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Core Crown Expenses

Core Crown expenses continue to increase over the forecast period ...

Core Crown expenses are expected to increase in nominal terms by $6.8 billion over the forecast period, reaching $77.3 billion in 2015/16 (Table 2.6).

Figure 2.2 - Core Crown Expenses
Figure 2.2 - Core Crown Expenses.
Source: The Treasury

The major increases are in relation to social assistance expenses ($3.6 billion), new spending ($3.5 billion), and finance costs ($1.2 billion) reflecting the expected increase in gross debt.

The reductions relating to the financial assistance package for weathertight homes and the emissions trading scheme reflect expenditure incurred in 2011/12 which has not been repeated to the same extent in future periods.

Earthquake expenses are expected to increase core Crown expenses over the next couple of years then decline to have minimal impact by 2014/15 onwards. The largest impact is in 2012/13 when earthquake costs are estimated to reach $2.2 billion. Excluding these costs, core Crown expenses would reduce from the estimated $73.7 billion in 2012/13 to $71.5 billion.

Table 2.6 - Cumulative growth in core Crown expenses
Year ended 30 June
$billions
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast

Movements in expenditure

         

New spending

         
Budget 2011 decisions 0.4 (0.1) (0.4) (0.3) (0.3)
Budget 2012 decisions (0.7) 0.5 0.6 0.4 0.6
Budget 2013 allowance 0.8 0.8 0.8
Budget 2014 allowance 1.2 1.2
Budget 2015 allowance 1.2

Forecast changes

         
New Zealand Superannuation costs 0.8 1.4 2.0 2.8 3.5
Other social assistance (0.1) (0.1) (0.1) 0.1
Emissions Trading Scheme (0.2) (0.6) (0.6) (0.4) (0.2)
Debt impairments 0.2 0.5 0.6 0.4 0.5

Other movements

         
Finance costs 0.5 0.7 0.9 1.2 1.2
Weathertight homes (0.8) (0.6) (0.6) (0.6) (0.6)
Earthquake expenses (0.9) 0.6 (1.2) (1.4) (1.5)
Other movements (0.1) 0.8 0.4 0.4 0.3
Increase/(decrease) in core Crown expenses (0.9) 3.2 2.4 4.4 6.8
2011 Core Crown expenses 70.5 70.5 70.5 70.5 70.5
Core Crown expenses 69.6 73.7 72.9 74.9 77.3

Source: The Treasury

Almost half of the growth in expenses since 2010/11 relates to increases in New Zealand Superannuation costs and other social assistance. Total social assistance expenses rise from $20.6 billion in 2010/11 to $24.2 billion in 2015/16.

New Zealand Superannuation is forecast to increase from $8.8 billion in 2010/11 to $12.3 billion in 2015/16 (an increase of $3.5 billion). Recipient numbers are estimated to reach nearly 680,000 by that time, 20% higher than current levels.

Overall, New Zealand Superannuation is forecast to consume a larger share of social assistance expenses at just over 51% in 2015/16 compared to around 43% last year. As a percentage of GDP, superannuation expenses rise from 4.4% of GDP in 2010/11 to 4.8% of GDP in 2015/16.

Working for Families stays relatively flat over the forecast period while Domestic Purposes Benefits are forecast to rise slightly.

Figure 2.3 - Components of social assistance expenses in 2011 and 2016
Figure 2.3 - Components of social assistance expenses in 2011 and 2016 - 2011 Actual.
Figure 2.3 - Components of social assistance expenses in 2011 and 2016 - 2016 Forecast.
Source: The Treasury

... but falls as a percentage of GDP ...

While core Crown expenses increase in nominal terms across the forecast period they fall as a percentage of GDP, largely reflecting two years of net zero budgets. In the current Budget Update the Government has announced new spending of $4.4 billion offset by $4.4 billion of savings (representing $3.0 billion of reprioritisation and $1.4 billion of revenue initiatives) (Table 2.7). This net zero budget compares to the $800 million per year spending previously forecast.

Table 2.7 - Reconciliation of Budget 2012
Year ended 30 June
$billions
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
5 year
Total
Savings in Budget 2012 (0.7) (0.8) (0.8) (1.1) (1.0) (4.4)
New spending in Budget 2012 1.1 1.1 1.1 1.1 4.4
Budget 2012 (0.7) 0.3 0.3 0.1
Impact of Budget 2012:            
Increase core Crown revenue 0.2 0.3 0.4 0.5 1.4
Increase/(decrease) core Crown expenses (0.7) 0.5 0.6 0.4 0.6 1.4
Budget 2012 (0.7) 0.3 0.3 0.1

Source: The Treasury

The allowance for new operating spending in Budget 2013 has been set at $800 million per year while Budget 2014 and 2015 increases to $1.2 billion per year.

Table 2.8 - New operating spending in future Budgets
Year ended 30 June
$billions 
2012
Forecast
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
5 year
Total
Budget 2013 0.8 0.8 0.8 2.4
Budget 2014 1.2 1.2 2.4
Budget 2015 1.2 1.2
Future budgets new operating spend 0.8 2.0 3.2 6.0

Source: The Treasury

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