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Specific Fiscal Risks by Portfolio (continued)

Greater Christchurch Regeneration

Christchurch Central Recovery Plan - Anchor Projects (Unchanged)

The Crown is partially funding the construction of Anchor Projects as part of the Christchurch Central Recovery Plan. The funding for the construction of Anchor Projects will vary from project to project, dependent on final scope, ownership decisions, implementation and project costs, and will to some extent eventually be recovered. Projects are progressing through the decision-making process and construction costs will become increasingly clear during the procurement phase. The quantum and timing of Crown contribution may differ from that included in the fiscal forecasts.

Residential Red Zone (Unchanged)

Some recoveries from EQC and private insurers remain outstanding and there is a risk that final recoveries may be greater or less than forecast. In addition, potential costs or potential revenues or recoveries associated with the future use of residential red zone are uncertain. The future value may change depending on any future alternate uses of the land. The fiscal impact of this is not yet certain.

Southern Response Earthquake Services Support (Unchanged)

The ultimate cost to the Crown of settling earthquake claims remains subject to significant uncertainty. Forecasts assume that the actual cost to settle claims will align with the actuary's central estimate of the claims provision. There is a risk that the actual cost could vary from this estimate which is sensitive to its underlying assumptions such as damage estimates, legal challenges, reinsurance recoveries and the forecast profile of claims settlement. The Crown's financial position may be adversely impacted as these assumptions are modified over time. Because the net claims liability is large, small percentage changes in the liability can have a material impact on costs and forecasts.


Crown Infrastructure Partners (New)

In July 2017, Cabinet agreed to task Crown Fibre Holdings with negotiating and, where viable, funding Crown investment to accelerate growth enabling infrastructure development in a manner that attracts immediate or future external investment. The initial task will be the design of the commercial model for investing in water and transport infrastructure to enable housing supply in growth areas and determining where this model can be successfully applied. Cabinet agreed to provide up to $600 million of uncalled capital to Crown Fibre Holdings for the delivery of Crown Infrastructure Partners to be pre-committed evenly between the Budget 2018 and 2019 capital allowances, but the funding has been reflected as capital expenditure in the forecasts. As the commercial model and funding arrangements for specific projects have not yet been developed, there is a high level of uncertainty in the areas noted below, which may have additional fiscal impacts that need to be managed:

  • the timing and amount of investments
  • whether or not an economic return will be earned on all investments, and
  • the amount and timing of repayments to the Crown is uncertain.

Internal Affairs

Fire Services Levy (Unchanged)

The unification of New Zealand's Fire Services into Fire and Emergency New Zealand, which occurred on 1 July 2017, is expected to cost approximately $303 million and is being funded through a Crown contribution, a repayable capital loan and levy increases. The increase in levies required to meet the increased expenditure on Fire Services, and to contribute to repaying the repayable capital injection, has been approved for the year 2017/18 only. Any future levy changes beyond 2017/18 are still uncertain and not yet included in the fiscal forecasts.

North Island Property Review (New)

There are several issues with the current property portfolio regarding its capacity and condition which are not covered as part of the Wellington Accommodation Project (tranche 2). There is insufficient storage capacity in the Wellington region for the Archives New Zealand holdings. Current storage capability will be reached in the next two to three years. Some of the existing storage capacity is also not fit-for-purpose.

A review has been undertaken to identify investment options to resolve these issues. A business case has been prepared to assess the options in order for the Department of Internal Affairs (DIA) to continue to meet its statutory and business requirements. Some funding was approved as part of Budget 2017 to progress the option analysis and design; however, the risk still remains from 2019/20.

Māori Development

Proposed Māori Land Service (New)

The Te Ture Whenua Māori Bill is currently before the House. The Bill envisages services for Māori land owners which are not currently provided by the Crown at scale, including a Māori land register, owner decision-making service and dispute resolution service. Decisions are yet to be made on how these services will be delivered, and these decisions will determine their cost. If and when the Bill is passed, it provides for an 18-month period to develop and deliver the services. Funding has been set aside to design the proposed services, but there is currently no appropriated funding to implement or operate the service once the design process has been completed.

Parliamentary Service

Parliamentary Office Accommodation (New)

The Parliamentary Service is considering options for the provision of accommodation for future Parliaments following the expiry of the lease on Bowen House. Construction and some demolition costs have yet to be finalised or funded but are currently assessed to exceed $100 million.

Primary Industries

Investment in Water Infrastructure (Unchanged)

To date, a total of $183 million has been appropriated for the Crown-owned company, Crown Irrigation Investments Limited, to manage the Crown's investment in irrigation infrastructure. The Government will consider providing further capital up to $217 million in future Budgets as schemes reach the “investment-ready” stage.


Cash Held in Tax Pools (Unchanged)

Funds held in tax pools are recognised as a Crown asset. There is a risk that funds held in these pools, over and above a taxpayer's provisional tax liability, may be withdrawn by that taxpayer, resulting in a reduction in the Crown's available cash reserves.

Potential Tax Policy Changes (Changed)

Some of the items on the tax policy work programme could have a significant positive impact on operating revenue. A summary of the Government's tax policy work programme can be viewed on Inland Revenue's tax policy website The government will consult on any policy changes as part of the Generic Tax Policy Process before making any final decisions.

Student Loans - Valuation (Unchanged)

The value of student loans is sensitive to assumptions such as the borrower's future income, and general economic factors such as interest rates, unemployment levels, salary inflation and the CPI. As new lending occurs, an initial write-down to fair value will be made, and an expense will be incurred, reflecting the cost the Crown incurs in making an interest free loan and the risk that borrowers may not repay their loans. However, the assumptions made at the time of lending are volatile and are subject to change.

Tax and Transfer Settings (New)

The Government's Fiscal Strategy Report 2017 indicated that one of its short-term priorities is to consider further changes to tax and transfer settings, if fiscal conditions allow. A decision to implement any changes could have an impact on the operating balance.

Transformation and Technology Renewal (Unchanged)

The Business Transformation programme agreed by Cabinet is reflected in forecasts. There are risks that the expected implementation costs, revenue gains and operating costs savings may differ from forecasts. This includes a risk that, during the transition between systems, Inland Revenue discovers historic procedural issues. In addition, the Government is considering possible policy changes affecting the way Inland Revenue manages its processes and data. Any changes to procedures or policy could materially impact the programme's cost, and the additional revenue collected.

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