Matters dependent on external factors

ACC - Non-earners' Account (Unchanged, Unquantified)

Funding for the Non-earners' Account is agreed as part of the annual Budget process. Claims experience, ACC's financial performance and economic assumptions (particularly discount rates) can impact insurance expenditure, both in the current year and the estimated future liability. If any of these factors differ from what is forecast the amount required to cover the costs of non-earners' claims for that year may be more or less than the agreed level of funding, resulting in unplanned savings or costs to the Crown.

Canterbury Earthquake - EQC (Unchanged, Unquantified)

The net financial position of EQC, and the size of any requirement for additional Crown funding, is extremely uncertain. The key drivers of this uncertainly are:

• EQC's outstanding claims liability - The actuarial estimate of EQC's outstanding claims liability is highly uncertain and sensitive to assumptions; for example, cost apportionment across events, construction demand surge, land damage estimates, reinsurance recoveries and the profile of claims settlement. The magnitude of the net outstanding claims cost is large, so small percentage changes in the liability will have a material impact on forecasts.
• Reinsurance market conditions - Forecast reinsurance price assumptions, which are a substantial component of EQC's forecasts, are very uncertain.
• Seismicity in New Zealand - Seismic conditions, especially in Canterbury, impact on insurance provisioning within EQC's forecasts.
• EQC review and policy decisions - Outcomes from the review of EQC or other policy decisions (eg, reinsurance) may be implemented during the forecast period. Any significant decisions could have a material impact on EQC's forecasts.

Canterbury Earthquake - Residential Red Zone (New, Unquantified)

Some recoveries from the EQC and private insurers remain outstanding and there is a risk that final recoveries may be less than forecast. In addition, potential costs associated with the future use of residential red zone land are uncertain. The current value of the land has been assessed by external valuation as at 30 June 2012. The future value may change depending on any future alternate uses of the land.

Canterbury Earthquake - Southern Response Earthquake Services Support Package (Changed, Unquantified)

Sale of AMI's ongoing business to IAG was completed on 5 April 2012. AMI's earthquake claims liability and the associated financial assets, reinsurance receivables and the Crown Support Package have been retained in a new Crown company named Southern Response Earthquake Services Ltd. The ultimate cost to the Crown of settling earthquake claims remains subject to significant uncertainty. Out-year forecasts assume that the actual cost to settle claims will align with the actuary's central estimate of the claims provision. However, small percentage changes in the liability can result in a material impact on the forecasts.

Communications - Potential Impairment in Value of Broadband Investment (Unchanged, Unquantified)

The Government has set aside $1.345 billion to progressively capitalise Crown Fibre Holdings so that it can invest with private partners in a new network delivering “ultra-fast” broadband services. Crown Fibre Holdings has entered into contracts with several partners. Given the contracts entered into, the extent of the recovery of this investment is particularly dependent on the number of connections made to the network. The fiscal forecasts include a provision for this impairment, but the final amount of the impairment may vary from this provision.

Communications - Radio Spectrum Income Following the Digital Switchover (New, Unquantified)

The Government has agreed to complete the switching off of analogue television signals by November 2013. The spectrum released by the digital switchover is now expected to be available from 1 December 2013. This will release a significant amount of radio spectrum for higher value uses such as 4G mobile. An estimated value of the spectrum of $119 million has been included in the Crown forecasts although the actual value is uncertain because the true value of the spectrum depends on the market conditions at the time of the sale.

Defence Force - Potential Rationalisation, Revaluation and Disposal of NZDF Assets (Unchanged, Unquantified)

The Government is considering the potential to dispose of a number of New Zealand Defence Force assets, including the Seasprite helicopters, Unimog trucks and light armoured vehicles. Depending on market conditions, the timing of disposal and sale price received could have an impact on the Government's overall financial position. The New Zealand Defence Force (NZDF) is also completing an analysis of inventory that is surplus to requirements and is over and above the existing provision for obsolescence. The existing provision is also being reviewed to ensure that all items comprising the provision are still relevant. In addition, the revaluation of NZDF assets on 30 June 2013 could see a change in asset values across NZDF.

Energy - Crown Revenue from Petroleum Royalties (Changed, Unquantified)

The Crown Revenue from Petroleum Royalties is very dependent upon extraction rates, the USD value per barrel and the USD / NZD exchange rate. Movements up or down in either of these variables could result in a significant decrease or increase in the Crown revenue. The overall impact for the Crown could be negative or positive.

