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Budget 2006 Home Page Half Year Economic & Fiscal Update 2006

Indicators of the Government’s Fiscal Performance

This section aims to help readers better understand the Government’s fiscal position.

Each indicator in this fact sheet gives valid insights into the Government’s historical, current and forecast fiscal position, but no one indicator gives a complete picture. Individual indicators do, however, come into greater or lesser focus as circumstances change.

When, for example, the New Zealand Government’s net worth was low and net and gross debt levels were high, much of the focus of Government and public commentary at that time was on eliminating annual operating deficits and on the need to attain, and later to lock in, annual operating surpluses.

However, as net worth has risen, and gross and net debt levels have fallen, the Government in more recent years has increasingly focused on how to maintain debt levels around current levels and, accordingly, has given more focus to the Government’s annual cash balance.

Most of the indicators in this section may be useful regardless of the particular fiscal strategy being followed. In a few cases (such as the formulation of OBERAC excluding NZS Fund returns), the indicator is used to throw light on the impact of a particular strategy (in this case the build-up of financial assets in the NZS Fund).

Accounting Equations

Flow indicators

  • Core Crown revenues – core crown expenses + net surplus of SOEs (ie, after dividends) and Crown entities = Operating balance.
  • Operating balance – revaluation movements – accounting changes = OBERAC.
  • OBERAC – retained items (eg, net surplus of SOEs/CEs and net investment returns of the NZS Fund) – non-cash items (eg, depreciation) = Core Crown cash flow from operations.
  • Core Crown cash flow from operations – net investing activities (eg, contributions to NZS Fund, purchases of assets, loans to others) = Cash available/shortfall.

Stock indicators

  • Gross sovereign-issued debt (GSID) = debt issued by the core Crown.
  • Core Crown net debt =GSID – core Crown’s financial assets. (Cash available/shortfall in any year largely drive the change in net core Crown debt.)
  • Net worth (NW) = Crown’s total assets – Crown’s total liabilities. (Operating balance (OB) in any year largely drives the change in net worth.)
Ratio of core Crown revenue to GDP
Ratio of core Crown revenue to GDP.
Core Crown revenue to GDP is expected to be broadly
stable at around 34% over the forecast period, while
core Crown tax to GDP is expected to be broadly
stable at slightly above 31% of GDP.
Ratio of core Crown expenses to GDP
Ratio of core Crown expenses to GDP.
Core Crown expenses to GDP are
expected to remain broadly
stable at around 32% of GDP
over the forecast period.

Operating balance
Operating balance.
The Government has been running
operating surpluses since the early
1990s.  These are expected to
reach a peak of 7.3% of GDP in 2006
and are expected to remain above
3% of GDP over the forecast period.
The OBERAC excluding NZS Fund
returns is expected to come down
from its recent peak of a surplus
equivalent to around 5.1% of GDP in 2006,
toward 2% of GDP in 2008 and beyond.

Cash available/(shortfall to be funded) and domestic bond programme
Cash available/(shortfall to be funded) and domestic bond programme.
The Government is currently moving
from a period of having cash available
to repay debt, to a need, in subsequent years,
to generate cash through borrowing and
reductions in marketable securities.
Crown gross debt
Crown gross debt.
GSID has been steadily declining
since the early 1990s and is expected
to remain broadly stable around
20% of GDP in the forecast period.

Core Crown financial assets
Core Crown financial assets.
As at 30 June 2007, the NZS Fund’s
assets are forecast to total $12.7 billion
or around 7.8% of GDP.  The NZS Fund
is expected to grow to around $26.7 billion
or 13.5% of GDP by the end of the forecast period.
Core Crown net debt
Core Crown net debt.
After declining steadily since the
early 1990s, net debt is projected to
consolidate in the years ahead
at around 4% of GDP. If the assets
of the NZS Fund are included, the
Government’s net debt position moved
into a net financial asset position
during 2005/06.

Net worth
Net worth.
Net worth is projected to continue
to rise at a rapid rate, moving from around
5% in 2000 to over 45.4% in 2006 and moving
towards 50.9% by the end of the forecast period.
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