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Budget 2017 Home Page Budget Economic and Fiscal Update 2017

Core Crown Expenses

Nominal core Crown expenses increase...

Core Crown expenses are expected to grow by $15.3 billion over the forecast period from $73.9 billion in 2015/16 to $89.2 billion in 2020/21, an increase of around $3 billion each year (Figure 2.3).

Figure 2.3 - Core Crown expenses
Figure 2.3 - Core Crown expenses.
Source: The Treasury

This nominal growth is largely attributable to budget decisions and new spending set aside for future budgets (Figure 2.4). In addition, social assistance spending is forecast to increase by $5.1 billion across the forecast period (refer to page 31 for further details) and the Care and Support Workers pay equity settlement adds just under $400 million per year to expenses.

Figure 2.4 - Increase in core Crown expenses relative to 2015/16 actuals
Figure 2.4 - Increase in core Crown expenses relative to 2015/16 actuals.
Source: The Treasury

...reflecting new budget spending...

Budget decisions made in Budget 2016 add around $1.9 billion of expenditure to 2016/17 while Budget 2017 decisions have added around $1.8 billion to core Crown expenses. In addition, spending set aside in future budgets increases spending by $5.2 billion by 2020/21.

Future operating allowances[4] are currently set at $1.7 billion for Budget 2018, increasing by 2% each subsequent Budget (Figure 2.5).

Figure 2.5 - Budget 2017 and future Budget operating allowances
Figure 2.5 - Budget 2017 and future Budget operating allowances.
Source: The Treasury

For forecasting purposes, the allowances are assumed to be all operating expenditure. However, these allowances can be used for a combination of revenue and expense initiatives when allocated, and are net of identified savings (discussed in the Summary of Initiatives).

...and increasing social assistance...

In addition to new budget spending, social assistance spending is expected toincrease by $5.1 billion across the forecast period, a 20.9% increase from the 2016 level. NZS payments account for $3.7 billion of this increase (Figure 2.6). NZS recipient numbers are forecast to increase from 690,600 in 2015/16 to 824,000 by the end of the forecast horizon. This increase in recipient numbers accounts for just under 67% of the increase in NZS costs, with the remaining increase largely owing to indexation of entitlements to wage growth (Figure 2.7). By the end of the forecast period, NZS is around 54% of the total social assistance spending compared to 50% in 2015/16.

Figure 2.6 - Social assistance spending
Figure 2.6 - Social assistance spending.
Source: The Treasury
Figure 2.7 - Growth of NZS expenses
Figure 2.7 - Growth of NZS expenses.
Source: The Treasury

Adding to the forecast growth in NZS payments, the Family Incomes Package is expected to increase social assistance expenditure by just over $0.5 billion per year by 2019/20 primarily through increases in Working for Families and the Accommodation Supplement (Table 2.5). Pages 21 to 22 provides an explanation of the Family Incomes Package and consequential fiscal impacts.

Table 2.5 - Social assistance expenditure impacts of the Family Incomes Package
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Working for Families - 0.1 0.4 0.3 0.3 1.1
Accommodation Supplement - 0.1 0.4 0.4 0.4 1.3
Consequential impacts on other benefits1 - - (0.2) (0.2) (0.2) (0.6)
Net increase in expenses - 0.2 0.6 0.5 0.5 1.8

Note:

  1. Other social assistance expenses are impacted by the change in tax settings. For example, NZS is set relative to the after-tax average wage.

Source: The Treasury

...while as a percentage of nominal GDP, core Crown expenses reduce

Core Crown expenses are expected to grow more slowly than the nominal economy, which sees core Crown expenses declining from 29.2% in 2015/16 to 27.5% of GDP at the end of the forecast period (Figure 2.3).

2017 Budget new operating spending

The purpose of this box is to explain how the new operating spending (including the Care and Support Workers Pay Equity Settlement) allocated in Budget 2017 is incorporated in the fiscal forecasts. Details on individual initiatives can be found in the Summary of Initiatives in Budget 2017 budget document.

The Budget 2017 net operating package totals $7.2 billion across the forecast period, an annual average increase of $1.8 billion. The package includes revenue initiatives that increase revenue by $0.3 billion and spending which increases expenditure by $7.5 billion (refer Table 2.6). In addition the Family Incomes Package adds $1.5 billion to expenses.

Table 2.6 - Impact of operating package
Year ending 30 June
$millions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Gross spending  146  1,707  1,986  1,946  2,029 7,826
Savings and revenue initiatives  (27)  (62)  (134)  (191)  (189) (615)
Budget 2017 net package 119  1,645  1,852  1,755  1,840 7,211
Care and Support Workers Pay Equity Settlement - 348 389 413 392 1,542
Total new spending 119 1,993 2,241 2,168 2,232   8,753
Increase in core Crown revenue  -    -    50  100  100 250
Increase in core Crown expenses 119 1,993  2,291  2,268  2,332 9,003
Reduction in OBEGAL  119  1,993  2,241  2,168  2,232 8,753

Source: The Treasury

The increase in core Crown expenses ($9.0 billion) is spread across a number of areas as outlined in Table 2.7 below. The core Crown expense tables in Chapter 6 outline the total core Crown expenditure on each of these areas after these increases.

Table 2.7 - Composition of the increase in core Crown expenses[5]
Year ending 30 June
$millions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Health  -   900 940  966  941 3,747
Law and order  5  211  284  322  389 1,211
Education (including tertiary)  (19)  254  308  302  359 1,204
Core government services  5  64  66  88  66 289
Economic and industrial services  18  104  128  125  150 525
Defence  -    47  112  115  122 396
Social security and welfare  -    124  133  101 89 447
Housing and community  29  51  45  45  43 213
Primary services  -    31  40  24  23 118
Heritage, culture and recreation  -    31  34  13  11 89
Environmental protection  21  18  16  10  11 76
Transport and communications  -    11  13  14  8 46
Other  56  9  6  -     -   71
Forecast new operating spending[6]  4    138  166  143  120 571
119  1,993 2,291  2,268 2,332 9,003

Source: The Treasury

Notes

  • [4]New operating spending will be allocated to department baselines when budget decisions are made. As a result, the different functional expense areas, with the exception of social security and welfare and finance costs, remain flat across the forecast period (refer page 94). Therefore, comparisons across the forecast period will not necessarily reflect the expected spend at a functional level.
  • [5]The breakdown by functional classification above is based on a framework developed by the OECD so may be different to the classification by Vote in the Summary of Initiatives in Budget 2017.
  • [6]The amounts classified as “forecast new operating spending” represent centrally held contingencies that have yet to be allocated to a particular departmental baseline.
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