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The Crown balance sheet

The Treasury produces the FSGNZ ten times a year. As part of these accountability reports, a Statement of Financial Position (balance sheet) is produced in conjunction with other financial reporting, in particular the Statement of Financial Performance (operating statement).

The Crown's balance sheet represents an account of what it owns and owes, and the net worth attributable to taxpayers at a point in time. At 30 June 2013, the Crown's balance sheet consisted of $244.4 billion of assets, $174.4 billion of liabilities and $70.0 billion of equity. Total assets alone were worth more than the output of the entire economy in a year.

The balance sheet reflects the decisions and financial performance of successive governments, partly through its relationship with the operating statement (see Figure 2.1). It is large and complex, consolidating the effect of activities, assets and liabilities from a wide variety of Crown-controlled entities.[3] Assets and liabilities of agencies including departments, Crown Entities, State-owned Enterprises (SOEs) and stock exchange-listed Mixed Ownership Model (MOM) companies are all accounted for in the Crown balance sheet.

The standards by which FSGNZ are produced, called Generally Accepted Accounting Practice (GAAP), define the criteria for measurement and qualification for recognition in the accounts. The balance sheet and its associated notes help provide a detailed picture of the strengths and weaknesses of the Crown's finances.

However, the Crown's balance sheet does not always recognise assets or liabilities that may be intangible, contingent, prospective or implicit and therefore may fall outside the accounting recognition criteria set by GAAP. Unrecognised items are generally policy commitments that are not contractually binding, such as superannuation or welfare benefits. The ability to tax, which is likely to be the Crown's largest intangible asset, is similarly not recognised. These matters are discussed more fully in Box 2.1.

Figure 2.1 - The balance sheet and the operating statement
Figure 2.1 - The balance sheet and the operating statement.
Source:  The Treasury

Box 2.1 - The “comprehensive” balance sheet

GAAP seeks to establish the financial information that is most relevant for accountability and decision making purposes and that best represents economic reality, within the constraints of cost and materiality. For these reasons, it is the best set of rules and conventions for the Crown to measure its assets and liabilities.

However, there are many other known (and unknown) items that may also be seen to be Crown assets or liabilities that do not comply with GAAP conventions. The fact that something is not recognised in the formal financial statements does not mean that it should be ignored.

The impact of future cash flows and contingencies

A comprehensive balance sheet seeks to address GAAP limitations by recognising a wider range of items that represent the net present value of expected future income and expenditure streams. This provides a greater understanding of the financial impacts of running current fiscal policy into the future, which are often very large given the role that the Crown plays in raising taxes and spending on welfare, health and education over time. Other contingent or implicit assets and liabilities may also be recognised. The Crown's comprehensive balance sheet position is not routinely reported on, nor is it part of the FSGNZ.

The comprehensive balance sheet could be an important tool for the management of Crown finances. Considering the balance sheet in this manner could show a more comprehensive net worth position that better reflects whether the Crown will be able to meet its obligations as they occur in the normal course of events. A significant positive balance would suggest that there is scope to reduce tax or to increase public services, whereas a significant negative position would imply a clear signal that the opposite is the case. The comprehensive balance sheet can also support better management of the large array of risks that can potentially impact on the Crown's finances.

Providing effective stewardship - a closer look at Crown-owned land

The balance sheet provides a snapshot of the assets, liabilities and equity of an entity and an important function of it is to give an account of the financial stewardship of that entity. This can be difficult due to the inherent difficulties in valuing many ‘off-balance sheet' assets. This in turn leads to difficulties in fully assessing the implications of policy decisions on comprehensive net worth.

Conservation land provides a useful example of the implications of valuation challenges. Crown-owned conservation land makes up around a third of New Zealand's land mass and is valued at around $6 billion in the FSGNZ. However, this does not consider the value of the minerals held beneath or on the land, nor does it attempt to include the social, cultural and economic benefits of the estate, such as for recreation and tourism purposes. Considering these elements when assessing value could markedly increase the overall value of conservation land.

While the extraction of resources from the estate to realise this value may have significant benefits to GDP, it does not provide a full account of the consequences of such activity. This depletion of mineral stock reduces future benefits for subsequent generations. For accountability reasons, policy decision makers need to weigh the current implications of such policy decisions, both benefits and costs, against the opportunity costs for the future, which could be assisted by considering the comprehensive balance sheet.


  • [3]A small number of assets are recorded as equity investments. Local authorities are not represented in the Crown's financial statements because they are separate entities not controlled by central government.
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