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Annual report

Annual Report of the Treasury for the Year Ended 30 June 2017

Chief Executive's Introduction

We have recently defined a vision of being a world-leading Treasury working towards higher living standards for New Zealanders. This Annual Report shows how we are fulfilling that vision as the Government's lead adviser on economic and financial policy. I am proud of the course we have set towards this important aspiration.

The year required our work to focus on providing expert advice that helps support New Zealand to maintain solid economic performance and significantly improved fiscal results. We also welcomed a new Minister of Finance as part of changes to the Government at the end of 2016. This was our first change in Minister in eight years.

Budget work continues to be a hallmark of our support for the Minister and the decisions the Government makes about the economy. This year was no exception. Fiscal strategy advice helped inform the setting of a new net debt target and we published, for the first time, a plain English overview of the Budget Economic and Fiscal Update (BEFU).

As well as the immediate focus of the Budget, during 2016/17 we delivered He Tirohanga Mokopuna, our 2016 Long-term Fiscal Statement (LTFS). He Tirohanga Mokopuna is a substantial achievement that provides our assessment of the fiscal challenges and opportunities for at least the next 40 years, and the choices we have to respond to them. Its development involved considerable engagement with a broad range of stakeholders from around the country.

Over 2016/17 we made further headway on embedding diversity and inclusion within our organisation. Diversity and inclusion make the Treasury stronger and more resilient, and gives us capacity for greater insights in the advice we provide. We are honoured to have had our efforts recognised at the 2017 Institute of Public Administration New Zealand (IPANZ) Public Sector Excellence Awards by winning the Excellence in Improving Diversity and Inclusiveness in the Public Sector category.

Another major highlight has been the development and launch of our new Organisational Strategy. The Strategy sets out our aspirations for what we do and how we work over the next few years to raise living standards of New Zealanders. It articulates our vision and ambition in response to the challenges that are presented by the global environment, as well as the core operational responsibilities that are a cornerstone of the Treasury's work. I look forward to sharing this later in the year in our updated Statement of Intent. For this Annual Report we have used the strategic framework set out in our 2015-19 Statement of Intent to report progress on our seven Strategic Intentions.

I would like to thank all of our staff for their expertise, effort and dedication that help us to be an effective organisation. Because of their work and commitment to public service, 2016/17 has been another successful year for the Treasury. And with the implementation of our Organisational Strategy, I believe next year will be better yet. I look forward to leading a strongly aligned, focused, capable and connected Treasury in the year ahead, because together there is much we can achieve.

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 2017 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 2018 and its operations for the year ending on that date.

 

Gabriel Makhlouf
Secretary to the Treasury

29 September 2017

Section One

Our Strategic Direction

Our Story

We are the Government's lead economic and financial adviser. We provide advice to the Government on its economic framework, on its fiscal strategy and on achieving value for money from its investments. We implement government decisions and are also responsible for the Financial Statements of the Government, for ensuring effective management of the assets and liabilities on the Crown's balance sheet and for publishing economic and fiscal forecasts.

Our vision is to be a world-leading Treasury working towards higher living standards for New Zealanders. We want to grow wellbeing through improving the country's human, social, natural and physical/financial capital. We work with others - across the government and non-government sectors, in New Zealand and overseas - to turn our vision into reality. We believe in applying rigorous analysis to the best available evidence, using our Living Standards Framework to guide us.

We embrace diversity and inclusion as they strengthen us, as individuals and as an organisation. Our values reflect our aspirations, for ourselves and for New Zealanders:

  • bold and innovative, so that we understand how and when to take risks, learn from failures and build on successes
  • collaborative and challenging, so that we work with others, collaborating but also challenging them and ourselves
  • adaptable and focused, so that when the facts change, or ministerial priorities change, we don't delay and we maintain our standards, and
  • passionate and ambitious, for our performance, for our people and for New Zealand.

We believe in the importance of a trusted, professional, public service: our stewardship responsibilities embody kaitiakitanga; we work to support the Treaty partnership between the Crown and Māori; and we are transparent, objective, impartial, and free and frank in our advice.

Promoting higher living standards for New Zealanders

During the 2016/17 year, the Treasury continued to develop its thinking about how to support the Crown to lift New Zealand's performance so we achieve our vision of higher living standards for New Zealanders.

In November 2016, the Treasury released the 2016 LTFS, He Tirohanga Mokopuna. The LTFS takes a long-term view of government finances over the next 40 years in the context of broader living standards, reflecting that fiscal policy and other government policy issues over this timeframe need to be geared towards the overall wellbeing of New Zealanders and lifting living standards. Sustainable government finances are both a precondition to improving long-term living standards, and likely to be a result of high and generalised levels of wellbeing that enable New Zealanders to participate fully in society and the economy, and to live lives they have reason to value.

The Treasury uses a living standards framework to take into account in our advice a broad range of factors, both material and non-material, that impact on New Zealanders' wellbeing. This framework is based on four types of capital stock: financial and physical capital (eg, machinery, buildings, housing, financial assets); human capital (eg, health, skills, knowledge); social capital (eg, cultural norms and practices, trust, regulatory and legal institutions); and natural capital (eg, water, biodiversity, clean air). In the framework, businesses, households and the Government use and manage the capital stocks in various ways to generate flows of material and non-material benefits that people enjoy. The diagram presented below illustrates these stocks and flows, with some examples of the wellbeing flows.

During the year, the Treasury continued to develop its capability to measure and assess the capital stocks and flows of wellbeing benefits, and the impacts on current and future wellbeing of government policies and changing societal, environmental and technological influences. He Tirohanga Mokopuna and its associated background papers were one important step in this process. With this ongoing work programme we aim to inform and stimulate debate about New Zealand's longer-term future and the challenges and opportunities for greater levels of wellbeing, and to provide strategic direction to our ongoing policy advice work and organisational priorities.

We measure our progress through the relative stocks and flows of our Four Capitals, and New Zealand's wellbeing indicators

We measure our progress through the relative stocks and flows of our Four Capitals, and New Zealand's wellbeing indicators.
 
Indicator Result Comment
New Zealanders enjoy greater wellbeing as shown by New Zealand's position on the OECD's Better Life Index.

New Zealand tends to perform highly on most wellbeing indicators used by the Organisation for Economic
Co-operation and Development (OECD) (such as health and education), the main exception being Gross Domestic Product (GDP) per capita. For a highly developed country, the OECD's Better Life Index is a well-recognised measure of wellbeing, covering 11 different aspects of life such as income, housing, education, health, work-life balance and life satisfaction.  The figures provided are New Zealand's 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/

How We Work 

Capability

As the Government's lead economic and financial adviser we require a very high level of economic and financial expertise, as well as analysis and evaluation skills. We use a mix of recruitment and development to grow the capability of our people to:

  • provide strong and effective leadership (within the Treasury and externally)
  • communicate and engage confidently with others to convey ideas and gain input, and
  • implement ideas and plans (including project and portfolio management skills) effectively.

We grow the capability of our senior leaders in areas highlighted for development through the Leadership Insight Assessment. We also maximise opportunities for our leaders at all levels to learn through on-the-job experiences such as rotations and internal and external secondments. We are proud of our strong tradition of recruiting first-rate graduates from a wide variety of academic disciplines, which adds to our diversity of thinking.

We continue to build on our talent management and succession planning work to ensure that we have clear sight of our current and future leadership talent, a clear plan to develop and retain them and a good pipeline for succession into critical roles.

We measure our success in growing capability in our priority areas through: statistics related to the recruitment of people with technical knowledge and experience in our key areas and uptake of formal opportunities for development; and improved internal and external feedback.

Stakeholder engagement

Ultimately, the Treasury's work affects all New Zealanders, so they all have a stake in what we do.

We have made substantial advances in embedding good engagement practice in our business, which has been well received by agencies and others in the community. Stakeholders are assigned among the Deputy Secretaries (members of our Executive Leadership Team) who meet regularly to discuss the progress that they are making through their engagement programmes.

As a steward, we have a clear responsibility to facilitate development of the Crown-Māori relationship. We recognise the importance of working with others to lift State sector capability, and are building our own capability in order to do this effectively.

The Treasury's Pacific Strategy 2016-20: Le tofa mamao ma le fa'autautaga (meaning - 'the wisdom to visualise the future and the ability to take us there') aims to contribute to raising living standards for New Zealanders by helping the Treasury advise government on what matters most for Pacific peoples in New Zealand.

In a fast-changing world, every part of the Treasury has a heightened need to connect internationally to manage risk and take advantage of opportunities for New Zealand. The Treasury's International Engagement Strategy has five specific goals:

  • Bring global perspectives into the Treasury's thinking and produce world-leading work
  • Create opportunity and manage economic risk for New Zealand through economic diplomacy
  • Help the Minister of Finance represent New Zealand effectively
  • Uphold New Zealand's reputation in the world, and
  • Manage operational risks for the Crown.

Decision-making, accountability and planning

How we make decisions

Executive Leadership Team

The Executive Leadership Team is made up of the Secretary (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, Strategy, Performance and Engagement) chairs Kaiurungi, which consists of our seven directors and Chief Financial Officer. They are responsible to the Executive Leadership Team for delivering on the agreed Strategic Intention work programme and for ensuring the programme of work across all directorates will deliver on the Treasury's overall objectives and is well-aligned with strategy.

Additional assurance mechanisms

Our key assurance mechanisms consist of:

  • The Treasury Board. This is an external advisory group that supports the Treasury's Secretary 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 Audit 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 Secretary relating to the effectiveness and adequacy of internal control and risk management systems, processes and activities across the Treasury.
  • Financial Statements of the Government Audit Committee. This is an external advisory committee that provides advice and observations to the Secretary relating to key issues and risks that affect the production and audit of the Financial Statements of the Government. The Committee comprises an independent chair and two additional external members.
  • Commercial Operations Advisory Board. This Board supports the Deputy Secretary, Financial and Commercial Operations through providing guidance on the strategic approach and work programme priorities of the Treasury's commercial operations portfolio and Debt Management Office.

Forums

The Treasury holds a variety of different forums to engage staff in decision-making. These forums are where we draw out diverse views, collectively resolve a Treasury position and share information among ourselves.

Leaders' Forums bring together Deputy Secretaries, Directors, Managers, Team Leaders and Principal Advisers from across the Treasury to share, discuss and build understanding. We use them to test thinking from the Executive Leadership Team 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.

Planning and monitoring performance

In 2016/17 we conducted a performance review each trimester to assess progress to date and to establish forecast performance objectives. The process engaged Kaiurungi and the Executive Leadership Team in a series of performance-focused conversations. Outtakes from these meetings flow through to a trimester conversation with our Minister. The process supported an incremental approach to planning where adjustments can be made to take into account any changes in priorities or aspirations.

Diversity and inclusion

Why does diversity and inclusion matter to us?

Our vision is to be a world-leading Treasury working towards higher living standards for New Zealanders. We believe that we are best placed to achieve our vision when we embrace diversity of thinking, adopt inclusive ways of working and effectively engage with and better represent the many different communities that make up New Zealand. As a more diverse and inclusive Treasury we are able to:

  • better anticipate and offer a more robust understanding of the challenges and opportunities ahead
  • provide higher-quality thinking, analysis, services and solutions, and
  • build a more engaged and productive workforce who feel valued and included.

Strategic imperatives and performance measures

Diversity and inclusion has been an important priority for the Treasury for a number of years. We finalised our first diversity and inclusion strategy in 2012 and produced a refreshed strategy in 2014 and again in 2017, informed by independent assessments of our diversity and inclusion culture. Our diversity and inclusion strategy is focused on three broad areas:

  • developing and engaging our leaders, and publicly championing diversity and inclusion
  • fostering an inclusive culture and knowledge of diversity among our staff, and
  • embedding diversity and inclusion approaches within our human resources (HR) systems, policies and processes.

We regularly track and report on the diversity of our workforce and our leadership team, which we see as essential in order to understand where we are and where we want to get to, using the measures on the following page.

Gender Treasury Staff
as at 30 June 2017
Maintain at least a 40% to 60% gender balance in our leadership cohort Female: 38%
Male: 62%
Keep within a 45% to 55% gender range across our workforce as a whole Female: 47%
Male: 53%
Ethnicity
Ethnicity Treasury Staff
as at 30 June 2017
NZ Working-age Population

 

Achieve an ethnicity
representation in our
workforce that is plus or
minus five percentage points
of the working-age population

European: 72% (+1%) 71%
Māori: 7% (-3%) 10%
Asian: 7% (-3%) 10%
Pacific Peoples: 2% (-2%) 4%
MELAA: 2% (-1%) 3%

New Zealander:

- 2%
Undisclosed: 10% -

We commission independent assessments of our diversity and inclusion culture involving qualitative research conducted with a large number of Treasury staff to understand the progress we are making and to hold ourselves to account. In 2016, three- quarters of staff spoken to said that the Treasury was 'invested' (or even more committed) in diversity and inclusion, which means diversity and inclusion is a priority and we have some formalised initiatives underway. This is an improvement from our last assessment several years ago. We are continuing to enhance efforts in this area to make the Treasury even more diverse and inclusive in the future.

Significant diversity and inclusion initiatives in 2016/17

The key actions we have been taking in each strategic area and our focus going forward are outlined below.

Leadership

  • The Secretary to the Treasury co-leads the diversity and inclusion work stream in Better Public Services 2.0 and is a Diversity Champion for the Global Women's Champions for Change initiative. Our leadership development programmes have diversity and inclusion approaches woven into them. Small groups of leaders participate in the Ruku Ao programme delivered through Toi Whakaari to build skills in collaboration and working with difference.
  • Diversity and inclusion training is provided to managers to help mitigate against unconscious bias and develop inclusive practices.

Inclusive culture

  • We have continued to build our engagement with Māori and Pasifika communities, our cultural understanding and the extent to which the Treasury is culturally inclusive, and this will remain an important focus in the coming period. Key engagements included the stakeholder workshops run across New Zealand to inform He Tirohanga Mokopuna (our LTFS), released in November 2016. He Tirohanga Mokopuna also had key content translated into te reo Māori.
  • We have continued to implement Puna Kaupapa, a strategy to build our capability and support our increasing work in the Crown-Māori area, and to create an environment where Māori perspectives are better integrated into our thinking and business.
  • The Treasury holds pōwhiri in its whare whakairo, Ngā Mokopuna a Tāne, at least every two months, as well as mihi whakatau.
  • We have implemented the first year of our Pasifika Strategy 2016-20, including taking teams through workshops to build their understanding of the Pacific operating model and develop their thinking on Pacific economic performance. We held Pasifika stakeholder events in Auckland, Wellington and Christchurch, established an internal Pacific Network for staff and supported a Pacific senior officials inter-agency group.
  • Internal awards continue to be presented, including the Kwok Award given to the team that has demonstrated excellence and growth in the Crown-Māori area, and the Ngā Whetū o Matariki awards to recognise staff who demonstrate improved cultural awareness.
  • Tools and techniques from Lean, Agile and Design Thinking have continued to be deployed across the organisation to give staff practical ways of surfacing a diversity of perspectives, ensuring all voices are heard and generating innovative ideas and solutions. We developed and are rolling out training workshops to support staff to understand and mitigate against unconscious bias and adopt inclusive work practices.

Human resources systems, practices and processes

  • He Manaaki, our new approach to performance, reward and recognition, was launched in 2017 and has diversity and inclusion principles embedded within it.
  • The Treasury was the 2017 recipient of the Excellence in Improving Diversity and Inclusiveness in the Public Sector award from IPANZ. This award recognised the steps we have taken to reduce the scope for unconscious bias in our graduate and internship recruitment processes.
  • The Treasury is committed to reducing its gender pay gap. In 2016/17, we undertook extensive analysis of the drivers of our pay gap and developed a comprehensive set of recommendations to address this, which are being implemented.

Our Strategic Framework for 2016/17 

Leadership priorities

On the journey to achieve our vision, throughout the 2016/17 year we maintained our focus on three overarching priorities that help us to drive our work and deliver successful results for the New Zealand public we serve:

  • The investment approach is embedded in modern policy and decision-making with a focus on engagement, implementation, monitoring and design. In 2016/17, the main focus was on the Budget and Budget process, as well as social investment with one of the key activities being our support for the Ministry for Vulnerable Children, Oranga Tamariki.
  • New Zealand achieves a higher and more sustainable growth path: we focused on delivering a refreshed Business Growth Agenda, and strengthened our work in housing and infrastructure, especially in relation to the Crown Infrastructure Partnerships proposal, the City Rail Link project negotiations and post Auckland Transport Alignment project work streams.
  • Successful leadership: internally we organised ourselves around our vision, which culminated in the launch of our new Organisational Strategy and alignment of our work to the Strategy. Externally we continued our proactive and deliberate system leadership, especially in the areas of diversity and inclusion, economic leadership and regulatory quality.

Our journey to our new Organisational Strategy

Our strategic framework has been refreshed in 2017 with the launch of our new Organisational Strategy, to take effect from 1 July 2017. In this we reconfirmed our commitment to our vision, and have outlined our reason for being in our mission. We have refocused our role and purpose into three interlinking areas. We have also identified four strategic priorities where we want to invest in more work to help us deliver our mission and achieve our vision.

With the new Organisational Strategy, we have redefined our business objectives to better measure our success toward our mission - and these can be attributed to the Treasury's areas of responsibility and influence. We stand by the strength of our values, and seek to further embed diversity and inclusion in who we are and what we do.

