Short-term fiscal intentions
The Government's intention is to return the total Crown OBEGAL to a surplus no later than 2014/15. Current forecasts set out in the 2012 Budget Economic and Fiscal Update show this being achieved.
The deficit peaked at $18.4 billion or 9.2 per cent of GDP in 2010/11. It is forecast to more than halve to $8.4 billion or 4.1 per cent of GDP in 2011/12. This improvement is driven by a six percentage point reduction in total Crown expenses as a portion of GDP, reflecting the unwinding of many of the one-off earthquake expenses incurred in 2010/11.
- Figure 7 - Total Crown operating balance (before gains and losses)
- Source: The Treasury
Further out, the path back to surplus is driven by a combination of a recovery in revenues as a share of GDP and a reduction in expenses as a share of GDP.
Table 3 shows the nominal growth in core Crown expenses over the next four years, including its forecast track relative to the Government's new spending limit.
In nominal terms, core Crown expenses are forecast to increase by $6.8 billion over the next five years. However, the Government is committed to ensuring that operating expenses grow more slowly than the economy as a whole, and within the bounds of the spending limit. This will see core Crown expenses as a percentage of GDP fall to 30.2 per cent of GDP by 2015/16 - the lowest level since 2004/05.
|
Year ended 30 June $billions |
2012 Forecast |
2013 Forecast |
2014 Forecast |
2015 Forecast |
2016 Forecast |
|---|---|---|---|---|---|
Movements in expenditure |
|||||
New spending |
|||||
| Budget 2011 decisions | 0.4 | (0.1) | (0.4) | (0.3) | (0.3) |
| Budget 2012 decisions | (0.7) | 0.5 | 0.6 | 0.4 | 0.6 |
| Budget 2013 allowance | - | - | 0.8 | 0.8 | 0.8 |
| Budget 2014 allowance | - | - | - | 1.2 | 1.2 |
| Budget 2015 allowance | - | - | - | - | 1.2 |
Forecast changes |
|||||
| New Zealand Superannuation costs | 0.8 | 1.4 | 2.0 | 2.8 | 3.5 |
| Other social assistance | (0.1) | - | (0.1) | (0.1) | 0.1 |
| Emissions Trading Scheme | (0.2) | (0.6) | (0.6) | (0.4) | (0.2) |
| Debt impairments | 0.2 | 0.5 | 0.6 | 0.4 | 0.5 |
Other movements |
|||||
| Finance costs | 0.5 | 0.7 | 0.9 | 1.2 | 1.2 |
| Weathertight homes | (0.8) | (0.6) | (0.6) | (0.6) | (0.6) |
| Earthquake expenses | (0.9) | 0.6 | (1.2) | (1.4) | (1.5) |
| Other movements | (0.1) | 0.8 | 0.4 | 0.4 | 0.3 |
| Increase/(decrease) in core Crown expenses | (0.9) | 3.2 | 2.4 | 4.4 | 6.8 |
| 2011 Core Crown expenses | 70.5 | 70.5 | 70.5 | 70.5 | 70.5 |
| Core Crown expenses | 69.6 | 73.7 | 72.9 | 74.9 | 77.3 |
| Core Crown expenses (% of GDP) | 33.5 | 33.8 | 31.5 | 30.7 | 30.2 |
| Core Crown spending limit1 | 63.5 | 66.9 | 68.8 | 71.3 | 73.6 |
| Core Crown expenses covered by spending limit | 63.5 | 65.3 | 66.0 | 68.2 | 70.6 |
| Difference | - | (1.6) | (2.8) | (3.1) | (3.0) |
1. The spending limit excludes Unemployment Benefits, debt financing costs, asset impairments, and natural disasters
Source: The Treasury
On the capital side, the Crown's net worth is forecast to initially weaken before stabilising towards the end of the forecast period. The Government's capital priorities will result in changes in the composition of the Crown balance sheet (Figure 8).[4]
The Government's Social Portfolio is expected to grow the most in net value, by $12.2 billion over the next five years, consistent with the Government's prioritisation of capital towards the highest-value social and infrastructure areas. The Government intends to manage the Social Portfolio in a manner consistent with delivering value-for-money public services, as well as concentrating new investments in areas where ownership risks cannot cost-effectively be carried by the private or not-for-profit sectors.
- Figure 8 - Crown's balance sheet
- Source: The Treasury
The Government's Commercial Portfolio is expected to grow by $2 billion over the next five years.
The Government's Financial Portfolio is the only portfolio expected to experience a decline in net value, from -$47.2 billion to -$63.1 billion. This underscores the importance of the Government's commitment to rebuilding the Crown's financial buffer and holding and accumulating financial assets, where appropriate, against future adverse events.
Notes
- [4]The Crown's balance sheet consists of three portfolios. The "Social Portfolio" consists of the assets and liabilities held primarily to provide public services or to protect assets for future generations; the "Financial Portfolio" reflects assets and liabilities held by the Crown to finance or pre-fund government expenditure; while the Crown's "Commercial Portfolio" consists of the portfolio of companies held with purely commercial objectives. For more details, see the Investment Statement of the Government of New Zealand 2010 on the Treasury website (www.treasury.govt.nz).
