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Specific Fiscal Risks by Portfolio (continued)

Cross-portfolio Specific Fiscal Risks

Agency Capital Intentions (Unchanged)

Future Budgets may well include new capital investments other than those identified in other specific fiscal risks. Such investments are most likely to be developed by the 25 investment-intensive agencies that are required to identify their capital spending intentions over the next 10 years based on current policy settings and certain demographic and inflation assumptions. The Government expects that these intentions will be managed back through a range of measures such as prioritisation, improvements in asset performance, alternative methods of service delivery and changes to policy settings. New investments are risks to the fiscal forecasts only to the extent they cannot be managed through existing balance sheets, or the provision in the fiscal forecasts for forecast new capital spending.

Budget Operating Initiatives (Unchanged)

Future Budgets may well include new operating initiatives for new policies or to address cost pressures other than those identified in other specific fiscal risks. Such new operating initiatives are risks to the fiscal forecasts only to the extent they cannot be managed through reprioritisation or from within the existing provision in the fiscal forecasts for forecast new operating spending. The Government's stated intention is that all new operating initiatives will be managed through these mechanisms.

Changes in the Accounting Standard for Financial Instruments (New)

The External Reporting Board has recently issued changes to accounting standard PBE IFRS 9 Financial Instruments and it is likely that the Crown will adopt the amended accounting standard in the 2018/19 financial year. The resulting changes include new valuation methodology for some financial assets, a new impairment model for financial assets, and revised hedge accounting requirements. The impact of these new requirements has not yet been assessed, except for some initial impact analysis on the student loan asset (an estimated one-off increase of around $600 million).

Pay Equity and Caregiver Employment Conditions (Changed)

There are several cases and funding claims mainly from workers in the social sectors (including health, education and welfare) relating to the interpretation, and application, of the Equal Pay Act 1972, the Minimum Wage Act 1983 and the Government's policy of paying certain family members through its Funded Care Policy.

A pay equity claim for Care and Support workers in the aged care, disability support and home and community services sector has already been resolved, but there are a number of outstanding claims and it is expected that further claims will be raised.Current claims include:

  • social workers employed by the Ministry for Vulnerable Children, Oranga Tamariki
  • education support workers employed by the Ministry of Education
  • school support workers employed by school boards of trustees
  • mental health support workers employed by non-government organisations (funded by Government), and
  • clerical/administration workers employed by five DHBs in the South Island.

The resolution of such claims within State employed and State funded sectors may involve significant costs to the Crown.

Services Funded by Third Parties (Unchanged)

A wide range of government services are funded through third-party fees and charges. Demand for these services can vary with a direct effect on revenue received. There is a risk the Government may need to provide additional funding if revenue collected is lower than the total costs of providing the service. There is also a risk that changes will be required to the way government services are delivered, which could result in costs to the Crown.

State Sector Employment Agreements (Unchanged)

A number of large collective agreements are due to be renegotiated over the forecast period. As well as direct fiscal implications from any changes to remuneration, the renegotiation of these agreements can have flow-on effects to remuneration in other sectors. The Government has signalled an expectation of restraint given its current fiscal stance and that agreements will be managed within the current fiscal forecasts.

Unexpected Maintenance for Crown-owned Buildings (Unchanged)

There is a possibility that the Crown will incur costs when unexpected maintenance is required for the buildings it owns; for example, earthquake strengthening some of the buildings that do not meet modern building standards, and maintenance for buildings with weathertight issues. The likelihood, timing and fiscal impact of any repairs are uncertain.

Risks Removed Since the 2017 Budget Update

No risks have been expired since the Budget Economic and Fiscal Update 2017.

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