Economic and fiscal update

Half Year Economic and Fiscal Update 2021

As the government's lead economic and financial adviser, the Treasury forecasts the economic outlook for New Zealand and the Government's fiscal outlook. This Half Year Economic and Fiscal Update (Half Year Update) is part of a suite of documents we release as required by the Public Finance Act 1989.

This Half Year Update primarily outlines what the Treasury observes in our current economic and fiscal climate, what we might see in the future, and what risks we may face over the forecast period. This gives an indication of what the economy is most likely to do to inform decision-making.

This Half Year Update was published with the Budget Policy Statement 2022 which sets out the Budget priorities and wellbeing objectives that will guide the Government’s Budget decisions for 2022.

An introduction to the Half Year Economic and Fiscal Update#

The Treasury is New Zealand's economics and finance ministry. We advise on the direction of New Zealand's economic policy with the aim of achieving a strong and sustainable economy, and raising New Zealand living standards. This includes reporting on the expenditure of government (fiscal) revenue, and assisting to ensure spending is fit for purpose and can improve outcomes for New Zealanders.

Sharing what we do#

As the government's lead economic and financial adviser, we forecast the economic outlook for New Zealand and the Government's fiscal outlook. This Half Year Economic and Fiscal Update (Update) is part of a suite of documents we release as required by the Public Finance Act 1989.

This Update primarily outlines what the Treasury observes in our current economic and fiscal climate, what we might see in the future, and what risks we may face over the next four years (our forecast period). This gives an indication of what the economy is most likely to do to inform decision-making.

Statement of Responsibility#

I make this statement in accordance with section 26W of the Public Finance Act 1989.

On the basis of the economic and fiscal information available to it, the Treasury has used its best professional judgement in preparing, and supplying the Minister of Finance with, this Economic and Fiscal Update. The Update incorporates the fiscal and economic implications of government decisions and other circumstances as at 25 November 2021 that were communicated to me by the Minister of Finance as required by the Public Finance Act 1989, and of other economic and fiscal information available to the Treasury as at 25 November 2021. This Update does not incorporate any decisions, circumstances or statements that the Minister of Finance has determined, in accordance with section 26V of the Public Finance Act 1989, should not be incorporated in this Update.

 

Caralee McLiesh
Secretary to the Treasury

10 December 2021

 

To enable the Treasury to prepare this Economic and Fiscal Update I have ensured all government decisions and other circumstances as at 25 November 2021 of which I was aware and that had material economic or fiscal implications have been communicated to the Secretary to the Treasury, as required by the Public Finance Act 1989.

In accordance with section 26W of the Public Finance Act 1989, I accept responsibility for the integrity of the disclosures contained in the Update, responsibility for the consistency and completeness of the Update information with the requirements of Part 2 (Fiscal responsibility and wellbeing) of the Public Finance Act 1989 and responsibility for the omission from the Update under section 26V of the Public Finance Act 1989 of any decisions, circumstances or statements not incorporated in it.

 

Hon Grant Robertson
Minister of Finance

10 December 2021

Executive Summary#

June years 2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Real production GDP
(annual average % change)
5.1 0.8 4.9 2.2 2.3 2.3
Unemployment rate (June quarter) 4.0 3.2 3.3 3.6 3.8 4.1
CPI inflation (annual % change) 3.3 5.1 3.1 2.7 2.4 2.2
Current account (annual, % of GDP) -3.3 -5.8 -5.4 -4.8 -4.4 -4.0
Fiscal measures ($billions)            
Core Crown tax revenue 98.0 102.6 113.8 120.1 127.3 134.5
Core Crown expenses 107.8 128.0 120.2 124.8 128.5 133.6
Total Crown OBEGAL1 -4.6 -20.8 -0.8 2.1 5.9 8.2
Core Crown residual cash -13.8 -34.1 -21.7 -8.0 14.5 12.5
Net core Crown debt 102.1 136.3 157.9 165.5 150.6 137.9
       as a percentage of GDP 30.1 37.6 40.1 39.9 34.6 30.2
Net worth attributable to the Crown 151.5 127.3 131.4 139.3 151.5 166.4

Note:

