Expenses
| Year ended 30 June |
Actual 2004 |
Actual 2005 |
Actual 2006 |
Actual 2007 |
Actual 2008 |
Forecast Original Budget |
Forecast Est Actuals |
Actual 2009 |
|---|---|---|---|---|---|---|---|---|
$ million |
||||||||
| Social security and welfare | 14,252 | 14,682 | 15,598 | 16,768 | 17,877 | 18,898 | 19,475 | 19,382 |
| Health | 8,111 | 8,813 | 9,547 | 10,355 | 11,297 | 12,586 | 12,395 | 12,368 |
| Education | 7,585 | 7,930 | 9,914 | 9,269 | 9,551 | 10,524 | 10,964 | 11,455 |
| Core government services | 2,091 | 2,567 | 2,507 | 4,817 | 3,371 | 3,448 | 3,853 | 5,293 |
| Other core Crown expenses | 9,843 | 10,903 | 11,754 | 12,795 | 14,901 | 16,427 | 15,676 | 15,504 |
| Core Crown expenses | 41,882 | 44,895 | 49,320 | 54,004 | 56,997 | 61,883 | 62,363 | 64,002 |
| Crown entities, SOE and eliminations | 11,816 | 13,397 | 15,015 | 14,725 | 18,845 | 16,918 | 19,512 | 19,819 |
| Total Crown expenses | 53,698 | 58,292 | 64,334 | 68,729 | 75,842 | 78,801 | 81,875 | 83,821 |
% of GDP |
||||||||
| Social security and welfare | 10.0% | 9.7% | 9.8% | 9.9% | 10.0% | 10.2% | 10.9% | 10.8% |
| Health | 5.7% | 5.8% | 6.0% | 6.1% | 6.3% | 6.8% | 6.9% | 6.9% |
| Education | 5.3% | 5.2% | 6.2% | 5.5% | 5.3% | 5.7% | 6.1% | 6.4% |
| Core government services | 1.5% | 1.7% | 1.6% | 2.8% | 1.9% | 1.9% | 2.2% | 2.9% |
| Other core Crown expenses | 6.9% | 7.2% | 7.4% | 7.6% | 8.3% | 8.9% | 8.8% | 8.6% |
| Core Crown expenses | 29.3% | 29.5% | 31.1% | 31.9% | 31.8% | 33.4% | 34.9% | 35.5% |
| Crown entities, SOE and eliminations | 8.3% | 8.8% | 9.5% | 8.7% | 10.5% | 9.1% | 10.9% | 11.0% |
| Total Crown expenses | 37.5% | 38.3% | 40.6% | 40.6% | 42.3% | 42.5% | 45.9% | 46.5% |
- Figure 4 - Core Crown expenses
- Source: The Treasury
Total Crown expenses rose by $8.0 billion from the previous year. A significant component of this increase related to Core Crown expenses which increased $7.0 billion from $57.0 billion in 2008 to $64.0 billion, a 12.3% increase.
Core Crown Expenses
The major increases in core Crown expenses are explained below:
- Social security and welfare increased by $1.5 billion, with the annual inflation-indexation of welfare benefit payments being a major contributor to this rise. Growth in the numbers of beneficiaries, especially in the areas of unemployment benefits and New Zealand superannuation, also added to costs. Two other contributing factors were increases in Family Tax Credit rates and the impact of tax changes on New Zealand superannuation rates.
- Health increased by $1.1 billion with expense initiatives introduced in the 2008 Budget of $0.8 billion ($0.5 billion of which represents increased support for District Health Boards) and increased funding of the ACC non-earners account ($0.3 billion).
- Education increased by $1.9 billion with student loan impairment increasing $1.0 billion (refer below), and early childhood, primary and tertiary education services (each increasing $0.2 billion from the previous year).
- Core government services increased by $1.9 billion due to the deposit guarantee scheme provisioning (refer below) and tax receivables impairment (refer below)
- Other core Crown expenses increased by $0.6 billion and included a write-down of Kiwirail ($0.3 billion).
- Figure 5 - Core Crown expenses by sector
- Source: The Treasury
Compared to the 2009 Budget, core Crown expenses were $1.6 billion higher than forecast. The main contributors were the deposit guarantee scheme ($0.8 billion) and student loan and tax receivables impairments ($1.3 billion), offset by goodwill impairment which was forecast in the 2009 Budget but did not eventuate ($0.3 billion).
Deposit Guarantee Scheme
During the financial year the Government initiated the retail deposit scheme and the wholesale funding guarantee funding facility. The retail scheme is the most extensive, with 73 institutions and $124.2 billion of deposits guaranteed.
- Figure 6 - Core Crown expense increase (2008 to 2009)
- Source: The Treasury
The Crown regularly assesses the risk that any of these entities will default and the likely loss to the Crown. At 30 June 2009 the estimated cost to the Crown of these guarantees was $0.8 billion (including two entities already in default) and this has been included as an expense in the statement of financial performance.
In late August 2009 the Minister of Finance announced an extension to the retail deposit scheme. This decision has the potential to reduce future costs.
While this fiscal risk was highlighted in the 2009 Budget the expense was not included in the forecast as the likelihood of default was not considered probable at that time.
Asset Impairment
At the end of each financial year the assets of the Crown are tested to ensure the amount expected to be recovered (by future cash inflows) from the asset (referred to as the “recoverable amount”) is higher than the amount recorded in the statement of financial position (referred to as the “carrying value”). Where the recoverable amount is less than this carrying value the asset is impaired. Significant impairments have been recorded against both student loans and tax receivables this year ($0.8 billion and $1.7 billion respectively). These impairments are $1.8 billion higher than the previous year and $1.3 billion higher than forecast in the 2009 Budget.
These asset impairments are indications that the future cash inflows are predicted to be less or later than previously estimated. The value of student loans decreased because of a reduction in such things as forecast salary and employment levels as well as an increase in the number of students living overseas (and therefore not required to make repayments).
In the case of tax receivables, increases in the amount of overdue debt and lower than expected repayments have resulted in a write-down at 30 June 2009.
