACC liability has changed owing to the new requirements under NZ IFRS. The main changes to the financial statements are:
    • the ACC liability has increased by $1.6 billion due to adding an additional risk premium ($1.4 billion) and liability adequacy test on the unearned levy liability to meet estimated future claims ($0.2 billion). The actuarially calculated liability under existing GAAP represents a mid-point estimate – that is, equal chance of actual payouts being greater than or less than the estimate. To that extent, it represents the most likely outcome. Introducing an additional risk premium and liability adequacy test under NZ IFRS does not change the relative risk of ACC’s activities; rather it simply changes how this risk is reported
    • changes to the presentation of the unearned levy liability (nil impact on net worth).
  4. Under NZ IFRS all derivative contracts must be recognised in the statement of financial position at fair value. The adjustment is the cumulative effect of this treatment.
  5. Receivables from taxes and fines have been written down to reflect time value of money and collection costs.
  6. Like the reduction in the GSF liability above, the reduction in the National Provident Fund (NPF) liability is due to the tax effect of valuing the liability on the basis of present valuing the possible payments to this scheme under the current arrangements, rather than the current approach which determines what payment would be required today to settle all future obligations.

Additional Statements on Core Crown#

Core Crown Cash Flow Reconciliation to Government Stock Issues (for the year ended 30 June 2007)#

Forecast   Actual

Original
Budget

Estimated
Actual

 

30 June
2007

30 June
2006

$m $m   $m $m
Reconciliation of Net Core Crown Cash Flow from Operations with Net Cash Proceeds from Domestic Bonds
This statement outlines the core Crown bonds reconciliation.  Government stock balances and flows between NZDMO, the
NZS Fund and the GSF are not eliminated.  This presents the complete activity of the NZDMO bond programme.
    Core Crown Cash Flows from Operations    
51,499 52,868 Total tax receipts 53,321 50,507
503 463 Total other sovereign receipts 476 539
1,035 2,147 Interest, profits and dividends 1,991 1,893
1,387 1,606 Sales of goods and services and other receipts 1,356 1,449
(16,820) (16,622) Subsidies and transfer payments (16,454) (15,357)
(30,815) (30,750) Personnel and operating costs (29,930) (28,167)
(1,781) (2,200) Finance costs (2,226) (2,005)
(320) (80) Forecasts for future new spending
500 Top-down expense adjustment
4,688 7,932 Net Cash Flows from Operations 8,534 8,859
    Investing Flows    
    Net advances    
Student loans (658) (674)
Housing New Zealand Corporation (301) (44)
District health boards and RHMU (220) (105)
Tranz Rail New Zealand Limited (80) (57)
(957) (1,266) Other 72 58
(957) (1,266) Total Net Advances (1,187) (822)
(1,953) (2,141) Net Purchase of Physical Assets (1,806) (1,826)
    Net investments    
District health boards 11 (46)
Housing New Zealand Corporation (149) (216)
(441) (456) Other (206) (127)
(2,049) (2,049) Contributions to the NZS Fund (2,049) (2,337)
(500) (500) Purchase of Reserve Bank reserves (500) (500)
(256) Forecast new capital spending
200 Top-down capital adjustment
(3,246) (2,805) Net (Purchase)/Sale of Investments (2,893) (3,226)
(1,468) 1,720 Available for Debt Repayment/(Required to be Financed) 2,648 2,985
    Financing Activity    
2,493 (5,728) Other net sale/(purchase) of marketable securities and deposits (4,208) (2,039)
(1,132) 4,437 Net issue/(repayment) of other New Zealand-dollar borrowing 2,539 419
502 (497) Net (repayment)/issue of foreign currency borrowing (228) (1,801)
(23) (76) Net (inflows)/outflows of cash (508) 105
272 Issues of circulating currency 91 165
372 128 Net Cash Inflows/(Outflows) to be Offset by  Domestic Bonds 334 (166)
    Gross Cash Proceeds from Domestic Bonds    
2,438 2,511 Domestic bonds (market) 2,294 2,375
406 559 Domestic bonds (non-market) 570 740
2,844 3,070 Total Gross Cash Proceeds from Domestic Bonds 2,864 3,115
(2,777) (2,777) Repayment of domestic bonds (market) (2,777) (2,574)
(439) (421) Repayment of domestic bonds (non-market) (421) (375)
(372) (128) Net (Repayments of)/Cash Proceeds from Domestic Bonds (334) 166

Statement of Unappropriated Expenditure#

(for the year ended 30 June 2007)

An appropriation is a statutory authorisation by Parliament for the incurring of expenses or capital expenditure. This Statement reports expenses or capital expenditure without appropriation and in excess, or outside the scope, of existing appropriations. This Statement also reports breaches of projected net asset balance limits set by section 22(3) of the Public Finance Act 1989.

