Comparison with Estimated Actual
This section compares the actual 2006/07 financial results for key fiscal indicators with the 2007 estimated actual forecast released in the 2007 Budget Update.
It follows the fiscal strategy framework, looking first at variances in the operating balance for the whole of Crown ie, including SOEs and Crown entities [see page 6]. It then identifies adjustments to the operating balance necessary to strip out valuation and accounting changes (OBERAC changes), and how these have changed since the estimated actual forecast, and then looks at variances in residual cash compared with forecast.
How operating balance flows translate to OBERAC, which includes SOE and Crown entity activity, and then to the residual cash available to the core Crown is explained in the following table.
| 30 June 2007 | 30 June 2007 | 30 June 2006 | |||
|---|---|---|---|---|---|
| Actual | Estimated Actual | Variance | Actual | ||
| $million | $million | $million | $million | ||
| Core Crown revenue | 60,880 | 60,241 | 639 | 59,508 | |
| Less | Core Cown expenses | 53,742 | 54,514 | 772 | 50,238 |
| Plus | Net surpluses/(deficits) of SOEs and Crown entities | 1,525 | 841 | 684 | 2,203 |
| Equals | Operating balance | 8,663 | 6,568 | 2,095 | 11,473 |
| Less | OBERAC adjustments | ||||
| Revaluation changes | 743 | (812) | 1,555 | 1,471 | |
| Accounting changes | - | - | - | 1,354 | |
| Equals | OBERAC | 7,920 | 7,380 | 540 | 8,648 |
| Less | Net return on the NZS Fund (excluding revaluation changes) | 675 | 718 | (43) | 580 |
| Equals | OBERAC less NZS Fund retained earnings | 7,245 | 6,662 | 583 | 8,068 |
| Less | Net retained surpluses of SOEs and Crown entities | 2,316 | 1,835 | (481) | 1,179 |
| Non-cash items and working capital movements | (3,605) | (3,105) | 500 | (1,970) | |
| Equals | Net core Crown cashflow from operations | 8,534 | 7,932 | 602 | 8,859 |
| Less | Contribution to NZS Fund | 2,049 | 2,049 | - | 2,337 |
| Equals | Net core Crown cashflow from operations after contributions to NZS Fund | 6,485 | 5,883 | 602 | 6,522 |
| Less | Purchase of physical assets | 1,806 | 2,141 | (335) | 1,826 |
| Advances and Capital injections | 2,031 | 2,022 | 9 | 1,711 | |
| Equals | Residual Cash | 2,648 | 1,720 | 928 | 2,985 |
Revenue and Expenses
The key drivers of revenue and expense variances against forecast are as follows:
| Variance | Key drivers | |
|---|---|---|
| Total Crown operating balance (2007 Estimated actual) |
$6.6 billion | |
| Core Crown | ||
| Taxation revenue | +$0.7 billion |
GST +$0.3 billion – higher than expected nominal consumption, reflecting growth in prices (inflation) and some increased volumes. Corporate Tax +$0.4 billion – higher than forecast tax assessments across a number of sectors, plus an increase in tax due to a reduction in the provision against tax due in respect of certain structured finance transactions. |
| Other revenue | -$0.1 billion | |
| Expenses | -$0.8 billion |
GSF -$1.2 billion – The GSF pension liability movement was lower than expected primarily due to an increase in valuation discount rates since the time of the Budget Update. Education -$0.2 billion – Primarily relates to the reversal of previous impairments of the Student Loan portfolio based on updated data received on the collectability of Student Loans at year end. Health -$0.2 billion – Underspends generally in relation to Health Services funding and Primary Care funding. Economic and industrial services -$0.1 billion – Represents underspends in relation to lower operating costs to run the Whirinaki power station and lower spending on funding provided to large budget screen productions due to applicants not meeting milestones. Transport -0.1 billion – Slower than expected implementation on rail projects. Core government services +$0.5 billion – Primarily relates to an increase in the provision for tax doubtful debts. Defence +$0.1 billion – Relates to revaluation losses on military equipment driven by foreign exchange rate movements since the Budget Update. Top- down adjustment +$0.5 billion - The forecast included an adjustment of $0.5 billion to account for timing delays in departmental operating spending. |
| Total core Crown | +$1.4 billion | |
|
Net SOE/CE returns
|
+$0.7 billion
|
ACC +$0.7 billion – ACC unfunded liability movement was lower than expected primarily due to an increase in valuation discount rates since the time of the Budget Update. Land Transport NZ +$0.2 billion – Relates to timing delays in roading providers making funding claims. This is partly due to delays in obtaining resource consents for certain projects. Air New Zealand -$0.2 billion – Primarily due to devaluation of aircraft assets due to changes in foreign exchange rates since the time of the Budget Update. |
| Total variance | +$2.1 billion | |
| Total Crown operating balance(2007 Actual) | $8.7 billion |
OBERAC
The operating balance of $8.7 billion includes the impact of revaluation and accounting changes. Removing these items gives us an OBERAC of $7.9 billion. The following table outlines the adjustments made to the operating balance to arrive at the OBERAC.
