Fiscal Forecast Assumptions (continued)

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.

Nominal tax revenue will grow in line with growth in nominal GDP and its components.

Net $800 million in Budget 2013.

Net $1.2 billion from Budget 2014 growing at a rate of 2% per annum for subsequent Budgets.

Net $1.2 billion in Budget 2013.

Net $900 million in Budget 2014 onwards as follows:

Sale programme spread evenly across the four years from 2012/13 to 2015/16. 

Net sale proceeds of $6 billion (based on a mid-point estimate of between $5 billion and $7 billion).

Forgone profits and dividends are based on an average of the fiscal forecasts provided by the companies for Budget 2012 Update.

A top-down adjustment is made to compensate for departments who tend to forecast upper spending limits (appropriations) rather than best estimates.

Top-down adjustment to operating and capital as follows:

The Government Superannuation Fund and ACC liabilities included in these forecasts have been valued as at 29 February 2012 and 31 December 2011 respectively.  The ACC liability has been adjusted for the 31 March 2012 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.  The value of assets over the forecast period reflects long-run rate of return assumptions appropriate to the forecast portfolio mix.

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 for the ETS is based on estimates of the current certified emission reduction (CER) carbon price from Point Carbon, and is €6.50 with an exchange rate of 0.61 (a carbon price of NZ$10.60) over the forecast period.

The economic models used to project agriculture and energy activity assume an international carbon price of NZ$25 per tonne.

The forecast assumes a 62% uptake of post-1989 foresters into the ETS over Commitment Period One (CP1).

Revenues and the associated expenses arising from the agriculture sector entering the ETS are included from the June 2015 financial year.

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.

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.

The carbon price assumption for the Kyoto position is based on estimates of the current assigned amount unit (AAU) carbon price from Point Carbon, and is €5.03 with an exchange rate of 0.61 (a carbon price of NZ$8.20) over the forecast period.