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Discount Rates and CPI Assumptions for Accounting Valuation Purposes

The Treasury publishes here a table of risk-free discount rates and consumer price index (CPI) assumptions that must be used in certain accounting valuations for the purpose of preparing the Financial Statements of the Government of New Zealand.

This table of rates applies to all Government reporting entities submitting valuations to Treasury for:

  • valuing insurance claims liabilities under PBE IFRS 4 Insurance Contracts
  • valuing employee benefits such as pension obligations, long service leave and retiring leave under PBE IPSAS 25 Employee Benefits, and
  • building a risk-adjusted discount rate for valuing student loans.

These rates may be applied to other valuations where a risk-free discount rate or CPI assumption is used. In these cases the rates may either be used unadjusted, or as a building block to calculate another assumption at your discretion.

The Treasury risk-free discount rates and CPI inflation assumptions are based on a framework, including several parameters, summarised in eight steps. This framework has been kept unchanged since 2010, although the assumptions under each step are subject to review, generally every three years, and have changed over time in some cases.

In addition to the table of rates, the Treasury has published the associated Methodology which comprises seven papers (see below); the original methodology dated July 2010 and six subsequent review papers dated May 2012, June 2013, December 2015, July 2019, July 2020 and June 2021.

The risk-free discount rate methodology uses at its starting point the market yield curve of New Zealand Government Bonds as the most appropriate proxy for the return on a very safe asset.

30 June 2022

In line with the three-yearly review timetable, the parameters under the methodology have been review during May 2022. As a result, changes have been made to the way short to medium-term CPI inflation assumptions are set under the methodology. The May review concludes that the current long-term nominal forward discount rate of 4.30% and the long-term CPI inflation assumption of 2.00% should remain unchanged.

The 30 June 2022 rates and CPI published below reflect the updated parameters from the May 2022 review. The updated methodology paper documenting the 2022 review will be published on this website in July 2022.

Publishing dates

The Treasury will publish here risk-free discount rates and CPI assumptions as at 30 June, 30 September, 31 December, 31 January and 31 May. These rates will be published within one week of the "as at" date.

Tables of Risk-free Discount Rates and CPI Assumptions at 30 June 2022 for Accounting Valuation Purposes

The following table shows the risk-free rates to be used for certain accounting valuations as at 30 June 2022. Note that a history of these rates, starting with the 30 June 2010 rates, is available in the Excel spreadsheets below.

Table of Risk-free Discount Rates at 30 June 2022
for Accounting Valuation Purpose
Valuation Year
(for Annual Cash Flows to 30 Jun)
Duration
in Years
Forward
Rate
Spot
Rate
2023 1 3.34% 3.34%
2024 2 3.70% 3.52%
2025 3 3.77% 3.60%
2026 4 3.85% 3.66%
2027 5 3.93% 3.72%
2028 6 4.01% 3.76%
2029 7 4.10% 3.81%
2030 8 4.18% 3.86%
2031 9 4.25% 3.90%
2032 10 4.31% 3.94%
2033 11 4.36% 3.98%
2034 12 4.40% 4.02%
2035 13 4.43% 4.05%
2036 14 4.45% 4.08%
2037 15 4.46% 4.10%
2038 16 4.47% 4.13%
2039 17 4.47% 4.15%
2040 18 4.47% 4.16%
2041 19 4.47% 4.18%
2042 20 4.47% 4.19%
2043 21 4.47% 4.21%
2044 22 4.47% 4.22%
2045 23 4.47% 4.23%
2046 24 4.47% 4.24%
2047 25 4.47% 4.25%
2048 26 4.47% 4.26%
2049 27 4.47% 4.26%
2050 28 4.47% 4.27%
2051 29 4.47% 4.28%
2052 30 4.45% 4.28%
2053 31 4.44% 4.29%
2054 32 4.42% 4.29%
2055 33 4.41% 4.30%
2056 34 4.39% 4.30%
2057 35 4.37% 4.30%
2058 36 4.36% 4.30%
2059 37 4.34% 4.30%
2060 38 4.32% 4.30%
2061 39 4.31% 4.30%
2062 40 4.30% 4.30%
2063 41 4.30% 4.30%
2064 42 4.30% 4.30%
2065 43 4.30% 4.30%
2066 44 4.30% 4.30%
2067 45 4.30% 4.30%
2068 46 4.30% 4.30%
2069 47 4.30% 4.30%
2070 48 4.30% 4.30%
2071 49 4.30% 4.30%
2072 50 4.30% 4.30%
2073 51 4.30% 4.30%
2074 52 4.30% 4.30%
2075 53 4.30% 4.30%
2076 54 4.30% 4.30%
2077 55 4.30% 4.30%
2078 56 4.30% 4.30%
2079 57 4.30% 4.30%
2080 58 4.30% 4.30%
2081 59 4.30% 4.30%
2082 60 4.30% 4.30%
2083 61 4.30% 4.30%
2084 62 4.30% 4.30%
2085 63 4.30% 4.30%
2086 64 4.30% 4.30%
2087 65 4.30% 4.30%
2088 66 4.30% 4.30%
2089 67 4.30% 4.30%
2090 68 4.30% 4.30%
2091 69 4.30% 4.30%
2092 70 4.30% 4.30%
2093 71 4.30% 4.30%
2094 72 4.30% 4.30%
2095 73 4.30% 4.30%
2096 74 4.30% 4.30%
2097 75 4.30% 4.30%
2098 76 4.30% 4.30%
2099 77 4.30% 4.30%
2100 78 4.30% 4.30%
2101 79 4.30% 4.30%
2102 80 plus 4.30% 4.30%