| Actual | Estimated actual |
Variance against estimated actual |
|
|---|---|---|---|
| $million | $million | $million | |
| Operating balance | 8,663 | 6,568 | 2,095 |
| Add back accounting changes and valuation items | |||
| Net GSF valuation movement | (1,129) | 108 | (1,237) |
| ACC valuation movement | 301 | 1,023 | (722) |
| NPF guarantee | (49) | - | (49) |
| Kyoto liability movement | 48 | - | 48 |
| Loss on asset revaluations | 284 | - | 284 |
| Other equity investment gains and currency exposure | (198) | (319) | 121 |
| OBERAC | 7,920 | 7,380 | 540 |
Residual cash
The operating balance represents the difference between total operating revenue and total operating expenses. Not all of the operating balance reported by the Government is available to assist in the Government’s capital expenditure programme. This is because:
- Some parts of the Government’s operations are restricted and are not available for redistribution. For example, the activity of the NZS Fund is retained by the Fund to help build assets to meet future NZS payments and SOE retain their surpluses for the purpose of achieving their long-term objectives.
- Some transactions do not materialise into cash. For example, depreciation and revaluations movements do not have any cash impact.
Net core Crown cashflows from operations represents the amount available for meeting contributions into the NZS Fund and for funding other capital initiatives.
Residual cash is the balance after taking into account capital payments and therefore it is the flow that contributes to the change in net core Crown debt.
The following table key residual cash variances are as follows.
| Variance | Key drivers | |
|---|---|---|
| Residual cash estimated actual | $1.7 billion | |
| Taxation receipts | +$0.5 billion | Similar to the revenue variance this has been driven by higher than forecast GST of $0.3 billion and Corporate Tax of 0.2 billion. |
| Other operating receipts | -$0.4 billion |
Health -$0.2 billion – Relates to timing delays in revenue receipts from Crown entities. The cash was subsequently received in July. The rest of the variance was due to lower than forecast investment income namely by Treasury and NZDMO. |
| Operating payments | -$1.0 billion |
There are two main factors driving this variance:
|
| Operating top-down adjustment | +$0.5 billion | The forecast included an adjustment of $0.5 billion to account for timing delays in departmental operating spending. |
| Operating cash flow | +$0.6 billion | |
| Capital payments | -$0.5 billion |
Defence -$0.1 billion – Underspend relates to payments being withheld when milestones are not reached by suppliers. Education -$0.1 billion – Primarily relate to delays in school property work programmes. Corrections -$0.1 billion – Primarily relate to timing delays of building infrastructure at Rimutaka Prison. Health -$0.1 billion – Delays in capital projects including Wellington Regional Hospital. Additionally deficit support to DHB’s was lower than expected. |
| Capital top-down adjustment | +$0.2 billion | The forecast included an adjustment of $0.2 billion to account for timing delays in departmental capital spending. |
| Investing cash flow | +$0.3 billion | |
| Total variance | +$0.9 billion | |
| Residual cash | $2.6 billion |
Application of core Crown Cash Flows
- Application of core Crown Cash Flows
