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

Presented to the House of Representatives Pursuant to Section 44 of the Public Finance Act.

Read the related media statement: The Treasury Annual Report Shows Raised Ambitions in 2015/16 (20 October 2016).

Previous annual reports are available from Archive of Annual Reports.

Contents

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Chief Executive's Introduction

Section One - About the Treasury

Section Two - Strategic Direction

Progress Against Our Strategic Intentions

Section Three - Departmental, Non-departmental and Multi-category Appropriations

Multi-category Appropriations

Section Four - Statements of Expenses and Capital Expenditure

Financial Statements - Departmental

Supplementary Financial Schedules - Non-departmental

Independent Auditor's Report

List of Acronyms

 

Minister of Finance's Reports on Non-Departmental Appropriations [B.14 (Finance)]

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.

Statement of Responsibility

I am responsible, as the Secretary to the Treasury, for:

  • the preparation of the Treasury's Financial Statements, and Statements of Expenses and Capital Expenditure and for the judgements expressed in them
  • having in place a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting
  • ensuring that end-of-year performance information on each appropriation administered by the Treasury is provided in accordance with sections 19A to 19C of the Public Finance Act 1989, whether or not that information is included in this Annual Report, and
  • the accuracy of any end-of-year performance information prepared by the Treasury, whether or not that information is included in the Annual Report.

In my opinion:

  • the Financial Statements fairly reflect the financial position of the Treasury as at 30 June 2016 and its operations for the year ended on that date, and
  • the Forecast Financial Statements fairly reflect the forecast financial position of the Treasury as at 30 June 2017 and its operations for the year ending on that date.

 

Gabriel Makhlouf
Secretary to the Treasury

30 September 2016

Section One - About the Treasury

Who We Are

As a finance and economics ministry, the Treasury's work covers five functions:

  • Economic policy advice. We are the lead advisor to Ministers on economic performance, concentrating on policy areas that have a significant impact on economic performance. This includes advice on measures to improve the quality of regulation, removing barriers to growth and enhancing productivity.
  • Financial management and advice. We manage the financial affairs of the Crown and provide advice on fiscal strategy, policy and performance. As the Government’s chief accountant we also work to support awareness, professionalism and skills development in financial management across the State sector.
  • State sector leadership. With the Department of the Prime Minister and Cabinet (DPMC) and the State Services Commission (SSC), we collectively lead the State sector with the aim of delivering results for New Zealanders. We assist the Government to develop its overall strategy for the State services, provide advice on how to improve the system and manage significant issues.
  • Performance management and advice. We manage the performance of departments and other entities the Crown owns. This includes working with them to improve performance as required. Our focus is getting value for money for taxpayers.
  • Commercial policy advice and operations. We provide commercial policy advice, execute commercial transactions and provide financial operational services through the Treasury’s Debt Management Office (NZDMO) and the New Zealand Export Credit Office (NZECO).

How We Behave - Our Values

Every person working at the Treasury has a role in helping to achieve higher living standards for New Zealanders. The Treasury's staff bring specialist skills and expertise to the varied and complex challenges of government. We bring policy expertise and operational smarts to the table. We have the ability to pick up complex projects. We understand the power of strong stakeholder relationships so we work hard to develop and maintain them. To be successful, the values that all Treasury employees strive to uphold are:

  • Bold and innovative. We will never achieve what we want unless we generate, and act on, new ideas and challenge the status quo.
  • Passionate and ambitious.We need to attract, retain and motivate the best people, challenge them, treat them exceptionally well and keep them focused on significant work.
  • Collaborative and challenging.We must work with others to achieve our outcomes – maintaining the rigour and analytical excellence that is our traditional strength, coupled with a collaborative approach that gets things done in the real world.
  • Adaptable and focused. We do a lot of complex and important work, so we need to focus on what really matters and look beyond our own boundaries.

How We Work 

The following diagram represents the key elements in the Treasury's operating model.

  1. Sitting at the centre is the Treasury's delivery and performance. The objective of our operating model is to optimise this.
  2. The middle ring presents four structures, behaviours and processes that determine or are highly influential in determining, what we focus on and how we go about our work.
  3. The outer ring presents the key levers (corporate support functions) that we are using to improve our performance and delivery and to meet the challenges we face. The relative importance of the levers will change over time, depending on the issues we are responding to.
The Treasury's delivery and performance
the Treasury's delivery and performance.

Our Operating Model

Our operating model ensures that we invest our time and energy the right way, on the right things at the right time. This is part of our ongoing efforts to strengthen the Treasury, ensure we are efficient and effective and realise our ambition to be a world-leading economics and finance ministry. The balancing and fine tuning this involves is achieved through:

  • clear and timely decisions by our leadership team
  • clear understanding of the needs and expectations of customers and stakeholders and how best we can deliver services and outcomes for them
  • robust, fit-for-purpose methods for planning and monitoring our resources and our performance, including clear lines of accountability, and
  • a culture with values and behaviours that support high performance and delivery.

How We Make Decisions

Leadership

In 2015/16 we changed our leadership operating model to ensure our Executive Leadership Team could focus on strategy and the longer-term horizon and was freed up to tackle cross-cutting policy issues, while our Directors ensure delivery across the business. The organising principle of seven Strategic Intentions means work and effort are aligned to the overall outcome we seek to achieve irrespective of manager or team.

Executive Leadership Team

The Executive Leadership Team is made up of the Secretary and Chief Executive and five Deputy Secretaries and is our pre-eminent decision-making body. They are accountable for the strategic leadership of the Treasury with a focus on outward-facing and cross-cutting issues; where decisions are more likely to have a material impact on the outcomes, functions or reputation of the Treasury as a whole. The Executive Leadership Team members are accountable for the delivery of the Treasury's Strategic Intentions.

Kaiurungi - ‘The people who steer'

The Treasury's Chief Operating Officer (Deputy Secretary) chairs Kaiurungi. They are responsible for the delivery of our Strategic Intention work programmes. Kaiurungi are also responsible to the Executive Leadership Team for delivering on the agreed organisational strategy and for ensuring the programme of work across all directorates will deliver on the Treasury's objectives and is well-aligned with strategy.

Forums

The Treasury holds a variety of different forums to bring staff into decision making. Treasury Forums are about promoting inclusive, cross-Treasury discussion and debate across all areas of our business, and so are open to all Treasury staff. There are different formats for these forums to reflect the fact that we need different ways to discuss issues for a range of different purposes. Sometimes we want to get together to draw out a diversity of views, sometimes we need to resolve on a Treasury position, and sometimes we just need to share information. Leaders' Forums bring together Deputy Secretaries, Directors, Managers, Team Leaders and Principal Advisors from across the Treasury to share, discuss and build understanding. We use them to test thinking from ELT and Kaiurungi, generating and exploring ideas and solutions from the practical, on-the-ground perspective of the people who lead our teams and their work programmes. The Leaders' Forums give these leaders opportunities to contribute to decision-making, to understand and influence the strategy and assist with its implementation.

How we govern and monitor ourselves

Over the past year we began to test more effective ways of driving performance and monitoring progress. For example, we introduced dedicated Strategic Intention governance groups to monitor performance and progress. Each month the Directors meet with the responsible managers and staff to discuss progress against the agreed objectives.

The Executive Leadership Team and Kaiurungi also meet together regularly to discuss performance and prioritisation.

Over the year we continued to undertake quarterly performance reviews to assess our progress against our objectives. This information flowed through to quarterly performance conversations with our Minister. It also supports our incremental ‘rolling' approach to planning - where adjustments are made to take into account any changes in priorities.

The Treasury also received additional support from:

  • The Treasury Board. This is an external advisory group that supports the Treasury’s Chief Executive and Executive Leadership Team in ensuring that its organisational strategy, capability and performance make the best possible contribution to the achievement of its goals.
  • The Risk and Assurance Committee. This committee is a sub-committee of the Board with an independent chair and three additional external members. It provides assurance and advice to the Chief Executive relating to the effectiveness and adequacy of internal control and risk management systems, processes and activities across the Treasury.

Section Two - Strategic Direction

Summary of Our Strategic Framework

Summary of Our Strategic Framework
Summary of Our Strategic Framework.

Lifting Living Standards for New Zealanders

The Living Standards Framework helps to ensure, and to understand how, the Treasury's advice impacts across all the dimensions that matter for New Zealanders' living standards. This framework recognises that lifting the living standards of New Zealanders involves more than economic growth. We see three dimensions of economic performance as contributing to living standards:

  • Prosperity. Economic performance is about higher incomes and jobs for New Zealanders.
  • Sustainability.Economic performance is not just about prosperity today; it is also about prosperity tomorrow – and the future prosperity of our children.
  • Inclusiveness. Economic performance is about all New Zealanders having a role to play in the economy and society.

We want economic growth to bring prosperity but we also want that growth and the higher incomes and jobs that it brings. We also want an economy that is sustainable today and for future generations that brings social benefits, is resilient and enables equitable outcomes. These three dimensions are mutually supporting and will help to support improved living standards for all New Zealanders.

Medium-term Indicators of Success
Indicator Desired trend Result Comment
New Zealand has higher living standards as shown by its position on the Organization for Economic Cooperation and Development's (OECD's) Better Life Index. 7th
2016
9th
2015
10th
2014

New Zealand tends to perform highly on wellbeing indicators because many of our outcomes (such as health and education) are high compared to our GDP per capita. The most appropriate index for a highly developed country is the OECD's Better Life Index, which covers 11 different aspects of life such as income, housing, education, health, work-life balance and life satisfaction. The figures provided are the ranking against the other countries in the index giving each aspect equal weight.

New Zealand ranked 7th in the 2016 index compared to 11th in the 2013 index.

Source: http://www.oecdbetterlifeindex.org/

Holding On and Letting Go [1] has provided the Treasury with the platform for its policy-making and advice. In 2016, the Treasury commenced the development of its next Long-term Fiscal Statement, through which we intend to provide and stimulate debate more widely about New Zealand's longer-term future, and provide direction for our ongoing policy work and organisational priorities.

Notes

  • [1]Holding On and Letting Go http://www.treasury.govt.nz/publications/briefings/holding-on-letting-go provides the Treasury’s current perspective on the strategic opportunities and challenges facing New Zealand in striving for a prosperous, sustainable and inclusive future. The strategic challenges identified here are framing our policy advice and our investment work to build our capability to advise future governments.

Our Leadership Priorities 

We have set ourselves three overarching priorities to be achieved over the next four years. These help to drive the work we do to deliver results for the New Zealand public.

Successful Leadership (both internally and externally) with a particular focus for 2016 on:

  • Proactive and deliberate system leadership.
  • Organising ourselves around our vision and Strategic Intentions.

The Investment Approach is embedded in modern policy and decision-making with a focus on engagement, implementation, monitoring and design. This will include Budget and Four-year Plans and a particular focus for 2016 on:

  • An integrated capital and operating investment approach is embedded across the system.
  • Ministers having the right information to implement the investment approach, including population business demographics.

A higher sustainable growth path for the New Zealand economy with a particular focus for 2016 on:

  • The Treasury being specific about the actions the Government should take and having measures consistent with the Living Standards Framework to measure New Zealand's progress.
  • New Zealand strengthens its connections to the Asia-Pacific region to support economic growth.

Our Strategic Intentions and the 2015/16 Outputs they Deliver

The following table provides an overview of the relationship between the Treasury's Strategic Intentions, the outputs and activities we undertake to achieve them and appropriations through which our work is funded.

Our Strategic Intentions and the 2015/16 Outputs they Deliver
Strategic Intentions What we intend to achieve (2015/16) Associated 2015/16 outputs and activities  Appropriations
New Zealand has an internationally connected and competitive business environment.

Systematically apply an international lens to policy and regulatory work programmes and government interactions with business, households and international stakeholders.

Policy and regulatory programmes support a strong domestic business environment with greater levels of productivity, and sustainable use of natural resources.

  • Policy advice on competition, capital markets, tax, regulation, infrastructure and natural resource management, economic development, innovation, competitiveness and productivity.
  • Policy advice on investment, trade and broader international connectedness.
  • Policy advice on increasing housing supply.
  • Engagement with international partners, free trade agreement (FTA) negotiations and international financial institutions.
  • Provision of export credit insurance.
  • Provision of Financial Operations Services and Operational Advice
  • Policy Advice - Finance
People have the capability and opportunities to participate in society and the economy. Improved public services and the improvement is demonstrated by the relevant Better Public Services results.
  • Monitoring the implementation of the welfare reform programme.
  • Integrated citizen-centred advice on welfare, education, schooling, youth achievement, the labour market, tertiary education, housing, justice and health.
  • Provision of Financial Operations Services and Operational Advice
  • Policy Advice - Finance
The State sector efficiently and effectively delivers results for New Zealanders.

Improved performance of the State sector system, sectors and agencies through greater cross-agency leadership and collaboration, and the use of clear results-focused goals, and improved strategic financial and fiscal management.

Better information is used by the State sector to drive performance improvements and changes to institutions and systems.

A customer- and population-based approach informs State sector management and reform.

  • Policy advice on institutional settings and public management system.
  • Monitoring, assessing and providing advice on the performance of the State sector system and how to improve performance.
  • Monitoring, assessing and providing advice on the performance of agencies, and working with agencies to improve performance.
  • Policy advice on agency interventions, including on social housing and Canterbury earthquake recovery.
  • Performance improvement initiatives to improve strategic financial management across the State sector.
  • Budget preparation and production and guidance and support to agencies to enable them to make full use of the Public Finance Act provisions and to fulfil their Public Finance Act and Cabinet requirements.
  • Implementation of the Social Housing Reform Programme.
  • Administration of Guarantees and Indemnities given by the Crown PLA
  • Provision of Financial Operations Services and Operational Advice
  • Policy Advice - Finance
  • Social Housing Reform MCA

There is a faster improvement in Māori living standards.

 

The Crown and Māori (iwi, hap ū and whānau) are partnering positively together to improve Māori outcomes.
  • Policy advice and support for achievement of fair and durable Treaty settlements, and the efficient resolution of Māori rights and interests in natural resources, and social and economic outcomes for Māori, particularly with regard to education.
  • Policy advice and commercial transactions that allow better access for Māori to social and affordable housing.
  • Policy Advice - Finance
The economic cycle is managed in a way that supports sustainable growth. Tax, product, financial and labour market policy settings and the operation of fiscal policy do not unnecessarily amplify the business cycle. This will minimise the degree to which interest rates and the exchange rate have to move to keep the economy operating close to full employment, thus promoting higher trend growth.
  • Policy advice on fiscal policy, strategy and frameworks; budget management; capital markets; macroeconomic management and strategy including the monetary policy framework; microeconomic settings that affect macroeconomic behaviour.
  • Economic and fiscal monitoring, reporting and forecasting. 
  • Provision of Financial Operations Services and Operational Advice
  • Policy Advice - Finance
The Crown balance sheet is managed effectively and efficiently. The Crown balance sheet is managed effectively and efficiently with the overall performance and risk profile of assets and liabilities supporting the Government's medium-term objectives.
  • Advice on balance sheet management, Crown ownership, State-Owned Enterprise (SOE) governance and policy settings, commercial transactions, infrastructure frameworks, Public Private Partnerships and Capital Asset Management framework.
  • Capital markets and risk management advice.
  • Execute commercial transactions.
  • Performance management and monitoring of assets, liabilities, risks and
    major projects.
  • Performance advice and board appointments for entities owned by the Crown.
  • Execute core Crown funding programme management of Crown liquidity and funding risks and NZDMO market, credit and operational risks.
  • Execute investor and intermediary engagement plans.
  • Crown Company Monitoring Advice to the Minister of Science and Innovation and the Minister for Economic Development
  • Crown Company Monitoring Advice to the Minister for State-Owned Enterprises and Other Responsible Ministers
  • Provision of Financial Operations Services and Operational Advice
  • Policy Advice - Finance
  • Administration of Crown Borrowing, Securities, Derivative Transactions and Investment PLA
The Treasury is a high-performing organisation.

The Treasury achieves big shifts in what matters most for raising living standards for New Zealanders.

We enrich our approaches by drawing on the knowledge and skills of others.

  • Delivery of integrated change/human resource work programme.
  • Delivery of shared services business transformation.
  • Delivery of the first work stream under the Information Strategy.
  • Corporate support services including legal advice, financial management services, facilities, management, human resource services and information technology and management.
  • Costs of this strategic intention (which provides necessary inputs to the Treasury's output) are covered by way of an allocation across all departmental output expense appropriations in Vote Finance

Progress Against Our Strategic Intentions

Each of our seven Strategic Intentions sets out a range of priority, core business-as-usual and medium-term investment work programmes.

New Zealand has an internationally connected and competitive business environment.
People have the capability and opportunities to participate in society and the economy.
There is a faster improvement in Māori living standards.
The State sector efficiently and effectively delivers results for New Zealanders.
The Crown balance sheet is managed effectively and efficiently.
The economic cycle is managed in a way that supports sustainable growth.
The Treasury is a high-performing organisation.

 

New Zealand has an Internationally Connected and Competitive Business Environment

Our objectives and the work we do to achieve them

Our objectives and the work we do to achieve them
What we intend to achieve Associated outputs and activities Appropriations

Systematically apply an international lens to policy and regulatory work programmes and government interactions with business, households and international stakeholders.

Policy and regulatory programmes support a strong domestic business environment with greater levels of productivity, and sustainable use of natural resources.

  • Policy advice on competition, capital markets, tax, regulation, infrastructure and natural resource management, economic development, innovation, competitiveness and productivity.
  • Policy advice on investment, trade and broader international connectedness.
  • Policy advice on increasing housing supply.
  • Engagement with international partners, FTA negotiations and international financial institutions.
  • Provision of export credit insurance.
  • Provision of Financial Operations Services and Operational Advice
  • Policy Advice - Finance

What we achieved in 2015/16

Reduced barriers to international flows

Over the last year, we supported cross-agency work to review New Zealand's trade strategy. We also advised Ministers on the economic impacts of the Trans Pacific Partnership (TPP) and leading negotiations to develop an agreement on currency cooperation with TPP members.

Other key highlights over the 2015/16 year included:

  • Providing advice on a range of options to improve the effectiveness of the overseas investment screening regime and obtaining agreement to implement targeted exemptions from screening.
  • Advising Ministers on the causes of high remittance costs to the Pacific and options to reduce them.
  • Completing a review of private sector services to support exporters, to assess where there are commonalities and gaps with services provided by government.
  • Leading New Zealand's negotiations to establish and join the Asian Infrastructure Investment Bank (AIIB), including passing domestic legislation to enable our membership. We have been influential in the development of key policies at the bank such as the Environmental and Social Framework.
  • Cabinet approval for our recommendations to enhance the product offering of NZECO. This will enable it to engage with a wider range of firms and transactions in support of export growth.
  • Working jointly with the Ministry of Business, Innovation and Employment (MBIE) on the Immigration Strategic Review. This included considering how to improve labour market outcomes from temporary and permanent migration. Ministers have since agreed to explore a number of policy initiatives.
  • Supported $193 million of export transactions, into 30 countries, across a range of sectors and firms through NZECO.

Lifting productivity and ensuring the sustainability of our natural resources

Alongside MBIE and the Ministry for Primary Industries (MPI) we identified opportunities arising from the Regional Growth Programme, including the development of the Regional Contingency Fund through Budget 2017.

We also worked with MBIE on the implementation, coordination and next steps of the Business Growth Agenda (BGA), specifically establishing and providing ongoing support to the BGA Leadership Group comprising chief executives of the main economic agencies[2] and providing advice to Ministers on the future direction on the BGA and on BGA initiatives for Budget 2017.

Another priority was our work on supporting natural resource sector agencies in their work towards achieving the overall objectives of the sector, including through a sector-based approach to Budget 2016.

We helped to deliver New Zealand's contribution to international climate change negotiations and the Paris Agreement on Climate Change.

We worked with Inland Revenue (IRD) and other departments, and in consultation with the private sector, on how to balance the OECD/G20 agenda to take action against aggressive international tax planning base erosion and profit shifting with the need to maintain New Zealand as a welcome jurisdiction for international investment. The Treasury was the Secretariat for the Government Inquiry into Foreign Trust Disclosure, which recommended a number of changes to be implemented in the coming year.

We provided advice on extending goods and services tax (GST) to imported services (including internet/digital services). New legislation will be effective from 1 October 2016. The Treasury has also advised on considerations for setting or reviewing the de minimis level for imposing GST on imported goods. Domestic tax changes were also introduced and focused on housing and a business tax reform package. The housing changes included a bright-line test, a new Residential Land Withholding Tax and increased collection of taxpayer information. The business tax changes particularly helped small business by improving provisional tax and reducing the burden of interest and penalties.

Following the release of the Government's response to the Productivity Commission report on Regulatory Institutions and Practices in August 2015, the Treasury has been working with regulatory agencies to implement a series of system-focused initiatives to lift the quality of regulation. This includes supporting the major regulatory departments to publish, for the first time, their regulatory management strategies and plans to make it easier for stakeholders to participate in identifying opportunities to improve regulation.

A more responsive housing supply

In 2015/16, along with MBIE, we led advice to the Government from a range of agencies on the Government's response to the Productivity Commission's October 2015 report, Using land for housing.

We also provided advice on the Housing Infrastructure Fund and worked with other agencies on the development of advice relating to a range of issues relevant to housing, including:

  • the National Policy Statement on Urban Development Capacity
  • the role of price signals as an indicator of the cost of zoning
  • the provision of housing-related infrastructure, and
  • options for the Government's response to possible Council decisions on the Independent Hearings Panel's recommendations on the Auckland Unitary Plan.

Cross-government leadership

We are required by law to table a Long-term Fiscal Statement in Parliament at least once every four years.

The Fiscal Statement, along with our regular review of New Zealand's economic performance story, are important core products for the Treasury. They provide the strategic context for our advice to Ministers and for the Treasury's future policy work, investment priorities and organisational direction. They are also used to set the direction of the Treasury's priorities and our future policy work.

We have progressed our work on our fourth Long-term Fiscal Statement, with a view to release in late 2016.

The economic narrative (set out in Holding On and Letting Go, published in 2014 as part of our Briefing to the Incoming Minister), brings our fiscal and economic stories together into a single strategy. In early 2016, work begun to refresh the economic narrative which forms part of the Long-term Fiscal Statement, Investment Statement and the Treasury's economic narrative. This process will also set us up to provide advice to the incoming government in 2017.

We are using the refresh of our economic narrative as an opportunity to extend our strategic story to include a stronger focus on regional and Māori economic development, State sector, linking social investment to fiscal sustainability, natural resources and the environment.

