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Operating Balance

Operating performance of the Crown strengthens…

OBEGAL is expected to be broadly in balance over the next couple of years. An OBEGAL surplus of $0.7 billion is expected in both 2015/16 and 2016/17. Surpluses are then forecast to grow, rising to $6.7 billion by 2019/20 largely owing to the growth in core Crown revenue exceeding growth in core Crown expenses.

Figure 2.8 shows the composition of OBEGAL from the different segments of the Government. The core Crown segment generally has the largest impact on OBEGAL and is forecast to have an OBEGAL surplus of $0.9 billion in 2015/16. There is a modest rise in the surplus to $1.2 billion in 2016/17 which is then forecast to double in 2017/18 and continue to rise over the remainder of the forecast period. These increases largely reflect 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) contribution to OBEGAL is fairly stable with operating surpluses forecast to increase slightly across the forecast period.

Crown entities' (CEs) contribution to OBEGAL is marginal with small deficits across the forecast period.

...with investment returns and changes in long-term liabilities contributing to the operating balance…

The total Crown operating balance, which includes gains and losses, is forecast to be a deficit of $2.6 billion in the current year, with surpluses forecast again from 2016/17 growing to $9.6 billion in 2019/20. Figure 2.9 shows the growth in the operating balance and its components over the forecast period.

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

ACC and NZS Fund hold the largest investment portfolios and market movements in these portfolios can have a significant impact on the operating balance. NZS Fund is expected to record net losses on its investments in the current year. In addition, gains and losses on long-term liability valuations for ACC and GSF will also impact on the Crown's operating balance. In 2015/16, net losses are forecast with actuarial losses of $3.1 billion and $0.9 billion respectively forecast for ACC's outstanding claims liability and GSF's defined benefit liability. These losses were mainly owing to the impact of changes in discount rate assumptions and claims experience.

Beyond 2015/16, investment gains assume a long-term rate of return, resulting in investment gains increasing to $2.6 billion in 2019/20. The level of investment gains plays a significant part in increasing the Government's financial assets and contributing to growth in the Crown's net worth. The Crown's significant long-term liabilities such as ACC and GSF use discount rates and CPI assumptions in their valuations. However, as future changes to discount rates and CPI are not forecast they do not impact on gains and losses beyond 2015/16.

Gains and losses can be volatile and are sensitive to balance sheet movements. Refer to the Total Crown Balance Sheet section later in this chapter for further discussion of these sensitivities.

…and an improvement in our internationally comparable fiscal indicators

In addition to OBEGAL and operating balance fiscal indicators, the Treasury also calculates the net operating balance using the Government Financial Statistics (GFS) framework developed by the IMF. This framework is specifically designed for government reporting and is particularly useful when making additional comparisons with other countries. The net operating balance represents revenue and expenses of the core Crown (excluding the Reserve Bank) and CEs. It also excludes a wider range of valuation movements than OBEGAL, such as impairments and write-offs. In general, the net operating balance is around $2.5 billion to $3.0 billion higher than OBEGAL across the forecast period.

Further information on GFS can be found in the Additional Information section of the Budget Update, which is available on the Treasury website (

Structural balance indicators

The Treasury calculates a range of fiscal indicators to help assess the relationship between fiscal policy and the economy. Further detail on these indicators can be found in the Additional Information section of the Budget Update, which is available on the Treasury website (

Table 2.5 - Structural fiscal balance indicators
Year ending 30 June
% of GDP
OBEGAL 0.2 0.3 0.3 0.9 1.7 2.2
Cyclically-adjusted balance 0.4 0.9 0.9 1.0 1.8 2.3
Fiscal impulse[8] (1.1) 0.3 0.5 (0.3) (1.3) (0.4)

Source: The Treasury

Structural budget balance

The Treasury's headline structural fiscal balance indicator (the cyclically-adjusted balance (CAB)) is an estimate of OBEGAL adjusted for fluctuations of actual GDP around potential GDP. This means cyclical factors are removed so only the structural or underlying component remains. The economy is estimated to be operating just below its potential level in the current year, and this gap is forecast to close over time with only small differences between OBEGAL and CAB later in the forecast. This means that the forecast OBEGAL surpluses appear to be structural in nature rather than being caused by short-term cyclical factors.

Fiscal impulse

The fiscal impulse is an estimate of discretionary changes in the fiscal position, which can be expected to have an impact on aggregate demand in the economy. The average fiscal impulse across the forecast period is broadly neutral. Small positive fiscal impulses in 2015/16 and 2016/17 are caused by increases in the ratio of cash expenses to GDP in those years and by increases in capital spending. The negative fiscal impulses from 2017/18 to 2019/20 reflect reductions in operating spending (relative to GDP), and from 2017/18, a decline in capital spending.

Figure 2.10 - Structural balance indicators
Figure 2.10 - Structural balance indicators.
Source: The Treasury


  • [8]The fiscal impulse measure shown is the core Crown fiscal impulse plus CEs excluding Earthquake Commission (EQC) and Southern Response payments.
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