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Budget 2007 Home Page Half Year Economic & Fiscal Update 2007

Debt Indicators

Figure 2.15 – Net debt comparison
Figure 2.15 – Net debt comparison.
Source:  The Treasury

Figure 2.16 – GSID (excl Settlement Cash) comparison

Figure 2.16 –GSID (excl Settlement Cash) comparison.
Source:  The Treasury

Net core Crown debt is forecast to be lower in each forecast year compared to the Budget Update. Net debt is forecast to be around 1% of GDP in 2010/11 compared to 3.5% in the Budget Update. In nominal terms, net core Crown debt is forecast to be around $5 billion lower compared to the Budget Update. The main reason for the lower net core Crown position since the Budget Update is the flow-on impact of the increase in residual cash.

GSID (excluding Settlement Cash) is also forecast to be lower than forecast at the Budget Update, despite no change in forecast debt issuance. This is primarily owing to revisions to the forecast tenor of bond issuance, and consequentially increasing bond maturities within the forecast period.

Table 2.11 – 2007 Half Year Update fiscal indicators
  Year ended 30 June
Fiscal indicators
$million
2007
Actual
2008
Forecast
2009
Forecast
2010
Forecast
2011
Forecast
2012
Forecast
Revenue            
Total Crown revenue 74,427 79,608 81,280 84,482 88,710 92,612
Core Crown revenue 58,174 62,409 63,496 65,832 69,458 72,740
Core Crown tax revenue and contingency 53,445 57,166 57,697 59,618 62,531 65,507
Expenses            
Total Crown expenses 69,088 73,034 76,953 80,420 84,726 88,762
Core Crown expenses 53,976 57,137 60,537 63,106 66,632 70,034
Operating balance - Core Crown 6,498 6,206 4,166 4,089 4,395 4,489
Operating balance - Crown entities 1,006 580 1,135 968 938 901
Operating balance - SOEs 821 986 1,125 1,251 1,173 1,368
Dividend elimination (326) (384) (373) (384) (412) (530)
Total operating balance 7,999 7,388 6,053 5,924 6,094 6,228
OBEGAL 5,339 6,574 4,327 4,062 3,984 3,850
OBEGAL excluding NZS Fund revenue 5,757 6,019 3,642 3,243 3,021 2,733
Cash available/(shortfall to be funded) 2,653 759 (763) (779) (851) (937)
Debt indicators            
GSID (excluding Settlement Cash) 30,890 33,303 33,034 31,779 34,566 33,172
Total gross Crown debt 41,914 46,363 47,956 49,351 53,106 52,434
Net core Crown debt 4,411 1,983 1,756 1,705 1,792 2,105
Net core Crown debt with NZS Fund assets (8,112) (13,102) (16,224) (19,545) (22,990) (26,414)
Net worth 96,704 104,315 110,372 116,313 122,417 128,652
Domestic bond programme 2,294 2,453 2,459 2,487 2,507 2,497
Nominal GDP 166,714 178,199 186,956 194,528 202,865 212,364
Fiscal indicators as a % of GDP            
Revenue            
Total Crown revenue 44.6 44.7 43.5 43.4 43.7 43.6
Core Crown revenue 34.9 35.0 34.0 33.8 34.2 34.3
Core Crown tax revenue and contingency 32.1 32.1 30.9 30.6 30.8 30.8
Expenses            
Total Crown expenses 41.4 41.0 41.2 41.3 41.8 41.8
Core Crown expenses 32.4 32.1 32.4 32.4 32.8 33.0
Operating balance 4.8 4.1 3.2 3.0 3.0 2.9
OBEGAL 3.2 3.7 2.3 2.1 2.0 1.8
OBEGAL excluding NZS Fund revenue 3.5 3.4 1.9 1.7 1.5 1.3
Debt indicators            
GSID (excluding Settlement Cash) 18.5 18.7 17.7 16.3 17.0 15.6
Total gross Crown debt 25.1 26.0 25.7 25.4 26.2 24.7
Net core Crown debt 2.6 1.1 0.9 0.9 0.9 1.0
Net core Crown debt with NZS Fund assets (4.9) (7.4) (8.7) (10.0) (11.3) (12.4)
Net worth 58.0 58.5 59.0 59.8 60.3 60.6
New Zealand Superannuation Fund            
Fund asset returns (after tax) 1,069 917 1,119 1,331 1,560 1,805
Fund contributions 2,049 2,103 2,376 2,321 2,316 2,281
Fund assets (year end) 12,973 15,993 19,488 23,140 27,016 31,102
% of GDP 7.8 9.0 10.4 11.9 13.3 14.6

