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Financial Statements of the Government of New Zealand for the Year Ended 30 June 2016

Year End Results Compared to Budget 2016

The Budget Economic and Fiscal Update 2016 (Budget 2016) was published on 26 May 2016 and is the most recent set of forecasts. Estimated Actuals refers to the latest forecasts published shortly before year end, for any given year.

Table 15 - Comparison to Budget 2016
Year ended 30 June  Actual 2016 Budget 2016
30 June 2016
Variance to
Budget 2016
$m
Variance to
Budget 2016
%
$ million  
Core Crown tax revenue 70,445 69,682 763 1.1
Core Crown expenses 73,929 74,382 453 0.6
OBEGAL (excluding minority interests) 1,831 668 1,163 174.1
Operating balance (excluding minority interests) (5,369) (2,565) (2,804) (109.3)
Residual cash (1,322) (2,115) 793 37.5
Gross debt 86,928 86,783 (145) (0.2)
          as a percentage of GDP 34.5% 34.7%
Net debt 61,880 62,272 392 0.6
          as a percentage of GDP 24.6% 24.9%
Net worth attributable to the Crown 89,366 83,547 5,819 7.0
          as a percentage of GDP 35.5% 33.4%

The 2016 results were mostly favourable compared to Budget 2016, with the notable exception of operating balance.

Table 16 - Core Crown tax revenue compared to Budget 2016
Year ended 30 June ($ billion)
Budget 2016 core Crown tax revenue 69.7
Source deductions 0.4
Customs and excise duties 0.2
Corporate tax 0.1
GST 0.1
Interest RWT (0.1)
Actual 2016 core Crown tax revenue 70.4

Source: The Treasury

Core Crown Tax Revenue

Tax revenue was stronger than expected, as the economy grew in nominal terms by 0.7% more than forecast. In addition, net migration and labour force participation were slightly higher than expected.

Core Crown tax revenue was $0.8 billion (1.1%) higher than expected, with the largest differences being:

  • Source deductions: $0.4 billion (1.7%) higher than forecast due mainly to higher than expected growth in total employment, and salaries and wages.
  • Customs and excise duties: $0.2 billion (3.5%) higher than forecast due mainly to a temporary change in the monthly pattern of tobacco duty revenue, which has brought forward an estimated $0.1 billion of revenue from 2016/17 to 2015/16, and higher than forecast fuel duty, mainly from higher than expected petrol consumption.
  • Corporate tax: $0.1 billion (1.0%) higher than forecast mainly owing to above forecast terminal tax revenue. This was partly offset by lower than forecast tax from Portfolio Investment Entities.
  • Goods and services tax: $0.1 billion (0.4% higher than forecast, related to broad-based and above-forecast growth in private consumption, in-bound tourist spending and residential investment.
  • Resident withholding tax was $0.1 billion (3.7%) lower than forecast, mainly owing to lower than forecast interest rates.

Overall the tax variance to forecast is not significantly larger than recent forecasts (Figure 19).

Figure 19 - Core Crown tax revenue variance to Estimated Actuals
Figure 19 - Core Crown tax revenue variance to Estimated Actuals.
Source: The Treasury

Core Crown Expenses

Core Crown expenses were $0.5 billion (0.6%) lower than expected. As with core Crown tax revenue, the forecast variance is reasonable, at a similar level to the previous year (Figure 20).

Figure 20 - Core Crown expenses variance to Estimated Actuals
Figure 20 - Core Crown expenses variance to Estimated Actuals   .
Source: The Treasury

The lower than forecast result was largely due to lower than forecast impairment of tax receivables by Inland Revenue of $328 million partly offset by higher than forecast impairment on student loans of $91 million as well as lower than forecast Ministry of Social Development expenses of $174 million mainly due to a reversal of impairment of social benefit receivables.

OBEGAL

The OBEGAL surplus was $1.2 billion higher than expected. Both core Crown tax revenue and core Crown expenses were close to forecast but, when combined, had a significant impact on the OBEGAL result (increasing OBEGAL by $1.3 billion).

Operating Balance

The total Crown operating balance was $2.8 billion lower than expected. More than offsetting the favourable OBEGAL result ($1.2 billion), ACC and GSF incurred higher than forecast actuarial losses due to lower discount rates ($2.0 billion and $1.1 billion respectively) while losses on the Emissions Trading Scheme were $0.9 billion higher than forecast due to an increased carbon price.

Residual Cash

The residual cash deficit was $0.8 billion lower due in part to higher than forecast tax receipts ($0.7 billion). Operating payments were $0.4 billion lower than forecast, this was partly offset by higher than forecast capital payments ($0.3 billion).

Net Debt

Net debt at $61.9 billion (24.6% of GDP) was $0.4 billion below forecast mainly due to the more favourable residual cash mentioned above.

Gross Debt

Gross debt at $86.9 billion (34.5% of GDP) was close to forecast.

Net Worth Attributable to the Crown

The net worth attributable to the Crown was $5.8 billion stronger than expected mainly due to revaluation uplifts of the Crown's property, plant and equipment (that were not forecast) more than offsetting the operating

Core Crown Expenses Compared to Budget 2015

Government budget spending decisions tend to occur some 15 months prior to the actual results being known. For example, spending decisions for the current financial year were part of the Budget 2015 process in early 2015.

Figure 21 - Core Crown expenses compared to Original Budget
Figure 21 - Core Crown expenses compared to Original Budget.
Source: The Treasury

It is therefore useful to compare the actual results back to the point at which the decisions were made (often referred to as the Original Budget). In the past a large portion of the variances have represented significant one-off events (such as the Canterbury earthquakes and the impact of the deposit guarantee scheme). Furthermore, debt impairments have tended to be volatile and difficult to predict.

In addition, departments tend to base their expense forecasts on the level of appropriated expenditure (ie, the amount of authorised spending) even though historically, most departments tend to spend below their upper limits.

In the current year the variance to original budget was $602 million. A large portion of this variance related to debt impairments, which were $530 million less than the original budget.

At each Budget a high level adjustment (referred to as the “top down” adjustment) is made to reflect the fact that actual expenditure trends below individual agency budgets. This top down adjustment has increased over the past few years to counter this over forecasting.

When debt impairments and costs associated with one-off large events such as the Canterbury rebuild are excluded, the resulting “adjusted variance” provides a useful tool for assessing forecasting performance over time (Figure 22).

Figure 22 - Core Crown expenses total variance versus underlying variance
Figure 22 - Core Crown expenses total variance versus underlying variance   .
Source:  The Treasury
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