Ministerial Statement
The annual financial statements are a reminder that, while there are some promising signs that the recession is easing, there remain some significant challenges.
The international financial crisis has had a number of implications for the Crown's fiscal position.
Tax revenue has fallen by $2 billion since last year as profits have declined and tax cuts have taken effect. At the same time, core government expenses have increased sharply, by $7 billion in the past year. This is in part due to the greater costs of providing welfare benefits and health and education services. It also reflects a recognition that future repayments of taxes and student loans will be later and, in some cases, less than originally estimated.
The value of our large investment portfolios held in the New Zealand Superannuation Fund and the Accident Compensation Corporation has declined while our borrowings and long term liabilities have increased.
The deposit guarantee schemes, a direct result of the emerging international financial crisis, were introduced to retain confidence in New Zealand's financial sector. While these schemes have been successful in meeting that objective, they have come with some cost. To date the expected losses from entities in default have been covered by the revenue generated by the schemes. However, risk assessments carried out at 30 June estimated the likelihood of further default actions at just over $800 million, which has been provided for in these accounts. To reduce the transitional difficulties and the risk of further cost the Government has extended the retail deposit scheme to 31 December 2011.
The operating deficit, at $10.5 billion, is a large turnaround from last year's $2.4 billion surplus. Our starting position for the 2010 financial year has net debt at 9.5% of GDP, two-thirds higher than it was a year ago.
By taking the shock on its balance sheet, the Government has helped to cushion New Zealanders from the worst of the recession. As outlined in Budget 2009, we have also put in place measures to get the deficit under control over time and keep government debt from growing to unmanageable levels. This is an appropriate balance to strike.
Hon Bill English
Minister of Finance
30 September 2009
