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Net Debt

Operating deficits result in cash shortfalls...

While the OBEGAL is expected to return to surplus in 2014/15, core Crown operating cash flows are expected to reach a small surplus one year later in 2015/16. Over the five-year forecast period, operating cash deficits total $10.0 billion.

In addition, the Crown is forecast to spend $23.4 billion on capital items, such as the purchase of physical assets and issuing student loans, over the next five years. When the estimated $6.0 billion of proceeds (see Table 2.11 on page 37) from the Government share offers are included, the net capital spend is $17.4 billion.

Combining the net operating results with the capital spend, residual cash remains in deficit across the forecast period and is the key driver for the increase in net debt, as shown in Table 2.8 below.

Table 2.8 - Movement in net core Crown debt
Year ended 30 June
$billions 		2012
Actual 		2013
Forecast 		2014
Forecast 		2015
Forecast 		2016
Forecast 		2017
Forecast
Opening net debt 40.1 50.7 60.0 66.7 70.7 73.5
Core Crown residual cash deficit 10.6 9.8 6.9 4.6 3.3 2.9
Other valuation changes in financial assets and financial liabilities -  (0.5) (0.2) (0.6) (0.5) (0.5)
Closing net debt 50.7 60.0 66.7 70.7 73.5 75.9
As a percentage of GDP 24.3% 27.8% 29.2% 29.5% 29.5% 29.3%

Source: The Treasury

Figure 2.8 - Net core Crown debt
Figure 2.8 - Net core Crown debt.
Source:  The Treasury

Therefore, despite a return to surplus, the continued capital spending sees net debt[6] increase in nominal terms over the forecast period. However, net debt is expected to peak as a share of the economy at 29.5% of GDP in 2014/15 and 2015/16, as shown in Figure 2.8.

The increase in net debt over the forecast period has a negative impact on OBEGAL as net finance costs increase with the rising debt levels. However, the increase in finance costs is not as steep as the debt increase because interest rates are expected to remain at historically low levels across the forecast period.

...which are mostly funded by issuing government bonds

The residual cash deficit is mostly funded by raising debt, but can also be met by reducing financial assets. The New Zealand Debt Management Office (NZDMO) raises the Crown's debt through a number of programmes, the most significant being the domestic bond programme. Over the five-year forecast period, net issuance of government bonds is forecast to be $23.4 billion, with cash proceeds from the issuance being $48.4 billion (face value of $48.0 billion) and repayments of $25.0 billion ($22.8 billion of this from the market).

Table 2.9 - Net increase in government bonds
Year ending 30 June
$billions 		2013
Forecast 		2014
Forecast 		2015
Forecast 		2016
Forecast 		2017
Forecast 		5-year
Total
Face value of government bonds issued (market) 14.0 10.0 10.0 7.0 7.0 48.0

Cash proceeds

           
Cash proceeds from issue of government bonds (market) 15.8 10.4 9.7 6.3 6.2 48.4
Repayment of government bonds (market) (10.0) -  (11.0) (1.8) -  (22.8)
Net increase in government bonds (market) 5.8 10.4 (1.3) 4.5 6.2 25.6
Cash proceeds from issue of government bonds (non-market) -  -  -  -  -  - 
Repayment of government bonds (non-market) (0.5) (1.5) (0.2) -  -  (2.2)
Net increase in government bonds (non-market) (0.5) (1.5) (0.2) -  -  (2.2)
Net cash proceeds from bond issuance 5.3 8.9 (1.5) 4.5 6.2 23.4

Source: The Treasury

Notes

  • [6]Net debt is a core Crown measure excluding the NZS Fund and advances.
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