  1. Operating balance before gains and losses.

Sources: Stats NZ, the Treasury

  • After a year and a half of successfully eliminating COVID-19 in the community, the arrival of the Delta variant of the virus has changed New Zealand's course from an elimination to a minimisation and protection strategy. Consequently, while New Zealand has transitioned away from the Alert Level System to the more permissive COVID-19 Protection Framework, COVID-19 developments will continue to be a major influence on economic and fiscal outcomes and represent a major source of uncertainty and risk.
  • Strong demand leading up to the Delta outbreak resulted in stronger-than-expected economic activity, tax revenues exceeding forecasts and record-low unemployment. GDP rose by 4.1% over the first half of 2021 and the unemployment rate fell to 3.4% in the September 2021 quarter. Stronger economic activity and the need for less COVID‑19 fiscal support measures have led to a recovery in the Government's fiscal position in the first half of 2021, with actual results outperforming expectations.
  • Activity has fallen in the September quarter owing to restrictions, but we expect a rebound in subsequent quarters, supported by pent-up demand, continued strength in building construction, and the more permissive COVID-19 Protection Framework.
  • The combination of supply chain disruptions and strong demand has seen capacity pressures intensify, contributing to higher inflation. Consumers Price Index (CPI) inflation is forecast to peak at 5.6% in the March 2022 quarter, significantly higher than the peak expected in the 2021 Budget Economic and Fiscal Update (Budget Update), before trending down. As a result, interest rates are expected to rise faster and to a higher level than forecast in the Budget Update. Higher inflation is a major contributor to higher nominal GDP over the forecast period compared to the Budget Update.
  • The labour market outlook has continued to improve since the Budget Update. The unemployment rate is expected to fall to 3.1% in the March 2022 quarter before slowly increasing to 4.1% by the end of the forecast period. This continued tightness in the labour market, together with higher CPI inflation is expected to maintain wage inflation above 4.0% throughout the forecast period.
  • The strong growth in tax revenue experienced in the first half of 2021 is expected to continue and, when combined with the above-mentioned changes in economic conditions, core Crown tax revenue is forecast to grow on average by just over $7.0 billion in each year of the forecast period.
  • With the emergence of the Delta variant, the growth in core Crown tax revenue expected in the current fiscal year is offset by the Government's fiscal support measures. An operating balance before gains and losses (OBEGAL) deficit of $20.8 billion is expected in the current year, which is $16.2 billion more than the deficit reported in the 2020/21 fiscal year.
  • As the majority of the Government's fiscal support measures in response to the Delta variant are temporary in nature, they quickly unwind, resulting in a sharp recovery from the 2022/23 fiscal year. OBEGAL is expected to return to surplus in the 2023/24 fiscal year and reach $8.2 billion by the end of the forecast period.
  • In the 2022 Budget Policy Statement, the Government signalled an operating allowance of $6.0 billion per annum for Budget 2022, $4.0 billion per annum for Budget 2023, and $3.0 billion per annum for Budgets 2024 and 2025. While the Budget 2022 operating allowance is higher than normal, this is expected to be a one-off, reflecting a number of significant reform programmes expected to be funded through Budget 2022.
  • Higher allowances increase the level of nominal government consumption, but because higher inflation and wage costs flow through to higher costs for the government, the rate of growth in real government consumption is forecast to be lower than at the Budget Update.
  • Overall, a core Crown residual cash shortfall of $36.8 billion is expected over the forecast period. Net core Crown debt is forecast to increase by $35.8 billion by 2025/26, primarily to fund the expected cash shortfall over the forecast period. Net core Crown debt is expected to peak at $165.5 billion in 2023/24, $18.7 billion lower than forecast in the Budget Update. As a percentage of GDP, net core Crown debt peaks a year earlier at 40.1% of GDP in 2022/23. This is owing to the stronger starting position from the audited results at 30 June 2021, as well as the stronger residual cash position.
  • Net worth attributable to the Crown also improves, growing to $166.4 billion by the 2025/26 fiscal year, owing to the cumulative improvement in the operating balance.
  • The Economic Outlook chapter presents alternative upside and downside scenarios. Compared to our main forecast, the upside scenario explores better COVID-19 outcomes both in New Zealand and abroad, resulting in a faster domestic recovery, a stronger terms of trade and an improved fiscal position. In the downside scenario, we explore the possibility of worse COVID-19 outcomes internationally and domestically, resulting in a higher unemployment rate, a slower recovery in domestic activity and higher net debt.
  • In addition, the Risks to the Fiscal Forecasts chapter discusses the key risks to the fiscal forecasts, including COVID-19 and climate change.

Finalisation dates for the Half Year Update#

Economic forecasts - 10 November 2021
Tax revenue forecasts - 16 November 2021
Fiscal forecasts - 25 November 2021
Risks to the fiscal forecasts - 25 November 2021
Text finalised - 10 December 2021

The economic forecasts do not include the annual national accounts data released on 19 November 2021. See page 11 for further details.

Economic Outlook#

Overview#

  • New Zealand's economic performance has been stronger than expected since the publication of the Budget Economic and Fiscal Update 2021 (Budget Update), reflecting that the economy has been more adaptable and resilient to the COVID-19 pandemic than previously thought.
  • Robust demand throughout the first half of 2021 has catalysed broad-based growth, with stronger-than-expected economic activity, tax revenues exceeding forecasts, and the unemployment rate dropping to record-low levels.
  • We forecast an approximately 6% fall in GDP in the September 2021 quarter owing to the Delta outbreak, although we are expecting activity to return in subsequent quarters supported by pent-up demand, continued strength in building construction, and the more permissive COVID-19 Protection Framework boosting activity at the start of 2022.
  • The labour market remains tight, and unemployment is expected to drop to 3.1% in the March 2022 quarter and remain below 4.0% for most of the forecast period. This is expected to lead to wages rising more rapidly.
  • Aggregate demand and wage pressures have combined with ongoing supply chain disruptions to push Consumers Price Index (CPI) inflation well outside the Reserve Bank of New Zealand's target range of 1% to 3%.
  • Interest rates are now anticipated to rise more rapidly and to a higher level than previously assumed, placing downward pressure on aggregate demand and house price growth and returning inflation to within the target range from late 2023. We anticipate a slight fall in house prices in 2023.
  • Higher inflation translates to nominal GDP being a cumulative $78.5 billion higher over the forecast period to June 2025 relative to the Budget Update. This is the major driver of the additional $48.6 billion in core Crown tax revenue over the five years to June 2025. However, higher inflation adds to cost pressures associated with the provision of public services.
  • The global economic recovery has lost some momentum owing to the emergence of Delta and ongoing supply chain disruptions, but remains positive with vaccination, policy support, savings drawdown, and the reopening of economic activity all supporting growth.
  • The ongoing progression of the Delta and newer variants of COVID-19 continues to represent a key source of uncertainty to our forecasts. As we go to print, the emergence of Omicron is causing growing concern and highlights this risk. Two alternative scenarios looking at the impacts of a more contained spread of COVID-19 and a faster spread are presented to illustrate the level of uncertainty in the forecasts.
Table 1.1 - Economic forecasts
Year ending June
Annual average % change
2021 2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Private consumption 7.5 1.2 3.4 1.1 2.0 2.2
Public consumption 6.8 4.8 1.8 0.6 0.8 1.1
Total consumption 7.3 2.1 3.0 1.0 1.7 2.0
Residential investment 17.8 8.9 3.4 -2.1 -0.5 -1.1
Business investment1 4.5 2.9 9.8 4.0 2.6 2.1
Total investment 7.8 4.5 8.0 2.4 1.8 1.3
Stock change2 0.5 0.3 -0.3 0.0 0.0 0.0
Gross national expenditure 7.9 3.1 4.2 1.3 1.7 1.8
Exports -11.4 2.1 7.1 6.3 5.0 4.2
Imports -4.2 12.2 4.9 3.0 2.7 2.5
GDP (expenditure measure) 5.9 0.3 4.3 2.0 2.2 2.2
GDP (production measure) 5.1 0.8 4.9 2.2 2.3 2.3
Real GDP per capita 3.8 0.1 4.1 1.2 1.2 1.1
Nominal GDP (expenditure measure) 7.1 6.8 8.6 5.3 5.1 4.8
GDP deflator 1.1 6.5 4.1 3.2 2.8 2.5
Potential GDP 5.5 -0.3 4.6 2.6 2.7 2.7
Output gap (% of potential, June quarter)3 1.5 1.5 1.3 0.9 0.5 0.2
Employment 0.7 3.7 0.9 0.9 1.1 1.2
Unemployment rate4 4.0 3.2 3.3 3.6 3.8 4.1
Participation rate5 70.5 71.0 71.0 71.0 71.0 70.9
Hourly wages (annual % change)6 4.0 4.1 4.5 4.6 4.4 4.2
CPI inflation (annual % change) 3.3 5.1 3.1 2.7 2.4 2.2
Terms of trade (goods)7 -0.2 0.5 0.4 -0.4 -0.4 -0.4
House prices (annual % change)8 29.0 10.4 -0.2 -0.4 0.5 0.6
Current account balance (annual)            
    $billions -11.2 -20.9 -21.4 -20.1 -19.1 -18.5
    % of GDP -3.3 -5.8 -5.4 -4.8 -4.4 -4.0
Net international investment position (% of GDP) -45.8 -48.6 -50.2 -52.5 -54.4 -55.9
Exchange rate (TWI)9 74.7 77.2 78.3 78.7 78.9 78.9
90-day bank bill rate10 0.3 2.0 3.2 3.1 3.1 3.1
10-year bond rate10 1.7 2.6 2.9 3.2 3.4 3.4

