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Pre-Election Economic and Fiscal Update 2008

2 Fiscal Outlook (continued)

Cash Position

Core Crown Residual Cash

Core Crown residual cash represents core Crown operating cash flows less capital investment and contributions to the NZS Fund.

Table 2.7 - Reconciliation of core Crown residual cash
Year ended 30 June
$million 2008
Actual 		2009
Forecast 		2010
Forecast 		2011
Forecast 		2012
Forecast 		2013
Forecast
Core Crown revenue 61,819 61,207 62,888 65,422 68,408 72,161
Core Crown expenses (56,997) (62,359) (65,849) (68,891) (72,252) (76,157)
Core Crown gains/(losses) and other items (930) 1,380 1,619 1,869 2,123 2,398
Net surpluses/(deficits) of SOEs and CEs (1,507) 1,681 1,716 1,529 1,325 1,216
Operating balance 2,385 1,909 374 (71) (396) (382)
Net total Crown (gains)/losses and other items 3,252 (1,973) (2,120) (2,410) (2,696) (2,992)
Operating balance before gains and losses (OBEGAL) 5,637 (64) (1,746) (2,481) (3,092) (3,374)
NZS Fund net revenue after tax (51) 33 81 105 130 150
OBEGAL excluding (NZS Fund retained revenue) 5,586 (31) (1,665) (2,376) (2,962) (3,224)
Net retained surpluses of SOEs and CEs (815) (1,088) (1,215) (988) (752) (622)
Non-cash items and working capital movements 2,521 1,905 2,659 2,071 2,007 1,785
Net core Crown cash flow from operations 7,292 786 (221) (1,293) (1,707) (2,061)
Contribution to NZS Fund (2,104) (2,242) (1,977) (2,096) (2,167) (2,194)
Net core Crown cash flow from operations
after contributions to NZS Fund 5,188 (1,456) (2,198) (3,389) (3,874) (4,255)
Purchase of physical assets (1,433) (1,516) (1,729) (1,397) (1,251) (1,306)
Advances and capital injections (1,698) (2,753) (875) (1,009) (790) (666)
Forecast for future new capital spending -  (184) (498) (808) (900) (1,080)
Core Crown residual cash 2,057 (5,909) (5,300) (6,603) (6,815) (7,307)

Source: The Treasury

A sustained period of large cash deficits is forecast

Figure 2.7 - Core Crown residual cash
Figure 2.7 - Core Crown residual cash.
Source:  The Treasury

Core Crown residual cash is in deficit over the entire forecast period ranging from $5.9 billion in 2008/09 to $7.3 billion in 2012/13.

The decline in the OBEGAL is broadly mirrored in net core Crown cash flow from operations.

Table 2.8 - Application of core Crown residual cash from 2008/09 to 2012/13 inclusive ($billion)
Table 2.8 - Application of core Crown residual cash from 2008/09 to 2012/13 inclusive ($billion).
Source:  The Treasury

After taking into account contributions to the NZS Fund of $10.7 billion, purchases of physical assets (including new capital spending) of $10.6 billion and advances and capital injections of $6.1 billion, there is a residual financing requirement of $31.9 billion. The cash shortfall will be mainly met by additional borrowings of around $22 billion with the rest met by reducing financial assets that have accumulated from recent strong cash outturns (refer Table 2.13).

As in previous Economic and Fiscal Updates, the forecasts include allowances for new capital initiatives for future Budgets. As part of Budget 2009, the Government has allocated $900 million of new capital over the next four years. Amounts for the 2010, 2011 and 2012 Budgets have also been set at $900 million phased over four years. In total the fiscal forecasts incorporate $3.1 billion over the next five years to be spent on new capital commitments between 2008/09 to 2012/13.

Table 2.9 - Forecast future new capital allowances
Year ended 30 June
$million 		2009
Forecast 		2010
Forecast 		2011
Forecast 		2012
Forecast 		2013
Forecast 		Total
Budget 2009 20 480 250 150 -  900
Budget 2010 (three years of phasing) -  20 480 250 150 900
Budget 2011 (two years of phasing) -  -  20 480 250 750
Budget 2012 (one year of phasing) -  -  -  20 480 500
Budget 2013 -  -  -   -  20 20
Future capital allowances 20 500 750 900 900 3,070

Source: The Treasury

Figure 2.8 - Total purchase of physical assets by sector ($billion and % of total spend)
Figure 2.8 - Total purchase of physical assets by sector ($billion and % of total spend).
Source:  The Treasury

Core Crown forecasts for the purchase of physical assets ($10.6 billion) and advances and capital injections ($6.1 billion) comprise purchases met from existing baselines plus the $3.1 billion new capital allocation mentioned above.

Advances and capital injections are often used by CEs and SOEs to purchase physical assets (such as roading and rail assets). Therefore, to give an indication of the Government's capital investment it is important to consider total Crown physical asset purchases. Figure 2.8 shows the total purchases of physical assets by sector.

Taking into consideration capital and operating cash flows, the cash position is weaker than what was forecast at the Budget Update.

Table 2.10 - Residual cash comparison to the Budget Update
Year ended 30 June
$million 		2009
Forecast 		2010
Forecast 		2011
Forecast 		2012
Forecast

Residual cash

Budget Update (3,478) (3,302) (3,447) (3,457)
Tax receipts (748) (1,022) (1,268) (954)
Benefit expenses (358) (629) (678) (543)
KiwiSaver uptake change (71) (105) (197) (280)
Education forecast change (239) (111) (209) (254)
Treaty settlements 25 (440) (130) (130)
Net finance costs (382) (171) (358) (641)
Top-down adjustment 1,090 (100) (175) (250)
Expense transfers (1,604) (10) (7) 11
National Provident Fund call on guarantee (17) (99) (99) (99)
NZS Fund contributions -  158 167 116
Capital allocation (140) 140 -  - 
Rail funding decision (45) 45 -  - 
Other movements 58 346 (202) (334)
Total residual cash impact (2,431) (1,998) (3,156) (3,358)
Pre-election Update (5,909) (5,300) (6,603) (6,815)

Source: The Treasury

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