Core Crown – Expenses

Source: The Treasury

Core Crown expenses are forecast to increase by around 1% of GDP between 2006/07 and 2010/11.

Figure 2.8 – Core expenses ($ and % of GDP)

Source: The Treasury

The growth in expenses has largely arisen from expense initiatives announced in recent Budgets. A number of the policy decisions made in previous Budgets have rising spending profiles to allow sufficient time for full implementation. Around $1 billion of the increase in spending between 2006/07 and 2007/08 relates to previous Budget announcements like Working for Families and KiwiSaver.

Budget 2007 also influences expense growth. It includes an additional $2.2 billion of spending rising to $3.3 billion[9] of spending. The main expense elements of Budget 2007 include:

• an enhancement to the KiwiSaver initiative that was introduced in Budget 2005, initially costing $0.3 billion in 2007/08 rising to $1.1 billion by the end of the forecast period. This equates to 0.6% of GDP in 2010/11, and
• an additional $0.8 billion per annum on health-related spending.

The Executive Summary provides a detailed breakdown on the new initiatives for operating (expenses and revenue) and capital.

In nominal terms, expenses are forecast to increase by $12.1 billion between 2006/07 and 2010/11. The major drivers of this increase are:

• the Budget 2007 package and recent Budget packages ($4.3 billion)
• forecast new operating initiatives for future Budgets ($6.1 billion), and
• indexation of benefits, primarily New Zealand Superannuation ($1.5 billion).

Forecast new operating and capital initiatives

The fiscal forecasts include indicative amounts for new operating and capital initiatives.

The allowance for Budget 2008 is forecast to be $3.1 billion. Around $1.1 billion of this has already been earmarked for Business Tax Reform. The remaining $2 billion is assumed for forecasting purposes to be used for increased expenditure.

New initiatives for the 2009 and 2010 Budgets remain at around $2 billion and $2.1 billion. It is also assumed for forecasting purposes all of the forecast new operating initiatives in these Budgets are allocated to increased expenditure, although in practice some portion could be used to finance revenue reductions.

Figure 2.9 – Net amounts for new operating initiatives (GST exclusive)

Source: The Treasury

Capital initiatives

As part of the 2007 Budget, the Government has allocated $1.6 billion of new capital over the next four years. Amounts for the 2008, 2009 and 2010 Budgets have been set at $0.9 billion phased in over four years, some of which falls outside the forecast horizon. On a year-by-year basis, capital spending is forecast to be on average $2.0 billion per annum over the next five years.

Net Worth

Source: The Treasury

In line with the Government’s fiscal strategy, net worth is forecast to increase from $89.7 billion in 2006/07 to $112.4 billion by 2010/11. This strategy is evident across the whole of the Crown. The following section focuses on the net worth of the core Crown segment of reported Government activity.