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Annual Report of the Treasury for the Year Ended 30 June 2016

Chief Executive's Introduction

Welcome to the Treasury's Annual Report for 2015/16.

Overall it was a positive year for the New Zealand economy. In the fiscal year to June 2016, the economy grew 2.8 percent from the previous fiscal year, having picked up on the back of strong net migration inflows, residential construction and elevated tourist spending. This solid economic performance looks set to continue; our most recent Budget forecast is for real GDP growth to average a respectable 2.9 percent between now and June 2020.

The Crown's books are also in a sound state. New Zealand has a broadly balanced Government budget with increasing surpluses expected over the years ahead. And while core Crown net debt is forecast to rise slightly in 2016/17, it is then projected to drop to 19.3 percent of GDP by 2020/21. To ensure these positive results are maintained, the Treasury is keeping a firm fiscal focus coupled with ensuring the state sector continues to deliver results.

International economic conditions remain more of a challenge. Our trading partner growth eased in 2015, with China's growth slowing as its economy transitions from investment to more consumption. This weighed on growth in other Asian trading partners and Australia. Global risks remain skewed to the downside, including persistently low global growth and inflation, uncertainty following the United Kingdom's vote to exit from the European Union, and geopolitical risks.

In light of domestic growth but uncertain international conditions, the Treasury will maintain a close eye on the government's books but also use the opportunities that come with growth to build a sustainable foundation for New Zealand's economic prosperity.

The Treasury's Living Standards Framework helps to ensure, and to understand how, our advice impacts across all the dimensions that matter for New Zealanders' living standards. Our broader perspective is evident in the seven Strategic Intentions we focus on, in our policy advice, and in our work with colleagues across the public sector.

This year we raised our ambition to be a world-leading Treasury, requiring this level of performance if we are to lift New Zealand's living standards. This also reflects the level of performance we must deliver to be effective within the local and global context in which we operate.

You will find many examples of our work during the year in this Annual Report. There are a few in particular that I would like to highlight.

Among our goals is to have the investment approach embedded in modern policy making. In July 2015 a new investment management system came into force that helps ensure there is active stewardship of government resources, and strong alignment between individual investments and the government's long-term priorities. As part of the Treasury's system leadership role, we have introduced regular Major Projects Performance Reports that improve visibility of challenges and potential risks on projects where significant public funds are being invested. We have also introduced Investor Confidence Ratings, an assessment that looks at the performance of individual agencies in managing their investments and assets.

Another significant achievement has been our work on the new fiscal targets announced in the Government's Budget Policy Statement and implemented at Budget 2016. The fiscal targets have been brought up to date, made more relevant to the current economic outlook, and allow more flexibility in response to changing economic conditions. This in turn contributes to the broader aim of a higher sustainable growth path for the New Zealand economy.

I also want to underscore how the Treasury is demonstrating openness - to new ideas and to how we communicate our work. We have taken up the challenge of leadership in the Champions for Change initiative. This reflects our commitment to, and the value we place on, diversity and inclusion. To help make New Zealand a better place for the future, we need to understand the diverse perspectives of New Zealanders and take advantage of that diversity of thought in seeking solutions to the challenges we face. The Treasury is taking its transparency responsibilities seriously too. Our Official Information Act responses are published on our website so anyone can access them, and our commitment to the OIA and its principles are reinforced by Treasury leaders and through staff training. We are also providing the public with a window into our work and thinking via regular articles on our new communications initiative, Treasury Staff Insights: Rangatahi. Openness and transparency are important elements of how the Treasury seeks to model successful leadership in the public sector.

No organisation can deliver great work without great people. Within our executive leadership team we have recently farewelled two valued colleagues, Girol Karacaoglu and Bill Moran, and welcomed Struan Little back to the Treasury. As a team we have the privilege of leading a fantastic group of staff. I want to thank people throughout the Treasury for the professionalism, dedication and enthusiasm they bring to their job every day. Because of your combined efforts we have much to be proud of over the past year and much to look forward to in the year ahead.

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