Section 26B of the Public Finance Act 1989 authorises the Minister of Finance to approve limited amounts of expenses or capital expenditure in excess of, but within the scope, of an existing appropriation.Unappropriated amounts incurred in terms of such an approval are shown separately in this Statement.

Expenses or capital expenditure incurred without or outside the scope of appropriation or any other authority is unlawful unless validated by Parliament. Unappropriated expenses or capital expenditure in excess of the limits which the Minister of Finance can approve under section 26B of the Public Finance Act 1989 require validating legislation. Such validating legislation will be accompanied by a report to the House of Representatives that sets out the unappropriated items together with an explanation of the Minister Responsible for the expenses or capital expenditure.

Amounts in this Statement are expressed in thousands of dollars, reflecting the level at which appropriations are made.

Unappropriated expenditure approved under
Section 26B of the Public Finance Act 1989
Appropriation The Supplementary
Estimates of Appropriations
Amount in excess
of Appropriation
Department
Vote –
  ($000) ($000)
Crown Law Office      
Attorney-General –      
  Departmental Output Expenses –    
  Supervision and Conduct of Crown Prosecutions 31,510 609
Customs Service      
Customs –      
  Departmental Output Expenses –    
  Clearance of International Passengers,
Crew and Craft
35,847 98
  Surveillance, Search and Containment 6,042 36
Ministry of Education      
Education –      
  Departmental Output Expenses –    
  Provision of Teacher and Caretaker Housing 18,857 89
  Special Education Services 175,147 823
  Other Expenses to be Incurred by the Crown –    
  Primary Education 2,069,445 4,628
Ministry of Fisheries      
Fisheries –      
  Departmental Output Expenses –    
  Fisheries Operations 23,714 266

Statement of Unappropriated Expenditure#

(for the year ended 30 June 2007) – continued

Unappropriated expenditure approved under
Section 26B of the Public Finance Act 1989 (continued)
Appropriation The Supplementary
Estimates
of Appropriations
Amount in excess
of Appropriation
Department
Vote –
  ($000) ($000)
Ministry of Health      

Health –

     
  Departmental Output Expenses –    
  DHB Funding and Performance 16,206 136

 

Departmental Output Expenses (Restricted by Revenue) –    
  Information Services 61,873 720
Department of Internal Affairs      
Emergency Management –      
  Other Expenses to be Incurred by the Crown –    
  Emergency Expenses 7,681 19
Office of the Ombudsmen      
Ombudsmen –      
  Departmental Output Expenses –    
  Investigation and Resolution of Complaints About
Government Administration
5,055 39

Parliamentary Service

     
Parliamentary Service –      
  Other Expenses to be Incurred by the Crown –    
  Member Support – Independent   24 3
Ministry of Social Development      
Child, Youth and Family Services –      
  Departmental Output Expenses –    
  Care and Protection Services  293,974 666
Veterans’ Affairs –      
  Benefits and Other Unrequited Expense –    
  War Disablement Pensions  122,187 249

Statement of Unappropriated Expenditure#

(for the year ended 30 June 2007) – continued

Unappropriated expenditure  
- Expenses and capital expenditure incurred
in excess of appropriation
Appropriation The Supplementary
Estimates of Appropriations
Amount in excess
of Appropriation
Department
Vote –
  ($000) ($000)
Crown Law Office      
Attorney-General –      
  Departmental Output Expenses –    
  Conduct of Criminal Appeals 1,933 218
Ministry of Economic Development      
Economic, Industry and Regional Development –      
  Non-Departmental Output Expenses –    
  Foundation Services – Business Information and Advice 9,083 25
  Growth Services – Customised Information and Advice 12,430 140
  Growth Services – Identifying and Leveraging New
Business Opportunities
26,946 1,985
Ministry of Education      
Education –      
  Departmental Output Expenses –    
  Provision of School Sector Property  1,121,429 21,472
  Other Expenses to be Incurred by the Crown –    
  Special Needs Support  261,258 1,577
Inland Revenue Department      
Revenue –      
  Other Expenses to be Incurred by the Crown –    
  Child Support Doubtful Debt Provision 58,171 6,335
  General Tax Doubtful Debt Provision 22,230 513,776
Ministry of Justice      
Courts  –      
  Other Expenses to be Incurred by the Crown –    
  Fines Writedowns 49,302 4,370
  Judicial Review Costs 650 75
Treaty Negotiations –      
  Departmental Output Expenses –    
  Property Portfolio Management 5,745 280
Land Information New Zealand      
Lands –      
  Capital Expenditure –    
  Crown Obligatory Acquisitions 267 329

1 The figure of $1,933,000 was the authority provided by the Appropriation (2006/07 Estimates) Act 2006, which was the authority in place when the in-year breach occurred.

