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Pre-election Economic and Fiscal Update 2017

Total Crown Balance Sheet

Increasing operating balance surpluses result in a stronger balance sheet...

Net worth attributable to the Crown is forecast to grow in nominal terms across the forecast period largely owing to forecast operating balance surpluses to stand at $140.6 billion by 2020/21. In addition an upward valuation of property, plant and equipment of $8.0 billion in 2016/17 also caused some of the uplift.

As a share of nominal GDP, net worth attributable to the Crown is expected to increase across the forecast period as operating surpluses outpace GDP growth. Net worth attributable to the Crown reaches 43.5% by 2020/21 (Figure 2.15), up from 40.5% in 2016/17.

Figure 2.15 - Net worth attributable to the Crown
Figure 2.15 - Net worth attributable to the Crown.
Source: The Treasury

...with assets increasing by $47.4 billion over the forecast period while liabilities reduce

Total assets are forecast to grow by $47.3 billion over the forecast period to $340.0 billion in 2020/21, made up of additional investments in assets, both physical and financial (Figure 2.16). At the same time, the Crown's liabilities are expected to decrease $3.4 billion and are estimated to be $193.8 billion in 2020/21.

Figure 2.16 - Total Crown assets
Figure 2.16 - Total Crown assets.
Source: The Treasury

The largest asset growth over the forecast period is in the social assets portfolio (just over 50% of the total Crown balance sheet). Social assets (eg, schools, hospitals and social housing) are expected to increase by $30.6 billion over the forecast period to be $180.1 billion in 2020/21 (Figure 2.17). This increase largely reflects growing capital spending.

Figure 2.17 - Social balance sheet
Figure 2.17 - Social balance sheet.
Source: The Treasury

Liabilities in relation to the social segment (eg, tax refunds, Emissions Trading Scheme (ETS) provision) remain fairly static. As a result, social net worth is expected to increase.

The financial asset portfolio (around 30% of the total Crown balance sheet) is expected to increase by $12.0 billion to be $99.9 billion in 2020/21, primarily reflecting investment growth in the large investment portfolios (NZS Fund and ACC).

On the liability side, borrowings in the financial sector are forecast to decrease by $9.0 billion by 2020/21, mostly as a result of the reduction in gross debt discussed earlier (page 38).

ACC's insurance liability is expected to continue to increase from $39.1 billion at the end of 2015/16 to $47.3 billion in 2020/21. By contrast, the GSF liability is forecast to fall to $8.8 billion by 2020/21, as pensions are paid out.

Overall, net worth in the financial sector increases by $20.9 billion across the forecast period (Figure 2.18).

Figure 2.18 - Financial balance sheet
Figure 2.18 - Financial balance sheet.
Source: The Treasury

The commercial asset portfolio (representing nearly 20% of the Crown's balance sheet) is expected to increase by $4.7 billion over the forecast period to be $60.0 billion in 2020/21, with growth mostly coming from growth in the Kiwibank loan book (with a corresponding increase in liabilities as deposit balances are also forecast to rise). Commercial net worth remains fairly static (Figure 2.19).

Figure 2.19 - Commercial balance sheet
Figure 2.19 - Commercial balance sheet.
Source: The Treasury

The Crown's balance sheet remains sensitive to market movements...

Many of the assets and liabilities on the Crown's balance sheet are measured at fair value in order to show current estimates of what the Crown owns and owes. While the measurement at fair value is intended to reflect the value of these items, it can be volatile, resulting in fluctuations in the value of the assets and liabilities reflecting changes in the market and underlying assumptions.

The Risks and Scenarios chapter includes a section on balance sheet risks and should be read in conjunction with the fiscal forecasts.

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