Our goal is to continue to develop our thinking about the longer-term issues and opportunities that will impact on the living standards of New Zealanders.

We also hope that a narrative refresh will provoke and stimulate debate more widely about New Zealand's longer-term future. Since December 2015 we have completed a number of public forums and other engagements to gather a range of views on the challenges and opportunities that are the most significant for New Zealand's longer-term future, and the policy directions and choices that will support the living standards that we aspire to.

Notes

  • [2]This group sits alongside the wider Economic Chief Executives' Group to support and drive delivery across the BGA.

Our progress against our medium-term indicators of success

Internationally connected and competitive business environment - progress
Indicator Desired trend Result Comment
Trade intensity increases as a proportion of GDP.

Businesses that export tend to have higher productivity, and this can help overcome the constraints of a small domestic market while imports provide firms with access to global technology and ideas. Statistics New Zealand reports that our trade intensity as a proportion of GDP was 56% for the calendar year 2015, unchanged from 2014.

Note: During the year the result for 2014 was revised from 58% to 56%.

Source: Statistics New Zealand

Flows of inwards and outwards direct investment increase to levels more proximate to other small, open economies, while becoming demonstrably more diverse and productivity enhancing.

Inward and outward direct investment is important for accessing growth capital and supporting New Zealand business growth offshore. In 2015, the stock of inward direct investment was $96.5 billion or 40.3% of GDP. The stock of outward direct investment was $25.2 billion or 10.5% of GDP.

Source: Statistics New Zealand

GDP per hour worked grows substantially faster than the OECD average.

(Data presented in $US)

GDP per hour worked is a measure of labour productivity and so is an indicator of how well the economy is using its human capital on aggregate and New Zealand's labour productivity is a key driver of our lower incomes. According to the OECD constant price measure, New Zealand's GDP per hour worked fell in both 2013 and 2014 after strong growth in the previous two years.  Average growth on this measure was around 0.3% per annum between 2009 and 2014, below that of the OECD average of 0.9% over this period. Data for 2015 are not yet available for New Zealand or the OECD average.

Source: OECD

Business investment as a percentage of GDP increases substantially relative to the OECD mean.

Business investment is an important component of GDP, since it increases productive capacity in the economy and boosts employment. The OECD has recently revised its method for calculating New Zealand's business investment.

Data for 2015 were unavailable at the time of publishing.

Source: OECD

The perceived quality of New Zealand's infrastructure increases in measures such as those produced by the World Economic Forum.

 

28th

2015

29th

2014

27th

2013

The quality of our infrastructure is important to support higher levels of productivity, and to help underpin a strong economy. On the 2015 World Economic Forum's ranking of perceived quality of infrastructure, New Zealand was ranked 28th out of 140 economies and scored 5.25/7, compared with a rank of 29th out of 144 economies and a score of 5.3/7 in 2014.

Source: World Economic Forum http://reports.weforum.org/global-competitiveness-report-2015-2016/

People have the Capability and Opportunities to Participate in Society and the Economy 

Our objectives and the work we do to achieve them

Our objectives and the work we do to achieve them
What we intend to achieve Associated outputs and activities Appropriations
Improved public services; and the improvement is demonstrated by the relevant Better Public Services results.
  • Monitoring the implementation of the welfare reform programme.
  • Integrated citizen-centred advice on welfare, education, schooling, youth achievement, the labour market, tertiary education, housing, justice and health.
  • Provision of Financial Operations Services and Operational Advice
  • Policy Advice - Finance

What we achieved in 2015/16

Supporting the uptake of social investment

Social investment is an approach that aims to ensure the Government invests where the need, impact and the return are greatest.

In 2015/16 we made changes to the Budget process to support the uptake of a social investment approach. These included: an explicit focus on outcomes for at-risk children and young people; the introduction of a social investment panel to test proposals; and the refinement and mandating of the CBAx[3] cost-benefit assessment tool to apply common assumptions and compare investments. The changes help to drive better use of data and evaluation to support policy design and government decision-making.

The Treasury's CBAx tool informed agency advice on the impacts of social sector initiatives with more than 60 CBAx assessments for Budget 2016.

Over the year, we continued to work in both leadership and support roles to improve the understanding of the Government's approach to social investment, including the use of data and evidence across the social sector and a results and customer-centred focus. For example, our Analytics and Insights unit led analysis of at-risk groups and made this information publicly available.

We supported the development of investment approaches in the justice sector and the Social Housing Reform Programme, provided staff to support the review of Child, Youth and Family (CYF) and provided advice to the Government on the resulting Investing in Children proposals.

As part of our ongoing support to strengthen the Ministry of Social Development (MSD) investment approach, we:

  • identified areas where additional evaluation is appropriate, such as how the expansion of active case management has affected its impact, and
  • helped them to improve the clarity of their cost drivers for the investment approach.

As the external monitor of MSD's investment approach, we also provided quarterly reporting to Ministers on MSD's progress against ongoing valuations of the benefit system, and suggested further lines of inquiry and action.

Lifting educational outcomes

The Treasury worked with the Ministry of Education to support its work encouraging participation, improving achievement rates and fostering collaboration across the education sector. We provided advice to the Minister of Finance on a proposed update to the Education Act 1989 and the proposed changes being considered through the Education Funding System Review. We have also continued to support the Ministry's work on the evolution and implementation of the Investing in Educational Success initiative.

Our role supporting coordination of education priorities with wider social sector objectives remained a focus in 2015/16.

We continued to strengthen our understanding of the sector's performance - in particular, the evidence base on ‘early years' investment and teaching effectiveness.

Linking skills and the labour sector

In 2015/16, we continued to work closely with the Ministry of Education, MBIE, the Tertiary Education Commission and the Ministry of Social Development (MSD) to increase the relevance of tertiary education to the labour market and generate better information on employment outcomes and tertiary education.

We collaborated on joint agency advice through the Building Skilled and Safe Workplaces work stream of the BGA. This enabled us to refresh our view of the interaction between the labour market, skills and immigration to ensure thinking across these areas was aligned and can help improve the long-term contribution of immigration to the labour market.

With MBIE and SSC, we provided support for, and advice on, the Joint Working Group on pay equity.

Improving health outcomes

This year we supported the refresh of the New Zealand Health Strategy, working with the Ministry of Health on the Strategy and providing advice to the Minister of Finance. The new Health Strategy will strengthen the functioning of the health system and support the implementation of an investment approach.

We also continued to work with the Ministry of Health on the development of capital projects, and in improving capital settings to enable more sustainable and fit-for-purpose investments. This included working with the Ministry and the Northern Region District Health Boards (DHBs) on the Auckland metro region's future requirements given projected population growth.

Increasing our understanding of health sector performance remained a focus for us in 2015/16. This involved case studies of business improvement initiatives' contribution to financial sustainability and improved health outcomes.

We undertook a joint project with the Ministry of Health, the Health Quality Safety Commission and the Auckland, Bay of Plenty, Canterbury and Whanganui DHBs.

The DHBs in the case studies provided real-life examples of customer-centric models of care. Elements contributing to the success of programmes in these DHBs are relevant to other services delivered by the Government.

Notes

  • [3]CBAx is a spreadsheet model that contains a common database to help agencies monetise impacts and do return on investment analysis.

Progress in our medium-term indicators of success

People have the capability and opportunities to participate in society and the economy - progress
Indicator Desired trend Result Comment
Ninety-eight percent of children starting school in 2016 will have participated in high-quality early childhood education.

Intensive and high-quality early childhood education for the most disadvantaged children can significantly improve educational outcomes. The percentage of children who have attended early childhood education before starting school has steadily increased each year since 2000. 

Source: https://www.educationcounts.govt.nz/statistics/early-childhood-education/participation

Eighty-five percent of 18-year-olds have a National Certificate of Achievement (NCEA) Level 2 or equivalent qualification by 2017.

Success in education is key for New Zealanders to reach their full potential and contribute to the economy and society. A Level 2 qualification gives people opportunities in terms of further education, employment, health outcomes and a better quality of life. Data shows a steady increase in the number of 18-year-olds achieving NCEA Level 2 or equivalent qualifications. The Māori and Pasifika achievement improved at a faster rate than overall.

Source: Ministry of Education; Education Countshttp://www.educationcounts.govt.nz/statistics/ schooling/senior-student-attainment/18-year-olds-with-level-2-or-equivalent

Sixty percent of 25-34-year-olds have a qualification at National Qualifications Framework Level 4 or above by 2018.

 

People who gain higher-level qualifications, especially at degree level and above, are more likely to be employed, have higher earnings and are less likely to be receiving a benefit.

As a result of good progress towards the previous target of 55%, the target for this Better Public Services goal has been raised.

Source: Ministry of Education; Education Counts
https://www.educationcounts.govt.nz/statistics/tertiary_education/retention_and_achievement

Number of households with no-one working is less than it was in quarter four 2007; less than 12.7% of households.

Employment matters because paid work is an important route out of poverty and low incomes.

The proportion of households with no-one working was 11.7% in the June 2016 quarter. 

Source: Household Labour Force Survey

Reduce the number of people continuously receiving working-age   benefits for more than 12 months by 30%.

Being out of paid work and on a benefit for extended periods increases the risk of poverty, social dislocation and deteriorating overall health. It can also have negative effects on the children of people on a benefit long term.

In December 2014, Cabinet agreed to expand the Better Public Services Result 1 target from a 30% reduction in the number of people receiving long-term working-age Jobseeker Support benefits by 2017; to a 25% reduction in the total number of people receiving main benefits, and a reduction in the long-term cost of benefit dependency by $13 billion, by June 2018.

As a consequence, the Ministry stopped reporting on the old Better Public Services target when it expanded this result target in December 2014.

Source: https://www.msd.govt.nz/about-msd-and-our-work/work-programmes/better-public-services/long-term-welfare-dependence/snapshot-december-2014.html

There is a Faster Improvement in Māori Living Standards

Our objectives and the work we do to achieve them

Our objectives and the work we do to achieve them
What we intend to achieve Associated outputs and activities Appropriations
The Crown and Māori (iwi, hapū and whānau) are partnering positively together to improve Māori outcomes.
  • Policy advice and support for achievement of fair and durable Treaty settlements, and the efficient resolution of Māori rights and interests in natural resources, and social and economic outcomes for Māori, particularly with regard to education.
  • Policy advice and commercial transactions that allow better access for Māori to social and affordable housing.
  • Policy Advice – Finance

What we achieved in 2015/16

Working with iwi

In 2015/16 we focused on growing our capability so our advice is informed by a strong understanding of Māori experiences and perspectives.

Partnering with our colleagues to grow the Crown/Māori relationship and create joint solutions has been a plus this year. We have been a key contributor to the interagency work with Ngāi Tūhoe on options for increasing their responsibility for the outcomes of their people.

To ensure Māori were engaged more effectively and it was done in a joined up way, we teamed up with the Ministry of Foreign Affairs and Trade (MFAT) to help with the consultation over the proposed TPP. This expanded the number and breadth of Māori consulted and the length of consultation time. The cross-agency group set up will now be used for consultations for future trade agreements.

Supported by the Treasury, MFAT held eight additional TPP consultation hui across the country involving 263 attendees.

We enhanced cross-government capability in the freshwater work programme by leading discussions with the iwi advisers group to explore key issues in depth for an enhanced Crown/Māori relationship with improved outcomes. We also actively supported the Ministry for the Environment's Water Directorate on major policy initiatives and participated in all discussions with the iwi advisers group and internal governance at the Ministry.

Accessible data and analytics

Open access to data is growing in the public sector; however, it is not always in the form iwi need to identify their people, grow their businesses or realise the potential of their assets. This year we have continued to show our leadership through working with other agencies to progress this work and also alongside iwi to test new approaches. In 2015/16 we have worked alongside Statistics New Zealand to open up access to government data for iwi, non-governmental organisations (NGOs) and Pasifika groups. This has included partnering with an iwi group to pilot an innovative tool to work across departmental and iwi databases to show data specific to their iwi and their land. This work was showcased as part of three data hui in September and December 2015 and March 2016.

We publicly released the new Social Investment Insights tool in February 2016 that provides new information for Māori at a local level.

Gaining Māori perspectives

Over the year we have worked hard to deepen our knowledge of Māori perspectives, and to bring that view into the Treasury and our advice.

Our senior leadership team has met with several iwi over the year including Ngāpuhi, Ngāti Whatua, Tainui, Ngāi Tahu and Ngāti Porou.

Māori community and business leaders were represented in the extensive workshops we held across the country to inform our work on updating our strategic narrative of the economic future for New Zealand.

We have also begun work on a Māori Policy tool which will help our policy teams apply or invite a Māori perspective across social and economic advice. Although in the early stages of development, we are developing this tool to deepen our capacity to work in the Māori world and also broaden the scope of the advice we provide.

Building the Māori economy

Last year we worked with MBIE and Te Puni Kōkiri to refresh the strategic direction of He Kai Kei Aku Ringa, improve the institutional arrangements supporting Māori economic development and prioritise initiatives that will have the most impact. This included developing and confirming a work programme and engaging with the Māori Economic Development Advisory Board, iwi and regional stakeholders in order to obtain feedback on priorities, challenges and opportunities for Māori economic development.

Education underpins the economy. Our contribution to achieving accelerated and sustained improvement in Māori education achievement, included working alongside the Ministry of Education and others to develop a stronger understanding of the current performance of the education system for Māori learners, and what would support better outcomes.

We also applied a design-thinking approach to better understand the experiences of Māori students within the education system by hearing directly from students.

Social housing

Our Social Housing Transaction Unit recognises the importance of consulting with iwi and hapū about their rights and interests in areas for proposed social housing transfers. They continue to develop their approach to engaging with iwi and challenge themselves in this space to look for more innovative ways not only to engage but to develop and implement solutions that meet both the Government’s objectives and the housing aspirations of iwi.

Progress in our medium-term indicators of success

Indicator Desired trend Result Comment
There is accelerated and sustained improvement in Māori education achievement (measured through Better Public Services targets). Data here represent the percentage of 18-year-olds with a minimum of NCEA Level 2 or equivalent.
Maori living standards - result  .

Latest available Better Public Services data show that the Māori achievement of NCEA Level 2 was 71.1% of 18-year-olds in 2015. This is up from a 57% achievement rate in 2011. However, it still lags behind the proportion of Pākehā for the same period (87.3% for 2015).

Source:
https://www.ssc.govt.nz/bps-boosting-skills-employment#result5

There is evidence of sustained growth in the Māori economy (as measured by the value, return on and productivity of Māori-owned assets; participation in export markets; and Māori employment).

Statistics New Zealand released figures showing the assets held by 1,050 Māori Authorities rose by $2 billion or 15.5% in 2014 (the latest data available) to $15 billion, while revenues rose 1.8% to $2.996 billion and pre-tax surpluses fell 17.8% to $507 million.

Source: http://statistics.govt.nz/browse_for_stats/people_and_communities/Māori/tatauranga-umanga-2016-ma-mr.aspx

Historical Treaty of Waitangi claims are settled and government and iwi are focused on strengthening economic and social outcomes.

Over the 2015/16 year, the Treasury supported the Office of Treaty Settlements to initial Deeds of Settlement with the following groups: 

  • Taranaki iwi
  • Heretaunga Tamatea
  • Ngāi Tai ki Tāmaki
  • Te Wairoa iwi and hapū, and
  • Rangitāne o Wairarapa and Rangitāne Tamaki Nui-ā-Rua.

Source: https://www.govt.nz/treaty-settlement-documents

The State Sector Efficiently and Effectively Delivers Results for New Zealanders

Our objectives and the work we do to achieve them

The State sector delivers results for New Zealanders
What we intend to achieve Associated outputs and activities Appropriations

Improved performance of the State sector system, sectors and agencies through greater cross-agency leadership and collaboration, and the use of clear results-focused goals, and improved strategic financial and fiscal management.

Better information is used by the State sector to drive performance improvements and changes to institutions and systems.

A customer- and population-based approach informs State sector management and reform.

  • Policy advice on institutional settings and public management system.
  • Monitoring, assessing and providing advice on the performance of the State sector system and how to improve performance.
  • Monitoring, assessing and providing advice on the performance of agencies, and working with agencies to improve performance.
  • Policy advice on agency interventions, including on social housing and Canterbury earthquake recovery.
  • Performance improvement initiatives to improve strategic financial management across the State sector.
  • Budget preparation and production and guidance and support to agencies to enable them to make full use of the Public Finance Act provisions and to fulfil their Public Finance Act and Cabinet requirements.
  • Implementation of the Social Housing Reform Programme.
  • Administration of Guarantees and Indemnities given by the Crown PLA
  • Provision of Financial Operations Services and Operational Advice
  • Policy Advice - Finance
  • Social Housing Reform MCA

 

What we achieved in 2015/16

Budget 2016

In 2015/16, our delivery of Budget 2016 included improvements to documents and the website.

We continued to use a Capital Investment Panel to assess proposals for new capital investments and help inform government decision-making during preparation for the Budget as well as to look at baseline capital spending and assessing new capital investments requested between Budgets.

We convened a Social Investment Panel as part of our approach to developing social sector advice for Budget 2016 and making more robust assessments of social sector initiatives.

Building on work last year, we also took measures to increase transparency and accessibility of Budget and fiscal information. For example, we:

  • upgraded the mobile-responsive Budget website and decommissioned the Budget app
  • produced the Summary of Initiatives document for Budget 2016, providing details of new initiatives funded from new spending allowances, and
  • worked with FigureNZ to publish our fiscal data in open formats.

We also started work to embed the investment approach for Budget 2017, providing better information on returns on investment and to support Ministers making spending choices.

Canterbury earthquake recovery

In 2015/16, we played a role in transitioning the functions from the Canterbury Earthquake Recovery Authority (CERA) to other departments and the creation of two new entities (Ōtākaro Limited and Regenerate Christchurch)[4].

We assisted CERA and DPMC to transition funding to the agencies (Land Information New Zealand, Ministry of Health, MBIE, DPMC) that received roles from CERA.

We also took the lead role in creating Ōtākaro Limited as a Schedule 4a company funded through Vote Finance[5]. The transition allowed progress to continue on the anchor projects.

Lifting strategic financial management

The Head of the Finance Profession works with Chief Financial Officers and Chief Executives to promote strategic financial management and drive the ways the finance function will operate and perform. A work programme was developed in 2015/16 to support agencies to lift capability, improve succession planning (through talent management), improve performance, leverage technology, streamline processes and create opportunities for smarter investment.

The Office of the Government Accountant has encouraged and delivered through greater collaboration across the sector. The Office has also supported other Heads of Profession and function such as the Government Chief Information Officer and procurement. While good progress is being made, there is still significant work ahead to achieve these goals.

Social housing 

As part of the Government's Social Housing Reform Programme the Treasury is working closely with MBIE, MSD and Housing New Zealand Corporation (HNZC) to improve social housing tenants' outcomes and increase the number and quality of social housing places, as well as to encourage a greater diversity of providers. A key component of this work is the creation of a market for social housing in which registered community housing providers participate alongside HNZC.

The first major milestone in the Treasury's Social Housing Reform Programme work related to social housing in the Tāmaki region of Auckland. In 2015/16, 2,873 HNZC properties were transferred to the Tamaki Regeneration Company (TRC) in the Auckland suburbs of Glen Innes, Panmure and Point England. TRC established a community housing provider which is now managing these properties and tenancies.

In 2015/16 the Treasury initiated two transfers (in Tauranga and Invercargill) of social housing from HNZC to community housing providers.

A preferred provider for Tauranga is expected to take over the HNZC houses in Tauranga next year.

Subsequent to the only party invited to submit a proposal withdrawing from the Invercargill process, the Government has decided not to proceed with a transfer there at this time. However, it has not ruled out initiating another transaction process there at some point in the future.

The proposed transaction in Tauranga involves 1,124 houses and tenancies. Following an Expression of Interest, three respondents were invited to submit to a Request for Proposal. An evaluation of these proposals has been undertaken and Accessible Properties Limited was announced as the preferred bidder in August 2016. Assuming the final negotiations are successfully completed, Accessible Properties will become the new landlord for HNZC tenants in Tauranga around April 2017.

Driving improvements in strategic planning

Over the past year we continued to focus on lifting the medium-term and long-term planning of agencies through engagement with them on their Four-year Plans and Long-term Investment Plans.

We worked with the other central agencies, functional leads and departments, and provided workshops for agencies to help develop their capability.

The quality of Four-year Plans has continued to improve, with 19 departments assessed as meeting the criteria expected of credible medium-term Four-year Plans, up from 16 in 2014/15.

The majority of agencies made improvements from their 2015 Four-year Plans. Improvements have been made in integrating approaches to strategic planning and maturing workforce planning, with the strategic objectives (Strategic Intentions) element continuing to be the strongest element. There remain areas for development which will be the focus of support in the 2016/17 strategic planning round.

Notes

  • [4]Appropriations in Vote Canterbury Earthquake Recovery were initially used under the “administration and use” provision of the Public Finance Act 1989 before funding was formally transferred in April 2016, allowing a timely transition of functions to agencies. All funding has been transferred out of Vote Canterbury Earthquake Recovery in 2016/17 and outyears, and Vote Canterbury Earthquake Recovery has been discontinued.
  • [5]Ōtākaro Limited will “add value to anchor projects and Crown land in a manner which balances a desire to achieve good commercial outcomes against the Crown’s regeneration objectives, and support the Crown’s exit over time on favourable terms”.

Progress in our medium-term indicators of success

The State sector delivers results for all New Zealanders - progress
Indicator Desired trend Result Comment
Seventy-five percent of departments are assessed by central agencies as investment ready under Four-year Plans.

Fifty-nine percent of Four-year Plans submitted by agencies met the criteria expected of a credible medium-term strategic plan.  

This is the fourth year we have reported on Four-year Plans. In the first two years we used a slightly different measure and in 2013/14 not all agencies were required to produce Four-year Plans.

Source: The Treasury

Financial capability of agencies is assessed as higher as measured by the Finance and Resources - Financial Management rating in the Performance Improvement Framework (PIF) whereby 90% of agencies are assessed as at least “well placed”. PIF reviews for four entities were published in the 12 months to June 2016. Of these four reviews, two agencies were rated as “well placed” or higher in the Finance and Resources - Financial Management rating.
There is a broad picture of how the State sector system is performing and how it influences end results for citizens (where measures are available).

Citizens' experiences of public services are a critical measure of how the State sector is performing. The Kiwis Count survey provides a broad measure of this. In June 2016 the survey recorded a 75% overall satisfaction score for public services, one point higher than June 2015 and two points higher than June 2014.

