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Pre-election Economic and Fiscal Update 2014

Core Crown Expenses

Figure 2.4 - Changes in core Crown expenses since the Budget Update
Figure 2.4 - Changes in core Crown expenses since the Budget Update   .
Source:  The Treasury

Core Crown expenses have decreased marginally since the Budget Update...

Core Crown expense forecasts are slightly lower than forecast at the Budget Update across all years with the exception of 2015/16. Expenses by the end of the 2017/18 year are expected to be a cumulative $0.8 billion lower than previously expected (Figure 2.4).

These lower expenses include $0.2 billion of tax impairments that were forecast in 2013/14 at Budget Update that have not eventuated, as well as around $0.4 billion related to phasing changes resulting in expenses now falling outside the current forecast period.

Figure 2.5 - Core Crown expenses
Figure 2.5 - Core Crown expenses   .
Source:  The Treasury

...but continue to grow across the forecast period...

Core Crown expenses are expected to increase in nominal terms by around $11.1 billion by 2017/18 compared with 2012/13, with $10.2 billion of this beyond 2013/14 (Figure 2.5). However, as core Crown expenses are forecast to grow at a slower rate than growth in the nominal economy, they are expected to ease from 33.0% of GDP in 2012/13 to 30.0% of GDP by the end of the forecast period.

Figure 2.6 - Increase in core Crown expenses (compared to 2012/13)
Figure 2.6 - Increase in core Crown expenses (compared to 2012/13)   .
Source:  The Treasury

Nominal growth in core Crown expenses is largely attributable to 2013/14 and future operating allowances, coupled with increasing social assistance spending as shown in Figure 2.6.

In these forecasts, finance costs also increase over the forecast period to reflect increasing gross debt and rising interest rates.

Other increases in expenses include core Crown expenses for the Canterbury rebuild (refer to pages 34 to 35 for details of the profile and phasing of earthquake expenses).

Figure 2.7 - Components of social assistance spending
Figure 2.7 - Components of social assistance spending   .
Source:  The Treasury

Social assistance spending is expected toincrease by $3.7 billion between 2012/13 and 2017/18. Of this, New Zealand Superannuation payments (around half of social assistance costs), grow by $3.4 billion as payments are linked to wage growth and recipient numbers increase (Figure 2.7). Other benefit expenses, largely income-related rent, are also expected to increase marginally over the forecast.

Election Promises vs Government Policy

In the lead up to an election, political parties, including the current Government, make announcements regarding their policies and intentions. It does not automatically follow, however, that all announcements are included in these fiscal forecasts.

The criteria for inclusion in the fiscal forecasts is outlined in the Specific Fiscal Risks chapter with a decision by Cabinet being the key criteria for distinguishing government policy from the policies of individual political parties, and therefore inclusion in the forecasts.

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