Sources: Stats NZ, Reserve Bank of New Zealand, CoreLogic, the Treasury

Economic forecasts are presented on a June year basis for consistency with the fiscal forecasts.

Notes:

  1. Business investment is non-residential public and private investment.
  2. Contribution to GDP growth.
  3. Percentage difference between actual real GDP and potential real GDP.
  4. Percent of the labour force, June quarter, seasonally adjusted.
  5. Percent of the working-age population, June quarter, seasonally adjusted.
  6. Quarterly Employment Survey (QES), average ordinary-time hourly earnings.
  7. System of National Accounts.
  8. CoreLogic Quarterly House Price Index.
  9. Trade-weighted index (TWI), average for the June quarter.
  10. Average for the June quarter.

Key economic forecast judgements and assumptions

These forecasts cover the period through to June 2026 and are based on the following judgements and assumptions:

  • At the time of finalising these forecasts, preliminary information was available on the proposed COVID-19 Protection Framework. We estimate that the impact of maintaining restrictions on the New Zealand border, in the context of COVID-19 globally, is approximately 2% of GDP. In addition, initial estimates of the likely impacts on economic activity under the new settings are as follows:
    • 2% to 3% of GDP at Red (approximately $190 million per week)
    • 1% to 3% of GDP at Amber (approximately $140 million per week)
    • 0% to 2% of GDP at Green (approximately $100 million per week).
  • It is important to note that if localised lockdowns are used in addition to the Red or Amber settings this would result in additional economic impacts.
  • The Treasury’s working assumption is that public health restrictions will average an Amber setting over the first half of 2022 and the international border is assumed to have a phased reopening from the start of 2022, although some restrictions are expected to remain in place for longer.
  • We assume that monetary policy support is gradually withdrawn through a combination of rising policy rates contributing to 90-day rates increasing to 3.2% by 2023, and the cessation of the Large-Scale Asset Purchase (LSAP) programme.
  • The trade-weighted index (TWI) is assumed to rise steadily from 74.4 in the September 2021 quarter up to the end of 2023 as monetary conditions tighten, when it begins levelling off, reaching 78.9 by the June 2026 quarter.
  • Net migration is assumed to have fallen to around 2,500 in the year ended December 2021. As international travel restrictions are lifted throughout the world, annual net migration is assumed to increase to around 40,000 by the June 2026 quarter.
  • Oil prices increased to US$71 per barrel in the September 2021 quarter and are assumed to continue rising as the global economy recovers, reaching US$83 at the beginning of 2022, before falling to US$58 in June 2026 as global production increases.
  • Economic activity in our top three trading partners (China, Australia and the United States of America) is forecast to grow by 5.8% in the December 2021 year and by 4.0% in 2022, supporting demand for New Zealand’s goods exports.
  • Our potential output assumptions have been revised lower from the Budget Update by 0.5% over the forecast period. This reflects ongoing disruptions related to the pandemic, including the need for elevated public health restrictions over the medium term in managing the Delta variant, the risk of further episodes, and relatively fewer hours worked and lower productivity levels owing to sickness.
  • Our long-run assumption for the non-accelerating inflation rate of unemployment (NAIRU) is unchanged at 4.25%, and the assumed long-run neutral 90-day interest rate is 3.0%.

Economic Outlook#

Aggregate demand has held up better than expected

Since the beginning of 2021, the economy has performed strongly (Figure 1.1). Strength has been broad-based across most industry groups and sectors with strong domestic spending boosting consumption and record building consents boosting construction. Tourism, however, remains a key area of weakness, reflecting the impact of ongoing border restrictions on international tourism.

Figure 1.1 - Real production GDP

 

Figure 1.1 - Real production GDP

Sources: Stats NZ, the Treasury

Strong aggregate demand has been reflected in ongoing labour demand, with unemployment falling throughout 2021 and an environment where firms are finding it increasingly difficult to find labour.