Source: http://www.ssc.govt.nz/kiwis-count

There has been a demonstrable lift in State sector productivity, efficiency and effectiveness (where measures are available).

The Treasury releases the Benchmarking of Administrative and Support Services (BASS) report annually. This report presents findings on the efficiency and effectiveness of administrative and support services across 26 public sector agencies. The report for the 2014/15 year (released on 13 July 2016) shows the agencies spent $1.72 billion, up $63 million (4%) across five functions. This follows a $43 million increase in the prior year, from 2012/13 to 2013/14.

Source: http://www.treasury.govt.nz/statesector/performance/bass/benchmarking

PIF reviews for four entities were published in the 12 months to June 2016. Two entities were rated as “needing development” with respect to improving efficiency and effectiveness. The reviews of the other two entities were published after the PIF framework had been refreshed, meaning no rating of this element of performance was made. 

Source: http://www.ssc.govt.nz/pif-reports-announcements

New purchasing models such as contracting for outcomes have been tested, and are being implemented if they produce better outcomes for at-risk population groups.

The Ministry of Health is leading New Zealand's first social bond pilots with Treasury support, particularly on commercial aspects. Social bonds see private and not-for-profit organisations partner to fund and deliver services to improve social outcomes and if they achieve agreed results the Government will pay the investors back their investment plus a return. The aim of the pilot is to test the concept in the New Zealand context to see whether social bonds could be an effective and efficient way for government to reduce social problems. The pilot will also provide lessons for other forms of outcomes-based contracting, including the kinds of social issues, service providers and funding vehicles to which these models could be applied.

More broadly, we are focused on improving the efficiency and effectiveness of social services by working with the Social Investment Unit to make commissioning easier. This was a key area of concern highlighted in the New Zealand Productivity Commission's 2015 report “More Effective Social Services”. The intent of this work is to assist both commissioners and service providers to use a social investment approach to deliver better outcomes for New Zealanders.

Value drivers for government agencies and value from expenditure are better understood. During 2015/16 we worked with agencies during the production of Four-year Plans, Budget documents and the annual reporting processes to understand departments' capacity to deliver outcomes sought by the Government. For example, working with the Ministry of Justice to implement the findings of an independent report (on opportunities to increase efficiency and effectiveness) and reflect the findings in implementation decisions in their Four-year Plan and Budget 2016 processes.
Agencies keep to agreed spending paths and measured future liabilities reduce in major expenditure areas. — 

Provisions for new operating spending in Budget 2016 were higher than the allowances for new spending set by the Government in December 2015. The increase partly reflected volume pressures, including from population growth. The 2016 Budget Policy Statement noted that the increase in allowance for Budget 2016 be offset by a decrease in the Budget 2017 allowance so there was no impact on net core Crown debt levels.

The gross capital spend was also higher, but capital recycling of around $2.0 billion in Budget 2016 meant the net capital allowance was lower than previously signalled. This continued the focus on reprioritising the Crown balance sheet following the Future Investment Fund, which funded $4.7 billion of new capital spending in Budgets 2012-16 with proceeds from the Government Share Offers. Fiscal forecasts and projections were in line with the Government's fiscal strategy set out in the BPS.

MSD produces an estimate of the expected future costs of supporting current beneficiaries over their lifetime - this is a measure of the size of future liabilities in the sector. The most recent valuation was published in January 2016 and recorded a $0.6 billion reduction as at 30 June 2015 compared with 30 June 2014 (once factors outside of MSD's management control are removed, the liability decreased by $2.2 billion).

Source: http://www.msd.govt.nz/about-msd-and-our-work/newsroom/media-releases/2016/2015-valuation-of-the-benefit-system-for-working-age-adults.html

In the preceding 12 months the measure reduced by $7.5 billion.

Source: http://www.msd.govt.nz/about-msd-and-our-work/newsroom/media-releases/2015/reforms-succeed.html

Government results are delivered and functional leadership in property, procurement and ICT delivers tangible benefits.

Property procurement: June 2015 (the latest available data) reports achievement of rental and facilities management cost reductions totalling $58 million, and a total occupied space reduction of 31,000m2. Work has continued on: the Wellington Accommodation Project Tranche 2 (WAP2), which is forecast to produce hard savings of up to $33 million per annum from 2018 and $200 million of cost avoidance; and the Christchurch Integrated Government Accommodation Programme (CIGA), which involves 15 participating agencies co-locating across four new buildings in the central city precinct (the first of which opened on 1 December 2015). The Treasury has worked closely with the Government Property Group in MBIE on both WAP2 and CIGA.

Procurement functional leadership: Achievements in the year ended March 2016 include: development of a Procurement Capability Index to drive development of commercial expertise in agencies; implementation of a more proactive approach to supporting agencies with their procurement planning; work with agencies to help them use their procurement practices to improve health and safety outcomes; and research on significant managed service contracts across government deemed high risk and strategically critical to delivery of an organisation's business. All-of-Government (AoG) contracts continue to deliver significant benefits, with 896 agencies (including all local authorities and 519 schools) currently participating in at least one AoG contract. Total forecast savings over the life of existing AoG contracts are estimated at $740 million.

Information and Communication Technologies (ICT) functional leadership:A prioritised and integrated programme of work to deliver the Government's ICTStrategy has been developed. This plan includes: making access to digital services for individuals easier; developing infrastructure and capability so data analysis can target service delivery and inform decision-making; developing an enabling data environment and policy settings; developing standards to enable the sharing of data; establishing an ICT marketplace; and accelerating take-up of common capabilities like telecommunications as a service. ICT common capability programmes have resulted in a total of $240 million of savings or cost avoidance over the lifetime of the contracts for these capabilities.

The Crown Balance Sheet is Managed Effectively and Efficiently

Our objectives and the work we do to achieve them

Managing the Crown balance sheet - progress
What we intend to achieve Associated outputs and activities Appropriations
The Crown balance sheet is managed effectively and efficiently with the overall performance and risk profile of assets and liabilities supporting the Government's medium-term objectives.
  • Advice on balance sheet management, Crown ownership, SOE governance and policy settings, commercial transactions, infrastructure frameworks, Public Private Partnerships and Capital Asset Management framework.
  • Capital markets and risk management advice.
  • Execute commercial transactions.
  • Performance management and monitoring of assets, liabilities, risks and major projects.
  • Performance advice and board appointments for entities owned by the Crown.
  • Execute core Crown funding programme.
  • Management of Crown liquidity and funding risks and NZDMO market, credit and operational risks.
  • Execute investor and intermediary engagement plans.
  • Crown Company Monitoring Advice to the Minister of Science and Innovation and the Minister for Economic Development
  • Crown Company Monitoring Advice to the Minister for State-Owned Enterprises and Other Responsible Ministers
  • Provision of Financial Operations Services and Operational Advice
  • Policy Advice - Finance
  • Administration of Crown Borrowing, Securities, Derivative Transactions and Investment PLA

What we achieved in 2015/16

Managing the Crown balance sheet

The 2014 Investment Statement informed the Treasury work plan for 2015/16 to develop a balance sheet strategy capability and further improve balance sheet management. The balance sheet strategy supports the Crown to:

  • manage risk
  • own the right assets
  • manage them well, and
  • fund them in a sustainable manner.

The Treasury has increased its understanding of Crown financial risk tolerance and financial and contingent risks through building an understanding of the components of the comprehensive balance sheet and how risks in those components aggregate at a total Crown level.

The Cabinet Circular CO (15)5[6] on investment management and asset performance came into effect on 1 July 2015. The Investor Confidence Rating has focused agencies on the capability they will need to undertake the projects, programmes and asset management needed to achieve their organisational goals. With the public release of the pipeline of investments, and the release of the major project performance reports in November 2015, April 2016 and June 2016, there is increasing transparency of the investment management system and more informed discussions as a result. Last year we undertook preparatory work to ensure greater transparency of asset performance in 2016/17.

Managing core Crown funding requirements

In executing the New Zealand Government bond programme, NZDMO:

  • raised NZD 7.9 billion (face value) through nominal and inflation indexed bond tenders and syndications
  • issued two new nominal bond maturities (April 2015 and April 2033) by syndication, and
  • fully complied with all risk policies.

Over the 12 months to June 2016 we managed NZD 17.6 billion of Crown assets and settled cash flows with a gross value of NZD 303.1 billion. NZDMO also delivered technology solutions to support execution, risk management and reporting of NZDMO’s activities, improved NZDMO’s business continuity readiness and executed an investor marketing programme that reinforced investor confidence and broadened the investor base for New Zealand government debt securities.

Monitoring the performance of Crown assets

Through monitoring the performance of the Crown's assets within the Commercial Operations programme over the past year, we have sought to drive more efficient use of capital through improved commercial performance and increased discipline imposed on company balance sheets.

In 2015/16, we carried out strategic, capital and/or statutory reviews of entities, including Airways Corporation, MetService, Television New Zealand (TVNZ) and the Government Superannuation Fund (GSF).

We provided advice to Ministers on governance issues and 173 board appointments.

Major commercial transactions included managing the Crown's interests as Solid Energy was placed into voluntary administration and assisting in the establishment of Ōtākaro Limited, a Crown company taking over construction of the Crown’s anchor projects in Christchurch. We also advised Ministers on the partial sale of Kiwibank to the Accident Compensation Corporation (ACC) and New Zealand Superannuation Fund (NZSF).

In 2015/16 we started a work programme in relation to the Crown financial institutions (CFIs) to develop a deeper understanding of risks relating to the financial assets held by those institutions.

Improving management of infrastructure services

We prepared the Government's Thirty-year New Zealand Infrastructure Plan, which was released in August 2015.

We worked with government agencies, local government and the private sector to implement the actions outlined in the New Zealand Infrastructure Plan, focusing on data standards, the 3 Waters sector and transparency of infrastructure pipelines. The Plan provides a better understanding of infrastructure services needed in the future and how we manage existing assets. It will help us make better investment decisions about future services.

Progress in our medium-term indicators of success

Crown balance sheet is managed effectively and efficiently - progress
Indicator Desired trend Result Comment
Balance sheet targets are met and the Crown balance sheet is resilient to shocks. The recycling of assets surplus to requirements is important to ensure the balance sheet does not carry unnecessary costs. Seventy-six percent of Budget 2016's new capital allowances was partly funded from both the partial sale of New Zealand Post's ownership in Kiwibank and from the early repayment of Crown loans to the Auckland Council and the balance from the Future Investment Fund. This continues the Government’s capital funding strategy in place since the establishment of the Future Investment Fund.

Core Crown net debt is on track to return to around 20% of GDP by 2020 and is expected to continue to fall thereafter. This will continue to strengthen the Government's financial buffers.

Source:

www.treasury.govt.nz/budget/2016/fsr/ b16-fsr.pdf

The composition and shape of the Crown's assets and liabilities and Crown capital allocation align with medium-term government priorities.

The composition of the Crown's commercial company portfolio has remained stable in line with the Government's priority of continued ownership.

For new assets, the Investment Panel, comprising senior public and private sector officials, continues to provide an independent value assessment of investment initiatives to support government budget decisions.

The Crown's financial assets continue to grow in value, supporting the management of specific long-term liabilities, such as insurance and pension liabilities.

Sources: www.treasury.govt.nz/budget/2016/fsr/ b16-fsr.pdf  http://www.treasury.govt.nz/statesector/investmentmanagement/think/investmentpanel

Appropriate financial, commercial and social returns and long-term value are achieved from the assets the Crown owns.

In aggregate, returns on the Crown's financial assets in the CFIs have remained above long-term benchmarks. The portfolio of commercial assets excluding KiwiRail exceeded budget on an aggregated earnings (EBITDAF) basis.

EBITDAF comprises earnings before interest, taxes, depreciation, amortisation and fair value adjustments.

As part of the CO(15)5 implementation we are increasing the reporting, monitoring and focus on benefits realisation from projects and programmes that create social assets on the balance sheet. Public reporting on benefits will begin in 2016/17.

Source:

http://www.dpmc.govt.nz/cabinet/circulars/co15/5

From sources such as the Mixed Ownership Model proceeds, and from the early repayment of Crown loans to the Auckland Council.

Commercial Operations Group, the Treasury. For individual results, refer to Annual Reports as they become available.

New investments deliver expected value for money. Benefit realisation practices have received a much greater focus through structured measurement in the Investor Confidence Rating, and the Government Project Portfolio data collection. New guidance was released in March 2016.

Sources:

http://www.treasury.govt.nz/statesector/ investmentmanagement/plan/benefits

http://www.treasury.govt.nz/statesector/investmentmanagement/review/icr

Entity risks are well understood and appropriately managed.

The Crown's commercial entities have been risk-rated, with additional key performance indicators introduced for high risk-rated entities.

The Treasury continues to increase its understanding of Crown financial risks and contingent items.

The Investor Confidence Rating uses indicators to assess the capability and performance of investment-intensive agencies on core aspects of investment management.

Source: http://www.treasury.govt.nz/statesector/ investmentmanagement/review/icr

Agencies have the appropriate level of asset management capability. Structured assessment of both asset management capability and asset performance was rolled out to 11 of the 25 investment-intensive agencies in 2016 as part of the Investor Confidence Rating.

Sources:

http://www.treasury.govt.nz/statesector/ investmentmanagement/review/icr

http://www.treasury.govt.nz/statesector/ investmentmanagement/review/icr/results

Debt portfolio composition is optimised with regard to the Crown balance sheet. Two new nominal bonds were launched by syndication during the fiscal year, maintaining the weighted term to maturity of the bond portfolio at 6.5 years. Inflation indexed bonds as a proportion of the bond portfolio comprise 17.2%.

The composition of the debt portfolio offsets the Crown balance sheet's sensitivity to long-term interest rates, manages refinancing risks and reduces the volatility of fiscal outturn to changes in the Consumer Price Index (CPI).

Source: The Treasury

Borrowing targets are successfully completed within appropriate cost and risk parameters.


 
Note: Policy breaches

In managing the core Crown funding requirements, NZDMO has planned, communicated and executed the borrowing programme within appropriate cost and risk parameters.

Source: The Treasury

Crown cash flows and financial risks are efficiently and effectively managed, operating within agreed limits and error rates.  
 
Note: Settlement errors

In managing the core Crown funding, liquidity and funding risks, NZDMO has managed the Crown's net cash flows and associated risks within agreed limits and error rates.

Source: The Treasury

The Economic Cycle is Managed in a Way that Supports Sustainable Growth 

Our objectives and the work we do to achieve them

What we intend to achieve Associated outputs and activities Appropriations
Tax, product, financial and labour market policy settings and the operation of fiscal policy do not unnecessarily amplify the business cycle. This will minimise the degree
to which interest rates and the exchange rate have to move to keep the economy operating close to full employment, thus promoting higher trend growth.
  • Policy advice on fiscal policy, strategy and frameworks; budget management; capital markets; macroeconomic management and strategy including the monetary policy framework; microeconomic settings that affect macroeconomic behaviour.
  • Economic and fiscal monitoring, reporting and forecasting.  
  • Provision of Financial Operations Services and Operational Advice
  • Policy Advice - Finance

What we achieved in 2015/16

Macroeconomic and fiscal policy

In 2015/16, we assisted the Government with developing its Budget Policy Statement and the Fiscal Strategy Report (FSR). This included advice on refreshing the Government's fiscal targets following achievement of its 2014/15 surplus target.

Throughout the year we also:

  • provided advice on a wide range of other macroeconomic and financial stability issues. This included analysis of New Zealand's experience reducing its fiscal deficits over the last five years, and advice on fiscal and monetary policy settings in a low inflation and low interest rate environment, and
  • commenced a review of New Zealand's monetary policy framework to help inform advice to the Minister on the signing of a new Policy Targets Agreement in 2017.

The Budget Economic and Fiscal Update (BEFU) forecast rising surpluses in the 2016 through 2020 fiscal years. Net core Crown debt is projected to fall from 25.1% of GDP in 2014/15 to 20.8% in 2019/20. New Zealand remains on track to reduce net core Crown debt to around 20% by 2020.

We also completed the regular annual discussions with the International Monetary Fund (IMF) on New Zealand's operation of macroeconomic policy and associated frameworks, which the IMF endorsed. We also maintained engagement with credit rating agencies. New Zealand has maintained an AA credit rating since 2011.

Reviewing the Earthquake Commission Act 1993 (EQC Act)

A public discussion document was released in July 2015 seeking public submissions on a proposed government reform package for the EQC statutory scheme and Act. About 60 submissions were received. To help inform our advice to Ministers we have since been engaging with industry on the implications of different design options.

Economic and fiscal forecasting

The Treasury published two Economic and Fiscal Updates during 2015/16 - the Half Year and Budget Updates. Each Update outlined New Zealand's economic outlook for the next five years and the implications for the Government's fiscal position. We also continued development work on a new forecasting model, which is expected to be completed by mid-2017.

We continue to monitor the economy and the Government's fiscal position. Monthly Economic Indicator reports and Financial Statements of the Government were published throughout the year to inform Ministers and the public on the evolving macroeconomic and fiscal outlook. Key fiscal and economic data were published alongside these reports.

Long-term fiscal pressures

We commenced work on the fourth statement on the Long-term Fiscal Position, with release of the document expected in late 2016.

Settings ensure financial market stability

This year we have made good progress on putting strengthening measures in place to ensure a bank failure can be appropriately managed and crisis management tools allow sound management of any fiscal exposure for the Crown and that financial stability risks in New Zealand are within a reasonable range. Specifically we have:

  • invested in developing the financial stability framework and improving the Government's ability to manage a financial crisis
  • laid the groundwork for work underway to identify improvements to better manage fiscal risk, provide optionality and enhance the performance of the financial stability framework, and
  • worked with the Reserve Bank of New Zealand (RBNZ) on crisis management and governance was progressed and advice provided to the Minister in 2015/16.

In 2014/15, we chaired the Trans-Tasman Banking Council and in 2015/16 passed the Chair to the Australian Treasury. Last year we continued to work closely with Australian and New Zealand counterparts and with Australia as the Chair.

We also provided advice on RBNZ's proposed use of macro-prudential tools. The advice was enhanced through the application of new macroeconomic policy modelling tools to assess the potential macroeconomic impacts of macro-prudential policy actions.

Progress in our medium-term indicators of success

The economic cycle is managed in a way that supports sustainable growth - progress
Indicator Desired trend Result Comment
Fiscal policy has supported monetary policy by placing downward pressure on aggregate demand growth as measured by a range of indicators.

This indicator was reformulated during the year to reflect changing macroeconomic circumstances, which meant that excessive aggregate demand growth was no longer a presenting macroeconomic issue. In 2015/16 it became more important to ensure that fiscal policy settings do not act on demand in an opposite direction to monetary policy.

Fiscal policy is expected to have a broadly neutral impact on aggregate demand on average over the five years to June 2020 reflecting positive fiscal impulses in 2015/16 and 2016/17 followed by negative fiscal impulses from 2017/18 to 2019/20 owing to ongoing reductions in operating spending (relative to GDP), and from 2017/18, a decline in capital spending. While fiscal policy is not used as a macroeconomic fine-tuning tool, this appears broadly appropriate given the outlook for demand and the current stance of monetary policy.

Source: http://www.treasury.govt.nz/budget/forecasts/befu2016/013.htm

The Government's financial buffers have been strengthened, with core Crown net debt on track to be around 20% of GDP by 2020.

Net core Crown debt is projected to peak at 25.6% of GDP in 2016/17 before declining to 19.3% of GDP by 2020/21, consistent with the Government's long-term fiscal objectives of net core Crown debt around 20% of GDP by 2020.

Source:  http://www.treasury.govt.nz/budget/2016/fsr/05.htm

Any positive operating balance surprises are used mainly to further strengthen the Government's balance sheet.

In BEFU 2016, forecast operating balances grow from $0.7 billion in 2015/16 reaching $5.0 billion by 2018/19. These surpluses are higher than forecast for the same period in BEFU 2015, primarily as a result of a lower expenditure track.

Changes to allowances between BEFU 2015 and BEFU 2016 saw an overall reduction in operating allowances across the forecast period to 2019/20. This means that all of the positive operating balance surprises were applied to further strengthening the Government's balance sheet.

In BEFU 2016, the Government's net worth attributable to the Crown in 2018/19 was forecast to be $99.3 billion, compared to a forecast net worth of $93.6 billion for the same year in BEFU 2015.

Source: http://www.treasury.govt.nz/budget/forecasts/befu2016/016.htm

A lift in both government and private sector saving rates contributes to higher national saving over time.

Government and the private sector have both been increasing their saving in recent years leading to a higher national saving rate. The Treasury forecasts ongoing saving from both sectors.

Source: http://www.rbnz.govt.nz/statistics/m6/

The increase in interest rates over the forthcoming economic cycle is smaller than it was during the 2000s. The official cash rate (OCR) is currently at historical lows and is widely predicted to fall further. Globally, interest rates are low and inflation weak. There appears little chance of nominal interest rates rising rapidly over the next few years, with the most recent RBNZ forecasts not incorporating any increases through to the end of their forecast period in mid-2019. The Treasury's Budget 2016 forecasts incorporate around 200 basis points of tightening by June 2020 as interest rates gradually return to their neutral rate. This would represent 90 day rates of around 4% compared to a peak of just under 9% in the previous cycle.
Assessments of exchange rate misalignment do not show material over- or under-valuation.

IMF concluded that the New Zealand dollar was 0% to 10% overvalued when it assessed the New Zealand economy in November 2015. The exchange rate has since appreciated in response to weaker global economic conditions.

Source: http://www.imf.org/external/pubs/cat/longres.aspx?sk=43678.0

Strengthened preventative measures are in place, and settings ensure a bank failure can be appropriately managed. The open bank resolution tool is available to stabilise a failed bank. RBNZ and the Treasury are working on a set of legislative amendments to ensure that appropriate powers are available to the Minister of Finance and to RBNZ, and that these powers are able to work in concert. The Treasury chaired the Trans-Tasman Banking Council work agenda and contributed on crisis preparedness.
Financial stability risks related to New Zealand are within the “normal range”. RBNZ's financial stability report notes that bank capital, liquidity and funding buffers remain above required minima, while asset quality and underlying profitability are strong. The Treasury provided advice on a set of macro-prudential tools that has contributed to their design and operation.

The Treasury is a High-performing Organisation 

Our objectives and the work we do to achieve them

What we intend to achieve Associated outputs and activities Appropriations

The Treasury achieves big shifts in what matters most for raising living standards for New Zealanders.

