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Budget 2007 Home Page Budget Economic and Fiscal Update [2007]

Core Crown – Expenses

Table 2.8 - Expense indicators
Year ended 30 June
OLD GAAP NEW GAAP
Expenses 2006
Actual
2007
Forecast
2007
Forecast
2008
Forecast
2009
Forecast
2010
Forecast
2011
Forecast
($billion)              
Core Crown 49.9 53.8 52.8 56.1 58.8 61.7 64.9
Core Crown (excluding GSF valuation) 49.6 53.2
Total Crown 65.1 69.7 67.9 71.9 75.6 79.6 83.5
(% of GDP)  
Core Crown 31.8 32.6 32.0 32.4 32.8 33.0 33.1
Core Crown (excluding GSF valuation) 31.6 32.3
Total Crown 41.5 42.3 41.2 41.5 42.2 42.6 42.5

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.

Table 2.9 – Capital spending
  Year ended 30 June
  2007 Forecast 2008 Forecast 2009 Forecast 2010 Forecast 2011 Forecast Total
($million)            
New capital spending up to Budget 2008 164 67 56 23 310
Budget 2008 20 480 250 150 900
Budget 2009 20 480 250 750
Budget 2010 20 480 500
  184 567 806 903 2,460
Purchase of physical assets 2,141 1,803 1,201 1,179 1,034 7,359
  2,141 1,987 1,768 1,985 1,937 9,819

Top-down Adjustment to Spending

The core Crown operating and capital spending for 2006/07 in the forecast incorporates a downward adjustment of $700 million to take into account the timing delays in departmental spending. The adjustment is made on both a cash and accrual basis, and is split between operating ($500 million) and capital ($200 million).

The level of the adjustment has been based on analysis of previous expenditure delays and a review of the actual outturn to 31 March 2007.

No adjustment is made to subsequent years for possible under spending.

Net Worth

Table 2.10 –Net worth comparison with Half Year Update
  Year ended 30 June
Net worth OLD GAAP NEW GAAP
($billion) 2006 Actual 2007 Forecast 2007 Forecast 2008 Forecast 2009 Forecast 2010 Forecast 2011 Forecast
Total Crown net worth 71.4 88.5 89.7 96.1 101.6 107.0 112.4
Core Crown net worth 40.1 45.9 49.1 53.6 57.2 60.9 64.7
SOE net worth 13.1 24.0 22.1 23.0 23.7 24.4 25.1
Crown entities' net worth 41.8 42.6 39.7 41.4 42.8 43.8 44.9

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.

Notes

  • [9]The Budget 2007 package is $2.5 billion rising to $3.1 billion. The package includes a mixture of revenue and expense initiatives. Note that for accounting purposes, some policy initiatives implemented through the tax system such as Working for Families, KiwiSaver and the R & D tax credit are counted as expenses.
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