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Budget 2017 Home Page Budget Economic and Fiscal Update 2017

Specific Fiscal Risks by Portfolio

Treaty Negotiations

Government Response to Wai 262 (Unchanged)

The Waitangi Tribunal's report on the Wai 262 claim focuses on the protection of Māori culture and identity, with a particular focus on mātauranga Māori and associated taonga. The Tribunal’s recommendations are directed towards a number of government agencies individually, as groups and across sectors. The Government has yet to respond to the Tribunal’s report and recommendations.

Relativity Clause (Unchanged)

The Deeds of Settlement negotiated with Waikato-Tainui and Ngāi Tahu include a relativity mechanism. Now that the total redress amount for all historical Treaty settlements exceeds $1.0 billion in 1994 present-value terms, the mechanism provides that the Crown is liable to make payments to maintain the real value of Ngāi Tahu's and Waikato-Tainui's settlements as a proportion of all Treaty settlements. The agreed relativity proportions are 17% for Waikato-Tainui and approximately 16% for Ngāi Tahu. There is a risk that the timing and amount of the expense for the relativity payments may differ from that included in the fiscal forecasts. There is also uncertainty on how various disputes concerning the interpretation of the mechanism will be resolved.

Treaty Settlement Forecasts (Unchanged)

The fiscal forecasts include provision for the cost of future Treaty settlements. Given settlements are finalised through negotiations there is a risk that the timing and amount of the settlements could be different from the profile included in the fiscal forecasts.

Cross-portfolio Specific Fiscal Risks

Agency Capital Intentions (Unchanged)

Future budgets may well include new capital investments other than those identified in other specific fiscal risks. Such investments are most likely to be developed by the 25 investment-intensive agencies that are required to identify their capital spending intentions over the next 10 years based on current policy settings and certain demographic and inflation assumptions. The Government expects that these intentions will be managed back through a range of measures such as prioritisation, improvements in asset performance, alternative methods of service delivery and changes to policy settings. New investments are risks to the fiscal forecasts only to the extent they cannot be managed through existing balance sheets, or the provision in the fiscal forecasts for forecast new capital spending.

Budget Operating Initiatives (Unchanged)

Future budgets may well include new operating initiatives for new policies or to address cost pressures other than those identified in other specific fiscal risks. Such new operating initiatives are risks to the fiscal forecasts only to the extent they cannot be managed through reprioritisation or from within the existing provision in the fiscal forecasts for forecast new operating spending. The Government's stated intention is that all new operating initiatives will be managed through these mechanisms.

Pay Equity and Caregiver Employment Conditions (Unchanged)

There are several cases and funding claims mainly from workers in the social sectors (including health, education and welfare) relating to the interpretation, and application, of the Equal Pay Act 1972, the Minimum Wage Act 1983 and the Government's policy of paying certain family members through its Funded Care Policy. Such claims within State-funded sectors may involve significant costs to the Crown.

In relation to pay equity, Ministers have accepted the recommendations of the Joint Working Group on Pay Equity applying to all sectors in the economy. While the forecasts include the cost of the settlement reached in the TerraNova pay equity claim in April 2017, they do not include the cost of other claims; therefore, the bulk of the risk remains. In relation to other claims, and in the lead-up to legislative change, there is an agreement with the Council of Trade Unions to address claims in the State sector by applying new pay equity principles in bargaining.

Services Funded by Third Parties (Unchanged)

A wide range of government services are funded through third party fees and charges. Demand for these services can vary with a direct effect on revenue received. There is a risk the Government may need to provide additional funding if revenue collected is lower than the total costs of providing the service. There is also a risk that changes will be required to the way government services are delivered, which could result in costs to the Crown.

State Sector Employment Agreements (Unchanged)

A number of large collective agreements are due to be renegotiated over the forecast period. As well as direct fiscal implications from any changes to remuneration, the renegotiation of these agreements can have flow-on effects to remuneration in other sectors. The Government has signalled an expectation of restraint given its current fiscal stance and that agreements will be managed within the current fiscal forecasts.

Unexpected Maintenance for Crown-owned buildings (Unchanged)

There is a possibility that the Crown will incur costs when unexpected maintenance is required for the buildings it owns (for example, earthquake strengthening some of the buildings that do not meet modern building standards and maintenance for buildings with weathertight issues). The likelihood, timing and fiscal impact of any repairs are uncertain.

Risks Removed Since the 2016 Half Year Update

The following risks have been removed since the 2016 Half Year Economic and Fiscal Update.

Expired risks Reason
Income Tax and Family Assistance Changes Risk has materialised.
Kaikōura Earthquakes All major expenses are now in the forecasts or are covered by other specific fiscal risks. 
Parliamentary Office Accommodation Funding approved through Budget 2017 for the design and consent process has reduced the materiality of this risk below the threshold for publication. Furthermore, Parliamentary Services now has the right to extend the lease lowering the likelihood of the risk materialising over the forecast period.
Regional State Highways No longer a material risk as the Government has fulfilled its commitment to funding these projects.
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