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Half Year Economic and Fiscal Update 2015

Core Crown Expenses

Nominal core Crown expenditure increases...

Core Crown expenses are expected to grow $13.8 billion over the forecast period from $72.4 billion in 2014/15 to $86.2 billion in 2019/20 (refer Figures 2.3 and 2.4). This nominal growth is largely attributable to $6.5 billion of operating allowances set aside for future Budgets in addition to the $1.4 billion[16] allocated at Budget 2015. In addition, social assistance spending is forecast to increase by $4.6 billion, an annual increase of $1.0 billion on average per year. Finance costs are forecast to rise by $0.7 billion over the next five years owing to increased borrowing requirements (refer discussion on gross debt on page 42).

Figure 2.3 - Core Crown expenses
Figure 2.3 - Core Crown expenses.
Source:  The Treasury
Figure 2.4 - Increase in core Crown expenses relative to 2014/15 actuals
Figure 2.4 - Increase in core Crown expenses relative to 2014/15 actuals   .
Source:  The Treasury

...reflecting new budget spending...

Future operating allowances are currently set at $1.0 billion for Budget 2016, rising to $2.5 billion in Budget 2017 before reducing to $1.5 billion in Budget 2018 and Budget 2019 (Figure 2.5). These forecasts are based on the current allowance assumptions noted above. Some re-phasing of these allowances between Budgets is possible, however, to meet particular spending priorities.

Figure 2.5 - Budget 2016 and future Budget allowances
Figure 2.5 - Budget 2016 and future Budget allowances   .
Source:  The Treasury

For forecasting purposes, the allowances are assumed to be all expenditure. However, these allowances can be used for a combination of revenue and expense initiatives when allocated.

New operating spending will be allocated to department baselines when budget decisions are made. As a result, the different functional expense areas, with the exception of social security and welfare and finance costs, remain flat across the forecast period (refer page 131). Therefore comparisons across the forecast period will not necessarily reflect the expected spend at a functional level.

...and increasing social assistance...

Apart from new budget spending, social assistance spending is expected toincrease by $4.6 billion across the forecast period. New Zealand superannuation (NZS) payments account for $3.5 billion of this increase. NZS recipient numbers are forecast to increase from 665,000 in 2014/15 to 797,000 by the end of the forecast horizon. This increase in recipient numbers accounts for just over 60% of the increase in NZS costs, with the remaining increase largely owing to indexation of entitlements to wage growth (Figure 2.6). By the end of the forecast period New Zealand superannuation is around 53% of the total social assistance spending.

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

Apart from superannuation, other welfare expenditure grows by $1.1 billion over the five-year forecast period, including income-related rents subsidy ($0.3 billion), family tax credits ($0.2 billion) and sole parent support ($0.1 billion).

The expected weakening in the economic outlook and labour market is expected to flow through to higher numbers receiving the Jobseeker Support component of the Jobseeker Support and Emergency Benefit, with expenditure peaking in 2016/17. Jobseeker Support recipient numbers, which generally lag economic and labour market movements by several months, are expected to increase from around 118,000 in June 2015 to 121,000 in June 2017. They are then forecast to decline to around 106,000 by June 2020.

...although as a percentage of nominal GDP core Crown expenses reduce

Growth in core Crown expenses is forecast to be at a slower rate than growth in the nominal economy, falling from 30.1% of GDP in 2014/15 to stand at 29.1% of GDP at the end of the forecast period (Figure 2.3).

Notes

  • [16]The net Budget 2015 package was $1.0 billion when revenue initiatives are taken into account.
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