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Budget 2017 Home Page Budget Economic and Fiscal Update 2017

Operating Balance

The operating performance of the Crown strengthens…

OBEGAL is expected to be relatively unchanged, from 2015/16, in 2016/17 followed by steady growth in the remaining years of the forecasts rising to $7.2 billion by 2020/21.

Figure 2.8 shows the composition of OBEGAL from the different segments of the Government.

Figure 2.8 - Components of OBEGAL by segment
Figure 2.8 - Components of OBEGAL by segment.
Source: The Treasury

The core Crown segment is forecast to have an OBEGAL surplus that remains constant in the next two years before continuing to rise over the remainder of the forecast period, largely reflecting growth in tax revenue outpacing growth in nominal spending.

Crown entities' (CEs)[7]contribution to OBEGAL is expected to be a deficit of $1.5 billion in 2016/17 largely reflecting increased insurance expenses from the Canterbury earthquakes (by Southern Response) and new costs associated with the Kaikōura earthquakes (by EQC). For the remainder of the forecasts, the Crown entity sector is expected to be largely neutral with small surpluses and deficits.

State-owned Enterprises' (SOEs)[7] contribution to OBEGAL remains fairly stable with operating surpluses forecast averaging $0.7 billion throughout the forecast period.

...while investment returns contribute to the growth in net worth

The total Crown operating balance, inclusive of gains and losses, is forecast to be in surplus across all years of the forecast period with an initial peak in 2016/17 of $9.4 billion.

Gains and losses then return to long-term assumptions and operating balance follows the OBEGAL trend growing to $10.8 billion in 2020/21 (Figure 2.9).

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

The level of operating balance plays a significant part in increasing the Government's financial assets and contributing to growth in the Crown's net worth.

Following investment losses in 2015/16 the NZS Fund is forecasting gains on investments in the current year. Beyond 2016/17, investment gains assume a long-term rate of return.

In addition to investment gains, actuarial gains on the Crown's significant long-term liabilities such as ACC and Government Superannuation Fund (GSF) are forecast to be $2.8 billion in 2016/17. However, as future changes to discount rates and CPI are not forecast, they do not impact the operating balance beyond 2016/17.

While the Crown is forecast to be in surplus across the forecast period, net debt is forecast to continue to increase in the near future. Refer to page 41 for a discussion on the reason for the short-term increase in net debt.

Summary fiscal indicators

The Treasury calculates two summary fiscal indicators - the cyclically-adjusted balance and the fiscal impulse indicator - to help assess the Government's fiscal position. 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 2.8 - Structural fiscal balance indicators
Year ending 30 June
% of GDP
OBEGAL 0.7 0.6 1.0 1.4 2.0 2.2
Cyclically-adjusted balance 1.3 1.4 1.3 1.2 1.8 2.2
Fiscal impulse [8] (0.3) - 0.4 0.5 (1.0) (0.6)

Source: The Treasury

Cyclically-adjusted balance

The cyclically-adjusted balance (CAB) is an estimate of the OBEGAL adjusted for the cyclical position of the economy. Cyclical factors (eg, higher tax receipts in an upturn or higher unemployment expenses in a downturn) are removed to assess the Government's underlying fiscal position. The CAB is in surplus across the entire forecast period, indicating the forecast OBEGAL surpluses are structural (ie, they are not due to cyclical economic conditions). The CAB is greater than the OBEGAL in 2016/17 and 2017/18 as the economy is estimated to have a degree of spare capacity and lower than the OBEGAL from 2018/19 when the economy is forecast to be operating above its potential level. Cyclically-adjusted surpluses are forecast to increase from 1.3% of GDP in 2017/18 to a peak of 2.2% of GDP by the end of the forecast period.

Fiscal impulse

The fiscal impulse is an estimate of discretionary changes in the fiscal position that have an impact on aggregate demand pressures in the economy. The fiscal impulse indicates that fiscal policy is forecast to have a mildly stimulatory impact on aggregate demand in the near-term. This stance turns mildly contractionary in 2019/20 and 2020/21. The positive impulses in 2017/18 and 2018/19 reflect the stimulatory impact of elevated capital spending relative to the Half Year Update, the Family Incomes Package, and timing effects of company tax receipts. This is somewhat offset by the ongoing decline in operating expenditure as a percentage of GDP that occurs across the forecast period, which also drives the negative impulses from 2019/20.

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


  • [7]See pages 89 to 92 for a list of CEs and SOEs.
  • [8]The fiscal impulse measure shown is the core Crown fiscal impulse plus Crown entities excluding EQC and Southern Response payments and receipts related to the Canterbury and Kaikōura earthquakes.
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