Core Crown – Expenses

Source: The Treasury

Over the past two years core Crown expenses to GDP have increased, primarily due to the impact of the significant increase in spending made in the 2004 and 2005 Budget packages. The Working for Families package was a key part of this.

Figure 2.6 – Core expenses excluding GSF valuations ($ and % of GDP)

Source: The Treasury

This continues in 2006/07, with core Crown expenses (excluding Government Super Fund (GSF) valuations) forecast to increase $4.1 billion, or 31.5% of GDP in 2005/06 to 33.0% of GDP. This growth in expenses is primarily due to:

• the impact of the 2006 Budget package ($2.4 billion)
• an increase in finance costs resulting from the impact of changes in the Reserve Bank settlement cash levels ($0.5 billion, refer page 39). This is entirely offset by higher investment income as the increase in Reserve Bank borrowings has been used to increase financial assets
• additional fair value write-downs of student loans ($0.4 billion), and
• the indexation of benefits ($0.1 billion).

Beyond 2006/07, core Crown expenses (excluding the GSF valuation) are expected to stay relatively flat over the forecast period at around 32% of GDP. This is essentially owing to smaller new operating spending forecast in comparison to the last three Budgets. In nominal terms, expenses are forecast to increase by around $9.8 billion. The major drivers of this increase are indexation of benefits (around $1.6 billion) and the allowances for new operating initiatives for future Budgets ($8.0 billion; see Figure 2.8 below).

Figure 2.7 – Core Crown functional expenses as a percentage of total expenses (excluding valuations)

Source: The Treasury

Forecast New Operating Initiatives

The fiscal forecasts include indicative amounts for new operating initiatives.

Figure 2.8 – Net allowance for new operating initiatives (GST exclusive)

Source: The Treasury

Budget allowances represent a level of Government funding that will be allocated to spending and revenue initiatives over the Budgets covered in the fiscal forecasts. The Government has not taken any decisions on where this funding will be allocated except for where pre-commitments against future Budgets have been made.

The operating allowance included in the fiscal forecast for Budget 2007 is $1.9 billion. The BPS has signalled a Budget 2007 package of $1.9 billion plus the three-month costs of the business tax package that fall in 2007/08.

The Budget 2008 allowance is forecast to be $3 billion. The economic and fiscal forecasts have been prepared on the basis that the allowance covers both revenue and expense initiatives. It does not imply any final decisions on the size and composition of the business tax package. The Budget 2008 allocation is $1 billion higher than indicated in the 2006 Fiscal Strategy Report.

Allowances for the 2009 and 2010 Budgets remain at around $2 billion. It is assumed all of the forecast new operating initiatives in these Budgets are allocated to spending.

Net Worth

Net worth is forecast to increase from $71.4 billion in 2005/06 to $100.8 billion by 2010/11. The growth in net worth reflects the Government’s strategy to run operating surpluses to strengthen its fiscal position. This strategy is evident across the whole of the Crown. The following section focuses on the net worth of the core Crown segments for reported government activity. The SOE and Crown entities’ activity is covered in a separate section on page 50.

Source: The Treasury