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Half Year Economic and Fiscal Update 2013

Fiscal Outlook

Overview

  • The Crown's fiscal position is broadly unchanged from the Budget Update in the first two years of the forecast but has strengthened in the medium term.
  • With stronger economic growth expected, core Crown tax revenue is forecast to grow more rapidly, while expenses remain relatively stable.
  • The operating deficit narrows in the current year and a surplus of $86 million is forecast in 2014/15. By 2017/18, the surplus is expected to reach $5.6 billion. These surpluses help fund the Government's capital spending and enable the repayment of debt.
  • Net core Crown debt starts to fall in nominal terms as residual cash returns to surplus in 2016/17, a year earlier than previously expected.
  • The improved cash position, coupled with a lower starting base in 2012/13, means net core Crown debt falls as a share of GDP to stand at 22.3% by 2017/18.
  • The Government Share Offer programme is expected to conclude in the current year with proceeds between $4.6 billion and $5.0 billion now expected to be available for the Future Investment Fund.
  • The Crown's balance sheet continues to strengthen as operating surpluses are expected to steadily increase.
Table 2.1 - Fiscal indicators
Year ended 30 June
$billions
2013
Actual
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Total Crown OBEGAL1  (4.4)  (2.3) 0.1 1.7 3.1 5.6
Core Crown residual cash  (5.7)  (4.1)  (3.5)  (1.2) 1.2 3.1
Net core Crown debt2 55.8 60.0 63.3 64.5 63.4 60.4
Net worth attributable to the Crown 68.1 69.2 72.2 77.0 83.4 92.4
% of GDP            
Total Crown OBEGAL1  (2.1)  (1.0) 0.0 0.7 1.2 2.1
Core Crown residual cash  (2.7)  (1.8)  (1.5)  (0.5) 0.5 1.2
Net core Crown debt2 26.2 26.3 26.5 25.8 24.4 22.3
Net worth attributable to the Crown 32.0 30.4 30.2 30.8 32.0 34.2

Notes:

  1. Operating balance before gains and losses
  2. Net core Crown debt excluding the New Zealand Superannuation Fund (NZS Fund) and advances

Source: The Treasury

Overall, growth in the economy, and continued management of spending levels, is expected to result in the Crown returning to surplus, starting to reduce debt and rebuild the Crown's net worth.

In preparing these fiscal forecasts, key assumptions have been made in relation to the performance of the economy, and managing new spending within Budget allowances. As with all assumptions, there is inherent uncertainty and a change in any one of these could negatively or positively impact the Crown's forecast surpluses and net debt position. The Risks and Scenarios chapter and the Specific Fiscal Risks chapter outline the key risks to the Crown achieving these forecasts.

Core Crown tax revenue increases in each year of the forecasts and by 2017/18 is expected to be $19.2 billion higher compared to 2012/13, reflecting the forecast growth in nominal GDP, as discussed in the EconomicOutlookchapter.

While core Crown operating expenses are expected to increase by $8.7 billion over the next five years, they fall to just under 30% of GDP by the end of the forecast period.

These forecasts shows the Government is expected to achieve its fiscal objective of a return to surplus in 2014/15. While a surplus of $86 million is forecast in 2014/15, beyond 2014/15 surpluses are expected to increase by between $1.5 and $2.5 billion each year.

With net debt finishing in a stronger position at 30 June 2013 and a strengthening in the residual cash balance since the Budget Update, the net debt track is lower on average by 2.4% of GDP each year. Net debt falls to 22.3% by 2017/18 in line with the Government's medium-term target of net debt brought back to a level no higher than 20% of GDP by 2020. In nominal terms, net debt starts decreasing from 2016/17 as cash surpluses are forecast to return for the first time since 2007/08.

Table 2.2 - Reconciliation between OBEGAL and net debt
Year ending 30 June
$billions
2013
Actual
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Core Crown revenue 64.1 68.5 72.3 76.7 80.9 84.9
Core Crown expenses (70.3) (72.2) (73.2) (75.5) (77.8) (79.0)
Net surpluses/(deficits) of SOEs and CEs 1.8 1.4 1.0 0.5 - (0.3)
Total Crown OBEGAL (4.4) (2.3) 0.1 1.7 3.1 5.6
Net retained surpluses of SOEs, CEs and NZS Fund (1.2) (1.4) (1.0) (0.4) - 0.2
Non-cash items and working capital movements 1.1 1.4 1.5 2.0 2.3 1.0
Net core Crown cash flow from operations (4.5)  (2.3) 0.6  3.3  5.4  6.8 
Net purchase of physical assets (1.2) (2.2) (1.8) (1.3) (1.4) (1.2)
Advances and capital injections (1.7) (1.9) (2.3) (2.4) (1.8) (1.6)
Forecast for future new capital spending (0.2) (0.6) (0.8) (1.0) (0.9)
Proceeds from Government share offers 1.7 2.5  0.6  -   -   -  
Core Crown residual cash balance (5.7) (4.1) (3.5) (1.2) 1.2 3.1
Opening net debt 50.7 55.8 60.0 63.3 64.5 63.4
Core Crown residual cash deficit/(surplus) 5.7 4.1 3.5 1.2 (1.2) (3.1)
Valuation changes in financial instruments (0.6) 0.1 (0.2) - 0.1 0.1
Closing net debt 55.8 60.0 63.3 64.5 63.4 60.4
As a percentage of GDP 26.2% 26.3% 26.5% 25.8% 24.4% 22.3%

Source: The Treasury

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