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Budget 2016 Home Page Budget Economic and Fiscal Update 2016

Fiscal Outlook


  • The Crown's fiscal position has improved over the past few years and the current year’s results to 31 March 2016 are stronger than the previousforecast. The operating balance before gains and losses (OBEGAL) is expected to remain broadly in balance over the next two years.
  • Beyond 2016/17, OBEGAL is forecast to rise sharply with surpluses reaching $6.7 billion by 2019/20. The Crown's cash position follows the same trend, with the residual cash deficit narrowing in 2017/18 and returning to surplus thereafter, which will reduce net debt.
  • Net core Crown debt is therefore expected to peak in 2017/18 at $68.3 billion before reducing by $6.0 billion to stand at $62.3 billion by 2019/20 reflecting increasing cash flows. As a percentage of GDP, net core Crown debt peaks a year earlier at 25.6% of GDP in 2016/17 and declines to stand at 20.8% of GDP by 2019/20.
  • Operating allowances have been revised since the 2016 Budget Policy Statement was released in December 2015 with some spending brought forward into Budget 2016 while the Budget 2017 operating allowance has been reduced (refer page 51).
  • The Budget 2016 net operating allowance averages $1.6 billion per year for the forecast period (excluding 2015/16), with future operating allowances of $1.5 billion for Budgets 2017 onwards.
  • Budget 2016 allocates additional gross capital expenditure of $2.6 billion, which is reduced to a net increase of $1.4 billion with capital savings. Net capital allowances for Budget 2017 and subsequent Budgets have been set at $0.9 billion.
  • Overall net capital expenditure by the core Crown is estimated to be $23.1 billion from 2015/16 to 2019/20. In addition, Public Private Partnership agreements also contribute $1.8 billion of non-cash investment to the core Crown's capital investment activity, primarily in roading, prisons and schools (refer page 41).
  • Net worth attributable to the Crown is expected to increase over the forecast period, reaching $108.9 billion by 2019/20. This growth is largely the result of forecast operating surpluses which means the growth in assets exceeds growth in liabilities.
  • Total assets are forecast to grow by $32.0 billion to stand at $310.7 billion by 2019/20 with the largest growth in the social asset portfolio reflecting the core Crown capital spending. Liabilities increase in nominal terms, largely owing to the ACC claims liability increasing, while borrowings decrease in the later part of the forecast period. Total liabilities are expected to stand at $195.8 billion at the end of 2019/20, including borrowings of $115.9 billion.
  • Compared with the Half Year Update, OBEGAL surpluses have improved by around $1.5 billion on average each year except 2016/17. Tax revenue forecasts have been revised upwards primarily owing to stronger nominal GDP. Social assistance expenditure forecasts have been revised down primarily owing to a stronger economic outlook and lower inflation than previously forecast, while net finance costs have been revised down owing to lower interest rates as well as lower net debt.
  • Overall reductions in the operating allowances since the Half Year Update have resulted in an improvement to OBEGAL of $0.4 billion across the forecast period. When coupled with slightly less capital spending across the forecast period and excluding non-cash operating items, this has led to a reduction in net debt of $0.2 billion by 2019/20 (refer to page 51).
  • Revised tax receipt and benefit expense forecasts have resulted in an improvement in residual cash with smaller cash deficits in the first three years and larger cash surpluses in the last two years of the forecast. This stronger cash position has resulted in forecasts for net core Crown debt being $8.8 billion lower than previously expected in 2019/20. Pages 47 to 50 provide a more detailed analysis of the comparison to the Half Year Update.
  • These forecasts are sensitive to a number of assumptions and should be read in conjunction with the Risks and Scenarios and Specific Fiscal Risks chapters.
  • The Budget Update includes fiscal forecasts for the period 2015/16 to 2019/20. Fiscal projections beyond 2019/20 and for the next 10 years out to 2029/30 are included in the Fiscal Strategy Report which can be found on the Treasury website (
Table 2.1 - Fiscal indicators
Year ending 30 June 2015
Total Crown OBEGAL1 0.4 0.7 0.7 2.5 5.0 6.7
Core Crown residual cash (1.8) (2.1) (4.2) (2.1) 2.0 3.9
Net core Crown debt2 60.6 62.3 66.3 68.3 66.3 62.3
Net worth attributable to the Crown 86.5 83.5 86.6 91.6 99.3 108.9
% of GDP
Total Crown OBEGAL1 0.2 0.3 0.3 0.9 1.7 2.2
Core Crown residual cash (0.8) (0.8) (1.6) (0.8) 0.7 1.3
Net core Crown debt2 25.1 24.9 25.6 25.0 23.1 20.8
Net worth attributable to the Crown 35.8 33.4 33.4 33.5 34.5 36.4


  1. Operating balance before gains and losses.
  2. Net core Crown debt excluding the NZS Fund and advances.

Source: The Treasury

Key judgements and assumptions

The fiscal forecasts are based on assumptions and judgements developed from the best information available at the time they were prepared. Actual events are likely to differ from these assumptions and judgements. Uncertainty around the forecast assumptions and judgements increases over the forecast period.

The forecasts incorporate government decisions and other circumstances known to the Government and advised to the Treasury up to 29 April 2016.

In addition to the key assumptions underpinning the economic forecasts (refer page 9 of Chapter 1), the following key judgements and assumptions supporting the fiscal forecasts were made:

  • Tax policy changes enacted and announced by the Government (refer page 31) will take place as planned and will affect tax revenue and receipts.
  • Any future new spending or revenue reductions will be limited to the operating and capital allowances set by the Government. For further details of these allowances, see note 9 of the Forecast Financial Statements.
  • Departments will continue to spend less than the upper limits of approved spending (referred to as appropriations). A top-down adjustment is made to compensate for this. The adjustment will be higher at the front end of the forecast period as departments’ appropriations (and therefore expenses) tend to be higher in these years, reflecting departments have some flexibility around transferring underspends to later years.
  • The form and timing of divestment of social housing assets is still in its early stages. Only those divestments that are significantly progressed have been included in the forecasts (eg, the transfer of housing stock from Housing New Zealand Corporation (HNZC)).
  • Forecast returns of the large investment portfolios managed by ACC and the NZS Fund are based on their expectations of long-term benchmark rates of return for their respective portfolios.
  • Finance costs on new bond issuances are based on the five-year rate from the main economic forecasts and adjusted for differing maturities.
  • Discount rates and CPI assumptions are set centrally by the Treasury for use in key asset and liability valuations. Discount rates used in major valuations are set using current market rates. Future changes to discount rates and CPI are not forecast.
  • Significant valuations (eg, student loan portfolio, ACC claims liability and the Government Superannuation Fund (GSF) retirement liability) are based on underlying assumptions (eg, discount rates, salary increases and inflation) made at the time the valuations were prepared.
  • No revaluations of property, plant and equipment are projected beyond the current year. Only valuations that have already been completed are included in these forecasts.

Further information on the underlying economic assumptions used in the fiscal forecasts can be found on page 52.

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