Further details of our new Organisational Strategy will be reflected in our future Statement of Intent and Annual Reports. This 2016/17 Annual Report reports on our progress over the past year towards achieving our seven Strategic Intentions, based on our 2015-19 Statement of Intent. Hence, the framework on the previous page has continued to be used as the frame for this report. Further details on the seven Strategic Intentions are provided in the next section of this report.

Our Strategic Intentions

The reporting against each of the Treasury's seven Strategic Intentions, on pages 13 to 45 meets the requirement for this Annual Report to include an assessment of the Treasury's operations and its progress in relation to its Strategic Intentions. In particular, the reporting against the seven Strategic Intentions sets out a range of priority, core business-as-usual and medium-term investment work programmes. The Strategic Intentions framework supports our efforts to balance resources across 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

Overview of aims and key deliverables

Aim   Deliverables

 

 

An international lens is applied 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, natural resource management, economic development, innovation, competitiveness and productivity
  • investment, trade and broader international connectedness, and
  • increasing housing supply.

Engagement with international partners, international financial institutions regarding free trade agreement negotiations.

Provision of export credit insurance.

International connections

We supported cross-agency work for the launch of Trade Agenda 2030 and advised Ministers on changes to immigration policy.

Other key highlights over the 2016/17 year included:

  • The value of international projects supported by New Zealand Export Credit Office's (NZECO's) General Contract Bond Guarantee passed $1 billion, involving over 100 projects across 31 countries.
  • Advice to Ministers on improvements to the investment screening regime in the Overseas Investment Act 2005. These exemptions were developed in response to feedback from stakeholders on the Government's consultation on the proposed changes to the application fees for the Overseas Investment Office.
  • Working with the Overseas Investment Office on a new directive letter from the Minister of Finance to support the Office's ongoing improvement programme.
  • Advice to Business Growth Agenda Export Ministers on non-tariff measures facing New Zealand exporters.
  • Collaborating with Inland Revenue and the private sector on how to take action against aggressive international tax planning while maintaining New Zealand as an attractive investment destination.

Housing supply

We contributed to interagency policy development, the Housing Infrastructure Fund, Crown Infrastructure Partnerships, Urban Development Legislation and the Fundamental Reform of the Planning System. We are contributing senior staff full-time to the interagency team that is working on the Fundamental Review, with an early focus on objectives and approaches.

Our work with the Crown Infrastructure Partnerships initiative has seen the Treasury lead discussions with councils and developers on a high-level model for Special Purpose Vehicles for investment in housing-related infrastructure. Our policy work in this area has focused on understanding the barriers to competitive land markets.

Business environment

We drafted the Government's Regulatory Management Strategy. This Strategy was released by the Government in April 2017. A key element of the Strategy is the 2017 updated Cabinet Expectations of Regulatory Stewardship, which extend the scope of the initial Expectations to highlight regulatory implementation and practice.

We provided advice:

  • on the next set of Productivity Commission inquiry topics and Terms of Reference on the two new inquiries into: Opportunities and Challenges of a Transition to a Lower Net Emissions Economy for New Zealand; and State Sector productivity, and
  • to the Minister for Regulatory Reform and Parliamentary Under-Secretary on changes to Cabinet's Regulatory Impact Analysis requirements. These were designed to increase the effectiveness of impact analysis. These changes, subsequently endorsed by Cabinet, were implemented during July 2017.

Progress in our medium-term indicators of success

 
Indicator 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 54% for the calendar year 2016, down from 56% in 2015. 

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 2016, the stock of inward direct investment was $98.4 billion or 39.3% of GDP. The stock of outward direct investment was $25.6 billion or 10.2% 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 grew by an average of around 0.6% per annum between 2009 and 2015, below that of the OECD average of 1.0% over this period. Data for 2016 are not yet available for 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. Latest OECD data show that business investment in New Zealand was 12.8% of GDP in 2014 compared to 12.9% across the OECD. The position relative to the OECD figure has remained steady since 2013 when business investment was 12.8% and 12.7% respectively.  The OECD has recently revised its method for calculating New Zealand's business investment.

OECD comparative data for 2015 were unavailable at the time of publishing. However, Statistics New Zealand data published in March 2016 showed the New Zealand figure to be 13.1%.

Source: OECD

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

 

The quality of our infrastructure is important to support higher levels of productivity, and to help underpin a strong economy. On the 2016 World Economic Forum's ranking of perceived quality of infrastructure, New Zealand was ranked 27th out of 140 economies and scored 5.33/7, compared with a rank of 28th out of 144 economies and a score of 5.25/7 in 2015.

Source: http://www3.weforum.org/docs/GCR2016-2017/05FullReport/TheGlobalCompetitivenessReport2016-2017_FINAL.pdf

Case study: New Zealand Export Credit Office

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

Overview of aims and key deliverables

Aim   Deliverables
Improved public services demonstrated by relevant Better Public Services (BPS) 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.

A sustainable growth plan

We published He Tirohanga Mokopuna, the Treasury's 2016 LTFS, on 22 November 2016. It showed that, while current government finances remain relatively strong, fiscal pressures are projected to increase significantly over the next 40 years. Our modelling found that improving social sector outcomes could contribute to reducing the long-term fiscal challenges identified.

We worked with the Ministry of Business, Innovation and Employment (MBIE) to develop policy options on the changing nature of business and employment, with a particular focus on employment opportunities for young people not in employment, education or training (NEET). We encouraged the development of a cross-agency regional NEET strategy, ensuring there is a consistent view of the NEET population. Through this we will have a better understanding of the barriers facing young NEETs that current funding, services and initiatives are not addressing.

Helping disadvantaged people

We supported the establishment of the new Ministry for Vulnerable Children, Oranga Tamariki, seeing it as an opportunity to change the long-term outcomes for at-risk children and reform how the social sector currently operates. Our advice on the new legislative framework will enable the development of an investment approach in Oranga Tamariki, and on the fiscal strategy for Budget 2017 and future Budgets to ensure new funding is targeted where we believe it will have the biggest impact.

We have continued to support the development of social investment approaches across the social sector, including employment, social housing, justice, education, health and vulnerable children. We collaborated to design the methodology for the draft vulnerable children's valuation and embed the use of this valuation and evidence to inform future investment decisions.

We incentivised agencies to understand the impact of their services and interventions by introducing a new social investment track in Budget 2017 which rewarded proposals with good evidence and potential. This resulted in $321 million being allocated for 14 social investment initiatives designed to tackle long-term issues for vulnerable New Zealanders.

We developed a new data analytics tool called Insights which provides information about children and youth at risk, youth transitions to adulthood and services for children and youth drawn from a range of public sector agencies. We presented it in an easy to use interactive format which includes data visualisation and mapping.

Welfare and support system

As the external monitor of the Ministry of Social Development's (MSD's) investment approach, we provided quarterly reporting to Ministers on progress, and suggested areas for future focus. A particular focus was the process for investing in improved employment and social outcomes for their clients.

Pathways into the labour market

We supported the Ministry of Education (MoE), and briefed the Minister of Finance on the education reform programme. This included the funding review, learning support, Education Infrastructure Services and Investing in Education Success.

We worked closely with MoE and MBIE to respond to the Productivity Commission's report on new models of tertiary education.

Progress in our medium-term indicators of success

 
Indicator Result Comment
Ninety-eight percent of children starting school in 2016 will have participated in high-quality early childhood education.

High-quality early childhood education can improve outcomes for children, with disadvantaged children benefiting most from participation. 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 Educational 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 show a steady increase in the number of 18-year-olds achieving NCEA Level 2 or equivalent qualifications. Māori and Pasifika achievement has improved at a faster rate than overall.

Source:

http://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 less likely to be receiving a benefit. 

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

Source:

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 11.1% in the June 2017 quarter.

Source: Household Labour Force Survey

Case study: He Tirohanga Mokopuna

The Treasury takes more than just a short-term perspective. While we provide ongoing advice to the government of the day, we also take into account how New Zealand's economy and State sector need to evolve over coming decades.

In November last year, we released the 2016 LTFS: He Tirohanga Mokopuna. The te reo Māori title conveys a sense of intergenerational purview - 'Mokopuna' meaning children and the responsibility we have to leave New Zealand in a better place for future generations to come. He Tirohanga Mokopuna looks ahead and takes an integrated, intergenerational focus on considering the opportunities and challenges facing New Zealand in the coming 40 years.

It includes 'what if?' projections for government expenses, revenue and debt - against a future where there will be an increasing proportion of population aged over 65 relative to the rest of the population. Exploring the long-term financial outlook for New Zealand requires the application of a multi-disciplinary lens to economic, social and environmental policies. Therefore, He Tirohanga Mokopuna applies the Treasury's Living Standards Framework to assess these challenges and opportunities.

The Treasury consulted widely in its development of He Tirohanga Mokopuna, including Chief Executive Officers (CEOs), farmers, small business owners, social workers, academics and students from all over New Zealand. This engagement has been summarised in the document Conversations about things that matter.

There is a Faster Improvement in Māori Living Standards

Overview of aims and key deliverables

Aim   Deliverables
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.

Working with iwi

In 2016/17 we have further embedded our stewardship role for the Crown-Māori Relationship by supporting central agency CEOs and cross-public sector work to strengthen coordination, capability and longer-term strategic direction.

We continued to contribute to interagency collaboration with Ngāi Tūhoe, which is developing options for decentralising some of the Crown's activities to support better outcomes for whānau and hapū to the iwi. Among other things, this initiative is an opportunity to explore new ways for the Crown to work with iwi to support their aspirations.

Building the Māori economy

We have also influenced the Government's Māori economic development strategy and policies through the Māori Economic Development Advisory Board, Māori Virtual Policy Unit (across Te Puni Kōkiri (TPK), MBIE and Ministry for Primary Industries) and ongoing collaboration across agencies. Working closely with MBIE and TPK, a more action-oriented Māori economic development strategy for the He Kai Kei Aku Ringa refresh 2017-2021 has been developed. This includes quantifiable indicators and goals embedded into existing government strategies.

We supported TPK on Te Ture Whenua Māori Land Reform decisions. Our role has often been a critical friend evidenced in our role to assess Māori economic development Budget initiatives. We also advised Ministers ahead of key Crown–Māori meetings, from the Iwi Chairs Forum at Waitangi to the just-established Iwi–Crown Economic Taumata.

Māori education

To further support accelerated and sustained gains in Māori education achievement, we have worked with MoE to ensure a focus on Māori education achievement is incorporated into policy development on education sector performance improvement and strategic financing.

Social housing

Our Social Housing Transaction Unit continues to enhance the Crown-Māori Relationship through effective engagement with iwi and hapū about their rights and interests in areas for proposed social housing transfers. We have generated increased interest by collaborating with iwi to develop proposals that meet several government and iwi strategic objectives.

Progress in our medium-term indicators of success

Indicator Result Comment
There is accelerated and sustained improvement in Māori education achievement (measured through BPS targets). Data here represent the percentage of 18-year-olds with a minimum of NCEA Level 2 or equivalent. 

Latest available BPS data show that the Māori achievement of NCEA Level 2 was 74.3% of 18-year-olds in 2016. This is up from a 57.1% achievement rate in 2011. However, it still lags behind the proportion of all 18-year-olds for the same period (84.6% for 2016).

Source: http://www.educationcounts.govt.nz/statistics/schooling/senior-student-attainment/18-year-olds-with-level-2-or-equivalent

Indicator Comment
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).

The Treasury provided advice to government on strategies to improve Māori labour force participation, export market participation and asset productivity including the development of cross-government initiatives in Māori economic development. Our advice to Ministers was better informed by Māori stakeholders' engagement including at our own regional hui ahead of the development of He Tirohanga Mokopuna. A key objective in 2016/17 was supporting MBIE and TPK's refreshed Māori economic development strategy (He kai kei aku ringa), which provides specific targets to improve outcomes for Māori and an institutional framework to support the targets being realised. Specific considerations included building off the Government's 2012 version of the strategy, improving clarity of responsibility for delivery and building structures to check in on progress. The refreshed action plan, He kai kei aku ringa: E RERE was launched on 16 June 2017. It includes the following goals by 2021: reducing the Māori unemployment rate from 11.9% to 7.5%; increasing the value of exports by Māori enterprises by 9% per year; and increasing the number of Māori enterprises engaging with the Government's innovation agencies by 5% per year.

Source: http://www.mbie.govt.nz/info-services/infrastructure-growth/maori-economic-development/strategy-and-action-plan 

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

Over the 2016/17 year, the Treasury supported the Office of Treaty Settlements to sign Deeds of Settlement with the following groups: Ngāti Tamaoho, Ngāti Tūwharetoa, Ngāti Rehua-Ngātiwai ki Aotea, Ngāti Hei and Ngāti Tara Tokanui. 

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

Case study: Tūhoe

We participated in a 'direction-setting' group of lead government agencies and Ngāi Tūhoe leaders which has been jointly exploring opportunities for Ngāi Tūhoe to increase its mana motuhake in relation to the way government provides social support within the Tūhoe rohe. This work is based in the Crown's Treaty settlement with Ngāi Tūhoe, which acknowledges the iwi's aspirations for future sustained interdependence. The Treasury's interest has been to understand new ways the Crown can support iwi under the Treaty of Waitangi partnership, as well as how policy and regulatory settings might be supporting or hindering desired developments. We have also sought to link Tūhoe into wider government initiatives and key people where there is potential mutual benefit.

This is a long-term initiative, which has necessarily started with the need to develop more of a common understanding of Tūhoe's aspirations, world views and development strategies. As part of that, we have sought to understand how government activities and service requirements impact on whānau and hapū from their perspectives rather than those of service providers. While some shorter-term initiatives have been agreed to strengthen the say of whānau and hapū over the delivery of education, youth justice and services to support vulnerable children, longer-term change is likely to come from these deeper shifts in understanding. They may also provide insights for the wider public sector as it moves to more citizen-centric service design and social investment approaches.

The State Sector Efficiently and Effectively Delivers Results for New Zealanders

Overview of aims and key deliverables

Aim   Deliverables

Improved capability and performance of the State sector system, institutions and agencies through:

  • improved strategic financial and fiscal management
  • better use of information for increased value for money and raised productivity
  • greater cross-agency leadership and collaboration, and
  • use of clear results-focused goals.

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

 

 

  • Policy advice on institutional settings and the 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 the Canterbury earthquake recovery.
  • Performance improvement initiatives to improve strategic financial management across the State sector.
  • Budget preparation, production, 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.

Budget 2017

In May 2017 the Government successfully delivered its annual Budget. The Treasury supported the Minister of Finance in the development of the Budget by:

  • advising on Budget strategy
  • preparing the macroeconomic and fiscal forecasts to set the context for the Budget
  • managing the Budget initiative process, including assessing proposals from Vote Ministers and providing advice on how initiatives should be prioritised within available spending allowances, and
  • preparing Budget documents and communication collateral, such as the Estimates, the BEFU and the Fiscal Strategy Report.

For Budget 2017 we built on prior work to embed a social investment approach into the Budget cycle, focusing on the needs of citizens, using data to help identify what works, taking a longer-term view and managing risks to the achievement of outcomes. In particular:

  • We updated our cost benefit analysis tool (CBAx), which contains a database of impacts designed to help agencies assess the likely costs and benefits of policy initiatives. All Budget 2017 initiatives were required to be accompanied by cost benefit analysis in order to support evidence-based investment decisions. We delivered CBAx training and support to agencies as they prepared Budget initiatives.
  • We adapted the Budget process by creating a new funding track (Track 1) for social investment initiatives. Track 1 initiatives were those that were closely aligned with the principles of social investment; in particular having a high return on investment, a high level of confidence in achieving the intended outcomes, easily measurable success and an ability to be scaled up if successful. The Government invested $321 million across 14 initiatives developed through Track 1.
  • Our Social Investment Panel played a key part in our assessments of Track 1 initiatives.

We also continued to use the Capital Investment Panel to assess proposals for new capital investments and introduced a new peer review process to support the Government's Business Growth Agenda.

As part of our ongoing work to increase transparency and accessibility of Budget and fiscal information, we published for the first time the BEFU Basics, a plain English version of the Treasury's BEFU.

New approaches to delivering outcomes

We are leading work on how innovative approaches to contracting could deliver better outcomes, particularly in the social sector. For example, we advised the Government on its response to the Productivity Commission's report on More Effective Social Services, which recommended a number of changes to make social services more responsive and client centred. The Government's response includes:

  • further work to embed evidence-based practices in social services, including the creation of the Social Investment Board and the Social Investment Agency
  • increased focus on high-needs populations; for example, the creation of the Ministry for Vulnerable Children, Oranga Tamariki, and
  • allowing more devolution of social service provision to allow individuals and communities more access to assistance.

Lifting the performance of the State sector

In recent years, the Treasury has put in place additional mechanisms to support public sector transparency. One of these is the Four-year Plans (4YPs), which require agencies to provide insights into how the agency plans to create increasing value for its customers and New Zealanders over the medium term with the funding and balance sheet it has available. In 2016/17 we worked with agencies on their long- and medium-term planning, Budget documents and annual reporting to support improved planning, reporting and performance.

While 4YPs have made a positive contribution in the five years since they were instituted, we have not seen improvement where it is most needed and the Minister of Finance has agreed to make a few changes. To increase the value from 4YPs for 2018 we will take a targeted, sequenced approach by:

  • focusing primarily on larger departments, in particular those that do not yet have comprehensive 4YPs, concentrating our support in a more targeted way
  • sequencing the 4YP better with other similar products and requirements (eg, Strategic Intentions, Long Term Investment Plans (LTIPs), Performance Improvement Framework (PIF)), and
  • inviting small to medium-sized departments to formally submit their 4YP every two years, and Parliamentary Agencies every three years.

