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Budget 2010 Home Page Budget Economic and Fiscal Update 2010

Statement of Contingent Liabilities and Contingent Assets

Quantifiable contingent liabilities

Guarantees and indemnities

Guarantees and indemnities are disclosed in accordance with NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets. In addition, guarantees given under section 65ZD of the Public Finance Act 1989 are disclosed in accordance with section 26Q(3)(b)(i)(B) of the same Act.

Air New Zealand - letters of credit and performance bonds

The letters of credit are primarily given in relation to passenger charges, airport landing charges and indemnities provided to financial institutions on limits provided on staff credit cards. The performance bonds are primarily given in respect to engineering contracts.

$61 million at 31 March 2010 ($32 million at 31 October 2009)

Cook Islands - Asian Development Bank (ADB) loans 

Before 1992, the New Zealand Government guaranteed the Cook Islands' borrowing from the ADB. These guarantees have first call on New Zealand's Official Development Assistance.

$14 million at 31 March 2010 ($15 million at 31 October 2009)

Indemnification of receivers and managers - Terralink Limited

The Crown has issued a Deed of Receivership indemnity to the appointed receivers of Terralink Limited against claims arising from the conduct of the receivership.

$10 million at 31 March 2010 ($10 million at 31 October 2009)

Ministry of Transport - funding guarantee 

The Minister of Finance has issued a guarantee of $10 million to the Transport Accident Investigation Commission. The guarantee allows the Commission to assure payment to suppliers of specialist salvage equipment in the event of the Commission initiating an urgent investigation of any future significant transport accident.

$10 million at 31 March 2010 ($10 million at 31 October 2009)

Legal proceedings and disputes

The amounts under quantifiable contingent liabilities for legal proceedings and disputes are shown exclusive of any interest and costs that may be claimed if these cases were decided against the Crown.

Where contingent liabilities have arisen as a consequence of legal action being taken against the Crown, the amount shown is the amount claimed and thus the maximum potential cost. It does not represent either an admission that the claim is valid or an estimation of the possible amount of any award against the Crown.

Health legal claims

Claims against the Crown in respect of alleged negligence for failing to screen blood for Hepatitis C when screening had first become available, resulting in people allegedly contracting Hepatitis C through contaminated blood and blood products.

$15 million at 31 March 2010 ($15 million at 31 October 2009)

Inland Revenue legal proceedings and disputes - tax

Legal proceedings and disputes tax represents the outstanding debt of those tax assessments raised, against which an objection has been lodged and legal action is proceeding. When a taxpayer disagrees with an assessment issued following the dispute process, the taxpayer may challenge that decision by filing proceedings with the Taxation Review Authority or the High Court.

The reduction in contingent liabilities is owing to the dispute with a number of financial institutions regarding the tax treatment of certain structured finance transactions, which has now been settled.

$267 million at 31 March 2010 ($1,655 million at 31 October 2009)

Kapiti West link road

Court action has been filed against New Zealand Transport Agency to have the land held for the Kapiti West link road released for sale. The maximum liability is $14 million.

$14 million at 31 March 2010 ($25 million at 31 October 2009)

Other quantifiable contingent liabilities

Air New Zealand partnership

The Air New Zealand Group has a partnership agreement with Christchurch Engineering Centre in which it holds 49 % interest. By the nature of the agreement joint and several liability exists between the two parties.

$61 million at 31 March 2010 ($68 million at 31 October 2009)

Crown Health Financing Agency

The agency is subject to potential legal claims plus associated legal fees in respect of the actions of the former Area Health Boards. The agency is defending those claims that have resulted in litigation and will defend any of the others that result in litigation. The agency does not accept liability for the claims.

$26 million at 31 March 2010 ($28 million at 31 October 2009)

Inland Revenue - unclaimed monies

Under the Unclaimed Monies Act 1971, companies (eg, financial institutions, insurance companies) hand over money not claimed after six years to Inland Revenue. The funds are repaid to the entitled owner on proof of identification.

$50 million at 31 March 2010 ($46 million at 31 October 2009)

International finance organisations[12]

The Crown has lodged promissory notes with the International Monetary Fund. Payment of the notes depends upon the operation of the rules of the organisation.

$1,532 million at 31 March 2010 ($1,561 million at 31 October 2009)

Kyoto Protocol units

During the first commitment period the Net Kyoto Position of the Crown estimates that 89.1 million tonnes of carbon credits will be generated by carbon removals via forests. To the extent that these forests are harvested in subsequent commitment periods there will be an associated liability generated that will need to be repaid.

The New Zealand Emissions Trading Scheme transfers a portion of the potential future liability to forest owners. As at 31 March 2010, approximately three million tonnes has been transferred to forest owners in the form of New Zealand units. The Crown's contingent liability is calculated as the remaining credits the Crown is potentially liable for (86.1 million tonnes) multiplied by the carbon price of $20.29 as at 31 March 2010.

$1,747 million at 31 March 2010 ($1,871 million at 31 October 2009)

New Zealand Export Credit Office - export guarantees

The New Zealand Export Credit Office (NZECO) provides a range of guarantee products to assist New Zealand exporters. These NZECO guarantees are recorded by the Crown as contingent liabilities. The amount of future liabilities arising from these guarantees is expected to be minor.

$145 million at 31 March 2010 ($175 million at 31 October 2009)

Reserve Bank - demonetised currency

The Crown has a contingent liability for the face value of the demonetised currency issued which has yet to be repatriated.

$23 million at 31 March 2010 ($23 million at 31 October 2009)

Notes

  • [12]On 13 April 2010 the Minister of Finance announced that New Zealand had agreed to make available to the International Monetary Fund up to US$1 billion (NZ$1.3 billion approximately) to support the international financial system in the event of a significant crisis.
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