How large are the Crown's commercial assets?
The Investment Statement reported the value of the commercial portfolio on a book value basis, meaning that both assets and liabilities were included separately. This is in accordance with Generally Accepted Accounting Practice (GAAP), and reflects the requirement that a consolidated report on the financial position of the Government needs to include the assets and liabilities that are controlled, whether through commercial entities or other means. This means that the Investment Statement is consistent with the Financial Statements of the Government of New Zealand.
However, from a balance-sheet management perspective, the size of the portfolio is best thought of in terms of its net (equity) value - that is, the net value of assets less liabilities. The rationale for this is that, as the Government owns the entities, the SOEs' assets and liabilities come as a package.
These differing perspectives lead to contrasting conclusions regarding the relative importance of the commercial portfolio to the Government's financial position. Using the gross reporting methodology, the Investment Statement reported the commercial portfolio as representing 23% of the Government's total assets as at 30 June 2010. However, under the net reporting approach, the portfolio represents 8% of total assets at this date. The equity valuation of 8% of the Crown's assets is more accurate from an internal decision-making perspective.
As explained in the Crown Ownership Monitoring Unit (COMU)'s 2010 Annual Portfolio Report, the Government is moving to the use of total shareholder value as a key measure of company and portfolio performance. As we develop a history of reliable valuations these will become more valuable measures of performance. Independent valuations of some SOEs are available on the COMU website www.comu.govt.nz
