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Net Debt

Operating deficits result in cash shortfalls...

Operating cash deficits are also expected to persist across most of the forecast period reaching surplus in 2015/16.

In addition to these operating cash deficits, the Crown is forecast to spend $18 billion on capital items such as the purchase of physical assets and student loans over the next four years. When the proceeds from the Government's partial sale of shares in five companies are included the net capital spend is $12 billion (Table 2.2 on page 26).

Figure 2.8 - Net core Crown debt
Figure 2.8 - Net core Crown debt.
Source: The Treasury

Unlike the new operating spend (which is an annual spend), the amount set aside for new capital spending is spread across a number of years. New capital spending for Budget 2012 was just under $560 million, spread across five years. This compares to the $900 million previously forecast. The amount set aside for new capital spending in future budgets has been forecast as $1.2 billion in Budget 2013 and $0.9 billion in Budgets 2014, 2015, and 2016(Table 2.11).

Table 2.11 - New capital spending in future budgets
Year ending 30 June
$billions  		2012/13
Forecast 		2013/14
Forecast 		2014/15
Forecast 		2015/16
Forecast 		Outside the
forecast
period 		Total
Budget 2013 0.1 0.4 0.3 0.2 0.2 1.2
Budget 2014 -  0.1 0.4 0.2 0.2 0.9
Budget 2015 -  -  0.1 0.4 0.4 0.9
Budget 2016 -  -  -  0.1 0.8 0.9

Source: The Treasury

The resulting residual cash deficit will be funded by an increase in net core Crown debt,[5] which is expected to increase from $40.1 billion (20.0% of GDP) in 2010/11 to $70.7 billion (27.7% of GDP) in 2015/16 after peaking at 28.7% of GDP in 2013/14.

... which must be funded in part by the issue of government bonds

The residual cash deficit is forecast to be funded by either reducing financial assets (eg, marketable securities) or raising debt.

Gross debt[6] is forecast to peak at 38.5% of GDP in the current year before reducing to 33.2% of GDP by 2015/16. This reduction includes bond repayments of $30.5 billion across the five-year forecast.

The New Zealand Debt Management Office (NZDMO) can raise debt through a number of programmes, but mainly funds via the domestic bond programme. The forecast cash proceeds from government bonds are outlined in Table 2.12. The cash proceeds from the issue of government bonds are forecast to be $51.5 billion across the five-year forecast period, with a face value of $49.5 billion.

Table 2.12 - Net increase in government bonds
Year ending 30 June
$billions 		2012
Forecast 		2013
Forecast 		2014
Forecast 		2015
Forecast 		2016
Forecast 		5 year
Total
Face value of government bonds issued (market) 15.0 13.5 10.0 8.0 3.0 49.5

Cash proceeds

           
Cash proceeds from issue of government bonds (market) 17.0 14.1 9.9 7.7 2.8 51.5
Repayment of government bonds (market) (7.6) (10.0) -  (11.0) (1.9) (30.5)
Net increase in government bonds (market) 9.4 4.1 9.9 (3.3) 0.9 21.0
Cash proceeds from issue of government bonds (non-market)  -  -  -  -  -  - 
Repayment of government bonds (non-market) (1.5) (0.5) (1.4) -  -  (3.4)
Net increase in government bonds (non-market) (1.5) (0.5) (1.4) -  -  (3.4)
Net cash proceeds from bond issuance 7.9 3.6 8.5 (3.3) 0.9 17.6

Source: The Treasury

Canterbury Earthquakes

The Canterbury earthquakes will continue to impact the Government's fiscal position over a number of years, both indirectly through impacts on economic growth, and directly through the provision of financial assistance to the region and payment of insurance claims (by the Earthquake Commission and Southern Response Earthquake Services Limited[7]).

The amount and timing of these costs continue to change over time as damage estimates are refined and policy decisions are made, and it may still be some time before the final cost will be known.  The Specific Fiscal Risks chapter includes discussion on the risks associated with the Canterbury earthquakes (page 68).

The latest estimate of the impact on OBEGAL (net of reinsurance) included in these forecasts is outlined in Table 2.13 below.

Table 2.13 - Impact on OBEGAL of earthquake direct expenses
Year ending 30 June
$millions 		2011
Actual 		2012
Forecast 		2013
Forecast 		2014
Forecast 		2015
Forecast 		2016
Forecast 		Total
Forecast 		Pre-election
Update
Local infrastructure 160 208 801 187 133 154 1,643 1,555
State-owned assets 46 30 3 -  -  -  79 77
Welfare support 220 13 -  -  -  -  233 261
AMI insurance 355 (38) (90) (46) (17) (16) 148 335
Land zoning 653 343 71 -  -  -  1,067 847
Other costs 159 229 244 67 35 39 773 1,907
Yet to be allocated -  74 1,136 284 70 -  1,564 525
Canterbury Earthquake Recovery Fund 1,593 859 2,165 492 221 177 5,507 5,507
EQC 7,471 515 (173) (220) (62) (86) 7,445 7,977
Other SOEs and CEs 23 -  -  -  -  -  23 23
Total Crown 9,087 1,374 1,992 272 159 91 12,975 13,507

Source: The Treasury

Negative amounts primarily represent the unwind of the risk margin (the forecast assumes that earthquake-related claims are paid out at the central estimate) and unexpired risk liabilities.  These are non-cash liabilities which are estimated to reverse over the forecast period.

Table 2.14 - Estimated cash profile of earthquake direct expenses
Year ending 30 June
$millions  		2011
Actual 		2012
Forecast 		2013
Forecast 		2014
Forecast 		2015
Forecast 		2016
Forecast 		Total
Forecast 		Pre-election
Update
Local infrastructure 64 347 350 328 264 290 1,643 1,555
State-owned assets 46 30 3 -  -  -  79 77
Welfare support 220 13 -  -  -  -  233 261
AMI insurance -  100 -  -  -  48 148 335
Land zoning -  694 308 65 -  -  1,067 847
Other costs 179 256 196 68 35 39 773 1,907
Yet to be allocated -  72 592 590 286 24 1,564 525
Canterbury Earthquake Recovery Fund 509 1,512 1,449 1,051 585 401 5,507 5,507
EQC 1,178 2,374 832 1,725 1,097 239 7,445 7,977
Other SOEs and CEs 23 -  -  -  -  -  23 23
Total Crown 1,710 3,886 2,281 2,776 1,682 640 12,975 13,507

Source: The Treasury

Table 2.14 outlines the expected cash profile for earthquake costs.  Cash payments in relation to the Canterbury Earthquake Recovery Fund will result in an increase in net debt.

Notes

  • [5]Net core Crown debt excluding the New Zealand Superannuation Fund and advances.
  • [6]Gross sovereign-issued debt excluding Reserve Bank bills and settlement cash.
  • [7]Formerly AMI Insurance.
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