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Foreword

I am pleased to present this first Investment Statement of the Government of New Zealand.

In Budget 2010, I indicated that better information about significant assets and liabilities on the Crown's balance sheet, and how well they are being managed, could form the basis of a regular statement of the Government's investment intentions over the short to medium term. This report will enable greater scrutiny of the Government's management of its assets and liabilities.

New Zealand has been a world leader in the transparency of the Government's accounts since the early 1990s, and remains one of only a few countries that prepare a sovereign balance sheet according to independent accounting standards. This transparency has a number of benefits, including contributing to our sound sovereign credit rating. But there is always room to improve.

The introduction of the Investment Statement to the regular suite of financial reporting documents will further strengthen this framework. It will assist our drive to help New Zealanders to get a better handle on government spending and the risks to the Crown's financial position, and on the extent to which this may be undermining or crowding out opportunities for growth-enhancing private sector investment in New Zealand.

Effective management of Crown assets, and making the best future investment decisions, is important if we are to realise our economic goals and deliver better public services.

Over the past 15 years there has been a fundamental change in the size and mix of assets and liabilities on the Crown's balance sheet, with the value of the Government's assets now more than four times the size it was in the mid-1990s and now more than double the size of borrowings and liabilities. This has led to significant growth in the Crown's net worth from around zero in the mid-1990s to around $95 billion in 2010 (50% of Gross Domestic Product [GDP]).

These changes have materially increased the significance of the performance and management of the Crown's assets on the Government's overall financial position and long-term sustainability, as well as on the wider economy. The impact on the economy is direct in some areas, given the Government is a major player in key sectors of the economy (such as energy) and holds core parts of the national economic infrastructure (such as roads).

Better fiscal management requires us to look across the whole of the Government's assets and liabilities to ensure that our investments and risks are managed effectively. The global financial crisis and sovereign debt concerns in other countries have reinforced the need for strong public sector financial management, and for enhanced transparency and accountability around government finances.

Better balance sheet transparency and management will help us to make more informed choices about the most efficient use of domestic resources in the economy as a whole, and is therefore an important element of our overall economic agenda. A strong and stable economy in turn reduces the need for the Crown balance sheet to compensate, for example, for the low level of household savings and high external vulnerabilities.

Against this background, decisions about how to utilise Crown capital need to be carefully made, particularly as over the next few years new Crown capital funding will be borrowed and will therefore impose a financing cost on taxpayers. Much new investment will ultimately be funded by users of government services. In either case, it is essential that Government ensures that capital is both efficiently allocated and well managed.

Looking forward, there are a number of challenges and opportunities. We will need to continue to look for ways to get the best performance out of all State assets and companies, while rebuilding the strength of the Crown's balance sheet against future risks and pressures.

It is my hope that this InvestmentStatement achieves two main objectives that we can build on in future reports:

  • greater transparency about the Government's management of its material assets and liabilities, and the challenges we face looking ahead, and
  • an indication of the Government's high-level investment priorities for the short and medium term.

Hon Bill English
Minister of Finance

14 December 2010

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