Source: The Treasury

Table 2.12 – 2007 Budget Update fiscal indicators
  Year ended 30 June
Fiscal indicators
$ million
2007
Actual
2008
Forecast
2009
Forecast
2010
Forecast
2011
Forecast
Revenue          
Total Crown revenue 74,427 76,872 79,576 83,178 86,819
Core Crown revenue 58,174 59,402 61,172 63,825 66,993
Core Crown tax revenue 53,445 54,707 56,280 58,877 61,960
Expenses          
Total Crown expenses 69,088 71,914 75,619 79,648 83,472
Core Crown expenses 53,976 56,096 58,819 61,677 64,898
Operating balance - Core Crown 6,498 4,463 3,667 3,630 3,781
Operating balance - Crown entities 1,006 1,241 1,169 974 960
Operating balance - SOEs 821 1,068 1,141 1,155 1,065
Dividend elimination (326) (341) (408) (449) (440)
Operating balance 7,999 6,431 5,569 5,310 5,366
OBEGAL 5,339 4,958 3,957 3,530 3,347
OBEGAL (excluding NZS Fund revenue) 5,757 4,860 3,862 3,438 3,260
Cash available/(shortfall to be funded) 2,653 (976) (1,687) (1,649) (1,426)
Debt indicators          
GSID (excluding Settlement Cash) 30,890 34,477 34,308 33,971 36,814
Total gross Crown debt 41,914 46,364 47,050 46,522 49,691
Net core Crown debt 4,411 4,655 5,529 6,217 6,860
Net core Crown debt with NZS Fund assets (8,112) (10,784) (13,145) (16,008) (19,287)
Net worth 96,704 96,061 101,645 107,024 112,421
Domestic bond programme 2,294 2,520 2,500 2,483 2,515
Nominal GDP 166,714 173,187 179,132 186,985 196,177
Fiscal indicators as a % of GDP          
Revenue          
Total Crown revenue 44.6 44.4 44.4 44.5 44.3
Core Crown revenue 34.9 34.3 34.1 34.1 34.1
Core Crown tax revenue 32.1 31.6 31.4 31.5 31.6
Expenses          
Total Crown expenses 41.4 41.5 42.2 42.6 42.5
Core Crown expenses 32.4 32.4 32.8 33.0 33.1
Operating balance 4.8 3.7 3.1 2.8 2.7
OBERAC 3.2 2.9 2.2 1.9 1.7
OBERAC (excluding net NZS Fund asset returns) 3.5 2.8 2.2 1.8 1.7
Debt indicators          
GSID (excluding Settlement Cash) 18.5 19.9 19.2 18.2 18.8
Total gross Crown debt 25.1 26.8 26.3 24.9 25.3
Net core Crown debt 2.6 2.7 3.1 3.3 3.5
Net core Crown debt with NZS Fund assets (5.1) (6.5) (7.7) (9.0) (10.3)
Net worth 58.0 55.5 56.7 57.2 57.3
New Zealand Superannuation Fund          
Fund asset returns (after tax) 1,069 965 1,150 1,351 1,573
Fund contributions 2,049 2,103 2,194 2,312 2,458
Fund assets (year end) 12,973 15,977 19,321 22,984 27,015
% of GDP 7.8 9.2 10.8 12.3 13.8

Source: The Treasury

Risks to fiscal forecasts

The fiscal forecasts were finalised on 5 December 2007 in accordance with the forecast accounting policies. There are certain risks associated with the forecast results. To assist in evaluating such risks, the following chapters should be read in conjunction with the fiscal forecasts:

  • Risks and Scenarios (Chapter 3) – The fiscal forecasts are based on the economic forecasts presented in Chapter 1 and any variation from the economic forecast will affect the fiscal forecasts in particular, tax revenue and benefit expenses. The Risks and Scenarios chapter discusses the effect on the forecasts under different circumstances.
  • Specific Fiscal Risks (Chapter 4) – The fiscal forecasts incorporate Government decisions up to 5 December 2007. The Specific Fiscal Risks chapter covers specific policy decisions that are under active consideration by the Government at the time of the finalisation of the forecasts.

In addition to the specific fiscal risks and the link to the economic forecasts, there are a number of forecasting issues explained below that may arise in future.

Tax forecasting risks

The tax forecasts prepared for this Half Year Update are based on current tax policy and on the macroeconomic central forecast. Sensitivities of tax revenue to changes in economic conditions are also presented in the Risks and Scenarios chapter on page 69.

KiwiSaver risks

IRD baselines incorporate an assumed take-up profile for the KiwiSaver regime. Actual take-up could be higher or lower than assumed, or faster or slower than assumed, representing an unquantified risk to the operating balance. This could impact on the operating balance.

SOEs’ and CEs’ forecasts

The forecasts for large SOEs and CEs were provided on 30 September 2007 based on their best assessments at that time.

Revaluation of property, plant and equipment

Crown accounting policy is to revalue certain classes of property, plant and equipment on a regular basis. In certain circumstances the valuation will be affected by foreign exchange rates, so any appreciation in the NZ dollar (from 30 June 2008) will adversely affect the current physical asset values included in the fiscal forecasts.

Discount rates

The GSF and ACC liabilities included in these forecasts have been valued as at 31 October and 30 September respectively. The liabilities will next be valued for the 2008 Budget. Any change in discount rates will affect the present fiscal forecast. For example, if the discount rate rises, the value of the liabilities will decrease.

Tertiary education institutes’ accounting treatment

The forecast information presented in the 2007 Half Year Update combined Tertiary Education Institutes (TEIs) on an equity accounting basis. This treatment has been under consideration by accounting standard setters. The Financial Reporting Standards Board has recently advised that the question of whether to consolidate autonomous and independent entities will be considered by delivering its deliberations of the International Accounting Standards Board (IASB) project on consolidation.

The combination method adopted in these forecasts is to equity account for the TEIs’ net surpluses and net investment (ie, TEI revenues, expenses, assets and liabilities are not included on a line-by-line basis). This is consistent with the treatment adopted in the 2007 Financial Statements of the Government.

The key indicators are unchanged as a result of the combination approach for TEIs (refer page 64 of the 30 June 2007 Financial Statements of the Government).

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