We enrich our approaches by drawing on the knowledge and skills of others.

  • Delivery of integrated change/human resource work programme.
  • Delivery of shared services business transformation.
  • Delivery of the first work stream under the Information Strategy.
  • Corporate support services including legal advice, financial management services, facilities, management, human resource services and information technology and management.
  • Costs of this strategic intention (which provides necessary inputs to the Treasury's output) are covered by way of an allocation across all departmental output expense appropriations in Vote Finance.

What we achieved in 2015/16

Supporting higher performance

In 2015/16 we set ourselves a challenging work programme shifting our culture, capability and capacity to deliver on our current workforce strategy. We have bolstered our infrastructure and operating model, at the same time beginning work on what a Treasury of the future needs to deliver.

Strengthening our decision-making

The Treasury has set itself high expectations of performance and management of the business. The 2015/16 year has been one of increased clarity and consolidation of operating and governance models.

We have completed the major realignment of the leadership model. The now more outward-focused Executive Leadership Team set the strategic direction and focus on hard cross-cutting issues. This leaves more of the implementation of those expectations and operational governance to Kaiurungi. This also allows an ability for greater reprioritisation of resource and/or effort.

Shared services

The Treasury provides shared services to SSC and DPMC. In 2015/16 there has been a significant push to improve the customer experience and meet expectations for all three agencies, and to work towards realising greater value from what is a purpose-built, expert shared service that aims to deliver smart thinking and value for customers. Improvements actioned include:

  • new governance structures, clearer expectations and agreements and more attention to customer experience and relationships
  • improving the shared service finance model, and
  • clarifying the vision and value proposition.

Investing in our people

In 2015/16 we continued a focus on broadening our reach and growing our capability in core areas of our work. This included building our economics, Māori and Pasifika capability.

We also invested in internal resource to reduce our reliance on recruitment agencies. This has reduced our recruitment costs.

We are also focusing on growing a broader base of generic skills to complement our deep pockets of expertise and ensure there is a balance of skills across teams. In 2015/16, using the results of an assessment exercise, we offered a combined course in macro- and microeconomics for policy staff through Victoria University.

Growing leaders of the future

We know our leaders often go on to leadership roles in other public sector institutions. This year we took steps to grow a high-performance culture in our current and future leaders.

In 2015/16 the Treasury also trialled an in-house senior leadership course. We now have a complete suite of programmes across all levels of leadership learning tailored to the central agency environment. We have the ability to roll this out to other central agencies.

We have an active staff rotation policy which ensures people at the Treasury have the opportunity to round out their experience.

Embracing difference

In 2013 we began our diversity and inclusion programme, following a cultural audit which showed we need to be more open to diverse ways of thinking and be able to operate across cultural and sectoral boundaries. In 2015/16 the Secretary spoke publicly about his commitment to bringing diversity into the Treasury and into the New Zealand workforce.

Our Chief Executive joined the Public and Private Sector Champions of Change Initiative.

Other key initiatives completed in the third year of our Diversity and Inclusion Strategy include:

  • reducing scope for negative effects of unconscious bias through permanent changes to key Human Resource processes (for example, performance assessments)
  • further reforming our graduate recruitment approach to attract a more diverse group of top student applicants (for example, hosting career evenings directly with university Māori and Pasifika student networks)
There were 881 applications for the 2015/16 Treasury internship and graduate positions.
  • providing short summer internships for high school students affiliated with Ngāti Toa, and
  • working in partnership with the McGuiness Institute to bring 36 18-25-year-olds from diverse backgrounds to workshop views of poverty to inform Treasury policy.

We also have a strong cross-Treasury community of practice around diversity and inclusion where staff from across the building meet regularly to discuss these issues and devise internal initiatives which they then lead.

Māori capability

Our wharenui - Nga Mokopuna a Tane - is the heart of the Treasury. We have made a commitment to incorporating Te Ao Māori into our everyday work. In 2015/16 increasing the capability of our staff to work with Māori and incorporate Māori perspectives has been a focus. Initiatives include:

  • greater connectivity, growing a central agency view and support to the Crown/Māori space
  • finalising Te Puna Kaupapa - our programme to bring Māori perspectives
  • bringing in greater expertise and operational experience to spread across teams and to support younger policy analysts coming through
  • initial thinking around a Māori policy tool
  • working alongside other agencies more collaboratively with a common goal (for example, MFAT, Te Puni Kōkiri, MBIE), and
  • testing a leadership course based in Te Ao Māori in partnership with Toi Whakaari.

In 2015/16 we have developed our Poutama (Māori competency model measuring Māori capability) and introduced our new Te Reo Māori classes offered at three competency levels. We have also built our Māori networks and improved our recruitment processes so that we can better attract and retain staff who bring a Māori perspective.

Asia-Pacific

The Asia-Pacific region is now our greatest trading partner and a significant part of our future demographic. In 2015/16 we laid the groundwork to ensure that we had the right expertise in the Treasury in both policy and world view.

We have boosted our Pacific capability, bringing in a policy specialist who is also a matai and community leader. A Pacific policy tool to help our analysts incorporate a Pasifika perspective will be piloted in teams in the second quarter of 2016/17. We have also tested the applicability of our Living Standards Framework in Pacific communities.

Building capability to work in and with the Asian community is in its early stages and will be an area of focus for 2016/17. An Asia strategy has been scoped out and we are building our networks and connecting to super diversity.

Staff engagement

Creating a highly engaged team is critical to unlocking the full potential of people. Our aim is to be in the upper quartile for engagement in the public sector.

With this ambition in mind, each year the Treasury seeks feedback on engagement through a survey, and during the year we also intermittently run much smaller pulse surveys with managers, that are designed to give us more real-time feedback on how we are going.

Our last engagement survey, undertaken in October 2015, revealed an engagement index of 71 with a participation rate of 90.2%. While this is down from 73 the year before, and still short of the top quartile, the change is not statistically significant.

Following the 2015 survey, we conducted workshops with managers to identify the top five issues for people leaders. The workshops resulted in a commitment to explore the actions that would improve engagement in five key areas:

  • Ensuring a shared understanding of our vision and purpose
  • Communication and relationships– improving the flow and connections so that everyone knows what is happening
  • Improving the transparency and consistency of decision-making
  • Enhancing the operation of our strategic intentions model, and
  • Ensuring the transparency and effectiveness of our performance and remuneration systems.

Tools and systems that support our work

Data and analytics

Our ability to analyse and use large amounts of data is crucial to our corporate function and fulfilling our role as New Zealand's lead advisor to the Government on economic, fiscal and regulatory policy. In 2015/16 we completed a business case to invest in the development of a Treasury Information Capability that builds on the experience and success of NZDMO, to work with world-leading technology, trusted partners and large data sets. This will provide a foundation that will enable delivery of early initiatives that will increase our data analytical ability.

Information capability

To be a world-leading Treasury we need the tools and skills for the future. Repositioning our information technology and data infrastructure is integral to our success.

During the year our information technology has assisted us in delivering all of our outputs. This includes, on Budget day, publishing 4,600 pages which were delivered both as printed documents and web pages.

We managed a document management system with close to 500,000 documents, delivered more than 20 million emails, managed 11,000 intranet pages, patched, supported or updated 300 applications and answered 15,000 support calls.

We have delivered 31 projects including a modern and resilient mobility platform, a refresh of the desktop platform, a refresh of the Budget website enhancements to CFISNET and the opening stages of an update to the intranet and public facing web pages.

Our place

Most of 2015/16 has been spent working with the Government Property Group to negotiate the shift to new accommodation in 2019 as part of the all-of-government Wellington Accommodation Project, Phase Two (WAP2). This will see us co-located with SSC and the Leadership Development Centre and will improve cross-agency cohesion and assist in our own cultural improvement work.

During 2015/16 we also laid the groundwork for assets to help us work smarter and more safely. These include trialling stand-up desks and informal collaborative spaces.

Managing risk

Our risk management framework is the set of elements of our management system that we use to identify and manage risk. The framework is consistent with the AS/NZS ISO 31000:2009 risk management standard and is aligned to our business outcomes and the strategies designed to achieve these outcomes.

Over the past year we embarked on a process to improve our risk management practices through a continuous improvement approach. We baselined our current practices through stocktakes and a series of workshops, established a phased programme of work and set ourselves stretch targets for 2016/17.

Identifying and managing risk is a key part of our planning. Our high-level strategic and operational risks are documented in a risk register and our risk management arrangements include regular discussions and review by our Executive Leadership Team and Kaiurungi. We also completed a review of our Risk and Audit Committee Charter to enhance its ability to provide quality independent advice to the Chief Executive. Our assurance model is based on the “three lines of defence”. The first line is our staff and managers, the second line is executive oversight and specialist advice and the third line is independent oversight from our internal and external auditors and the Risk and Audit Committee.

Implementing the New Zealand Business Numbers 

The Treasury is subject to Cabinet Circular (16) 3 New Zealand Business Number - Implementation Requirements that was issued on 25 May 2016 which sets out requirements for us to implement the New Zealand Business Number (NZBN). NZBN is a universal identifier that will help businesses to easily update, share key information and interact with each other. This has been introduced to streamline all essential business information, and over time will become the only number businesses will need to use to interact with a range of other businesses and government agencies.

The Treasury is a Tier Two agency and must implement NZBN requirements by 31 December 2018. We plan to undertake initial analysis during 2017. We will include lessons learnt from Tier One agencies that have an earlier implementation date.

Progress in our medium-term indicators of success

Our objectives and the work we do to achieve them - progress
Indicator Desired trend Result Comment
Stakeholder survey.

The Treasury conducts a survey of its external stakeholders biennially. This year we released results of our most recent survey, which show a marked increase from 2011 and 2013 (90% confidence level) in stakeholders' overall satisfaction with the way the Treasury interacts with them. This reflects our continuing focus on frequent and effective stakeholder engagement and building our capability in this area. In 2015/16 we introduced a new initiative, a formalised relationship management approach for our public sector stakeholders.

Source: http://www.treasury.govt.nz/publications/information
releases/s/cb-s-jun15.pdf

BASS (as % of total departmental operating expenditure). 

The drop in the BASS results for 2014/15 was mainly driven by a one-off increase in our overall appropriation owing to the wind-down of Solid Energy. We expect our results to return to similar levels as the 2013/14 results.

Source:

http://www.treasury.govt.nz/statesector/performance/bass/benchmarking/2014-15

Source:

http://www.treasury.govt.nz/statesector/performance/bass/benchmarking/2014-15

Engagement survey index.

The Treasury consistently performs above other State sector organisations, but our results have dipped slightly in some areas since 2014/15. While the Treasury does very well compared to other Public Service agencies, overall levels of engagement are short of the State sector top 25% benchmark of 77%. The 2015/16 result compares with the State sector benchmark of 68%.

Source: The Treasury

Gender distribution (as a percentage of women staff as at 30 June).

At year end, 47% of the Treasury's staff were women.  This is within our targeted band of 45% to 55%.

Women also accounted for 39% of management roles (these being roles that have responsibility for direct reports).

Source: The Treasury

Annualised turnover.

Our turnover for 2015/16 compares with 10.9% across the public sector.

Source: https://www.ssc.govt.nz/sites/all/files/HRCReport-2015.pdf

Section Three - Departmental, Non-departmental and Multi-category Appropriations

This section of the report describes the groups of outputs that the Treasury was funded to deliver in 2015/16 and reports on what was achieved with each appropriation against what was intended to be achieved and how performance would be assessed as set out in the supporting information to the 2015/16 Estimates and 2015/16 Supplementary Estimates.

The output appropriations support the achievement of the Strategic Intentions set out on pages 10 to 33 of this Annual Report. Those pages provide readers with further information on the significant progress and key achievements we made using expenditure from these appropriations.

Policy Advice - Finance

What is intended to be achieved with this appropriation

This appropriation is intended to enable and facilitate ministerial decision-making that achieves for New Zealand improved economic performance, a high-performing State sector and a stable and sustainable macroeconomic environment.

What was achieved with this appropriation

Performance dimensions Target for
2015/16
Performance for 2015/16 Forecast for 2016/17

Assessment of the technical quality of policy advice papers through a review process that has a methodical robustness of at least 80%.  

Methodological robustness - the higher the robustness score, the stronger the methodological quality of the completed assessment. This is calculated using a standardised formula common to agencies and departments that participate in the policy measurement exercise.

70%

 

 

62%

There has been a new basis for calculation of this measure. See following page for a summary of the findings from the policy review.

75%

        

The satisfaction of the Minister of Finance with the policy advice service, as per the common satisfaction survey. 70% 70% 75%
The total cost per hour of producing outputs. $203

$182[7]

Thisresult is consistent with the 2014/15 result where the total cost per hour was $183.      

$203

The welfare system operates further in line with the investment approach, based on the external valuation.   

Welfare system - Through its Vote role and role as the external monitor of Work and Income (a division of MSD), the Treasury will help enable increased cross-agency collaboration to meet the expanded Better Public Services Result 1 target.

Achieved Achieved Achieved
Budget decisions are in line with short-term fiscal intentions in the BPS. Achieved Achieved Achieved
Significant Regulatory Impact Statements (RISs) meet most or all of Regulatory Impact Analysis (RIA) requirements. 90%

78%

This is an improvement on the 2014/15 result of 63%. The reasons for departments being unable to meet the RIA requirements vary. The Treasury continues to investigate the barriers for further improving performance and is developing initiatives to address them.  

90%
Tax revenue forecast error on one-year-ahead forecasts. Less than plus or minus 3% +2.1% Less than plus or minus 3%
Production of advice that provides options which allow the Government to deliver a credible fiscal strategy consistent with the fiscal prudence provisions of the Public Finance Act 1989. Where this advice is underpinned by modelling, results from major models are externally quality assured and, where appropriate, assumptions are tested with suitably qualified external experts. Achieved Achieved The measure has been adjusted for 2016/17 to reflect the periodic nature of quality assurance reviews.

The policy work funded through this appropriation forms part of the Treasury's Strategic Intentions listed below. Readers can find out more about what we achieved in these areas on pages 10 to 33 of this report.

  • New Zealand has an internationally connected and competitive business environment.
  • People have the capability and opportunities to participate in society and the economy.
  • The State sector efficiently and effectively delivers results for New Zealanders.
  • There is a faster improvement in Māori living standards.
  • The economic cycle is managed in a way that supports sustainable growth.
  • The Crown balance sheet is managed effectively and efficiently.
2015
Actual
$000
Policy Advice - Finance 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017
Unaudited Forecast
as per BEFU
2016
$000
34,582 Expenses 31,703 33,037 33,083 31,181
  Funded by:    
34,882 Revenue  Crown 32,712 33,025 32,712 31,133
51 Other revenue 284 12 371 48

Note:

The underspend is owing to savings generated by staff vacancies throughout the year and less utilisation of consultants than planned.

Notes

  • [7]This calculation is based on a time cost survey undertaken.

The quality of the Treasury's policy advice

The Treasury has a quality standard for policy advice that is applied to all appropriations. The Quality Standards for Policy Advice are published in the Information Supporting the Estimates.

Review of the quality of the Treasury's policy advice 2015/16

Following the recommendation of the Head of Policy Profession, the Treasury used the new Policy Quality Framework developed by the DPMC-led Policy Project to undertake the review this year. This approach, using a new measurement framework, involved commissioning a mixed panel of experienced policy leaders within the Treasury along with external members, to review a sample of the Treasury's written policy advice for the 2015/16 year. The intent of the review was to assess the quality of a sample of advice against the Policy Project's Quality Standards for Policy Advice, identify examples of best practice and identify areas for potential improvement.

The panel included an external chairperson from the New Zealand Institute of Economic Research, which ensures an independent perspective to the assessment exercise. The panel looked at a representative sample of advice selected using a randomised methodology.

The review found that the average grade for assessed reports was 6.2 out of 10. Owing to the change in methodology and assessment criteria, this is not directly comparable with the assessed grade of 6.8 for 2014/15.

These results mean we have not achieved our target of an average of at least 70%, or 7.0 out of 10. Had the criteria been comparable, our score would not be out of step with results from prior years; however, we take this result as an indication that we need to do more work to ensure that our Quality Standards for Policy Advice are being consistently applied across the Treasury.

The best papers were engaging and compelling, based on good evidence and sound analysis, had due regard to the wider strategic context and were practical and solution-focused in offering frank advice on the best way forward. Ministers could have a lot of confidence in this advice, and in the impact it would have if actioned. The reports that received the lower scores were generally too narrow in their focus (for example, overly tactical without regard to the wider strategic context) and not clear about the frame of analysis (and therefore why the advice made sense). Papers were marked down where there was limited discussion of alternative options, a lack of detail on how conclusions were reached or where they added little value for the decision-maker.

We will use the Policy Project guidelines and tools launched in August, as well as these assessment results, to develop a plan of action to lift the capability and performance of our policy work over the course of 2016/17. Purposefully adopting the tool will ensure that the regular review and assessment of policy papers becomes a continuous learning opportunity throughout the year.

Provision of Financial Operations Services and Operational Advice

What is intended to be achieved with this appropriation

This appropriation is intended to improve economic performance and financial stewardship across the State sector, export and financial markets, through provision of relevant and timely operational support, services and advice.

What was achieved with this appropriation

Performance measure Target for 2015/16 Performance for 2015/16 Forecast for
2016/17
All new significant operating expenditure proposals received during the Budget process are subject to cost benefit analysis (or similar). This analysis should cover: problem definition, intervention logic, options analysis, evaluation of the initiative's contribution to the agency's/sector's outcomes and result areas, how the new initiative will be implemented and evaluated and options for scaling the initiative. 100%

73%

This is an improvement on the 2014/15 result of 44%.  This has been achieved through the introduction of a new spreadsheet tool designed to help agencies undertake cost benefit analysis (called CBAx) and a requirement in Budget 2016 that all social sector initiatives (excluding cost pressures) use this tool. We are continuing to build on this in Budget 2017 with CBAx being required for all social sector and other initiatives outside of the Business Growth Agenda package required to use CBAx (unless exempted).

All submitted Budget initiatives were accompanied by a cost benefit analysis, where required.

Target: 100%

Audit opinion issued by the Controller and Auditor-General on the Financial Statements of Government. Unqualified Unqualified Unqualified
Two Economic and Fiscal Updates produced, clearly explained and with conclusions tested with external panels. Achieved Achieved

Required Economic and Fiscal Updates efficiently produced with key judgements and uncertainties clearly articulated and key assumptions have been appropriately tested.

Target: Achieved

Monthly Financial Statements of Government produced in accordance with the Public Finance Act 1989 requirements and free from material error. Achieved Achieved Achieved

Management of liabilities and investigation of mechanisms to discharge the Crown's obligations in a timely manner ensuring any costs from the materialisation of liabilities are contained.

This output class covers the management and resolution of contingent or actual liabilities associated with various Crown commitments and assets - for instance, gas and geothermal reserves, Treaty settlements and New Zealand House. In some cases, the Treasury is a provider of second-opinion advice rather than a lead agency on these matters.

Achieved

Achieved

Achieved
Compliance with risk management policies and parameters for management of Crown lending and Crown bank accounts. No breaches No breaches No breaches
Percentage of Four-year Plans submitted by agencies that meet the criteria expected of a credible medium-term strategic plan. 75%

59%

This is an increase from 2014/15 when only 48% produced a credible plan. In 2013/14 only 44% produced a credible plan. Alongside this positive trend, the majority of Four-year Plans improved from the previous year.

75%
Investment Management and Asset Performance       
All investment-intensive agencies in 2015/16 have identified meaningful performance measures for implementation in 2016/17. Achieved Not achieved. At 30 June work was still in progress to confirm appropriate measures. Subsequently most investment-intensive agencies have provided the Treasury with measures that will be used in annual reporting for 2016/17.

Expired. 

Replaced with new measure (see the next line below).

Tier 1 and 2 investment-intensive agencies comply with Cabinet's investment management rules and standards. 100%

67%

High level of compliance observed for significant investments but compliance is inconsistent across investment proposals with either a small amount of capital or where decisions are made under urgency.

100%
Percentage of Ministers and agency chief executives who believe project monitoring activities provide them with valuable information on the status of their major projects. 85%

This was not measured in 2016.

A planned survey related to major projects monitoring was not undertaken in 2015/16.

Expired.

Increasingly we are focusing on providing broader ‘investment advice' to these audiences, including the results of project monitoring.

Key agency stakeholders with a project monitored through the Gateway programme agree with the statement:  “Project monitoring advice provides me with valuable information on the status of my major projects”. 85%

This was not measured in 2016.

A planned survey related to major projects monitoring was not undertaken in 2015/16.

85%
Number of Gateway reviews completed for major capital investments. 24 24

Expired.

The Treasury is moving to a wider range of review options in future and these reviews would provide only a partial picture.

Senior Responsible Owners of major projects reviewed in the Gateway programme agree that the “review was beneficial and will impact positively on the outcome of the programme/project” and the “report's recommendations will enable me to achieve improvements in the project's outcomes”. 85% 100% of Senior Responsible Owners agreed that the “review was beneficial and will impact positively on the outcome of the programme/project” and 99% agreed the “report's recommendations will enable me to achieve improvements in the project's outcomes”. 85%
New Zealand Export Credit Office      
Number of new export credit policies underwritten. 70

Not met (46 policies).

This result is lower than expected owing to a mix of stronger private sector capacity and risk appetite, as well as reduced trade finance flows.

70
Value of new exports supported. $320 million

Not met ($193 million).

NZECO's policies primarily supported small-to-medium enterprises exporters and/or smaller-value export contracts.  Our larger-value commitments were not utilised owing to postponed or declined contracts, or lower than forecast demand and prices from international buyers. The value of last year’s export was $513,410.

$320 million
Value of new exposure of export credit policies. $120 million Met ($131 million) $120 million
Forecast total external engagements. 420 Met (556) 420
Compliance with International Guidelines (OECD and World Trade Organization) and Delegated Mandate.   100% Met (100%) 100%
Five-year Expense Ratio (Operating Expenses/Premium Earned). Lower than 60% Met (47%) Lower than 60%
Five-year Loss Ratio (Claims Paid and Reserved/Premium Earned). Lower than 35%

Not met (180%)

(see footnote[8])

Lower than 40%

Further information on what has been achieved with this appropriation is provided in the reporting against the following Strategic Intentions:

  • New Zealand has an internationally connected and competitive business environment.
  • People have the capability and opportunities to participate in society and the economy.
  • The State sector efficiently and effectively delivers results for New Zealanders.
  • The economic cycle is managed in a way that supports sustainable growth.
  • The Crown balance sheet is managed effectively and efficiently.
2015
Actual
$000
Management and Administration of Financial Operations on behalf of the Crown 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017
Unaudited Forecast
as per BEFU 2016
$000
29,198 Expenses 29,484 28,840 30,709 30,950
Funded by:    
26,235 Revenue  Crown 26,688 26,639 26,688 27,325
4,295 Other revenue 4,167 2,201 4,021 3,625

Note:

The main elements of this variance include an underspend against NZECO, owing to variable demand-related costs and lower governance costs associated with CERA.

