Financial Statements of the Government of New Zealand for the year ended 30 June 2011

Fergus Welsh
Chief Financial Officer

The Financial Statements of the Government of New Zealand for the year ended 30 June 2011 were released by the Treasury today.

Key features of the results were:

Total Crown revenue for the year was $81.6 billion, an increase of $6.8 billion on the previous year.

Most of this increase related to insurance claims and reinsurance recoveries from the Canterbury earthquakes ($4.5 billion).

Tax revenue also increased ($0.8 billion), for the first time in three years due to growth in income, private consumption and business profits.

Total Crown expenses have risen sharply during the year to nearly $100 billion, an increase of $18.9 billion from last year.  Of this increase, $13.6 billion was from expenses relating to the Canterbury earthquakes.  The majority of the remaining increase was due to:

• new funding introduced in Budget 2010, which was primarily spent in the health and education sectors
• new initiatives that have had large one-off impacts (eg, the Emissions  Trading Scheme, Weathertight homes financial assistance package)
• an increase in the number of recipients and indexation of New Zealand Superannuation, and
• an increase in debt financing costs due to the higher level of borrowings.

As a result of these factors the operating balance before gains and losses deficit increased considerably from $6.3 billion in 2009/10 to $18.4 billion in the latest financial year.

The net impact of the earthquakes on the operating balance before gains and losses was $9.1 billion as follows:

More earthquake expenses will be recorded over the next few years as cost estimates are revised and future decisions are made on the rebuild.  The full extent of the cost to the Crown is not expected to be fully determined for some time.

Recovery in investment markets has contributed to the Crown making net gains of $5.0 billion in 2010/11.  Including these gains the operating balance deficit was $13.4 billion.

The operating balance deficit translated through to a core Crown operating cash deficit of $9.3 billion.  When capital expenditure is added, the residual cash deficit for the year was $13.3 billion.

The cash shortfall was funded through additional borrowing which has resulted in net debt increasing from $26.7 billion to $40.1 billion (or 20% of GDP), a little lower than forecast in Budget 2011.

ENDS