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Pre-election Economic and Fiscal Update 2017

Core Crown Expenses

Core Crown expenses reduce as a percentage of GDP ...

Core Crown expenses are expected to grow more slowly than the nominal economy, which sees core Crown expenses declining across the forecast period from 29.2% in 2015/16 to 27.7% of GDP at the end of the forecast period (Figure 2.5).

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

… despite nominal core Crown expenses increasing...

Core Crown expenses are expected to increase by $15.5 billion over the forecast period from $74.0 billion in 2015/16 to $89.5 billion in 2020/21, an increase of around $3 billion each year (Figure 2.5).

This nominal growth is largely as a result of past budget decisions and new spending set aside for future budgets via the operating allowances (Figure 2.6). Budget operating allowances are assumed to be the same as those included in the Budget Update.

Figure 2.6 - Increase in core Crown expenses relative to 2015/16 actuals
Figure 2.6 - Increase in core Crown expenses relative to 2015/16 actuals.
Source: The Treasury

Future operating allowances are currently set at $1.7 billion for Budget 2018, increasing by 2% each subsequent Budget.[4]

The forecasts assume that future cost increases, whether they be from increased demand for government services, inflation or additional services, can be met from these future allowances.

For forecasting purposes, these allowances are assumed to be all operating expenditure. However, these allowances can be used for a combination of revenue and expense initiatives when allocated, and are net of identified savings.

In addition to new budget spending, social assistance spending is forecast to increase by $5.2 billion across the forecast period while finance costs remain fairly static.

...with an increase in the number New Zealand superannuation recipients contributing to expenditure growth...

NZS payments account for $3.8 billion of the increase in core Crown expenses over the forecast period. The majority of this growth relates to growth in the number of NZS recipients. Recipient numbers are forecast to increase from almost 691,000 in 2015/16 to 823,000 by the end of the forecast horizon (an increase of 19.1%). The remaining increase is largely owing to indexation of entitlements to wage growth (Figure 2.7). By the end of the forecast period, NZS is around 55% of the total social assistance spending (compared to 50% in 2015/16) and 18% of core Crown expenditure.

Figure 2.7 - Growth of NZS expenses
Figure 2.7 - Growth of NZS expenses.
Source: The Treasury

...while other forms of social assistance also increase

While New Zealand superannuation is around half of social assistance spending, other types of social assistance are also expected to increase by $1.3 billion over the same period (Figure 2.8).

Figure 2.8 - Social assistance spending
Figure 2.8 - Social assistance spending.
Source: The Treasury

The Family Incomes Package included in the Budget Update is expected to increase social assistance spending by $0.5 billion per year from 2019/20. In addition income-related rents and Kiwisaver subsidies are also expected to add $0.4 billion and $0.3 billion respectively.

Notes

  • [4] New operating spending will be allocated to department baselines when budget decisions are made. As a result, the different functional expense areas (eg, health spending), with the exception of social security and welfare and finance costs, remain flat across the forecast period (refer page 100). Therefore, comparisons across the forecast period will not necessarily reflect the expected spend at a functional level.
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