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Operating Balance

Table 9 - Total Crown operating balance (excluding minority interests)
Year ended 30 June Forecast
30 June 2017
$ million Actual
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2017
Budget
2016
Budget
2017
Total Crown OBEGAL (4,414) (2,802) 414 1,831 4,069 719 1,621
Gains and losses:              
ACC actuarial gain/(loss) 2,369 479 (1,352) (5,099) 387 1,276
GSF actuarial gain/(loss) 1,251 577 (322) (2,028) 964 1,486
ETS/Kyoto net position 103 (324) (366) (1,503) 73 63
Investment portfolios:              
      ZS Fund 4,374 3,735 3,156 (76) 5,512 1,927 4,081
      ACC 1,796 730 2,397 1,420 901 219 682
      Earthquake Commission 1
Other gains/(losses)1 1,445 544 1,844 86 411 193 229
Total Crown gains/(losses) 11,339 5,741 5,357 (7,200) 8,248 2,339 7,817
Total Crown operating balance 6,925 2,939 5,771 (5,369) 12,317 3,058 9,438
% of GDP              
Total Crown OBEGAL (2.0)% (1.2)% 0.2% 0.7% 1.5% 0.3% 0.6%
Total Crown gains/(losses) 5.2% 2.4% 2.2% (2.8)% 3.1% 0.9% 2.9%
Total Crown Operating balance 3.2% 1.2% 2.4% (2.1)% 4.6% 1.2% 3.5%
  1. Other gains and losses includes the net surplus from associates and joint ventures.

OBEGAL

The OBEGAL surplus of $4.1 billion is an increase of $2.2 billion from last year.

Figure 11 shows the composition of OBEGAL from the different segments of the Government. For the year ended 30 June 2017, the core Crown segment continued its significant upwards trend as a result of the strong tax outturn discussed earlier, outpacing the increase in core Crown expenses.

Figure 11 - Components of OBEGAL by segment
Figure 11 - Components of OBEGAL by segment .
Source: The Treasury

The SOE segment remained relatively stable, decreasing slightly to a surplus of $0.5 billion, compared with a surplus of $0.7 billion last year.

Partially offsetting the core Crown results, the Crown entity segment reported a deficit of $1.1 billion, $0.8 billion higher than the previous year's deficit of $0.3 billion. This increased deficit partly reflects increased EQC insurance expenses from the Kaikōura earthquakes, while costs from the Canterbury earthquakes remaining relatively stable with reductions in EQC expenses being offset by increased costs in Southern Response. In addition, the OBEGAL deficits in ACC have also increased from the previous year, driven by several factors including a higher number of claims across all accounts, lower average discount rates for the year (used to calculate the of claims in today’s dollars), and price increases.

Operating Balance

Net gains totalled $8.2 billion for the year. These gains, in addition to the OBEGAL surplus, resulted in the total Crown's operating balance surplus of $12.3 billion, $17.7 billion higher than last year's deficit of $5.4 billion.

Table 10 - Impact of NZS Fund results on the Financial Statement of the Government
Year ended 30 June ($ million) Actual
2016
Actual
2017
OBEGAL 102 (533)
Gains and losses (76) 5,512
Operating Balance 26 4,979

Source: The Treasury

Gains on financial instruments were $6.3 billion ($5.2 billion more than gain of $1.1 billion last year). The NZS Fund recorded an investment gain of $5.5 billion in the current year (compared to a loss of $76 million in the previous year), reflecting strong investment performance, off the back of rising global equity markets.

Figure 12 - Operating balance (excluding minority interests)
Figure 12 - Operating balance (excluding minority interests) .
Source: The Treasury

In addition to the gains on investments, gains from actuarial valuations on the Crown's significant long-term liabilities such as ACC and Government Superannuation Fund (GSF) were $1.4 billion (compared to actuarial losses of $7.1 billion in the prior year).

The gain included an actuarial gain of $4.5 billion due to the discount rate at 30 June 2017 (used to value all outstanding claims in today's dollars) being higher than the discount rates at 30 June 2016. This gain of $4.5 billion was partially offset by higher inflation rates, and for ACC the impact of the cost of pay equity and the in between travel settlement with care providers (a net actuarial loss of $3.4 billion).

As can be seen from the volatility in figure 12, the operating balance is particularly sensitive to balance sheet movements and actuarial valuations. Note 2 (page 43) of the financial statements discusses the key judgements and assumptions underpinning these financial statements.

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