We have also worked closely with the State Services Commission (SSC) on the 2017 refresh of the BPS results.

Building and maintaining financial capability

The Office of the Government Accountant (OGA) continues to drive work to lift the strategic capability of the finance function across the public sector. In 2016/17 the OGA launched a cross-government Finance Development Programme, which includes training for future Chief Financial Officers. The year also saw the launch of a shared work space for finance professionals, allowing public sector finance professionals to share work and experiences and learn from each other. There is also work underway to develop a talent pipeline across the public sector for future finance professionals.

Social housing

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

2016/17 saw the completion of the Tauranga transaction, transferring 1,138 former Housing New Zealand houses and tenancies in Tauranga for an initial 25-year term. There will be 153 more social housing places in Tauranga as a result of the transfer, and Housing New Zealand will use the transfer proceeds to build more social houses in the areas of most demand.

The Government has identified Christchurch as the next area for a transfer of Housing New Zealand properties, and is proposing that up to 2,500 social houses be transferred to community housing providers.

A proposed transfer of a number of Housing New Zealand properties in Horowhenua will now not proceed, owing to the relatively small scale of the transaction and the complexities involved with transferring those particular properties. However, the Horowhenua District Council may yet transfer some of its council-owned properties to community housing providers, in a separate process.

Supporting other agencies to deliver government priorities

As well as leading system-level programmes, we have supported other agencies in achieving the Government's goals for a more efficient and effective State sector:

  • We worked with Inland Revenue as it undertakes its Business Transformation project, a multi-stage change programme to modernise tax administration in New Zealand.
  • We worked with the SSC in developing a strategy for major public sector wage negotiations occurring in 2016/17. This included the $2 billion pay equity settlement for 55,000 care and support workers in aged and disability residential care and home and community support services.
  • We supported the Ministry of Health on the first social bond pilot, with the purpose of improving employment outcomes for people with mental health conditions.

Progress in our medium-term indicators of success

Indicator Result Comment
Seventy-five percent of departments are assessed by central agencies as investment ready under 4YPs.

Thirty-eight percent of 4YPs submitted by agencies met the criteria expected of a comprehensive medium-term strategic plan. This is lower than our target of 75%.

To address this, we are putting in place a more targeted, well-supported approach for 4YPs for 2018. We are also working to align 4YPs to other similar strategic planning requirements (ie, LTIPs and Strategic Intentions).

Source: The Treasury

Financial capability of agencies is assessed as higher as measured by the Finance and Resources - Financial Management rating in PIF whereby 90% of agencies are assessed as at least 'well placed'.

PIF reviews for three entities were published in the 12 months to June 2017. Of these three reviews, two agencies were rated as 'well placed' for most measures in the Finance and Resources - Financial Management rating.

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

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 December 2016 the survey recorded a 74% overall satisfaction score for public services, one point lower than June 2016 but six points higher than 2007.

Sources: http://www.ssc.govt.nz/kiwis-count http://www.ssc.govt.nz/sites/all/files/2016-kiwis-count-ar.pdf

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

The Treasury releases the Benchmarking Administrative & Supporting Services (BASS) report annually. The report presents findings on the efficiency and effectiveness of five administrative and supporting services - HR, Finance, ICT, Procurement, and Corporate and Executive Services - across 26 public sector agencies. The report for the 2015/16 year (to be released later in 2017) shows the agencies spent $1.79 billion, up $71 million (4%) across five functions compared to the previous year. This follows a similar increase from 2013/14 to 2014/15, when it increased $63 million.

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

Follow-up PIF reviews for three entities were also published in the 12 months to June 2017. MBIE had its last PIF published in 2014. The follow-up review published for MBIE in 2017 noted that, since the 2014 review, MBIE had made a 'striking improvement to its performance'. The Ministry of Culture and Heritage (MCH) had its PIF review in 2014. The follow-up review was published in August 2016 and found that there is much for MCH to pay attention to but MCH is well placed to take the next steps. 

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 Treasury is assisting the Ministry of Health with its procurement of the first social bond pilots as a way to contract for social outcomes. Social bonds see private and public sector organisations partner to fund and deliver services that improve social outcomes. If the organisations achieve their agreed return, 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.

We are focused on improving the efficiency and effectiveness of social services by working with the Social Investment Agency and other agencies to make commissioning easier. This is an 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.

Source: The Treasury

Value drivers for government agencies and value from expenditure are better understood.

In 2016/17 we worked with agencies on their long- and medium-term planning, Budget documents and annual reporting to support improved planning, reporting and performance.With a focuson 4YPs, the Treasury also helped selected agencies with their LTIPs.

Source: The Treasury

Agencies keep to agreed spending paths and measured future liabilities reduce in major expenditure areas.

In the past 12 months there has been an increase in the number of agencies relying on actuarial measures to gain greater understanding of their underlying performance. For example, 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 May 2017 and recorded a $1.7 billion reduction for the 12 months to 30 June 2016 once factors outside of MSD's management control are removed. The total main estimate of the liability system was $76.0 billion.

Source: https://www.msd.govt.nz/about-msd-and-our-work/newsroom/media-releases/2017/2016-valuation-of-the-benefit-system-for-working-age-adults.html

Government results are delivered and functional leadership in property, procurement and Information and Communication Technology (ICT) delivers tangible benefits.

The Treasury has been supporting government agencies to come up with innovative ways to deliver BPS, under the 10 specific results identified.

Delivering BPS within tight financial constraints is one of the Government's priorities, to achieve results that make a difference to New Zealanders.

Source: http://www.treasury.govt.nz/statesector/betterpublicservices

The Treasury has supported and facilitated the progress in functional leadership in property, procurement and ICT to deliver tangible benefits. Functional leadership aims to improve the effectiveness and reduce the overall costs to the Government of the common business functions. The functional leaders are:

  • Government Chief Information Office - (Department of Internal Affairs)
  • Government Property Group - (MBIE)
  • New Zealand Government Procurement - (MBIE)

Source: https://www.ict.govt.nz/governance-and-leadership/providing-ict-functional-leadership/, http://www.mbie.govt.nz/info-services/nz-govt-procurement-and-property

Case study: Cost Benefit Analysis Tool

Ensuring projects and initiatives create value to New Zealand requires rigorous and comprehensive cost benefit analysis. The ability to evaluate and compare long-term impacts means government can make informed decisions about where to invest funds.

CBAx is an interactive tool that helps assess the costs and benefits of major initiatives. CBAx is a spreadsheet-based resource that contains a database of impacts which will help organisations assess the likely costs and benefits of policy initiatives. It includes the ability to identify groups of people or cohorts who will be affected by a policy, and show the degree to which groups or sectors gain or lose from the initiative. CBAx assesses the flow-on impacts of projects into other sectors and quantifies these in both monetary and non-monetary terms.

This year we updated CBAx with new and extended values and all Budget 2017 initiatives were required to be accompanied by a cost benefit analysis to support decision-making. To support wider use of CBAx we provided training, conducted Community of Practice meetings and offered a helpline to support agencies as they prepared Budget initiatives. Seventy-seven percent of Budget initiatives were submitted with CBAxs. This is an increase from 73% in the prior year.

The Crown Balance Sheet is Managed Effectively and Efficiently

Overview of our aims and key deliverables

Aim   Deliverables
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 and management of Crown liquidity and funding risks and New Zealand Debt Management Office (NZDMO) market, credit and operational risks.
  • Execute investor and intermediary engagement plans.

Overall achievements

We have managed the performance and risk profile of the Crown's assets and liabilities to support the Government's medium-term objectives.

We ensure the core Crown debt portfolio is well-managed, that long-term value and appropriate financial, commercial and social returns are achieved from the assets the Crown owns and that risks to the Crown's balance sheet are well-managed, consistent with government risk appetite.

Managing the balance sheet

The 2014 Investment Statement forms the basis for the Treasury's balance sheet management strategy which in turn informed the Treasury work plan for 2016/17. This year we began scoping and producing the 2018 Investment Statement. The balance sheet strategy supports the Crown to:

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

These fit in with our overall goal of managing the Crown balance sheet effectively and efficiently with the overall composition, performance and risk profile of assets and liabilities supporting an increase in living standards for New Zealanders.

Managing the core Crown's funding requirements 

NZDMO oversees the Government's borrowing requirements and associated activities, with a goal of managing debt in a way that minimises costs over the long term while keeping risk at an appropriate level. In managing core Crown funding requirements through 2016/17, NZDMO:

  • planned, communicated and carried out the borrowing programme within agreed cost and risk parameters
  • managed the Crown's net cash flows and associated risks, and
  • improved NZDMO's business continuity readiness through the implementation of a new technology platform.

In addition, NZDMO advised the Government on the importance of maintaining a sustainable bond market. This led to a government commitment to maintaining a minimum level of New Zealand Government Bonds on issue being included in the 2017 Fiscal Strategy Report.

Case study: New Zealand Debt Management Office

NZDMO manages the Government's borrowing requirements. In undertaking this activity NZDMO aims to minimise the Crown's borrowing costs over the long term, with due consideration to risk.

During the June 2017 fiscal year NZDMO issued $7.95 billion of New Zealand Government Bonds to investors. This was in line with Budget announcements and manifestly the same as in the previous June 2016 fiscal year.

In completing the funding requirement, NZDMO issued two new bonds. The first was a new nominal bond maturing in April 2037, followed by an inflation-indexed bond maturing in September 2040. These bonds were launched through the use of a syndication process which supports a large initial transaction to take place. Across the two syndications $3.5 billion of the $8.0 billion annual issuance programme was completed. The two new bonds have helped lengthen the average term to maturity of the portfolio and ensure sufficient capacity for future issuance.

In addition to the syndication of two new bonds, NZDMO held smaller and more regular tender auctions of both nominal and inflation-indexed bonds. Over the course of the year NZDMO completed 32 tenders of between $100 million to $200 million generating $4.45 billion of funding.

The May 2017 Budget included a government commitment to maintain NZGBs on issue at no less than 20% of GDP, helping to ensure a sustainable bond market irrespective of changes in the fiscal position.

Monitoring performance of Crown investments and assets

We endeavour to ensure that the Crown's assets achieve appropriate financial, commercial and social returns, risks and long-term value. The Investor Confidence Rating (ICR) was introduced in 2015 to create incentives (rewards and sanctions) for agencies that can demonstrate a high level of management maturity, asset performance and successful delivery of investments. This year we completed the third tranche of ICR which was publicly released in June, and are well through the fourth and final tranche of round one assessments. We have agreed changes to ICR for round two so it now includes procurement capability assessments. We have also continued our assistance and assessment of major investment projects, continued the public release of the pipeline of investments and the release of the major project performance reports, for transparency and more informed decisions.

In January we released our second annual report from 2015/16 on the way that the Government manages investments. This supports the Government's investment system to increase transparency, highlight projects that have been delivered and identify areas for improvement.

With respect to the Crown's commercial and financial portfolio, our Commercial Operations group has sought to drive strategic alignment between the shareholders and entities with a focus on efficient use of capital and improved commercial performance. Advice was provided to Ministers on governance issues and 150 board appointments.

Major commercial transactions included completion of the tendering process for the Puhoi to Warkworth Highway and Schools 3 Public-Private Partnerships, sale of Solid Energy's mining assets and Ōtākaro Limited completing procurement for the Christchurch Convention Centre.

Improving the management of infrastructure services

We have worked with other government agencies, local government and the private sector to implement the initial actions outlined in the National Infrastructure Plan. The Plan provides a better understanding of infrastructure services needed in the future and how we manage existing assets.

In October we released the 2016 State of Infrastructure report, a year one follow up to the National Infrastructure Plan. We also released the latest version of the infrastructure 10-year Capital Intentions Plan and, together with Infrastructure Partnerships Australia, launched the Australia and New Zealand Infrastructure Pipeline.

Management of balance sheet risks

The Treasury continued to increase its understanding of the potential impact of financial risks on the Crown balance sheet. A focus has been improving knowledge of the impact of shocks on the balance sheet through use of stress testing. Our work has helped us advise the Government on fiscal and risk management, and to work with agencies to improve the efficiency and effectiveness of the management of specific assets and liabilities of the Crown.

Progress in our medium-term indicators of success

Indicator Comment

Balance sheet targets are met and the Crown balance sheet is resilient to shocks.

 

Core Crown net debt is on track to return to around 20% of GDP by 2020 and is expected to continue to fall towards the Government's long-term net debt target thereafter.

The Earthquake Commission Risk Financing Strategy has been designed, and levy rates increased to aid rebuild of the National Disaster Fund.

Source: http://www.treasury.govt.nz/budget/forecasts/prefu2017/020.htm

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 portfolio has remained stable in line with the Government's priority of continued ownership.

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

In Budget 2017, the Government increased new capital spending to $4.0 billion, in line with its medium-term investment and fiscal priorities. The capital allowance for Budget 2018 has been set at $2.0 billion and $2.5 billion for Budgets 2019-21. Overall, the Crown is investing $32.5 billion in infrastructure over the next four years. The Treasury's Budget process includes an Investment Panel, comprising senior public and private sector officials, which provides an independent value assessment of investment initiatives to support government Budget decisions.

Sources: http://www.treasury.govt.nz/budget/2017

http://www.treasury.govt.nz/budget/2017/capital

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 Crown financial institutions have remained above long-term benchmarks.

The portfolio of commercial assets excluding KiwiRail substantially met budget on an aggregated earnings (EBITDAF) basis. EBITDAF comprises earnings before interest, taxes, depreciation, amortisation and fair value adjustments.

The Treasury monitors performance of the Crown-owned social assets in terms of the levels of actual availability, utilisation, fitness for purpose or condition against agreed targets. This information is taken into account in agency ICRs. In late 2016 for the first time, all investment-intensive agencies reported their 2015/16 performance to the Treasury. A summary of results was published in the Investing for New Zealand publication. The Treasury continues to work with agencies and the Office of the Auditor-General to ensure that, in future, appropriate asset performance information is published in agency annual reports.

Sources: Based on draft CFISnet submissions. Commercial Operations Group, the Treasury. For final individual results, refer to Annual Reports as they become available.

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

http://www.treasury.govt.nz/statesector/investmentmanagement/publications/ipannualreport/2015-16

New investments deliver expected value for money.

The Treasury has continued to improve the management of benefits across the State sector.

The main areas of focus have been on: using the ICR to test both the level of benefits management maturity in agencies and their actual performance against agreed benefits targets, and to identify improvements; building agency capability through updated guidance and sharing of experience; getting better quality data on expected and actual benefits from investments; reporting on and publishing the level of delivery confidence Cabinet can have with major monitored projects; and commencing a programme of benefits reports back to Cabinet.

In the commercial portfolio, heightened scrutiny has been applied to proposed capital investment programmes.

Sources:

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

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

http://www.treasury.govt.nz/statesector/investmentmanagement/publications/ipannualreport/2015-16

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. Risk-based performance expectations have been introduced to specific commercial entities where appropriate.

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

The Treasury continues to increase its understanding of whole-of-Crown financial risks and contingent items and is using the information to support decision-making.

Source: The Treasury

Agencies have the appropriate level of asset management capability.

Structured assessment of both asset management capability and asset performance has now been completed for 22 of the 25 investment-intensive agencies in 2016 and 2017 as part of the ICR.

System-level observations include a number of agencies focusing on improvement actions from their assessment reports, seeking training to lift capabilities, and active participation in the Asset Management Community of Interest.

Latest available information from a mid-cycle review of progress since the initial ICR assessments in 2015/16 indicates agencies are making positive progress on lifting their asset management capability to appropriate levels.

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.

The weighted term to maturity of the bond portfolio was 7.2 years at 30 June 2017. Inflation indexed bonds as a proportion of the bond portfolio comprise 20%.

The composition of the debt portfolio offsets the Crown balance sheet's sensitivity to interest rates, manages refinancing risks and reduces the volatility of the fiscal position as a result of changes in economic conditions.

Source: The Treasury

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

The targets were achieved. In particular, $7.95 billion of the $8 billion annual bond programme was completed.  

Source: The Treasury

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

There was one breach of NZDMO's risk management policy over the year.

One settlement error occurred over the year at no financial cost to the Crown.

Source: The Treasury

Case study: Investment Management and Asset Performance

The public sector has 688 investment projects planned or underway with a combined estimated cost of $1.1 billion building homes, schools, hospitals and roads to help New Zealanders move around the country, connect, learn, get jobs, grow businesses, stay safe and live healthy lives.

We use the ICR to measure investment capability and performance. This sets an appropriate standard for each agency, and assesses current practices and outcomes against these standards. Agencies are incentivised to do well - those with high assessments are offered more freedom to make investment decisions.

The ratings are applied to the 25 investment-intensive agencies, which together account for around 65% of the Crown's Property, Plant and Equipment balance sheet, with combined assets worth $87.5 billion. Twenty-three of these agencies have now been assessed, and 14 have met or exceeded the Cabinet's rating expectations.

We recently checked in with the first six agencies to be rated and found that all are driving improvements to investment practices. Their actions and experiences will help others to get better at investment, so that our investments deliver New Zealanders value for decades to come.

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

Overview of our aims and key deliverables

Aim   Deliverables
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.

