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Budget 2007 Home Page Half Year Economic & Fiscal Update 2007

Indicators of the Government’s Fiscal Performance and Position

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

Each indicator in this section gives valid insights into the Government’s historical, current and forecast fiscal situation, 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 gross and net debt-to-GDP ratios 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 maintain, annual operating surpluses.

However, as net worth has risen, and gross and net debt-to-GDP ratios have fallen, the Government in more recent years has increasingly focused on how to maintain debt ratios 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 OBEGAL excluding NZS Fund net revenue), 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 (a worked example of how these flows interact is provided in this chapter, see Table 2.2 – Reconciliation of residual core Crown cash).

  • Core Crown revenues – core Crown expenses net gains and losses + net surplus of SOEs (ie, after dividends) and Crown entities = Operating balance.
  • Operating balance – net gains and losses = Operating balance before gains and losses (OBEGAL).
  • OBEGAL – retained items (eg, net surplus of SOEs/CEs and NZS Fund net revenue) – non-cash items (eg, depreciation) = Net core Crown cash flow from operations.
  • Net core Crown cash flow from operations – net investing activities (eg, contributions to NZS Fund, purchases of assets, loans to others) = Residual cash.

Stock indicators

  • Gross sovereign-issued debt (GSID) = debt issued by the core Crown.
  • GSID (excluding Settlement Cash) = GSID – Reserve Bank Settlement Cash.
  • Core Crown net debt = GSID – core Crown’s financial assets.
  • Net worth = Crown’s total assets – Crown’s total liabilities. The operating balance in any year largely drives the change in net worth.

Ratio of core Crown revenue (excluding NZS Fund net revenue) to GDP

Ratio of core Crown revenue (excluding NZS Fund net revenue) to GDP.

Ratio of core Crown revenue (excluding NZS Fund net revenue) to GDP = the amount of revenue the core Crown receives as a percentage of GDP.  Core Crown revenue mostly consists of tax revenue collected by the Government, but also includes investment income, sales of goods and services and other receipts.  Tax revenue is an accrual measure of taxation (ie, it is a measure of tax due, regardless of whether or not it has actually been paid).

The revenue collected is used to meet the Government’s spending needs. It is important to look at this alongside expenses, operating balance and gross debt indicators for insights into the sustainability of current policy settings.

Core Crown revenue (excluding NZS Fund net 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 fall then remain relatively flat over the forecast period.

Ratio of core Crown expenses to GDP

Ratio of core Crown expenses to GDP.

Ratio of core Crown expenses to GDP = the day-to-day spending (eg, salaries, welfare benefit payments, finance costs and maintaining national defence etc) that do not build physical assets for the Government.  This is an accrual measure of expenses and includes items such as depreciation on physical assets.  The forecasts of operating expenses assume that the entire forecast operating allowance is allocated to spending.

By reducing gross debt, the Government has also reduced finance costs. However, in the years ahead, finance costs are likely to be fairly flat with gross debt forecast to be broadly stable.

Core Crown expenses to GDP rise slightly over the forecast period.

Operating balance

Operating balance.

Operating balance = revenues less expenses, plus net gains and losses.  The operating balance shows whether the government sector has generated enoughrevenues to cover its expenses in any given year.This measure can be volatile from year to year owing to events outside of the Government’s direct control (such as changes in interest rates and revaluations etc); therefore, it is generally not used as a measure of the Government’s short-term fiscal stewardship.

The Government has been running operating surpluses since the early 1990s. The operating balance was just under 5% of GDP in 2007 and is expected to decline to around 3% of GDP by the end of the forecast period.



OBEGAL = the operating balance before net gains and losses. OBEGAL excluding NZS Fund net revenue = a measure of the operating balance that recognises the role of the NZS Fund in accumulating assets and returns to meet future NZS cost.By excluding net gains and losses the OBEGAL gives a more direct indication of the underlying stewardship of the Government. 

The NZS Fund retains its after tax investment returns. These investment returns comprise mostly gains and losses. Because it excludes gains and losses the OBEGAL already recognises a large part of the Fund’s role. The final adjustment needed is to exclude from the OBEGAL the remaining NZS Fund net revenue.

The OBEGAL excluding the NZS Fund net revenue is expected to decline over the forecast period to just under 2% of GDP.

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