However, the emergence of Delta in Auckland and its spread to other regions saw New Zealand re-enter lockdowns again in August, stalling the momentum that the economy had in the first half of 2021. The spread of Delta internationally, and the ensuing efforts to contain it with lockdowns, has restricted the movement of both goods and people in a number of countries, causing further disruptions to supply chains. Domestically this has seen inflation peak at a 10-year high of 4.9% in the September quarter and unemployment reach a low of 3.4%, the equal lowest on record, matching the result in the December 2007 quarter.

With Auckland remaining at higher alert levels since the lockdown began in August and other regions dipping in and out of higher alert levels, we now forecast an approximately 6% fall in real GDP in the September 2021 quarter. This is followed by a gradual recovery over the December 2021 and March 2022 quarters of 3.7% and 3.8%, respectively. The recovery is underpinned by pent-up demand, higher employment, continued strength in building consents, and the more permissive COVID-19 Protection Framework boosting activity at the start of 2022.

Latest developments

The economic forecasts were finalised on 10 November, to allow sufficient time for the production of the fiscal forecasts. Data and events released after this have not, on balance, materially changed the outlook provided in the main economic forecasts.

The potential for a slightly earlier than assumed return of international visitors provides a small degree of demand dependent upside risk to the forecasts. But offsetting this, the emergence of Omicron is a source of downside risk.

Annual national accounts data for the year to March 2021 indicate relatively minor upward revisions to quarterly GDP data.

Developments over the second half of 2021 appear in line with forecast…

We remain comfortable with our forecasts of a 6% decline in GDP for the September quarter and a 3.7% lift in GDP for the December quarter overall, although there is the potential that the decline in September and subsequent recovery are both smaller. Indicators for September quarter GDP show mixed performance across industries. This includes an 8.1% decline in September quarter retail sales volumes (in June 2020 retail sales volumes fell 15.6%), a 6.4% fall in residential building activity, but a rise in wholesale trade. Developments in other parts of the services sector will be crucial, but on balance there is risk that the decline in GDP in the September quarter may be smaller than forecast.

Signs of the anticipated gradual recovery in the December quarter are apparent in electronic card spending which increased 9.5% in October following a 22% decline in August. Economic activity continued to rise in the month of October as the more comprehensive New Zealand Activity (NZAC) Index rose 0.6% from a year ago.

… but there is more uncertainty with how 2022 will evolve

In early November the Government announced plans for a phased reopening of the border. providing the possibility of slightly earlier return of international tourism than included in the forecasts. However, there is considerable uncertainty over the initial strength of demand.

The emergence of the Omicron variant of COVID 19 in late November has caused concern from both a health perspective and initially to international financial markets. The full implications of this new strain will continue to emerge over time and highlights the ongoing nature of uncertainty associated with COVID-19. Initial reaction, including in financial markets has been on the downside risks, while in early December there has been some reporting that Omicron may cause milder illness than earlier variants. This would be promising if it were to become the dominant variant, but experts caution that it is too soon to be sure.

Annual national accounts

Annual national accounts provide more comprehensive but less timely estimates of GDP. The 2021 annual national accounts showed nominal expenditure GDP for the year ending March 2021 that is $1.7 billion (0.5%) higher than current quarterly data. This is much smaller than the $7.9 billion difference in the 2020 release. As a result, there are few implications for the forecasts and the upward revision will only have modest impact on variables expressed as a percentage of GDP.

Supply-side constraints have also become prevalent…

In addition to demand pressures, COVID-19 disruptions have also led to supply-side constraints both domestically and internationally (discussed later in this chapter) that have varying degrees of persistence. These include delays associated with shipping and reduced availability of key inputs in areas such as construction of electronic components.

The labour market provides further evidence of capacity constraints. The September quarter Quarterly Survey of Business Opinion (QSBO) reported record-high difficulty finding skilled labour and near-record difficulty finding unskilled labour in the September quarter, and a net 42% of businesses planned to increase their headcount in the next quarter.

With ongoing border restrictions limiting the potential supply of additional labour, employment growth is likely to be more constrained than it has been.

The greater-than-expected strength in activity, together with upwards historical revisions that were incorporated in the June 2021 quarter GDP release, has resulted in growth exceeding what the economy can sustain over the long run. The difference between actual and long-run potential economic activity, a key measure of spare capacity in the economy known as the output gap, has been more positive than previously thought. This lack of capacity is a strong indication of domestic inflationary pressure (Figure 1.2).

Figure 1.2 - Output gap

 

Figure 1.2 - Output gap

Sources: Stats NZ, the Treasury

 …which, along with strong demand, has seen inflation surge…

With supply-side pressures emerging rapidly since the Budget Update, and inflation jumping to 4.9%, the highest in 10 years, CPI inflation forecasts have been revised upward across the forecast period relative to the Budget Update forecasts (Figure 1.3). Annual CPI inflation is forecast to peak at 5.6% in the March 2022 quarter. Inflation then falls across 2022 and continues to decline towards the Reserve Bank of New Zealand's 2.0% target midpoint over the remainder of the forecast period.

Figure 1.3 - Consumers Price Index

 

Figure 1.3 - Consumers Price Index

Sources: Stats NZ, the Treasury

Tradables inflation is expected to ease in the near term as elevated world energy prices and price effects of supply-chain disruptions unwind. Higher interest rates, as the Reserve Bank increases the Official Cash Rate (OCR) throughout 2022 to subdue domestic demand, sees non-tradables inflation gradually dampen over rest of the forecast period.

…and a tighter-than-expected labour market…

The labour market continues to be remarkably resilient despite the Delta outbreak and remains characterised by a state of tightness. In the September quarter, unemployment fell to 98,000, or 3.4%, the equal lowest since current records began in 1986 (Figure 1.4).

