The Treasury

Global Navigation

Personal tools


Half Year Economic and Fiscal Update 2016

Specific Fiscal Risks

The Statement of Specific Fiscal Risks is required by the Public Finance Act 1989. It sets out, to the fullest extent possible, all government decisions and other circumstances known to the Government that may have a material effect on the fiscal and economic outlook, but are not certain enough in timing or amount to include in the fiscal forecasts. The risks disclosed in this chapter reflect those which are known at the date of the finalisation of the fiscal forecasts. Although the process for disclosure of specific fiscal risks involves a number of parties, including government departments, the Treasury and the Minister of Finance, there remains a possibility that not every significant risk is identified. Disclosure of known risks is also subject to specific requirements and materiality thresholds.


Specific fiscal risks can be positive or negative and can affect revenue or spending or assets and liabilities. The links between external events and spending are indirect because new policies that change spending and revenue usually require a decision by the Government and approval from Parliament. The approach taken in this chapter is to disclose those potential policy decisions and key areas of uncertainty that may have a material effect on the fiscal outlook.

Established practice is that the Government sets aside operating and capital allowances for future Budgets to manage uncertainty and cost pressures. These allowances are included in the fiscal forecasts. Current fiscal management policy is for future policy decisions affecting operating expenses or capital expenditure to be met through reprioritisation or from within the allowances included in the fiscal forecasts. Future policy decisions are risks to the fiscal forecasts only to the extent that they cannot be managed from within:

  • for operating expenditure, existing baselines or the allowance in the fiscal forecasts for forecast new operating expenses, or
  • for capital, the existing Crown balance sheet or the allowance in the fiscal forecasts, for forecast new capital expenditure.

Notwithstanding this, known material policy risks are identified as specific fiscal risks, even though the Government has more control in managing such risks through reprioritisation, the existing Crown balance sheet and the Budget allowances. This is done to ensure a prudent approach to the disclosure of risks, improve transparency and not pre-judge future decisions by governments.

The Specific Fiscal Risks are categorised by portfolio. For example, all housing related risks are listed under the portfolios ‘Building and Housing/Social Housing'. The summary table also classifies each risk into:

  • Potential policy decisions affecting revenue: For example, changes to tax policy or ACC levies could reduce or increase government income.
  • Potential policy decisions affecting expenses (expected to be funded from reprioritisation or the Budget operating allowance): Costs of policy proposals could increase or decrease expenses depending on decisions taken, and they are risks to the fiscal forecasts only to the extent that they cannot be managed within existing baselines or the Budget operating allowances.
  • Potential capital decisions (expected to be funded from the existing Crown balance sheet, or the Budget capital allowance): Capital investment decisions are risks to the fiscal forecasts only to the extent that they cannot be managed within the existing Crown balance sheet, or the Budget capital allowance.

A range of generic risks to the fiscal forecasts exist but are not separately disclosed as specific fiscal risks:

  • Risks from changes to economic assumptions; the most significant economic risks have been identified in Chapter 3.
  • Business risks and volatility in the returns from and valuation of the Crown's investments relating to the broader economic and commercial environment.
  • General cost pressures, such as those associated with demographic changes (eg, an ageing population).
  • Potential risks from changes in demand for government services or transfer payments owing to underlying structural factors (such as changes in demand for Jobseeker Support).
  • The costs of future individual natural disasters, biosecurity incursions, and other major events, as they usually occur infrequently and their occurrence, nature and timing cannot be predicted. Once a disaster does occur, a number of choices arise about how to respond and when potential liabilities are recognised (eg, through setting aside an allocation of funding). Specific risks are disclosed at this point based on the range of possible responses.

The final part of the chapter contains a current list of contingent liabilities and contingent assets. Contingent liabilities are costs that the Crown will have to face if a particular event occurs or are present liabilities that are unable to be measured. Typically, contingent liabilities consist of guarantees and indemnities, legal disputes and claims on uncalled capital. The largest quantified contingent liabilities are to international financial organisations and mostly relate to uncalled capital and promissory notes. Contingent assets are possible assets that have arisen from past events but the value of the asset, or whether it will eventuate, will not be confirmed until a particular event occurs.

Page top