Notes

  • [8]NZECO charges risk-weighted premiums and fees in respect of its export credit insurance and financial guarantee solutions. A key performance measurement is that NZECO's premiums and fees cover its operating costs and claims paid. Typical of an export credit agency whose role is to underwrite risks on countries, markets and businesses where the private sector's risk appetite is limited, NZECO's risks and claims can be lumpy and, accordingly, this measurement has a longer-term perspective.

Administration of Crown Borrowing, Securities, Derivative Transactions and Investment Permanent Legislative Authority

What is intended to be achieved with this appropriation

This appropriation is intended to achieve the administration of the Crown's financing requirements so as to raise sufficient funds to finance the Crown's cash deficit while minimising the cost to the Crown of such borrowing.

What was achieved in this appropriation

Performance measure Target for
2015/16
Performance for
2015/16
Forecast for
2016/17
Crown liquidity and funding risk and NZDMO market and credit risk are well managed within the Crown's risk appetite as evidenced by compliance with the following NZDMO policies: Market Risk Policy, Credit Risk Policy, Liquidity Risk Policy and Funding Risk Policy. No more than four breaches No breaches No more than four breaches
NZDMO operational risk is well managed within the Crown's risk appetite as evidenced by the number of settlement errors and financial loss arising from settlement errors. No more than six errors or $10,000 cost One error No more than six errors or $10,000 cost
2015
Actual
$000
Administration of Crown
Borrowing and Investment PLA
2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
7,593 Expenses 8,822 8,917 9,297 9,249
 

Funded by:

       
7,979 Revenue  Crown 9,244 8,914 9,244 9,244
4 Other revenue 64 3 53 5

Note:

Operating costs associated with the delivery of the Crown Debt Management function were below budget in the areas of legal fees and external provider support costs.

Administration of Guarantees and Indemnities Given by the Crown Permanent Legislative Authority

What is intended to be achieved with this appropriation

This appropriation is intended to achieve efficient and effective administration of the Crown's Guarantees and Indemnities, including the Wholesale and Retail Deposit Guarantee Schemes.

What was achieved with this appropriation

Performance measure Target for
2015/16
Performance for 2015/16 Forecast for 2016/17
Meet all legal obligations in relation to the specific rehabilitation indemnities granted by the Crown to Solid Energy New Zealand Limited in 1988 and 2014. Achieved Achieved Achieved
Meet all legal obligations under the Retail Deposit Guarantee Scheme. Achieved Achieved Achieved
2015
Actual
$000
Administration of Guarantees and Indemnities
Given by the Crown PLA
2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
34 Expenses 69 309 311 310
 

Funded by:

       
110 Revenue  Crown 309 309 309 309
- Other revenue - - 2 1

Note:

This budget provides for any residual activity after the closure of the Retail Deposit Guarantee Scheme. Apart from some administration costs, no other expenditure was required during 2015/16.

Crown Company Monitoring Advice to the Minister for State-Owned Enterprises and Other Responsible Ministers

What is intended to be achieved with this appropriation

This appropriation is intended to ensure appropriate financial and social returns, and long-term value is achieved from the SOEs, Crown entity companies (CECs) and Crown entities monitored under this appropriation.

What was achieved with this appropriation

Performance measure Target for
2015/16
Performance for 2015/16 Forecast for 2016/17
Appointments completed for Directors of SOEs. 30 44 51
Appointments completed for Board members for CECs and Crown entities that are monitored under this appropriation. 64 81 48
Provide advice in relation to ownership, performance monitoring and governance matters to the Minister for State-Owned Enterprises and other responsible Ministers in respect of the Ministers' shareholding responsibilities or as responsible Ministers for the New Zealand Lotteries Commission and Public Trust. Achieved Achieved Achieved
Provide services supporting the reporting and accountability obligations of entities that fall within the scope of the Owners Expectations Manual. Achieved Achieved Achieved
2015
Actual
$000
Crown Company Monitoring Advice to the
Minister for State-Owned Enterprises and Other Responsible Ministers
2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
4,606 Expenses 4,434 5,098 5,316 4,659

Funded by:

   
5,289 Revenue  Crown 5,291 5,098 5,291 4,657
6 Other revenue 31 - 25 2

Note:

The underspend is owing to savings generated by staff vacancies throughout the year and less utilisation of consultants than planned.

Crown Company Monitoring Advice to the Minister of Science and Innovation and the Minister for Economic Development

What is intended to be achieved with this appropriation

This appropriation is intended to ensure appropriate financial and social returns, and long-term value is achieved from Crown research institutes and Crown entities monitored under this appropriation.

What was achieved with this appropriation

Performance measure Target for 2015/16 Performance for 2015/16 Forecast for 2016/17
Appointments completed for Directors of Crown research institutes and other entities. 13 48 22
Provide services in relation to ownership, performance monitoring and governance matters to the Minister of Science and Innovation and other responsible Ministers in respect of the Ministers' shareholding responsibilities of the Crown research institutes.   Achieved Achieved Achieved
2015
Actual
$000
Crown Company Monitoring Advice to the Minister of Science and Innovation
and the Minister for Economic Development
2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
380 Expenses 140 414 265 216

Funded by:

   
432 Revenue Crown 263 414 263 215
- Other revenue 1 - 2 1

Shared Support Services

What is intended to be achieved with this appropriation

This appropriation is intended to achieve quality, efficient support services for other agencies.

What was achieved in this appropriation

During 2015/16 systems and processes of internal controls have been maintained to a high standard. Quality and timeliness of financial reporting and payroll processing have been achieved. Access and availability of IT systems has been at or above expected service levels and there has been no significant loss of or impairment of data integrity. Dedicated HR programmes were delivered for both SSC and DPMC, and a number of improvements to technology services and infrastructure were also delivered during 2015/16, including the implementation of a common IT Desktop. The Shared Service also provided support for DPMC as it implemented changes in its responsibilities for Canterbury Earthquake Recovery.

The service level standards referred to in this measure were agreed by the three central agencies as part of a shared service catalogue which describes transactional shared services and processes. The service catalogue also outlines a range of other value-added services (for example, providing advice and managing key systems and projects). On a regular basis, updates on services, key projects and other significant achievements were reported to the Shared Service Partnership Board, where the three agencies were represented.

Performance measure Target for
2015/16
Performance for 2015/16 Forecast for 2016/17
Service level standards are met to the standards and timeframes agreed with the three central agencies. Achieved Achieved Achieved
2015
Actual
$000
Shared Support Services 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
10,676 Expenses 12,933 10,400 13,221 14,313

Funded by:

   
10,676 Other revenue 12,933 10,400 13,221 14,313

Management of Anchor Projects by Ōtākaro Limited

This appropriation is limited to the Crown's contribution to Ōtākaro Limited's operating and financing expenses.

What is intended to be achieved with this appropriation

This appropriation is intended to achieve continuation of Christchurch earthquake recovery of Anchor Projects Programme and divestment of Crown-owned land in Christchurch.

What was achieved with this appropriation

Ōtākaro Limited was incorporated under Schedule 4A of the Public Finance Act 1989 in February 2016, and was fully operational in time to receive the transferred Anchor Projects Programme and Crown-owned land in Christchurch prior to CERA's disestablishment in April. In the period covered by this report, Ōtākaro Limited has still been in its establishment phase. It has successfully assumed responsibility for the Anchor Projects Programme. Ōtākaro has also started to divest land in Christchurch that was transferred to the company by the Crown. Ōtākaro has added value to the projects and Crown land while balancing good commercial outcomes and the Crown's regeneration objectives in accordance with the purpose in the company's constitution. The Treasury provided, on behalf of the Crown, $7.467 million to Ōtākaro Limited in 2015/16 from this appropriation.

Ōtākaro Limited is required to produce a Statement of Intent and Statement of Performance Expectations and to report on its financial performance in its Annual Report. Collectively these documents will include reporting on the company's performance in managing and administering the Anchor Projects Programme and divestment of land which is financed from this appropriation. The first Annual Report, covering the period between establishment and 30 June 2016, will be available in November 2016. Shareholding Ministers have agreed that the first Statement of Intent and Statement of Performance Expectations should be provided in draft to Ministers by 1 October 2016.

Performance measure Target for 2015/16 Performance for
2015/16
Forecast for 2016/17
Ōtākaro Limited will manage and administer the Anchor Projects Programme and divestment of Crown-owned land in Christchurch in accordance with the company's purpose as set out in its Constitution and its Statement of Intent. Achieved Achieved Achieved
2015
Actual
$000
Non-departmental 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
- Expenses 7,285 - 7,467 23,000

The Treasury - Capital Expenditure PLA

What is intended to be achieved with this appropriation

This appropriation is intended to achieve the renewal, upgrade or redesign of assets in support of the delivery of Treasury services.

What was achieved with this appropriation

Capital Expenditure PLA 2016
Actual
$000
2016
Main Estimates
$000
Property, plant and equipment 1,696 1,820
Intangibles 3,401 2,489
Total appropriation 5,097 4,309

Ministerial Servicing Performance 2015/16

The Treasury drafts responses to Parliamentary Questions for Written Answer (PQs), Ministerial Correspondence (MC) and Official Information Act requests (MOIAs) for consultation with, or approval by, the responsible Minister. We also respond to Official Information Act requests received by the Treasury (TOIAs).

The Treasury provides these services to the Minister of Finance, Associate Ministers of Finance and/or other Ministers on referral from the Minister of Finance or an Associate Minister of Finance; the Minister of Science and Innovation; and the Minister for State-Owned Enterprises.

  MC PQ MOIA TOIA
Total for all Votes (estimated volume for full year) 600 300 120 220
Actual volume of replies completed to 30 June 2016 407 342 127 343
Target % answered by due date 95% 100% 100% 100%
Actual % answered by due date 89% 77% 82% 92%
Target % first draft accepted 95% 100% 95% N/A
Actual % first draft accepted 84% 91% 82% N/A

Agreed measures and standards for ministerial servicing

Timeframe Quality indicator

Ministerial Correspondence

 

Unless otherwise agreed with the Minister's Office, submit a reply to:

  • correspondence marked “Urgent” by the Minister's Office within 5 working days of referral
  • correspondence specified by the Minister's Office as requiring “Priority” within 10 working days of referral, and
  • all other correspondence within 15 working days of referral.
At least 95% of replies will be acceptable to the Minister and will not require amendment.

Parliamentary Questions

 

Replies to written PQs will be submitted to the Minister's Office by 12.00pm on the due date specified by the Office.

Replies to oral PQs will be due at the Minister's Office by 12.30pm on the due date specified by the Office.

Replies will be consistent with Standing Order 386.

Replies to Official Information Act requests made to the Minister

 

All MOIA requests and Ombudsman investigations will be handled within the time limits prescribed by the Act.

Replies will be delivered to the Minister at least 5 working days before the relevant statutory time limit, unless otherwise agreed with the Minister's Office.

All replies will be complete and accurate in the information they convey and will be prepared with appropriate consultation of relevant parties.

Advice on, handling of and replies to MOIA requests will accord with the provisions of the Official Information Act 1982.

At least 95% of MOIA replies will be acceptable to the Minister and will not require amendment.

Replies to Official Information Act requests made to the Treasury

 

All TOIA requests and Ombudsman investigations will be handled within the time limits prescribed by the Act.

The Treasury will consult and inform the Minister, and/or other Ministers, on replies to TOIAs, as appropriate and within agreed timeframes.

All replies will be complete and accurate in the information they convey.

Advice on, handling of and replies to TOIA requests will accord with the provisions of the Official Information Act 1982.

Consultation on proposed replies will be appropriate and acceptable to the Minister.

Multi-category Appropriations

Greater Christchurch Anchor Projects MCA

What is intended to be achieved with this appropriation

This appropriation is intended to achieve the management of anchor projects and divestment of Crown-owned land in Christchurch.

In April 2016, CERA was disestablished. This appropriation enables the Crown's anchor project construction programme in Christchurch to continue under the management of a new fully Crown-owned company, Ōtākaro Limited.

What was achieved with this appropriation and each of its categories

Ōtākaro Limited was incorporated under Schedule 4A of the Public Finance Act 1989 in February 2016, and was fully operational in time to receive the transferred Anchor Projects Programme prior to CERA's disestablishment in April. A Transfer Agreement was entered into on 15 April 2016, under which the Crown agreed to transfer the land and assets associated with the anchor projects to Ōtākaro Limited. The Crown also agreed to provide the company with initial working capital, and to provide ongoing funding for the company's operations. The appropriations for each anchor project, previously established in Vote Canterbury Earthquake Recovery, were transferred to Vote Finance as set out below. Funds can be drawn down by the company under a Project Funding Agreement with the Crown.

In the period covered by this report, Ōtākaro Limited has still been in its establishment phase. It has successfully assumed responsibility for the anchor project construction programme and helped ensure business continuity during the transfer. Notably, the company has assisted the Crown to make changes to the procurement approach for the Christchurch Convention Centre project. As a Schedule 4A company, Ōtākaro Limited is required to produce a Statement of Intent and a Statement of Performance Expectations and to report on its performance in its Annual Report. This includes reporting on its performance in the construction and management of the anchor projects financed from this appropriation. The first Annual Report, covering the period between establishment and 30 June 2016, will be available in November 2016. Shareholding Ministers have agreed that the first Statement of Intent and Statement of Performance Expectations should be provided in draft to Ministers by 1 October 2016.

Performance measure Target for
2015/16
Performance for 2015/16 Forecast for 2016/17
Payments made in respect of Greater Christchurch Anchor Projects are made in accordance with the terms and conditions of the relevant funding agreements and agreed timelines. Achieved Achieved Achieved

Christchurch Bus Interchange and Associated Transport Infrastructure - Operating

     
Payments are made in line with the terms and conditions of the funding agreement. Achieved Achieved Achieved

Christchurch Convention Centre – Operating

     
The project will be progressed in line with government decisions and agreed project timelines. Achieved Achieved Achieved

Christchurch Stadium – Operating

     
The project will be progressed in line with government decisions and agreed project timelines. Achieved Achieved Achieved

Earthquake Memorial – Operating

     
The project will be progressed in line with the agreed project timelines. Achieved Achieved Achieved

Metro Sports Facility – Operating

     
The project will be progressed in line with the agreed project timelines. Achieved Achieved Achieved

Pre-development Holding Costs – Operating

     
Land is managed in accordance with the Crown's commercial and regeneration interests. Achieved Achieved Achieved

Procurement of Land and Assets – Operating

     
Land and assets are acquired and made ready in accordance with project outcomes and timelines. Achieved Achieved Achieved

Public Space – Operating

     
Projects are progressed in line with the agreed project timelines. Achieved Achieved Achieved

Christchurch Bus Interchange and Associated Transport Infrastructure – Capital

     
Expenditure is in line with the agreed project timelines. Achieved Achieved Achieved

Christchurch Convention Centre – Capital

     
Payments to Ōtākaro for capital expenditure are made in line with the terms and conditions of the funding agreement. Achieved Achieved Achieved

Earthquake Memorial – Capital

     
Expenditure is in line with the agreed project timelines. Achieved Achieved Achieved

Land and Asset Acquisition – Capital

     
Payments to Ōtākaro for capital expenditure are made in line with the terms and conditions of the funding agreement. Achieved Achieved Achieved

Metro Sports Facility – Capital

     
Payments to Ōtākaro for capital expenditure are made in line with the terms and conditions of the funding agreement. Achieved Achieved Achieved

Public Space – Capital

     
Expenditure is in line with the agreed project timelines. Achieved Achieved Achieved
2015
Actual
$000
Non-departmental 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
- Expenses and capital expenditure 50,250 - 440,417 203,887

Inquiries into Research and Productivity-related Matters MCA

The overarching purpose of this appropriation is to provide for inquiries into, and research and promotion of, productivity-related matters. In particular:

  • inquiries undertaken by the New Zealand Productivity Commission in accordance with the New Zealand Productivity Commission Act 2010, and
  • research undertaken by the Productivity Commission into, and promoting public understanding of, productivity-related matters in accordance with the Productivity Commission Act 2010.

What is intended to be achieved with this appropriation

This appropriation is intended to provide advice to the Government on improving productivity in a way that is directed to supporting the overall wellbeing of New Zealanders through undertaking in-depth inquiries, carrying out productivity-related research and promoting understanding of productivity-related issues.

What was achieved with this appropriation and each of its categories 

In 2015/16 the Productivity Commission delivered two inquiries into productivity-related topics. The first inquiry, Using Land for Housing, considered issues relating to land supply and development capability for housing. Following the release of the report, the Government released its formal response, announcing new policies such as a National Policy Statement on Urban Development, designed to address land supply and housing supply issues. The Commission also released an inquiry into More Effective Social Services. The Government is considering the findings of the report and will release a response in due course.

The Commission also undertook research into, and promoted the public understanding of, productivity-related matters, publishing a number of research reports. The Commission also coordinated the Productivity Hub - a grouping of four agencies that coordinates productivity analysis across the public sector. The other key agencies in the Hub are the Treasury, MBIE and Statistics New Zealand. During 2015/16 the Hub continued its focus on firm-level analysis of New Zealand's productivity performance. The Productivity Hub hosted a Productivity Symposium on 1 December 2015, where researchers, officials and academics from New Zealand and overseas met to deliver presentations and discuss productivity-related matters. The Commission released blogs, transcripts and press material relating to the Symposium, which may be found at the following link: http://www.productivity.govt.nz/research-paper/productivity-symposium-transcript

Performance measure Target for
2015/16
Performance for 2015/16 Forecast for 2016/17

Inquiries into Productivity-related Matters

     
The Board of the New Zealand Productivity Commission will meet to manage and administer in accordance with their Statement of Intent. Achieved Achieved Achieved

Inquiries into Productivity-related Matters

     
The Commission's recommendations are agreed and implemented - as a result of their recommendations (typically through inquiry work), better decisions are made that lead to improved productivity. Achieved Achieved Achieved
Improved productivity analysis and advice in New Zealand - scarce resources for productivity work are better coordinated, leading to more influential and effective research outcomes. Achieved Achieved Achieved
Improved public understanding of productivity issues - people and organisations gain a better understanding of what productivity is and why it is important, increasing the likelihood that productivity improvements are made. Achieved Achieved Achieved

Research into and Promotion of Productivity-related Matters

     
Define and undertake research on, and promote understanding of, productivity-related matters. The Commission will publish research papers and further the development of collaborative research partnerships. As part of their collaboration, they will work with other government agencies and the wider research community through chairing the Productivity Hub. Achieved Achieved Achieved
2015
Actual
$000
Non-departmental 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
5,030 Expenses 5,030 5,030 5,030 5,030

Note:

Further information on what has been achieved with this appropriation will be provided in the Annual Report of the New Zealand Productivity Commission.

Management of Landcorp Protected Land Agreement MCA

The overarching purpose of this appropriation is meeting the Crown's responsibilities under the Landcorp Protected Land Agreement.

What is intended to be achieved with this appropriation

This appropriation is intended to meet the Crown's responsibilities under the Landcorp Protected Land Agreement.

What was achieved with this appropriation

The Protected Land Agreement requires the Treasury to arrange for reimbursement to Landcorp for the costs it has incurred on farms that it is holding on behalf of the Crown (predominantly for the use in future Treaty settlements). The Treasury provided, on behalf of the Crown, $0.425 million in operating costs and $1.450 million in capital to Landcorp in 2015/16.

Performance measure Target for
2015/16
Performance for
2015/16
Forecast for
2016/17

Operating Costs

     
An exemption was granted under s15D(2)(b)(iii) of the Public Finance Act 1989 as the annual expenditure under this appropriation was less than $5 million. Exempt N/A Exempt

Capital Investments

     
An exemption was granted under s15D(2)(b)(iii) of the Public Finance Act 1989 as the annual expenditure under this appropriation was less than $15 million. Exempt N/A Exempt
2015
Actual
$000
Non-departmental 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
- Total appropriation 1,875 4,000 5,500 4,250
 

Non-departmental other expenses

       
- Operating costs 425 2,000 3,500 2,250
 

Non-departmental capital expenditure

       
- Capital investments 1,450 2,000 2,000 2,000

Management of New Zealand House, London MCA

The overarching purpose of this appropriation is to ensure that New Zealand House, London is well managed.

What is intended to be achieved with this appropriation

This appropriation is intended to ensure that New Zealand House, London is well managed.

What was achieved with this appropriation and each of its categories

The operational costs in this MCA relate to the ongoing property running costs and associated depreciation. The running costs largely comprise property maintenance and landlord-related service charges (for example, utilities, security and insurance). The maintenance programme and other property-related expenditures are managed by the London-based property manager Jones Lang LaSalle.

Performance measure Target for 2015/16 Performance for
2015/16
Forecast for 2016/17

Property Management

     
An exemption was granted under s15D(2)(b)(iii) of the Public Finance Act 1989 as the annual expenditure under this appropriation was less than $5 million. Exempt N/A Exempt

Operational Costs

     
An exemption was granted under s15D(2)(b)(iii) of the Public Finance Act 1989 as the annual expenditure under this appropriation was less than $5 million. Exempt Expenditure in 2015/16 exceeded the limit of the exemption. Accordingly, additional commentary on work undertaken under this appropriation has been included above this year. Exempt

Capital Expenditure

     
An exemption was granted under s15D(2)(b)(iii) of the Public Finance Act 1989 as the annual expenditure under this appropriation was less than $15 million. Exempt N/A Exempt
2015
Actual
$000
Non-departmental 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
10,650 Total appropriation 11,145 14,750 17,360 16,650
 

Non-departmental output expenses

       
253 Property management 207 1,000 800 1,000
 

Non-departmental other expenses

       
10,207 Operational costs 10,777 13,000 13,900 13,000
190 Renegotiation of lease arrangements 161 - 410 1,900
- Capital expenditure - 750 2,250 750

Management of the Crown's Agreement with Taitokerau Forests Limited MCA

The overarching purpose of this appropriation is meeting the Crown's responsibilities under its agreement with Taitokerau Forests Limited.