Statement of Unappropriated Expenditure#

(for the year ended 30 June 2007) – continued

Unappropriated expenditure  
- Expenses and capital expenditure incurred in excess
 of appropriation (continued)
Appropriation The Supplementary
Estimates of Appropriations
Amount in excess
of Appropriation
Department
Vote –
  ($000) ($000)
Ministry of Maori Development      
Maori Affairs –      
  Departmental Output Expenses –    
  Services to the Maori Trustee 4,689 92
  Other Expenses to be Incurred by the Crown –    
  Provision for Maori Trustee Debt 4,649 92
New Zealand Defence Force      
Defence Force –      
  Departmental Output Expenses –    
  Land Combat Service Support Forces  121,629[1] 751
  Maritime Patrol Forces  159,898[2] 100
  Naval Combat Forces  417,686[3] 578
Veterans’ Affairs –      
  Departmental Output Expenses –    
  Policy and Administration 2,783 30
  Services to Veterans 2,190 34
Ministry of Pacific Island Affairs      
Pacific Island Affairs –      
  Departmental Output Expenses –    
  Communications 626 51
  Policy Advice 5,289 79
Parliamentary Service      
Parliamentary Service –      
  Other Expenses to be Incurred by the Crown –    
  Travel of Members and Others 9,854 660
Ministry of Social Development      
Youth Development –      
  Departmental Output Expenses –    
  Youth Development Policy Advice 2,548 53

Notes

  • [1] The Supplementary Estimates of Appropriations of $121,052,000 has been increased by $577,000 transferred into this Output Class by the Public Finance (Transfers Between Outputs) Order 2007 (SR 2007/174).
  • [2] The Supplementary Estimates of Appropriations of $160,375,000 has been reduced by $477,000 transferred out of this Output Class by the Public Finance (Transfers Between Outputs) Order 2007 (SR 2007/174).
  • [3] The Supplementary Estimates of Appropriations of $413,096,000 has been increased by $4,590,000 transferred into this Output Class by the Public Finance (Transfers Between Outputs) Order 2007 (SR 2007/174).

 

Statement of Unappropriated Expenditure#

(for the year ended 30 June 2007) – continued

Unappropriated expenditure
- Expenses and capital expenditure without
appropriation or other authority
Appropriation The Supplementary
Estimates of
Appropriations
Amount without
Appropriation
Department
Vote –
  ($000) ($000)
Inland Revenue Department      
Revenue –      
  Other Expenses to be Incurred by the Crown –    
  Tax receivable write-off - 811,055
Department of Labour      
Immigration –      
  Departmental Output Expenses –    
  Services to Increase the Capacity of New Zealand Through Immigration   145,528 882
  Services to Position New Zealand as an Inter-national Citizen with
Immigration-Related  interests and Obligations
  16,591 935
Ministry of Social Development      
Social Development –      
  Non-Departmental Output Expenses –    
  Capacity Building Initiatives  1,950 260
  Benefits and Other Unrequited Expenses –    
  Transition to Work  4,861 655
State Services Commission      
State Services –      
  Departmental Output Expenses –    
  Government Shared Network   -[1] 1,772
Ministry of Transport      
Transport –      
  Capital Expenditure –    
  New Zealand Railway Corporation   500 500[2]
  Net Assets Limit
per Estimates
Amount in excess of
Net Asset balance limit
Breaches of Projected Departmental Net Asset Schedules ($000) ($000)
Department    
Ministry of Foreign Affairs and Trade  337,208 4,368
State Services Commission  22,663 2,159

Notes

  • [1] The figure of $nil was the authority provided by the Appropriation (2006/07 Estimates) Act 2006, which was the authority in place when the in-year breach occurred.
  • [2] The payment to undertake public safety works was paid as a capital grant. Under the scope of the appropriation it should have been paid as a capital contribution.

 

Statement of Emergency Expenditure, Expenses or Liabilities#

(for the year ended 30 June 2007)

Under section 25 of the Public Finance Act 1989, if a state of national emergency is declared under the Civil Defence Act 1983 or if the Government declares an emergency because of any situation that affects the public health or safety of New Zealand, the Minister of Finance may approve expenditure of public money or incurrence of expenses or liabilities to meet such emergency or disaster whether or not an appropriation by Parliament is available for the purpose. Once expenditure, expenses or liabilities have been incurred, the amounts that have not been appropriated must be disclosed in the annual financial statements of the Crown for the financial year and sanctioned by Parliament in an Appropriation Act.

