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Budget 2007 Home Page Half Year Economic & Fiscal Update 2007

Key Trends

This section looks at the trends of the key indicators presented in the fiscal forecasts. It follows the fiscal strategy framework (refer page 4) and focuses primarily on core Crown indicators.

Table 2.2 – Reconciliation of residual core Crown cash
    Year ended 30 June
  $million 2007
Actual
2008
Forecast
2009
Forecast
2010
Forecast
2011
Forecast
2012
Forecast
  Core Crown revenue 58,174 62,409 63,496 65,832 69,458 72,740
Less Core Crown expenses 53,978 57,137 60,537 63,106 66,632 70,034
Plus Core Crown gains/(losses) and other items 2,392 934 1,209 1,362 1,569 1,784
Plus Net surpluses/(deficits) of SOEs and CEs 1,491 1,182 1,885 1,836 1,699 1,738
Equals Operating balance 8,079 7,388 6,053 5,924 6,094 6,228
Less Net gains/(losses) and other items 2,740 814 1,726 1,862 2,110 2,378
Equals Operating balance before gains and losses (OBEGAL) 5,339 6,574 4,327 4,062 3,984 3,850
Less NZS Fund net revenue after-tax4 (418) 169 211 253 296 343
Equals OBEGAL less NZS Fund net revenue 5,757 6,405 4,116 3,809 3,688 3,507
Less Net retained surpluses of SOEs and CEs 1,143 1,305 1,371 1,337 1,161 1,147
  Non-cash items and working capital movements 3,956 1,396 (2,184) (1,895) (1,701) (1,674)
Equals Net core Crown cashflow from operations 8,570 6,496 4,929 4,367 4,228 4,034
Less Contribution to NZS Fund 2,049 2,103 2,376 2,321 2,316 2,281
Equals Net core Crown cashflow from operations after contributions to NZS Fund 6,521 4,393 2,553 2,046 1,912 1,753
Less Purchase of physical assets 1,760 1,773 1,097 1,170 949 886
  Advances and capital injections 2,109 1,861 1,216 882 890 694
  Forecast for future new capital spending 1,003 773 924 1,110
Equals Core Crown residual cash 2,652 759 (763) (779) (851) (937)

[4]Source: The Treasury

Core Crown revenue falls, then grows broadly in line with the economy …

Core Crown revenue is forecast to decline from 35% of GDP in 2007/08 to 34% of GDP in 2008/09, and to remain relatively stable thereafter.


Figure 2.1 – Core Crown revenue and core Crown tax revenue as a % of GDP[5]
Figure 2.1 – Core Crown revenue and core Crown tax revenue as a % of GDP.
Source:  The Treasury

Tax revenue follows a similar trend, stabilising at around 31% of GDP. The main influences on the tax revenue trend are:

  • underlying growth in the economy flowing into source deductions, corporate taxes and other persons taxes
  • the Business Tax Reform announced in Budget 2007, reducing tax revenue by around $1 billion in each year from 2008/09, and
  • a revenue reduction contingency, which is outlined in the box below.

The tax forecasts are subject to potentially greater than usual risks flowing through from the uncertainty in the economic forecasts.

To a lesser extent core Crown revenue is also influenced by additional revenue forecast to be generated from the recently introduced Emissions Trading Scheme of around $0.1 billion in 2008/09 rising to $0.9 billion by 2011/12 (refer page 44).

Notes

  • [4]NZS Fund net revenue is the sum of its revenue (ie, interest and dividends) less expenses. The figure is also adjusted to add back tax revenue received by Inland Revenue from the NZS Fund.
  • [5]One of the main presentation changes with the adoption of NZ IFRS is that gains and losses are now recorded in a separate section in the Statement of Financial Performance rather than within revenue and expenses. This has resulted in a downward shift in revenue and expenses.
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