Overall achievements

Over the year, our core work was delivered as planned, with the delivery of the Budget Policy Statement, Fiscal Strategy Report, Half Year Economic and Fiscal Update 2016 (HYEFU16), BEFU2017, the LTFS, Financial Statements of the Government, plus a milestone report for the legislative review of the Earthquake Commission Act 1993. We also provided advice on New Zealand Superannuation policy changes, as well as briefings for incoming Ministers and policy advice consequent to the Kaikōura earthquake.

Fiscal policy

  • We provided a range of fiscal strategy advice that helped inform the setting of a new net debt target, the appropriate level of allowances as set at HYEFU and BEFU and that helped inform Budget decisions.
  • We sponsored a session on fiscal policy at the annual New Zealand Association of Economists conference in July and gave three presentations: New Zealand's post-Global Financial Crisis fiscal consolidation experience (subsequently published as a Treasury working paper), New Zealand's Fiscal Management Approach, and Insights for New Zealand from the literature on fiscal targets.

Long-term fiscal pressures

  • The LTFS was released on 22 November 2016, alongside the refreshed and extended Long-term Fiscal Model.

Financial stability

  • The Treasury participated in the Trans-Tasman Banking Council meetings in December 2016 and May 2017. The next meeting of the Council is scheduled for November 2017 and will be chaired by the Treasury.
  • The International Monetary Fund (IMF) completed and publicly released the findings from its Financial Sector Assessment Program. The Treasury is coordinating with officials from MBIE, the Reserve Bank of New Zealand (RBNZ) and the Financial Markets Authority to consider over 100 IMF recommendations.
  • Financial market infrastructure, outsourcing and capital consultation papers were advised on and released or advanced to legislation.

Macroeconomic frameworks

  • The Treasury has been reviewing the monetary policy framework to inform advice on a new Policy Targets Agreement by March 2018.
  • We commissioned papers from international experts on contemporary issues in monetary policy and held a workshop on contemporary issues in monetary policy.
  • A preliminary version of a new core macro-economic forecasting model has been created. Planning for implementation has been completed and options for sequencing and timing of introducing the new model are being decided.
  • We have explored options for extending macroeconomic analytical tools to support future empirical and policy analysis.

Progress in our medium-term indicators of success

Indicator Result Comment
Fiscal policy has supported monetary policy by placing downward pressure on aggregate demand growth during upswings as measured by a range of indicators.

This indicator was reformulated during the 2015/16 year to reflect changing macroeconomic circumstances. This meant that excessive aggregate demand growth was no longer a presenting macroeconomic issue. Since 2015/16 it has continued to be important to ensure that fiscal policy settings do not act on demand in an opposite direction to monetary policy. The fiscal impulse indicates that fiscal policy is forecast to have a mildly stimulatory impact on aggregate demand in the near term, based on BEFU forecasts. This stance turns mildly contractionary in 2019/20 and 2020/21. The positive impulses in 2017/18 and 2018/19 reflect the stimulatory impact of elevated capital spending relative to the Half Year Update, the Family Incomes Package and timing effects of company tax receipts. This is somewhat offset by the ongoing decline in operating expenditure as a percentage of GDP that occurs across the forecast period, which also drives the negative impulses from 2019/20. 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/befu2017/015.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 as a share of nominal GDP is forecast to decrease, from 24.4% in 2015/16 to 19.3% 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/forecasts/befu2017/017.htm

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

 

In BEFU 2017, the operating balance is expected to be relatively unchanged, from 2015/16, in 2016/17 followed by steady growth in the remaining years of the forecasts rising to $7.2 billion by 2020/21. The core Crown segment is forecast to have an operating balance before gains and losses (OBEGAL) surplus that remains constant in the next two years before continuing to rise over the remainder of the forecast period, largely reflecting growth in tax revenue outpacing growth in nominal spending.

Source: http://www.treasury.govt.nz/budget/forecasts/befu2017/015.htm

Net worth attributable to the Crown is forecast to grow in nominal terms across the forecast period largely owing to forecast operating balance surpluses to stand at $133.0 billion by 2020/21. As a share of nominal GDP net worth attributable to the Crown is expected to increase across the forecast period as operating balances outpace GDP growth. Net worth attributable to the Crown is forecast to reach 40.9% by 2020/21.

Source: http://www.treasury.govt.nz/budget/forecasts/befu2017/018.htmcf

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

While government and the private sector had both been increasing their saving in recent years leading to higher national saving rates, in 2014/15 and 2015/16 households experienced modest dissaving. The Treasury forecasts assume households will continue their relatively cautious behaviour of recent years, keeping dissaving rates fairly close to zero, with consumption growth largely matched by income growth.

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 is currently at historical lows, with most commentators picking that New Zealand is at the trough of the interest rate cycle. Globally, interest rates are low and inflation pressures remain relatively weak.

Interest rates are forecast to respond to keep overall inflation within the target range of 1% to 3%, rising from the September quarter in 2018 onwards. Short-term interest rates are forecast to gradually lift to around 4% by June 2021, which is well below the peak in the previous cycle of around 9%. Long-term interest rates are expected to rise gradually to just over 4% by 2021 as inflation in advanced economies begins to rise and global monetary policy settings are tightened, particularly in the US.

Source: http://www.treasury.govt.nz/budget/forecasts/befu2017/008.htm

Indicator Comment
Assessments of exchange rate misalignment do not show material over- or under-valuation.

The IMF concluded that the New Zealand dollar was moderately (0% to 10%) overvalued when it assessed the New Zealand economy in May 2017.

Source: http://www.imf.org/en/Publications/CR/Issues/2017/05/08/New-Zealand-2017-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-44891

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 continue to work on a set of legislative amendments to ensure that appropriate powers are available to the Minister of Finance and to the Reserve Bank, and that these powers are able to work in concert. The Treasury chaired the Trans-Tasman Banking Council work agenda.

Sources: The Treasury and RBNZ

Financial stability risks related to New Zealand are within the 'normal range'.

New Zealand's financial system remains sound and is operating effectively. Banking system profitability has fallen modestly as a result of declining net interest margins, but remains robust. The banking system appears to be operating efficiently when compared to other OECD countries, based on metrics such as cost-to-income ratios, nonperforming loans and the spread between loan and deposit rates. Banks have tightened credit conditions in response to slowing deposit growth and elevated credit risks in the property development and dairy sectors. Solvency margins have fallen in the insurance sector, but the sector remains well positioned to absorb the costs of the Kaikōura earthquake.

Source: http://www.rbnz.govt.nz/financial-stability/financial-stability-report

Case study: Development of new Macroeconomic Forecasting Model

Forecasting is a core activity at the Treasury. Advice the Treasury provides on tax, fiscal, social spending and managing the economic cycle requires an assessment of what the future might hold. The Treasury uses forecasting to not only plan for the future and make well-founded policy recommendations, but also to communicate with the public, as well as enhance accountability and transparency. It is in this context that the Treasury endeavours to continually improve its forecasting model.

At present, the Treasury is in the final stage of developing an improved macroeconomic forecasting model - New Zealand Treasury Forecasting Model (NZTFM). NZTFM incorporates the latest economic understanding of the interactions among households, firms and government within and beyond New Zealand, with statistical techniques to enhance the accuracy and robustness of economic forecasts. The innovation of the new macroeconomic forecasting model is in its ability to easily understand the drivers of economic growth, thus enabling a deeper understanding of the dynamics of the New Zealand economy.

The model was developed collaboratively by experts across different fields over the past two years in an iterative development programme, and is expected to be deployed during the next forecast rounds later this year and next year.

The Treasury is a High-performing Organisation 

Overview of our aims and key deliverables

Aim   Deliverables

Effectively and efficiently do the job the country and Ministers need us to do.

Our staff are good listeners, learners and doers, with the strategic agility to join the dots, and the practical ability to get the job done.

We look for opportunities to collaborate and learn from others, ensuring that our advice is more citizen-focused in its design and delivery. This includes creating a work culture that is inclusive and harnesses diversity of thought.

 

 

  • Delivery of integrated change/HR work programme.
  • Delivery of shared finance, HR, payroll, information technology (IT) and information management services to the three central agencies.
  • Delivery of the first work stream under the Information Strategy.
  • Corporate support services including legal advice, financial management services, facilities, management, HR services and IT and information management.
  • He Manaaki.
  • A new Organisational Strategy.

Supporting higher performance

In 2016/17, we set ourselves a challenging work programme to continue to shift our culture, capability and capacity to better meet strategic goals.

The Treasury's Organisational Strategy

A major focus for the year was the development of a new Organisational Strategy. The Strategy sets out our aspirations for what we do and how we work over the next few years to raise living standards of New Zealanders. The Strategy sets out the Treasury's vision and ambition in response to the challenges that are presented by the global environment. It also outlines four strategic priorities that will be a focus for investment over the next few years, as well as articulating the core operational responsibilities that are a cornerstone of the Treasury's work.

Following the internal launch of the Strategy in February 2017, implementation began with a review of how we organise ourselves, and new processes including:

  • a prioritisation process - to work to free up capacity to pursue new investments
  • a new business planning and budgeting approach - to plan deliverables for 2017/18
  • a review of governance arrangements - to improve decision-making and accountability
  • outcomes mapping - to identify how we have an impact on wellbeing, and
  • a coordinated approach to communications and change management to support implementation.

We are now well placed to begin implementation in 2017/18 and beyond.

Delivering essential business support

We completed a refresh of five floors of No. 1 The Terrace, introducing linear desking with stand/sit options and more collaborative work areas. This project enables more efficient use of existing space, improved health and safety options and a more modern working environment. Design work has commenced on the Treasury's future accommodation move to the lower floors of 1-3 The Terrace, as part of the whole-of-government Wellington Accommodation Project, Phase Two in 2019.

The Treasury provides HR, finance and IT support to all central agencies in a shared services model. In 2016/17, following an agreement between Central Agency Chief Executives, a plan to improve the delivery of shared services was developed and implemented, including a new Finance Service Model, and ownership and governance processes.

A diverse and inclusive culture

Diversity of thinking

A description of our diversity and inclusion work programme is outlined on pages 8 to 10.

Māori and Pacific 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 2016/17, initiatives include:

  • Te Puna Wai, who support and lead the Treasury with waiata and tikanga in pōwhiri.
  • Seventy-three staff completed te reo Māori courses - tau kē! Staff are also encouraged and supported at tertiary level as well.
  • Two sessions of He Uru Whetu - marae day visits to Ngāti Toa at Takapuwahia marae. They focus on te reo Māori, Treaty of Waitangi and pōwhiri.
  • Work with teams to support individual/team development in Māori capability - work consists of mihimihi, te reo Māori, Māori engagement and Tikanga Māori.
  • A Māori Capability survey was conducted in June 2017 to identify the baseline of mātauranga Māori (Māori knowledge) and participation in things Māori within the Treasury. This information will inform the next steps for Puna Kaupapa to enhance Māoricapability. It was reported 189 staff have participated in pōwhiri at the Treasury.

We are continuing to build our Pacific capability and responsiveness to Pacific diversity and inclusion. Workshops on the Pacific operating model and Pacific analytical frameworks have been undertaken to build our internal capability and diversity of thinking. We have also run successful regional engagement events with Pacific economic stakeholders and leaders to hear what they consider matter to Pacific communities and families and how we can help accelerate Pacific living standards. We are continuing to test the applicability of our Living Standards Framework in identifying the capital products relevant to Pacific communities and, looking forward, we are undertaking an innovative project to quantify and understand the value and contribution of Pacific New Zealanders to the New Zealand economy now and in the future.

Building capability and supporting performance

Economic and policy capability

In 2016/17 we have re-established the Chief Economic Advisor's office with a focus on supporting the implementation of the Organisational Strategy and building internal economic and quantitative capability.

As part of delivering that approach, we have developed a plan to integrate economics into a continuous professional development process for Treasury staff modelled on the successful Finance Development Programme that the Treasury has run for finance professionals.

A key component of the new approach will also be development of peer to peer learning, 'masterclasses', based on sharing the practical knowledge of experienced economists in the Treasury and the wider public sector.

Recruitment and development

We have explored a variety of tools and options to broaden the diversity of our applicant pool. We are working on greater automation of our recruitment software to provide an improved customer experience and reduce administration inputs.

The new 'He Manaaki' approach to performance, development and growth has been rolled out with training support to all people leaders, and employees are now progressively attending workshops aimed at supporting them to have more effective conversations with their people leader.

Tools and systems that support our work

Information capability

The Treasury Information Capability (TIC) programme is developing a new data and analytic capability. An aim of the programme is to lift the data and analytic maturity of the Treasury. This will involve simplifying and improving access to secure, trusted and high-quality data to support more accurate, persuasive and timely advice and decision-making. This will contribute to realising the Treasury vision of higher living standards for New Zealanders.

This year has involved establishing the required cloud-based technological foundation necessary to make data applications and connections to data sources operational. Selected business initiatives were also developed to make specific data sources more accessible and usable. Lifting the data and analytic maturity of the Treasury will also involve improving organisational competencies (eg, improving data management practices, increasing data literacy and supporting the introduction of new data visualisation and analytical tools).

Managing risk

We have developed and implemented a new risk management framework for the Treasury. This has resulted in enhanced risk management practices and awareness across the business. Business continuity plans have also been reviewed, updated and tested, including two exercises, as well as practical use following the Kaikōura earthquake.

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 Secretary. 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.

New Zealand Business Number Implementation

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 have updated our Financial Management Information System to enable the use of NZBN against our accounts payable, accounts receivable and vendor information. We are also developing a new contract management system within our Financial Management Information System which will make use of the NZBN. An assessment is required to ascertain whether there are any other systems and processes that will be impacted by NZBN. This will be completed by the end of 2017.

Progress in our medium-term indicators of success

Indicator Result Comment
Stakeholder survey

The Treasury conducts a survey of its external stakeholders biennially. Our most recent survey shows 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/informationreleases/s/cb-s-jun15.pdf

Benchmarking Administrative and Support Services

(as % of total departmental operating expenditure)  

As expected, the 2015/16 BASS result returned to a similar level as the 2013/14 year and prior (the unusual drop in 2014/15 was owing to an increase in our overall appropriations). The ICT function contributed to most of the cost increase for 2015/16, used for the NZDMO Business Information Hub project, Stage 2 Windows 8 rollout, Stage 1 server upgrade, web platform consolidation and network equipment replacement. Nevertheless, the Treasury's 2015/16 result is better than the median for all agencies, and better than the median for the small agency cohort.

Source: BASS survey result to be publicly released in late 2017

Engagement survey  index

The Treasury's engagement score is unchanged from 2015/16; however, our underlying results show positive shifts in a number of areas we have been working on since our last survey. Our 2016/17 engagement level is above the Public Service benchmark of 68 but below the State Sector Top 25% benchmark of 78.

Source: IBM survey for the Treasury

Gender distribution

(as a percentage of women 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 37.8% of management roles (these being roles that have responsibility for direct reports). 

Source: The Treasury

Annualised turnover

Our turnover for 2016/17 is 19.3% compared with 11.1% across the public sector.The Treasury has a very strong brand and is viewed as a desirable place to learn and develop valuable skills. The Treasury's turnover reflects contribution to growing leaders who take up significant positions in other agencies across the public sector.

Source: https://www.ssc.govt.nz/public-service-workforce-data/hrc-workplace

Case study: Reducing unconscious bias

A key part of our plan to mitigate against unconscious bias happens in our graduate recruitment process. The Treasury adopted a new approach to appeal to, and attract, a wider range of potential applicants. This approach won the 2017 Excellence in Improving Diversity and Inclusiveness in the Public Sector IPANZ award.

The approach included anonymised CVs to avoid bias towards a candidate, asking broader questions, valuing people with a wider range of qualifications and experience and community connections.

Today, the Treasury's graduate intake is far more diverse. A little over one-third identified as solely NZ European, with a number having lived overseas and qualifications ranging from Māori studies to languages. There was recognition that economic capability - the historic focus of our recruitment - does not always require an economics qualification.

This greater diversity of talent promises to make the Treasury a more robust, accessible and innovative agency.

Section Two

Departmental Appropriations

This section of the report describes the groups of outputs that the Treasury was funded to deliver in 2016/17 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 2016/17 Estimates and 2016/17 Supplementary Estimates.

The output appropriations support the achievement of the Strategic Intentions set out on pages 13 to 45 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.

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

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 with this appropriation

Performance Measure Target 2015/16 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 One breach
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 One error, no financial loss
2016
Actual
$000

 

 

2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
2018
Unaudited
Forecast
$000
8,822 Expenses 8,398 9,249 9,249 9,249
  Funded by:        
9,244 Revenue  Crown 9,244 9,244 9,244 9,244
64 Other revenue 13 5 5 5

Note: Operating costs associated with the delivery of the Crown Debt Management function were below budget owing to lower than budgeted process management and consulting fees.

Significant achievements

During 2016/17, the Treasury:

Borrowing programme:

  • Issued $7.95 billion of New Zealand Government bonds, achieving the required programme size. This compared to $8.0 billion in 2015/16.
  • Introduced a 2037 New Zealand Government nominal bond, raising $2.0 billion through the initial issue via syndication.
  • Introduced a 2040 New Zealand Government inflation-indexed bond, raising $1.5 billion through the initial issue via syndication.
  • Re-purchased $5.8 billion of the December 2017 New Zealand Government nominal bond, enabling investors to reduce holdings ahead of the maturity, in turn providing more liquidity for investment into other New Zealand Government securities.

Investment programme:

  • Managed asset portfolios that, at 30 June 2017, included marketable securities of $7.1 billion and a cash balance of $7.8 billion. Funds were invested in predominantly AAA and AA rated securities.

