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Ministerial Statement

The New Zealand economy continues to grow, with real GDP increasing by 3.9 per cent in the year ended 30 June 2014 - the highest growth rate for the last decade. The Government's programme to build a more competitive and productive economy remains on track with the Crown’s finances continuing to strengthen in the year under review.

The Government's operating deficit excluding gains and losses (OBEGAL) reduced for the third consecutive year to $2.9 billion, equal to 1.3 per cent of GDP in the year to 30 June 2014. The Government remains focussed on returning to surplus so we can start repaying debt.

That compares with deficits of $4.4 billion (2.1 per cent of GDP) in the June 2013 year, $9.2 billion (4.4 per cent of GDP) in the June 2012 year and $18.4 billion (9.2 per cent of GDP) in the June 2011 year.

In the year to June 2014, core Crown tax revenue continued to recover, reaching $61.5 billion, as forecast in the Treasury's Pre-election Economic and Fiscal Update and up $2.8 billion from the previous year.

The Government has continued to restrain growth in spending while focussing on getting better results from existing spending, particularly for the most vulnerable New Zealanders. Overall, while core Crown expenses grew by $1.2 billion (1.7 per cent) to $71.5 billion in the year to June 2014, the increase in spending was lower than the pace of growth in the nominal economy, resulting in expenses declining to 31.2 per cent of GDP (33.1 per cent of GDP 30 June 2013).

Returns from the Crown's financial institutions such as the New Zealand Superannuation Fund (NZSF) contributed to net gains of $5.4 billion, leading to an operating surplus of $2.8 billion (1.2 per cent of GDP). While these gains remain healthy (NZSF return was 19.4 per cent for the year ended 30 June 2014) they did not repeat the previous year's strong gains of $11.3 billion.

The size of the Crown's balance sheet grew over the year, with assets reaching $256.1 billion at 30 June, up $11.7 billion. The Crown's investment portfolios and value of property, plant and equipment all increased. The Government will work hard to improve the processes for investment in property, plant and equipment, investing only where it is required and where there are demonstrated benefits. The $1 billion increase in liabilities was more muted, with increases in borrowings and the ACC outstanding claims liability offset by a fall in a number of the Canterbury earthquake liabilities as claims and obligations are settled.

The Government's successful share offer programme was completed during the financial year taking the Future Investment Fund to $4.7 billion, which is earmarked for new capital spending in priority areas including health, education, and the Canterbury rebuild. $2.3 billion of those funds were received in the year under review, while the second instalment of the Meridian Energy share offer ($627.5 million) is due in May 2015.

Those proceeds, along with the stronger operating result, drove a fall in the residual cash deficit from $5.7 billion to $4.1 billion in the June 2014 year. Continuing cash deficits mean the core Crown's net debt continued to widen, reaching $59.9 billion (26.2 per cent of GDP) at 30 June.

The Government's fiscal strategy is to run growing operating surpluses in the years ahead so we can start repaying debt.

Hon Bill English
Minister of Finance

30 September 2014

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