What is intended to be achieved with this appropriation

This appropriation is intended to achieve meeting the Crown's responsibilities under its agreement with Taitokerau Forests Limited.

What was achieved with this appropriation

The agreement requires the Crown to lend money to Taitokerau Forests Limited to meet the costs of maintaining and harvesting forests that Taitokerau Forests Limited owns on Māori land - the land is owned separately by various Trusts and other entities. The Crown's lending is repaid as each forest is harvested. The Crown lent $0.400 million to Taitokerau Forests Limited in 2015/16. The Crown made grants of $0.791 million to the Māori landowners, through Taitokerau Forests Limited, to assist them to afforest their lands again. The Crown also impaired $4.543 million worth of loans in 2015/16.

Performance measure Target for 2015/16 Performance for
2015/16
Forecast for 2016/17

Grants

     
An exemption was granted under s15D(2)(b)(iii) of the Public Finance Act 1989 as the annual expenditure under this appropriation was less than $5 million. Exempt N/A Exempt

Impairment of Loans

     
An exemption was granted under s15D(2)(b)(iii) of the Public Finance Act 1989 as performance information is unlikely to be informative as this category is solely for the technical accounting treatment under the loan agreement with Taitokerau Forests Limited. Exempt N/A Exempt

Loans

     
An exemption was granted under s15D(2)(b)(iii) of the Public Finance Act 1989 as the annual expenditure under this appropriation was less than $15 million. Exempt N/A Exempt
2015
Actual
$000
Non-departmental 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
- Total appropriation 5,734 1,000 7,364 1,830
 

Non-departmental other expenses

       
- Grants 791 200 473 230
- Impairment of loans 4,543 - 5,791 1,100
 

Non-departmental capital expenditure

       
- Loans 400 800 1,100 500

Social Housing Reform MCA

The overarching purpose of this appropriation is to improve the variety of social housing in New Zealand and grow the community housing sector, by making HNZC stock available to social housing providers. In particular, this appropriation provides for:

  • policy, operational and transactional work to implementation of the Social Housing Reform Programme through the Government's reform of social housing, and
  • direct sale costs for implementing the Social Housing Reform Programme.

What is intended to be achieved with this appropriation

This appropriation is intended to achieve the development of a variety of social housing in New Zealand and grow the community housing sector by making HNZC stock available to social providers.

What was achieved with this appropriation and each of its categories

The Treasury's work on the Government's Social Housing Reform Programme continued this year. Working closely with MBIE, MSD and HNZC we are looking to improve social housing tenants' outcomes and grow the number and quality of social housing places as well as encourage a greater diversity of providers.

A key component of the Treasury's work is the creation of a market for social housing in which registered community housing providers participate alongside HNZC. The first major milestone in the Treasury's work related to social housing in the Tāmaki region of Auckland with 2,873 properties transferred to the Tamaki Regeneration Company (TRC) in the Auckland suburbs of Glen Innes, Panmure and Point England. TRC established a community housing provider which is now managing these properties and tenancies.

In 2015/16 the Treasury initiated two transfers of social housing from HNZC to community housing providers - one in Tauranga and one in Invercargill.

Subsequent to the only party invited to submit a proposal withdrawing from the Invercargill process, the Government has decided not to proceed with a transfer there at this time. However, it has not ruled out initiating another transaction process there at some point in the future.

The proposed transaction in Tauranga involves 1,124 houses and tenancies. Following an Expression of Interest, three respondents were invited to submit to a Request for Proposal. An evaluation of these proposals has been undertaken and Accessible Properties Limited was announced as the preferred bidder in August 2016. Assuming the final negotiations are successfully completed, Accessible Properties will become the new landlord for Housing New Zealand tenants in Tauranga around April 2017.

Performance measure Target for 2015/16 Performance for 2015/16 Forecast for 2016/17

Social Housing Reform

The Social Housing Reform Programme is developed to allow the progress of transactions in 2015/16. Achieved Achieved Achieved

Implementation of the Social Housing Reform Programme

Develop policies and prepare legal documentation in light of progress with the Social Housing Reform Programme, including initial transactions. Achieved Achieved Achieved

Direct Sale Costs for Implementing the Social Housing Reform Programme

Progress Cabinet-mandated transactions as scheduled for 2015/16. Achieved

Achieved

 

Achieved
2015
Actual
$000
Social Housing Reform MCA 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
2017 Unaudited Forecast
as per BEFU 2016
$000
 

Departmental

       
1,915 Expenses: Implementation of the Social Housing Reform Programme 8,263 4,600 10,925 7,860
 

Funded by:

   
4,500 Revenue  Crown 10,875 4,600 10,875 7,858
- Other revenue 60 - 50 2
 

Non-departmental

       
- Direct sale costs for implementing the Social Housing Reform Programme 4,176 7,900 6,900 3,600

Note:

The Social Housing Reform Programme underspend is owing to the timing for the consultation and commercial proposal stages being extended, delaying the incurrence of subsequent transaction-related costs.

Further information

More information on what has been achieved with this appropriation is provided in the reporting against the following strategic intention:

  • The State sector efficiently and effectively delivers results for New Zealanders.

Section Four - Statements of Expenses and Capital Expenditure

Statement of Budgeted and Actual Expenses and Capital Expenditure Incurred Against Appropriations

for the year ended 30 June 2016

The Statement of Budgeted and Actual Expenses and Capital Expenditure Incurred Against Appropriations details expenditure against appropriations. Total departmental output classes expenditure and appropriations equal total expenses in the Statement of Comprehensive Revenue and Expenses on page 66. Total non-departmental output classes expenditure and appropriations equal total expenses in the Schedule of Expenses on page 79.

2015
Actual
$000
Note[9] 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
Location of
End-of-year
Performance
nformation

Vote Finance

     

Departmental Output Expenditure

     
7,593 Administration of Crown Borrowing and Investment PLA   8,822 8,917 9,297 The Treasury Annual Report
34 Administration of Guarantees and Indemnities Given by the Crown PLA   69 309 311 The Treasury Annual Report
4,606 Crown Company Monitoring Advice to the Minister for SOEs and Other Responsible Ministers   4,434 5,098 5,316 The Treasury Annual Report
380 Crown Company Monitoring Advice to the Minister for Science and Innovation and the Minister for Economic Development   140 414 265 The Treasury Annual Report
34,582 Policy Advice - Finance   31,703 33,037 33,083 The Treasury Annual Report
29,198 Provision of Financial Operations Services and Operational Advice   29,484 28,840 30,709 The Treasury Annual Report
149 Provision of Financial Services to the New Zealand Local Government Funding Agency RDA   - 165 - The Treasury Annual Report
10,676 Shared Support Services   12,933 10,400 13,221 The Treasury Annual Report
87,218 Total Departmental Output Expenditure   87,585 87,180 92,202  

Departmental Capital Contribution

       
700 Total Departmental Capital Contribution   820 - 820  

Departmental Capital Expenditure

     
4,434 Total Departmental Capital Expenditure   5,097 4,309 6,274  
253 Management of New Zealand House, London   - - - N/A
- Management of Anchor Projects by
Ōtākaro Limited
2 7,285 - 7,467 The Treasury Annual Report
24 Management of Crown's Obligations for
Geothermal Wells
  192 151 467 Exempt
326 Management of the New Zealand Superannuation Fund   428 528 628 Exempt
603 Total Non-departmental Output Expenses   7,905 679 8,562  

Non-departmental Borrowing Expenses

     
3,619,582 Debt servicing[10] 3 (c) 3,409,180 3,391,920 3,424,513 N/A
3,619,582 Total Non-departmental Borrowing Expenses   3,409,180 3,391,920 3,424,513  

Non-departmental Other Expenses

     
- Auckland Council Loans: Loss on Early Repayment   1,487 - 20,000 Exempt
60 Crown Residual Liabilities   90 60 86 Exempt
635 Direct Sale Costs for Implementing the Mixed Ownership Model   - - - N/A
- Geothermal Wells Fund   - 500 1,500 Exempt
- Government Inquiry into Foreign Trust Disclosure Rules   76 - 150 Exempt
- Government Superannuation Appeals Board   3 50 50 Exempt
27,932 Government Superannuation Fund Authority - Crown's Share of Expenses10   35,114 33,000 38,000 Exempt
684,125 Government Superannuation Fund Unfunded Liability10   581,360 679,582 614,065 Exempt
333,000 Impairment of Investment in Southern Response Earthquake Services Ltd 5 222,000 - 417,000 Exempt
32,865 National Provident Fund Schemes - Liability Crown Under Crown Guarantee10   27,225 36,000 27,000 Exempt
190 Renegotiation of New Zealand House Lease   - - - N/A
10,207 New Zealand House, London   - - - N/A
5,402 Payments in respect of NZECO Guarantees and Indemnities10   2,762 - - Exempt
- Review and Reform of Local Government Infrastructure Arrangements   977 1,000 1,625 The Treasury Annual Report
107,731 Solid Energy New Zealand Limited - Payments for Environmental Rehabilitation10 6 1,851 - 1,851 Exempt
2,000 Stadium Southland   - - - N/A
697 Taitokerau Forests Limited Grant   - - - N/A
8 Unclaimed Money10   30 250 250 Exempt
- Unclaimed Trust Money10   - 250 250 Exempt
- Unwind of Discount Rate used in the Present Value Calculation of Payment of Shares in International Institutions10   1,605 - 1,605 Exempt

 

15,857

Unwind of Discount Rate Used in the Present Value Calculation of Payment Under Crown Deed of Support with Southern Response Earthquake Services Limited 5 16,370 12,843 16,370 Exempt
- Write-off of Historical Investment in Solid Energy 6 60,900 - 60,900 Exempt
1,220,709 Total Non-departmental Other Expenses   951,850 763,535 1,200,702  
 

Non-departmental Capital Expenditure

         
- Crown Asset Management Limited - Acquisition of Residual Assets   - - 1,000 Exempt
34,103 International Financial Institutions10 1 334,714 44,000 350,494 Exempt
1,178 Landcorp Protected Land Agreement - Capital   - - - N/A
- Loan Facility for Tamaki Redevelopment Company MYA 7 8,500 100,000 23,000 Tamaki Redevelop-ment Company Annual Report
- Ōtākaro Limited Equity Injection 2 6,100 - 6,100 Exempt
- Refinancing of Housing New Zealand Corporation and Housing New Zealand Limited Debt 7 142,362 142,362 142,362 Reported in the same document as the Treasury Annual Report
333,000 Southern Response Earthquake Services Limited: Equity Investment 5 222,000 - 417,000 Exempt
1,000 Taitokerau Forests   - - - N/A
- Transfer of Anchor Project to Ōtākaro Limited MYA 2 204,452 - 300,000 Exempt
- Transfer of Housing New Zealand Corporation's Tāmaki Housing Stock to Tāmaki Redevelopment Company 7 1,631,161 1,300,000 1,631,161 Reported in the same document as the Treasury Annual Report
369,281 Total Non-departmental Capital Expenditure   2,549,289 1,586,362 2,871,117  
 

Multi-category Expenses and Capital Expenditure

         
1,915 Implementation of the Social Housing Reform Programme   8,263 4,600 10,925 The Treasury Annual Report
1,915 Total Departmental Multi-category Output Expenses   8,263 4,600 10,925  
 

Non-departmental Multi-category Output Expenses

         
4,401 Inquiries into Productivity-related Matters   4,401 4,401 4,401 The Treasury Annual Report
629 Research into and Promotion of Productivity-related Matters   629 629 629 The Treasury Annual Report
- Direct Costs of Social Housing Programme 7 4,176 7,900 6,900 The Treasury Annual Report
- NZ House - Property Management   207 1,000 800 Exempt
5,030 Total Non-departmental Multi-category Output Expenses   9,413 13,930 12,730  
 

Total Non-departmental Multi-category Other Expenses

         
- Landcorp - Operating Costs   425 2,000 3,500 Exempt
- NZ House - Operational Costs   10,777 13,000 13,900 The Treasury Annual Report
- NZ House - Renegotiation of Lease Arrangements   161 - 410 Exempt
- Taitokerau - Grants   791 200 473 Exempt
- Taitokerau - Impairment of Loans   4,543 - 5,791 Exempt
- Christchurch Bus Interchange and Associated Transport Infrastructure - Contributions from Third Parties 2 - - 100 Exempt
- Christchurch Bus Interchange and Associated Transport Infrastructure - Operating 2 12,999 - 41,788 The Treasury Annual Report
- Christchurch Convention Centre - Operating 2 1,812 - 8,016 The Treasury Annual Report
- Christchurch Stadium - Contributions from Third Parties 2 - - 100 Exempt
- Christchurch Stadium - Operating 2 11 - 4,000 The Treasury Annual Report
- Christchurch Earthquake Memorial - Operating 2 2 - 8 The Treasury Annual Report
- Christchurch Financial Impact of Valuations 2 - - 2,831 Exempt
- Christchurch Leasing Anchor Project Land 2 - - 6,000 Exempt
- Christchurch Council Metro Sports Facility - Contributions from Third Parties 2 - - 100 Exempt
- Christchurch Metro Sports Facility - Operating 2 2,759 - 9,389 The Treasury Annual Report
- Christchurch Pre-development Holding Costs - Operating 2 98 - 5,463 The Treasury Annual Report
- Christchurch Procurement of Land and Assets - Operating 2 1,582 - 75,514 The Treasury Annual Report
- Christchurch Council Public Space - Contributions from Third Parties 2 - - 100 Exempt
- Christchurch Public Space - Operating 2 13,655 - 105,217 The Treasury Annual Report
- Christchurch Residential Housing - Operating 2 - - - N/A
- Christchurch Sale of Land 2 - - 2,684 Exempt
- Christchurch The Square - Contributions from Third Parties 2 - - 100 Exempt
- Total Non-departmental Multi-category Other Expenses   49,615 15,200 285,484  
 

Non-departmental Multi-category Capital Expenditure

         
- Landcorp Capital Investments   1,450 2,000 2,000 Exempt
- NZ House   - 750 2,250 Exempt
- Taitokerau Loans   400 800 1,100 Exempt
- Christchurch Bus Interchange and Associated Transport Infrastructure 2 - - 7,860 The Treasury Annual Report
- Christchurch Convention Centre 2 5,000 - 24,500 The Treasury Annual Report
- Christchurch Stadium 2 - - - N/A
- Earthquake Memorial 2 2,896 - 3,625 The Treasury Annual Report
- Land and Asset Acquisition 2 - - 104,384 The Treasury Annual Report
- Metro Sports Facility 2 - - 1,000 The Treasury Annual Report
- Public Space 2 9,436 - 37,638 The Treasury Annual Report
- Residential Housing 2 - - - N/A
- Total Non-departmental Multi-category Capital Expenditure   19,182 3,550 184,357  
6,945 Total Multi-category Expenses and Capital Expenditure   86,473 37,280 493,496  
5,308,772 Total Departmental and Non-departmental Expenditure and Appropriations   7,098,199 5,871,265 8,097,686  

Statement of Expenses and Capital Expenditure Incurred Without, or in Excess of, Appropriation or Other Authority

for the year ended 30 June 2016

Expenses and capital expenditure incurred without appropriation or outside scope or period of appropriation

Nil.

Expenses and capital expenditure incurred in excess of appropriation

For the year ended 30 June 2016 there was one item of unappropriated expenditure in Vote Finance.

Appropriation type Appropriation name Appropriated Expenditure in 2015/16
$000
Total Expenditure, Expenses or Liabilities Incurred
$000
Unapproved Unappropriated Expenses
$000
Appropriated Expenditure in 2016/17
$000
Non-departmental Other Expense Crown Residual Liabilities 86 90 4 60

Historically, there has been an underspend against this appropriation. This was expected to continue in 2015/16. However, in July the Treasury received a number of invoices relating to the latter part of the year, which resulted in unappropriated expenditure. These costs were not anticipated to occur in 2015/16.

Notes

  • [9]The notes referenced are the Explanatory Notes to Supplementary Statements and Schedules – Non-departmental on pages 84-86.
  • [10] These expenses or capital expenditures have permanent legislative authority.

Statement of Capital Injections

for the year ended 30 June 2016

2015
Actual
$000
Capital injections 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
   700 Capital contributions - to fund new assets 820 - 820

Statement of Comprehensive Revenue and Expenses

for the year ended 30 June 2016

The Statement of Comprehensive Revenue and Expenses details the revenue and expenses relating to all outputs (goods and services) produced by the Treasury during the financial year ended 30 June 2016. Total expenses are equal to total departmental output classes expenditure and appropriations in the Statement of Departmental Expenses and Capital Expenditure Incurred Against Appropriations on page 59.

2015 2016 2016 2016 2017
 
Actual
Actual Main Estimates
Unaudited
Supp. Estimates
Unaudited
Forecast
BEFU 2016 Unaudited
$000   Note $000 $000 $000 $000

Income

 
79,427 Revenue  Crown - non-exchange 2 85,382 77,969 85,382 80,741
15,187 Other revenue - exchange 3 17,540 13,811 16,745 17,997
94,614 Total income   102,922 91,780 102,127 98,738

Expenditure

58,680 Personnel costs 4 62,564 59,522 60,541 65,237
3,343 Depreciation and amortisation expense 5 4,117 5,703 4,394 5,053
1,068 Capital charge 6 1,124 1,125 1,124 1,124
26,042 Other operating expenses 7 28,043 25,430 31,868 26,291
89,133 Total expenditure   95,848 91,780 97,927 97,705
5,481 Net surplus/(deficit) and comprehensive revenue and expenses    7,074 - 4,200 1,033

Statement of Changes in Equity

for the year ended 30 June 2016

2015   2016 2016 2016 2017
Actual Actual Main Estimates
Unaudited
Supp. Estimates
Unaudited
Forecast
BEFU 2016
Unaudited
$000 $000 $000 $000 $000
13,349 Balance as at 1 July 2015 14,049 14,049 14,049 14,049
5,481 Comprehensive revenue and expenses 7,074 - 4,200 1,033
(5,481) Return of operating surplus to the Crown (7,074) - (4,200) (1,033)
700 Capital contributions 820 - 820 4,548
14,049 Balance as at 30 June 2016  14,869 14,049 14,869 18,597

The accompanying accounting policies and notes form part of these Financial Statements.

Statement of Financial Position

as at 30 June 2016

The Statement of Financial Position reports the total assets and liabilities of the Treasury as at 30 June 2016. Taxpayers' funds are represented by the difference between the assets and liabilities.

2015 2016 2016 2016 2017
Actual Actual Main Estimates
Unaudited
Supp. Estimates
Unaudited
Forecast
BEFU 2016
Unaudited
$000   Note $000 $000 $000 $000

Assets

 

Current assets

4,833 Cash and cash equivalents 9,989 3,215 4,550 14,117
1,808 Debtors and other receivables   3,057 1,400 1,050 1,050
826 Prepayments 591 292 292 292
15,252 Debtor Crown 12,690 7,000 15,886 8,098
22,719 Total current assets 26,327 11,907 21,778 23,557

Non-current assets

3,801 Property, plant and equipment 5 3,502 5,625 4,655 4,180
4,960 Intangible assets 5 6,236 6,875 4,589 2,852
8,761 Total non-current assets 9,738 12,500 9,244 7,032
31,480 Total assets 36,065 24,407 31,022 30,589

Liabilities

Current liabilities
7,271 Creditors and other payables 8 7,966 4,258 5,853 4,859
5,481 Repayment of surplus 7,074 - 4,200 1,033
3,913 Employee entitlements 9 5,462 5,200 5,200 5,200
16,665 Total current liabilities 20,502 9,458 15,253 11,092

Non-current liabilities

766 Employee entitlements 9 694 900 900 900
766 Total non-current liabilities 694 900 900 900
17,431 Total liabilities 21,196 10,358 16,153 11,992
14,049 Net assets 14,869 14,049 14,869 18,597

Equity

14,049 Taxpayers' funds   14,869 14,049 14,869 18,597
14,049 Total equity   14,869 14,049 14,869 18,597

The accompanying accounting policies and notes form part of these Financial Statements.

Statement of Cash Flows

for the year ended 30 June 2016

The Statement of Cash Flows summarises the cash movements in and out of the Treasury during the financial year. It takes no account of money owed to the Treasury or owing by the Treasury and therefore differs from the Statement of Comprehensive Revenue and Expenses on page 66.

2015 2016 2016 2016 2017
Actual Actual Main Estimates
Unaudited
Supp. Estimates
Unaudited
Forecast
BEFU 2016
Unaudited
$000   Note $000 $000 $000 $000
 

Cash flows from operating activities

         
65,062 Receipts from Crown 87,944 77,130 84,748 79,902
15,899 Receipts from other revenue 16,277 13,811 17,503 17,997
(25,484) Payments to suppliers (26,855) (33,890) (31,577) (20,033)
(60,035) Payments to employees (61,028) (52,318) (58,174) (62,968)
(1,068) Payments for capital charge (1,124) (1,125) (1,124) (1,124)
905 Goods and services tax net   (302) 397 (724) 500
(4,721) Net cash flows from operating activities 10 14,912 4,005 10,652 14,274

Cash flows from investing activities

(1,877) Purchase of property, plant and equipment (1,696) (1,820) (3,197) (1,865)
(2,557) Purchase of intangible assets   (3,401) (2,489) (3,077) (2,375)
(4,434) Net cash flows from investing activities   (5,097) (4,309) (6,274) (4,240)

Cash flows from financing activities

700 Capital contributions 820 - 820 4,548
- Repayment of surplus to the Crown   (5,479) - (5,481) (4,194)
700 Net cash flows from financing activities   (4,659) - (4,661) 354
(8,455) Net (decrease)/increase in cash 5,156 (304) (283) 10,388
13,288 Cash at the beginning of the year   4,833 3,519 4,833 3,729
4,833 Cash at the end of the year   9,989 3,215 4,550 14,117

The accompanying accounting policies and notes form part of these Financial Statements.

Statement of Commitments

Statement of Commitments
2015
Actual
$000
2016
Actual
$000
  Non-cancellable operating lease commitments  
4,085 Not later than 1 year 3,297
3,869 Later than 1 year and not later than 5 years
7,954 Total non-cancellable operating lease commitments 3,297
  Capital commitments  
  Not later than 1 year 480
- Total capital commitments 480
7,954 Total commitments 3,777

Non-cancellable operating lease commitments

The Treasury has non-cancellable operating leases on its principal premises at No 1 The Terrace, Wellington until 2017. These operating lease commitments have been recorded at their gross values in the Statement of Commitments.

Statement of Contingent Liabilities and Contingent Assets

Unquantifiable contingent liabilities

The Department has unquantifiable contingent liabilities for carpark licences and a Deed of Lease against certain damages or loss caused by our use of those carparks and premises.