During the year, no such emergency expenditure, expenses or liabilities were incurred.

Statement of Trust Money#

(as at 30 June 2007)

Department

Trust Account

As at
30 June
2006

 Transfers  Contributions  Distributions  Revenue Expenses

As at
30 June
2007

  ($000)    ($000)  ($000)  ($000) ($000) ($000)
Agriculture and Forestry              
Meat Board Levies Trust - - 59,371 (59,386) 15 - -
Audit              
South Pacific Association of Supreme Audit Institutions Trust 28 - - - 6  (12) 22
Building and Housing              
Certifiers Bond Trust 178 - - - - -  178
Housing Tenancy Bonds Trust[1] - - - - - - -
Residential Tenancies Bond Trust 207,519 - 130,895  (107,438) - - 230,976
Child, Youth and Family Services              
Children and Young Persons and Their Families Agency Trust[3] 368  (368) - - - - -
Conservation              
Bonds/Deposits Trust 5,777 - 859  (632) 215 -  6,219
Conservation Project Trust 1,100 - 852  (675) 50 -  1,327
National Parks Trust 45 - 60  (7) 3    101
Walkways Trust 13 - - - 1 - 14
Wildlife and Reserves Trusts[2] - - - - - - -
Corrections              
Prisons Trust 546 - - - 12,431  (12,136)  841
Crown Law Office              
Legal Claims Trust 49 - - - 874  (858) 65
Culture and Heritage              
Australian Trust for Oral History Archives Trust  1,490   - -  (95) 110 -  1,505
Dictionary of New Zealand Biography Trust 348 - - - 20  (109)  259
New Zealand Encyclopaedia Trust 1 - - - - -   1
New Zealand Historical Atlas Trust 86 - - - 11 - 97
New Zealand History Research Trust 1,479 - -  (45) 97 -  1,531
War History Trust[2] - - - - - - -
Customs              
Alcohol Liquor Advisory Council Trust 1,054 - 13,595  (13,609) 17 -  1,057
Customs Regional Deposit/Bonds Trust 3,110 - 6,099  (5,233) - -  3,976
Heavy Engineering Research Association Trust 68 - 883  (889) - - 62
Maritime Safety Authority Trust[2] - - - - - - -
New Zealand Customs Service MDS Release Trust[4] - - 5,429  (5,315) - -  114
New Zealand Customs Service  MDS  Suspense Trust[4] - - 6,128  (6,102) - - 26
Economic Development              
Coal and Minerals Deposits Trust 235 - 72  (44) - -  263
Official Assignee's Office Trust 9,804 - 11,563  (8,776) 660  (3,725)  9,526
Patent Co-operation Treaty Fees Trust 101 - 1,164  (1,139) 13  (9)  130
Petroleum Deposits Trust 1,085 - - - 1 -  1,086
Proceeds of Crime Trust 3,358 - 2,968  (1,287) 263  (1,213)  4,089
Radio Frequencies Tender Trust 281 - 4  (73) 13 -  225
Education              
Code of Practice for Providers who  Enrol International Students Trust 3,933 - - - 4,886  (6,398)  2,421
Conferences Trust 2 - - - - -   2
Subtotal (carried forward) 242,058  (368) 239,942  (210,745) 19,686  (24,460) 266,113

Notes

  • [1] Account closed
  • [2] Inoperative account
  • [3] Account transferred to/from another department
  • [4] New account

 

