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Budget 2012 Home Page Budget Economic and Fiscal Update 2012

Operating Surplus

The Crown is forecast to return to surplus in 2014/15 ...

OBEGAL is expected to reach a surplus of $197 million in 2014/15.

The deficit is expected to fall from a high of 9.2% of GDP last year to 4.1% of GDP in the current year before reaching a positive 0.1% of GDP in 2014/15. Surpluses are then projected to continue. The Risks and Scenarios chapter outlines risks to OBEGAL, along with their potential impact.

Figure 2.5 - Operating balance before gains and losses
Figure 2.5 - Operating balance before gains and losses.
Source: The Treasury
Figure 2.6 - Operating balance before gains and losses by sector
Figure 2.6 - Operating balance before gains and losses by sector.
Source: The Treasury

While core Crown expenses exceed core Crown revenue for most of the forecast period, SOEs and Crown entities are forecasting surpluses from the current financial year onwards. These surpluses are after the estimated profits forgone from the Government's partial share sale in five companies are deducted (refer page 42).

Earthquake expenses will continue to affect the deficit over the next few years (refer page 38) as costs such as the repair of infrastructure and restoration of the central business district are finalised. When earthquake expenses are excluded, the track to surplus is not as sharp, rising from -4.6% of GDP last year to -3.4% in the current year. The surplus in 2014/15 excluding earthquake expenses is forecast as $356 million (0.1% of GDP).

The 2011/12 deficit has decreased from the $12.1 billion forecast in the Budget Policy Statement to $8.4 billion in this Budget Update. The main reasons for this reduction are delays in expenditure (including earthquake expenses) now expected to be recognised in 2012/13 (the deficit in 2012/13 has risen from the previously forecast $4.4 billion to $7.9 billion), as well as savings identified as part of the current year's budget package.

Operating Balance Indicators

The operating balance before gains and losses (OBEGAL) is used as the indicator of the Government's performance against its objective to return an operating surplus sufficient to meet the Government's net capital requirements, including capital contributions to the New Zealand Superannuation (NZS) Fund, and ensure consistency with the debt objective.

There are, however, other operating indicators that are also useful in measuring different aspects of that performance, as well as allowing international comparison.

Figure 2.7 - Cyclically-adjusted balance
Figure 2.7 - Cyclically-adjusted balance.
Source: The Treasury

Operating balance

The operating balance includes gains and losses (primarily from valuation changes to assets and liabilities) and tends to be more volatile than OBEGAL as it includes (often short term) movements in market prices.  This indicator is the best measure of the full financial costs of the Government's operations.  Changes in asset and liability valuations, although volatile, represent changes in the resource demands facing the Government.

Cyclically-adjusted balance

The cyclically-adjusted balance (sometimes referred to as the structural balance) attempts to remove temporary cyclical factors (such as the effects of the economic cycle on tax revenue and unemployment benefits) and one-off impacts such as the Canterbury earthquakes.  This indicator provides a useful measure of the effects of policy decisions. 

Net operating balance (GFS)

The net operating balance (GFS) uses the framework developed by the International Monetary Fund called Government Financial Statistics (GFS) and is specifically designed for government reporting.  The net operating balance represents revenue and expenses of the core Crown (excluding the Reserve Bank) and Crown entities, and therefore excludes SOEs.  It also excludes a wider range of valuation movements than OBEGAL.

Further discussion on the cyclically-adjusted balance and the net operating balance (GFS) can be found at

Table 2.10 - Operating balance indicators
Year ended 30 June 2011

% of GDP

OBEGAL (9.2) (4.1) (3.6) (0.9) 0.1 0.8
OBEGAL excluding earthquake expenses (4.6) (3.4) (2.7) (0.8) 0.1 0.9
Operating balance (6.7) (5.1) (2.6) 0.2 1.1 1.9
Cyclically-adjusted balance (4.5) (3.0) (2.5) (0.5) 0.4 0.9
Net operating balance (GFS) (6.9) (2.5) (1.8) 0.5 1.2 2.0

Source: The Treasury

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