The following table shows the CPI assumption rates to be used for certain accounting valuations as at 30 June 2022.

Table of CPI Assumptions at 30 June 2022
for Accounting Valuation Purposes
Valuation Year
(for Annual Cash Flows to 30 Jun)
Year Forward CPI
(for 30 Jun years)
Spot CPI
(for 30 Jun years)
2023 1 3.87% 3.87%
2024 2 2.61% 3.24%
2025 3 1.89% 2.79%
2026 4 1.76% 2.53%
2027 5 1.76% 2.38%
2028 6 1.76% 2.27%
2029 7 1.76% 2.20%
2030 8 1.76% 2.15%
2031 9 1.76% 2.10%
2032 10 1.76% 2.07%
2033 11 1.76% 2.04%
2034 12 1.76% 2.02%
2035 13 1.76% 2.00%
2036 14 1.76% 1.98%
2037 15 1.76% 1.97%
2038 16 1.76% 1.95%
2039 17 1.76% 1.94%
2040 18 1.76% 1.93%
2041 19 1.77% 1.93%
2042 20 1.78% 1.92%
2043 21 1.79% 1.91%
2044 22 1.81% 1.91%
2045 23 1.82% 1.90%
2046 24 1.83% 1.90%
2047 25 1.84% 1.90%
2048 26 1.85% 1.90%
2049 27 1.86% 1.89%
2050 28 1.87% 1.89%
2051 29 1.88% 1.89%
2052 30 1.90% 1.89%
2053 31 1.91% 1.89%
2054 32 1.92% 1.89%
2055 33 1.93% 1.90%
2056 34 1.94% 1.90%
2057 35 1.95% 1.90%
2058 36 1.96% 1.90%
2059 37 1.97% 1.90%
2060 38 1.98% 1.90%
2061 39 2.00% 1.91%
2062 40 2.00% 1.91%
2063 41 2.00% 1.91%
2064 42 2.00% 1.91%
2065 43 2.00% 1.92%
2066 44 2.00% 1.92%
2067 45 2.00% 1.92%
2068 46 2.00% 1.92%
2069 47 2.00% 1.92%
2070 48 2.00% 1.92%
2071 49 2.00% 1.93%
2072 50 2.00% 1.93%
2073 51 2.00% 1.93%
2074 52 2.00% 1.93%
2075 53 2.00% 1.93%
2076 54 2.00% 1.93%
2077 55 2.00% 1.93%
2078 56 2.00% 1.94%
2079 57 2.00% 1.94%
2080 58 2.00% 1.94%
2081 59 2.00% 1.94%
2082 60 2.00% 1.94%
2083 61 2.00% 1.94%
2084 62 2.00% 1.94%
2085 63 2.00% 1.94%
2086 64 2.00% 1.94%
2087 65 2.00% 1.94%
2088 66 2.00% 1.94%
2089 67 2.00% 1.95%
2090 68 2.00% 1.95%
2091 69 2.00% 1.95%
2092 70 2.00% 1.95%
2093 71 2.00% 1.95%
2094 72 2.00% 1.95%
2095 73 2.00% 1.95%
2096 74 2.00% 1.95%
2097 75 2.00% 1.95%
2098 76 2.00% 1.95%
2099 77 2.00% 1.95%
2100 78 2.00% 1.95%
2101 79 2.00% 1.95%
2102 80 plus 2.00% 1.95%

