The balance sheet has experienced significant growth over the past 15 years

The balance sheet has experienced significant growth over the past 15 years and is now much stronger than it was.

Figure 4.1 - Net values of portfolios in 1995 and 2010

Source: The Treasury

As can be seen in Figures 4.1 and 4.2, expansion in assets has outstripped that of liabilities across all three portfolios. The social portfolio has experienced the single largest increase in net value, driven by a $66.9 billion increase in assets and a minor reduction in liabilities. This expansion in the social portfolio is expected to persist in the future as the Government continues to prioritise capital to its highest value use, particularly in the areas of social services and infrastructure investment. The past 15 years have also seen strong growth in the commercial portfolio. The net value of the Crown's commercial holdings grew four-fold over the period, representing proportionately the largest growth of the three portfolios. Despite significant growth in its assets, growth in the financial portfolio was comparatively modest as the large asset growth was offset to a significant degree by a substantial increase in liabilities to fund spending elsewhere.

Overall, this expansion across all three portfolios resulted in a significant improvement in the Crown's net worth, from a negative position in 1995 to a positive $95 billion in 2010. The global financial crisis has, however, led to a decline in net worth since 2008.

Figure 4.2 - Financial positions of portfolios in 1995 and 2010

Source:  The Treasury

Figures 4.3, 4.4 and 4.5 breakdown the movements within each portfolio into the main factors contributing to them.

Figure 4.3 - Breakdown of social portfolio changes

Source:  The Treasury

Figure 4.3 shows that three main factors have been behind the substantial growth in the social portfolio over the past 15 years:

• Revaluations have accounted for approximately 60% of the overall increase in social value. These revaluations are primarily driven by increases in land values and as such are concentrated in the areas with the largest property portfolios - state highways, housing, schools and conservation make up 85% of the social revaluations. Increases in market prices for areas such as housing and schools, and inflation in the costs of construction for state highways, have also caused higher replacement values for the buildings and capital formations on the land.
• The initial recognition of assets has contributed $1.9 billion to the social portfolio since 1995. This primarily consists of previously unrecognised areas of the state highway network and the recognition of roughly $300 million of Department of Conservation fences.
• Approximately a third of the social portfolio's expansion comes from other changes, which largely represents capital allocations for new investment in social assets from each year's Budget.

As mentioned, the Crown's commercial holdings experienced the greatest relative growth of the three portfolios. As Figure 4.4 shows, this significant expansion was caused by a number of elements:

• Revaluations account for the majority of the change over the past 15 years, representing almost 85% of the overall increase. While this includes increases in the value of underlying assets, especially the growth in property values, the majority of the revaluations reflect changes in accounting policies. The largest of these was the change in the accounting recognition of KRG's track assets in 2006, from a commercial to a replacement cost basis. This saw their reported value increase from a nominal sum to around $13 billion. For the energy SOEs, as well as growth in underlying commercial values, the shift from cost valuation to an independent fair value approach[19] has led to their large representation in the revaluation figures.
• Reinvestment from surpluses formed a relatively small proportion of the growth in commercial assets, at $2 billion, while other changes account for just over 10% of the growth in value.