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Ministerial Statement

The New Zealand economy continues to grow, with real GDP increasing by 3.6 per cent in the year ended 30 June 2016. Despite international turbulence and global uncertainty, New Zealand is in the unusual position of enjoying solid growth, rising employment and real wages at the same time as low inflation.

The Government's programme to build a more productive economy is also delivering dividends in terms of the Crown's finances which have turned around markedly in recent years.

In the wake of the global financial crisis and the Canterbury earthquakes, the total Crown's annual operating balance excluding gains and losses (OBEGAL) was a deficit of $18.4 billion in the year ended 30 June 2011, equivalent to 8.9 per cent of national income.

The Government's strategy has been to restrain growth in spending while focusing on getting better results from existing spending, particularly for the most vulnerable New Zealanders. This strategy has led to an OBEGAL surplus of $1.8 billion being recorded for the year ended 30 June 2016, building on the $414 million surplus achieved last year.

Core Crown tax revenue was $70.4 billion, up 5.7 per cent from the previous year with all major tax types increasing, reflecting the growth in the economy over the year.

Core Crown expenses grew at a somewhat slower pace, up 2.2 per cent to $73.9 billion bringing expenses to 29.4 per cent of GDP, below the Government's long-term fiscal objective of 30 per cent. This is the first time since 2006 that core Crown expenses have been below 30.0 per cent of GDP.

In line with the positive OBEGAL result, the residual cash position improved to a deficit of $1.3 billion, down from $1.8 billion last year. As a result, while net debt rose in dollar terms, it fell as a percentage of GDP to 24.6 per cent, down from 25.1 per cent last year and 25.5 per cent in 2014.

The size of the Crown's balance sheet grew over the year, with assets growing by $13.5 billion to $292.7 billion driven mainly by increases in social sector assets. Total Crown liabilities were $197.2 billion, an increase of $10.2 billion from the previous year. Net worth attributable to the Crown, which is a key measure of balance sheet strength, increased by $2.9 billion to $89.4 billion.

Changes in the Crown's balance sheet can also have a significant impact on operating results. For example, net losses of $5.7 billion in the year to 30 June 2012 were followed by net gains of $11.3 billion the following year. In year ended 30 June 2016 net losses were $7.2 billion which led to an operating deficit (including gains and losses) of $5.4 billion.

On the asset side, volatility of markets following the Brexit referendum and a strengthening New Zealand dollar adversely affected investment returns.

On the liability side, the Government's long term liabilities (ACC claims liability and Government Superannuation Fund retirement plan) are particularly sensitive to changes in the risk-free discount rate used to value long-dated cash flows in present day dollars. Reductions in the discount rate (reflecting persistently low interest rates) led to valuation losses of $7.1 billion.

The Government will continue to focus on responsible fiscal management and repaying debt while investing in public services to get better results for New Zealanders, meet its net capital requirements and improve infrastructure.

 

Hon Bill English
Minister of Finance

30 September 2016

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