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Commentary (continued)

Fiscal Strategy

The Government's fiscal strategy (outlined in more detail in the 2008 Fiscal Strategy Report) is to strengthen its fiscal position so that it is well placed to respond to future challenges such as those associated with population ageing. The strategy is summarised in Figure 1.

The Government is implementing this strategy primarily by building up financial assets in the New Zealand Superannuation Fund (NZS Fund) and maintaining gross sovereign-issued debt at around 20% of GDP. In order to keep debt at around 20% of GDP, the Government has said it intends to run its cash flow position so that borrowing tracks in line with GDP over time. In practice, this means running operating surpluses, on average, that are sufficient to cover the contributions to the NZS Fund and some capital spending needs.

The Financial Statements of the Government provide a record of the Government's financial performance over financial year ended 30 June 2008 and its financial position as at 30 June 2008. They provide a comparison with the fiscal forecasts in the 2008 Budget Economic and Fiscal Update. They also provide the public with a snapshot of the progress the Government has made in implementing its fiscal strategy as set out in the Fiscal Strategy Report.

Figure 1 - Fiscal strategy at a glance
Figure 1 - Fiscal strategy at a glance.

Fiscal Indicators for the Year Ended to 30 June 2008

Table 1 - Fiscal indicators
Year ended 30 June
$ million  		2003
Actual 		2004
Actual 		2005
Actual 		2006
Actual 		2007
Actual 		Original
Budget 		Est
Actuals 		2008
Actual

Revenue and expenses

Core Crown revenue excl NZS Fund 43,371 46,165 51,088 55,844 58,482 59,304 61,814 61,671
Core Crown expenses 39,897 41,882 44,895 49,320 54,004 56,096 57,364 56,997

Surpluses

Total Crown OBEGAL 4,366 5,573 7,075 7,091 5,860 4,958 5,227 5,637
Total Crown OBEGAL
excl NZS Fund retained revenue		 4,297 5,526 7,140 7,252 6,250 4,860 5,219 5,586
Total Crown operating balance 1,621 7,309 5,931 9,542 8,022 6,431 2,559 2,384

Cash position

Core Crown residual cash 1,217 520 3,104 2,985 2,793 (976) 908 2,057

Debt

GSID (excl settlement cash) 36,617 36,017 35,478 33,903 30,647 34,477 31,763 31,390
Net core Crown debt
incl NZS Fund financial assets		 16,093 11,613 4,538 (1,817) (7,467) (10,784) (11,254) (12,953)
Net core Crown debt 17,977 15,569 11,093 8,044 4,109 4,655 1,846 (19)

NZS Fund

NZS Fund net worth 1,884 3,956 6,555 9,855 12,973 15,977 14,461 14,212
Nominal GDP1 132,738 143,170 151,993 158,321 168,672 173,187 180,137 180,077

% of GDP

Revenue and expenses

Core Crown revenue excl NZS Fund 32.7 32.2 33.6 35.3 34.7 34.2 34.3 34.2
Core Crown expenses 30.1 29.3 29.5 31.2 32.0 32.4 31.8 31.7

Surpluses

Total Crown OBEGAL 3.3 3.9 4.7 4.5 3.5 2.9 2.9 3.1
Total Crown OBEGAL
excl NZS Fund retained revenue		 3.2 3.9 4.7 4.6 3.7 2.8 2.9 3.1
Total Crown operating balance 1.2 5.1 3.9 6.0 4.8 3.7 1.4 1.3

Cash position

Core Crown residual cash 0.9 0.4 2.0 1.9 1.7 (0.6) 0.5 1.1

Debt

GSID (excl settlement cash) 27.6 25.2 23.3 21.4 18.2 19.9 17.6 17.4
Net core Crown debt
incl NZS Fund financial assets		 12.1 8.1 3.0 (1.1) (4.4) (6.2) (6.2) (7.2)
Net core Crown debt 13.5 10.9 7.3 5.1 2.4 2.7 1.0 (0.0)

NZS Fund

NZS Fund net worth 1.4 2.8 4.3 6.2 7.7 9.2 8.0 7.9
  1. GDP for the year ended 30 June 2008 is the forecast GDP published in the 2008 Pre-election Economic and Fiscal Update (Source: Treasury).

Fiscal Strategy Perspective on the Financial Results to June

The following table shows how the fiscal strategy is represented in the financial results.

Table 2 - Fiscal Strategy Perspective
Fiscal Strategy Fiscal Indicators/Financial Statements Actual
30 June 2007
$million 		Forecast
Original Budget
$million 		Forecast
Estimated Actuals
$million 		Actual
30 June 2008
$million
Taxes … Taxation as % of GDP 31.7% 31.6% 31.5% 31.5%
  Core Crown taxation 53,477 54,707 56,673 56,747
… combined with other revenue … Other Core Crown operating items 7,037 5,852 4,420 4,141
… fund core crown expenses … Core Crown expenses (54,004) (56,096) (57,364) (56,997)
… and with the results of entities outside the budget process … Net surpluses/(deficits) of SOEs and Crown entities 1,512 1,968 (1,170) (1,507)
… results in a surplus or deficit… Operating balance 8,022 6,431 2,559 2,384
…part of which is gains or losses set aside for fiscal strategy purposes… Other (gains)/losses (2,162) (1,473) 2,668 3,253
… and so we have developed an operating indicator excluding these items. OBEGAL 5,860 4,958 5,227 5,637
Some of this is income retained that is not available for fiscal purposes Net return on NZS Fund (excl. revaluations) 390 (98) (8) (51)
Some of this is income retained that is not available for fiscal purposes Net retained surpluses of SOEs and CEs (1,652) (1,652) (655) (814)
and some is income and expenses not impacting cash Non-cash items and working capital movements 3,988 1,830 2,454 2,520
The Operating cash flow that results, needs to provide sufficient funds for Core Crown Cash flow from Operations 8,586 5,038 7,018 7,292
- building up assets in NZ Superannuation Contribution to NZS Fund (2,048) (2,103) (2,103) (2,104)
- meeting the capital expenditure budget, and Purchase of physical assets (1,755) (1,803) (1,544) (1,433)
- making advances (e.g. to students and DHBs) Advances and capital injections (1,990) (2,108) (2,463) (1,698)
with a residual impact on debt consistent with fiscal strategy Residual Cash 2,793 (976) 908 2,057
  … and as a percentage of GDP 1.7% -0.6% 0.5% 1.1%
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