Statement of Trust Money (continued)#

Department

Trust Account

As at
30 June
2006

 Transfers  Contributions  Distributions  Revenue Expenses

As at
30 June
2007

  ($000)    ($000)  ($000)  ($000) ($000) ($000)
Subtotal (brought forward) 242,058   (368) 239,942  (210,745)   19,686 (24,460) 266,113
Fisheries               
MAF Overfishing Account Trust  2,604 -   17,154 (15,761)  341   (284)  4,054
MAFFish Forfeit Property Trust  255 -  275   (235) 23 -  318
Foreign Affairs and Trade              
British Government/Tongan Parliamentary
Services Trust[2]
- -  - - - - -
 Cook Island Trust 11 -  1,712   (1,734) 14 -   3
Judicial Development Trust[4] - -  391 - - -  391
New Zealand/France Friendship Trust 10 -  105   (102)   1 (1) 13
 Niue Trust   23,086 -  595 -  1,342 -   25,023
 Samoa Trust[4] - -  461   (461) - - -
Health              
Health Benefits Offices Trust  300 -  -   (497) 4,332,794  (4,332,514) 83
Medicines Review Objectors Deposit Trust[2] - -  - - - - -
Inland Revenue              
Child Support Agency Trust Account  9,061 - 188,499  (173,451) - -   24,109
Reciprocal Child Support Agreement Trust  178 -   10,223 (10,248) - -  153
Internal Affairs              
New Zealand 1990 Scholarship Trust  545 -  - - 42 -  587
Unlimited Potential Programme Trust  339 -  - - 17   (217)  139
Vogel House Trust - -   2 (2) - - -
Justice              
Chief Electoral Trust[2] - -  - - - - -
Courts Law Trust    10,245 -  - -   16,477 (19,375)  7,347
Employment Court Trust  120 -  - -  820   (809)  131
Fines Trust    27,043 -  - - 202,914  (202,803)   27,154
Foreign Currency Trust[2] - -  - - - - -
Maori Land Court Trust  38 -  - - 15 (1) 52
Supreme Court Trust[2] - -  157   (123) - - 34
Victims' Claims Trust 40 -  - - 74  (67) 47
Labour              
Employment Relations Service Trust 45 -  282   (304)   1 - 24
Industrial Relations Act Security of Costs Trust - -   6 - - -   6
New Zealand Immigration Service Trust  7,216 -  5,484   (5,641)  331  (33)  7,357
Land Information New Zealand              
Crown Forestry Licences Trust  972 -   32,511 (32,619) 15 -  879
Deposits Trust  2,254 - 13 (3) - -  2,264
Endowment Rentals Trust   1 -  139   (132) - (7)   1
Hunter Gift for the Settlement of Discharged
Soldiers Trust
50 -   1 - - - 51
National Library              
Interloan Billing System Trust[4] - - 40 -  390   (425)   5
Macklin Bequest Fund Trust  220 -  - - 15 -  235
New Zealand Defence Force              
New Zealand Defence Force Trust - -  - -   10,713 (10,713) -
Year of the Veteran[4] - -  - - 12 - 12
Police              
Bequests, Donations and Appeals Trust 61 - 22  (21) - - 62
Found Money Trust  166 - 91  (73) - -  184
Money in Custody Trust  3,056 -  7,390   (1,603) - -  8,843
Reparation Trust   7 - 14  (13) - -   8
Rewards Money Trust[2] - -  - - - - -
Social Development              
Australian Recovery Debt Trust   5 - 48  (49) - -   4
Australian Dollar Reciprocal Trust[3]  183   (183)  - - - - -
Australian Dollar Embargoed Arrears Trust[3] -  183  1,931   (1,923) - -  191
Children and Young Persons and
Their Families Agency Trust[3]
-  368  -  (10) 23 -  381
Maintenance Trust  123 -  1,134   (1,210) - - 47
Netherlands Recovery Debt Trust - - 55  (54) - -   1
Overseas Debt Recovery Trust[2] - -  - - - - -
Treasury              
Trustee Act 1956 Trust  849 -  293   (236) 35 -  941
Total 331,141 - 508,970  (457,250) 4,586,095 (4,591,709) 377,247

Notes

  • [1] Account closed
  • [2] Inoperative account
  • [3] Account transferred to/from another department
  • [4] New account

 

Supplementary Information#

Government Reporting Entity as at 30 June 2007#

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

Departments

Agriculture and Forestry
Archives New Zealand
Building and Housing
Conservation
Corrections
Crown Law
Culture and Heritage
Customs
Defence
Economic Development
Education
Education Review Office
Environment
Fisheries
Foreign Affairs and Trade
Government Communications Security Bureau
Health
Inland Revenue
Internal Affairs

Departments

Justice
Labour
Land Information New Zealand
Māori Development
National Library
New Zealand Defence Force
Office of the Clerk
Pacific Island Affairs
Parliamentary Counsel Office
Parliamentary Service
Police
Prime Minister and Cabinet
Research, Science and Technology
Security Intelligence Service
Serious Fraud Office
Social Development
State Services Commission
Statistics
Transport
Treasury
Women’s Affairs

State-owned enterprises

Agriquality Limited
Airways Corporation of New Zealand Limited
Animal Control Products Limited
Asure New Zealand 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 New Zealand Limited (in liquidation)
Timberlands West Coast Limited
Transpower New Zealand Limited

 

Others

Government Superannuation Fund
New Zealand Superannuation Fund
Reserve Bank of New Zealand

Offices of Parliament

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

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

 