Figure 1.4 - Unemployment and participation

 

Figure 1.4 - Unemployment and participation

Sources: Stats NZ, the Treasury

Combined with lower underemployment, and the labour force participation rate sitting at a historical high of 71.2%, this has resulted in a marked reduction in what little spare capacity there was in the labour market. This employment growth occurred despite Auckland being in lockdown for around half the reference quarter, suggesting that firms are retaining staff in expectation of future reopening.

Given the tightness in the labour market, the absence of short-term opportunities to increase labour supply, and an anticipated lift in spending and activity as New Zealand shifts to the new COVID-19 Protection Framework, the unemployment rate is forecast to drop to 3.1% in the March 2022 quarter, before gradually rising towards 4.1% at the end of the forecast period. Employment is expected to grow quarter-on-quarter, but at a slower rate than the Budget Update forecasts (reflecting the increased tightness in the most recent data), while the labour force participation rate slowly declines to 70.9% by June 2026.

Labour market activity

The labour market has been characterised by continued strength over 2021…

At Budget Update 2021, there remained significant uncertainty surrounding the near-term position of the labour market. The last six months, though, have since provided assurance of an efficient labour market despite the ongoing impacts of the COVID-19 pandemic, which has constrained net inward migration.

Continued growth in employment and decreases in unemployment have led to a reduction in labour market slack, highlighting a labour market more adaptable and resilient than previously thought. There are signs, however, that constraints on labour supply are beginning to bind, with firms reporting record-high difficulty finding both skilled and unskilled labour over 2021 according to the Quarterly Survey of Business Opinion. The September 2021 Household Labour Force Survey (HLFS) data substantiates this strength across a number of key demographics.

Figure 1.5 - Female employment and participation

 

Figure 1.5 - Female employment and participation

Source: Stats NZ

…with the highest female labour force participation on record…

First, a surge in employment over the quarter comprised more than 50,000 additional people in full-time employment, supporting higher household incomes and consumption. This strength was primarily driven by more women in employment, stemming from an increase in the female labour force and fewer women in unemployment. As a result, female labour force participation increased 1.2 percentage points to 66.8% - the highest level on record (Figure 1.5).

…and unemployment below pre-pandemic levels for every ethnic group

Second, the decrease in unemployment was broad-based across ethnicity. Across all ethnic groups that Stats NZ monitors, the unemployment rate fell in the September 2021 quarter so that the rate of unemployment was lower than pre-pandemic levels (Figure 1.6).

Figure 1.6 - Unemployment rate, by ethnicity

 

Figure 1.6 - Unemployment rate, by ethnicity

Sources: Stats NZ

This is especially relevant for Māori and Pacific peoples. Historically, recessions have resulted in the unemployment rates of Māori and Pacific peoples rising to higher levels than the rest of the population and persisting for longer. The rapid return to unemployment rates lower than pre-pandemic levels - at 8.2% for Māori and 5.0% for Pacific peoples in the September 2021 quarter - indicates that this precedent will not hold with respect to COVID-19, further indicating a low incidence of labour market scarring related to the pandemic. Disparities between ethnicities predating the COVID-19 pandemic, however, clearly remain, with higher unemployment rates for Māori and Pacific peoples.

…leading to increased wage pressures…

This increased tightness in the labour market is expected to fuel additional wage growth and maintain an elevated rate of labour force participation.

Annual ordinary time average hourly wage growth is forecast to reach a peak of 4.6% starting in the December 2023 quarter, before tapering off to annual growth of 4.2% by the end of the forecast period (Figure 1.7).

Figure 1.7 - Wage growth

 

Figure 1.7 - Wage growth

Sources: Stats NZ, the Treasury

These wage pressures are likely to be felt unevenly across the economy, as tourism-exposed industries (accommodation and transport, for example) will not experience wage growth to the same extent as growing sectors such as construction and primary manufacturing industries.

…while government consumption growth is subdued

Annual average growth in real government consumption is forecast to be lower than in the Budget Update forecasts for most of the forecast period. Although the fiscal allowances will support an increase in the dollar-value of government consumption, higher inflation and wage costs will increase the cost of providing government services. The balance of these forces is such that in real terms, government consumption will still grow, but at a slower pace than forecast in the Budget Update. This is reflected in a significantly higher government consumption deflator, the price measure for government services used in the national accounts.

Generalised price pressures mean interest rates are likely to continue to increase sharply…

In response to the strength in demand and inflation exceeding the target band, the Reserve Bank has removed monetary policy stimulus since the Budget Update and we expect this trend to continue over the forecast period.

In July 2021, the Reserve Bank halted the LSAP programme and, having initially delayed raising the OCR owing to the Delta outbreak, increased the OCR by 0.25% in October and again in November to reach 0.75%. The Reserve Bank is expected to continue responding to the stronger-than-expected inflationary pressures by lifting the OCR further during 2022 and 2023.

As a consequence, the 90-day interest rate is forecast to rise to 3.2% by the June 2023 quarter before moderating slightly over the forecast period to the assumed long-run neutral 90-day rate of 3.0% (Figure 1.8).

Figure 1.8 - 90-day interest rates

 

Figure 1.8 - 90-day interest rates

Sources: RBNZ, the Treasury

…which moderates the pace of house price growth…

Annual house price growth is forecast to ease over the year ahead after peaking at approximately 30% in the June 2021 quarter (Figure 1.9). The high rates of house price growth seen recently are expected to support consumption and residential investment activity for some time yet, boosting aggregate demand and adding to inflationary pressures. However, as the housing market cools, these forces are expected to wane.

Figure 1.9 - House prices

 

Figure 1.9 - House prices

Sources: CoreLogic, the Treasury

The key reason we expect house price inflation to slow is rising interest rates. The higher OCR will translate to higher mortgage rates, reducing demand for housing. House prices are forecast to fall slightly on an annual basis over 2023 and 2024, shortly after interest rates peak. The box below explores in more detail the role of interest rates in influencing house prices.