The Treasury also granted indemnities to Research in Motion Limited and Reuters services contract in respect of breaches of licence agreements and contracts.

Quantifiable contingent liabilities and assets

As at 30 June 2016, the Department had no quantifiable departmental contingent assets or liabilities (30 June 2015: Nil).

The accompanying accounting policies and notes form part of these Financial Statements.

Notes to the Departmental Financial Statements and Non-Departmental Schedules

for the year ended 30 June 2016

1  Statement of Accounting Policies

The Treasury is a New Zealand government department as defined by section 2 of the Public Finance Act 1989.

In addition, the Treasury has reported separately on the Non-departmental Schedules which present financial information on public funds managed by the Treasury on behalf of the Crown, and Trust monies which it administers on behalf of the Crown.

The primary objective of the Treasury is to provide services to the public rather than making a financial return. Accordingly, the Treasury has designated itself as a public benefit entity for the purposes of New Zealand Public Benefit Entity International Public Sector Accounting Standards (NZ PBE IPSAS).

The Financial Statements of the Treasury are for the year ended 30 June 2016. The Forecast Financial Statements are for the year ended 30 June 2017. These Financial Statements were authorised for issue by the Secretary to the Treasury on 30 September 2016.

The Departmental Financial Statements and the financial information reported in the Non-departmental Schedules are consolidated into the Financial Statements of the Government and therefore readers of these schedules should also refer to the Financial Statements of the Government for the year ended 30 June 2016.

Statement of compliance

The Financial Statements and unaudited Forecast Financial Statements of the Treasury and the Non-departmental Schedules have been prepared in accordance with the requirements of the Public Finance Act 1989, which includes the requirement to comply with New Zealand Generally Accepted Accounting Practices (NZ GAAP), Treasury Instructions and Treasury Circulars. Measurement and recognition rules applied in the preparation of the Non-departmental Supplementary Financial Schedules are consistent with NZ GAAP and Crown accounting policies and are detailed in the Financial Statements of the Government. These Financial Statements have been prepared in accordance with Tier 1 NZ PBE accounting standards.

Basis of preparation

The principal accounting policies applied in the preparation of the Financial Statements and Non-departmental Schedules are set out in Note 2. Where a detailed accounting policy is not included, refer to Crown accounting policies in the Financial Statements of the Government.

Measurement base

The Financial Statements have been prepared on an historical cost basis, modified by the revaluation of derivative financial instruments to fair value.

Functional and presentation currency

The Financial Statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000). The functional currency of the Treasury is New Zealand dollars.

Changes in accounting policies

There have been no changes in accounting policies during the financial year.

Budget figures

The budget figures are those included in the Department's Budget Estimates for the year ended 30 June 2016, which are consistent with the financial information in the Main Estimates. In addition, the Financial Statements also present the updated budget information from the Supplementary Estimates 2016.

Foreign Exchange

Foreign Exchange transactions are translated into New Zealand dollars using the exchange rates prevailing at the dates of the transactions. Foreign Exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Non-departmental Schedule of Expenses.

Forecast figures

Basis of preparation

Forecast Financial Statements have been prepared in accordance with the accounting policies expected to be used in the future for reporting historical general purpose financial statements.

These Forecast Financial Statements have been prepared in accordance with NZ PBE IPSAS, based on BEFU incorporating assumptions as to future events that the Treasury reasonably expects to occur, associated with the actions it reasonably expects to take. They have been compiled on the basis of existing government policies and ministerial expectations at the date that the information was prepared.

The actual results will remain substantially the same as the previous year. The main assumptions were as follows:

  • The Treasury's activities and output expectations will remain substantially the same as the previous year focusing on the Government's priorities.
  • Personnel costs were based on current wages and salary costs, adjusted for anticipated remuneration changes.
  • Operating costs were based on historical experience and other factors that are believed to be reasonable in the circumstances and are the Treasury's best estimate of future costs that will be incurred.

Additional factors that could lead to material differences between the Forecast Financial Statements and the 2016/17 Actual Financial Statements include changes to the baseline budget through new initiatives, transfer of funding across financial years or technical adjustment.

Authorisation statement

These Forecast Financial Statements were authorised for issue by the Secretary and Chief Executive of the Treasury on 30 April 2016. The Secretary and Chief Executive is responsible for the Forecast Financial Statements presented, including the appropriateness of the assumptions underlying the Forecast Financial Statements and all other required disclosure. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual financial results achieved for the period covered are likely to vary from the information presented, and the variations may be material.

Statement of cost allocation policies

The Treasury has determined the cost of outputs using the following cost allocation system:

  • Direct costs are expenses incurred from activities in producing outputs. These costs are charged directly to the related output classes.
  • Indirect costs are expenses incurred by Corporate Services and by the Office of the Chief Executive that cannot be identified with a specific output. Indirect costs are allocated to each output class based on cost drivers, related activity and usage information.

There have been no changes in the Treasury's general cost accounting policies since the date of the last audited Financial Statements.

Critical accounting estimates and assumptions

There are no critical accounting estimates and assumptions made in preparing these Financial Statements.

Notes to the Departmental Financial Statements and Non-Departmental Schedules (continued)

2  Revenue Crown - Non-exchange

Revenue from the Crown is measured based on the Treasury's funding entitlement for the reporting period. The funding entitlement is established by Parliament when it passes the Appropriation Acts for the financial year. The amount of revenue recognised takes into account any amendments to appropriations approved in the Appropriation (Supplementary Estimates) Act for the year and certain other unconditional funding adjustments formally approved prior to balance date. There are no conditions attached to the funding from the Crown. However, the Treasury can incur expenses only within the scope and limits of its appropriations. The fair value of Revenue Crown has been determined to be equivalent to the funding entitlement.

3  Other Revenue

Other Revenue
2015
Actual
$000
  2016
Actual
$000
2016
Main
Estimates
Unaudited
$000
2016
Supp.
Estimates
Unaudited
$000
10,676 Cost recoveries from SSC and DPMC for CASS 12,933 10,400 13,221
1,686 Cost recoveries from secondments 2,086 1,688 1,529
2,336 Cost recoveries from Gateway project 1,878 1,520 1,376
489 Other 643 203 619
15,187 Total revenue - departmental 17,540 13,811 16,745

4  Personnel Costs

Personnel Costs
2015
Actual
$000
  2016
Actual
$000
2016
Main
Estimates
Unaudited
$000
2016
Supp.
Estimates
Unaudited
$000
54,413 Salaries and wages 57,551 54,462 55,310
1,785 Superannuation contributions to defined contribution plans 1,874 1,922 1,955
(65) Increase/(decrease) in employee entitlements 194 - -
1,570 Training and development 1,840 1,911 2,044
977 Other 1,105 1,227 1,232
58,680 Total personnel costs 62,564 59,522 60,541

5  Property, Plant and Equipment and Intangibles

Property, Plant and Equipment and Intangibles
Leasehold
Improvements
$000
Furniture, Fittings
and Office
Equipment
$000
Computer
Hardware
$000
Intangibles
$000
Total
$000
Cost  
Balance at 1 July 2015 5,234 2,430 6,106 8,689 22,459
Additions 39 1,657 3,401 5,097
Disposals (432)   (432)
Balance at 30 June 2016 5,234 2,469 7,331 12,090 27,124
Accumulated depreciation and impairment losses  
Balance at 1 July 2015 4,421 1,927 3,621 3,729 13,698
Depreciation expense 495 168 1,329 2,125 4,117
Disposals     (430)   (430)
Impairment losses 1   1
Balance at 30 June 2016 4,917 2,095 4,520 5,854 17,386
Carrying amounts  
At 1 July 2014 856 278 2,795 3,741 7,670
At 30 June/1 July 2015 813 503 2,485 4,960 8,761
At 30 June 2016 317 374 2,811 6,236 9,738
Property, Plant and Equipment and Intangibles
Asset Useful Life Depreciation/Amortisation Rate
Furniture and fittings and office equipment 3-10 years 10%-33%
Leasehold improvements 12 years 8%
Computer equipment 3-5 years 20%-33.3%
Computer software 3 years 33.3%

There are no restrictions over the title of the Treasury's intangible assets. No intangible assets are pledged as security for liabilities.

6  Capital Charge

The Treasury pays a capital charge to the Crown based on its equity as at 30 June and 31 December each year. The capital charge rate for the 2016 year was 8.0% (2015: 8.0%).

7  Other Operating Expenses

Other Operating Expenses
2015
Actual
$000
  2016
Actual
$000
2016
Main
Estimates
Unaudited
$000
2016
Supp.
Estimates
Unaudited
$000
4,124 Rental of  premises 3,942 3,977 3,920
1,058 Bank fees, commissions and service charges 1,063 983 981
  Fees to auditor:
332  -  fees to KPMG for audit of the Department and NZDMO 332 381 428
 1,432  -  fees to KPMG for other services* 234 133 133
 206 Audit of Financial Statements of the Government 207 206 206
 6,327 Consultants 8,604 7,003 12,338
 1,930 Legal fees 616 362 347
553 Process management services 461 908 768
2,036 Transport and travel 2,328 2,314 2,311
5,651 Information and communication costs 6,941 7,166 6,765
- Office administration costs 713 711 597
 2,393 Other operating costs 2,602 1,286 3,074
26,042 Total operating expenses 28,043 25,430 31,868

* The Social Housing Reform Programme is being coordinated by the Treasury and therefore the consultancy work is funded via the Treasury, although the programme has application outside of the Treasury's internal functions.In addition to the above Departmental expenditure, fees of $1.475 million were paid to KPMG for direct sales costs relating to the Social Housing Reform Programme. These fees are included in Non-Departmental Multi-category output expenses.

8  Creditor and Other Payables

Creditor and Other Payables
2015
Actual
$000
  2016
Actual
$000
2016
Main
Estimates
Unaudited
$000
2016
Supp.
Estimates
Unaudited
$000
2,984 Payables 2,658 3,858 4,853
2,562 Accrued expenses 3,898 - -
1,725 GST payable to Inland Revenue 1,410 400 1,000
7,271 Total creditors and other payables 7,966 4,258 5,853

Notes to the Departmental Financial Statements and Non-Departmental Schedules (continued)

9 Employment

Other Revenue
2015
Actual
$000
  2016
Actual
$000
2016
Main
Estimates
Unaudited
$000
2016
Supp.
Estimates
Unaudited
$000

Current employment entitlement provisions

- Accrued salaries 348 898 816
536 Accrued performance payments 493 264 264
2,967 Annual leave 3,201 2,790 2,986
100 Sick leave 165 154 140
310 Retirement, resigning and long service leave 277 508 462
- Other employee entitlements 978 586 532
3,913 Total current employment entitlement provisions 5,462 5,200 5,200
 

Non-current employment entitlement provisions

     
766 Retirement, resigning and long service leave 694 900 900
766 Total non-current employment entitlement provisions 694 900 900
4,679 Total employee entitlements 6,156 6,100 6,100

The present value of the retirement and long service leave obligations depends on a number of factors. Two key factors are the discount rate and the salary-inflation factor. Any changes in these assumptions will change the carrying amount of the liability.

In determining the appropriate discount rate, the Department has adopted the central table of risk-free discount rates and CPI assumptions provided by the Treasury to all departments.

10 Reconciliation of Net Surplus to Net Cash Flows from Operating Activities

Other Revenue
2015
Actual
$000
  2016
Actual
$000
2016
Main
Estimates
Unaudited
$000
2016
Supp.
Estimates
Unaudited
$000
5,481 Net surplus/(deficit) 7,074 - 4,200

Non-cash items:

3,343 Depreciation, amortisation and impairment expenses 4,117 5,703 4,394
3,343 Total non-cash items 4,117 5,703 4,394

Add/(less) items classified as investing or financing activities

- Net (gains)/losses on disposal of property, plant and equipment 1 - -

Add less movements in deferrals and accruals:

(14,365) (Increase)/decrease in debtor Crown 2,562 -  (634)
853 (Increase)/decrease in debtors and other receivables (1,249) - 758
(516) (Increase)/decrease in prepayments 235 - 534
1,145 Increase/(decrease) in creditors and other payables 1,010 (500) (688)
905 Increase/(decrease) in GST (315) (400) (725)
9 Increase/(decrease) in provisions (72) (798) 1,526
(1,576) Increase/(decrease) in employee entitlements 1,549 - 1,287
(13,545) Net movement in working capital items  3,720 (1,698) 2,058
(4,721) Net cash flow from operating activities 14,912 4,005 10,652

11 Related Party Transactions

All related party transactions have been entered into on an arm's-length basis and are therefore exempt from the need for disclosure.

The Treasury is a wholly-owned entity of the Crown and received funding from the Crown of $85.382 million to provide services to the public for the year ended 30 June 2016 (2015: $79.427 million). The Government significantly influences the roles of the Treasury as well as being its major source of revenue.

In conducting its activities, the Treasury is required to pay various taxes and levies to the Crown and entities related to the Crown. The payment of these taxes and levies, other than income tax, is based on the standard terms and conditions that apply to all tax and levy payers. The Treasury is exempt from income tax.

The Treasury also purchased and sold goods and services from entities controlled, significantly influenced or jointly controlled by the Crown. Purchases from these government-related entities for the year ended 30 June 2016 totalled $3.739 million (2015: $5.018 million). These purchases exclude capital charge and include air travel from Air New Zealand, ACC levies, legal advice from the Crown Law Office and services provided by other government departments primarily being Audit NZ, DPMC, MFAT, SSC, Department of Internal Affairs, MBIE, and Statistics New Zealand.

Other Revenue
2015
Actual
$000
  2016
Actual
$000
3,709 Salaries and other short-term employee benefits 2,508
102 Post-employment benefits 73
4 Termination payment 67
3,815 Total key management personnel compensation 2,648

Key management personnel of the Treasury as at 30 June 2016 were the Secretary and the Executive Leadership Team (five Deputy Secretaries).

The above key management personnel compensation excludes the remuneration and other benefits the Ministers of Finance, State-Owned Enterprises, Infrastructure and Science and Innovation receive. The Ministers' remuneration and other benefits are not received only for their role as a member of key management personnel of the Treasury. The Ministers' remuneration and other benefits are set by the Remuneration Authority under the Members of Parliament (Remuneration and Services) Act 2013and are paid under Permanent Legislative Authority, and are not paid by the Treasury.

Related party transactions involving key management personnel (or their close family members)

There were no related party transactions involving key management personnel or their close family members. No provision has been required, nor any expense recognised, for impairment of receivables from related parties (2015: Nil).

12  Events After Balance Date

There were no events subsequent to balance date that required adjustment to the Financial Statements or disclosure (2015: Nil).

13  Explanation of Major Variances Against Budget

Statement of Comprehensive Revenue and Expense, Statement of Financial Position and Statement of Cash Flows:

  • Total assets are higher than forecast predominantly owing to the underspend of $7.074 million being higher than the forecast of $4.200 million. This has meant the cash balance at year end was also higher than forecast. This was offset by the increase in current liabilities owing to the repayment of the surplus, being higher than forecast.

Schedule of Expenses

for the year ended 30 June 2016

The Schedule of Expenses summarises expenses that the Department administers on behalf of the Crown. Details of Non-departmental expenditure and appropriations are provided in the Explanatory Notes to Supplementary Statements and Schedules - Non-departmental on pages 84 to 86.

Schedule of Assets and Liabilities
2015
Actual
$000
Note 2016
Actual
$000
2016
 Main Estimates
$000
2016
Supp. Estimates
$000

Vote Finance

   
603 Non-departmental output expenses   7,905 679 8,562
5,030 Non-departmental multi-category output expenses   9,413 13,930 12,730
3,619,582 Debt servicing 3(a) 3,409,180 3,391,920 3,424,513
1,220,709 Non-departmental annual other expenses   951,850 763,535 1,200,702
- Non-departmental multi-category other expenses   49,615 15,200 285,484

Re-measurements:

       
2,049,000 Government Superannuation Fund revaluation: actuarial loss*   2,028,000 - 898,000
25,134 Change in NPF DBP(A) Scheme provision under Crown Guarantee*   65,315 - -
5,450 Change in Southern Response Earthquake Services Limited (SRESL) provision 5 7,364 808 7,363
15,694 Change in Solid Energy New Zealand Limited  Rehabilitation Indemnity Provision 6 (54,364) (34,990) (54,364)
- Foreign exchange losses incurred by the Treasury 1 17,895 - 3,599
- Foreign exchange losses incurred by NZDMO   - - 1,000
8,758 Other re-measurements incurred by the Treasury   15,661 - -
3,000 Fair value losses and write-downs incurred by NZDMO 18,912 84,000 42,000
6,952,960 Total non-departmental expenses   6,526,746 4,235,082 5,829,589

The Statement of Accounting Policies is an integral part of these Supplementary Financial Schedules.

For a full understanding of the Crown's financial position and the result of its operations for the year, refer to the consolidated Financial Statements of the Government for the year ended 30 June 2016.

*Details on GSF and NPF-related balances are presented in the note: Retirement Plan Liabilities and Provisions to Financial Statements of the Government of New Zealand for the year ended 30 June 2016 respectively.

Schedule of Commitments and Contingent Liabilities
as at 30 June 2016

The Department, on behalf of the Crown, has entered into non-cancellable contracts in relation to New Zealand House in London at a value of $1.4 million for the year ended 30 June 2016.

Disclosure of contingent liabilities incurred by the Crown is detailed in the Financial Statements of the Government of New Zealand for the year ended 30 June 2016.

Schedule of Revenue and Capital Receipts

for the year ended 30 June 2016

2015
Actual
$000
Note 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000

Vote Finance

   

Non-departmental revenue

   
1,933,640 Capital charge   1,997,168 1,962,498 1,989,300
1,727,000 Change in GSF unfunded liability: actuarial gain*   - - -
44,578 Change in International Financial Institutions Investment   - - -
26,526 Change in SRESL Crown Support Deed and Uncalled Capital Liability

5

2,219 - 1,306
2,104 Change in Solid Energy New Zealand Limited Environmental Rehabilitation Indemnity Provision 6 54,364 34,990 54,364
4,659 Change in other Crown's assets and liabilities   5,317 - -
733,157 Dividends from State-Owned Enterprises   800,842 712,334 776,980
38,150 Dividends from Crown entities   8,472 9,015 10,620
3,549 Dividends from Crown research institutes and other dividends   8,516 2,505 12,266
289,982 Interest revenue   250,909 306,863 259,014
527,368 Other income, fair value and foreign exchange gains - NZDMO 3(b) 412,680 192,137 273,428
100,553 Other current revenue 4 621,275 592,144 574,163
5,431,266 Total non-departmental revenue and receipts   4,161,762 3,812,486 3,951,441

Non-departmental capital receipts

       
52,288 Return of capital by IMF 1 445,546 - 436,344
- Capital withdrawal from Crown entities   8,750 13,611 8,750
15,509 Loan and other repayments   30,694 830 34,799
- Housing New Zealand Corporation Limited and Housing New Zealand Limited Loan Repayments   143,000 - 142,999
67,797 Total non-departmental capital receipts   627,990 14,441 622,892
5,499,063 Total non-departmental revenue and capital receipts   4,789,752 3,826,927 4,574,333

The Statement of Accounting Policies is an integral part of these Supplementary Financial Schedules.

* Details on GSF-related balances are presented in the note: Retirement Plan Liabilities to Financial Statements of the Government of New Zealand for the year ended 30 June 2016.

For a full understanding of the Crown's financial position and the result of its operations for the year, refer to the consolidated Financial Statements of the Government for the year ended 30 June 2016.

Schedule of Assets and Liabilities

as at 30 June 2016

The Schedule of Assets and Liabilities summarises the assets and liabilities that the Department administers on behalf of the Crown.

Schedule of Assets and Liabilities
2015
Actual
$000
Note 2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
Current assets    
6,644,336 Cash and cash equivalents   6,718,323 4,050,332 6,045,336
9,028 Accounts receivable and prepayments   104,909 4,632 3,910
570,554 Advances   1,175,004 359,376 214,554
3,895,000 Marketable securities, deposits and derivatives in gain   5,576,849 4,236,000 5,021,000
11,118,918 Total current assets   13,575,085 8,650,340 11,284,800
Non-current assets        
6,553,000 Advances   6,159,000 7,557,000 6,726,000
257,950 Air New Zealand goodwill   257,950 257,950 257,950
1,961,000 Marketable securities, deposits and derivatives in gain   2,742,000 1,626,000 2,557,000
277,079 Other share investments   394,999 221,973 409,295
218,818 Other equity-accounted investments   227,751 200,444 218,818
66,601 Property, plant and equipment   55,085 49,499 244,522
9,334,448 Total non-current assets   9,836,785 9,912,866 10,413,585
20,453,366 Total non-departmental assets   23,411,870 18,563,206 21,698,385
Current liabilities        
4,411,000 Crown balances with Westpac   4,280,000 3,386,000 4,205,000
109,601 Payables and accrued expenses   234,324 8,511 121,609
10,478,000 Borrowings 3(c) 5,557,000 5,097,000 4,802,000
742,000 GSF unfunded liability   724,000 693,000 742,000
153,615 Provisions   269,375 358,483 432,174
15,894,216 Total current liabilities   11,064,699 9,542,994 10,302,783
Non-current liabilities        
72,462,000 Borrowings 3(c) 80,410,000 80,008,000 80,818,000
10,102,300 GSF unfunded liability   11,716,826 11,499,000 10,555,098
892,559 NPF DBP(A) Scheme unfunded provision   918,000 833,259 847,059
666,842 Provisions   379,886 27,064 272,644
84,123,701 Total non-current liabilities   93,424,712 92,367,323 92,492,801
100,017,917 Total non-departmental liabilities   104,489,411 101,910,317 102,795,584

In addition, the Treasury monitors 12 SOEs, four mixed ownership model entities and 21 Crown entities. The investment in these entities is consolidated in the Crown Financial Statementsonaline-by-line basis.The investment in these entities is not included in this Schedule.

The Statement of Accounting Policies is an integral part of these Supplementary Financial Schedules.

For a full understanding of the Crown's financial position and the result of its operations for the year, refer to the consolidated Financial Statements of the Government for the year ended 30 June 2016.

Statement of Trust Monies

as at 30 June 2016

(a) Unclaimed money

Unclaimed money
2015
$000
2016
$000
5,822 Unclaimed money 9,362
25 Meridian Initial Public Offer Trust Account 9
30 Genesis Initial Public Offer Trust Account 20
3 Might River Power Initial Public Offer Trust Account 1
5,880 Total Trust Account monies closing balance 9,392

The Trust Account is established pursuant to section 67 of the Public Finance Act 1989, for the purposes of depositing money paid to the Crown under section 77 of the Trustee Act 1956.

