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Half Year Economic and Fiscal Update 2014

Core Crown Expenses

Growth in core Crown expenses as a percentage of GDP reduces...

Growth in core Crown expenses is forecast to be at a slower rate than growth in the nominal economy. They fall from 30.5% of GDP in 2013/14 to 29.0% of GDP by the end of the forecast period. In 2015/16, core Crown expenses are expected to stand at 29.7% of GDP (Figure 2.3).

Figure 2.3 - Core Crown expenses
Figure 2.3 - Core Crown expenses   .
Source:  The Treasury

...however, nominal spending increases

Nominal growth of $11.7 billion in core Crown expenses is largely attributable to new spending expected from future Budget allowances and increased social assistance spending (as shown in Figure 2.4).

Figure 2.4 - Increase in core Crown expenses
Figure 2.4 - Increase in core Crown expenses   .
Source:  The Treasury

Operating allowances have been set at $1 billion for Budget 2015 and 2016, rising to $2.5 billion in Budget 2017 before reducing to $1.5 billion in Budget 2018. For more detail, refer to the 2015 Budget Policy Statement.

The combined new budget spending totals $6.0 billion by 2018/19 (see Figure 2.5). For forecasting purposes these allowances have been assumed to be expenditure. However, these operating allowances can be used for a combination of both revenue and expense initiatives when allocated.

Figure 2.5 - Budget 2015 and future Budget allowances
Figure 2.5 - Budget 2015 and future Budget allowances   .
Source:  The Treasury

New operating spending will be allocated to department baselines once budget decisions are made. As a result most functional expense areas (eg, health, education) remain flat across the forecast period as new spending has yet to be allocated. Therefore comparisons across the forecast period will not necessarily reflect the expected spend at a functional level.

Outside new budget spending, social assistance spending is expected toincrease by $3.7 billion across the forecast period. New Zealand Superannuation payments grow by $3.4 billion as payments are linked to wage growth and recipient numbers increase (Figure 2.6). As a percentage of total social assistance spending, New Zealand superannuation is expected to rise from 39% in 2008/09 to 53% by 2018/19.

Figure 2.6 - Social assistance spending
Figure 2.6 - Social assistance spending.
Source:  The Treasury
Figure 2.7 - Core Crown Canterbury rebuild operating expenditure and cash flows
Figure 2.7 - Core Crown Canterbury rebuild operating expenditure and cash flows   .
Source:  The Treasury

Other benefit types only increase marginally over the forecast period. Although most other benefit types' spending increases as they are adjusted for inflation, this growth is somewhat restrained owing to expected reductions in recipient numbers.

Core Crown expenses in relation to the Canterbury rebuild are expected to decrease over the forecast period, as most of the operating expenses have already been incurred. The net cash profile reflects that net payments/ (receipts) are expected to occur later than when expenditure is recognised. This analysis excludes EQC and Southern Response expenses. For a more detailed analysis for total Crown, refer to the box on page 32.

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