3.5 Comparison with the 2008-09 recession
At first sight, losses of this size might seem implausibly large. Certainly, the changes in comprehensive net worth are large relative to historical changes in GAAP net worth. Are they plausible?
One way to get a sense of the realism of the estimates is to consider what happened to comprehensive net worth during the recession of 2008–09. Table 8 provides a very rough estimate. The effect on the GAAP balance sheet is estimated using the reported net losses for the fiscal year to 30 June 2009. For the change in the primary balance, we use the change in projected tax revenue between the 2008 and 2009 Budget Economic and Fiscal Updates (but assuming tax policy is held constant).
The table shows that the Crown's comprehensive loss from the recession was about $64 billion. This loss is larger than the model's estimate of value-at-risk at the 95% probability level over a one-year horizon ($52 billion). According to the model, the estimated loss experienced in 2008–09 has an annual probability of only 2.5%. Thus, a shock this bad or worse could be expected about once every 40 years.
| $ billions | |
|---|---|
| GAAP total gains/(losses) for year ended 30 June 2009 | (7) |
| Change in the present value of projected tax revenue between 30 June 2008 and 30 June 2009 | (57) |
| Total | (64) |
Sources: New Zealand Government, the Treasury, authors' calculations
