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Budget 2012 Home Page Budget Economic and Fiscal Update 2012

Specific Fiscal Risks

The Statement of Specific Fiscal Risks is a requirement of the Public Finance Act 1989 and sets out, to the fullest extent possible, all government decisions and other circumstances known to the Government at the date of the finalisation of the fiscal forecasts that may have a material effect on the fiscal and economic outlook, but are not certain enough in timing or amount to include in the fiscal forecasts. Although the process for disclosure of specific fiscal risks involves government departments, the Treasury and the Minister of Finance, there remains a possibility that not every risk is identified. Disclosure of known risks is also subject to specific requirements and materiality thresholds, which are described after the Statement of Specific Fiscal Risks.


Specific fiscal risks can be positive or negative and can affect revenue or spending. The links between external events and spending are indirect because new policies that change spending and revenue usually require a decision by the Government and approval from Parliament. The approach taken in this chapter is to disclose those potential policy decisions and key areas of uncertainty that may have a material effect on the fiscal outlook.

The Government generally sets aside allowances of new funding for future Budgets to manage uncertainty. These allowances are included in the fiscal forecasts. Current fiscal management policy is for future policy decisions affecting expenses or capital expenditure to be met through reprioritisation or from within existing provisions included in the fiscal forecasts. Future policy decisions are risks to the fiscal forecasts only to the extent that they cannot be managed from within:

  • existing baselines or Budget allowances for operating expenditure, or
  • existing balance sheets or the Future Investment Fund for capital expenditure.

Notwithstanding this, known material policy risks are identified as specific fiscal risks, even though the Government has more control in managing such risks through the Budget allowances and Future Investment Fund. This is done to ensure a prudent approach to disclosing risks, improve transparency and not pre-judge future decisions by governments.

The specific fiscal risks are categorised into:

  • Potential policy decisions affecting revenue: For example, changes to tax policy or ACC levies could reduce or increase government income.
  • Potential policy decisions affecting expenses but expected to be funded from Budget allowances: Costs of policy proposals could increase or decrease expenses depending on decisions taken, and they are risks to the fiscal forecasts only to the extent that they cannot be managed within existing baselines or Budget allowances.
  • Potential capital decisions but expected to be funded from the Future Investment Fund: Capital investment decisions are risks to the fiscal forecasts only to the extent that they cannot be managed within existing balance sheets or the Future Investment Fund.
  • Matters dependent on external factors: The liability of the Government for costs is sometimes dependent on external factors such as the outcome of negotiations or international obligations.

A range of generic risks to the fiscal forecasts are not recognised as specific fiscal risks:

  • The most significant economic risks have been identified in Chapter 3.
  • General cost pressures, such as those associated with demographic changes (for example an ageing population).
  • Potential risks from changes in demand for government services or transfer payments owing to underlying structural factors (such as changes in demand for Unemployment Benefits).
  • The costs of future individual natural disasters, and other major events, are not recognised as specific fiscal risks in advance as they usually occur infrequently and their timing cannot be predicted. Once a disaster does occur, a number of choices arise about how to respond and when potential liabilities are recognised (eg, through setting aside an allocation of funding for the disaster). Specific risks are disclosed at this point based on the range of possible responses.

The final part of the chapter contains a current list of contingent liabilities and contingent assets. Contingent liabilities are costs that the Crown will have to face if a particular event occurs or are present liabilities that are unable to be measured. Typically, contingent liabilities consist of guarantees and indemnities, legal disputes and claims on uncalled capital. The largest quantified contingent liabilities are to international financial organisations and mostly relate to uncalled capital and promissory notes. Contingent assets are possible assets that have arisen from past events but the value of the asset, or whether it will eventuate, will not be confirmed until a particular event occurs.

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