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Core Crown tax revenue increased...

Core Crown tax revenue of $75.6 billion was up from last year by $5.2 billion (7.4%) with all tax revenue types increasing. Source deduction revenue, corporate tax revenue and goods and services tax were particularly strong making up 84.2% of the year on year change.

Figure 1 - Core Crown revenue and core Crown expenses
Figure 1 - Core Crown revenue and core Crown expenses.
Source: The Treasury

... reflecting growth in the economy...

As a share of the economy, core Crown tax revenue was 28.2% of GDP, up 0.4% from last year. Nominal GDP grew by 5.9% in the year to June 2017 to $268.1 billion, mainly as a result of 5.7% growth in private consumption and a 12.7% increase in residential investment.

The total population grew by just over 2%, while total wage and salary income grew by more than 5% during the year, with the number of people in employment up by just over 3%, and an increase in average hourly earnings of 1.6%.

Figure 2 - OBEGAL
Figure 2 - OBEGAL.
Source: The Treasury

... being higher than growth in core Crown expenses resulting in an OBEGAL surplus...

As a share of the economy, core Crown expenses decreased to 28.5% of GDP (29.2% of GDP in 2016); in nominal terms however, core Crown expenses increased $2.4 billion to $76.3 billion.

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

The largest drivers of growth in nominal core Crown expenditure were Budget 2016 decisions (which came into effect in 2016/17), and an increase in social assistance expenses. However delays around the business transformation project for Inland Revenue, and negotiations of Treaty settlements, has pushed some expenditure out into future years.

Overall the OBEGAL surplus of $4.1 billion, increased by $2.2 billion from last year.

… gains in financial markets and liability valuations, resulted in a strong bottom line... 

The Crown's operating balance is particularly sensitive to changes in some key assumptions used to value financial assets and liabilities.

Actuarial gains in relation to updated long-term liability valuations for ACC and GSF liabilities resulted in a combined actuarial gain of $1.4 billion (compared to an actuarial loss of $7.1 billion last year) (page 53). In addition to these valuation gains, NZS Fund recorded an investment gain of $5.5 billion in the current year (compared to a loss of $76 million last year).

When these results are combined with the OBEGAL surplus, the operating balance (after gains and losses) was an operating surplus of $12.3 billion ($17.7 billion higher than the 2016 operating deficit of $5.4 billion).

... contributing to growth on the balance sheet…

Alongside the operating surplus of $12.3 billion, revaluation uplifts of the Crown's property, plant and equipment assets, an increase of $8.5 billion, resulted in net worth attributable to the Crown increasing by $21.2 billion to reach $110.5 billion.

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

Total assets increased by $20.9 billion to $313.6 billion, while liabilities remained fairly static, at $197.1 billion.

Increases in property, plant and equipment and financial assets such as NZS Fund investments contributed to the growth in assets while the actuarial valuation decreases to liabilities discussed above (ACC, and GSF) offset growth in borrowings.

... and resulting in a cash surplus, reducing net debt.

Overall a residual cash surplus of $2.6 billion was achieved, an increase of $3.9 billion from last year's residual cash deficit of $1.3 billion.

Figure 5 - Core Crown residual cash
Figure 5 - Core Crown residual cash.
Source: The Treasury

The operating cash flow strengthened on last year, increasing by $3.0 billion, to $6.3 billion. This is in line with the OBEGAL result, reflecting increased core Crown tax receipts more than offsetting the growth in core Crown operating payments. Capital spending of $3.7 billion was lower than last year by $0.9 billion, due to delays in projects.

The capital spend consisted of net purchases of physical assets ($2.2 billion) and new capital investment in Crown entities ($1.7 billion), offset by net repayment, of advances ($0.1 billion).

Core Crown net debt decreased nominally by $2.4 billion from last year to be $59.5 billion, largely a result of the residual cash surplus. As a percentage of GDP, net debt has continued to fall, from 24.4% to 22.2%.

Figure 6 - Net core Crown debt1
Figure 6 - Net core Crown debt.
Source: The Treasury
  1. Net core Crown debt excluding the NZS Fund and advances.
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