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Budget 2015 Home Page Budget Economic and Fiscal Update 2015

Residual Cash

Operating cash flows improve...

Similar to the trend in OBEGAL, operating cash flows are expected to strengthen across the forecast period. Net operating cash flows are forecast to be about $1.0 billion in surplus for 2014/15, increasing across the remaining forecast period. The strength largely represents the growth in tax receipts outpacing operating payments.

Over the forecast period, the Government is expected to generate cash flows from core Crown operations of $16.5 billion.

...but capital spending exceeds operating cash flows in the short term

Net capital spending is forecast to exceed operating cash flows until 2018/19, while core Crown residual cash[8] returns to surplus in the 2018/19 year (Figure 2.10).

Figure 2.10 - Core Crown residual cash
Figure 2.10 - Core Crown residual cash.
Source: The Treasury

The Government is forecast to spend $24.0 billion (net of the Government Share Offer programme) on capital items, which include purchasing physical assets (eg, school buildings), advances (eg, student loans), providing capital to CEs and future new capital spending. The 2014/15 cash flows include capital receipts of $0.6 billion from the deferred settlement for Meridian Energy shares.

Table 2.9 - Capital expenditure activity 2014/15 to 2018/19
Year ending 30 June
$billions
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast
Cumulative
Forecast
Purchase of physical assets (2.7) (3.0) (2.6) (1.9) (1.7) (11.9)
Sale of physical assets 0.2 0.1 0.1 0.1 0.1 0.6
Net purchase of physical assets (2.5) (2.9) (2.5) (1.8) (1.6) (11.3)
Advances made (2.8) (2.8) (2.1) (2.3) (2.3) (12.3)
Repayment of advances 2.1 1.6 1.6 2.2 2.1 9.6
Net advances (0.7) (1.2) (0.5) (0.1) (0.2) (2.7)
Purchase of investments (1.8) (2.1) (2.0) (1.6) (1.5) (9.0)
Sale of investments 0.3 - - - - 0.3
Net investments (1.5) (2.1) (2.0) (1.6) (1.5) (8.7)
Government Share Offer proceeds 0.6 - - - - 0.6
Top-down capital adjustment 0.4 0.3 0.1 0.1 0.1 1.0
Future new capital spending - (0.3) (0.4) (0.7) (0.9) (2.3)
Net capital spending (3.7) (6.2) (5.3) (4.1) (4.1) (23.4)

Source: The Treasury

Net purchases of physical assets represents forecast spending by core Crown agencies to maintain their existing asset base and includes spending on defence equipment and school property and also includes capital spending related to the Canterbury earthquakes (refer to the box on Canterbury earthquake costs on page 35).

Figure 2.11 - Forecast capital activity for 2014/15 to 2018/19 by significant spending
Figure 2.11 - Forecast capital activity for 2014/15 to 2018/19 by significant spending.
Source: The Treasury

Net investments largely represent capital injections to CEs, to expand their asset base, and are estimated to be $1.5 billion to $2.0 billion a year. The largest capital injections across the forecast period are to the New Zealand Transport Agency for state highways.

The unallocated new capital spending for Budget 2016 (totalling $0.5 billion) is forecast to be funded by the proceeds from the Government Share Offer programme (the Future Investment Fund) (Table 2.10). In addition, $190 million of KiwiRail funding is pre-committed against Budget 2016.

Table 2.10 - Future Investment Fund
$billions Total fund
Cash proceeds 4.669  
Allocated in Budget 2012 (0.533)
Allocated in Budget 2013 (1.421)
Allocated in Budget 2014 (1.050)
Allocated in Budget 2015 (0.939)
Future new capital spending 0.726 
Pre-committed Budget 2016 (0.190)
To be allocated 0.536 

Source: The Treasury

Capital allowances of $0.9 billion are forecast in Budget 2017 before growing at a rate of 2.0% per year for subsequent budgets.

New capital spending is expected to be allocated in future Budgets. The new capital spending for each Budget is spread over four fiscal years reflecting the assumed profile of the spend. This profile is illustrated in Figure 2.12.

Figure 2.12 - New capital spending (capital allowances)
Figure 2.12 - New capital spending (capital allowances).
Source: The Treasury

...leading to a forecast cash shortfall of $6.9 billion

Over the entire forecast period a cash shortfall of $6.9 billion is expected. The cash shortfall is funded through additional borrowing and reductions in financial assets.

Notes

  • [8]Net core Crown debt and residual cash indicators are measured on a core Crown basis. Residual cash includes both operating and capital activity. This differs from OBEGAL, which is measured at a total Crown level and includes operating activity only.
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