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Pre-election Economic and Fiscal Update 2017

Residual Cash and Net Core Crown Debt[7]

A residual cash surplus is expected in 2016/17…

Net operating cash flows of $5.8 billion in 2016/17 are forecast to exceed capital spending of $4.3 billion, resulting in a residual cash surplus of $1.5 billion. This surplus compares to a residual cash deficit of $1.3 billion in 2015/16. Overall, capital payments are slightly less than the previous year while operating cash flows have increased by $2.5 billion reflecting higher receipts and lower payments.

Figure 2.12 - Core Crown residual cash
Figure 2.12 - Core Crown residual cash.
Source: The Treasury

…leading to a reduction of net core Crown debt in 2016/17…

As a result of the expected residual cash surplus in 2016/17, net core Crown debt is expected to reduce in nominal terms from $61.9 billion (24.5% of GDP) in 2015/16 to $60.6 billion (22.5% of GDP) in 2016/17.

…before capital spending picks up pace...

Net operating cash flows are forecast to be in surplus across the forecast period, rising in a similar trend to the OBEGAL forecast. By 2020/21, net operating cash flows are forecast to be $9.1 billion. The increasing operating cash flows largely represent growth in tax receipts exceeding the growth in operating payments.

While operating cash flows are positive across the forecasts, capital spending is forecast to increase over the next four years as some of the large infrastructure projects such as the City Rail Link get underway.

As a result, capital payments are expected to exceed operating cash flows over the next two years before core Crown residual cash returns to surplus in 2019/20. Core Crown residual cash is broadly neutral in the last four years of the forecast period, with cash deficits in the next two years mostly offset by cash surpluses at the end of the forecast period.

Figure 2.13 - Net core Crown debt
Figure 2.13 - Net core Crown debt.
Source: The Treasury

…while net core Crown debt falls as a percentage of GDP

In dollar terms, net core Crown debt is forecast to increase over the next two years as cash flows from operating activities are not expected to be sufficient to meet capital spending before starting to decline once residual cash returns to surplus in 2019/20.

However, as a percentage of GDP, net core Crown debt continues to reduce across the forecast period, reaching 18.8% of GDP by 2020/21.

The bond programme remains relatively stable …

While nominal net core Crown debt increases in the short term the bond programme is forecast to remain unchanged over the forecast period.

The issuance profile is relatively flat in order to reduce the year-to-year volatility of bond programmes and ensure consistency of supply over this time.

The bond programme[8] is expected to raise funds of $34.6 billion over the forecast period, while $41.2 billion of existing debt will be repaid, providing net repayments of $7.4 billion (Table 2.8).

Table 2.8 - Net issuance of government bonds
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
5-year
Total
Face value of government bonds issued (market) 8.0 7.0 7.0 7.0 6.0 35.0
Cash proceeds from government bond issue            
Cash proceeds from issue of market bonds 7.8 7.0 7.0 6.9 5.9 34.6
Repayment of market bonds (5.9) (10.5) (6.4) (7.3) (11.1) (41.2)
Net proceeds from market bonds 1.9 (3.5) 0.6 (0.4) (5.2) (6.6)
Repayment of non-market bonds (0.8) - (0.8)
Net cash proceeds from bond issuance 1.1 (3.5) 0.6 (0.4) (5.2) (7.4)

Source: The Treasury

…and gross debt falls as a percentage of GDP

Gross debt is expected to decline across the forecast period as a percentage of GDP. By 2020/21 gross debt is expected to decrease to 24.6% of GDP from 32.6% at the end of 2016/17.

In nominal terms gross debt also declines, primarily as forecast maturities are then expected to exceed new debt being issued. Gross debt is forecast to be $79.4 billion in 2020/21, $8.3 billion lower than current levels (Figure 2.14).

Figure 2.14 - Gross debt
Figure 2.14 - Gross debt.
Source: The Treasury

Notes

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