Treasury services:

  • Provided a range of other financial markets services for the Crown. This included financial risk intermediation, management of the Crown's transactional obligations with the IMF, managing Crown lending and providing financial markets risk management and capital markets advice as required.

Investor relations and market development: 

  • Provided advice that supported the Government communicating an intention to maintain levels of New Zealand Government bonds on issue at not less than 20% of GDP over time. This supportslong-term investor confidence in the New Zealand Government bond market.
  • Promoted New Zealand Government securities in local and international markets. This included overseas investor missions to the UK, USA and Europe and support of inbound investor visits. These developed and strengthened intermediary and investor relations.
  • Participated in, and presented at, a number of investor and sovereign peers conferences and other fora.
  • Engaged with the three rating agencies (Moody's, Standard & Poor's and Fitch) to assist them in their assessments of New Zealand's creditworthiness. This included briefing the rating agencies on developments in the New Zealand economy and organising meetings with relevant officials, commentators and Ministers.

Technology platform development:

  • Completed the implementation of a new technology platform that supports end-to-end transaction capture, settlement, accounting, reporting and control functions for NZDMO. This delivered an uplift in NZDMO's current and potential capability and significantly improved NZDMO's operational risk profile. The implementation enabled the retirement of NZDMO's legacy application and significantly improved NZDMO's business continuity capability.

Administration of Guarantees and Indemnities given by the Crown PLA

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 2015/16 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
2016
Actual
$000

 

 

2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
2018
Unaudited
Forecast
$000
69 Expenses 21 310 110 110
  Funded by:        
309 Revenue  Crown 109 309 109 109
- Other revenue - 1 1 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 2016/17.

Significant achievements

During 2016/17, the Treasury:

  • managed the reimbursement for work undertaken by Solid Energy in relation to the Crown's rehabilitation indemnities, and
  • commenced the process to transfer rehabilitation indemnities to new mine owners at which point the management of the indemnities will be undertaken by an independent escrow agent.

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 State-Owned Enterprises (SOEs), Crown entity companies (CECs) and Crown entities monitored under this appropriation.

What was achieved with this appropriation

Performance Measure Target  2015/16 2016/17
Appointments completed for Directors of SOEs. 51 44 50*
Appointments completed for Board members for CECs and Crown entities that are monitored under this appropriation. 48 81 84
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' Expectation Manual.  Achieved Achieved Achieved

* This has been the result of changes to board sizes being agreed by Ministers, and decisions to hold some vacancies meaning that appointments were not made.

2016
Actual
$000
  2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
2018
Unaudited
Forecast
$000
4,434 Expenses 4,069 4,659 4,535 4,458
  Funded by:        
5,291 Revenue  Crown 4,533 4,657 4,533 4,456
31 Other revenue 4 2 2 2

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

Significant achievements

During 2016/17, the Treasury provided ownership, performance monitoring and governance advice to the Minister for State Owned Enterprises and other responsible Ministers in respect of the Ministers' shareholding responsibilities. This included advice on:

  • the appointment of Directors to Boards
  • Directors' fees
  • the financial performance of the SOEs, Crown entities and other monitored entities
  • transactions, including (i) the partial sale of Kiwi Group Holdings Ltd by NZ Post; (ii) the sale of Fairway Resolution Ltd; and (iii) Crown Irrigation Investments Ltd funding provided to Central Plains Water Stage 2
  • capital funding provided to Kiwi Rail Holdings Ltd
  • repurposing Crown Fibre Holdings as Crown Infrastructure Partners to accelerate the construction of water and roading infrastructure for housing development, and
  • the sale and wind-down of Solid Energy's assets, in preparation for a solvent liquidation in March 2018.

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  2015/16 2016/17
Appointments completed for Directors of Crown research institutes and other entities. 22 48 16*
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

* This has been the result of changes to board sizes being agreed by Ministers, and decisions to hold some vacancies meaning that appointments were not made.

2016
Actual
$000
  2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
2018
Unaudited
Forecast
$000
140 Expenses 279 216 419 229
  Funded by:        
263 Revenue Crown 418 215 418 228
1 Other revenue - 1 1 1

Note: Expenditure within this appropriation is broadly in line with what was budgeted.

Significant achievements

During 2016/17, the Treasury provided 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. This included:

  • advice and services in relation to the appointment of Directors to Boards
  • advice on Directors' fees, and
  • support and guidance provided to MBIE in its role as monitor of the Crown research institutes and other Crown entities.

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 Measure Target 2015/16 2016/17

Assessment of the technical quality of policy advice papers through a review process that has a methodological 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.

75% 62% 59% (a)
The satisfaction of the Minister of Finance with the policy advice service, as per the common satisfaction survey.  75% 70% Not yet measured (b)
The total cost per hour of producing outputs. $203 $182 $191

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 Budget Policy Statement Achieved Achieved Achieved
Significant Regulatory Impact Statements meet most or all of Regulatory Impact Analysis Requirements.  90% 78% 82% (c)
Tax revenue forecast error on one-year-ahead forecasts.  Less than plus or minus 3% +2.1% N/A (d)
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 (PFA). Where this advice is underpinned by modelling, results from major models are externally quality assured (periodically) and, where appropriate, assumptions are tested with suitably qualified external experts. Achieved Achieved Achieved
  1. This year's result indicates that a greater focus on quality of advice is needed. Our advice review process suggests a particular need to focus on our advice being fit for purpose: responsive to audience need; clear on the reason for and action from the advice; and high-quality in its communication.
  2. Survey was sent to the Minister's office on 15 August 2017. However, the result was not available at time of publishing.
  3. Continuing improvement as experience across departments grows, but barriers to quality remain.
  4. Measure removed in the Supplementary Estimates in April 2017.
2016
Actual
$000

 

 

2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
2018
Unaudited
Forecast
$000
31,703 Expenses 31,875 31,181 32,929 34,982
  Funded by:        
32,712 Revenue Crown 32,881 31,133 32,881 34,934
284 Other revenue 43 48 48 48

Note: The underspend is mainly owing to delays in projects that involved the use of external resources.

Significant achievements

During 2016/17:

Regulatory management:

Fiscal strategy:

  • The Treasury provided advice on the macroeconomic and fiscal outlook and risks, and the Government's fiscal strategy, to inform the Government's decisions for the 2017 Budget.

Budget 2017:

  • Budget 2017 announced new operating investments of $1.8 billion, new capital investment of $4 billion and a Family Incomes Package of $2 billion. The decisions taken in Budget 2017 were in line with the Government's short-term fiscal intentions set out in the 2017 Budget Policy Statement.

Welfare system:

  • We provided regular reporting on the welfare valuation model. We work with MSD to strengthen their investment strategy.

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 and export and financial markets, through provision of relevant and timely operational support, services and advice.

What was achieved with this appropriation

Performance Measure Target 2015/16 2016/17
All submitted Budget initiatives were accompanied by a cost benefit analysis, where required. Achieved 73% Not achieved (77%) (a)
Audit opinion issued by the Controller and Auditor-General on the Financial Statements of Government.  Unqualified Unqualified Unqualified
Required Economic and Fiscal Updates efficiently produced with key judgements and uncertainties clearly articulated and key assumptions have been appropriately tested. Achieved Achieved Achieved
Monthly Financial Statements of Government produced in accordance with the PFA requirements and free from material errors.  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 4YPs submitted by agencies that meet the criteria expected of a comprehensive medium-term strategic plan.  75% 59%

38% (b)

 

Investment Management and Asset Performance       
All Tier 1 and Tier 2 investment-intensive agencies have baseline asset performance measures defined in their annual reports. 100% N/A 100%
All Tier 1 and Tier 2 investment-intensive agencies have baseline measures for benefits realisation on projects and programmes. 90% N/A

84% (c)

 

All Tier 1 and Tier 2 investment-intensive agencies have long term investment plans (LTIPs) covering a minimum of 10 years. 100% N/A 100%
Tier 1 and 2 investment-intensive agencies comply with Cabinet's investment management rules and standards. 100% 67% 73% (d)
Key agency stakeholders with a major monitored project agree with the statement: “Project monitoring advice provides me with valuable information on the status of my major projects.”  85%

Not measured
in 2016

 

45% (e)

 

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 “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”.  97% of Senior Responsible Owners agreed that the “review was beneficial and will impact positively on the outcome of the programme/project” and  93% agreed the “report's recommendations will enable me to achieve improvements in the project's outcomes”.
New Zealand Export Credit Office      
Number of new export credit policies underwritten.  70 Not met
(46 policies)
47 policies (f)
Value of export transactions supported.  $250-$320 million Not met
($193 million)
$182 million (g)
Value of new exposure of export credit policies.  $100-$120 million Met ($131 million) $112 million
Forecast total external engagements.  420 Met (556) 471
Compliance with International Guidelines (OECD and WTO) and Delegated Mandate.   100% Met (100%) 100%
Five-year Expense Ratio (Operating Expenses/Premium Earned).  Lower than 60% Met (47%) 101% (h)
Five-year Loss Ratio (Claims Paid and Reserved/Premium Earned). Lower than 40% Not met (180%) 78% (i)
Number of exporters supported. 30-40 N/A 36
Number of education seminars delivered. 30 N/A 74
  1. We have built on last year's successful introduction of the CBAx spreadsheet tool designed to help agencies undertake cost benefit analysis. In Budget 2017, 136 initiatives were required to complete a CBAx; of those, 105 provided one. In addition, 29 initiatives were exempted because the initiative was not suited to an assessment.

    This is an improvement on the 2015/16 result of 73% and a good result in year two of the tool, although it falls short of our ambition. We are changing CBAx requirements on departments, to learn from the experience of Budget 2017. We intend to target CBAx at the areas of social sector and social investment in Budget 2018 - CBAx is our premium CBA tool and we want to direct use of it where it will add the most value. We are also designing a clearer and more principled exemptions process and continuing to support Vote Analysts and departments to lift CBA capability.
  1. Only 38% of departments submitted 4YPs in 2017 that the Treasury considered 'comprehensive'. Medium-term planning is good practice in a well-developed public management system but recent results show that work is needed to support more departments to have comprehensive 4YPs. As a result, we are putting in place a more targeted, well-supported approach for 4YPs for 2018 and we are also working to align 4YPs with other similar strategic planning requirements (LTIPs and Strategic Intentions).
  2. The coverage and quality of benefits information is steadily improving.
  3. Compliance is generally high (including for small investments). Overall compliance was compromised in several cases where decisions were made under urgency or when the capital investment was incidental to the primary reason for the decision.
  4. This measure was not as representative as intended and has been changed for 2017/18 to better reflect the work the Treasury does and how we add value. Other feedback from the survey used to gather data for the 2016/17 measure suggested that our investment advice is providing value (which was not captured by a question limited to information about the status of major projects). The new measure will assess Ministers' satisfaction with the Treasury's investment advice.
  5. NZECO's role is to provide capacity to the private sector, and this lower result reflects stronger private sector capacity, as well as applications not meeting NZECO's credit standards. During the year, NZECO issued a total of 53 committed offers, and as at 30 June 2017 there are six outstanding offers.
  6. NZECO's policies met the market's demand for supporting mainly small and medium-sized enterprises (SME) exporters and/or smaller value export contracts. This support was to a diverse range of markets across 29 countries, with most being outside of New Zealand's traditional export markets.
  7. This reflects NZECO's aggregate premium being lower than previous years as a consequence of NZECO's policies being for smaller-value, shorter-tenors (often in support of SMEs).
  8. This ratio reflects that NZECO's premium plus recoveries exceeded the total value of claims paid and provisioned, over the last five years. However, NZECO did not meet the 40% maximum ratio that it sets internally.
2016
Actual
$000

 

 

2017
Actual
$000
2017
Main
Estimates
$000
 
2017
Supp.
Estimates
$000
2018
Unaudited
Forecast
$000
29,484 Expenses 29,863 30,950 31,515 30,848
  Funded by:        
26,688 Revenue Crown 27,068 27,325 27,068 27,223
4,167 Other revenue 4,414 3,625 4,447 3,625

Note: The underspend is mainly owing to delays in projects that involved the use of external resources.

Significant achievements

During 2016/17, the Treasury carried out work in the following key areas:

Government financial reporting:

  • Produced unqualified audited Financial Statements of Government for 2015/16, including a 'Snapshot' which is intended to be an accessible summary of the financial results. Interim financial statements provided a regular and timely update of the Government's finances.
  • Progressed the Government's commitment to the Open Government Partnership, including commissioning stakeholder research which confirmed that New Zealand's fiscal reporting is considered one of the most transparent in the world; however, potential improvements could still be made.

Investment management and asset performance:

  • We continued our work with investment-intensive agencies and government investment Ministers to improve key aspects of the Government's investment management system, including asset performance, benefits from major investments and long-term planning.
  • We also continued to roll out the ICR which gives government stakeholders an evidence-based assessment of agency capability and performance and identifies areas for improvement.

Fiscal and State sector management/strategic performance improvement:

  • Medium-term planning is good practice in a well-developed public management system and in 2016/17 we continued to support 32 agencies to improve the quality of the 4YPs.
  • We also started work to align 4YPs with other similar strategic planning requirements (LTIPs and Strategic Intentions), given the perception of cluttered strategic planning requirements.

New Zealand Export Credit Office:

  • Underwrote export sales of $182 million into 29 countries. Exporters from the marine, high-tech manufacturing, primary, wine, ICT and renewable energy sectors were able to secure new contracts or increase the value of their sales via the support of NZECO's financial solutions.
  • While the number of total policies and total exports supported did not meet our forecast targets, in part it was owing to several examples of private insurers and banks stepping in to support exporters, after NZECO's initial support helped increase their export turnover and profitability.

Compliance with risk management policies and parameters for management of Crown lending and Crown bank accounts: 

  • Total advances to Crown entities at the end of the period was $4.8 billion. Over the period NZDMO administered any drawdowns, interest repayments, principal repayments as well as providing any risk management and accounting required as a result of these transactions.

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 with this appropriation

Performance Measure Target 2015/16 2016/17
Services meet the standards and timeframes agreed with the three central agencies. Achieved Achieved Achieved
2016
Actual
$000

 

 

2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
2018
Unaudited
Forecast
$000
12,933 Expenses 13,964 14,313 14,280 14,069
  Funded by:        
12,933 Other revenue 13,625 14,313 14,280 14,069

Note: The underspend is owing to the service level agreements with the agencies setting a work programme less expensive than appropriation limits.

Significant achievements

During 2016/17, the Treasury carried out work in the following key areas:

Systems and processes of internal controls:

  • Quality and timeliness of financial and payroll services have been achieved.
  • Access and availability of IT systems has been at or above expected service levels and there has been no significant loss or impairment of data integrity.
  • A project to increase the resilience of IT systems through the use of high availability data centres commenced and systems were successfully transitioned between May and August 2017.
  • Cloud services have been adopted for some applications and this will continue in 2017/18 as the shared services move further towards an 'as a service' model.
  • Dedicated HR programmes were delivered for both SSC and DPMC, and a number of improvements to technology services were also delivered.
  • In response to an annual survey, over 90% of customers rated the service as mostly satisfied or above.

New governance arrangements:

  • The Treasury is the owner of the shared services function and is responsible for the efficient and effective delivery of the services and overall stewardship. Directors of Finance, HR and IT are responsible for customer satisfaction, internal controls, process efficiency and the cost effectiveness of their respective functions. Bi-lateral meetings with each customer are the primary relationship management vehicle and are used to provide two-way feedback; agree expectations for both parties; identify and resolve issues; and monitor service performance.

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

Performance Measure Target 2015/16 2016/17
Expenditure is in accordance with the Treasury capital asset management plan. Achieved Achieved Achieved
Capital Expenditure PLA 2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
Property, plant and equipment 2,937 2,903 2,903
Intangibles 3,035 1,337 1,337
Total appropriation 5,972 4,240 4,240

Significant achievements

During 2016/17, the Treasury's capital expenditure was primarily targeted towards the renewal and upgrade of IT assets used to support the three central agencies, in line with its capital asset management plan. In addition, 2016/17 was the first year of the TIC project, and some initial expenditure was incurred in relation to the design of the fitout of the Treasury's new premises at No 1 The Terrace that it will be moving into in 2019 as part of the whole-of-government Wellington Accommodation Project, Phase Two.

Ministerial Servicing Performance 2016/17

The information in this section, while not part of our Appropriations, provides information on our performance in providing services to Ministers.

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 2017 395 304 133 323
Target % answered by due date 95% 100% 100% 100%
Actual % answered by due date 85% 65% 78% 85%
Target % first draft accepted 95% 100% 95% N/A
Actual % first draft accepted 80% 94% 89% 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 (MCA)

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.

