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Budget 2014 Home Page Budget Economic and Fiscal Update 2014

Core Crown Expenses

Core Crown expenses grow across the forecast period...

Core Crown expenses are expected to increase in nominal terms by $11.1 billion over the forecast period (Figure 2.4). However, as growth in core Crown expenses is forecast to be at a slower rate than growth in the nominal economy, they fall from 33.0% of GDP in 2012/13 to 29.9% of GDP by the end of the forecast period. In 2015/16, core Crown expenses are expected to stand at 30.1% of GDP, consistent with the Government's target of reducing expenses to around 30% of GDP by 2015/16.

Figure 2.4 - Core Crown expenses
Figure 2.4 - Core Crown expenses.
Source:  The Treasury

Nominal growth in core Crown expenses is largely attributable to new budget spending, along with increased social assistance spending as shown in Figure 2.5.

Figure 2.5 - Increase in core Crown expenses
Figure 2.5 - Increase in core Crown expenses.
Source:  The Treasury

Offsetting these increases, core Crown expenses for the Canterbury rebuild decrease over the forecast period as the most significant operating expenses have already been recognised and the Crown moves into more of an investment phase (refer to box on page 34 for details of the profile and phasing of earthquake expenses).

The Budget 2014 package includes an average net spend of $1.0 billion each year (Table 2.6). As a portion of the package relates to revenue initiatives, the gross increase in expenditure averages $1.2 billion.

Figure 2.6 - Budget 2014 and future Budget allowances
Figure 2.6 - Budget 2014 and future Budget
allowances.
Source:  The Treasury

Future operating allowances are $1.5 billion per annum from Budget 2015 (increasing by 2% each Budget thereafter). Without further information on how these will be allocated, these allowances are assumed to flow through as expenses. When combined, new spending reaches $6.0 billion by 2017/18 (Figure 2.6). However, these operating allowances can be used for a combination of both revenue and expense initiatives when allocated.

The following table summarises the impact of the Budget 2014 package on core Crown revenue and expenses.

Table 2.6 - Summary of changes in revenue and expenses arising from Budget 2014
Year ending 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
4-year
Average
Core Crown revenue - 0.1 0.2 0.2 0.2 0.2
Core Crown expenses (0.1) 1.0 1.2  1.3    1.4    1.2
OBEGAL impact (0.1) 0.9 1.0 1.1 1.2 1.0
Composition of core Crown expense increase:    
Health - 0.4 0.5 0.4 0.5 0.4
Education - 0.1 0.2 0.2 0.3 0.2
Defence - 0.1 0.1 0.2 0.2 0.1
Social development - 0.1 0.1 0.1 0.1 0.1
Families package - 0.1 0.1 0.1 0.1 0.1
Business Growth Agenda initiatives - 0.1 0.2 0.1 0.1 0.1
Other (including savings) (0.1) 0.1 - 0.2 0.1 0.2
Increase in core Crown expenses (0.1) 1.0 1.2 1.3 1.4 1.2

Source: The Treasury

Refer to the Minister's Executive Summary document for further details of the Budget 2014 package.

Outside new budget spending, social assistance spending is expected toincrease by $3.6 billion across the forecast period. New Zealand Superannuation payments (which makes up around half of social assistance costs), grow by $3.4 billion as payments are linked to wage growth and recipient numbers increase (Figure 2.7). Other benefit types also increase marginally over the forecast period.

Figure 2.7 - Social assistance spending
Figure 2.7 - Social assistance spending.
Source:  The Treasury

Finance costs increase by $0.8 billion over the forecast period as gross debt continues to increase alongside rising interest rates.

...and have increased since the previous forecasts

While current year's expenses are slightly lower than forecast at the Half Year Update, by the end of the forecast period expenses are around $2.4 billion higher than previously expected (Figure 2.8). This increase is largely owing to the Government's decision to increase operating allowances for future Budgets to $1.5 billion, up from $1.0 billion at the Half Year Update.

Figure 2.8 - Changes in core Crown expenses since the Half Year Update
Figure 2.8 - Changes in core Crown expenses
since the Half Year Update.
Source:  The Treasury

Slightly stronger real growth coupled with the ongoing impact of welfare reform see unemployment-related benefit recipient numbers reduce over the forecast period and associated social assistance expenses fall compared to the Half Year Update. Refer Table 2.7 in the Operating Balance section for changes to benefit expenses since the Half Year Update.

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