Managing the Crown's Balance Sheet
The Government has moved to more consistent and deliberate management of the Crown's balance sheet - that is, what it owns and what it owes.
Since the global financial crisis, nominal government spending on capital has risen to around 18 per cent of total fixed capital formation in the economy, as private investment has fallen. This increase, up from around 13 per cent prior to the crisis, means that the Government is playing a bigger role in total investment activity within the New Zealand economy. The Government now owns a total of $240 billion of assets (as at June 2012). Government debt has also risen significantly over recent years.
The Government's balance sheet strategy involves:
- rebuilding the Crown's balance sheet buffer against future risks and adverse events, in the first instance by reducing debt as a share of GDP
- encouraging asset ownership only when it is necessary to deliver core public services and only after other arrangements have been explored
- looking to dispose of assets that are surplus to requirements or no longer fit for purpose
- prioritising capital to its highest value use, including establishing the Future Investment Fund to reinvest the proceeds of the Government's share offers in higher-priority public assets
- introducing private sector capital and disciplines where appropriate; for example, with the development of partnership schools or the use of public-private partnerships for the Hobsonville schools and Wiri prison
- more active monitoring of Crown-owned entities such as State-owned Enterprises and Crown Financial Institutions (CFIs), with a view to raising performance, reducing risks, and ensuring the efficient use of capital, and
- better monitoring of actual investment performance against expectations.
Over the forecast period, new capital spending will be funded from the Crown's balance sheet, including from the proceeds of the Government's share offer programme. This will lead to some changes in the composition of the Crown balance sheet (Figure 13).[1]
- Figure 13 - Crown's net assets by portfolio
- Source: The Treasury
The Government's social net asset portfolio is expected to grow the most in value, by $13.9 billion over the next five years. 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.
The Government's commercial portfolio is expected to grow marginally by $0.5 billion over the next five years.[2]
The government's financial portfolio is expected to grow by $5.9 billion, reflecting growth in CFIs.
Notes
- [1]The Crown’s balance sheet broadly 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).
- [2]Accounting standards require that the full value of the assets in the companies involved in the Government's partial share sales remain on the Crown's balance sheet after the sale. The ownership of those assets does change, and this is reflected in the increase in minority interests. Further discussion on the Government's sale programme is included in the Treasury's Budget Economic and Fiscal Update.