What was achieved with this appropriation and each of its categories

Performance Measure Target 2015/16 2016/17

Greater Christchurch Anchor Projects MCA

     
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
2016
Actual
$000

 

 

2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
2018
Unaudited
Forecast
$000
50,250 Total appropriation 152,302 203,887 253,026 254,060
  Non-departmental operating expense        
12,999 Christchurch Bus Interchange and Associated Transport Infrastructure - Operating 15,590 31,329 25,118 38,441
1,812 Christchurch Convention Centre - Operating 28,575 1,500 7,704 1,000
- Leasing Anchor Project Land - - 4,000 2,000
98 Pre-development Holding Costs 1,687 6,000 3,365 8,000
1,582 Procurement of Land and Assets 18,209 - 29,980 23,000
13,655 Public Space - Operating 49,068 49,281 90,843 52,286
- Sale of Land - - 2,184 500
- Christchurch Bus Interchange and Associated Transport Infrastructure - contributions from third parties - - 100 -
- Christchurch Stadium - contributions from third parties - - 100 -
11 Christchurch Stadium - Operating - - 3,989 -
- Financial Impact of Valuations - - 2,831 -
- Metro Sports Facility - contributions from third parties - - 100 -
2,759 Metro Sports Facility - Operating 5,264 2,043 8,673 -
- Public Space - contribution from third parties - - 100 -
- The Square - contributions from third parties - - 100 -
2 Christchurch Earthquake Memorial - Operating - 122 - -
  Non-departmental capital expense        
- Christchurch Bus Interchange and Associated Transport Infrastructure - Capital - - 2,085 2,000
5,000 Christchurch Convention Centre - Capital - 95,400 - 114,900
2,896 Earthquake Memorial - Capital 7,815 3,996 8,500 683
- Land and Asset Acquisition - Capital - - 25,336 5,000
- Metro Sports Facility - Capital - - 500 500
9,436 Public Space - Capital 26,094 14,216 37,418 5,750

Note: The underspend is mainly owing to delays in completion of Convention Centre and other Anchor Projects.

Significant achievements

During 2016/17:

  • Ōtākaro Limited was incorporated under Schedule 4A of the Public Finance Act 1989 in February 2016, and has been fully operational since the disestablishment of Canterbury Earthquake Recovery Authority (CERA) in April. The appropriations for each Anchor Project, previously established in Vote Canterbury Earthquake Recovery, were transferred to Vote Finance as set out above. Funding for each Anchor Project is drawn down by the company on a quarterly basis, under a Project Funding Agreement with the Crown.
  • Ōtākaro Limited has completed its first full year of operations. It has successfully completed one project, the Earthquake Memorial, and is in the process of transferring this and other packages of partially completed projects to their final owners (MCH and the Christchurch City Council). The second of the four major Anchor Projects, the Christchurch Convention and Exhibition Centre, is due to begin construction in September 2017.

Inquiries and Research into Productivity-related Matters MCA

What is intended to be achieved with this appropriation

This appropriation is intended to achieve:

  • inquiries in accordance with the New Zealand Productivity Commission Act 2010, and
  • research in accordance with the Productivity Commission Act 2010.

What was achieved with this appropriation and each of its categories 

Performance Measure Target 2015/16 2016/17

Inquiries and Research into Productivity-related Matters MCA

     
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
2016
Actual
$000

 

 

2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
2018
Unaudited
Forecast
$000
5,030 Total appropriation 5,030 5,030 5,030 5,030
  Non-departmental output expense        
4,401 Inquiries into Productivity-related Matters 4,401 4,401 4,401 4,401
629 Research into and Promotion of Productivity-related Matters 629 629 629 629

Significant achievements

During 2016/17, work was carried out in the following key areas:

  • The Productivity Commission delivered two inquiries into productivity-related topics. The first inquiry, New Models of Tertiary Education, considered how well New Zealand's tertiary education system is set up to respond to emerging trends in technology and the internationalisation of education, and changes in the structure of the population, and the skills needed in the economy and society. Following the release of the report, the Government released its formal response, setting out a clear direction for future work that will focus on four key areas: creating a more student-centred system; meeting the needs of industry through relevant, responsive and supportive teaching; improving performance across the system; and enabling and encouraging innovative new models and providers. The Commission also released an inquiry into Urban Planning. 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. One example was 'Achieving New Zealand's productivity potential', which was a research paper that drew on the Productivity Commission's body of work to outline reasons why New Zealand has generally struggled to lift productivity over the past four decades and the broad areas of policy reform that would help in turning that around. 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 2016/17 the Hub continued its focus on firm-level analysis of New Zealand's productivity performance. The Productivity Hub hosted a workshop on 16 June 2017, where researchers, officials and academics from New Zealand and overseas met to deliver presentations and discuss productivity-related matters.

Social Housing Reform MCA

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 the Housing New Zealand Corporation stock available to social providers.

What was achieved with this appropriation and each of its categories

Performance Measure Target 2015/16 2016/17

Social Housing Reform MCA

     
The Social Housing Reform Programme is developed to allow the progress of transactions. 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
Develop policies, commercial structures and standard form contractual documentation to support the Social Housing Reform Programme and the development of the community housing sector through transactions. Achieved N/A Achieved

Direct Sale Costs for Implementing the Social Housing Reform Programme

     
Progress Cabinet-mandated transactions as scheduled for 2015/16.  Achieved Achieved Achieved
Reach contractual close of the transactions in Tauranga and Invercargill in 2016/17. Achieved N/A

Not achieved

(Tauranga achieved, Invercargill not achieved)

2016
Actual
$000

 

 

2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
2018
Unaudited
Forecast
$000
12,439 Total appropriation 11,333 11,460 16,846 8,495
  Departmental        
8,263 Expenses: Implementation of the Social Housing Reform Programme 8,282 7,860 10,522 4,495
  Funded by:        
10,875 Revenue  Crown 10,520 7,858 10,520 4,494
60 Other revenue 5 2 2 1
  Non-departmental        
4,176 Direct sale costs for implementing the Social Housing Reform Programme 3,051 3,600 6,324 4,000

Note: Expenditure against the Social Housing Reform Programme MCA was lower than the Supplementary Estimates balance, largely as a result of the Expression of Interest and Request for Proposal stages for the proposed Christchurch transfer occurring later than originally planned with some expenditure now likely to fall in 2017/18 rather than in 2016/17.

Significant achievements

During 2016/17, the Treasury:

  • Successfully concluded the first transfer of Housing New Zealand properties and tenancies to a non-government community housing provider. In March 2016, three of five respondents were invited to formally respond to the Request for Proposal, and in August 2016 Accessible Properties Ltd (APL, a subsidiary of IHC) was selected as preferred provider. Contractual Close (the signing of a Capacity Contract and a Sale and Purchase Agreement) followed on 15 December 2016. On 1 April 2017 APL took over responsibility for the 1,138 Housing New Zealand properties and tenancies in Tauranga.
  • Initiated a proposed transfer of up to 2,500 HNZC properties and tenancies in Christchurch, in November 2016. Respondents are expected to respond to a Request for Proposals by 25 September 2017.
  • Developed a robust contractual framework as part of the Tauranga transaction process. This framework will serve as a basis for future transactions. It has been widely accepted by the market, and is being used by MSD to inform development of their contracts.

Independent Auditor's Report

To the Readers of the Treasury's Annual Report for the Year Ended 30 June 2017

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

  • the financial statements of the Department on pages 82 to 92, that comprise the statement of financial position, statement of commitments, statement of contingent liabilities and contingent assets as at 30 June 2017, 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 2017 on pages 13 to 61, and 63 to 69;
  • the statements of expenses and capital expenditure of the Department for the year ended 30 June 2017 on pages 75 to 80;
  • the schedules of non-departmental activities which are managed by the Department on behalf of the Crown on pages 94 to 100 that comprise:
    • the schedules of assets; liabilities; commitments; and contingent liabilities and assets as at 30 June 2017;
    • the schedules of expenses; and revenue for the year ended 30 June 2017;
    • the statement of trust monies for the year ended 30 June 2017; and
    • the notes to the schedules that include accounting policies and other explanatory information.

Opinion

In our opinion:

  • the financial statements of the Department on pages 82 to 92:
    • present fairly, in all material respects:
      • its financial position as at 30 June 2017; and
      • its financial performance and cash flows for the year ended on that date; and
      • comply with generally accepted accounting practice in New Zealand in accordance with Public Benefit Entity Reporting Standards.
  • the performance information of the Department on pages 13 to 61, and 63 to 69:
    • presents fairly, in all material respects, for the year ended 30 June 2017:
      • 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; and
    • complies with generally accepted accounting practice in New Zealand.
  • the statements of expenses and capital expenditure of the Department on pages 75 to 80 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 94 to 100 present fairly, in all material respects, in accordance with the Treasury Instructions:
    • the assets; liabilities; commitments; and contingent liabilities and assets as at 30 June 2017;
    • expenses; and revenue for the year ended 30 June 2017; and
    • the statement of trust monies for the year ended 30 June 2017.

Our audit was completed on 29 September 2017. This is the date at which our opinion is expressed.

The basis for our opinion is explained below. In addition, we outline the responsibilities of the Secretary to the Treasury and our responsibilities relating to the information to be audited, we comment on other information, and we explain our independence.

Basis for our opinion

We carried out our audit in accordance with the Auditor-General's Auditing Standards, which incorporate the Professional and Ethical Standards and the International Standards on Auditing (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board. Our responsibilities under those standards are further described in the Responsibilities of the auditor section of our report.

We have fulfilled our responsibilities in accordance with the Auditor-General's Auditing Standards.

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

Responsibilities of the Secretary to the Treasury for the information to be audited

The Secretary to the Treasury is responsible on behalf of the Department 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 is responsible for such internal control as is determined is necessary to enable the preparation of the information to be audited that is free from material misstatement, whether due to fraud or error.

In preparing the information to be audited, the Secretary to the Treasury is responsible on behalf of the Department for assessing the Department's ability to continue as a going concern. The Secretary to the Treasury is also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless there is an intention to merge or to terminate the activities of the Department, or there is no realistic alternative but to do so.

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

Responsibilities of the auditor for the information to be audited

Our objectives are to obtain reasonable assurance about whether the information we audited, as a whole, is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit carried out in accordance with the Auditor-General's Auditing Standards will always detect a material misstatement when it exists. Misstatements are differences or omissions of amounts or disclosures, and can arise from fraud or error. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of readers, taken on the basis of the information we audited.

For the budget information reported in the information we audited, our procedures were limited to checking that the information agreed to the Department's information on strategic intentions/statement of intent.

We did not evaluate the security and controls over the electronic publication of the information we audited.

As part of an audit in accordance with the Auditor-General's Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. Also:

  • We identify and assess the risks of material misstatement of the information we audited, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • We obtain an understanding of internal control relevant to the audit 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.
  • We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Secretary to the Treasury.
  • We evaluate the appropriateness of the reported performance information within the Department's framework for reporting its performance.
  • We conclude on the appropriateness of the use of the going concern basis of accounting by the Secretary to the Treasury and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Department's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the information we audited or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Department to cease to continue as a going concern.
  • We evaluate the overall presentation, structure and content of the information we audited, including the disclosures, and whether the information we audited represents the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Secretary to the Treasury regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Our responsibilities arise from the Public Audit Act 2001.

Other information

The Secretary to the Treasury is responsible for the other information. The other information comprises the information included on pages 1 to 12, but does not include the information we audited, and our auditor's report thereon.

Our opinion on the information we audited does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon.

Our responsibility is to read the other information. In doing so, we consider whether the other information is materially inconsistent with the information we audited or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on our work, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Independence

We are independent of the Department in accordance with the independence requirements of the Auditor-General's Auditing Standards, which incorporate the independence requirements of Professional and Ethical Standard 1 (Revised): Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board.

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

 

Brent Manning
KPMG
On behalf of the Auditor-General

Wellington, New Zealand

Section Three

Statements of Expenses and Capital Expenditure

Statement of Budgeted and Actual Expenses and Capital Expenditure Incurred Against Appropriations
for the year ended 30 June 2017

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 82. Total non-departmental output classes expenditure and appropriations equal total expenses in the Schedule of Expenses on page 94.

 
2016
Actual
$000
  Note[1] 2017
Actual
$000
2017
Main Estimates
$000
2017
Supp. Estimates
$000
Location of
End-of-year
Performance
Information
 

Vote Finance

         
  Departmental Output Expenditure          
8,822 Administration of Crown Borrowing and Investment PLA   8,398 9,249 9,249 The Treasury Annual Report
69 Administration of Guarantees and Indemnities Given by the Crown PLA   21 310 110
4,434 Crown Company Monitoring Advice to the Minister for SOEs and Other Responsible Ministers   4,069 4,659 4,535
140 Crown Company Monitoring Advice to the Minister for Science and Innovation and the Minister for Economic Development   279 216 419
31,703 Policy Advice - Finance   31,875 31,181 32,929
29,484 Provision of Financial Operations Services and Operational Advice   29,863 30,950 31,515
12,933 Shared Support Services   13,964 14,313 14,280
87,585 Total Departmental Output Expenditure   88,469 90,878 93,037  
  Departmental Capital Contribution          
820 Total Departmental Capital Contribution   4,548 4,548 4,548  
  The Treasury Departmental Capital Expenditure PLA         The Treasury Annual Report
5,097 Total Departmental Capital Expenditure   5,972 4,240 4,240  
7,285 Management of Anchor Projects by
Ōtākaro Limited
2 19,972 23,000 23,181 Reported in the same document as the Treasury Annual Report
192 Management of Crown's Obligations for
Geothermal Wells
  70 151 339 Exempt
428 Management of the New Zealand Superannuation Fund   597 528 728 Exempt
- Tāmaki Regeneration   3,190 3,190 3,190 Exempt
7,905 Total Non-departmental Output Expenses   23,829 26,869 27,438  
  Non-departmental Borrowing Expenses          
3,409,180 Debt Servicing PLA 3(c) 3,410,543 3,448,298 3,448,298 N/A
3,409,180 Total Non-departmental Borrowing Expenses   3,410,543 3,448,298 3,448,298  
  Non-departmental Other Expenses          
- Ahu Whenua Trust Ex-gratia   - - 9,000 Reported in the same document as the Treasury Annual Report
1,487 Auckland Council Loans: Loss on Early Repayment   - - - Exempt
90 Crown Residual Liabilities   96 60 500 Exempt
- Geothermal Wells Fund   - 500 - Exempt
76 Government Inquiry into Foreign Trust Disclosure Rules   3 - 75 Exempt
3 Government Superannuation Appeals Board   - 50 50 Exempt
35,114 Government Superannuation Fund Authority - Crown's Share of Expenses PLA   36,731 37,000 37,000 Exempt
581,360 Government Superannuation Fund Unfunded Liability PLA   521,195 528,149 528,149 Exempt
- Loss on Sale of Commercial Properties   2,495 - 2,935 Exempt
222,000 Impairment of Investment in Southern Response Earthquake Services Ltd 5 308,000 - 445,000 Exempt
27,225 National Provident Fund Schemes - Liability Crown Under Crown Guarantee   20,000 25,000 20,000 Exempt
2,762 Payments in respect of NZECO Guarantees and Indemnities PLA   1,969 - - Exempt
977 Review and Reform of Local Government Infrastructure Arrangements   936 1,605 2,253 Exempt
- Stockton Acid Mine Drainage Historical Mining 6 67,000 - 67,000 Reported in the same document as the Treasury Annual Report
1,851 Solid Energy New Zealand Limited - Payments for Environmental Rehabilitation   - - - Exempt
30 Unclaimed Money PLA   23 250 250 Exempt
- Unclaimed Trust Money PLA   - 250 250 Exempt
1,605 Unwind of Discount Rate Used in the Present Value Calculation of Payment of Shares in International Institutions   2,073 2,920 1,948 Exempt
16,370 Unwind of Discount Rate Used in the Present Value Calculation of Payment Under Crown Deed of Support with Southern Response Earthquake Services Limited 5 7,520 8,088 8,510 Exempt
60,900 Write-off of Historical Investment in Solid Energy   - - - Exempt
951,850 Total Non-departmental Other Expenses   968,041 603,872 1,122,920  
  Non-departmental Capital Expenditure          
- Crown Asset Management Limited - Acquisition of Residual Assets   - - 1,000 Exempt
- Crown Asset Management Limited - Equity Investment   - - 2,500 Exempt
- Canterbury Earthquake National Memorial   - - 8,500 Exempt
334,714 International Financial Institutions PLA 1 6,422 12,000 12,000 Exempt
8,500 Loan Facility for Tāmaki Redevelopment Company Multi-year Appropriation (MYA) 7 3,000 78,000 29,000 Reported in the same document as the Treasury Annual Report
6,100 Ōtākaro Limited Equity Injection 2 - - - Exempt
142,362 Refinancing of Housing New Zealand Corporation and Housing New Zealand Limited Debt 7 275,777 275,778 275,778 Reported in the same document as the Treasury Annual Report
222,000 Southern Response Earthquake Services Limited: Equity Investment 5 308,000 - 445,000 Exempt
204,452 Transfer of Anchor Project to Ōtākaro Limited MYA 2 35,108 200,000 35,108 Exempt
1,631,161 Transfer of Housing New Zealand Corporation's Tāmaki Housing Stock to Tāmaki Redevelopment Company 7 - - - N/A
2,549,289 Total Non-departmental Capital Expenditure   628,307 565,778 808,886  
  Multi-category Expenses and Capital Expenditure          
  Greater Christchurch Anchor Projects MCA         The Treasury Annual Report
  Non-departmental Other Expense          
12,999 Christchurch Bus Interchange and Associated Transport Infrastructure - Operating 2 15,590 31,329 25,118 The Treasury Annual Report
1,812 Christchurch Convention Centre - Operating 2 28,575 1,500 7,704 The Treasury Annual Report
- Leasing Anchor Project Land   - - 4,000 Exempt
98 Pre-development Holding Costs - Operating 2 1,687 6,000 3,365 The Treasury Annual Report
1,582 Christchurch Procurement of Land and Assets - Operating 2 18,209 - 29,980 The Treasury Annual Report
13,655 Public Space - Operating 2 49,068 49,281 90,843 The Treasury Annual Report
- Christchurch Sale of Land 2 - - 2,184 Exempt
- Christchurch Bus Interchange and Associated Transport Infrastructure - Contributions from Third Parties 2 - - 100 Exempt
- Christchurch Stadium - Contributions from Third Parties 2 - - 100 Exempt
11 Christchurch Stadium - Operating 2 - - 3,989 The Treasury Annual Report
- Financial Impact of Valuations   - - 2,831 Exempt
- Metro Sports Facility - Contribution from Third Parties   - - 100 Exempt
2,759 Metro Sports Facility - Operating 2 5,264 2,043 8,673 The Treasury Annual Report
- Public Space - Contribution from Third Parties   - - 100 Exempt
- The Square - Contributions from Third Parties 2 - - 100 Exempt
2 Christchurch Earthquake Memorial - Operating 2 - 122 - The Treasury Annual Report
  Non-departmental Capital Expenditure          
- Christchurch Bus Interchange and Associated Transport Infrastructure 2 - - 2,085 The Treasury Annual Report
5,000 Christchurch Convention Centre 2 - 95,400 - The Treasury Annual Report
2,896 Earthquake Memorial 2 7,815 3,996 8,500 The Treasury Annual Report
- Land and Asset Acquisition 2 - - 25,336 The Treasury Annual Report
- Metro Sports Facility 2 - - 500 The Treasury Annual Report
9,436 Public Space 2 26,094 14,216 37,418 The Treasury Annual Report
50,250 Total Greater Christchurch Anchor Projects MCA   152,302 203,887 253,026  
  Inquiries and Research into Productivity- related Matters MCA         The Treasury Annual Report
  Non-Departmental Output Expense          
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
5,030 Total Inquiries and Research into Productivity-related Matters MCA   5,030 5,030 5,030  
  Management of Landcorp Protected Land Agreement MCA          
  Non-departmental Other Expense          
425 Landcorp - Operating Costs   767 2,250 3,810 Exempt
  Non-departmental Capital Expenditure          
1,450 Capital Investments   - 2,000 2,550 Exempt
1,875 Total Management of Landcorp Protected Land Agreement MCA   767 4,250 6,360  
  Management of New Zealand House, London MCA          
  Non-departmental Output Expense          
207 Property Management   6 1,000 1,563 Exempt
  Non-departmental Other Expense          
10,777 Operational Costs   12,429 13,000 16,123 Exempt
161 Renegotiation of Lease Arrangements   156 1,900 2,149 Exempt
  Non-departmental Capital Expenditure          
- NZ House Capital   - 750 3,000 Exempt
11,145 Total Management of New Zealand House, London MCA   12,591 16,650 22,835  
  Social Housing Reform MCA         The Treasury Annual Report
  Departmental Output Expense          
8,263 Implementation of the Social Housing Reform Programme   8,282 7,860 10,522 The Treasury Annual Report
  Non-departmental Output Expense          
4,176 Direct Costs of Social Housing Reform Programme 7 3,051 3,600 6,324 The Treasury Annual Report
12,439 Total Social Housing Reform MCA   11,333 11,460 16,846  
  Management of the Crown's Agreement with Taitokerau Forests Limited MCA          
  Non-departmental Other Expense          
791 Grants   315 230 930 Exempt
4,543 Impairment of Loans   - 1,100 4,030 Exempt
  Non-departmental Capital Expenditure          
400 Management of the Crown's Agreement with Taitokerau Forests Limited Loans   200 500 500 Exempt
5,734 Total Management of the Crown's Agreement with Taitokerau Forests Limited MCA   515 1,830 5,460  
86,473 Total Multi-category Expenses and Capital Expenditure   182,538 243,107 309,557  
7,098,199 Total Departmental and Non-departmental Expenditure and Appropriations   5,312,247 4,987,590 5,818,924  