Crown entities

Accident Compensation Corporation
Accounting Standards Review Board
Alcohol Advisory Council of New Zealand
Arts Council of New Zealand Toi Aotearoa
Broadcasting Commission
Broadcasting Standards Authority
Career Services
Charities Commission
Children’s Commissioner
Civil Aviation Authority of New Zealand
Commerce Commission
Crown Health Financing Agency
Crown research institutes (9)
District health boards (21)
Earthquake Commission
Electoral Commission
Electricity Commission
Energy Efficiency and Conservation Authority
Environmental Risk Management Authority
Families Commission
Foundation for Research, Science and Technology
Government Superannuation Fund Authority
Guardians of New Zealand Superannuation
Health and Disability Commissioner
Health Research Council of New Zealand
Health Sponsorship Council
Housing New Zealand Corporation
Human Rights Commission
Land Transport New Zealand
Law Commission
Legal Services Agency
Maritime New Zealand
Mental Health Commission
Museum of New Zealand Te Papa Tongarewa Board
New Zealand Antarctic Institute
New Zealand Artificial Limb Board
New Zealand Blood Service

New Zealand Film Commission
New Zealand Fire Service Commission
New Zealand Historic Places Trust (Pouhere Toanga)
New Zealand Lotteries Commission
New Zealand Qualifications Authority
New Zealand Sports Drug Agency
New Zealand Symphony Orchestra
New Zealand Teachers Council
New Zealand Tourism Board
New Zealand Trade and Enterprise
New Zealand Venture Investment Fund Limited
Office of Film and Literature Classification
Pharmaceutical Management Agency
Police Complaints Authority
Privacy Commissioner
Public Trust
Radio New Zealand Limited
Retirement Commissioner
School boards of trustees (2,468)
Securities Commission
Social Workers Registration Board
Sport and Recreation New Zealand
Standards Council
Takeovers Panel
Te Reo Whakapuaki Irirangi (Te Māngai Pāho)
Te Taura Whiri i te Reo Māori (Māori Language Commission)
Television New Zealand Limited
Tertiary Education Commission
Tertiary education institutions (31)
Testing Laboratory Registration Council
Transit New Zealand
Transport Accident Investigation Commission

 

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

Agriculture and Marketing Research and Development Trust
Asia New Zealand Foundation
Fish and game councils (12)
Leadership Development Centre 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 Islands Business Development Trust
Research and Education Advanced Network New Zealand Limited
Reserves boards (24)
Road Safety Trust

 

Information on Property, Plant and Equipment#

This section provides supplementary information on certain assets that are contained in the Statement of Financial Position.

State Highway Network#

The map shows the state highway network that has a total length of 10,894 kilometres. Of this 5,972 kilometres are in the North Island and the remaining 4,922 kilometres in the South Island.

The Crown recognises 100% (by value) of the network in the Statement of Financial Position.

 

State Highway Network.

National Parks, Forest Parks and Conservation Areas#

The map shows the area covered by national parks, forest parks, conservation areas and reserves. The areas of each are:

  Hectares
National parks 3,085,447
Conservation areas 4,657,609
Reserves 792,954
Total Area 8,536,010

Fiordland National Park covers 1,260,742 hectares (15 % of the total area).

National Archives#

The National Archives, administered by Archives New Zealand, contains historically important archives, both textual and non-textual (including maps and plans, photographic prints and negatives and artworks). The collections held in Auckland, Wellington, Christchurch and Dunedin were completely revalued in December 2003.

Items of exceptional value held by Archives include the Declaration of Independence of the Northern Chiefs (1835), the Treaty of Waitangi (1840), the Letters Patent constituting New Zealand as a separate colony (1840), the proclamation of the Constitution Act (1853), and the Women’s Suffrage Petition (1893).

National Library Collections#

The National Library’s Heritage Collections are mainly in the Alexander Turnbull Library and provide a documentary record of New Zealand’s economic, social and cultural history. The collections, containing both published and unpublished material, include books, newspapers, manuscripts and archives, drawings and prints, scores and sound recordings, and cartographic and photographic items.

The General and Schools Collections provide a knowledge base for lending. The major collections are lending, schools and serials.

