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Budget 2007 Home Page Half Year Economic & Fiscal Update 2007

State-owned Enterprises and Crown Entities – OBEGAL

Figure 2.13 – SOE and Crown entities operating balance
Figure 2.13 – SOE and Crown entities operating balance.
Source:  The Treasury

The OBEGAL of the SOEs and CEs are forecast to total $8.5 billion over the forecast period. Around $2.1 billion of the operating surpluses will be returned as dividends, and will be available to fund spending elsewhere in the Crown (ie, it forms a part of residual cash).

Over the forecast period SOE/CEs’ OBEGAL after dividends are on average $1 billion.

SOE/CEs’ OBEGAL after payment of dividends total $6.4 billion. This residual is maintained within the entities that have generated the net surpluses and so is not available to fund spending elsewhere in the Crown. In broad terms, the majority of the accumulated net surpluses are forecast to build up financial and physical assets.

Physical Asset Purchases and Capital Spending

Table 2.8 – Net purchases of physical assets by segment[6]
  Year ended 30 June
$million 2008
Forecast
2009
Forecast
2010
Forecast
2011
Forecast
2012
Forecast
Total
Core Crown (after top-down adjustment) 1,773 1,097 1,170 949 886 5,875
Crown entities 2,542 2,232 2,046 2,157 2,086 11,063
State-owned enterprises 2,234 2,423 3,039 3,158 2,872 13,727
  6,549 5,752 6,255 6,264 5,844 30,664

Source: The Treasury

Core Crown capital spending forecasts comprise net physical asset purchases met from existing baselines plus new capital allocated in Budgets.

As part of the Budget 2007, the Government allocated $1.6 billion of new capital over the next four years. Amounts for the 2008, 2009 and 2010 Budgets have been set at $0.9 billion phased in over four years, some of which falls outside the forecast horizon. On a year-by-year basis, capital spending is forecast to be on average $2 billion per annum over the next five years.

Table 2.9 – Core Crown capital spending
  Year ended 30 June
$million 2008
Forecast
2009
Forecast
2010
Forecast
2011
Forecast
2012
Forecast
Total
Net purchase of physical assets 1,773 1,097 1,170 949 886 5,875
Budget 2008 48 992 330 200 230 1,800
Budget 2009 20 480 250 150 900
Budget 2010 20 480 250 750
Budget 2011 20 480 500
Total Budget allocation for capital 48 1,012 830 950 1,110 3,950
Total capital spending 1,821 2,109 2,000 1,899 1,996 9,825

Source: The Treasury

Comparison with Budget Update

This section compares the key indicators for the Half Year Update with the Budget Update.

OBEGAL

Figure 2.14 – OBEGAL comparison
Figure 2.14 – OBEGAL comparison.
Source:  The Treasury

Compared to the Budget Update the OBEGAL is expected to be around $1.6 billion higher than forecast for the 2007/08 year. Over the rest of the forecast period the OBEGAL is on average about $0.5 billion higher than the Budget Update.

Both core Crown revenue and expenses have increased since the Budget Update. The key changes are outlined in Table 2.10 and discussed below.

Tax revenue

Tax revenue forecasts have been increased by about $2 billion each year over the forecast period since the Budget Update.

Much stronger price growth and, to a lesser extent, a higher level of real economic activity contributes to the level of nominal GDP being significantly higher than in the Budget Update in each year of the forecast period. The economic forecasts take into account increased activity spurred by the revenue reduction contingency.

This increase in the nominal GDP forecast has the largest effect on income taxes, as follows:

  • Other persons tax – Shortly after the 2007 Budget was released, Fonterra announced that the dairy payout for the year to May 2008 would be about 50% up on 2007. This large increase in dairy farm incomes has prompted the Treasury to significantly revise up its projections for unincorporated profits for 2008 and beyond. In turn, this has led to increases of as much as $400 million in some years for other persons tax.
  • Corporate taxes – As well as unincorporated profits, the Treasury has also increased its projections of corporate profits and hence corporate taxes. The biggest effect occurs in 2009/10 where the corporate tax forecast is more than $600 million higher than in the Budget Update.
  • Source deductions – Forecasts of aggregate salaries and wages have been increased by as much as $3 billion in some years, prompting some large increases in the source deductions forecasts.
  • RWT on interest – There have also been some significant increases made to the RWT forecasts. However, these increases are more the result of changes to the forecasting model than changes in the forecasts of any underlying economic parameter. RWT on interest has increased by an average of nearly 20% per annum. for each of the past five years. With no sign of this growth abating, the Treasury has revised up the forecast growth rates for RWT in most years of the forecast.

With increased incomes, we might also expect to see an increase in the forecasts of domestic consumption and hence GST. Yet, despite increases in the consumption forecasts, the GST forecasts are little changed from the Budget Update owing to changes in judgements around the average effective rate of GST on consumption. Note that not all consumption is subject to GST, eg, residential rents, and there are things outside of the System of National Accounts measure of consumption that attract GST, eg, residential construction.

The change in the way bad debt write-offs of tax receivables are disclosed has resulted in a $450 million per annum increase in tax revenue. As previously mentioned, tax write-offs are now shown as an expense rather than being netted off against revenue. The change in the write-off treatment also results in a corresponding increase in expenses compared to the Budget Update.

Table 2.10 – OBEGAL reconciliation (explains changes to the operating balance since the Budget Update)
$million 2008
Forecast

2009
Forecast

2010
Forecast
2011
Forecast
OBEGAL 2007 Budget Update 4,958 3,957 3,530 3,347
Core Crown revenue changes        
Tax revenue (forecasting) (449) (450) (450) (450)
Tax revenue (accounting policy change) 450 450 450 450
Revenue reduction contingency (375) (1,600) (1,700)
Net Investment income
Kyoto - ETS levies 84 480 864
Impact of OBU 149 130 135 167
Other revenue (149) 161 885 469
Total core Crown revenue changes 1 ..  (100) (200)
Core Crown expense changes        
KiwiSaver uptake (344) (172) (49) 12
Benefit forecast (24) (45) 106 17
Tax revenue (accounting policy change) (450) (450) (450) (450)
ETS expenses (597) (477) (477)
Kyoto liability increase (252)
Transport full hypothecation funding (35) (182)
Impact of OBU (354) (150) (154) (63)
Top-down expense adjustment 750 275 250 200
Other operating expenses 187 (4) 26 (13)
Total core Crown operating expense changes (487) (1,143) (783) (956)
Core Crown OBEGAL change (486) (1,143) (883) (1,156)
Net SOE/CE change (including impact of eliminations) 2,102 1,513 1,415 1,793
Total changes       1,616         370            532          637

OBEGAL 2007 Half Year Update

      6,574       4,327         4,062        3,984
Core Crown OBEGAL change (486) (1,143) (883) (1,156)
Kyoto liability increase (no cash impact) 252 513 (3) (387)
Top-down capital adjustment 250 100 100 100
Capital allocation (503) (23) (24)
Capital transfers (268)
NZS Fund (157) 12 156
Advances (236) (157) (83) (141)
Other changes (eg, working capital. PPE) (223) 523 291 144

Residual cash change

1,735 924            870          575

Source: The Treasury

Notes

  • [6]Net purchases of physical assets are net of any sales of physical assets.
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