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Half Year Economic and Fiscal Update 2013

Core Crown Expenses

Growth in core Crown expenses is subdued over the forecast period...

Core Crown expenses are forecast to increase in nominal terms by $8.7 billion in total over the forecast period (Figure 2.4). The growth in core Crown expenses is expected to be at a slower rate than economic growth, so as a result they fall from 33.1% in 2012/13 to 29.2% of GDP by 2017/18, in line with the Government's target of reducing expenses to around 30% of GDP.

Figure 2.4 - Core Crown expenses
Figure 2.4 - Core Crown expenses<   .
Source:  The Treasury

Nominal growth in core Crown expenses is largely attributable to new spending for future Budgets, social assistance spending and finance costs as shown in Figure 2.5.

Figure 2.5 - Increase in core Crown expenses
Figure 2.5 - Increase in core Crown expenses   .
Source:  The Treasury

The forecast includes new spending to be allocated in future budgets of around $1.0 billion for the next four budgets. Including the impact of spending decisions from Budget 2013, budget allocations are forecast to increase core Crown expenses by $5.1 billion by the end of the forecast period.

Social assistance spending is expected to increase by $3.7 billion across the forecast period. New Zealand Superannuation payments (the most significant across different social assistance payments) grow by $3.3 billion over the forecast period as payments are indexed to inflation and recipient numbers increase on average by 25,000 over the next five years (Figure 2.6). The rest of the increase in social assistance spending is owing to indexation, with recipient numbers staying relatively stable for other benefit types.

Figure 2.6 - Social assistance spending
Figure 2.6  - Social assistance spending   .
Source:  The Treasury

Finance costs increase by $0.7 billion over the forecast period as gross debt continues to increase and interest rates are forecast to rise.

Partially offsetting this higher expenditure, the Crown's earthquake costs reduce over the forecast period as the most significant expenses have already been recognised in previous years (refer to box on page 30 for details of the profile of earthquake expenses).

...but expenses are marginally higher than the Budget Update by the end of the forecast period

Initially expenses are slightly lower than forecast at the Budget Update, but by the end of the forecast period expenses are around $0.6 billion higher than previously expected (refer Figure 2.7).

Figure 2.7 - Changes in core Crown expenses since Budget 2013
Figure 2.7 - Changes in core Crown expenses since Budget 2013   .
Source:  The Treasury

The strength in economic conditions and impacts from welfare reform have reduced unemployment-related benefit recipient numbers and therefore social assistance expenses compared to the Budget Update. However, by the end of the forecast period this trend reverses owing to the impact of a higher inflation track and increases in income-related rents. Refer Table 2.4 in the Operating Balance section below for changes to benefit expenses since the Budget Update.

Costs associated with the Government Superannuation Fund (GSF) are also forecast to increase above the level forecast in Budget Update. Larger impacts are expected in the last few years of the forecast owing to increases in discount rates causing the interest unwind of the GSF liability to also increase.

In addition to these expenses, some increases (eg, Emissions Trading Scheme expenses) also have a corresponding increase in core Crown revenue and therefore are OBEGAL neutral to the Crown.

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