Notes

  • [1] The notes referenced are the Explanatory Notes to Supplementary Statements and Schedules - Non-departmental on pages 98 to 100.

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

for the year ended 30 June 2017

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

Nil. (2016. Nil)

Expenses and capital expenditure incurred in excess of appropriation

Nil. (2016. There was unappropriated expenditure of $4,464 in the Non-departmental Other Expense appropriation – Crown Residual Liabilities.)

Statement of Capital Injections for the year ended 30 June 2017

2016
Actual
$000
Capital Injections 2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
   820 Capital contributions 4,548 4,548 4,548

The total capital contribution for 2016/17 is $4.548 million which is made up of:

  1. Capital contributions have been received from DPMC and SSC for $3.403 million relating to the accumulated depreciation on IT and accommodation assets transferred under the control of CASS when CASS was implemented.
  2. The Business Information Hub project required a capital injection of $1.145 million.

Financial Statements

Departmental
for the year ended 30 June 2017

Statement of Comprehensive Revenue and Expenses

Statement of Changes in Equity

Statement of Financial Position

Statement of Cash Flows

Statement of Commitments

Statement of Contingent Liabilities and Contingent Assets

Notes to the Departmental Financial Statements and Non-departmental Schedules

Statement of Comprehensive Revenue and Expenses
for the year ended 30 June 2017

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 2017. Total expenses are equal to total departmental output expense appropriations and departmental output expense categories in the Statement of Budgeted and Actual Expenses and Capital Expenditure Incurred Against Appropriations on page 75.

2016
Actual
$000
  Note 2017
Actual
$000
2017
Main
Estimates
Unaudited
$000
2018
Forecast
Unaudited
$000
  Income        
85,382 Revenue  Crown - non-exchange 2 84,773 80,741 80,688
17,540 Other revenue - exchange 3 18,104 17,997 17,752
102,922 Total income   102,877 98,738 98,440
  Expenditure        
62,564 Personnel costs 4 65,145 65,237 63,281
4,117 Depreciation and amortisation expense 5 4,137 5,053 6,221
1,124 Capital charge 6 966 1,124 1,554
28,043 Other operating expenses 7 26,503 26,291 27,384
95,848 Total expenditure   96,751 97,705 98,440
7,074 Total comprehensive revenue and expenses    6,126 1,033 -

Statement of Changes in Equity
for the year ended 30 June 2017

2016
Actual
$000
  2017
Actual
$000
2017
Main
Estimates
Unaudited
$000
2018
Forecast
Unaudited
$000
14,049 Balance as at 1 July 2016 14,869 14,049 19,417
7,074 Total comprehensive revenue and expenses 6,126 1,033 -
(7,074) Return of operating surplus to the Crown (6,126) (1,033) -
820 Capital contributions 4,548 4,548 -
14,869 Balance as at 30 June 2017 19,417 18,597 19,417

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

Statement of Financial Position
as at 30 June 2017

The Statement of Financial Position reports the total assets and liabilities of the Treasury as at 30 June 2017. Taxpayers' funds are represented by the difference between the assets and liabilities.

2016
Actual
$000
  Note 2017
Actual
$000
2017
Main
Estimates
Unaudited
$000
2018
Forecast
Unaudited
$000
 

Assets

       
  Current assets        
9,989 Cash and cash equivalents   11,236 14,117 14,035
3,057 Debtors and other receivables   1,207 1,050 1,862
591 Prepayments   624 292 383
12,690 Debtor Crown   13,661 8,098 10,769
26,327 Total current assets   26,728 23,557 27,049
  Non-current assets        
3,502 Property, plant and equipment 5 4,824 4,180 4,083
6,236 Intangible assets 5 6,749 2,852 1,097
9,738 Total non-current assets   11,573 7,032 5,180
36,065 Total assets   38,301 30,589 32,229
 

Liabilities

       
  Current liabilities        
7,966 Creditors and other payables 8 7,775 4,859 4,858
7,074 Repayment of surplus   6,126 1,033 -
5,462 Employee entitlements 9 4,213 5,200 7,054
20,502 Total current liabilities   18,114 11,092 11,912
  Non-current liabilities        
694 Employee entitlements 9 770 900 900
694 Total non-current liabilities   770 900 900
21,196 Total liabilities   18,884 11,992 12,812
14,869 Net assets   19,417 18,597 19,417
 

Equity

       
14,869 Taxpayers' funds   19,417 18,597 19,417
14,869 Total equity   19,417 18,597 19,417

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

Statement of Cash Flows
for the year ended 30 June 2017

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 82.

2016
Actual
$000
  Note 2017
Actual
$000
2017
Main
Estimates
Unaudited
$000
2018
Forecast
Unaudited
$000
  Cash flows from operating activities        
87,944 Receipts from Crown   83,802 79,902 77,434
16,277 Receipts from other revenue   20,328 17,997 17,752
(26,855) Payments to suppliers   (27,439) (20,033) (28,179)
(61,028) Payments to employees   (66,196) (62,968) (65,453)
(1,124) Payments for capital charge   (966) (1,124) (1,554)
(302) Goods and services tax net   216 500 4,294
14,912 Net cash flows from operating activities 10 9,745 14,274 4,294
  Cash flows from investing activities        
(1,696) Purchase of property, plant and equipment   (2,937) (1,865) (2,904)
(3,401) Purchase of intangible assets   (3,035) (2,375) (2,292)
(5,097) Net cash flows from investing activities   (5,972) (4,240) (5,196)
  Cash flows from financing activities        
820 Capital contributions   4,548 4,548 -
(5,479) Repayment of surplus to the Crown   (7,074) (4,194) -
(4,659) Net cash flows from financing activities   (2,526) 354 -
           
5,156 Net (decrease)/increase in cash   1,247 10,388 (902)
4,833 Cash at the beginning of the year   9,989 3,729 14,937
9,989 Cash at the end of the year   11,236 14,117 14,035

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

Statement of Commitments

2016
Actual
$000
  2017
Actual
$000
  Non-cancellable operating lease commitments  
3,297 Not later than 1 year 3,297
- Later than 1 year and not later than 5 years 6,594
3,297 Total non-cancellable operating lease commitments 9,891
  Capital commitments  
480 Not later than 1 year -
480 Total capital commitments -
3,777 Total commitments 9,891

Commitments are future expenses and liabilities to be incurred on contracts that have been entered into at balance date.

Non-cancellable operating lease commitments

The Treasury has non-cancellable operating leases on its principal premises at No 1 The Terrace, Wellington until 30 June 2020. These operating lease commitments have been recorded at their gross values in the Statement of Commitments.

Statement of Contingent Liabilities and Contingent Assets

Contingent liabilities and contingent assets are reported at the point at which the contingency is evident or when a present liability is unable to be measured with sufficient reliability to be recorded in the financial statements.

Unquantifiable contingent liabilities

The Treasury 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 Reuters services contract in respect of breaches of licence agreements and contracts.

Quantifiable contingent liabilities and assets

As at 30 June 2017, the Treasury had no quantifiable departmental contingent assets or liabilities (30 June 2016: 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 2017

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 to equity holders. 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 2017. The Forecast Financial Statements are for the year ending 30 June 2018. These Financial Statements were authorised for issue by the Secretary to the Treasury on 29 September 2017.

The Departmental Financial Statements and the financial information reported in the Non-departmental Schedules are consolidated into the Financial Statements of the Government and readers of these schedules should also refer to the Financial Statements of the Government for the year ended 30 June 2017.

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 Financial Statements have been prepared on an historical cost basis, modified by the revaluation of certain assets and liabilities, and prepared on an accrual basis, unless otherwise specified.

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 shown as Mains

The 2017 budget figures are those included in the Department's Budget Estimates for the year ended 30 June 2017, which are consistent with the financial forecast information submitted for the BEFU for the year ending 2016/17.

The budget and forecast figures are unaudited and have been prepared using the accounting policies adopted in preparing these Financial Statements.

Forecast figures

Basis of preparation

The 2018 forecast figures are for the year ending 30 June 2018, and are consistent with the financial forecast information submitted for the BEFU for the year ending 2017/18.

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 forecasted 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 2017/18 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 26 April 2017. 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.

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.

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.

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

2016
Actual
$000
  2017
Actual
$000
12,933 Cost recoveries from SSC and DPMC for CASS 13,625
2,086 Cost recoveries from secondments 1,868
1,878 Cost recoveries from Gateway project 2,492
643 Other 119
17,540 Total other revenue 18,104

4  Personnel Costs

2016
Actual
$000
  2017
Actual
$000
57,551 Salaries and wages 60,075
1,874 Superannuation contributions to defined contribution plans 2,122
194 Increase/(decrease) in employee entitlements (45)
1,840 Training and development 1,455
1,105 Other 1,538
62,564 Total personnel costs 65,145

5  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
Addition - 39 1,657 3,401 5,097
Disposal - - (432) - (432)
Balance at 1 July 2016 5,234 2,469 7,331 12,090 27,124
Additions 680 1,017 1,240 3,035 5,972
Balance at 30 June 2017 5,914 3,486 8,571 15,125 33,096
Accumulated depreciation and impairment losses          
Balance at 1 July 2015 4,421 1,927 3,621 3,729 13,698
Depreciation expense 496 168 1,329 2,125 4,118
Disposal - - (430) - (430)
Balance at 1 July 2016 4,917 2,095 4,520 5,854 17,386
Depreciation expense 364 168 1,083 2,522 4,137
Balance at 30 June 2017 5,281 2,263 5,603 8,376 21,523
Carrying amounts          
At 1 July 2015 813 503 2,485 4,960 8,761
1 July 2016 317 374 2,811 6,236 9,738
Balance at 30 June 2017 633 1,223 2,968 6,749 11,573
Balance at 30 June 2017 4,824 6,749 11,573
Asset Useful Life Depreciation/Amortisation Rate
Furniture and fittings and office equipment 3-10 years 10%-33%
Leasehold improvements 2.25 years 44%
Computer equipment 3-5 years 20%-33.3%
Computer software - intangibles 3-5 years 20%-33.3%

Leasehold improvements: The Treasury has non-cancellable operating leases on its principal premises at No 1 The Terrace, Wellington until 30 June 2020. A project has been undertaken to refit and refresh several floors at 1 The Terrace. The useful life was determined based on the estimated moving date to 1–3 The Terrace.

Intangible assets: The total intangible assets consist of software acquired from third parties and software generated internally. The cost of an internally generated intangible asset represents expenditure incurred in the development phase of the asset only. Intangible assets with finite lives are reviewed annually to determine if there is any indication of impairment.

6  Capital Charge

The capital charge is recognised as an expense in the financial year to which the charge relates. 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 year ended 30 June 2017 was 7% from 1 July 2016 to 31 December 2016 and then 6% from 1 January 2017 (2016: 8.0%).

7  Other Operating Expenses

2016
Actual
$000
  2017
Actual
$000
2017
Main
Estimates
Unaudited
$000
2018
Forecast
Unaudited
$000
3,942 Rental of  premises 3,962 3,890 3,804
1,063 Bank fees, commissions and service charges 1,236 1,029 1,028
  Fees to auditor:      
332  -  fees to KPMG for audit of the Department and NZDMO 395 351 351
207 Audit of Financial Statements of the Government 247 228 228
8,604 Consultants 7,756 6,540 7,573
616 Legal fees 1,200 953 953
461 Process management services 284 1,381 1,381
2,328 Transport and travel 2,184 2,580 2,589
6,941 Information and communication costs 6,971 7,240 7,242
713 Office administration costs 716 907 786
2,836 Other operating costs 1,552 1,192 1,449
28,043 Total operating expenses 26,503 26,291 27,384

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 $1.341 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. The Treasury also incurred $135,000 for KPMG non-audit services.

8  Creditors and Other Payables

2016
Actual
$000
  2017
Actual
$000
2,658 Payables 1,751
3,898 Accrued expenses 4,400
1,410 GST payable to Inland Revenue 1,624
7,966 Total creditors and other payables 7,775

9  Employment Entitlement Provisions

2016
Actual
$000
  2017
Actual
$000
  Current employment entitlement provisions  
348 Accrued salaries 436
493 Accrued performance payments 182
3,201 Annual leave 3,203
165 Sick leave 118
277 Retirement, resigning and long service leave 193
978 Other employee entitlements 81
5,462 Total current employment entitlement provisions 4,213
  Non-current employment entitlement provisions  
694 Retirement, resigning and long service leave 770
694 Total non-current employment entitlement provisions 770
6,156 Total employee entitlements 4,983

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 Consumer Price Index assumptions provided by the Treasury to all departments.

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

2016
Actual
$000
  2017
Actual
$000
7,074 Net surplus/(deficit) 6,126
  Non-cash items:  
4,117 Depreciation, amortisation and impairment expenses 4,137
4,117 Total non-cash items 4,137
  Add/(less) items classified as investing or financing activities  
1 Net (gains)/losses on disposal of property, plant and equipment -
  Add/(less) movements in deferrals and accruals:  
2,562 (Increase)/decrease in debtor Crown (971)
(1,249) (Increase)/decrease in debtors and other receivables 1,850
235 (Increase)/decrease in prepayments (33)
1,010 Increase/(decrease) in creditors and other payables (405)
(315) Increase/(decrease) in GST 214
(72) Increase/(decrease) in provisions -
1,549 Increase/(decrease) in employee entitlements (1,173)
3,720 Net movement in working capital items  (518)
14,912 Net cash flow from operating activities 9,745

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 $84.773 million to provide services to the public for the year ended 30 June 2017 (2016: $85.382 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 2017 totalled $3.760 million (2016: $3.739 million). These purchases include air travel from Air New Zealand, and Accident Compensation Corporation (ACC) levies. Transactions with other government agencies (ie, government departments and Crown entities) are not disclosed as related party transactions when they are consistent with the normal operating arrangements between government agencies and undertaken on the normal terms and conditions.

