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Half Year Economic and Fiscal Update 2016

Core Crown Expenses

Nominal core Crown expenses increase...

Core Crown expenses are expected to grow by $13.9 billion over the forecast period from $73.9 billion in 2015/16 to $87.8 billion in 2020/21 (refer Figures 2.3 and 2.4). This nominal growth is largely attributable to the $6.0 billion of operating allowances set aside for future Budgets in addition to the new spending allocated at Budget 2016. Social assistance spending is forecast to increase by $5.0 billion across the forecast period (refer to page 34 for further details).

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 2015/16 actuals
Figure 2.4 - Increase in core Crown expenses relative to 2015/16 actuals   .
Source: The Treasury

...reflecting new budget spending...

Future operating allowances[6] are currently set at $1.5 billion for Budget 2017 onwards (Figure 2.5).

Figure 2.5 - Budget 2017 and future budget allowances
Figure 2.5 - Budget 2017 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, and net of identified savings when allocated.

The Budget 2017 operating allowance of $1.5 billion compares to net $1.6 billion new spending in Budget 2016 and an average of $520 million across the previous five Budgets.

...and increasing social assistance...

In addition to new budget spending, social assistance spending is expected toincrease by $5.0 billion across the forecast period. NZS payments accounts for $3.8 billion of this increase (Figure 2.6). NZS recipient numbers are forecast to increase from 690,600 in 2015/16 to 827,000 by the end of the forecast horizon. This increase in recipient numbers accounts for just over 66% of the increase in NZS costs, with the remaining increase largely owing to indexation of entitlements to wage growth (Figure 2.7). By the end of the forecast period, NZS is around 55% of the total social assistance spending compared to 50% in 2015/16.

Figure 2.6 - Social assistance spending
Figure 2.6 - Social assistance spending   .
Source: The Treasury
Figure 2.7 - Growth of NZS expenses
Figure 2.7 - Growth of NZS expenses.
Source: The Treasury

Other (non-NZS) welfare expenditure grows by $1.2 billion over the five-year forecast period with the largest growth relating to the income-related rents subsidy ($0.4 billion) driven by increases in tenancy places and market rents. While most welfare expenditure grows, expenditure on the Jobseeker Support and Emergency Benefit decreases by $0.1 billion across the forecast period as the unemployment rate is forecast to decline, with expenditure on this benefit expected to peak in 2016/17.

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

Core Crown expenses are expected to increase slightly as a percentage of GDP from 29.4% in 2015/16 to 29.6% in 2016/17, largely reflecting a positive reduction in impairment expenses in 2015/16 and the impact on the new spending in Budget 2016. Throughout the remainder of the forecast period core Crown expenses are forecast to grow more slowly than the nominal economy, which sees core Crown expenses declining to 27.7% of GDP at the end of the forecast period (Figure 2.3).

Notes

  • [6]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 102). Therefore, comparisons across the forecast period will not necessarily reflect the expected spend at a functional level.
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