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Summary

The Crown's OBEGAL surplus continued to grow...

The operating balance before gains and losses (OBEGAL) continued to increase. The improved result was due to further growth in nominal GDP (leading to a higher tax take) combined with lower expenditure growth.

The OBEGAL surplus was $1.8 billion this year (0.7% of GDP), compared to $0.4 billion for the previous year (0.2% of GDP).

Figure 1 - OBEGAL (excluding minority interests)
Figure 1 - OBEGAL (excluding minority interests).
Source:  The Treasury

... as nominal GDP rose...

Nominal GDP grew by 4.2% in the year to June 2016 to $251.8 billion. Total wage and salary income grew strongly during the year, with average wages and employment both up by more than 2% on average over the year, and total hours worked increased by an estimated 3%. The robust GDP growth was reflected in private consumption growth of 3.5%, plus strong contributions to economic growth from residential construction and inbound tourist spending, up by 16% and 17% respectively. The total population grew by 2%, boosted by a net influx of nearly 70,000 migrants in the year to June.

Figure 2 - Core Crown revenue and expenses
Figure 2 - Core Crown revenue and expenses   .
Source:  The Treasury

... leading to an increase in tax revenue...

This nominal GDP growth contributed to core Crown tax revenue being $3.8 billion (5.7%) higher than a year earlier with most major tax types increasing to reach $70.4 billion. As a share of the economy, core Crown tax revenue was 28.0% of GDP (compared to 27.6% last year).

... which continued to outpace growth in core Crown expenses … 

As a share of the nominal economy, core Crown expenses were equal in value to 29.4% of GDP (30.0% of GDP in 2015); in nominal terms however, core Crown expenses increased $1.6 billion (2.2%) to $73.9 billion.

The largest drivers of growth in nominal core Crown expenditure were New Zealand Superannuation benefits (as a result of indexation and an increase in the number of recipients), along with new spending allocated in Budget 2015, primarily in the areas of health and education.

Figure 3 - Operating balance (excluding minority interests)
Figure 3 - Operating balance (excluding minority interests)   .
Source:  The Treasury

… although liability valuations resulted in losses... 

The Crown's operating balance is particularly sensitive to changes in some key assumptions used to value assets and liabilities. For example, a 1% decrease in discount rates can add $9.1 billion to the ACC and Government Superannuation Fund (GSF) liabilities. Note 2 of the financial statements (page 48) discusses the key assumptions and judgements underpinning these financial statements.

Actuarial losses in relation to updated long-term liability valuations for ACC and GSF liabilities resulted in a combined actuarial loss of $7.1 billion (page 59). In addition, a loss of $1.5 billion was recorded on the valuation of outstanding units in the Emissions Trading Scheme (page 14). Offsetting these valuation losses, ACC made gains of $1.4 billion on its investment portfolio.

When these results are combined with the OBEGAL surplus the operating balance (after gains and losses) was a deficit of $5.4 billion ($11.2 billion lower than the 2015 surplus of $5.8 billion).

... that partially offset positive revaluations of Crown assets ...

Although the Government recorded an operating balance deficit of $5.4 billion, the Crown's property, plant and equipment revaluation reserve increased by $8.5 billion (mostly attributable to revaluation uplifts), resulting in net worth attributable to the Crown increasing by $2.9 billion to reach $89.4 billion.

Total assets increased by $12.9 billion to $292.2 billion, while liabilities reached $197.2 billion (up $10.2 billion from last year).

Increases in property, plant and equipment and financial assets such as Kiwibank loans contributed to the growth in assets while the valuation increases to liabilities discussed above (ACC, GSF and Emissions Trading Scheme) contributed to the growth in liabilities.

Figure 4 - Net worth attributable to the Crown
Figure 4 - Net worth attributable to the Crown   .
Source:  The Treasury

...while core Crown cash deficits reduced and net debt flattens

While the operating cash flow continued to improve this year (in line with the OBEGAL result), capital spending of $4.6 billion resulted in a residual cash deficit of $1.3 billion. The capital spend consisted of the net purchase of physical and intangible (eg, software) assets ($2.0 billion), new capital investment in Crown entities ($2.1 billion) and net advances ($0.5 billion).

Core Crown net debt increased by $1.2 billion from last year to reach $61.9 billion, largely a result of the residual cash deficit. However, as a percentage of GDP, net debt has fallen from 25.1% to 24.6%.

Figure 5 - Net debt
Figure 5 - Net debt   .
Source:  The Treasury
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