Debt

Figure 11 - Net debt

Source: The Treasury

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 $13.4 billion increase in net debt over the year (figure 11) was primarily due to additional borrowings and a run-down of assets to meet the residual cash deficit of $13.3 billion recorded this year (refer table 13).

The residual cash deficit was $1.6 billion lower than forecast and $4.3 billion larger than last year.

Table 14 summarises the movement in residual cash over the year. Specifically:

• Core Crown tax receipts were $0.8 billion higher than last year consistent with the increase in core Crown tax revenue.
• Benefit payments have increased by $0.6 billion in line with the increase in benefit expenses.
• While core Crown expenses have increased by $6.4 billion, other operating cash payments have only increased by $4.5 billion. This is due to a number of these increases not having an immediate cash impact (eg, earthquake related provisions, the weathertight homes financial assistance package and the increase in the ETS provision).
• Offsetting the increase in the residual cash deficit was the reduction in contributions to the NZS Fund.

Source: The Treasury

Figure 12 - Reconciliation of the operating deficit and core Crown residual cash for the year ended 30 June 2011 ($ billion)

Gross Debt

Figure 13 - Gross debt

Source: The Treasury

Gross debt at 30 June 2011 was $18.8 billion higher than a year earlier (figure 13). The majority of this increase came from the issue of $19.5 billion of domestic market bonds (New Zealand Government bonds). No repayments of market domestic bonds were made during the year. When combined with the proceeds from non-market domestic bonds, the net issuance of domestic bonds increased gross debt by $18.9 billion (table 15).

The New Zealand Debt Management Office (NZDMO) increased the 2010/11 domestic bond programme by $1 billion to $13.5 billion in December 2010. The 2011 Budget approved a further $6 billion increase, allowing the issue of bonds up to $20 billion. These increases enabled the NZDMO to continue issuance over the fiscal year in line with market demand and means borrowing requirements in future years will be less than they would have needed to be in the absence of this additional pre-emptive borrowing. Net debt did not increase by the same amount as gross debt because surplus proceeds from these bond issuances were invested in financial assets.