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Half Year Economic and Fiscal Update 2016

Capital Expenditure

The Government is forecast to spend a net total of $32.1 billion on capital items over the forecast period, which includes recommencing contributions to the NZS Fund in 2020/21 (refer to page 30), building and acquiring physical assets (eg, school buildings), advances (eg, student loans), providing capital to CEs (eg, the New Zealand Transport Agency (NZTA)) and future new capital spending (Table 2.6).

Table 2.6 - Net capital expenditure activity 2016/17 to 2020/21
Year ending 30 June
$billions
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Education 0.6 0.8 0.8 0.7 0.6 0.6 3.5
Defence 0.4 0.9 0.5 0.4 0.2 0.5 2.5
Corrections 0.1 0.2 0.1 0.1 0.1 0.1 0.6
Health 0.2 0.3 0.2 - - - 0.5
IRD - 0.1 0.2 0.1 0.1 0.1 0.6
Other 0.7 0.9 0.5 0.6 0.6 0.4 3.0
Net purchase of physical assets1 2.0 3.2 2.3 1.9 1.6 1.7 10.7
Housing Infrastructure Fund - - 0.5 0.5 - - 1.0
Student loans 0.2 0.2 0.2 0.1 0.1 - 0.6
Other 0.3 0.4 0.4 (0.1) (0.1) (0.2) 0.4
Net advances 0.5 0.6 1.1 0.5 - (0.2) 2.0
NZTA 1.1 1.5 1.3 1.4 1.4 1.4 7.0
City Rail Link project - 0.2 0.1 0.3 0.4 0.4 1.4
Southern Response 0.3 0.3 0.2 - - - 0.5
Other 0.7 0.8 0.5 0.5 0.3 0.1 2.2
Net investments 2.1 2.8 2.1 2.2 2.1 1.9 11.1
Contribution to NZS Fund - - - - - 3.1 3.1
Future new capital spending - 0.5 1.0 1.4 1.6 1.7 6.2
Top-down capital adjustment - (0.5) (0.2) (0.1) (0.1) (0.1) (1.0)
Net capital spending 4.6 6.6 6.3 5.9 5.2 8.1 32.1

Note: 1 Excluding assets acquired via Public Private Partnerships.

Source: The Treasury

Net capital spending is expected to increase significantly in 2016/17, with the largest capital spend in a number of years (Figure 2.11). The size of the forecast spend does increase some risk that spending may be pushed into future periods as capacity constraints are tested.

Figure 2.11 - Net capital spending history
Figure 2.11 - Net capital spending history   .
Source: The Treasury

Figure 2.11 sets out a history of capital expenditure over the past 10 years and includes the forecast capital activity to 2020/21. The graph excludes contributions to the NZS Fund (2006-10 and 2021 years) and proceeds from the Government Share Offer programme in 2012-14 (a total of $4.6 billion) which were used to fund capital expenditure.

A net capital allowance of $3.0 billion is forecast for Budget 2017 with $2.0 billion for Budgets 2018-20. The Government's commitment relating to its share of the cost of the CRL joint project with Auckland Council ($1.4 billion in the current forecast period) is assumed to be met from these allowances. Each capital allowance is assumed to be spread over five fiscal years reflecting the assumed profile of future spending. This profile is illustrated in Figure 2.12.

Figure 2.12 - New capital spending (capital allowances)
Figure 2.12 - New capital spending (capital allowances)   .
Source: The Treasury

In addition to budget allowances, further capital spending is forecast to occur through the purchase of physical assets, investments in CEs and lending such as student loans.

Forecast net purchases of physical assets of $10.7 billion are forecast across the period and represent spending by core Crown agencies to maintain and expand their existing asset base. Over half of the spending ($6 billion) is expected to be on defence and education assets.

Net investments of $11.1 billion are forecast, and largely represent capital injections to CEs to maintain and expand their asset base. These are estimated to be between $1.9 billion and $2.8 billion a year. The largest capital injections across the forecast period are to NZTA for state highways ($7.0 billion). Capital injections to DHBs, Crown Fibre Holdings, Southern Response and ōtākaro are also included.

Net advances of $2.0 billion include issuance and repayment of student loans as well as the Housing Infrastructure Fund ($1.0 billion). Student loan repayments have been increasing over time so that, by the end of the forecast period, repayments are expected to match issuances.

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