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Budget 2017 Home Page Budget Economic and Fiscal Update 2017

Core Crown Capital Spending

The Government is forecast to spend a net total of $23.5 billion on capital items (excluding contributions to the NZS Fund) in the next four years, which includes building and acquiring physical assets (eg, school buildings), advances (eg, student loans), providing capital to CEs (eg, the New Zealand Transport Agency (NZTA)) and future new capital spending. Recommencing contributions to the NZS Fund will add a further $2.2 billion in 2020/21, and including the current year's spending of $4.9 billion raises the total spend on capital items over the forecast period to $30.6 billion (Table 2.9).

In total, Budget 2017 has allocated around $4.0 billion in capital spending over the forecast period. This capital spending has been allocated over a number of spending areas and across a number of years (for a breakdown of the $4.0 billion refer to Figure 2.14). This has increased from the $3.0 billion that was set out in the 2017 BPS.

Table 2.9 - Net capital expenditure activity 2016/17 to 2020/21
Year ending 30 June
$billions
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Education 0.6 0.9 0.9 1.0 0.8 0.6 4.2
Defence 0.4 0.6 0.6 0.5 0.5 0.3 2.5
Corrections 0.1 0.1 0.2 0.2 0.1 0.1 0.7
IRD - 0.1 0.2 0.1 0.1 0.1 0.6
Other 0.9 0.9 1.3 0.6 0.6 0.5 3.9
Net purchase of physical assets 2.0 2.6 3.2 2.4 2.1 1.6 11.9
Student loans 0.2 0.2 0.2 0.1 0.1 - 0.6
Housing Infrastructure Fund - - - 0.2 0.2 0.2 0.6
Other 0.3 (0.1) 0.1 (0.1) (0.1) (0.1) (0.3)
Net advances 0.5 0.1 0.3 0.2 0.2 0.1 0.9
NZTA 1.1 1.1 1.5 1.2 1.3 1.2 6.3
City Rail Link - 0.2 0.1 0.3 0.4 0.4 1.4
Southern Response 0.3 0.3 0.4 0.1 - - 0.8
DHBs - 0.1 0.2 0.1 0.2 0.1 0.7
KiwiRail 0.2 0.2 0.2 0.2 - - 0.6
Other 0.5 0.2 0.5 0.6 0.2 0.1 1.6
Net investments 2.1 2.1 2.9 2.5 2.1 1.8 11.4
Future new capital spending - 0.2 0.4 1.3 1.6 2.0 5.5
Top-down capital adjustment - (0.1) (0.8) (0.2) (0.2) - (1.3)
Contribution to NZS Fund - - - - - 2.2 2.2
Net capital spending 4.6 4.9 6.0 6.2 5.8 7.7 30.6

Source: The Treasury

Net capital spending is expected to increase significantly in 2017/18 and 2018/19, with the largest capital spend in a number of years (Figure 2.11). The size of the forecast spend increases the risk that spending may be pushed into future periods as capacity constraints are tested.

Table 2.9 outlines the capital spending and funding from the core Crown that impacts net core Crown debt. It excludes capital spending undertaken by CEs and SOEs that is funded directly from their own resources. In addition to the capital spending in the table above, the Government has undertaken a number of capital projects through Public Private Partnerships (eg, Transmission Gully). Further detail on total Crown spending on infrastructure can be found in the Capital at a Glance document, which focusses on this broader (and therefore larger) infrastructure investment by the Crown.

Figure 2.11 sets out a history of capital expenditure over the past 10 years and includes the forecast capital activity to 2020/21. The graph excludes contributions to the NZS Fund and proceeds from the Government Share Offer programme in 2012-14 (a total of $4.6 billion) which were used to fund capital expenditure.

Figure 2.11 - Net capital spending history
Figure 2.11 - Net capital spending history.
Source: The Treasury

A net capital allowance of $2.0 billion is forecast for Budget 2018 with $2.5 billion for Budgets 2019-21. The Government's share of the cost of the CRL joint project with Auckland Council is assumed to be met from these allowances. Each capital allowance is assumed to be spread over four fiscal years reflecting the assumed profile of future spending. This profile is illustrated in Figure 2.12.

Figure 2.12 - Future capital allowances
Figure 2.12 - Future capital allowances.
Source: The Treasury

In addition to budget allowances, further capital spending is forecast to occur through the purchase of physical assets, investments in CEs and lending such as student loans.

Forecast net purchases of physical assets of $11.9 billion are forecast across the period and represent spending by core Crown agencies to maintain and expand their existing asset base. Over half of the spending ($6.7 billion) is expected to be on defence and education assets.

Net investments of $11.4 billion are forecast, and largely represent capital injections to CEs to fund their capital programmes. These investments average $2.2 billion a year across the forecast period. The largest capital injections across the forecast period are to NZTA for state highways ($6.3 billion). Net investments also include Crown support for Southern Response, which is expected to call the remaining uncalled capital facility as a result of their updated insurance liability valuation.

Net advances of $0.9 billion include issuance and repayment of student loans as well as the Housing Infrastructure Fund. Student loan repayments have been increasing over time so that, by the end of the forecast period, repayments are expected to match issuances. The forecasts assume that 60% of the Housing Infrastructure Fund will be allocated in the forecast period with the remaining 40% allocated in subsequent years.

Core Crown capital spending

Core Crown capital spending is expected to reach $28.4 billion over the five years of the forecast (excluding contributions to the NZS Fund and capital spending by Crown entities and SOEs). This compares to $18.4 billion spent over the previous five years. This spending includes cash paid by the Crown to directly acquire assets, capital funding provided to CEs to undertake their capital programmes as well as programmes such as the Housing Infrastructure Fund.

Figure 2.13 - Capital spending 2017-2021
Figure 2.13 - Capital spending 2017-2021.
Source: The Treasury

Budget 2017 allocated $4 billion of new capital spending which has been incorporated into the total capital spending above (Figure 2.14). Two-thirds of Budget 2017 spending has been allocated to transport and law and order projects.

Figure 2.14 - Budget 2017 capital spending
Figure 2.14  - Budget 2017 capital spending.
Source: The Treasury

The expected distribution of the core Crown capital spending is outlined in Figure 2.13 with nearly a third expected to be allocated to transport projects.

Transport spending is split between roading and rail and includes the Government's investment in CRL with the Auckland Council and the rebuild of the transport infrastructure damaged in the Kaikōura earthquakes. Education capital spending includes spending on school properties together with the issuance of student loans. Student loan repayments are forecast to increase over the forecast period, equalling student loans issued by 2020/21.

A portion of capital spending in future budgets has yet to be allocated to a particular sector. The fiscal forecasts assume that this future spending will be used to build or purchase new assets directly. However, the Government may instead chose to enter into a Public Private Partnership (PPP) for large capital projects. While the use of a PPP does not impact forecast core Crown net debt, it may delay cash payments to outside the forecast period.

The distribution of law and order spending is outlined in Figure 2.15 with a large portion of the spending allocated to increasing prison capacity.

Figure 2.15 - Law and order capital spending
Figure 2.15 - Law and order capital spending.
Source: The Treasury

Health spending includes the rebuild of Canterbury hospitals while other spending includes the Housing Infrastructure Fund, Crown support for Southern Response and investment in ultra-fast broadband.

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