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Budget 2005 Home Page Half-Year Economic & Fiscal Update 2005

Contingent Liabilities

Contingent liabilities are costs that the Crown will have to face if a particular event occurs. Typically, contingent liabilities consist of guarantees and indemnities, legal disputes and claims, and uncalled capital. The contingent liabilities facing the Crown are a mixture of operating and balance sheet risks, and they can vary greatly in magnitude and likelihood of realisation. In general, if a contingent liability were realised it would reduce the operating balance and net worth, and increase Crown debt. However, in the case of contingencies for uncalled capital, the negative impact would be restricted to Crown debt.

Where contingent liabilities have arisen as a consequence of legal action being taken against the Crown, the amount shown is the amount claimed and thus the maximum potential cost. It does not represent either an admission that the claim is valid or an estimation of the possible amount of any award against the Crown.

Only contingent liabilities involving amounts of over $10 million are separately disclosed. Contingent liabilities below $10 million are included in the “other quantifiable contingent liabilities” total. Comparatives have been adjusted where appropriate to align with the disclosure of new “material” contingent liabilities. The total amount of prior years’ contingent liabilities remains unchanged.

Contingent liabilities have been stated as at 31 October 2005, being the last set of published contingent liabilities.

Details of each of the following contingent liabilities can be accessed from the Treasury website at http://www.treasury.govt.nz/forecasts/hyefu/2005/.

Quantifiable Contingent Liabilities

  Status [4] ($ million)
Guarantees and indemnities    
Cook Islands – Asian Development Bank loans Unchanged 16
Indemnification of receivers and managers – Terralink Limited Unchanged 10
Ministry of Justice – Treaty settlement, tax liabilities Changed 82
Ministry of Transport – funding guarantee Unchanged 10
Post Office Bank – guaranteed deposits Unchanged 11

Guarantees and indemnities of SOEs and Crown entities

Unchanged 16
    145
Uncalled capital    
Asian Development Bank Changed 1,047
European Bank for Reconstruction and Development Unchanged 12
International Bank for Reconstruction and Development Changed 1,168
    2,227
Legal proceedings and disputes    
Health – legal claims Unchanged 88
Tax in dispute Changed 475
Other legal claims Changed 117
    680

Other quantifiable contingent liabilities

   
International finance organisations Changed 1,343
Reserve Bank – demonetised currency Unchanged 24
Social Development – claim for judicial review Changed 60
Transpower New Zealand Limited Changed 99
Other quantifiable contingent liabilities of SOEs and Crown entities Changed 14
Other quantifiable contingent liabilities Changed 30
    1,570
Total quantifiable contingent liabilities   4,622

Notes

  • [4]Relative to reporting in the 30 June 2005 Crown Financial Statements.
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