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Expenses

Table 6 - Breakdown of expenses
Year ended 30 June Forecast
30 June 2017
$ million Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Budget
2016
Budget
2017
Social security and welfare 22,459 23,026 23,523 24,081 25,294 25,224 25,412
Health 14,498 14,898 15,058 15,626 16,223 16,214 16,202
Education 12,504 12,300 12,879 13,158 13,281 13,478 13,441
Core government services 4,294 4,502 4,134 4,102 3,957 4,943 4,135
Law and order 3,394 3,463 3,515 3,648 3,882 3,811 3,985
Other core Crown expenses 12,813 12,985 13,254 13,314 13,702 13,718 14,289
Core Crown expenses 69,962 71,174 72,363 73,929 76,339 77,388 77,464
Crown entities, SOEs and eliminations 20,701 20,668 21,408 21,951 23,473 22,331 23,380
Total Crown expenses 90,663 91,842 93,771 95,880 99,812 99,719 100,844
% of GDP              
Social security and welfare 10.3% 9.7% 9.7% 9.5% 9.4% 9.7% 9.5%
Health 6.6% 6.3% 6.2% 6.2% 6.1% 6.3% 6.0%
Education 5.7% 5.2% 5.3% 5.2% 5.0% 5.2% 5.0%
Core government services 2.0% 1.9% 1.7% 1.6% 1.5% 1.9% 1.5%
Law and order 1.6% 1.5% 1.4% 1.4% 1.4% 1.5% 1.5%
Other core Crown expenses 5.9% 5.5% 5.5% 5.3% 5.1% 5.3% 5.3%
Core Crown expenses 32.0% 30.1% 29.8% 29.2% 28.5% 29.9% 28.8%
Crown entities, SOEs and eliminations 9.5% 8.8% 8.8% 8.7% 8.8% 8.6% 8.7%
Total Crown expenses 41.5% 38.9% 38.6% 37.9% 37.2% 38.5% 37.5%

Total Crown expenses were $99.8 billion in the current year, $3.9 billion more than last year.

Core Crown Expenses

While nominal expenditure increased by $2.4 billion, core Crown expenses fell as a share of the economy to 28.5% of GDP (figure 9) continuing the trend since 2011.

Figure 9 - Core Crown expenses
Figure 9 - Core Crown expenses.
Source: The Treasury

This nominal growth is largely the result of Budget 2016 decisions which came into effect in 2016/17 as well as increased social assistance. Table 7 shows the largest contributors and offsets to the increase in core Crown expenses over the year:

  • Social assistance expenses were greater than last year by $1.0 billion. This was mainly due to an increase in New Zealand Superannuation benefits of $0.8 billion. The majority of this relates to growth in the number of NZS recipients. Recipient numbers increased from around 691,000 in 2015/16, to 717,900. The remaining increase is largely owing to increases in the payment rates for NZS (wage/indexation adjustments).
  • Environmental protection expenses increased $0.3 billion on last year, largely reflecting growth in the ETS expenses ($0.1 billion) primarily due to an increase in the number of carbon credits issued (refer to page 14 for more detail). As well as an increase in mine rehabilitation costs totalling $0.1 billion.
Table 7 - Movement in core Crown expenses
Year ended 30 June ($ billion)  
2016 core Crown expenses 73.9
Budget 2016 initiatives 1.9
Social assistance expenses 1.0
Environmental protection expenses 0.3
Treaty settlements (0.3)
Other movements (0.5)
2017 core Crown expenses 76.3

Source:  The Treasury

Offsetting these increases:

  • Treaty settlements were $0.3 billion lower than 2015/16. Due to the ongoing nature of Treaty settlements, some negotiations forecast as reaching key milestones during the year had not occurred.
  • Other expenses includes costs associated with Inland Revenue's business transformation which have been transferred to 2017/18 to align with updated delivery schedules ($0.1 billion).
Figure 10 - Composition of core Crown expenses
Figure 10 - Composition of core Crown expenses.
Source: The Treasury

The distribution of core Crown expenditure was relatively stable when compared against the prior year, with over half of expenditure allocated to social security and welfare and health expenses (rising from 53.7% to 54.4%). Although education expenses have decreased as a percentage of total core Crown expenses from 17.8% in 2015/16 to 17.4% in the current year.

Other core Crown expenses are made up of a number of other areas of spending (eg, defence, environmental protection and finance costs) and remained consistent with spending in the prior year.

Other Expenses

The SOE and CE sectors (including inter-segment eliminations) also recorded expenses that were $1.5 billion (6.9%) higher than 2015/16. This result was mainly attributable to an increase in SOE expenses, and an increase in insurance expenses for ACC and Southern Response.

The Kaikōura earthquakes on 14 November and subsequent aftershocks were destructive, and have resulted in additional costs to the Government. In addition to the cost of claims to EQC, there was extensive damage to the road and rail network in the North-East of the South Island, impacting on the transport of people and freight along the southern corridor. EQC have estimated the cost of claims to be $0.6 billion while KiwiRail and NZTA have collectively recognised $0.2 billion in relation to infrastructure repair ($70 million of which is capital expenditure). Additional expenses are expected to be incurred in the 2017/18 financial year.

New Zealand Emissions Trading Scheme (NZ ETS)

The New Zealand Emissions Trading Scheme (NZ ETS) was established to encourage reductions 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 surrendered 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 (gain when carbon prices decreases, loss when carbon prices increases).

The number of units outstanding at 30 June 2017 was 118.0 million (30 June 2016: 126.8 million). Over the year the carbon price decreased by $0.55 from NZD$17.75 at 30 June 2016 to NZD$17.20 at 30 June 2017, resulting in a $73 million gain.

Table 8 - Movement in NZ ETS provision
Year ended 30 June Actual
units
million
Price
per unit
NZD
Actual
$million
Opening provision at 30 June 2015 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
Opening provision at 30 June 2016 126.8 17.75 2,250
New provision recognised 17.2   295
Provision used during the period (26.0)   (444)
Movement in carbon price     (73)
Closing provision at 30 June 2017 118.0 17.20 2,028
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