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Half Year Economic and Fiscal Update 2012

Total Crown Balance Sheet

Net worth recovers over the forecast period and the fiscal buffer begins to rebuild

Figure 2.9 - Net worth attributable to the Crown
Figure 2.9 - Net worth attributable to the Crown.
Source:  The Treasury

Largely owing to the forecast return to surplus, net worth attributable to the Crown increases over the forecast period and reaches $67.0 billion by 2016/17, as shown in Figure 2.9. However, net worth remains below the levels that existed prior to the global financial crisis when net worth attributable to the Crown peaked at $105.1 billion in 2007/08.

By 2016/17, total Crown assets are forecast to increase by $31.9 billion to $272.2 billion, outpacing the growth in liabilities which are forecast to reach $199.0 billion by 2016/17 (an increase of $18.5 billion).

Figure 2.10 - Total Crown assets by portfolio
Figure 2.10 - Total Crown assets by portfolio.
Source:  The Treasury

Assets are expected to increase...

Total assets are expected to increase $31.9 billion in net terms over the next five years as all portfolios grow, as shown in Figure 2.10.

Both the commercial and social portfolios increase steadily over the forecast period ($13.3 billion and $11.3 billion respectively). However, the financial portfolio declines in the early years of the forecasts, largely owing to reductions in assets to repay debt and to meet claims from the Canterbury earthquakes, before recovering in the later years as investment growth in the Crown financial institutions (CFIs) recovers.

While net asset growth is forecast to be $31.9 billion, the total investment in capital is expected to be $81.6 billion, as detailed in Table 2.10.

Table 2.10 - Gross asset growth
Year ending 30 June
$billions
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
5-year
Total
Opening total assets 245.2 240.3 237.8 246.8 248.2 258.5  

Increases in assets

             
Physical asset additions 6.5 7.5 7.7 7.0 6.8 7.1 36.1
Student loans issuance 1.6 1.6 1.7 1.7 1.7 1.8 8.5
CFI asset investment growth 3.9 6.2 3.7 4.4 4.7 5.1 24.1
Kiwibank mortgages 1.0 1.0 1.3 1.7 2.5 3.0 9.5
Forecast new capital spending 0.2 0.7 0.8 0.8 0.9 3.4
Total increase in assets 13.0 16.5 15.1 15.6 16.5 17.9 81.6

Reductions in assets

             
Depreciation on physical assets (3.8) (3.9) (4.1) (4.2) (4.3) (4.4) (20.9)
Asset disposals (0.3) (0.6) (0.7) (0.8) (0.6) (0.7) (3.4)
RBNZ and NZDMO activity (4.2) (9.2) 1.6 (6.8) 0.9 3.4 (10.1)
Student loans (0.8) (1.1) (1.2) (1.2) (1.3) (1.3) (6.1)
National disaster fund (2.1) (3.0) (2.6) (1.3) (0.3) (7.2)
Other changes1 (6.7) (1.2) 0.9 0.1 (0.6) (1.2) (2.0)
Total reduction in assets (17.9) (19.0) (6.1) (14.2) (6.2) (4.2) (49.7)
Net change in assets (4.9) (2.5) 9.0 1.4 10.3 13.7 31.9
Closing total assets 240.3 237.8 246.8 248.2 258.5 272.2  

Note

  1. 2011/12 includes asset valuations.

Source: The Treasury

The key areas of investment include:

  • the replacement of $36.1 billion of physical assets, largely in the priority areas (eg, transport, health and education) within the social portfolio
  • reinvestment of returns on financial assets by the NZS Fund and ACC totalling $24.1 billion, and
  • new capital spending of $3.4 billion over the next five years, which will be funded by the Future Investment Fund (discussed in more detail below).

Most of this investment is in the social portfolio, where capital investment of $37.2 billion is expected over the next five years. The investment is largely made up of the replacement of physical assets and investment into new capital initiatives.

Investment in the commercial portfolio largely comes from the growth in Kiwibank's mortgages (which are offset by an increase in their deposits) and growth in the physical assets of SOEs.

Growth in the financial portfolio is largely made up of the reinvestment of returns made by ACC and the NZS Fund as mentioned above, offset by the reduction in assets held by the NZDMO and the Earthquake Commission (EQC) as assets are realised to repay debt and insurance claims are paid.

...partly funded by the Future Investment Fund

Of the growth in social assets over the forecast period, $3.4 billion relates to new capital spending and is expected to be funded by the Future Investment Fund. The Fund is forecast to be built up from the proceeds of $6.0 billion from the Government share offers, which are forecast over the next four years as shown in Table 2.11. In Budget 2012, $0.5 billion of the Fund was pre-allocated, so together with the forecast spend of $3.4 billion the Fund is expected to hold $2.1 billion by the end of the forecast period, which will contribute towards capital spending after 2016/17.

Table 2.11 - Estimated fiscal impact of the Government share offers
Year ending 30 June
$millions
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
5-year
Total

Cash/Debt impact

Forecast cash proceeds 1,500 1,500 1,500 1,500 - 6,000
Forecast forgone dividends (100) (150) (200) (250) (700)
Estimated finance cost savings 12 82 163 254 238 749
Reduction in net debt 1,512 1,482 1,513 1,554 (12) 6,049

Accrual impact

Forecast forgone profits (20) (170) (250) (330) (420) (1,190)
Estimated finance cost savings 12 82 163 254 238 749
Net decrease in OBEGAL (8) (88) (87) (76) (182) (441)
Forecast gain on disposal recorded in taxpayers' funds 175 175 175 175 - 700
Increase in net worth attributable to the Crown 167 87 88 99 (182) 259

Source: The Treasury

The forecast fiscal impact of the Government share offers remains similar to the Budget Update despite the first sale now expected to occur between March and June 2013. As a result, the amount of foregone profits, dividends and finance cost savings has reduced in 2012/13. The other change from the Budget Update is that the forecast gain on disposal of the companies has reduced from $0.8 billion to $0.7 billion. While the forecast for cash proceeds has not changed, the book value of the companies has increased since the Budget Update, and so the expected gain on disposal recorded in taxpayers' funds has reduced. Further details about the assumptions surrounding the forecast for the Government share offers can be found in the assumptions note on page 40.

Figure 2.11 - Total Crown liabilities by portfolio
Figure 2.11 - Total Crown liabilities by portfolio.
Source:  The Treasury

Liabilities are expected to grow over the forecast period, but at a slower rate than assets 

The value of total Crown liabilities is forecast to increase over the next five years by $18.5 billion, from $180.5 billion at 30 June 2012 to $199.0 billion by the end of the forecast period, as shown in Figure 2.11.

Most of the increase comes from the commercial portfolio, where liabilities increase $11.6 billion, from $28.1 billion to $39.7 billion. $9.5 billion is owing to growth in Kiwibank deposits (offset by an increase in their mortgages) with the remainder being an increase in SOE borrowings.

Liabilities in the financial portfolio are expected to increase $10.2 billion, largely owing to increased core Crown borrowing by the NZDMO, as discussed earlier. The increase in borrowings is offset by the reduction in insurance obligations in relation to the Canterbury earthquakes as claims are paid out.

Social liabilities are expected to reduce by $3.3 billion, from $17.5 billion to $14.2 billion. The reduction in these liabilities is largely owing to a reduction in earthquake related liabilities as the existing obligations are expected to be settled over the forecast period.

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