Specialist Military Equipment#

The major items of specialist military equipment included in the Statement of Financial Position are:

  • two ANZAC class frigates, including electronic sensors for surface and air surveillance
  • a fleet tanker
  • a multi role vessel
  • other ships, including a hydrographic/oceanographic surveying ship, a diving tender and five inshore patrol craft
  • six P3K Orion aircraft, equipped with sensors for conducting maritime air operations
  • a fixed wing transport force consisting of five C130 Hercules and two Boeing 757s
  • other aircraft, 14 Iroquois helicopters, five Sioux helicopters, and five Seasprite helicopters
  • 24 light gun howitzers
  • 12 Matra Mistral firing stations with Very Low Level Air Defence (VLLAD) capability
  • 105 Light Armoured Vehicles (NZ LAV)
  • 313 Light Operational Vehicles (LOVs).

There are major items of specialist military equipment held by the Crown, which are included in the Statement of Financial Position at zero value as they have been devalued. These include:

  • the air combat force, comprising the fleet of A4 Skyhawk and Air Macchi MB339 aircraft including all associated rotables, inventory and munitions
  • 77 armoured personnel carrier (APC) variants.

Information on SOEs and Crown Entities#

Accounting Policies#

The Crown’s financial interest in SOEs and Crown entities is reported in accordance with the Crown’s accounting policies. Adjustments have been made to restate the financial position and financial performance of certain entities, as reported in their own financial statements, to a basis consistent with the Crown’s accounting policies.

The Crown has line-by-line combined all SOEs and Crown entities (except TEIs).

The Crown has equity accounted 100% of the net assets of TEIs on the basis that, in the event of disestablishment of a TEI (which is subject to a resolution of the House), 100% of the net assets revert to the Crown in the absence of a decision to transfer the assets to a new or existing institution and, in the meantime, the Crown enjoys the benefits of the provision of a higher education to the public of New Zealand. Refer Note 13 for an explanation as to why TEIs are equity accounted.

Minority Interests#

The ownership interest in Air New Zealand Limited is 76.5%. The interest in Air New Zealand Limited is included within the total SOE information.

Balance Dates#

Except for those entities listed below, all SOEs and significant Crown entities have a balance date of 30 June, and the information reported in these financial statements is for the period ended 30 June 2007:

SOEs Balance date Information reported to
Asure New Zealand Limited 30 September 30 June 2007
Timberlands West Coast Limited 31 March 31 March 2007
Crown entities:    
School boards of trustees 31 December 31 December 2006
TEIs 31 December 30 June 2007

Financial Interest in SOEs, Crown entities and Air New Zealand Limited

  30 June 2007 30 June 2006
 

Total
revenue

Attributable
surplus/
(deficit)

Distributions
to Crown

Attributable
surplus/
(deficit)

Distributions
to Crown

  $m $m $m $m $m
SOEs          
Agriquality New Zealand Limited 85 (1)    -  1 (2)
Airways Corporation of New Zealand Limited 132 9 (6) 8 (8)
Asure New Zealand Limited 53 2 (2) 1 (2)
Electricity Corporation of New Zealand Limited 1    -     -  5 (5)
Genesis Power Limited 1,779 61 (10) 84    - 
Landcorp Farming Limited 138 25 (3) 20 (5)
Meridian Energy Limited 1,774 219 (368) 849 (878)
Meteorological Service of New Zealand Limited 31 2 (2) 3 (3)
Mighty River Power Limited 778 116 (50) 101 (36)
New Zealand Post Limited 1,461 70 (33) 69 (48)
New Zealand Railways Corporation 225 (17)    -  153    - 
Solid Energy New Zealand Limited 553 94    -  86 (20)
Timberlands West Coast Limited 19 (5)    -  (9)    - 
Transpower New Zealand Limited 652 137    -  97 (10)
Kordia Group Limited 264 12 (5) 6 (12)
Animal Control Products 6 1 (1) 1 (2)
Learning Media Limited 25    -     -  1    - 
Quotable Value New Zealand 42 2 (1) 1 (1)
Total State-owned Enterprises 8,018 727 (481) 1,477 (1,032)
Air New Zealand Limited[1] 4,381 19 (162) 322 (45)
Total SOEs and Air New Zealand Limited 12,399 746 (643) 1,799 (1,077)
Intra-segmental eliminations (369)
Total per statement of segments 12,030 746 (643) 1,799 (1,077)
Crown Entities          
Accident Compensation Corporation 3,900 268 330
Crown research institutes 612 9 (1) 31 (18)
District health boards (including the Crown Health
Funding Agency)
8,979 2 (23)
Earthquake Commission 498 52 706
Housing New Zealand Corporation 817 13 (20) 36 (14)
Museum of New Zealand Te Papa Tongarewa 47 (9) (11)
New Zealand Fire Service Commission 282 17 9
Public Trust 109 3 2
School boards of trustees 4,485 33 57
Tertiary education commission 2,405 5 16
Tertiary education institutions    -  120 54
Transit New Zealand 1,154 565 481
Television New Zealand Limited 375 (5) (15) 15 (80)
Other 4,959 414 26
Total Crown Entities 28,622 1,487 (36) 1,729 (112)
Intra-segmental eliminations (1,909) (147) (136)
Total per statement of segments 26,713 1,340 (36) 1,593 (112)
Total Financial Interest in SOEs, Crown Entities and
Air New Zealand Limited
38,743 2,086 (679) 3,392 (1,189)