Other factors will also be working to address supply and demand imbalances in the housing market. These include changes around tax deductible interest for rental property owners, tightening loan-to-value ratio restrictions and elevated price-to-income ratios reducing affordability and credit availability, and ongoing measures to expand the supply of housing.

House prices, interest rates and impacts on the wider economy

This box discusses the rise in house prices over the past year and highlights the impact house price inflation has on the wider New Zealand economy. Household consumption is closely linked to house price movements via wealth effects. Changes in the housing market are therefore an important driver of the economic cycle, alongside many other factors. The Treasury also recognises that housing affordability - both prices and rents - is very important to the wellbeing of New Zealanders, and to the distribution of wealth.

The experience in the past year has demonstrated that house price forecasts carry a great deal of uncertainty. This box highlights the potential impacts on the economy if house prices prove weaker or stronger than expected in the main forecast scenario.

House prices have risen sharply in the past year…

New Zealand house prices rose 29.0% in the year to June 2021, the fastest since the 1980s, and considerably higher than our previous forecasts. This occurred despite near-zero net migration and booming residential construction activity that increased supply. The Treasury has invested in understanding the causes of the lift in house prices, including by forming a technical working group in collaboration with the Reserve Bank and the Ministry of Housing and Urban Development. In our assessment, the key driver of prices was a decline in mortgage rates following the onset of COVID-19, in the context of constrained urban land supply.

…increasing household debt, which raises debt servicing costs as interest rates rise

The combination of low interest rates and high house price growth has stimulated household consumption, and led to households taking on more debt. Household debt reached 169% of disposable household income in June 2021, having risen 10 percentage points from the same period a year ago. While the level of household debt is at a record high, debt servicing costs have been kept moderate by low interest rates. In fact, at 5.3%, the household debt servicing-to-income ratio reached its lowest level on record in the June 2021 quarter (Figure 1.10).

Figure 1.10 - Household debt and interest payments

 

Figure 1.10 - Household debt and interest payments

Source: Reserve Bank of New Zealand

There is considerable momentum in the housing market at present, and we expect that will remain the case for the rest of this year. However, as interest rates rise, we expect house price inflation will slow, culminating in a moderate decline in prices during 2023. Additional reasons to anticipate a slowdown in house price inflation include strong supply relative to population growth, the reimposition of loan-to-value lending constraints, and recent tax changes. Slower house price growth will, over time, curb consumer spending via wealth effects. Higher mortgage rates will also directly impact consumer spending by squeezing disposable incomes for highly indebted households (although households living off savings will experience an income boost).

…but house prices can evolve differently from expected in the main forecast scenario 

Different house price assumptions can lead to considerably different outcomes for the economy. The following examines what might happen to the economy if house prices behave differently from forecast (Figure 1.11).

Figure 1.11 - House prices

 

Figure 1.11 - House prices

Sources: CoreLogic, the Treasury

If house price growth remains stronger for longer, consumer spending will remain elevated. Sustained higher house price growth would increase aggregate demand, keeping unemployment lower than in the main forecast. However, the resulting inflationary pressure would require the Reserve Bank to lift interest rates by more than in our main forecast. Depending on how high they go and the persistence of the flow-on effects of higher house prices, aggregate demand is likely to fall, leading to a gradual rise in unemployment over time.

If house prices slow more sharply than in our central forecast then the converse chain of reasoning would apply. Consumer spending would be weaker (Figure 1.12), and unemployment higher. However, the Reserve Bank may not need to lift interest rates as far in order to meet its inflation and employment objectives. With interest rates not rising as far as in the central forecast, house prices and consumer spending would grow faster in the later years of the forecast, and unemployment would rise more slowly.

Figure 1.12 - Private consumption

 

Figure 1.12 - Private consumption

Sources: Stats NZ, the Treasury

…and acts as a drag on investment activity in the medium term…

Record-high building consents issuance over the past year indicates that residential construction activity will stay strong over the year ahead. However, growth in residential investment is expected to slow over time as interest rates rise and the rate of house price inflation diminishes (Figure 1.13).

Figure 1.13 - Real investment

 

Figure 1.13 - Real investment

Sources: Stats NZ, the Treasury

Business investment is expected to be subdued in the short-term due to the impact of Delta restrictions. Deferred investment post lockdown, ongoing household demand and a progressive re-opening of the borders see a pick-up in business investment in the first half of 2022, before rising interest rates slow the rate of growth over the remainder of the forecast period.

…although household spending remains strong in the short term…

In the short term, household consumption is expected to recover as restrictions on activity ease, with the impact of remaining public health restrictions offset by recent higher house price growth and elevated employment levels and wages (Figure 1.14).

Figure 1.14 - Real private consumption

 

Figure 1.14 - Real private consumption

Sources: Stats NZ, the Treasury

In the medium term, higher household incomes and employment levels will support consumption. However, relative to the Budget Update we now expect the cost of living to rise more rapidly. This will erode consumers' purchasing power and is a countervailing constraint on household spending. Rising interest rates and the housing market slowdown will also contribute to slower growth in consumption over 2023 and 2024.

…while goods exports are supported by elevated commodity prices

Despite a slowdown in global growth, demand for New Zealand's goods exports is expected to remain strong. Global supply chain disruption is causing challenges for exporters and is expected to have lingering impacts, with real goods exports now forecast to be 1.1% lower in 2025 compared to the Budget Update.

Commodity export prices have risen to record highs, driven by the strength in global consumer demand as well as stockpiling behaviour from buyers motivated by supply chain concerns. Commodity prices are expected to ease over 2022 as global agricultural supply recovers and demand normalises.

Figure 1.15 - Goods terms of trade

 

Figure 1.15 - Goods terms of trade

Sources: Stats NZ, the Treasury

The rise in export prices boosted the goods terms of trade to a record high in the June 2021 quarter. However, higher import prices driven by supply chain disruption are forecast to result in a drop in the terms of trade in the September quarter. The medium-term outlook for the terms of trade is similar to the Budget Update, with persistently rising import prices contributing to a modest easing across the forecast period. (Figure 1.15).

