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Financial assets and liabilities[1]

Introduction

Purpose

Figure 14 - Major financial assets and liabilities as at 30 June 2010
Source:  The Treasury

As part of prudent fiscal management, a number of mechanisms have been established to provide for future known or anticipated Crown liabilities and expected expenditure. Collectively these mechanisms comprise:

  • a portfolio of funds under management (FUM) and specific associated liabilities, namely future fiscal pressures from an ageing population, personal accidents, natural disasters and defined benefit pension schemes (NZSF, ACC, EQC, GSF, NPF - collectively the “Crown Financial Institutions”, or CFIs)[2]
  • borrowing to finance the Government's cash requirements, with associated assets held for liquidity purposes (NZDMO), and
  • New Zealand's central bank, with a range of assets and liabilities for financial system liquidity management and crisis intervention capability (RBNZ).

Current holdings

The financial assets are a sizeable part of the Crown's balance sheet. Their performance will have a significant impact on the Crown's ability to manage future challenges including known liabilities, economic shocks and natural disasters.

It is important, therefore, to consider their individual performance but also their collective performance. The Crown, and hence the taxpayer, bears the risk to the extent that any of the funds or entities underperform in managing the assets and/or the liabilities they cover. In addition, the residual liability of the portfolio lies with the Crown, and hence the taxpayer.[3]

The following table outlines the purpose and descriptions of the various assets and liabilities and their net worth (as at 30 June 2010 and based on the Government's Financial Statements, ie, with transactions between entities eliminated).

  Entity Purpose Assets Liabilities Net worth
Crown Financial Institutions New Zealand Superannuation Fund (NZSF)

To part fund future New Zealand Superannuation (NZS)

(NZSF is intended to help meet the future fiscal pressure on New Zealand Superannuation from an ageing population)

$15.9 billion
Risk profile: long-term, growth assets

Mainly active management of portfolio of largely equities and other growth assets.  Sizeable NZ portfolio.

($0.8 billion)

This liability represents obligations in relation to NZSF's investing activities.  There is no liability recognised in relation to meeting any future NZS payments.

 

$15.1b
Accident Compensation Corporation (ACC) To recognise the future obligation to provide personal injury cover, and to hold assets to fund that obligation

$13.7 billion
Risk profile: mixture of short-term and long-term

Mixture of cash (for short-term) and bonds/equities/ growth assets (for longer term).  Mix of NZ/offshore assets.

($27.3 billion)
Obligation to provide injury cover for accidents already incurred.
($13.6b)
Earthquake Commission (EQC) To hold assets to help meet the cost of a major earthquake or other natural catastrophe

$1.9 billion
Risk profile: low risk

Mainly government bonds, and some cash/equities.

($0.1 billion)

Obligation to meet the costs of natural disaster claims in the event of a catastrophe.

$1.8b
Government Superannuation Fund (GSF) To recognise the defined benefit pension scheme, and to hold assets to fund that obligation

Risk profile: medium risk

Mixture of growth assets and cash/fixed interest assets.

($10 billion)

(net liability: $12.9 billion liability offset by $2.9 billion in assets)
Obligation to meet the historical public sector pension scheme.

($10b)
Borrowing NZ Debt Management office (NZDMO) To fund the Government's expenditure

$5.7 billion
Risk profile: low risk

Mainly fixed interest, liquid assets to provide liquidity.

($41 billion)[4]
Government bonds and Treasury bills issued to finance current/past expenditure.
($35.3b)
Central Bank Reserve Bank of New Zealand (RBNZ) To manage financial/monetary system $22.8 billion
Risk profile: medium risk
($13.4 billion)
Primarily deposits from financial institutions and the Government; and currency in circulation.
$9.4b
 Portfolio total [5]   $60b ($92.6b) ($32.6b)

Source: The Treasury

Figure 15 - CFI portfolio asset allocation
Figure 15 - CFI portfolio asset allocation.
Sources:  COMU APR

The majority of the CFI portfolio is held in growth assets, with the remainder in bonds or cash. While these choices are made by the individual fund managers, the aggregate results are useful in understanding the Crown's overall risk exposure.[6]

Notes

  • [1]For the purposes of the Financial Statements of the Government any transactions between entities within the Crown reporting group are eliminated. However, the entity-specific reporting in this section includes transactions made to entities within the Crown reporting group, so reported numbers will differ.
  • [2]NPF schemes are managed and administered by a Trust, while the Crown is the guarantor of the benefits payable by the schemes. Because of this NPF is included in the section on “Provisions and contingencies”.
  • [3]COMU Annual Portfolio Report 2010 (APR).
  • [4]This figure includes liabilities incurred to support the provision of social assets as most of these are managed centrally by NZDMO.
  • [5]Transactions between entities have been eliminated in this table and so do not match the figures given for each entity in the entity-by-entity discussion in the remainder of this section.
  • [6]COMU APR.
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