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  Operating Balance

Table 7 - Total Crown operating balance (excluding minority interests)
Year ended 30 June
$ million
30 June 2016
Total Crown OBEGAL (9,240) (4,414) (2,802) 414 1,831 176 668
Gains and losses:              
ACC actuarial gain/(loss) (2,942) 2,369 479 (1,352) (5,099) (3,065)
GSF actuarial gain/(loss) (3,896) 1,251 577 (322) (2,028) (898)
ETS/Kyoto net position 350 103 (324) (366) (1,503) (558)
Investment portfolios:              
     NZS Fund (204) 4,374 3,735 3,156 (76) 2,025 (573)
     ACC 944 1,796 730 2,397 1,420 285 1,192
     Earthquake Commission (53) 1
Other gains/(losses)1 144 1,445 544 1,844 86 504 669
Total Crown gains/(losses) (5,657) 11,339 5,741 5,357 (7,200) 2,814 (3,233)
Total Crown operating balance (14,897) 6,925 2,939 5,771 (5,369) 2,990 (2,565)
% of GDP              
Total Crown OBEGAL (4.3)% (2.0)% (1.2)% 0.2% 0.7% 0.1% 0.3%
Total Crown gains/(losses) (2.6)% 5.2% 2.4% 2.2% (2.9)% 1.1% (1.3)%
Total Crown Operating balance (6.9)% 3.2% 1.3% 2.4% (2.1)% 1.2% (1.0)%
  1. Other gains and losses includes the net surplus from associates and joint ventures


The OBEGAL surplus continued to grow, increasing $1.4 billion from the previous year to $1.8 billion.

Figure 9 shows the composition of OBEGAL from the different segments of the Government. For the year ended 30 June 2016, the core Crown continued its upwards trend and was in surplus for the first time since 2008 (compared to a deficit of $0.1 billion last year), with higher tax revenue (5.7%) outpacing higher expenses (2.2%) compared to last year.

Figure 9 - Components of OBEGAL by segment
Figure 9 - Components of OBEGAL by segment.
Source:  The Treasury

The SOE segment remained relatively stable, achieving a surplus of $0.7 billion, compared with a surplus of $0.6 billion last year.

Offsetting these results, the Crown entity segment reported a deficit of $0.3 billion which compares to the previous year's surplus of $0.7 billion. Within this result, EQC's OBEGAL decreased by $0.7 billion mainly due to increased claims following the 14 February 2016 earthquake in Christchurch, in comparison in 2015 there was a large decrease in insurance expense following a re-estimation of the outstanding claims liability that was not repeated this year.

In addition to EQC's result, ACC's surplus reduced by $0.4 billion, mainly due to decreased levy revenue and increased insurance expenses.

Table 8 - NZS Fund results
  Year ended 30 June
($ million)
OBEGAL result 102 516
Gains and losses (76) 3,156
Operating Balance 26 3,672

Source: The Treasury

Operating Balance

Net gains and losses were a loss of $7.2 billion for the year. These losses more than offset the OBEGAL surplus and resulted in the Crown's operating balance was a deficit of $5.4 billion, $11.2 billion lower than last year.

The current year saw significant volatility in financial markets and exchange rates. Gains on financial instruments were $1.1 billion ($5.1 billion less than the previous year). ACC's investment portfolio recorded a gain of $1.4 billion while NZS Fund recorded a small net loss on financial instruments and associates of $0.1 billion. Overall the NZSF Fund recorded an operating balance surplus of $26 million (Table 8). Investment performance was generally lower than the previous year across all markets and the Brexit referendum result on 23 June 2016 resulted in unstable markets right before the end of the year. Additionally, the strengthening New Zealand dollar led to foreign exchange losses on marketable securities and cash held.

While gains on investments were positive, the current year was adversely impacted by actuarial losses of $7.1 billion in relation to long-term liability valuations for ACC insurance claims and Government Superannuation Fund (GSF) pensions. A decrease in discount rates, partially offset by lower inflation rates resulted in actuarial losses of $5.1 billion for ACC and $2.0 billion for GSF. In addition to the actuarial losses, losses in relation to the Emissions Trading Scheme provision were $1.5 billion largely as a result of increased carbon prices from $6.80 to $17.75 over the course of the current year (refer below).

Figure 10 - Operating balance
Figure 10 - Operating balance    .
Source:  The Treasury

The operating balance is particularly sensitive to balance sheet movements. Note 2 (page 48) of the financial statements discusses the key judgements and assumptions underpinning these financial statements.

New Zealand Emissions Trading Scheme (NZ ETS)

The New Zealand Emissions Trading Scheme (NZ ETS) was established to encourage reduction in greenhouse gas emissions. The scheme is used to assist New Zealand in meeting its international commitment to reduce New Zealand's net emissions of greenhouse gases to below business-as-usual levels. Forestry was the first sector to join the NZ ETS, on 1 January 2008.

Under the scheme the Government has created a limited number of tradable NZ units (NZUs) which can be allocated to, or surrendered by, emitters.

NZ ETS expenses arise when the Crown allocates NZUs to emitters for free, while revenue is accrued by the Crown as greenhouse gas emissions occur by emitters. The revenue or expense is recognised using the carbon price at the time the units were allocated or accrued. This revenue and expense is included in OBEGAL.

At any point in time the Government will have either a net provision (NZUs given away is greater than NZUs surrendered) or a net receivable (NZUs surrended is greater than NZUs given away). Revaluation of the stock of units due to carbon price movements is recorded as either a gain or loss (a gain when the carbon price decreases, and a loss when the carbon price increases).

The number of units outstanding at 30 June 2016 was 126.8 million (2015: 125.8 million). Over the year the carbon price increased by $10.95 going from NZD$6.80 at 30 June 2015 to NZD$17.75 at 30 June 2016, accounting for most of the $1.5 billion loss.

Table 9 - Movement in NZ ETS provision
Year ended 30 June Actual
per unit
Opening provision 125.8 6.80 855
New provision recognised 12.2   163
Provision used during the period (11.2)   (271)
Movement in carbon price     1,503
Closing provision 126.8 17.75 2,250
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