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Half Year Economic and Fiscal Update 2014

Fiscal Outlook

Overview

  • The fiscal outlook of the Crown is expected to continue improving from last year, with the OBEGAL deficit reducing in 2014/15 followed by surplus in 2015/16 and rising to $4.1 billion in 2018/19. Net debt as a percentage of GDP falls from 26.5% in 2014/15 to 22.5% in 2018/19.
  • However, the fiscal outlook is expected to be weaker than the Pre-election Update in the short term, reflecting a downward revision of tax revenue forecasts.
  • Tax revenue forecasts have been revised down since the Pre-election Update by $2.4 billion across the forecast period, with $0.6 billion relating to the 2014/15 year, as recent price growth has been slower than expected and global dairy prices have fallen further than anticipated (refer to the section on Half Year Update compared to Pre-election Update forecast on pages 42 to 45).
  • However, core Crown tax revenue is still expected to increase across the forecast period and by 2018/19 is expected to be $18.5 billion higher than 2013/14, reflecting the growth in the nominal economy, as discussed in the EconomicOutlookchapter.
Table 2.1 - Fiscal indicators
Year ended 30 June
$billions
2014
Actual
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast
Total Crown OBEGAL1  (2.9)  (0.6) 0.6 2.6 3.1 4.1
Core Crown residual cash  (4.1)  (4.0)  (3.5)  (0.1) 0.6 1.8
Net core Crown debt2 59.9 63.5 67.0 67.0 66.4 64.5
Net worth attributable to the Crown 75.6 77.4 80.9 86.5 92.7 100.2
% of GDP            
Total Crown OBEGAL1  (1.3)  (0.2) 0.2 1.0 1.1 1.4
Core Crown residual cash  (1.8)  (1.7)  (1.4) - 0.2 0.6
Net core Crown debt2 25.6 26.5 26.5 25.2 24.0 22.5
Net worth attributable to the Crown 32.3 32.3 32.0 32.5 33.5 35.0

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

  • The operating allowances have been re-phased since the Pre-election Update as indicated by the Government in the 2014 Fiscal Strategy Report. An allowance of $1.0 billion has been set for Budgets 2015 and 2016, increasing to $2.5 billion for Budget 2017 before reducing back to $1.5 billion. Once the expected increase in social assistance spending is added to the operating allowances, core Crown expenses are expected to rise by $11.7 billion over the forecast period. This increase is slower than growth in the nominal economy so by the end of the forecast period core Crown expenses fall to below 30% of GDP.
  • The OBEGAL deficit in 2014/15 is $572 million (0.2% of GDP) with an OBEGAL surplus of $565 million expected in 2015/16. Beyond 2015/16 these surpluses are expected to increase and by 2018/19 the OBEGAL surplus is expected to reach $4.1 billion.
  • Residual cash reaches surplus in 2017/18, a year earlier than previously forecast, primarily reflecting reduced capital spending, enabling debt to begin to reduce in nominal terms.
  • In nominal terms, net core Crown debt increases until 2015/16 where it remains static before falling in 2017/18. As a share of GDP, net core Crown debt remains flat for the first two years of the forecast before gradually declining, falling to 22.5% by the end of 2018/19.
  • The Crown's balance sheet continues to strengthen over the forecast period. Total assets grow from $256 billion in 2013/14 to $294 billion in 2018/19, total liabilities from $175 billion in 2013/14 to $188 billion in 2018/19.
  • The Risks and Scenarios and the Specific Fiscal Risks chapters outline the key risks to the Crown achieving these forecasts.
Table 2.2 - Reconciliation between OBEGAL and net core Crown debt
Year ending 30 June
$billions
2014
Actual
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast
Core Crown revenue 67.3 71.5 75.3 79.4 83.5 87.0
Core Crown expenses (71.5) (73.0) (75.1) (76.9) (80.7) (83.2)
Net surpluses/(deficits) of SOEs and CEs 1.3 0.9 0.4 0.1 0.3 0.3
Total Crown OBEGAL (2.9) (0.6) 0.6 2.6 3.1 4.1
Net retained surpluses of SOEs, CEs and NZS Fund (0.8) (1.0) (0.3) - (0.2) (0.2)
Non-cash items and working capital movements 0.7 1.6 1.9 2.3 1.4 1.8
Net core Crown cash flow from operations (3.0)  - 2.2  4.9  4.3  5.7 
Net purchase of physical assets (1.9) (2.0) (2.5) (2.1) (1.3) (1.3)
Advances and capital injections (1.5) (2.5) (2.8) (2.2) (1.6) (1.8)
Forecast for future new capital spending (0.1) (0.4) (0.7) (0.8) (0.8)
Proceeds from government share offers 2.3 0.6  -   -   -  
Net core Crown capital cash flows (1.1) (4.0) (5.7) (5.0) (3.7) (3.9)
Core Crown residual cash (deficit)/surplus (4.1) (4.0) (3.5) (0.1) 0.6 1.8
Opening net core Crown debt 55.8 59.9 63.5 67.0 67.0 66.4
Core Crown residual cash deficit/(surplus) 4.1 4.0 3.5 0.1 (0.6) (1.8)
Valuation changes in financial instruments - (0.4) - (0.1) - (0.1)
Closing net core Crown debt 59.9 63.5 67.0 67.0 66.4 64.5
As a percentage of GDP 25.6% 26.5% 26.5% 25.2% 24.0% 22.5%

Source: The Treasury

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