Rising domestic interest rates see a steady increase in the exchange rate, with the trade-weighted Index (TWI), reaching 78 by 2023, and 79 by the end of the forecast period.

Delta results in services exports recovering later than expected...

The short-lived trans-Tasman travel bubble saw services exports increase 63% in the June quarter. However, the arrival of the Delta variant of COVID-19 brought this partial recovery to an abrupt halt and has pushed out the expected recovery in inbound tourism.

Services exports are forecast to begin to recover from the second half of 2022 in line with the Reconnecting New Zealand plan. The return of international visitors, however, is assumed to be more gradual in the short term (Figure 1.16).

Figure 1.16 - Services exports

 

Figure 1.16 - Services exports

Sources: Stats NZ, the Treasury

The current account balance is expected to widen in the near term, with stronger imports, a weaker terms of trade, and a weaker income balance (resulting from higher interest rates increasing debt-servicing costs) leading to an annual current account deficit of 5.8% of GDP in the June 2022 quarter. By the end of the forecast period, the recovery in services exports and rising services terms of trade combine to narrow the deficit to 4.0% of GDP.

…and acts as a drag on global growth...

The global economic recovery has lost some momentum owing to the emergence of Delta and ongoing supply chain disruptions, but the growth outlook remains positive, with vaccination, policy support, savings drawdown, and the reopening of economic activity all supporting growth prospects.

Delta has led to a slowing of growth in real GDP in the United States and China, and Australia's GDP contracted 1.9% in the September 2021 quarter but is expected to bounce back relatively quickly in 2022. While growth in the United States is expected to pick up in the December quarter, China faces a number of headwinds including energy shortages, COVID-19 lockdowns, and firms in difficulty in the property market.

…with ongoing supply chain disruptions fuelling global inflationary pressures

Inflation has resurfaced as a key international risk; specifically, there are concerns about stagflation in some economies. Global inflation pressures were already high as a result of the massive monetary and fiscal stimulus that had been provided by central banks and governments. These pressures have risen further, driven by temporary factors such as higher oil prices and once-off pandemic impacts, more persistent factors such as supply chain issues and energy costs, and factors whose persistence is yet to be determined, such as increasing inflation expectations.

Accordingly, inflation has surprised on the upside in a number of regions - reaching 6.2% in October in the United States - which could lead to monetary policy tightening earlier. To date, central banks have generally held back from raising policy rates; however, the Korean and Norwegian central banks have hiked interest rates recently and the Bank of England and United States Federal Reserve have communicated an earlier start to tightening monetary policy settings.

The economic impacts of global supply chain disruption

Strong demand for goods and constrained shipping capacity have boosted prices…

One consequence of the COVID-19 pandemic has been a sharp lift in demand for goods, as consumers substituted away from in-person services. The global supply chain has struggled to keep up with the extra demand, given the time involved in expanding shipping capacity, causing freight prices to rise sharply (Figure 1.17). A similar dynamic has also pushed up global commodity prices, as food security concerns have led buyers to stock up on agricultural goods at a time when global production has been constrained. This has resulted in record-high prices for New Zealand's major commodity exports.

Figure 1.17 - World commodity and freight prices

 

Figure 1.17 - World commodity and freight prices

Sources: ANZ, Baltic Exchange/Haver

High freight costs mean that importers are paying significantly more to have goods shipped to New Zealand, adding to inflationary pressures as some retailers pass on the additional cost to consumers, while reducing margins for businesses who are unable to pass on the cost. Supply chain congestion and elevated freight costs are contributing to high CPI inflation around the world, including in New Zealand where annual CPI inflation reached 4.9% in the September 2021 quarter. Delays and shortages of materials are also weakening economic activity, stoking fears of ‘stagflation' (stagnant economic growth and high price inflation) in the world economy, and central banks may be forced to raise interest rates if high inflation continues.

…as port congestion and competition for shipping space cause challenges for exporters…

Elevated demand for goods and a limited number of ships have resulted in increased volumes of cargo per vessel. This has meant that each vessel requires a longer time in port to unload, resulting in backlogs of ships waiting to enter and creating congestion throughout the global supply chain. This has been compounded by port lockdowns, notably in China. In New Zealand, overall import and export volumes have recovered from the initial shock in mid‑2020, with both exceeding pre-pandemic levels by the start of 2021. Ships are visiting our ports less frequently, however, and carrying more cargo per vessel, creating congestion as in other parts of the world. Domestic ports have suffered additional challenges, struggling with labour shortages after COVID-19 disrupted the flow of overseas workers.

Overseas demand remains strong, but some sectors are missing opportunities because of supply chain disruption. There have been reports of exporters struggling to get hold of empty containers and space on ships, with smaller producers more at risk of missing out and being unable to deliver goods to customers. Larger exporters have generally been able to secure space or charter their own vessels to avoid disruption, limiting the overall impact on goods export volumes.

…with impacts varying by export sector

New Zealand's largest export sectors have performed well following the initial shock in mid‑2020 (Figure 1.18), masking the poor performance of other significant goods exports like mechanical machinery, aluminium, apples[1] and fish, which make up around 7% of total goods exports. Meat, dairy, kiwifruit and forestry, which comprise just over half of the total, have recovered in quantity terms and benefited from rising prices in 2021.

Figure 1.18 - Goods export values, annual sum

 

Figure 1.18 - Goods export values, annual sum

Source: Stats NZ

The outlook is uncertain, and while freight prices appear to be easing…

Industry commentators believe that only a slowdown in consumer demand will give the supply chain the necessary time to catch up, thereby easing the disruption. Forecasters expect disruption to extend throughout 2022 as sustained high container demand slows progress in clearing freight backlogs. Domestically, the shift to the COVID-19 Protection Framework is expected to reduce the likelihood of lockdowns, lowering the risk of further disruption in the domestic supply chain. The easing in border restrictions from 2022 should allow greater inward migration, reducing the severity of labour shortages in the supply chain and primary industries.

