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Half Year Economic and Fiscal Update 2016

Fiscal Outlook


  • The Crown's fiscal outlook has improved over the past five years with an OBEGAL surplus being recorded in both the 2014/15 and 2015/16 fiscal years. The current year's results to 31 October continue to be ahead of previous forecast levels as tax revenue continues to be higher than expected in the Budget Update.
  • This steadily improving fiscal outlook is expected to continue reflecting a growing nominal economy which is forecast to drive growth in tax revenue at a rate higher than the expected growth in expenses.
  • Future operating allowances are set to remain at $1.5 billion for Budgets 2017 onwards. However, future capital allowances have been increased from the net $1.4 billion in Budget 2016 (gross $2.6 billion) to $3.0 billion in Budget 2017, and to $2.0 billion in future Budgets.
  • OBEGAL is expected to reduce from $1.8 billion in 2015/16 to $0.5 billion in the current financial year, in part owing to Kaikōura earthquake costs recognised in 2016/17 and higher Accident Compensation Corporation (ACC) insurance costs reflecting recent claims experience (including the economic growth impact on claim volumes). In addition, the 2015/16 result was higher than expected due in part to some reversals of previous impairment expenses, which increased OBEGAL in that year. After 2016/17, surpluses are forecast to continue to rise across the forecast period, reaching $8.5 billion by 2020/21 (2.7% of GDP).
  • Core Crown expenditure as a percentage of GDP is expected to be 29.6% in 2016/17 (similar to 2015/16), before falling across the forecast period to be 27.7% in 2020/21.
  • Based on our current estimation the known direct (gross) fiscal costs to the Government caused by the Kaikōura earthquakes is in the range of $2 billion to $3 billion. These costs are a mixture of operating expenses (eg, EQC claims costs) and capital expenditure (eg, rebuilding state highways) (refer page 6 for more discussion on the earthquakes). Some of these costs are assumed to be met from existing baselines, insurance proceeds, existing budget allowances or existing funds such as the National Land Transport Fund. An incremental $1.0 billion has been added to the forecasts to recognise operating costs not expected to be met from other sources.
  • Contributions to the New Zealand Superannuation Fund (NZS Fund) are forecast to resume in 2020/21 when net debt is forecast to fall below 20% of GDP, with $3.1 billion expected to be contributed in that year.
  • Capital spending (including contributions to the NZS Fund) by the core Crown is estimated to be $32.1 billion over the forecast period. This compares to capital spending of $18.4 billion in the previous five years, largely reflecting the increase in capital allowances, resumption of NZSF contributions, and increased capital spending on education and defence assets.
  • Net core Crown debt is expected to decline over the forecast period as a percentage of nominal GDP to stand at 18.8% by 2020/21, as operating cash flows are expected to rise and fund the growing capital spend. In nominal terms it is expected to increase in the first two years before beginning to decline to be $59.6 billion by 2020/21.
  • The Crown's net worth is expected to increase over the forecast period, reaching $129.3 billion by 2020/21, surpassing the pre-2009 nominal levels. This growth is the result of continued forecast surpluses across the forecast period. While as a percentage of nominal GDP net worth also rises, it is not yet expected to regain its peak of 55.6% in 2007/08 by the end of the forecast period.
  • Total assets are forecast to grow by $35.9 billion to stand at $328.6 billion by 2020/21. Of this, social assets have the largest growth, increasing $21.5 billion to stand at $170.9 billion by 2020/21. Liabilities fall in nominal terms, with borrowings decreasing in the later part of the forecast period. Total liabilities are expected to stand at $193.8 billion at the end of 2020/21, with borrowings making up $107.9 billion of that balance.
  • OBEGAL is expected to be slightly higher in most years than the recent Budget Update with tax revenue expected to be stronger than previously forecast, offsetting increases in operating expenses. The higher tax take means the net debt forecasts have improved, despite the increasing capital spend ($4.4 billion more than previously forecast). Page 48 provides more detailed discussion on the comparison to the Budget Update.
  • These forecasts are sensitive to a number of assumptions and should be read in conjunction with the Risks and Scenarios and Specific Fiscal Risks chapters.
Table 2.1 - Fiscal indicators
Year ending 30 June
Total Crown OBEGAL1  1.8 0.5 3.3 5.4 6.8 8.5
Core Crown residual cash  (1.3)  (2.2)  (2.1) 1.4 3.0 2.6
Net core Crown debt2 61.9 64.4 66.4 65.0 62.1 59.6
Net worth attributable to the Crown 89.4 93.0 99.1 107.4 117.3 129.3
% of GDP            
Total Crown OBEGAL1 0.7 0.2 1.2 1.8 2.2 2.7
Core Crown residual cash  (0.5)  (0.8)  (0.7) 0.5 1.0 0.8
Net core Crown debt2 24.6 24.3 23.8 22.2 20.3 18.8
Net worth attributable to the Crown 35.5 35.1 35.5 36.6 38.4 40.7


  1. Operating balance before gains and losses.
  2. Net core Crown debt excluding the NZS Fund and advances.

Source: The Treasury

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