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Budget 2010 Home Page 2010 Investment Statement of the Government of New Zealand

How the balance sheet has changed over time

The Crown uses a number of fiscal indicators to measure the overall movements in the balance sheet over time. There are three main balance sheet fiscal indicators: net debt; net worth; and net worth excluding social assets.

All three fiscal indicators show the recent deterioration of the Crown's balance sheet caused by the domestic recession, resulting from structural imbalances in the New Zealand economy, and the global financial crisis. The net debt position of the Crown has worsened as a percentage of GDP for the first time since 1991, indicating a higher debt burden and associated interest costs. Net worth measures have also begun to decline for the first time in a decade.

Net debt

Figure 4 - Net debt as a percentage of GDP
Figure 4 - Net debt as a percentage of GDP.
Source:  The Treasury

Net debt is the primary fiscal anchor targeted in this Government's fiscal strategy, calculated as core Crown borrowings less financial assets (excluding advances and NZSF financial assets) and is a measure of what the Crown owes in financial terms. It is measured as a percentage of GDP to give an indication of the Crown's ability to service this debt. Figure 4 shows how net debt has trended since 1992.

At 30 June 2010, the New Zealand Crown's level of net debt stood at 14.1 percent of GDP.

Historically, net debt cyles have been long. Net debt trended upwards from 1972 to 1992 (20 years), trended downwards from 1992 to 2008 (16 years) and is forecast at the 2010 Half Year Economic and Fiscal Update (HYEFU) to peak in 2014/15 (7 years) at 28.5% of GDP.

In assessing appropriate and prudent settings for Crown debt levels, it is necessary to take into account the country's net external debt levels as a whole, which are high because of very high private sector external liabilities.

Net worth

Figure 5 - Net worth between 1992 and 2010
Figure 5 - Net worth between 1992 and 2010.
Source:  The Treasury

Net debt is the measure comonly used in international comparisons, partly because it is commonly available. On its own, however, net debt provides an incomplete measure of the Government's financial position - it excludes, for example, a number of important liabilities and commercial assets.

Net worth is a more complete measure and is an important measure of long-term solvency and the fiscal sustainability of the Crown. It is calculated as the Crown's total assets less total liabilities, and captures changes to all of the assets and liabilities on the balance sheet. Figure 5 shows how the components of net worth have moved over time in nominal terms along with the resulting net worth value.

The Crown's net worth as a percentage of GDP, shown below, has also increased significantly, illustrating the increasing significance of the Crown's balance sheet in the economy as a whole.

Table 1 - Total Crown net worth as a percentage of GDP (June years)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
14.2 9.6 11.2 12.9 18.0 20.9 27.3 35.2 52.0 56.4 57.8 53.9 50.2

Source: The Treasury

Net worth excluding social assets

Net worth excluding social assets compares financial and commercial assets to liabilities, and is another measure of the Crown's liquidity and solvency.

The measure indicates the Crown's ability to repay its liabilities from its financial and commercial assets alone. These assets are held largely to support the Government's financial management and may therefore provide a more accurate picture of the “buffer” needed alongside low debt levels. (Rising net worth owing to increasing land values under schools and roads is of little value for the Government in creating that buffer.)

Financial and commercial assets generate a financial return to the Crown. For this reason, the risk and volatility of this part of the balance sheet may have greater implications for the Government's fiscal position, and particularly cash flows, than changes in the value of social assets.

The table below shows how net worth excluding social assets has changed since 2002.

Table 2 - Net worth excluding social assets[1]
$ million 2002 Actual 2003 Actual 2004 Actual 2005 Actual 2006 Actual 2007 Actual 2008 Actual 2009 Actual 2010 Actual
NWESA (21,561) (20,274) (1,377) (6,347) 3,057 9,350 10,281 (1,846) (7,698)

Source: The Treasury


  • [1]This is the measure used in Budget documents, which uses a different definition of social assets than is used in this Investment Statement. The Budget measure of net worth excluding social assets consists of the financial assets of the core Crown and Crown entities, all the assets of SOEs (excluding the physical assets of KiwiRail) and total liabilities.
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