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Half Year Economic and Fiscal Update 2014

Residual Cash

Operating cash flows improve...

Similar to the trend in OBEGAL, cash flows from operations are expected to improve across the forecast period. Net operating cash flows are forecast to be in small surplus for 2014/15 and continues to increase across the remaining forecast period. The improvement largely represents the growth in tax receipts outpacing operating payments.

Over the forecast period, the Government is expected to generate cash flows from core Crown operations of $17.0 billion.

Figure 2.12 - Core Crown residual cash
Figure 2.12 - Core Crown residual cash   .
Source:  The Treasury

...but capital spending exceeds operating cash flows in the short-term

Net capital spending is forecast to exceed operating cash flows until 2017/18, resulting in Core Crown residual cash[7] remaining in deficit until then (Figure 2.12).

The Government is forecast to spend $22.9 billion (net excluding Government share offer) on capital items, which include purchasing physical assets (eg, school buildings), advances (eg, student loans), providing capital to Crown entities and future new capital spending.

Table 2.7 - Capital expenditure activity 2014/15 to 2018/19
Year ending 30 June
Purchase of physical assets (3.1) (2.9) (2.4) (1.5) (1.5) (11.4)
Sale of physical assets 0.5 0.1 0.1 0.2 0.1 1.0
Net purchase of physical assets (2.6) (2.8) (2.3) (1.3) (1.4) (10.4)
Advances made (2.8) (2.7) (2.2) (2.5) (2.3) (12.5)
Repayment of advances 1.9 1.6 1.6 2.2 2.0 9.3
Net advances (0.9) (1.1) (0.6) (0.3) (0.3) (3.2)
Purchase of investments (1.8) (1.7) (1.5) (1.3) (1.4) (7.7)
Sale of investments 0.2 - - - - 0.2
Net investments (1.6) (1.7) (1.5) (1.3) (1.4) (7.5)
Government share offer proceeds 0.6 - - - - 0.6
New capital spending (0.1) (0.4) (0.7) (0.8) (0.8) (2.9)
Top-down capital adjustment 0.6 0.3 0.1 0.1 0.1 1.1
Net capital spending (4.0) (5.7) (5.0) (3.7) (3.9) (22.3)

Source: The Treasury

Figure 2.13 - Forecast capital activity for 2014/15 to 2018/19 by significant spending
Figure 2.13 - Forecast capital activity for 2014/15 to 2018/19 by significant spending    .
Source:  The Treasury

Net purchases of physical assets represents forecast spending of core Crown agencies to mainly maintain their existing asset base and includes spending on defence equipment, school property and the Canterbury rebuild.

Net advances are mainly student loans with $8.3 billion expected to be borrowed over the forecast period and repayments of $6.3 billion. The other significant component of advances is in relation to financing capital projects (for example, funding for the Auckland Transport Package).

Figure 2.14 - New capital spending (capital allowances)
Figure 2.14 - New capital spending (capital allowances)   .
Source:  The Treasury

Net investments largely represent capital injections to Crown entities, to expand their asset base, estimated at $1.0 billion to $1.7 billion a year. The largest capital injections across the forecast period are to New Zealand Transport Agency for state highways.

Table 2.8 - Future Investment Fund
$billions Total fund
Cash proceeds 4.669  
Allocated in Budget 2012 (0.533)
Allocated in Budget 2013 (1.421)
Allocated in Budget 2014 (1.050)
Future new capital spending 1.665 
Pre-committed Budget 2015 (0.137)
To be allocated 1.528
Source: The Treasury

Capital allowances relate to new capital spending that is expected to be allocated over the forecast period. The capital allowance for each Budget is spread over four fiscal years reflecting the expected profile of the spend. This profile is illustrated in Figure 2.14.

The future new capital spending for the next two Budgets (totalling $1.5 billion) is expected to be funded by the remaining proceeds from the Government share offer programme, (the Future Investment Fund) (Table 2.8).

Capital allowances are $0.9 billion in Budget 2017 before growing at a rate of 2% per annum for subsequent budgets.

Over the entire forecast period a cash shortfall of $5.3 billion is expected. The cash shortfall is funded through additional borrowing and reductions in financial assets.


  • [7]Net core Crown debt and residual cash indicators are measured on a core Crown basis. Residual cash includes both operating and capital activity. This differs from OBEGAL, which is measured at a total Crown level and includes operating activity only.
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