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Budget 2015 Home Page Budget Economic and Fiscal Update 2015

Operating Balance

Operating performance of the Crown continues to strengthen…

The OBEGAL deficit has reduced from $18.4 billion in 2010/11, to $2.9 billion in 2013/14 and is expected to be $0.7 billion in 2014/15. A surplus of $0.2 billion is now forecast in 2015/16 rising to $3.6 billion by 2018/19.

It can be difficult to do international comparisons, as jurisdictions use different financial frameworks. However, looking at the fiscal balance[6] the IMF produces, to enable cross-country comparisons, the New Zealand operating performance exceeds a number of other countries (Figure 2.7).

Figure 2.7 - International comparisons of fiscal balance
Figure 2.7 - International comparisons of fiscal balance.
Source: IMF

Figure 2.8 shows the composition of OBEGAL from the different segments of the Government. The core Crown segment is forecast to have an OBEGAL deficit of $1.2 billion in 2014/15, breakeven in 2015/16, then continues to rise over the forecast period, largely reflecting growth in tax revenue outpacing growth in nominal spending.

Figure 2.8 - Components of OBEGAL by segment
Figure 2.8 - Components of OBEGAL by segment.
Source: The Treasury

State-owned Enterprises (SOEs) are expected to continue to record operating surpluses throughout the forecast period.

The impact of Crown entities' (CEs') performance on OBEGAL results varies across the forecast period, largely reflecting changes in ACC results. In addition, Southern Response insurance expenses are expected to be $0.3 billion higher in 2014/15, adversely impacting that year.

As part of Budget 2015, the Government has signalled further reductions in the ACC levy rates of around $1.5 billion across the forecast period (largely in the last three years of the forecast). When combined with the consequential impact on investment revenue and insurance expenses, the fiscal impact on OBEGAL is expected to be on average $0.6 billion per year from 2016/17 (Table 2.7). An increase in expenses reflects the increased risk of meeting future claims with reduced revenue.

Table 2.7 - Impact of proposed ACC levy reduction
Year ending 30 June
Decrease in levy revenue - (32) (372) (533) (547) (1,484)
Foregone investment revenue - - (4) (28) (51) (83)
Increase in insurance expenses - 12  147 71  7 237
Impact on OBEGAL - (44) (523) (632) (605) (1,804)

Source:  The Treasury

...while investment returns lift the operating balance

The total Crown operating balance, inclusive of gains and losses, is forecast to be a deficit in 2014/15 of $0.6 billion before returning to growing surpluses in each year of the forecast period (Figure 2.9).

Figure 2.9 - Components of operating balance
Figure 2.9 - Components of operating balance.
Source: The Treasury

Investment returns in 2013/14 were higher than average, reflecting the strong performance of global equity markets. In 2014/15, the forecast gains on investments is $6.0 billion, primarily ACC and NZS Fund. The forecast assumes investment income returns to a long-term rate of return, resulting in subdued growth going forward. These gains play a part in increasing the Government's financial assets and the Crown's net worth (discussed on page 43).

While financial gains on investments are positive, the 2014/15 year is adversely impacted by losses of $6.6 billion, in relation to updated long-term liability valuations for ACC and the GSF, mainly owing to changes in economic factors (such as interest rates and inflation) impacting the valuations and reducing the operating balance surplus.

The operating balance is sensitive to balance sheet movements. Refer to the total Crown balance sheet section later in this chapter.


  • [6]Fiscal balance (sometimes referred to as net lending/borrowing) is defined as the net operating balance less the net acquisition of non financial assets such as property, plant and equipment. The inclusion of capital purchases and removal of impairments/write-offs are the major points of difference to OBEGAL.
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