Core Crown Expenses (continued)
... while the costs associated with the Canterbury Earthquake Recovery Fund are expected to be recorded later than previously estimated
Some costs associated with the Canterbury Earthquake Recovery Fund (the “Fund”) are now expected to be recorded later than previously forecast. While total costs are expected to remain the same, some expenses previously forecast to occur in the current financial year are now expected to be reported in the 2012/13 financial year. This includes costs associated with the Government's share of repairing local infrastructure, which are not now expected to be determined until the end of this calendar year.
|
Year ending 30 June $billions |
2011 Actual |
2012 Forecast |
2013 Forecast |
2014 Forecast |
2015 Forecast |
2016 Forecast |
Total |
|---|---|---|---|---|---|---|---|
| Budget 2012 | 1.6 | 0.8 | 2.2 | 0.5 | 0.2 | 0.2 | 5.5 |
| Pre-election Update | 1.6 | 2.8 | 0.4 | 0.3 | 0.3 | 0.1 | 5.5 |
| Increase/(decrease) in core Crown earthquake expenses | - | (2.0) | 1.8 | 0.2 | (0.1) | 0.1 | - |
Source: The Treasury
The Fund excludes costs incurred by Crown entities (including the Earthquake Commission) and State-owned enterprises (SOEs). An estimate of total Crown costs can be found on page 38.
In addition to the costs outlined above, the Crown has guaranteed any cash shortfall in the Earthquake Commission. These forecasts estimate the cash shortfall to be $0.8 billion in the final two years of the forecast. The funding is assumed to be an advance to the Earthquake Commission, which is expected to be repaid. While this funding is forecast to increase net core Crown debt, there is no impact on core Crown expenses.
Fiscal Restraint
The return to surplus in 2014/15 is achieved through both the recovery of tax revenue and fiscal restraint. Expenses, as a percentage of GDP, are expected to decline from 35.2% of GDP in 2010/11 to 30.2% of GDP by the end of the forecast period.
While some of this decline is attributable to the one-off nature of earthquake expenses, a large portion is the result of savings identified in both Budget 2011 and Budget 2012.
- Figure 2.4 - Core Crown expenses
- Source: The Treasury
The return to surplus in 2014/15 was first forecast in the 2010 Half Year Update at a modest $39 million. Since then economic recovery has been slower than initially expected and the country has experienced the devastating Canterbury earthquakes. As a result, tax revenue has fallen more than previously estimated, and expenses associated with the earthquakes have led to a deterioration of the fiscal outlook.
In response to the declining tax revenue and increased expense forecasts, the Government has identified fiscal restraint as key to meeting its target to return to surplus by 2014/15.
In the 2010 Half Year Update core Crown expenses were forecast to reach $78.6 billion in the 2014/15 financial year (based on the policy settings at that time). In Budget 2012 these expenses are forecast to have reduced to $74.9 billion. This is a net saving of $3.7 billion.
These savings have largely been achieved through a reduction in the amount of new operating spending. The major reductions in spending have been as follows:
- savings of $1.4 billion in Budget 2011 by reducing new spending from a previously forecast spending of $1.1 billion to a saving of $0.3 billion
- savings of $0.7 million in Budget 2012 by reducing new spending from a previously forecast $1.1 billion to $0.4 billion
- savings of $0.4 billion in Budget 2013. Previous forecasts had assumed an allowance of $1.2 billion for new operating spending. This allowance was reduced to $0.8 billion in Budget 2011
- reduced finance costs as a result of the consequential reduction in borrowings.
