This will be funded from a range of sources
The Crown funds its asset growth from various sources, both from activity carried out within the core Crown and from dedicated sources outside it. Core Crown activity effectively reflects revenue raised from a mixture of taxation, additional borrowing, SOE dividends, and other sovereign revenue. Of the $76.1 billion of gross asset growth forecast for the next five years, $20.3 billion is expected to be funded directly from this activity (Table 2.8). The remaining $55.9 billion is forecast to be funded from sources outside the core Crown, including the reinvestment of CFI asset returns, road-user levies collected by the NZTA, and the retained operating surpluses of SOEs.
| $billion |
2012 Forecast |
2013 Forecast |
2014 Forecast |
2015 Forecast |
2016 Forecast |
5-Year Total |
|---|---|---|---|---|---|---|
| Funding sourced from core Crown activity: | ||||||
| Used to purchase PPE | 3.2 | 2.7 | 2.1 | 2.1 | 2.4 | 12.5 |
| Used for budget capital allowances | 1.0 | 0.3 | 0.2 | 0.1 | 0.1 | 1.7 |
| Funding for new capital spending from existing resources1 | 0.2 | 0.5 | 0.7 | 0.8 | 0.9 | 3.0 |
| Used for issuing student loans | 0.7 | 0.7 | 0.6 | 0.6 | 0.5 | 3.1 |
| Total funding from core Crown activity | 5.2 | 4.1 | 3.6 | 3.5 | 3.8 | 20.3 |
| Other funding sources: | ||||||
| Student loan repayments | 0.9 | 0.9 | 1.0 | 1.1 | 1.2 | 5.1 |
| Proceeds from asset disposals | 0.3 | 0.2 | 0.3 | 0.3 | 0.3 | 1.4 |
| Hypothecated revenue for roading | 1.2 | 1.2 | 1.3 | 1.5 | 1.7 | 6.9 |
| Financial and operating returns from CFIs | 3.8 | 2.6 | 2.7 | 2.7 | 3.1 | 14.9 |
| Valuation gains/(losses) on CFI investments | -0.6 | 1.1 | 1.7 | 1.8 | 2.0 | 6.1 |
| Borrowing by SOEs | 1.2 | 1.2 | 0.9 | 0.6 | 0.3 | 4.0 |
| Operating surpluses generated by SOEs | 1.8 | 1.7 | 2.0 | 1.9 | 2.2 | 9.8 |
| Kiwibank deposits | 1.5 | 1.5 | 1.6 | 1.6 | 1.6 | 7.7 |
| Total funding from other sources | 9.9 | 10.5 | 11.5 | 11.6 | 12.3 | 55.9 |
| Total funding | 15.1 | 14.6 | 15.1 | 15.2 | 16.1 | 76.1 |
Note that numbers may not add exactly due to rounding
- Funded from existing assets and increased returns on commercial assets
Source: The Treasury
Separating the sources of funding into those for PPE growth and those for all other non-PPE-related growth presents a clearer picture of which areas of the balance sheet are expected to rely largely on core Crown funding and which are predominantly self-funded.
Figures 2.8 and 2.9 present the funding sources for forecast PPE investment, as carried out by departments, Crown entities, and SOEs:
- Of the $21.7 billion of PPE investment forecast for departments and Crown entities over the next five years, 63.7% is expected to come from the core Crown (Figure 2.8). Of this, $12.5 billion will fund new PPE spending, while $1.4 billion will be used to fund PPE expenditure committed to in previous years’ Budgets. Hypothecated revenue, principally road-user levies collected by the NZTA, contributes $6.9 billion over the five years, or 31.8%. The remaining 4.5% is from the disposal of assets within departments and Crown entities.
- Figure 2.8 - Forecast PPE funding sources, 2012 to 2016: Departments and Crown entities
- Source: The Treasury
- SOE PPE investment is expected to be largely funded independently of the core Crown (Figure 2.9). Capital allocations from the Crown provide only 2.1% of funding for PPE investment, used to fund commitments made in previous Budgets. The main recipient for this funding is KiwiRail's ‘Turnaround Plan'. The remainder of SOE PPE expenditure is forecast to be funded from SOE operating surpluses (67.2%), SOE borrowing (27.8%), and asset disposals within SOEs (2.9%).
- Figure 2.9 - Forecast PPE funding sources, 2012 to 2016: SOEs
- Source: The Treasury
Figure 2.10 presents the forecast funding sources for non-PPE growth. Despite the deterioration in the financial portfolio mentioned earlier, the gains and returns earned from CFI financial assets are expected to be relatively strong beyond 2012, as financial market conditions recover. These financial returns are forecast to fund all asset growth in the CFIs over the next five years, excluding the EQC. It is now expected that Crown operating surpluses will be sufficient to resume contributions to the NZS Fund in the year ending June 2018, a year later than forecast in the Budget Update. As this lies beyond the forecast period, no injections of core Crown funding into the NZS Fund occur in the forecasts.
As discussed elsewhere, it is expected that $3.0 billion of funding will be required for new capital spending in future Budgets. The current Government policy is to fund new capital spending initiatives for the next five budgets from its existing balance sheet rather than borrowing to fund these investments. The Government will source funding from alternative sources such as increased returns from existing investments, reprioritisation of planned capital spending, as well as the partial divestment of assets such as SOEs. New spending is not forecast to increase total assets but, rather, to replace existing assets. In total, $4.5 billion of capital spending is expected to be funded ($900 million per Budget for the next five Budgets), once out-years are included.
Of the remaining growth in non-PPE-related assets, growth in the student loan book is expected to be funded from $5.1 billion of student loan repayments, and the remaining $3.1 billion from core Crown revenue. Meanwhile, growth in Kiwibank loans is assumed to be entirely funded through an associated growth in Kiwibank deposits.
- Figure 2.10 - Forecast Non-PPE funding sources, 2012 to 2016
- Source: The Treasury
