Finalisation Dates and Assumptions for the Forecasts (continued)
| 2010/11 | 2011/12 | 2012/13 | 2013/14 | 2014/15 | ||
|---|---|---|---|---|---|---|
| June years | Half Year forecasts |
Budget forecasts |
Budget forecasts |
Budget forecasts |
Budget forecasts |
Budget forecasts |
| Real GDP (P) (ann avg % chg) | 2.5 | 0.7 | 2.5 | 4.0 | 2.7 | 2.8 |
| Nominal GDP (E) ($m) | 202,398 | 199,819 | 209,178 | 222,916 | 234,237 | 246,098 |
| CPI (annual avg % change) | 3.7 | 3.8 | 3.4 | 2.5 | 2.6 | 2.5 |
| Govt 10-year bonds (ann avg %) | 5.3 | 5.5 | 5.7 | 5.7 | 5.9 | 6.0 |
| 5-year bonds (ann avg %) | 4.6 | 4.6 | 5.0 | 5.3 | 5.6 | 5.8 |
| 90-day bill rate (ann avg %) | 3.3 | 3.0 | 2.9 | 3.7 | 4.6 | 4.9 |
| Unemployment rate (ann avg %) | 6.2 | 6.7 | 5.9 | 4.9 | 4.8 | 4.6 |
| Employment (ann avg % change) | 1.8 | 1.2 | 1.3 | 2.5 | 1.6 | 1.3 |
| Current account (% of GDP) | -1.5 | 0.7 | -4.5 | -5.5 | -7.0 | -6.7 |
In addition, there are also a number of other key assumptions that are critical in the preparation of the fiscal forecasts.
| Government decisions | Incorporates government decisions up to 2 May 2011. | ||||||||||||||||||||||||||||||||||||||||||
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| Tax revenue |
Tax policy changes enacted and announced by the Government will take place as planned and will affect tax revenue and receipts as calculated and agreed by Inland Revenue and the Treasury. The surge in other persons tax refunds and company tax refunds over the past few years was largely a result of the recession. We have assumed that refunds will return to pre-recession trends as the economic recovery gets underway. Utilisation of corporate tax losses to offset future taxable profits will retard the growth of corporate tax up to and including the 2013 year. Earthquake-related GST refunds will provide a temporary boost to GST refunds over 2011 and 2012. GST receipts from earthquake-related spending will provide a temporary boost to net GST, mostly from 2012 onwards. The total net effect of these two elements will be zero (ignoring any additional spending over and above the insurance claims that may occur). The current unusually large margin between 90-day interest rates and six-month term deposit rates will be maintained throughout the forecast period, which has a positive influence on resident withholding tax on interest. |
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| Earthquake costs | Expenditure (accrual measure) is forecast based on estimates on when key decisions will be taken. The timing of cash payments is based on estimates of when actual spending will take place. Refer to Chapter 2 for more detailed discussion on underlying assumptions. | ||||||||||||||||||||||||||||||||||||||||||
| Operating allowance for new spending |
Net $800 million in Budgets 2012 and 2013. Net $1.19 billion in Budget 2014, growing by the rate of 2% per annum for subsequent Budgets. |
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| Capital allowance for new spending |
$900 million in Budget 2012 onwards allocated as follows:
Funding for this new spending will be from existing capital investments rather than borrowing for the next five Budgets. |
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| Investment rate of returns | Incorporate the actual results to 28 February 2011. Beyond the June 2011 year, gains on financial instruments are based on long-term benchmark rate of returns for each portfolio. | ||||||||||||||||||||||||||||||||||||||||||
| Finance cost on new bond issuances | Based on five-year rate from the economic forecasts and adjusted for differing maturity. | ||||||||||||||||||||||||||||||||||||||||||
| Top-down adjustment |
Based on historical spending patterns of departments and estimations of current fiscal conditions. Top-down adjustment to operating and capital as follows:
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| Borrowing requirements | The forecast cash deficits will be met by reducing financial assets and issuing debt. | ||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment | For the purposes of the forecast financial statements, no revaluations of property, plant and equipment are projected beyond the current year. Valuations as recorded for the 2010 annual financial statements and any additional valuations that have occurred up to 28 February 2011 are included in these forecasts. A number of revaluation exercises are currently underway and are planned to be completed in time for the 2011 annual financial statements (published in early October). The results of these valuations are, therefore, not reported in these forecast financial statements. | ||||||||||||||||||||||||||||||||||||||||||
| Student loans | The carrying value of student loans is based on a valuation model adapted to reflect current student loans policy. As such, the carrying value over the forecast period is sensitive to changes in a number of underlying assumptions, including future income levels, repayment behaviour and macroeconomic factors such as inflation and discount rates used to determine the effective interest rate for new borrowers. Any change in these assumptions would affect the present fiscal forecast. | ||||||||||||||||||||||||||||||||||||||||||
| Government Superannuation Fund and ACC liabilities |
The Government Superannuation Fund and ACC liabilities included in these forecasts have been valued as at 31 January 2011 and 31 December 2010 respectively, with the ACC valuation being adjusted for the 31 March 2011 discount rate. Both liabilities are valued by projecting future cash payments, and discounting them to present value. These valuations rely on historical data to predict future trends and use economic assumptions such as inflation and discount rates. Any change in actual payments or economic assumptions would affect the present fiscal forecast. For example, if the discount rate decreases, the value of the liabilities would increase. The Government Superannuation Fund's assets are offset against the gross liability and have been updated to reflect market values at 31 January 2011. The value of assets over the forecast period reflects long-run rate of return assumptions appropriate to the forecast portfolio mix. |
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| Emissions Trading Scheme (ETS) |
The forecasts have been prepared in accordance with current government ETS policies. Details of current climate change policies are listed at: www.mfe.govt.nz/issues/climate/policies-initiatives The carbon price assumption is based on estimates of the current carbon price from Point Carbon, and is €10.95 with an exchange rate of 0.5387 (a carbon price of NZ$20.33) over the forecast period. The economic models used to project agriculture and energy activity assume an international carbon price of NZ$25 per tonne to 2012, and NZ$50 to 2020. The forecast assumes a 65% uptake of post-1989 foresters into the ETS over Commitment Period One (CP1). It is assumed the ETS has no fiscal impact on debt or cash flows, as the net cash impact from the ETS and international obligations is highly uncertain. |
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| Kyoto position | The Kyoto position included in the fiscal forecasts reflects the Government's obligation for CP1, from 2008 to 2012. It does not include any future potential reduction of the position through the transfer of units offshore through the forestry sector, or any future changes to the position through transactions under the ETS. | ||||||||||||||||||||||||||||||||||||||||||
| NZS Fund contributions | No contribution is assumed in the forecast period. |