Key management personnel compensation

2016
Actual
$000
  2017
Actual
$000
2,508 Salaries and other short-term employee benefits 2,419
73 Post-employment benefits 64
67 Termination payment -
2,648 Total key management personnel compensation 2,483

Key management personnel of the Treasury as at 30 June 2017 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 2013. They 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 (2016: Nil).

12  Events After Balance Date

There were no events subsequent to balance date that required adjustment to the Financial Statements or disclosure (2016: Nil).

13  Explanation of Major Variances Against Budget

The Treasury achieved a higher net surplus than estimated, mainly as a result of delays in the final quarter of the year in commissioning a number of projects which involved the use of external resources. Most of these projects will now be undertaken in 2017/18. Some variances in the Statement of Financial Position and Statement of Cash Flows are timing differences only, resulting from the timing and receipt of cash payments to suppliers and receipts from the Crown. Taxpayers' funds are marginally higher than estimated owing to the earlier receipt of a capital injection owing from SSC than estimated, but this timing was in line with the original budget.

Supplementary Financial Schedules

Non-departmental
for the year ended 30 June 2017

Schedule of Expenses

Schedule of Commitments and Contingent Liabilities

Schedule of Revenue and Capital Receipts

Schedule of Assets and Liabilities

Statement of Trust Monies

Explanatory Notes to Supplementary Statements and Schedules - Non-departmental

Schedule of Expenses

for the year ended 30 June 2017

The Schedule of Expenses summarises expenses that the Treasury 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 98 to 100.

2016
Actual
$000
  Note 2017
Actual
$000
2017
Main
Estimates
$000
 

Vote Finance

     
7,905 Non-departmental output expenses   23,829 26,869
9,413 Non-departmental multi-category output expenses   8,087 9,630
3,409,180 Debt servicing 3(a) 3,388,067 3,448,298
951,850 Non-departmental other expenses   968,041 603,872
49,615 Non-departmental multi-category other expenses   132,060 108,755
  Re-measurements:      
2,028,000 Government Superannuation Fund revaluation: actuarial loss/(gain)*   (963,606) -
65,315 Change in NPF DBP(A) Scheme provision under Crown Guarantee*   (21,000) -
7,364 Change in Southern Response Earthquake Services Limited (SRESL) provision   (4,406) -
(54,364) Change in Solid Energy New Zealand Limited Rehabilitation Indemnity Provision 6 - -
17,895 Foreign exchange losses incurred by the Treasury 1 17,360 -
15,661 Other re-measurements incurred by the Treasury   5,532 -
18,912 Fair value losses and write-downs incurred by NZDMO   22,476 -
6,526,746 Total non-departmental expenses   3,576,440 4,197,424

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 2017.

*Details on Government Superannuation Fund (GSF) and National Provident Fund (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 2017 respectively.

Schedule of Commitments and Contingent Liabilities

as at 30 June 2017

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 $0.983 million for the year ended 30 June 2017.

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 2017.

Schedule of Revenue and Capital Receipts

for the year ended 30 June 2017

2016
Actual
$000
  Note 2017
Actual
$000
2017
Main
Estimates
$000
 

Vote Finance

     
  Non-departmental revenue      
1,997,168 Capital charge   1,817,062 2,041,430
2,219 Change in SRESL Crown Support Deed and Uncalled Capital Liability   - -
54,364 Change in Solid Energy New Zealand Limited Environmental Rehabilitation Indemnity Provision 6 - -
5,317 Change in other Crown's assets and liabilities   8,651 -
800,842 Dividends from SOEs   1,023,543 802,547
8,472 Dividends from Crown entities   13,870 11,020
8,516 Dividends from Crown research institutes and other dividends   9,205 6,755
250,909 Interest revenue   239,134 330,979
412,680 Other income, fair value and foreign exchange gains - NZDMO 3(b) (281,557) 3,021
621,275 Other current revenue 4 217,531 301,233
4,161,762 Total non-departmental revenue and receipts   3,047,439 3,496,985
  Non-departmental capital receipts      
445,546 Return of capital by IMF 1 7,058 -
8,750 Capital withdrawal from Crown entities   - -
30,694 Loan and other repayments   1,295 1,598
143,000 Housing New Zealand Corporation Limited and Housing New Zealand Limited Loan Repayments   277,784 275,778
627,990 Total non-departmental capital receipts   286,137 277,376
4,789,752 Total non-departmental revenue and capital receipts   3,333,576 3,774,361

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 2017.

Schedule of Assets and Liabilities

as at 30 June 2017

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

2016
Actual
$000
  Note 2017
Actual
$000
2017
Main
Estimates
$000
  Current assets      
6,718,323 Cash and cash equivalents   8,046,684 7,215,336
104,909 Accounts receivable and prepayments   23,416 3,910
1,175,004 Advances   1,581,735 1,227,554
5,576,849 Marketable securities, deposits and derivatives in gain   8,765,422 8,263,000
13,575,085 Total current assets   18,417,257 16,709,800
  Non-current assets      
6,159,000 Advances   3,338,076 6,385,000
257,950 Air New Zealand goodwill   257,950 257,950
2,742,000 Marketable securities, deposits and derivatives in gain   1,055,903 886,000
394,999 Other share investments   382,365 409,295
227,751 Other equity-accounted investments   237,342 218,818
55,085 Property, plant and equipment   49,570 348,048
9,836,785 Total non-current assets   5,321,206 8,505,111
23,411,870 Total non-departmental assets   23,738,463 25,214,911
  Current liabilities      
4,280,000 Crown balances with Westpac   4,903,614 3,853,000
234,324 Payables and accrued expenses   483,011 94,835
5,557,000 Borrowings 3(c) 11,146,737 16,566,000
724,000 GSF unfunded liability   590,074 736,000
269,375 Provisions 5, 6 433,293 163,420
11,064,699 Total current liabilities   17,556,729 21,413,255
  Non-current liabilities      
80,410,000 Borrowings 3(c) 75,555,003 76,224,000
11,716,826 GSF unfunded liability   10,414,108 10,056,098
918,000 NPF DBP(A) Scheme unfunded provision   856,000 797,059
379,886 Provisions 5, 6 257,890 107,949
93,424,712 Total non-current liabilities   87,083,001 87,185,106
104,489,411 Total non-departmental liabilities   104,639,730 108,598,361

In addition, the Treasury monitors 12 SOEs, four mixed ownership model entities and 22 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.

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 2017.

Statement of Trust Monies

as at 30 June 2017

2016
$000
  2017
$000
9,362 Unclaimed money 8,480
9 Meridian Initial Public Offer Trust Account 1
20 Genesis Initial Public Offer Trust Account 1
1 Mighty River Power Initial Public Offer Trust Account 1
9,392 Total Trust Account monies closing balance 8,483

(a) Unclaimed money

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 $2.467 million of contributions (2016: $4.6 million) and $3.353 million (2016: $1 million) of distributions made from the Trust Account. Interest earned on the Trust Account for the year was $0.120 million (2016: $0.150 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 2016/17 and 2015/16 financial years.

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 2017.

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 2015/16 and 2016/17. 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)

Treasury Crown has a total share investment of $382.365 million in IFIs which include the following institutions: Asian Development Bank, International Bank of Reconstruction and Development, International Finance Corporation, Multilateral Investment Guarantee Agency and Asian Infrastructure Investment Bank (2016: $394.999 million).

Capital receipts of $7.058 million were received from IMF members, representing repayment of earlier advances originally made to support members in financial difficulties (2016: $445.546 million).

During the year, a loss of $17.360 million on revaluation of IFIs' investment was recorded as a result of New Zealand dollar foreign exchange rate movement (2016: $17.895 million).

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.

For 2016/17, the Crown incurred $19.972 million in respect of Ōtākaro operating grant (2016: $7.285 million) and $152.302 million in respect of Greater Christchurch Anchor Projects MCA (2016: $50.250 million).

The transfer of assets to Ōtākaro Limited amounted to $35.108 million (2016: $204.452 million), representing the fair value of Anchor Projects assets, funded via an equity injection by the Crown of $29.208 million and the issuance of an additional Vendor Finance Loan of $5.900 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 is 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 recognised a provision of the 'public realm' land that will be transferred to the Council at a future date. The vesting provision as at 30 June 2017 is $42.552 million (2016: $11.090 million).

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 2016/17, 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

Comparing with 2015/16, the significant variance was caused by realised fair value losses on Government Bonds repurchased in 2016/17. In addition, $274 million are mostly unrealised fair value losses on interest rate swaps, Crown entity loans and cross-currency interest rate swaps.

(c) Borrowings

For the year ended 30 June 2017, borrowings have increased, with higher long-term (Government Bonds) borrowings. There were no short-term Government Bonds as at 30 June 2017. Bonds due to mature in 2017/18 have been reclassified as current borrowings as at 30 June 2017.

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 and rental income from New Zealand House. The 2016/17 Other Current Revenue is significant lower mainly owing to less surplus made by the Reserve Bank to the Crown.

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 CSD 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.

The financial obligations to SRESL under the Uncalled Ordinary Share facility have been revalued to their net present value at 30 June 2017. 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 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 $7.520 million (2016: $16.370 million).

During the 2017/18 year, it is estimated the Crown is to pay $331 million to SRESL to assist in settling its outstanding claims. This amount was included in Current Liabilities - Provisions in the Schedule of Assets and Liabilities (2016: $264 million).

6  Solid Energy New Zealand Limited

The Crown provided separate indemnities for each of Solid Energy's mine sites in 2015. The indemnities create a liability provision for the Crown and an asset for Solid Energy. In 2016, the Crown agreed to take on the uncapped liability for acid mine drainage (AMD) at Stockton mine through a Deed of Commitment with Solid Energy and the relevant councils. The previous indemnity for Stockton AMD will be extinguished once the new mine owner succeeds Solid Energy under the Deed of Commitment.

As at 30 June 2017 the Solid Energy provision is made up of $102 million current provision and $67 million non-current provision, representing the maximum amount of the Crown's liability to indemnify Solid Energy, or third parties should mines sell.

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.

In 2016/17, a major milestone in the Social Housing Reform Programme was achieved through the transfer of 1,138 properties to Accessible Properties Limited in Tauranga. The Crown also advanced a further loan to the Tāmaki Redevelopment Company for $3 million (2016: $8.5 million) to enable the continuation of the Social Housing Reform Programme by enabling supply of both social and affordable housing in Auckland following the transfer of ownership and management of 2,873 properties in the Auckland suburbs of Glen Innes, Panmure and Point England to the Tāmaki Redevelopment Company in 2015/16.

During the year, the Crown incurred $3.051 million (2016: $4.176 million) of direct costs in respect of the Social Housing Reform Tauranga and Invercargill Programme. The Treasury incurred $8.282 million in managing this programme (2016: $8.263 million).

The Treasury's management of the Social Housing Reform Programme aligns with its monitoring responsibility of HNZC and Housing New Zealand Limited (HNZL), and during the year ended 30 June 2017, $277.784 million of debt was refinanced under the HNZC and HNZL debt refinancing appropriation within Vote Finance.

8  Events after balance date

There were no events subsequent to balance date that required adjustment to the Financial Statements or disclosure.

Section Four

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

Pages 101 to 103 of this document meet the requirement, set out in the supporting information to the 2016/17 Estimates or 2016/17 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 2017 (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 Housing New Zealand Corporation and Housing New Zealand Limited refinance their loans and is intended to enable the Treasury to monitor and administer the expenditure on refinancing.

What was achieved in this appropriation

Performance Measure  Target 2015/16 2016/17
Refinancing will be undertaken in accordance with the agreed policy. Achieved 100% Achieved
2016
Actual
$000

 

 

2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
142,362 Capital expenditure 275,777 275,778 275,778

Significant achievements

  • In 2016/17, 15 refinancing requests were actioned for Housing New Zealand, totalling $275,777,378.

Ahu Whenua Trust Ex-gratia Payment

What is intended to be achieved with this appropriation

This appropriation is to achieve settlement of claims in negotiations which are being led by the Treasury.

What was achieved in this appropriation

Performance Measure Target 2015/16 2016/17
Settlement is in accordance with terms and conditions of the agreement. Achieved N/A

Not achieved

(Both parties have agreed to progress negotiations over a longer timeframe than originally anticipated)

2016
Actual
$000
  2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
- Expenditure - - 9,000

Significant achievements

During 2016/17, Cabinet agreed to a final settlement offer that will be made to the Trust in 2017/18.

Stockton Acid Mine Drainage Historical Mining Rehabilitation

What is intended to be achieved with this appropriation

This appropriation is intended to achieve meeting the Crown's obligation to pay for expenses incurred for acid mine drainage rehabilitation relating to historical mining operations at Stockton Mine.

What was achieved in this appropriation

Performance Measure Target 2015/16 2016/17
The Crown's contractual and regulatory obligations in relation to acid mine drainage are met. Achieved N/A Achieved
2016
Actual
$000
  2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
- Capital expenditure 67,000 - 67,000

Note: This appropriation was established in 2016/17 for future year expenses. Therefore, no expenditure was incurred in 2016/17.

Significant achievements

During 2016/17, the Treasury:

  • provided advice and support on the appropriate contractual arrangement to manage the Crown's acid mine drainage liability at Stockton Mine following Solid Energy's expected sale of the mine to new owners
  • engaged with Solid Energy subject matter experts to further develop understanding of the Crown's acid mine drainage liability, and
  • commenced development of a process to explore the options for managing the acid mine drainage liability going forward.

Other Non-departmental Appropriations

Management of Anchor Projects by Ōtākaro Limited

What is intended to be achieved with this appropriation

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

What was achieved in this appropriation

Performance Measure Target 2015/16 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
2016
Actual
$000
  2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
7,285 Expenses 19,972 23,000 23,181

Significant achievements:

Refer to the Greater Christchurch Anchor Projects MCA on pages 63 to 65 for performance information on the Anchor Projects Programme.

Note: As a Schedule 4A company, Ōtākaro Limited is required to produce a Statement of Intent and a Statement of Performance Expectations and these are published on the company's website. Ōtākaro Limited also reports on its performance in its Annual Report; this includes its performance in the construction and management of Anchor Projects financed from this appropriation. The 2017 Annual Report will be publicly available on the company website in November 2017.

Loan Facility for Tāmaki Redevelopment Company

What is intended to be achieved with this appropriation

This appropriation is intended to enable Tāmaki Redevelopment Company Limited to accelerate regeneration action.

What was achieved in this appropriation

Performance Measure Target 2015/16 2016/17
Payments are made consistent with the terms and conditions of the loan facility. Achieved Achieved Achieved
2016
Actual
$000
  2017
Actual
$000
2017
Main
Estimates
$000
2017
Supp.
Estimates
$000
8,500 Expenditure 3,000 78,000 29,000

Significant achievements:

During 2016/17:

  • This loan facility allowed Tāmaki Redevelopment Company (TRC) to fund its development programme, repairs and maintenance, and general working capital.

Note: As a Schedule 4A company, TRC is required to produce a Statement of Intent and a Statement of Performance Expectations and report on its performance in its Annual Report. These documents can be obtained from http://www.tamakiregeneration.co.nz/about-trc/key-documents.

List of Acronyms

 
4YP Four-year Plan
AMD Acid Mine Drainage
APL Accessible Properties Limited
BASS Benchmarking Administrative & Supporting Services
BEFU Budget Economic and Fiscal Update
BPS Better Public Services
CASS Central Agencies Shared Services
CBA(x) Cost Benefit Analysis (tool)
CEC Crown Entity Company
CEO Chief Executive Officer
CERA Canterbury Earthquake Recovery Authority
CSD Crown Support Deed
DBP (A) Defined Benefit Plan (Annuitants)
DPMC Department of the Prime Minister and Cabinet
GCB General Contract Bond
GDP Gross Domestic Product
GSF Government Superannuation Fund
HNZC Housing New Zealand Corporation
HR Human Resources
HYEFU Half Year Economic and Fiscal Update
ICR Investor Confidence Rating
ICT Information and Communications Technology
IFI International Financial Institution
IMF International Monetary Fund
IPANZ Institute of Public Administration New Zealand
IT Information Technology
LTFS Long-term Fiscal Statement
LTIP Long Term Investment Plan
MBIE Ministry of Business, Innovation and Employment
MC Ministerial Correspondence
MCA Multi-category Appropriation
MCH Ministry of Culture and Heritage
MELAA Middle Eastern/Latin American/African
MoE Ministry of Education
MOIA Official Information Act request made to the Minister
MSD Ministry of Social Development
MYA Multi-year Appropriation
NCEA National Certificate of Educational Achievement
NEET Not in Employment, Education or Training
NPF National Provident Fund
NZBN New Zealand Business Number
NZDMO New Zealand Debt Management Office
NZECO New Zealand Export Credit Office
NZTFM New Zealand Treasury Forecasting Model
OBEGAL Operating balance before gains and losses
OECD Organisation for Economic Co-operation and Development
OGA Office of the Government Accountant
PFA Public Finance Act
PIF Performance Improvement Framework
PLA Permanent Legislative Authority
PQ Parliamentary Questions
RBNZ Reserve Bank of New Zealand
SME Small and medium-sized enterprises
SOE State-Owned Enterprise
SRESL Southern Response Earthquake Services Limited
SSC State Services Commission
Supp. Supplementary
TIC Treasury Information Capability
TOIA Treasury Official Information Act request
TPK Te Puni Kōkiri
TRC Tāmaki Redevelopment Company
Last updated: 
Wednesday, 28 March 2018