The source of funds is principally estates of deceased persons where the beneficiaries cannot be traced. Funds are retained in the Trust Account for six years, and are then transferred to the Crown as unclaimed money.

Details of funds held in the Trust Account are gazetted annually.

During the year, there has been $4.6 million of contributions (2015: $1.2 million) and $1 million (2015: $0.245 million) of distributions made from the Trust Account. Interest earned on the Trust Account for the year was $0.150 million (2015: $0.088 million).

(b) Government Share Offer Trust Accounts

Over the past two years the Crown opened Initial Public Offer Trust Accounts to facilitate the partial sale of Meridian, Genesis and Mighty River Power. The source of funds relates to proceeds from the sale of shares and distributions relate to refunds paid to investors.

There has been insignificant movement in the Trust Accounts for both the 2015/16 and 2014/15 financial years.

The Statement of Accounting Policies is an integral part of these Supplementary Financial Schedules.

For a full understanding of the Crown's financial position and the result of its operations for the year, refer to the consolidated Financial Statements of the Government for the year ended 30 June 2016.

Statement of Accounting Policies
for the year ended 30 June 2016

Reporting entity

These Non-departmental Schedules present financial information on public funds managed by the Treasury on behalf of the Crown.

The financial information reported in these schedules is consolidated into the Financial Statements of the Government, and therefore readers of these schedules should also refer to the Financial Statements of the Government for the year ended 30 June 2016.

Basis of preparation

The Non-departmental Schedules have been prepared in accordance with the accounting policies of the Financial Statements of the Government, Treasury Instructions and Treasury Circulars.

Measurement and recognition rules applied in the preparation of the Non-departmental Schedules are consistent with Crown accounting policies and Tier 1 NZ PBE accounting standards.

Significant accounting policies

The accounting policies adopted have been applied consistently to all years presented in these schedules. Crown accounting policies are detailed in the Financial Statements of the Government of New Zealand.

Explanatory Notes to Supplementary Statements and Schedules - Non-departmental

Explanatory notes provide details of significant Treasury Non-departmental expenditure and revenue variances between actual results in 2014/15 and 2015/16 and between 2015/16 actual results and 2015/16 Supplementary Estimates. All Non-departmental balances are included in the Financial Statements of the Government of New Zealand, with the exception of impairment of investments.

1  International Financial Institutions (IFIs)

Contributions of $198.9 million (2015: $34.1 million) were made to IMF in 2015/16 compared to forecast of $44 million owing to a timing variation in the draw-down of funding by IFIs and the finalisation of the 14th Quota increase in IMF. In December 2015, the agreement between the New Zealand Government and Asian Infrastructure Investment Bank (AIIB) came into effect, whereby the Government has agreed to subscribe to 4,615 shares in the authorised capital stock of AIIB with a value of US$461.50 million. AIIB is a Chinese-initiated multilateral investment bank aimed at addressing the significant gap in infrastructure investment across Asia. On subscription, 20% of this amount (US$92.3 million) is called but paid in five equal instalments over five years, with a present value of $135.814 million. Payments of the called portion are included in the fiscal forecast. The remaining 80% (US$369.2 million) is classified as callable capital stock and will only be called as and when required by AIIB to meet its liabilities.

Capital withdrawals of $445.546 million (2015: $52.288 million) were made by IMF, representing a repayment of advances by IMF, which support countries in financial difficulties, as well as a repayment to New Zealand as part of the promissory notes issuance for the 14th Quota increase in IMF. During the year, a loss of $17.895 million on revaluation of IFIs' investment was recorded as a result of New Zealand dollar foreign exchange rate movement (2015: $44.6 million gain).

2  Ōtākaro Limited and Greater Christchurch Anchor Projects

CERA was disestablished on 18 April 2016 as the Government transitioned from leading the recovery to establishing long-term, locally-led recovery and regeneration arrangements. Responsibilities for the continuation of the key Anchor Projects Programme and precincts in Christchurch, along with managing the Crown's property assets in the central city, are now carried out by Ōtākaro Limited, a Crown entity.

Funding to Ōtākaro Limited is made up of an operating grant and funding for the anchor projects. The funding was secured through the fiscally neutral transfer of funding from Vote Canterbury Earthquake Recovery. As a result, a new, Non-departmental, output expense appropriation, Management of Anchor Projects by Ōtākaro Limited and a Multi-category appropriation, Greater Christchurch Anchor Projects MCA were established during the year. For the current year, the Crown incurred $7.285 million and $50.250 million in respect of Non-departmental output expenses, Management of Anchor Projects by Ōtākaro Limited and Greater Christchurch Anchor Projects MCA respectively. The Crown also injected $6.1 million of initial working capital to Ōtākaro as part of its establishment.

In addition, a new, Non-departmental, multi-year, capital expenditure appropriation, Transfer of Assets to Ōtākaro Limited has been set up to enable the transfer of anchor projects assets from the Crown and into Ōtākaro Limited. The transfer of assets to Ōtākaro Limited amounted to $204.452 million, representing the fair value of anchor projects assets, funded via a non-cash equity injection by the Crown of $61.016 million and the issuance of a Vendor Finance Loan for the amount of $143.436 million. Interest is charged on a base risk-free rate plus interest margin, whereby the interest margin represents a concessionary component of the loan and will be funded via operating funding to Ōtākaro Limited, Management of Anchor Projects by Ōtākaro Limited appropriation.

Some of the land transferred to Ōtākaro for the anchor projects, rather than being built on, will become new public space for the people of greater Christchurch and visitors to enjoy. Under the cost-sharing agreement signed by the Crown and the Christchurch City Council (“the Council”), any land for anchor projects that forms part of the “public realm” will vest in and be maintained by the Council. The vesting date is yet to be determined. The creation of this space will be an asset for the people of Christchurch for generations to come.

The Crown has therefore recognised a provision of the “public realm” land that will be transferred to the Council at a future date.

3  New Zealand Debt Management Office

Detailed disclosures of borrowings and financial instruments are included in the Financial Statements of the Government.

(a) Debt servicing

During 2015/16, debt servicing expenses have decreased owing to lower average volumes of long-term debt (Government Bonds) combined with lower average interest rates and decreased inflation indexation expenses.

(b) Other income, fair value and Foreign Exchange gains - NZDMO

Other Income - NZDMO is lower in 2015/16 primarily owing to a decrease in interest revenue on loans to SOEs and Crown entities.

(c) Borrowings

For the year ended 30 June, borrowings have increased, with higher long-term (Government Bonds) borrowings, whereas the short-term (Treasury Bills) have decreased, reflecting short-term liquidity decisions. Previously classified short-term Government Bonds during 2014/15 have since matured in 2015/16. There are no short-term Government Bonds as at 30 June 2016.

4  Other Current Revenue

Significant balances included in Other Current Revenue are: Employers' Superannuation contributions, Reserve Bank Surplus, Earthquake Commission guarantee fee, recovery of Crown's costs from third parties in respect of Anchor Projects programme, rental income from New Zealand House and surpluses from investments in associates. Current year Other Current Revenue is higher by $520.722 million, owing to a significantly higher Reserve Bank Surplus of $510 million returned to the Crown during the current fiscal year.

5  Southern Response Earthquake Services Limited (SRESL)

The Crown's commitment of financial support to SRESL for the ongoing settlement of its Canterbury earthquake claims is embodied in a Crown Support Deed (CSD). The Support Deed provides two key capital instruments: $500 million of convertible preference shares (the Preference Shares); and the $500 million Uncalled Ordinary Share facility which has been extended by $250 million during the year to reflect the additional support necessary to enable the company to settle all its outstanding claims. For the year ended 30 June 2016, the Crown has paid the convertible Preference Share facility in full and paid $43 million on the Uncalled Ordinary Share facility.

The financial obligations to SRESL under the Uncalled Ordinary Share facility have been revalued to their net present value at 30 June 2016. This valuation is driven by SRESL's expected cash drawdown profile based on the underlying outstanding insurance claims valuation, and its discounting over the life of the CSD. The insurance claims valuation was completed by Finity Consulting Pty Limited.

Included in the Schedule of Liabilities - Other Provision is additional support of $222 million provided to SRESL during the year as part of the uncalled capital under the CSD. This capital injection is immediately written-off as it is not recoverable. Included in the Statement of Departmental and Non-departmental Expenses and Capital Expenditure against appropriations is interest unwind expense recognised on the outstanding liability for the year of $16.370 million (2015: $15.857 million). There has been a net re-measurement loss of the CSD of $5.145 million (2015: $21.076 net gain).

During the 2016/17 year, it is estimated the Crown is to pay $264 million to SRESL to assist in settling its outstanding claims. This amount was included in Other Current Liabilities in the Schedule of Assets and Liabilities (2015: $142 million).

6  Solid Energy New Zealand Limited

On 1 July 2015, the 1987 indemnity transferred to the Treasury from MBIE for continued monitoring and management.

In August 2015, the Board of Solid Energy New Zealand Limited placed the company and all associated companies into voluntary administration, a process which allowed the company to continue trading while creditors considered the best way forward. Creditors voted to support Solid Energy's plans for the company to continue operating under a Deed of Company Arrangement (DOCA), with a view for the company to undertake an orderly, managed sale of its assets prior to June 2018. As a result of the voluntary administration, during the year, a new, Non-departmental Other Expense Write-off of historical investment in Solid Energy New Zealand Limited appropriation was set up of $60.9 million.

Under the DOCA, the old Crown indemnities (1987 and 2014) have been cancelled and replaced with new Crown indemnities, the 2015 Indemnities, with there being a separate indemnity for each mine site. The Deeds of Indemnity create a liability provision for the Crown and an asset for Solid Energy. As at 30 June 2016, $124.161 million is included in the Schedule of Liabilities - Other Provision, representing the maximum amount of the Crown's liability to indemnify Solid Energy, or third parties should mines sell. As a result of the 2015 Indemnities, the old Crown indemnities have been re-measured for the amount of $54.364 million. For the year ended 30 June, there has been $1.851 million (2015: $4.731 million) of interest unwind incurred for the discounting of the liability.

7  Social Housing

The Government's Social Housing Reform Programme is focused on the development of a more diverse supply of social and affordable housing to meet the diversity of tenants' needs. An important aspect of the programme is the transfer of HNZC homes to community housing providers.

The first major milestone in the Social Housing Reform Programme relates to social housing in the Tāmaki region of Auckland. The Government transferred ownership and management of 2,873 properties in the Auckland suburbs of Glen Innes, Panmure and Point England to the Tamaki Regeneration Company (TRC) on 31 March 2016. A new, Non-departmental, capital expenditure appropriation was established to reflect the Crown withdrawing capital from HNZC and injecting equity into TRC for the amount of $1,631.161 million, representing the market value of the housing stock being transferred. The Crown advanced a loan to TRC for the amount of $8.5 million to enable the continuation of the Social Housing Reform Programme by enabling supply of both social and affordable housing in Auckland.

During the year, the Crown incurred $4.176 million (2015: Nil) of direct costs in respect of the Social Housing Reform Tauranga and Invercargill programme.

In order to align with the Social Housing Reform Programme and the Treasury's monitoring responsibility of HNZC and Housing New Zealand Limited (HNZL), the HNZC and HNZL debt refinancing appropriation has been transferred to Vote Finance. For the year ended 30 June 2016, there has been $142.362 million of debt refinanced.

8  Events After Balance Date

Crown Rehabilitation Indemnities

Subsequent to balance date and subject to execution of the Deed of Commitment by the Ministers, the Crown has agreed with relevant counterparties terms of a restructured rehabilitation indemnity relating specifically to acid drainage resulting from historical mining at the Stockton mine. The new arrangements will only come into effect on transfer of the Stockton mine to a new owner. This restructured rehabilitation indemnity is expected to account for the majority of the difference between the rehabilitation liability and the Crown's indemnity as at 30 June 2016.

Independent Auditor's Report

To the Readers of the Treasury's Annual Report for the Year Ended 30 June 2016

The Auditor-General is the auditor of the Treasury (the Department). The Auditor-General has appointed me, Graeme Edwards using the staff and resources of KPMG, to carry out the audit on her behalf of:

  • the financial statements of the Department on pages 66 to 77 that comprise the statement of financial position, statement of commitments, statement of contingent liabilities and contingent assets as at 30 June 2016, the statement of comprehensive revenue and expense, statement of changes in equity, and statement of cash flows for the year ended on that date and the notes to the financial statements that include accounting policies and other explanatory information;
  • the performance information prepared by the Department for the year ended 30 June 2016 on pages 11 to 33, 35 to 48 and 50 to 58.
  • the statement of expenses and capital expenditure for the year ended 30 June 2016 on pages 59 to 64
  • the schedules of non-departmental activities which are managed by the Department on behalf of the Crown on pages 79 to 86 that comprise:
    • the schedules of: assets and liabilities; commitments and contingent liabilities; as at year ended 30 June 2016;
    • the schedule of expenses and revenue for the year ended 30 June 2016;
    • the statement of trust monies for the year ended 30 June 2016;and
    • the notes to the schedules that include accounting policies and other explanatory information

Opinion

In our opinion:

  • the financial statements of the Department:
    • present fairly, in all material respects:
    • its financial position as at 30 June 2016; and
    • its financial performance and cash flows for the year ended on that date;
    • comply with generally accepted accounting practice in New Zealand and have been prepared in accordance with Public Benefit Entity Reporting Standards.
  • the performance information of the Department:
    • presents fairly, in all material respects, for the year ended 30 June 2016:
    • what has been achieved with the appropriation; and
    • the actual expenses or capital expenditure incurred compared with the appropriated or forecast expenses or capital expenditure;
    • complies with generally accepted accounting practice in New Zealand.
  • the statements of expenses and capital expenditure of the Department on pages 59 to 64 are presented fairly, in all material respects, in accordance with the requirements of section 45A of the Public Finance Act 1989.
  • the schedules of non-departmental activities which are managed by the Department on behalf of the Crown on pages 79 to 86 present fairly, in all material respects, in accordance with the Treasury Instructions:
    • the assets; liabilities; commitments; contingent liabilities and assets as at 30 June 2016; and
    • expenses and revenue for the year ended 30 June 2016; and
    • the statement of trust monies for the year ended 30 June 2016

Our audit was completed on 30 September 2016. This is the date at which our opinion is expressed.

The basis of our opinion is explained below. In addition, we outline the responsibilities of the Secretary to the Treasury and our responsibilities, and we explain our independence.

Basis of opinion

We carried out our audit in accordance with the Auditor-General's Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the information we audited is free from material misstatement.

Material misstatements are differences or omissions of amounts and disclosures that, in our judgement, are likely to influence readers' overall understanding of the information we audited. If we had found material misstatements that were not corrected, we would have referred to them in our opinion.

An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the information we audited. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the information we audited, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Department's preparation of the information we audited in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Department's internal control.

An audit also involves evaluating:

  • the appropriateness of accounting policies used and whether they have been consistently applied;
  • the reasonableness of the significant accounting estimates and judgements made by the Secretary to the Treasury;
  • the appropriateness of the reported performance information within the Department's framework for reporting performance;
  • the adequacy of the disclosures in the information we audited; and
  • the overall presentation of the information we audited.

We did not examine every transaction, nor do we guarantee complete accuracy of the information we audited. Also, we did not evaluate the security and controls over the electronic publication of the information we audited.

We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.

Responsibilities of the Secretary to the Treasury

The Secretary to the Treasury is responsible for preparing:

  • financial statements that present fairly the Department's financial position, financial performance, and its cash flows, and that comply with generally accepted accounting practice in New Zealand.
  • performance information that presents fairly what has been achieved with each appropriation, the expenditure incurred as compared with expenditure expected to be incurred, and that complies with generally accepted accounting practice in New Zealand.
  • statements of expenses and capital expenditure of the Department, that are presented fairly, in accordance with the requirements of the Public Finance Act 1989.
  • schedules of non-departmental activities, in accordance with the Treasury Instructions, that present fairly those activities managed by the Department on behalf of the Crown.

The Secretary to the Treasury's responsibilities arise from the Public Finance Act 1989.

The Secretary to the Treasury is responsible for such internal control as is determined is necessary to ensure that the annual report is free from material misstatement, whether due to fraud or error. The Secretary to the Treasury is also responsible for the publication of the annual report, whether in printed or electronic form.

Responsibilities of the Auditor

We are responsible for expressing an independent opinion on the information we are required to audit, and reporting that opinion to you based on our audit. Our responsibility arises from the Public Audit Act 2001.

Independence

When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the External Reporting Board.

In addition to the audit, we have carried out assignments in other areas of advisory services, which are compatible with those independence requirements. Other than the audit and these assignments we have no relationship of interest in the Department.

Other than the audit and these assignments, we have no relationship with or interests in the Department.

Graeme Edwards
KPMG
On behalf of the Auditor-General
Wellington, New Zealand

List of Acronyms

List of Acronyms
Acronym Meaning
ACC Accident Compensation Corporation
AIIB Asian Infrastructure Investment Bank
AoG All-of-Government
BASS Benchmarking of Administrative and Support Services
BEFU Budget Economic and Fiscal Update
BGA Business Growth Agenda
BPS Budget Policy Statement
CASS Central Agencies Shared Services
CECs Crown entity companies
CERA Canterbury Earthquake Recovery Authority
CFI Crown Financial Institution
CIGA Christchurch Integrated Government Accommodation Programme
CPI Consumer Price Index
CSD Crown Support Deed
CYF Child, Youth and Family
DHB District Health Board
DOCA Deed of Company Arrangement
DPMC Department of the Prime Minister and Cabinet
EBITDAF Earnings before interest and taxation, depreciation and amortisation and fair value adjustments
ELT Executive Leadership Team
EQC Earthquake Commission Act 1993
FSR Fiscal Strategy Report
FTA Free Trade Agreement
GDP Gross Domestic Product
GSF Government Superannuation Fund
GST Goods and Services Tax
HNZC Housing New Zealand Corporation
HNZL Housing New Zealand Limited
ICT Information and Communication Technologies
IFIs International Financial Institutions
IMF International Monetary Fund
IRD Inland Revenue
MBIE Ministry of Business, Innovation and Employment
MC Ministerial Correspondence
MCA Multi-category Appropriation
MFAT Ministry of Foreign Affairs and Trade
MOIAs Official Information Act requests made to the Minister
MPI Ministry for Primary Industries
MSD Ministry of Social Development
MYA Multi-year Appropriation
NCEA National Certificate of Educational Achievement
NGO Non-governmental Organisation
NZ GAAP New Zealand Generally Accepted Accounting Practice
NZBN New Zealand Business Number
NZDMO New Zealand Debt Management Office
NZECO New Zealand Export Credit Office
NZSF New Zealand Superannuation Fund
NZ PBE IPSAS New Zealand Public Benefit Entity International Public Sector Accounting Standards
OCR Official Cash Rate
OECD Organization for Economic Co-operation and Development
OIA Official Information Act
PIF Performance Improvement Framework
PLA Permanent Legislative Authority
PQs Parliamentary Questions
RBNZ Reserve Bank of New Zealand
RIA Regulatory Impact Analysis
RIS Regulatory Impact Statement
SOE State-Owned Enterprise
SRESL Southern Response Earthquake Services Limited
SSC State Services Commission
TOIAs Official Information Act requests made to the Treasury
TPP Trans Pacific Partnership
TRC Tamaki Regeneration Company
TVNZ Television New Zealand

Minister of Finance's Reports on Non-Departmental Appropriations [B.14 (Finance)]

The following pages of this document meet the requirement, set out in the supporting information to the 2015/16 Estimates or 2015/16 Supplementary Estimates, for information on certain non-departmental appropriations to be reported by the Minister of Finance.

Although the reports are presented in the same document as the Treasury's Annual Report, they do not form part of the Treasury's Annual Report for the year ended 30 June 2016 (including reporting by the Treasury on appropriations for that year).

Refinancing of Housing New Zealand Corporation and Housing New Zealand Limited Debt

What is intended to be achieved with this appropriation

This appropriation is required when HNZC and HNZL refinance their loans and is intended to enable the Treasury to monitor and administer the expenditure on refinancing.

What was achieved in this appropriation

The Treasury administers funding to enable HNZC to refinance its existing loans. This ensures that HNZC has funding for its development programme, repairs and maintenance programme and general working capital.

The Treasury closely monitors any draw-down activity by HNZC to refinance loans to ensure that it is within the limits of the agreed appropriation for the financial year.

HNZC reports annually on its performance and what it achieved. These reports can be obtained online at http://www.hnzc.co.nz/publications/annual-report/.

Performance measure  Target for 2015/16 Performance for 2015/16
Refinancing will be undertaken in accordance with the agreed policy. 100% 100%
2015
Actual
$000
2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
- Capital expenditure 142,362 142,362  142,362

Transfer of Housing New Zealand Corporation's Tāmaki Housing Stock to Tāmaki Regeneration Company

What is intended to be achieved with this appropriation

This appropriation is intended to achieve the transfer of HNZC properties to Tāmaki Regeneration Company to accelerate the regeneration activities in the Tāmaki area.

What was achieved in this appropriation

A Deed of Transfer was entered into on 4 March 2016, under which HNZC and HNZL agreed to sell 2,873 properties located in the Tāmaki area of Auckland to Tāmaki Regeneration Company, which is a subsidiary of Tāmaki Regeneration Company.

The Crown provided financing for the transfer to Tāmaki Regeneration Company through redeemable preference shares which provide the Crown with a number of veto rights. These rights ensure the protection of Crown value from the other shareholder that did not provide any financing for the transfer. In addition, the Crown holds a call option over the ordinary shares of Tāmaki Regeneration Company which would allow it to take over direct ownership if required to protect Crown value.

As a Crown entity, Tāmaki Regeneration Company is required to produce a Statement of Intent and a Statement of Performance Expectations and report on its performance in its Annual Report. This includes reporting on its performance in managing the transferred assets financed from this appropriation. These documents can be obtained from http://www.tamakiregeneration.co.nz/about-trc/key-documents.

Performance measure Target for 2015/16 Performance for 2015/16
Crown interests in the assets are protected in the transfer to the Tāmaki Regeneration Company. Achieved Achieved
2015
Actual
$000
2016
Actual
$000
2016
Main Estimates
$000
2016
Supp. Estimates
$000
- Capital expenditure 1,631,161 1,300,000 1,631,161