Investment in PPE

Departments, Crown entities and SOEs all acquire PPE. Table 4.2 breaks total PPE additions and funding sources down across the three entity types.

Table 4.2 - PPE additions, 2007 to 2010
$million	2007	2008	2009	2010	Total
PPE additions:
Departments	1,569	1,137	1,625	1,755	6,086
Crown entities	2,002	2,205	2,588	2,410	9,205
SOEs	1,695	1,942	3,045	2,390	9,072
Total PPE additions	5,266	5,284	7,258	6,555	24,363
Funding sources by portfolio:
Departments
Proceeds from asset disposals	74	46	67	56	243
Core Crown activity used to fund past budget capital allowances	1,003	511	513	844	2,871
Core Crown activity	492	580	1,045	855	2,972
Total dept PPE funding	1,569	1,137	1,625	1,755	6,086
Crown entities
Proceeds from asset disposals	65	54	81	87	287
Hypothecated revenue for roading	888	1,034	1,232	1,267	4,421
Revenue from core Crown activity used to fund past budget capital allowances	233	283	301	352	1,169
Revenue from core Crown activity	816	834	974	704	3,328
Total CE PPE funding	2,002	2,205	2,588	2,410	9,205
State-owned enterprises
Proceeds from asset disposals	153	144	257	109	663
Borrowing by SOEs	389	529	321	814	2,053
Core Crown activity used to fund past budget capital allowances	-	70	690	38	798
Operating surpluses generated by SOEs	1,153	1,199	1,777	1,429	5,558
Total SOE PPE funding	1,695	1,942	3,045	2,390	9,072
Total PPE funding	5,266	5,284	7,258	6,555	24,363

Source: The Treasury

As explained in Section 2, this analysis requires a number of assumptions.

However, in general terms:

total investment in PPE has been large, with roughly 63% of this in social assets held by departments and Crown entities
asset disposals have played only a small part in funding recent acquisitions, providing just 5% of total PPE funding
new capital invested by successive governments through the annual capital allowance is most significant for departments but overall represents only 20% of total investment ($4.8 billion of $24.4 billion).[22] It is reasonable to assume that the capital allowance will be sourced from overseas borrowings in years when the Government is running a deficit, as at present
dedicated (hypothecated) revenue streams are significant for funding the state highway network but not for other government-owned assets
the vast bulk of spending funded by general revenues (primarily new borrowing and current taxation) occurs in the housing, District Health Board and education sectors
within the investment funded by core Crown activities, there is no direct link between depreciation funding[23] and individual asset purchases, and
over the past four years, SOEs - with the exception of KRG - have generally been able to fund capital investment from their operating cash flows. However, there has also been an increase in SOE debt raised on commercial terms in recent years. Other sources of funds have made relatively modest contributions.

[22]Allocations will not sum to the capital allowance for any given year, owing to timing differences between the decision to allocate funds and their eventual use.
[23]Depreciation funding is a shorthand expression that recognises that when an agency is funded for all of its costs, including the costs of assets being consumed over time, cash reserves will become available to provide a source of funds for replacement capital expenditure. Depreciation funding is within departmental baselines and so sourced from revenue from core Crown activities.

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