Operating Balance

This year's operating deficit of $13.4 billion compares with a deficit of $4.5 billion in the previous financial year (figure 10). While an improvement in financial markets in the first part of the year resulted in the Crown recording large net gains for the full year, the increase in earthquake-related expenditure more than offset those gains so that the Crown's deficit has grown. Excluding the impact of the earthquakes ($9.1 billion), the operating balance deficit would have been similar to last year.

Figure 10 - Operating balance

Source: The Treasury

Operating Balance Before Gains and Losses

The operating deficit before gains and losses (OBEGAL) has increased by $12.1 billion to $18.4 billion, primarily as a result of the Canterbury earthquakes.

The OBEGAL deficit is $1.7 billion larger than forecast in Budget 2011. This increased deficit reflects higher than expected total Crown expenses of $3.1 billion offset by $1.4 billion higher revenue. Total Crown expenses exceeded forecast by $3.1 billion primarily due to increases in EQC's insurance costs arising from the Canterbury earthquakes. Small increases in tax revenue and other revenues have contributed to the $1.4 billion higher than forecast revenue. Refer page 8 for further details of revenue movements.

While total Crown expenses have exceeded forecast, core Crown expenses are lower than forecast by $2.3 billion. Refer page 10 for details of core Crown expenses.

Gains and Losses

The Crown recorded net gains of $5.0 billion this year (compared to net gains of $1.8 billion last year).

The total Crown gain of $5.0 billion was $2.3 billion lower than forecast. Subsequent to the finalisation of Budget 2011 forecasts fluctuations in investment markets have seen a decline in investment returns and some previous gains have reversed.

The ACC actuarial gain of $1.0 billion compares with an actuarial gain of $0.4 billion in the previous year. This improvement from the prior year reflects a reduction in the number of claims and the cost of those claims as well as movements in the discount rate.

Each year the Government Superannuation Fund (GSF) estimates the present value of pension commitments that exist in respect of its defined benefit beneficiaries (former public servants). The GSF scheme recorded an actuarial loss of $0.6 billion in 2011 (compared to a loss of $1.2 billion last year and a forecast gain of $0.3 billion). This loss represents an increase in the liability predominantly as a result of changes in actuarial assumptions (meaning that future benefit payments are estimated to be higher than previously assessed).

The NZS Fund, established to part-fund future New Zealand superannuation costs, recorded a gain of $3.5 billion this year contributing to an operating balance of $3.0 billion for the year (refer table 11 below). The investment return for the year was 25.05% (compared to 15.45% last year). This strong return has resulted in an operating balance that was on track with forecast. Since inception the Fund has returned 7.83% (annualised) or 2.23% more than the rolling yield on 90 day Treasury bills.