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Budget 2007 Home Page Half Year Economic & Fiscal Update 2007

Comparison with Budget Update (continued)

Revenue reduction contingency

The fiscal forecasts include a revenue reduction contingency of $1.5 billion effective from 1 April 2009, rising to $1.7 billion by the end of the forecast period. This is on top of the operating allowances signalled in the 2007 FSR.

Net investment income

The stronger cash position compared to the Budget Update has meant the Government has built up more financial assets and in turn is forecast to generate more investment income (around $100 million per annum) than previously expected at the time of the Budget Update.


Take-up for the KiwiSaver scheme over the first four months of its operation has proved to be higher than that forecast in the Budget Update. The Half Year Update revisions are based on an assumption that growth in applications will ease in the new year, and that the total number of applications will reach around 563,000 by June 2008 (this includes members of non-KiwiSaver superannuation schemes but who are eligible to access some KiwiSaver benefits).

Some uncertainty arises from the nature of the extra applications received to date. Some of the unanticipated take-up has come from children (nearly 16,000 applications for those aged under 15 years to date), and people nearing retirement (37,000 applications to date are for those aged 60-64). For these groups, the main fiscal impact is on the $1,000 kick-start contribution. However, extra growth from people in employment affects all aspects of the scheme. There is even greater uncertainty over whether the strength in applications to date is simply a bring forward of applications (faster growth), or will lead to genuinely higher than assumed take-up in the long run.

Benefit forecasts

Benefit expense forecasts have not changed substantially from the Budget Update. However, there are two offsetting factors:

  • New Zealand Superannuation payments are forecast to be higher owing to greater expected indexation growth since the Budget Update flowing from higher CPI inflation and wage growth; offset by
  • the $1.5 billion revenue reduction contingency will result in lower gross benefit payments for the Government as a result of lower tax payable.

Kyoto Protocol liability

The Kyoto Protocol liability has been revised up in the current year to reflect updated carbon prices. The carbon price used for the Half Year Update fiscal forecasts is $21.01 (NZD), compared to $13.52 (NZD) used in the Budget Update.

Top-down adjustments

The top-down adjustment is now being rolled out in each year of the fiscal forecasts. Applying the adjustment across the forecast horizon compensates for departments using appropriations as the basis for their forecasts. Appropriations will overstate actual expenditure as they set upper spending limits, not mid-point estimates, and in some instances they reflect contingencies.

Residual Cash

Similar to the OBEGAL, residual cash is forecast to be stronger compared to the Budget Update. The majority of the drivers that influenced the upwards revision in the OBEGAL are also present in residual cash. In addition:

  • The Half Year Update allows for a $900 million higher capital allowance in Budget 2008 than that signalled in the 2007 FSR. The majority of the increase in the capital allowance is forecast to occur in the 2008/09 fiscal year.
  • The capital top-down adjustment has resulted in a reduction in capital payments compared to the Budget Update ($250 million in 2007/08 and $100 million in the other outyears).
  • Repayments of advances are forecast to be lower than expected at the Budget Update, primarily due to student loans.
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