Operating Balance

OBEGAL

The OBEGAL deficit halved from $18.4 billion in 2011 to $9.2 billion for the year to 30 June 2012 as a result of the favourable changes in both revenue and expenses from last year ($1.9 billion and $7.2 billion respectively) as discussed in the earlier sections.

When the net earthquake costs are excluded, the OBEGAL deficit was $7.3 billion this year compared to $9.3 billion last year.

In comparison with Budget forecasts, the OBEGAL deficit was $0.8 billion larger than expected due to:

• Increases in tax revenue and other revenues which contributed to total revenue being $0.9 billion higher than forecast, and
• total Crown expenses exceeding forecast by $1.7 billion, primarily due to the $1.4 billion impairment expense of rail-related assets.

Operating Balance

Adding the Crown's gains and losses to the OBEGAL deficit, the operating balance deficit was $14.9 billion this year (figure 10).

Figure 10 - Operating balance

Source:  The Treasury

The primary contributor to the increase in the deficit was that the Crown made net losses of $5.7 billion this year compared with net gains of $5.0 billion in 2011 (a $10.7 billion change). The drivers of this change are discussed on the next page.

Gains and Losses

This year the Crown recorded net losses on assets and liabilities of $5.7 billion contrasting the net gains recorded last year of $5.0 billion. The contributors to the difference are highlighted in table 14 and discussed in detail below.

¹ Other gains and losses includes the net surplus from associates and joint ventures and operating balances from minority interests

Actuarial losses: The key driver of the actuarial losses recognised this year was that reductions in interest rates over the year led to the discount rate (applied to actuarially assessed liabilities) falling. The total changes in actuarial assumptions had the impact of increasing the present value of the future cash flows by $6.8 billion, most of which was due to the change in the discount rate. Further information about these liabilities, and the changes this year, is presented on page 26.

Investment portfolios: A recovering global equity market and significant uplifts in the value of key private market investments (Kaingaroa Forest and Z Energy) saw the NZS Fund record $3.5 billion of gains in 2011 (table 15). This year, in volatile markets, the asset values of the Fund made in 2010/11 were sustained but not extended. Overall, the Fund recorded losses of $0.2 billion resulting in the NZS Fund's operating balance being just above break-even for the year. Since inception the Fund has returned 7.05% (annualised) or 1.82% more than the rolling yield on 90 day Treasury bills.