Efficient management of the Crown’s assets and liabilities
Overview
Efficient management of the Crown’s assets and liabilities contributes to improved overall economic performance through maximising the value of the Government’s investments and minimising the costs of the Government’s finance. The Treasury and CCMAU contribute by:
- monitoring the performance and governance of organisations that are responsible for the day-to-day management of the Crown’s assets and advising Ministers on policy and strategic issues
- managing, through the New Zealand Debt Management Office (NZDMO), the Crown’s sovereign-issued debt and associated financial assets
- providing primary policy advice and, in some cases, managing commercial and contractual claims against the Crown.
In June 2005, the Crown owned $131 billion in total assets, more than any other entity in New Zealand. These included equity interests in SOEs, Crown companies and CRIs, a number of other Crown entities and the financial assets accumulating in Crown Financial Institutions (CFIs). The Crown’s assets are expected to grow to over $160 billion by 2010, with the biggest change being the growth in assets held by the New Zealand Superannuation Fund (NZSF) to pre-fund future pension liabilities.
The Crown’s total liabilities in June 2005 were around $81 billion, of which some $35 billion was gross sovereign debt. Over the medium term, gross debt is forecast to remain close to this level in nominal terms, but to decline to 19.4% of GDP by 2010 as against 23.2% in June 2005.
The Crown’s assets provide a resource to help meet future expenditure commitments and claims on the Crown, and income streams that reduce tax pressure in future years. Sustaining their value is important. By the same token, government debt creates costs and risks for the Crown that need to be managed. The Crown also faces other financial risks arising from contractual and commercial claims. These too need to be monitored and managed, consistent with the Crown’s overall economic and other policy objectives.
Our desired outcome contribution
- Delivering operational outputs as required by Ministers, including continually improving our efficiency and effectiveness.
- Maintaining a high-quality capability to undertake commercial negotiations, transactions and risk management when Ministers require them.
- Continually looking to sustain and improve entity performance in a dynamic environment.
- Working effectively with others in the Treasury to provide integrated and seamless advice and operations.
Our progress
State-owned enterprises/Crown companies
Our core activities are the provision of advice to shareholding Ministers on SOE and Crown company business plans and Statements of Corporate Intent (SCIs), and on a range of specific company issues. In addition to these activities, in 2005/06 we have:
- continued the process of systematically undertaking a strategic (“long-term hold”) review of all SOEs. During the year we concluded one review and progressed four others in consultation with the respective boards and management teams. These exercises have established, among other things, credit-rating benchmarks and have in each case clarified shareholding Ministers’ preferences regarding thresholds for consultation on significant strategic issues
- provided advice on organisational structure options for AgriQuality, Asure, NIWA and MetService
- negotiated a capital restructure of TVNZ resulting in a special dividend of $70 million
- increased the focus on companies including realistic commercial valuations in their SCIs to allow better monitoring of performance
- provided advice on the role of SOEs in relation to economic transformation.
Crown Financial Institutions
Another priority has been to improve our understanding of the Crown’s financial assets, as they come to dominate the Crown’s balance sheet. To this end, we have provided advice throughout the year on CFI performance, including investment returns, appointments, Statements of Intent and a range of specific issues. This included managing a process for an independent review of the operation of the Government Superannuation Fund Authority. Assisted by favourable market conditions, CFIs have generally significantly exceeded benchmark performance levels over the year and achieved record returns.
- Working on the Crown Entities Act – Roger Beckett, Mary Slater and Simon MacPherson.
Implementing the new Crown Entities Act
The Crown Entities Act 2004 is designed to improve Crown entity governance and accountability, and to strengthen the integration of Crown entities with the rest of the State sector. The new Act came into force on 25 January 2005.
During 2005/06, the Treasury worked in partnership with the State Services Commission and the Department of Prime Minister and Cabinet to ensure the successful implementation of the Act.
The Treasury’s work programme had two main areas of focus:
- The development of advice and guidance for Ministers, departments and Crown entities. This focuses on their roles and responsibilities, the Act’s expectations around the preparation of Crown entity Statements of Intent and the financial powers contained in the Act. The advice and guidance is available on the SSC web site through www.crownentities.ssc.govt.nz.
- Direct engagement between central agencies and the departments which monitor Crown entities on behalf of the responsible Ministers. This has included Treasury support for the establishment of a departmental group whose purpose is to promote good monitoring practice.
Looking ahead, the Treasury will extend existing guidance – for example, to include the preparation of annual reports – and will continue to support good monitoring practice.
Debt management operations
Improving our delivery of debt management outputs in 2005/06 was achieved through a wide range of activities. In the domestic market we issued $2,355 million of Government bonds to meet the Government’s funding requirement and completed $2,862 million of New Zealand-dollar interest-rate swaps.
We completed $44 billion of foreign-currency transactions (including foreign-currency swaps) for the NZSF, and provided loans to the Reserve Bank under new funding arrangements to support the Bank’s build-up of foreign-currency reserves.
We introduced new products, analytical tools and system improvements to enhance our ability to fund the Government’s borrowing requirements, manage the stock of debt and add value, while balancing cost and risk objectives. Notably, we:
- hedged the Crown’s share of foreign-exchange exposure associated with hosting the 2011 Rugby World Cup
- established a new strategic advances portfolio in July 2005 for all new lending to Crown housing entities and District Health Boards
- completed the implementation of registry arrangements for the new immigration investor policy announced on 16 June 2005, as a joint project with the Department of Labour
- continued to develop proposals for infrastructure bonds to fund transport investments, including borrowing by Transit New Zealand to support the ALPURT B2 toll road.
