Core Crown Expenses
Growth in core Crown expenses slows over the forecast period...
While core Crown expenses are forecast to increase in nominal terms by $5.5 billion in total over the next four years (Figure 2.5), this increase is relatively modest compared to the previous 10 years' growth. The annual average increase in core Crown expenses (excluding earthquake costs) from 2003 through 2012 was 6.1%. These forecasts see the annual average increase in expenses fall to 2.7%, as shown in Figure 2.4.
- Figure 2.4 - Core Crown expenses growth (excluding earthquake costs)
- Source: The Treasury
The lower expenditure growth is largely owing to smaller allowances for new spending in recent Budgets and the Government's decisions to reduce future operating allowances from Budget 2014 onwards by around $0.2 billion per Budget.
- Figure 2.5 - Increase in core Crown expenses
- Source: The Treasury
Budget 2013 decisions have increased spending by $1.0 billion[5] per year and include spending of $0.4 billion for health, $0.2 billion for education, $0.1 billion for earthquake recovery and $0.1 billion for growth-related initiatives. For more details about the Budget 2013 package, including reprioritisation, refer to the Minister’s Executive Summary.
The forecasts include operating allowances for new spending of around $1.0 billion for the next three Budgets, which in total increase the level of expenses by $3.0 billion by 2016/17.
Social assistance spending increases by $2.4 billion by 2016/17, with the increase owing to payments being indexed to inflation and increasing recipient numbers. New Zealand Superannuation increases by $2.5 billion over that period with other benefit types reducing slightly.
Finance costs also increase over the next four years as gross debt continues to grow and interest rates are forecast to rise.
Partially offsetting the increases, earthquake costs reduce over the forecast period; refer to page 33 for details of the profile of earthquake expenses.
...as a result, they fall as a share of GDP...
While expenses continue to increase in nominal terms over the forecast period, the growth is expected to be at a slower rate than economic growth, as shown in Figure 2.6.
- Figure 2.6 - Core Crown expenses
- Source: The Treasury
Core Crown expenses are forecast to fall from 33.5% of GDP in 2012/13 to 30.0% of GDP by 2016/17.
...and have declined since the Half Year Update
By 2016/17 expenses are $0.8 billion less than forecast in the Half Year Update, falling from $78.0 billion to $77.2 billion. As shown in Figure 2.7, the main driver of the decrease is the reduction in future Budget allowances from Budget 2014 onwards.
- Figure 2.7 - Future Budget allowances
- Source: The Treasury
Cost to the Crown of Canterbury Earthquakes
The Government continues to make significant contributions to the rebuild of Canterbury, with latest estimates for the total cost to the Crown at $15.2 billion. This latest estimate adds $2.1 billion for key projects in the Canterbury region to the $5.5 billion the Government previously set aside for earthquake recovery on top of $7.6 billion for costs relating to the Earthquake Commission (EQC) and other Crown entities.
Budget 2013 has allocated over $0.9 billion from the Future Investment Fund for the Christchurch hospitals redevelopment, the Justice and Emergency Services Precinct and to tertiary education institutions in the Canterbury region. Just over $0.3 billion of operating funding has been set aside in the Budget as part of the Crown’s contribution to anchor projects in the central city. The remainder of the increase relates to commitments for final land zoning decisions, school property portfolio expenditure and other education initiatives and funding for CERA.
Table 2.4 below outlines the latest estimates of the net impact of the earthquake included in these forecasts, the operating/capital split and the expected cash profile of earthquake costs.
|
Year ending 30 June $millions |
2011 & 2012 Actual |
2013 Forecast |
2014 Forecast |
2015 Forecast |
2016 Forecast |
2017 Forecast |
Total BEFU |
Total HYEFU |
|---|---|---|---|---|---|---|---|---|
| Local infrastructure | 881 | 1,164 | 100 | 100 | 100 | 50 | 2,395 | 1,549 |
| Crown assets1 | 12 | 21 | 230 | 437 | 500 | 379 | 1,579 | 33 |
| Land zoning | 920 | 189 | 109 | - | - | - | 1,218 | 1,120 |
| Christchurch central rebuild | - | 187 | 708 | 117 | (174) | 63 | 901 | 588 |
| Welfare support | 243 | 32 | 24 | 6 | - | - | 305 | 307 |
| Southern Response support package | 511 | (49) | (84) | (41) | (34) | (2) | 301 | 300 |
| Estimation contingency | - | - | - | - | - | - | - | 793 |
| Other costs | 318 | 242 | 137 | 77 | 76 | 18 | 868 | 817 |
| Canterbury earthquake recovery costs | 2,885 | 1,786 | 1,224 | 696 | 468 | 508 | 7,567 | 5,507 |
| EQC (net of reinsurance proceeds) | 8,133 | (164) | (255) | (68) | (114) | - | 7,532 | 7,532 |
| Other Crown entities | (18) | 40 | (124) | 77 | 53 | 38 | 66 | 49 |
| Total Crown | 11,000 | 1,662 | 845 | 705 | 407 | 546 | 15,165 | 13,088 |
| Operating and capital expenses | ||||||||
| Operating expenditure (OBEGAL) | 10,987 | 1,395 | 10 | 209 | 119 | 132 | 12,852 | 12,500 |
| Capital expenditure | 13 | 267 | 835 | 496 | 288 | 414 | 2,313 | 588 |
| Total Crown | 11,000 | 1,662 | 845 | 705 | 407 | 546 | 15,165 | 13,088 |
| Total cash payments | 5,247 | 1,597 | 3,283 | 2,778 | 1,722 | 538 | 15,165 | 13,038 |
Note:
- Crown assets includes capital expenditure on Canterbury hospitals, schools, tertiary education institutions and the Justice and Emergency Services Precinct
Source: The Treasury
While the expenses are largely recognised up front and indicate the Crown's obligation, the cash profile reflects the expected timing of payments to settle these obligations.
These are the latest estimates of the cost of the earthquake to the Crown; the Specific Fiscal Risks chapter includes discussion on the risks associated with the Canterbury earthquakes (page 59).
A discussion about investment spending associated with the Canterbury rebuild can be found in the Economic Outlook chapter on page 15. The box in the Economic Outlook chapter focuses on aggregate investment levels, including both government and private sector spending.
Notes
- [5]While the Budget 2013 package was $1.0 billion in 2016/17, on average Budget 2013 has a net impact of $0.9 billion, comprising of $1.0 billion new spending offset by $0.1 billion of revenue initiatives.
