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Half Year Economic and Fiscal Update 2014

Operating Balance

The operating performance continues to improve…

An OBEGAL deficit of $572 million is forecast in 2014/15, followed by a surplus of $565 million in 2015/16 rising to $4.1 billion in 2018/19.

Figure 2.8 shows the composition of OBEGAL from the different segments of the Government. The core Crown segment is forecast to have an OBEGAL deficit of $1.6 billion in 2014/15, followed by a $0.3 billion surplus in 2015/16, then continues to rise over the forecast period, largely reflecting growth in tax revenue and continued management of expenditure.

State-owned Enterprises (SOEs) and Crown entities (CEs) together contribute $1.3 billion to the OBEGAL surplus in 2014/15, reducing slightly to $1.0 billion by the end of the forecast period, largely reflecting reductions in ACC levy revenue, due to previously announced reduction in levy rates.

Figure 2.8 - Components of OBEGAL by segment
Figure 2.8 - Components of OBEGAL by segment   .
Source:  The Treasury

...and investment returns lift the operating balance

The total Crown operating balance, inclusive of gains and losses, is forecast to be a surplus across all years of the forecast period. Figure 2.9 shows the continuing growth in the operating balance and its components.

Figure 2.9 - Components of operating balance
Figure 2.9 - Components of operating balance   .
Source:  The Treasury

The current year's forecast surplus is largely a result of gains expected to be made by entities with large investment portfolios, primarily ACC and NZS Fund. Market movements in these portfolios can have a significant impact on the operating balance, particularly through gains and losses.

Investment returns in 2013/14 were higher than average reflecting the strong performance of global equity markets. The forecast assumes investment income returns to a long-term rate of return, resulting in subdued growth going forward. These gains play a part in increasing the Government's financial assets and the Crown's net worth (discussed on page 39). The current year operating balance is also impacted by losses of $1.7 billion, in relation to updated long-term liability valuations for ACC and the Government Superannuation Fund (GSF), mainly owing to changes in economic factors impacting the valuations and reducing the operating balance surplus.

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