Notes

  • [1] As outlined on page 81 of the 2002 Crown financial statements, on acquisition of Air New Zealand Limited, aircraft assets were recorded at fair value. Crown accounting policy is to revalue the aircraft assets annually, whereas the treatment adopted in Air New Zealand Limited's financial statements is to record aircraft values at the lower of carrying value or recoverable amount, the latter being defined as the higher of market value or value-in-use. Ongoing revaluation movements will impact on the result as presented under Crown accounting policies which is largely the reason the result included in the Financial Statements of the Government differs from that published in the financial statements of Air New Zealand Limited.

Financial Interest in SOEs, Crown entities and Air New Zealand Limited

 

Cashflow net
purchase
of assets

Property,
plant and
equipment

Total
assets

Total
borrowings

Total
liabilities

Equity at
30 June
2007

Equity at
30 June
2006

  $m $m $m $m $m $m $m
SOEs              
Agriquality New Zealand Limited 5 31 54 21 28 26 27
Airways Corporation of New Zealand Limited 13 103 142 29 100 42 39
Asure New Zealand Limited 1 20 12 8 8
Electricity Corporation of New Zealand Limited 18 16 17 1 1
Genesis Power Limited 163 1,625 2,162 405 657 1,505 1,453
Landcorp Farming Limited 5 1,170 1,429 205 250 1,179 1,145
Meridian Energy Limited 174 6,319 6,668 755 1,125 5,543 4,237
Meteorological Service of New Zealand Limited 5 10 17 4 9 8 7
Mighty River Power Limited 178 2,567 2,867 516 702 2,165 2,097
New Zealand Post Limited 76 441 5,487 4,649 4,894 593 536
New Zealand Railways Corporation 208 10,651 10,743 151 191 10,552 283
Solid Energy New Zealand Limited 54 314 545 15 217 328 234
Timberlands West Coast Limited 2 49 57 1 2 55 59
Transpower New Zealand Limited 299 2,413 3,089 1,593 1,677 1,412 1,254
Kordia Group Limited 30 153 222 75 114 108 97
Animal Control Products 1 5 1 4 4
Learning Media Limited 1 2 16 11 5 5
Quotable Value New Zealand 5 7 18 3 9 9 8
Total State-owned Enterprises 1,218 25,857 33,559 8,438 10,016 23,543 11,494
Air New Zealand Limited 507 2,748 4,696 1,384 3,107 1,589 1,621
Total SOEs and Air New Zealand Limited 1,725 28,605 38,255 9,822 13,123 25,132 13,115
Minority Interest
Intra-segmental eliminations (47) (18) (47)
Total per statement of segments 1,725 28,605 38,208 9,804 13,076 25,132 13,115
Crown Entities              
Accident Compensation Corporation 50 196 10,987 14,551 (3,564) (3,835)
Crown research institutes 59 339 503 52 163 340 332
District health boards (including the Crown Health
Funding Agency)
412 4,011 4,929 1,363 2,888 2,041 1,986
Earthquake Commission 4 13 5,386 74 5,312 5,260
Housing New Zealand Corporation 314 14,888 15,061 1,803 1,962 13,099 11,447
Museum of New Zealand Te Papa Tongarewa 8 954 988 7 981 975
New Zealand Fire Service Commission 26 471 534 9 81 453 403
Public Trust 1 8 840 785 794 46 43
School boards of trustees 188 858 1,838 41 694 1,144 1,044
Television New Zealand Limited 13 134 318 43 121 197 211
Tertiary education commission 4 7 125 108 17 18
Tertiary education institutions 396 6,305 6,305 5,475
Transit New Zealand 877 19,428 19,608 174 19,434 17,963
Other 41 197 3,058 1,373 2,253 805 500
Total Crown Entities 2,393 41,504 70,480 5,469 23,870 46,610 41,822
Intra-segmental eliminations (1,354) (1,184) (1,354)
Total per statement of segments 2,393 41,504 69,126 4,285 22,516 46,610 41,822
Total Financial Interest in SOEs, Crown Entities and
Air New Zealand Limited
4,118 70,109 107,334 14,089 35,592 71,742 54,937