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Budget 2016 Home Page Budget Economic and Fiscal Update 2016

Total Crown Balance Sheet

Increasing operating balance surpluses results in a stronger balance sheet...

Net worth attributable to the Crown is forecast to grow steadily in nominal terms across the forecast period largely owing to forecast operating balance surpluses. Beyond 2016, net worth attributable to the Crown is expected to grow by $25.4 billion to stand at $108.9 billion by 2019/20. As a share of nominal GDP, net worth is relatively stable at around 33.4% until 2017/18, when it starts to increase to reach 36.4% by 2019/20 (Figure 2.16).

Figure 2.16 - Net worth attributable to the Crown
Figure 2.16 - Net worth attributable to the Crown.
Source: The Treasury

...with assets expected to grow while liabilities remain fairly constant across the forecast

Total assets are forecast to grow by $32.0 billion over the forecast period to $310.7 billion in 2019/20 (Figure 2.17), made up of additional investments in assets (both physical and financial) of $70.2 billion, partially offset by reductions (largely depreciation) of $38.2 billion. At the same time, the Crown's liabilities increase $9.4 billion to stand at $195.8 billion in 2019/20.

Figure 2.17 - Total Crown assets
Figure 2.17 - Total Crown assets.
Source: The Treasury

The largest asset growth over the forecast period is in the social assets portfolio (around 50% of the total Crown balance sheet). Social assets (eg, schools, hospitals and social housing) are expected to increase by $16.6 billion over the forecast period to be $155.8 billion in 2019/20 (Figure 2.18). This increase reflects growing capital spending, particularly over the next two years. Liabilities in relation to the social sector (eg, tax refunds, ETS provision and payables and provisions in relation to social assets noted above) remain static across the forecast period. As a result social net worth is expected to increase.

Figure 2.18 - Social balance sheet
Figure 2.18 - Social balance sheet.
Source: The Treasury

The financial asset portfolio (around 30% of the total Crown balance sheet) is expected to increase by $7.8 billion to be $94.8 billion in 2019/20, reflecting investment growth in the large investment portfolios (NZS Fund and ACC).

On the liability side, borrowings that are mostly undertaken by the Treasury's New Zealand Debt Management Office (NZDMO) (which manages the Crown's bond programme and funds forecast cash shortfalls), and the Reserve Bank. Borrowings in the financial sector are forecast to decrease by $3.1 billion by 2019/20. Insurance liabilities are expected to increase by $2.9 billion in the current year largely owing to increases in the ACC outstanding claims liability arising from updated actuarial valuations. Beyond 2015/16, ACC's insurance liability will continue to increase to stand at $42.1 billion in 2019/20. The GSF liability is forecast to be $11.3 billion in 2015/16 falling to $9.3 billion by 2019/20. Overall, net worth in the financial sector remains relatively static over the forecast period (Figure 2.19).

Figure 2.19 - Financial balance sheet
Figure 2.19  - Financial balance sheet.
Source: The Treasury

The commercial asset portfolio (around 20% of the Crown's balance sheet) is expected to increase by $7.6 billion over the forecast period to be $60.1 billion in 2019/20, with growth coming from SOEs' investment in physical assets and growth in Kiwibank[12] mortgages. Commercial liabilities are expected to increase by $7.7 billion over the forecast period to stand at $39.8 billion in 2019/20, largely owing to growth in Kiwibank consistent with growth in its loan book. Commercial net worth remains static over the forecast period (Figure 2.20).

Figure 2.20 - Commercial balance sheet
Figure 2.20 - Commercial balance sheet.
Source: The Treasury

The Crown's balance sheet remains sensitive to market movements...

Many of the assets and liabilities on the Crown's balance sheet are measured at “fair value” in order to show current estimates of what the Crown owns and owes. While the measurement at fair value is intended to reflect the value of these items, it can be volatile, resulting in fluctuations in the value of the assets and liabilities reflecting changes in the market and underlying assumptions.

Refer to the Risks and Scenarios chapter page 65 for more details.

...and judgements and estimates will also impact on the balance sheet...

Apart from market factors, valuations are subject to a number of judgements and estimates with valuations based on underlying assumptions made at the time the valuations were prepared. In general, as time goes on, better information becomes available and initial estimates are updated to reflect current information. Some examples of this are noted below:

  • The carrying value of student loans is based on a valuation model adapted to reflect current student loans policy. As such, the carrying value over the forecast period is sensitive to changes in a number of underlying assumptions, including future income levels, repayment behaviour and macroeconomic factors such as inflation and discount rates used to determine the effective interest rate for new borrowers. Any change in these assumptions would affect the present fiscal forecasts.
  • GSF’s assets are offset against the gross liability and have been updated to reflect market values. GSF’s liability is valued by projecting future cash payments, and discounting them to the present. The value of assets over the forecast period reflects long-run rate of return assumptions appropriate to the forecast portfolio mix.
  • The ACC liability has been adjusted for the 31 March 2016 discount rate. This liability is valued by projecting future cash payments, and discounting them to the present. These valuations rely on historical data to predict future trends and use assumptions such as inflation and discount rates. Any changes in actual payments or economic assumptions would affect the present fiscal forecast. For example, if the discount rate decreases, the value of the liabilities would increase.

...while other risks remain

In addition to those items on the balance sheet there are a number of liabilities (and assets) that may arise in the future but are not yet included in our forecasts, either because they are contingent on an uncertain future event occurring (eg, outcome of litigation) or the liability cannot be measured reliably. If these liabilities crystallise, there will be associated costs with a negative impact (or positive in the case of contingent assets) on the operating balance or net debt. Refer to page 82 for a list of the contingent liabilities at 31 March 2016.

Notes

  • [12]The proposed sale of shares in Kiwibank to the NZS Fund and ACC does not impact on the total Crown balance sheet as Kiwibank will remain 100% owned by the Crown following any investment.
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