Better Balance Sheet Management
Effective management of existing Crown assets is important if we are to realise our economic goals and deliver better public services. The Government is putting in place mechanisms to ensure that government agencies manage their infrastructure assets effectively over their whole life, recognising that making better use of existing infrastructure is just as important as investing in new assets. The Government expects greater efficiency from the management of existing assets at all levels of government.
For the Government to make effective investment decisions, it requires the right information. We need to build up a set of information that will enable us to have a comprehensive overview of the assets and liabilities on the Government’s balance sheet and the movements in those values. This information could form the basis of a regular statement of the Government’s investment intentions over the short to medium term. Student loans are a good example of the need for increased transparency around the Government’s assets and liabilities. The governance and accountability for these is currently split across agencies and across reporting documents. It is difficult for the public to get a clear view on how well the $10 billion (nominal) value of the loan portfolio is being managed and what it is costing the taxpayer. A stocktake or regular report would set out this sort of information for significant assets across the balance sheet.
The Crown balance sheet as at 30 June 2009 consisted of $217 billion of assets and $118 billion of liabilities. The assets can be categorised as:
- social assets (around 45%); largely physical assets held for social purposes, such as roads, state housing, schools, hospitals and national parks
- financial assets (around 30%); largely cash and debt and equity securities held by the New Zealand Debt Management Office (NZDMO), Reserve Bank of New Zealand and the Crown financial institutions to meet future expenditure and as a buffer for future shocks, and
- commercial assets (around 25%); held by the State-Owned Enterprises (SOEs) and Air New Zealand, predominantly electricity generation and transmission assets.
Crown liabilities are dominated by debt issued by the NZDMO and future payments for accident compensation. Some liabilities are quite uncertain, such as any potential losses associated with the Retail Deposit Guarantee Scheme. Further fiscal risk is created by contingent liabilities which sit off the balance sheet, such as the Crown's potential obligations in the event of a major natural disaster.
The assets and liabilities that the Crown holds expose it to a range of fiscal risks that need to be managed. Different parts of the balance sheet have different risk profiles that reflect their different characteristics. The overall strength of the balance sheet helps to manage fiscal risks by acting as a buffer against fiscal pressures, such as an economic downturn or an ageing population.
