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2 Fiscal Outlook (continued)

NZS Fund

The NZS Fund is an important component of the Government's fiscal strategy. The NZS Fund's assets provide the means for the Government to partially pre-fund future fiscal pressures, particularly those pressures arising from an ageing population.
Figure 2.11 - NZS Fund net worth
Figure 2.11 - NZS Fund net worth.
Source:  The Treasury

The NZS Fund is forecasting an operating surplus of $1 billion in 2008/09 growing to $1.9 billion in 2012/13.

A combination of holding gains and new investments funded by the Government's annual contribution of around $2 billion per annum is expected to increase the NZS Fund's net worth from $14.2 billion in 2007/08 to $32.2 billion in 2012/13.

Table 2.14 - NZS Fund net worth
Year ended 30 June
$million
2008
Actual
2009
Forecast
2010
Forecast
2011
Forecast
2012
Forecast
2013
Forecast
Opening net worth 12,973 14,212 17,440 20,638 24,175 28,024
Revenue 385 431 487 562 642 725
Other expenses (34) (156) (168) (196) (221) (245)
Tax expenses (237) (326) (419) (494) (574) (655)
Gains/(losses) (995) 1,037 1,321 1,569 1,836 2,114
Gross contributions from the Crown 2,104 2,242 1,977 2,096 2,167 2,194
Other movements in reserves 16 (1) 1
Closing net worth 14,212 17,440 20,638 24,175 28,024 32,158

Source: The Treasury

The Government's contributions to the NZS Fund are calculated over a 40-year rolling horizon to ensure that superannuation entitlements over the next 40 years can be met if the contribution rate were to be held to be constant at that level. The Government is forecast to make the required minimum annual contribution for 2008/09 as calculated by the formula set out in the New Zealand Superannuation and Retirement Income Act 2001.

The underlying assumptions in calculating the contributions for 2008/09 are the nominal GDP series to 2048, the New Zealand Superannuation expense series to 2048 and the expected long-term, net after-tax annual return of the NZS Fund (6.6%) (also 6.6% in the Budget Update). The forecast rate of return is based on the Treasury's assumptions for the rate of return on financial portfolios of Crown financial institutions. The Treasury website contains further information on the NZS Fund, as well as a copy of the NZS Fund model (http://www.treasury.govt.nz/government/assets/nzsf/contributionratemodel).

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