Environment - Kyoto Protocol Obligations (Unchanged, Unquantified)

The fiscal impact of the Government's Kyoto Protocol obligations (2008 to 2012) is currently uncertain. An increase in New Zealand's net emissions or the future transfer of emission units offshore could reduce the net Kyoto position significantly. The fiscal impact of any changes is dependent on the carbon price. In the highly unlikely event that the Government needed to purchase emission units to meet its obligations, the purchase of units would result in a corresponding increase in net debt.

Environment - Post-2012 International Climate Change Obligations (Unchanged, Unquantified)

The Government is currently taking part in international negotiations for a post-2012 international climate change agreement. Currently no rights or obligations are included in the fiscal forecasts for any post-2012 agreement because of the high levels of uncertainty. Any New Zealand climate change commitments post-2012 could have significant financial implications, which will need to be recognised when the commitment is considered binding. New Zealand is considering decisions on the nature of any international commitments to 2020.

Finance - Goodwill on Acquisition (Changed, Unquantified)

As at 30 June 2012, the Government had goodwill on acquisition of a number of sub-entities totalling $746 million. Under New Zealand accounting standards (NZ IAS 36), such goodwill items are required to be assessed annually for impairment. If there is any indication that the goodwill may be impaired, the recoverable amount of the cash generating units to which the goodwill is allocated is required to be estimated. If the recoverable amount is less than the carrying amount of those units, the units and the goodwill allocated to them are regarded as impaired and the Government is required to recognise impairment losses in the operating statement. Such assessments will be conducted at the end of the financial year and the fiscal forecasts currently make no allowance for such impairment losses.

Finance - Government Commitments to International Financial Institutions (Unchanged, Unquantified)

The forecast level of government commitments to international financial institutions is subject to change, depending on the Government's response to any changed financial plans on the part of these institutions. The risk of government commitments to the International Monetary Fund being called has increased owing to the global financial crisis and related world events, including in the euro area.

Finance - Sale of Part of the Crown's Shareholding in Five Companies (Unchanged, Unquantified)

The Government has agreed to sell part of the Crown's shareholding in Mighty River Power. It is also proposing to sell part of the Crown's shareholding in Genesis Energy, Meridian Energy, Solid Energy and Air New Zealand. The fiscal forecasts include an estimate of the cash proceeds from the sale of part of the Crown's shareholding in these five companies, the dividends and profits from these companies that will be paid or are attributable to minority shareholders rather than to the Crown, and the estimated finance cost savings. However, the final amount and timing of any cash proceeds, forgone profits, the flow-on effects for the Crown and any implementation costs are uncertain, and may differ from what has been assumed in the fiscal forecasts.

Housing - Divestment of Housing (New, Unquantified)

The Government may undertake divestment or redevelopment of some housing property. Property sales are subject to market conditions and therefore there is an inherent level of uncertainty about the return to the Crown associated with any divestment and/or development.

Revenue - Cash Held in Tax Pools (Unchanged, Unquantified)

Funds held in tax pools are recognised as an asset of the Crown. There is a risk that funds held in these pools, over and above a customer's provisional tax liability, may be withdrawn, resulting in an unquantified cash loss to the Crown.

Treaty Negotiations - Treaty Settlement Forecast (Unchanged, Unquantified)

The fiscal forecasts include provision for the cost of future Treaty settlements. Given settlements are finalised through negotiations, there is a risk that the timing and amount of the settlements could be different from what is forecast.

Treaty Negotiations - Relativity Clause (Unchanged, Unquantified)

The Deeds of Settlement negotiated with Waikato-Tainui and Ngāi Tahu include a relativity mechanism. Now that the total redress amount for all historical Treaty settlements exceeds $1 billion in 1994 present-value terms, the mechanism provides that the Crown is liable to make payments to maintain the real value of Ngāi Tahu’s and Waikato-Tainui’s settlements as a proportion of all Treaty settlements. The agreed relativity proportions are 17% for Waikato-Tainui and approximately 16% for Ngāi Tahu. There is a risk that the timing and the amount of the expense for the relativity payments may differ from that included in the fiscal forecasts.