Debt

Net Debt

Net debt increases as a result of cash deficits and declines as a result of cash surpluses. It also fluctuates in line with valuation movements in the underlying financial assets and liabilities of the Crown and movements in the amounts of currency issued to New Zealand banks.

The $9.6 billion increase in net debt over the year (figure 14) was primarily due to the residual cash deficit of $9.0 billion recorded this year (refer table 8).

Figure 14 - Net debt

Source:  The Treasury

Figure 15 - Movements in residual cash ($billion)

Source:  The Treasury

While the residual cash deficit was as forecast, the deficit was $0.4 billion larger than last year, despite the reduction in contributions to the NZS Fund.

Figure 15 summarises the movement in residual cash over the year. Specifically:

• While core Crown tax revenue decreased by $3.9 billion, core Crown tax receipts were only lower by $0.7 billion. The main difference was that most of the cash received in respect of the structured finance tax settlements was received in the current financial year (compared with revenue which was recognised in the previous year).
• The increase in benefit payments was in line with the increase in benefit expenses. A number of the decreases in core Crown expenses did not have an immediate cash impact (eg, asset impairments and the deposit guarantee provision). The cash impact of other core Crown expense movements resulted in a reduction in other operating cash flows.
• Offsetting the increase in the operating cash deficit was the reduction in NZS Fund contributions and last year's acquisition of KiwiRail.

Figure 16 - Reconciliation of the operating deficit and core Crown residual cash for the year ended 30 June 2010 ($billion)

Gross debt has increased by $10.2 billion since last year (figure 17). The majority of this increase came from the issue of $12.4 billion of bonds offset by the repayment of a $4.2 billion bond maturity in July 2009. When combined with the proceeds from non-market domestic bonds, the net issuance of domestic bonds increased gross debt by $8.4 billion (table 9).

Figure 17 - Gross debt

Source:  The Treasury

As a result of the strong demand for bonds in the early part of 2009/10 the New Zealand Debt Management Office (NZDMO) increased the 2009/10 domestic bond programme by $2 billion to $10.5 billion in December 2009. In April 2010 a further $2 billion increase was approved, allowing the issue of bonds up to $12.5 billion. These increases enabled the NZDMO to continue issuance over the fiscal year in line with market demand. The funding generated from the bond issuance contributed to an increase in the Government’s cash position at year end.

Also contributing to the increase in gross debt was an increase of $1.5 billion to the Crown's position with the International Monetary Fund (IMF). This increase was matched by an increase in IMF financial assets resulting in no change to net debt.