Commentary
Introduction
These financial statements contain the audited results for the year ended 30 June 2009 in comparison to two sets of forecasts:
- the Original Budget for the year as published in the 2008 Budget Economic and Fiscal Update, and
- the Estimated Actuals forecast as published in the 2009 Budget Economic and Fiscal Update.
The financial statements of the Government of New Zealand refer to both core Crown and total Crown results. Core Crown includes Ministers, Departments, Offices of Parliament, the NZS Fund and the Reserve Bank of New Zealand but excludes state-owned enterprises (SOEs) and Crown entities (CEs). Total Crown includes the core Crown, SOEs and CEs.
This commentary should be read in conjunction with the financial statements on pages 27 to 166.
At a Glance
|
Year ended 30 June $million |
Actual 2004 |
Actual 2005 |
Actual 2006 |
Actual 2007 |
Actual 2008 |
Forecast Original Budget |
Forecast Est Actuals |
Actual 2009 |
|---|---|---|---|---|---|---|---|---|
| Core Crown tax revenue | 43,358 | 47,468 | 50,973 | 53,477 | 56,747 | 56,523 | 54,053 | 54,681 |
| Core Crown expenses | 41,882 | 44,895 | 49,320 | 54,004 | 56,997 | 61,883 | 62,363 | 64,002 |
| Operating balance before gains and losses | 5,573 | 7,075 | 7,091 | 5,860 | 5,637 | 1,318 | (2,916) | (3,893) |
| Operating balance | 7,309 | 5,931 | 9,542 | 8,022 | 2,384 | 3,105 | (9,303) | (10,505) |
| Gross debt | 36,017 | 35,478 | 33,903 | 30,647 | 31,390 | 32,498 | 44,217 | 43,356 |
| Net debt | 23,858 | 19,879 | 16,163 | 13,380 | 10,258 | 16,375 | 15,482 | 17,119 |
| Total Crown net worth | 39,595 | 54,240 | 83,971 | 96,827 | 105,514 | 102,554 | 95,698 | 99,515 |
Summary
Both the recession and past policy decisions have had a significant effect on the Crown's fiscal position …
The recent recession has resulted in both decreases in revenue and increases in expenses. In comparison to the previous year, the major impacts are as follows:
- declining corporate and individual profits and interest rates have reduced tax revenue
- the introduction of the retail guarantee scheme in relation to financial institution deposits has resulted in an estimated cost to the Crown of $0.8 billion in the current year
- the value of the Crown's tax receivable and student loan assets have declined as future recovery of monies is predicted to be less or later than previously estimated
- significant losses have been sustained in a number of the Crown's investment portfolios. In particular the New Zealand Superannuation Fund (NZS Fund) reported an operating deficit of $2.8 billion for the year, and
- unemployment benefit expenses increased by $0.1 billion from $0.5 billion last year to $0.6 billion this year.
A number of current policies have also had an impact on the result when compared to the previous year:
- personal and corporate tax cuts, along with the introduction of measures to help small and medium-sized enterprises, have reduced tax revenue by approximately $3 billion
- additional spending announced in the 2008 Budget Economic and Fiscal Update (particularly in the areas of health and education) have contributed to an increase in expenses
- the annual inflation-indexation of welfare benefit payments, along with beneficiary growth in areas such as New Zealand superannuation, were contributing factors to an increase in social security and welfare expenses of approximately $1.4 billion (excluding unemployment benefits)
- the purchase of KiwiRail (in July 2008) resulted in a write-down of $0.3 billion, and
- the value of the Accident Compensation Corporation (ACC) claims liability increased by $5.8 billion since last year[1]. A large portion of this increase resulted from the 30 June 2009 actuarial valuation (an actuarial loss of $4.5 billion was recorded). Significant factors in this actuarial loss were increases in predicted medical and rehabilitation costs along with a decrease in the discount rate used to calculate the present value of expected payments.
... however, this has been partially offset by some one-off revenue …
The decline in tax revenue was partially offset by recognition of tax revenue in relation to the tax treatment of certain structured finance transactions. Based on a High Court ruling for one structured finance case, all similar structured finance assessments have been recognised as revenue in the 2009 financial year ($1.4 billion).
… resulting in an operating deficit ...
Reduced revenue, increased expenses, and losses recorded this year have resulted in an operating deficit of $10.5 billion. This compares to a 2009 Budget forecast deficit of $9.3 billion and a surplus of $2.4 billion last year.
… and cash deficits which must be funded by an increase in debt…
The lower revenue and higher expenses have resulted in a residual cash deficit of $8.6 billion. This deficit has been funded by an increase in net debt. As a result net debt rose during the year by $6.9 billion to $17.1 billion (9.5% of GDP).
… and a reduction in the Crown's net worth.
The operating deficit is the main contributor to a decline in net worth from $105.5 billion last year to $99.5 billion as at 30 June 2009.
Notes
- [1]Actuarial valuations on large, long term liabilities such as the ACC claims liability are particularly sensitive to underlying assumptions such as discount rates and inflation rates. A small change in these assumptions could have a significant effect on the value of the liability and the operating balance. A discussion on the sensitivities of these assumptions (and the linkages between these assumptions) is included in the financial statements.