Using the Treasury Risk-free Discount Rates

Valuation models will use either forward or spot rates. Both of these rates have been provided.

Ideally, forward rates should be used for the accounting valuations. However, the ability to use forward rates will be dependent on the type of valuation programme or model used. The programme or model must be able to cope with different discount rates for each year in order to use forward rates.

If the programme or model only requires a single discount rate then select the spot rate that matches the duration of cash flows. For example, if the duration of cash flows is eight years, and the model requires a single rate, select the Year 8 spot rate from the table.

The annual forward and spot rates provided are to match annual cash flows from the "as at" date the rates are published. For example the 1 year rate published at 30 June 2022 is the risk-free rate to match the cash flow for the period 1 July 2022 to 30 June 2023.

Auditor Confirmation at 30 June 2022

The Office of the Auditor-General considers the table of risk-free discount rates and CPI assumptions as at 30 June 2022 have been determined in accordance with the associated methodology document (The Treasury Risk-free Discount Rates and CPI: Assumptions for Accounting and Valuation Purposes - July 2022). The rates and CPI assumptions are appropriate to use in:

  • valuing insurance claims liabilities under PBE IFRS 4 Insurance Contracts
  • valuing employee benefits such as pension obligations, long service leave, and retiring leave under PBE IPSAS 39 Employee Benefits, and
  • building a risk-adjusted discount rate to value student loans.

The Treasury's Long Service Leave and Retiring Leave Models (per TC 2009/06)

If you use the Treasury Excel models to calculate long service leave and retiring leave obligations (per Treasury Circular 2009/06 below), only three risk-free discount rates can be used. This allows for the use of three forward rates. These three forward rates are published below.

However, if you know the average duration of future cash flows being valued, you can choose the single spot rate for that year from the table of discount rates as at 30 June 2022. For example, if you know the duration of cash flows at 30 June 2022 is on average 10 years, you could use the 10 year spot rate of 3.94% from the published table of rates and enter it as all three discount rate assumptions in the model.

While the Treasury provides economic assumptions here, the model can be run using different discount rates and salary assumptions to assess how sensitive the valuation is to a change in the Treasury assumptions. For example you could run the model using a rate that is plus or minus 1% from the Treasury rate. This can provide assurances around year end valuations and enable you to disclose sensitivity impacts.

30 June 2022

The following risk-free discount rates are applicable to be used in the Treasury models issued under TC 2009/06 for 30 June 2022 valuations:

  • 1 year: 3.34%
  • 2 year: 3.70%
  • 3 year plus: 4.29%*

The Treasury Excel models also require a long-term salary inflation assumption of 3.01%**

  1. * This rate is based on the average of 20 forward rates (from year 3 to 22 inclusive) taken from the published table of discount rates as at 30 June 2022.
  2. ** This rate is based on using a 1.91% medium term inflation assumption (Spot CPI year 22) plus 1.1% for long term labour productivity growth for the public sector. On average over the longer term we would expect that nominal wages and salaries would grow approximately in line with inflation and the rate of labour productivity growth.

Contact for Enquiries

Elizabeth Rogers | Fiscal Reporting, The Treasury
Tel: +64 4 917 6280
Email: [email protected]

Angela Ryan | Fiscal Reporting, The Treasury
Tel: +64 4 917 6102
Email: [email protected]

Last updated: 
Friday, 15 July 2022