Use of the Operating Surplus
The following table explains how the operating surplus/OBERAC was calculated for the 2004/05 actual results and compared to the 2003/04 actual results, and then how it was applied. Any extra spending or reduced tax revenue would add to the bottom-line cash shortfall (and add to the need to borrow).
| $ million | 2005 | 2004 | Description of Items |
|---|---|---|---|
| (the sum of the first three lines = operating balance) | 52,065 | 46,932 | Core Crown revenues – these are the revenues the Government collects. They are mainly taxes. |
| (46,234) | (41,608) | Core Crown expenses – these represent most of the Government’s spending, BUT not all of it. They are the day-to-day spending (salaries, benefit payments, etc) that does not create Government assets. | |
| 416 | 2,100 | Net surplus of SOEs and Crown entities – this is the net surplus (after dividends) that SOEs and Crown entities make. | |
| 2,626 | (795) | OBERAC adjustments – removal of large revaluation movements | |
| OBERAC | 8,873 | 6,629 | OBERAC – the residual from revenues and expenses less removal of large valuation movements (the OBERAC and operating balance are the same in forecast years). |
| Less | (313) | (1,186) | Retained items and non-cash items – items such as the net surplus of SOEs/Crown entities and the net investment returns of the NZS Fund are retained by these entities. The surpluses generated (unless withdrawn from the entities) cannot be used for other purposes so do not aid in funding other government spending. Depreciation expense is also removed as it is non-cash (it is captured in the actual purchase of assets below). Additionally, the actual working capital movements such as payment of creditors impacts on the level of net cash flows from operations. |
| Equals surplus cash flows | 8,560 | 5,443 | Cash from operations – these are the cash flows from core Crown operations (excluding the NZS Fund). They are the cash equivalent of the operating surplus. They are available to assist funding the capital spending. |
| Less capital spending | (2,107) | (1,879) | Contributions to the NZS Fund – the Government’s annual contribution to the NZS Fund to build up assets to contribute to future NZS payments. |
| (1,372) | (1,299) | Purchase of assets – departments buy assets including computer equipment, new buildings (eg, prisons) and defence equipment. | |
| (628) | (1,725) | Loans to others (advances) – these are mainly student loans (the Government is committed to help students access tertiary education by funding student loans) and refinancing private sector debt of DHBs and HNZC. | |
| (1,349) | (20) | Net capital injections – investments in Crown entities such as DHBs and Reserve Bank reserves | |
| What is left | 3,104 | 520 | Cash available/(shortfall) – this amount needs to be funded if it is a shortfall. Funding is provided by selling surplus financial assets (because of surplus cash from prior years) or borrowing more. |
