Summary
The economy continues to recover from recession…
- Figure 1 - Nominal and Real GDP growth
- Source: The Treasury
Despite the Canterbury earthquakes, the economy experienced higher growth in nominal GDP in 2010/11 owing to a recovery in domestic demand as well as higher prices, including for our exports. This translated into higher growth in business profitability and salary and wage earnings.
- Figure 2 - Core Crown tax revenue and core Crown expenses
- Source: The Treasury
...and tax revenue has grown modestly.
Core Crown tax revenue increased by $0.8 billion over the year, reflecting growth in private consumption and company tax but tax policy changes have largely offset the impact of this growth. Table 4 on page 8 summarises the movements for the year.
But expenses have risen sharply...
Of the total Crown expenses of $100.0 billion, $70.4 billion was for core Crown expenses (ie, incurred by Ministers, Departments, Offices of Parliament, the NZS Fund and the Reserve Bank).
Total Crown expenses have increased by $18.9 billion from the previous year of which $13.6 billion was earthquake-related.
Within core Crown expenses, costs have risen by $6.4 billion (figure 2) of which non-earthquake costs increased by $4.5 billion. Health, education and welfare spending have all contributed to this latest financial year’s increase along with the Emissions Trading Scheme and the weathertight homes financial assistance package. Table 6 on page 11 summarises the increases in core Crown expenses.
Earthquake expenses pushed up core Crown expenses by $1.9 billion, including financial support packages for the Red Zone and AMI and social assistance payments. Most earthquake expenses were, however, captured in the Crown Entity segment of these accounts, with EQC's insurance expenses pushed up by a net $7.5 billion (comprising a hike in insurance expenses of $11.7 billion, of which $4.2 billion was offset by reinsurance recoveries).
Although significant earthquake-related expenses have been recognised this year, more earthquake expenses are still to come. The section on Canterbury earthquakes on page 12 provides further details of the impact of the earthquakes on the Financial Statements of Government.
...resulting in a large operating deficit…
- Figure 3 - Components of the operating deficit
- Source: The Treasury
The operating deficit before gains and losses (OBEGAL) increased by $12.1 billion from last year to stand at $18.4 billion in the year ended 30 June 2011 (figure 3).
Recovery in investment markets in the first part of the year however, contributed to the Crown making a net gain in its financial portfolio of $5.0 billion (compared to a $1.8 billion gain in the previous year).
Overall, the operating balance inclusive of gains and losses was in deficit by $13.4 billion.
...leading to increased borrowings…
- Figure 4 - Cash proceeds from issue of market domestic bonds
- Source: The Treasury
Combining the cash impact of the operating results with capital expenditure and advances, the Crown recorded a residual cash deficit for the year of $13.3 billion. This deficit was funded through an increase in borrowings, primarily through the domestic bond programme (figure 4).
...and a reduction in net worth.
Operating deficits have led to a decline in net worth. The Crown's net worth fell $14.1 billion to stand at $80.9 billion at 30 June 2011.
