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Budget 2016 Home Page Budget Economic and Fiscal Update 2016

Residual Cash and Net Core Crown Debt[11]

Operating cash flows grow steadily...

Net operating cashflows are forecast to be in surplus across the forecast period. A surplus of $2.1 billion is forecast in the current year decreasing slightly in 2016/17 before increasing sharply to reach an operating cash surplus of $7.8 billion by 2019/20. Over the forecast period, the Government is expected to generate cash flows from core Crown operations of $20.7 billion.

The growth in operating cashflows largely mirrors the trend shown in core Crown OBEGAL. The strengthening of operating cashflows largely represents growth in tax receipts.

...outpacing capital spending near the end of the forecast period

The residual cash deficit is forecast to increase significantly in the 2016/17 year owing to increased capital spending forecast in 2016/17 exceeding the expected growth in operating surpluses. Net capital spending is forecast to exceed operating cash flows until 2018/19, when core Crown residual cash is expected to return to surplus (Figure 2.13).

Figure 2.13 - Core Crown residual cash
Figure 2.13 - Core Crown residual cash.
Source: The Treasury

Over the forecast period a cash shortfall of $2.5 billion is expected. This cash shortfall is funded largely through additional bond issuances (Table 2.8).

Net core Crown debt peaks as a share of GDP in 2016/17...

Net core Crown debt on a nominal basis increases for the first three years as a result of capital spending exceeding cashflows from operating activities (as discussed above) before starting to decline once residual cash returns to surplus in 2018/19, to stand at $62.3 billion at the end of the forecast period (Figure 2.14).

Figure 2.14 - Net core Crown debt
Figure 2.14  - Net core Crown debt.
Source: The Treasury

Net core Crown debt as a share of nominal GDP is forecast to peak at 25.6% in 2016/17 before reducing to 20.8% by 2019/20 and continuing to decline thereafter.

...and gross debt begins to decline after 2016/17

Gross debt is expected to peak at $93.9 billion in 2016/17. From 2017/18 forecast maturities are expected to exceed new debt being issued, and gross debt begins to decline. Gross debt is forecast to be $83.6 billion in 2019/20 which is equivalent to 27.9% of nominal GDP (Figure 2.15).

Figure 2.15 - Gross debt (Gross Sovereign Issued Debt (GSID) excl Reserve Bank settlement cash and bank bills)
Figure 2.15  - Gross debt (Gross Sovereign Issued Debt (GSID) excl Reserve Bank settlement cash and bank bills).
Source: The Treasury

The bond programme is expected to raise funds of $36.6 billion over the forecast period, while $33.0 billion of existing debt will be repaid, providing net cash proceeds of $3.6 billion (Table 2.8). Any excess cash proceeds raised from the bond programme are expected to be invested in financial assets and used to meet future debt maturities.

The issuance profile is relatively flat in order to reduce year-to-year volatility of bond programmes and ensure consistency of supply over this time.

Table 2.8 - Net increase in government bonds
Year ending 30 June
$billions
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
5-year
Total
Face value of government bonds issued (market) 8.0 7.0 7.0 7.0 7.0 36.0

Cash proceeds from government bond issue

 
Cash proceeds from issue of market bonds 8.3 7.9 7.1 6.7 6.6 36.6
Repayment of market bonds (1.8) - (11.3) (11.5) (7.4) (32.0)
Net proceeds from market bonds 6.5 7.9 (4.2) (4.8) (0.8) 4.6
Repayment of non-market bonds (0.1) (0.7) (0.2) - - (1.0)
Net repayment of non-market bonds (0.1) (0.7) (0.2) - - (1.0)
Net cash proceeds from bond issuance 6.4 7.2 (4.4) (4.8) (0.8) 3.6

Source: The Treasury

NZS Fund contributions

No contributions to the NZS Fund are assumed in the forecast in line with the Government’s stated intentions to commence contributions once net core Crown debt falls below 20.0% of GDP as set out in the 2016 Fiscal Strategy Report (FSR). The table below provides a calculation of the annual contribution that would have been included in the forecasts if they were to resume in 2016/17.

Table 2.9 - NZS fund contributions
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
Annual contribution 2.1 2.4 2.6 2.6
Forecast contribution - - - -

The underlying assumptions in calculating the required contribution in each year are the previous year's NZS Fund balance and projected series, over the ensuing 40 years of nominal GDP, net (after-tax) NZS expenses and the government five-year bond rate. The latter is used in calculating the Fund's expected long-run after-tax annual return. Over the forecast years, all Fund variables, apart from the capital contributions, are provided by the NZS Fund itself. Refer to the Treasury website for the NZS Fund model.

Notes

  • [11]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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