The Forecast Balance Sheet

The following table shows the forecast movement in the balance sheet over the next five years. The forecast asset values in the table below do not include revaluations of physical assets.

Source: The Treasury

The table above shows that although assets are forecast to increase by $32.9 billion from $223 billion to $256 billion over the period, liabilities are forecast to increase by $44.8 billion, driven largely by an increase in borrowing and an increase in the ACC liability. This results in a $12 billion decrease in net worth over the period.

1. These figures are a proxy based on the assumption that funding for purchasing PPE by departments and Crown entities equates to depreciation expenses.
2. These figures have been calculated by subtracting depreciation from total purchases of PPE.

Source: The Treasury

The table above identifies the sources of forecast funding for investment in PPE. These sources include existing agency funding from operational revenue, allocations from the annual capital allowance up to and including Budget 2010 (future allocations are not included, but some spending from earlier allocations is being phased over future years) and hypothecated taxes such as fuel excise. The figures provided are estimates of how actual capital expenditure will be funded and the anticipated timing of expenditure.

Source: The Treasury

The table above shows how different assets are forecast to increase owing to cash expenditure or reinvestment, and how total asset values will be reduced by, for example, depreciation on PPE and the reduction of financial assets.[1]

Figure 32 - Changes in assets over the forecast period (2010 to 2015)

Source:  The Treasury

The large “other changes in assets” movement in 2011 is a result of a reduction in EQC assets following on from the Canterbury earthquake, and the large upward movement in 2012 reflects Kiwibank forecast of deposits.

The table shows that:

• total investment over the next 5 years is large, at just over $70 billion, and is about double the forecast increase in assets, at $32.9 billion
• about half the total investment is in PPE ($36.1 billion), and about a third of this investment is by SOEs and the other half by social agencies - largely in roads, schools and hospitals
• the other half of the total investment is largely in CFIs (NZSF and ACC), but also a sizeable increase in student loans ($8 billion), and
• new capital invested by the Government each Budget is a relatively small proportion of the total investment, at $4 billion.

As illustrated for the 2009/10 year in Section 1 of this Investment Statement, public capital expenditure supporting the growth in these assets is funded by different means:

• Specific or hypothecated tax revenue - Capital expenditure on roads is the largest category of spending. Capital expenditure on roads is funded from hypothecated tax revenue in the form of Petrol Excise Tax and Road User Charges. Other specific taxes include ACC levies.
• New borrowing - During periods where an operating deficit is being run, a large proportion of capital expenditure on social assets is funded by new borrowings. For example, the second largest category of capital spending after roads is education. Expenditure on the health sector and defence is also funded out of new borrowing.
• KiwiRail is the third largest area of spending on physical assets. KiwiRail is not expected to generate an operating surplus over the forecast period, therefore this capital expenditure will also be funded by core Crown borrowing.
• SOE and Air NZ cash surpluses - The three electricity generators/retailers are cash flow positive and will fund their forecast capital expenditure from their own surplus cash at the expense of dividends returned to the Crown. Transpower and Air NZ capital expenditure is also funded from their surplus cash.
• Sale of existing assets - A small proportion of expenditure is funded from the sale of existing assets. For example, housing capital expenditure is funded from a combination of the sale of existing state houses, HNZC operating surpluses and some funding received from the Crown (funded from new borrowings).