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Budget 2015 Home Page Fiscal Strategy Report - Budget 2015

Managing the Crown's Balance Sheet

Crown assets support the delivery of valuable public services.

The most recent forecasts show the Crown currently owns $265 billion of assets (up from $223 billion five years ago) and has $185 billion of liabilities. The difference between these numbers represents the Crown's net worth (Figure 13).

Figure 13 - Net worth attributable to the Crown
Figure 13 - Net worth attributable to the Crown   .
Source: The Treasury

Crown net worth is expected to continue to increase in line with the improving fiscal outlook, and the forecast reduction in net debt.

The Government's spending on new capital in the Budget since 2012 has been financed from the FIF. But new capital allowances in the Budget only make up a small component of total capital spending by the Crown. Over the next five years, forecasts show $24 billion will be spent on capital across all parts of the Crown (Figure 14). Managing this spending well is important.

Figure 14 - Total capital spending over the forecast period
Figure 14 - Total capital spending over the forecast period   .
Source: The Treasury

The Government has moved to more consistent and deliberate management of its balance sheet. This strategy involves, amongst other things:

  • encouraging asset ownership only when it assists in delivering public services
  • recycling capital to better uses, for example by reinvesting the proceeds from the Government share offers in electricity companies and the reduction in the Crown's shareholding in Air New Zealand (Box 2)
  • introducing private sector capital and disciplines where appropriate
  • better monitoring of Crown-owned entities and of actual investment performance against expectations, and
  • requiring Government agencies to provide better analysis and planning for capital use and spending, improve capital investment decisions, develop meaningful asset performance measures, and increase transparency in the use of Crown assets to deliver outcomes.

Execution of this balance sheet strategy will ensure the Government gets the best value possible from its capital spending and from the Crown's existing assets.

Box 2: Performance of the listed electricity companies

The Government share offers in three electricity companies - Mighty River Power, Meridian Energy and Genesis Energy - have achieved a number of balance sheet objectives.

The Crown has reduced the exposure of all New Zealanders to the risks involved in owning commercial companies, and has received just under $4.7 billion in proceeds for investment in new public assets through the FIF.

In addition, the share offers have introduced sharper commercial disciplines, more transparency and greater external oversight of the companies involved. This is reflected in the dividends these companies are now paying shareholders – of which the Crown is by far the largest. For example, the Crown has received more in dividends from Genesis Energy this year as a 51 per cent owner than it did in the best year between 2000/01 and 2012/13, when it was a 100 per cent shareholder (Figure 15). Similar improvements in dividends have been seen for the other two electricity companies.

Figure 15 - Total dividends paid by Genesis Energy to all shareholders
Figure 15 - Total dividends paid by Genesis Energy to all shareholders   .
Source: The Treasury

These higher dividends have not been paid at the expense of electricity consumers. The energy component of electricity prices actually decreased slightly in 2014, and the Electricity Authority is anticipating flat to declining electricity prices in 2015, on average across New Zealand.

Some of the increase in dividends from the three electricity companies reflects factors separate from the share offers. For example, none of the three companies are currently building new power stations in New Zealand, and this means a greater portion of their cash flows is available for distribution to shareholders. However, the Crown would not have received this level of dividends without the sharper commercial disciplines on the companies from the share offers programme.

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