As shown in Figure 1.17, global freight prices have recently fallen, reflecting easing container traffic as the pre-Christmas peak in international shipping comes to an end. Freight prices will likely remain above pre-pandemic levels as the shift toward more containers per vessel is expected to persist, resulting in a more resilient but less efficient and thus more expensive global supply chain.

…disruption could reduce long-term growth and put New Zealand's international connections at risk

The impacts of supply chain disruption, combined with the ongoing uncertainty that the pandemic brings, will likely be damaging the confidence of internationally-facing businesses. This effect will be particularly severe for smaller businesses that do not have firmly established relationships with international partners and lack the resources to absorb higher costs. This may result in a loss of long-term opportunities as investments are foregone, businesses are forced to exit, and potential businesses are reluctant to enter.

While strong performance from New Zealand's largest export sectors and record-high terms of trade supports aggregate exports, supply chain disruption has weakened exports by smaller exporters. This may be reflected in around half of New Zealand's goods export sector (‘Other goods' in Figure 1.18) experiencing zero growth since 2019 after growing 8.3% in the previous two years.

Higher inflation in particular sees materially higher nominal GDP

Higher inflation than forecast in the Budget Update, combined with stronger near-term activity, translates to nominal GDP being $21.4 billion higher by the year to June 2025 and a cumulative $78.5 billion over the forecast period to June 2025 compared to the Budget Update. This is the main driver of the additional $48.6 billion in core Crown tax revenue across the four years to June 2025, leading to an improved fiscal position relative to the Budget Update, as outlined in the Fiscal Outlook chapter.

Risks are broadly balanced, and hinge on COVID-19 developments

The outlook is highly uncertain, with factors such as COVID-19, the duration of supply chain disruptions, or the persistence of house price inflation all adding to uncertainty. We view the risks as roughly balanced. The progression of COVID-19 both domestically and abroad remains the key source of uncertainty for our economic forecasts. The box below explores two indicative scenarios to give a sense of how sensitive the fiscal forecasts are to economic risks.

Alternative scenarios

In the upside scenario, COVID-19 outcomes are better both here and abroad…

In the upside scenario, COVID-19 proves less disruptive, allowing a relaxation of restrictions both here and abroad. Domestic and international economic activity recovers more strongly than in the central forecast. International borders open earlier, allowing a faster and stronger recovery in exports of services and goods terms of trade are higher (Figure 1.19).

Figure 1.19 - Goods terms of trade

 

Figure 1.19 - Goods terms of trade

Sources: Stats NZ, the Treasury

…speeding domestic recovery and boosting terms of trade

Stronger exports of services result in higher GDP growth over 2022. Higher terms of trade increase export revenue and encourage investment, providing a boost to GDP across the forecast period (Figure 1.20). Annual average GDP growth in December 2022 increases to 6.7%, compared to 5% in the main forecast.

This improves the labour market outlook, with the unemployment rate falling to 2.5% by September 2022. Faster recoveries in both employment and GDP imply less permanent scarring in the economy, and potential output is forecast to be 0.6% higher at the end of the forecast period.

Figure 1.20 - Real production GDP

 

Figure 1.20 - Real production GDP

Sources: Stats NZ, the Treasury

In the downside scenario, COVID-19 outcomes are worse both here and abroad…

In the downside scenario, COVID-19 remains very disruptive to daily life and poses a greater risk to the economic outlook. The downside scenario includes domestic resurgences in community transmission throughout 2022 that result in higher alert levels in certain parts of the country, as well as heighted restrictions abroad, resulting in weaker global growth. In each of the final three quarters of this year, alert levels on the new traffic light system are assumed to be Amber or Red for most of 2022.

…which pushes up the unemployment rate…

Increases in alert levels throughout 2022 and weaker global growth result in slower GDP growth over the year (Figure 1.20), as well as further increases in unemployment. Annual average GDP growth is 3.8% in December 2022, and the unemployment rate peaks at 4.2% (Figure 1.21). Ongoing virus transmission results in a delay in opening the international borders and a slower recovery in exports of services, as safe travel arrangements become less successful and people show a greater reluctance to travel.

Figure 1.21 - Unemployment rate

 

Figure 1.21 - Unemployment rate

Sources: Stats NZ, the Treasury

…and results in more permanent impacts on the economy

The weaker recovery in domestic activity and higher unemployment in the downside scenario suggest more permanent economic impacts. Reduced business confidence from recurrent community outbreaks implies less business investment and a smaller capital stock in the future, while sustained high unemployment would likely result in a greater degree of skill mismatches as people look for work in new industries, and a smaller labour force as people give up on searching for jobs. The slower recovery in services exports may have particularly severe implications for the economy’s long-run productive capacity, as more tourism-related businesses close and their productive capital becomes obsolete. Given these longer-lasting impacts, potential output is forecast to be 0.6% lower in the downside scenario.

Government debt is sensitive to the economic outlook

Cumulative nominal GDP over the forecast period is $25 billion higher in the upside scenario, resulting in an additional $9 billion in core Crown revenue. In the downside scenario, cumulative nominal GDP is $24 billion lower than in the main forecast, reducing core Crown revenue by $10 billion. Net core Crown debt is 33% of GDP in the year ending June 2026 in the downside scenario and 27% of GDP in the upside, compared to 30% in the main forecast (Figure 1.22).

Figure 1.22 - Net core Crown debt--to-GDP ratio

 

Figure 1.22 - Net core Crown debt--to-GDP ratio

Sources: Stats NZ, the Treasury

Notes

  1. [1] Apple growers have also been faced with a lack of pickers as the inflow of migrant workers has been disrupted.

Fiscal Outlook#

Overview#

  • The fiscal outlook is expected to improve over the forecast period, after an initial weakening in the 2021/22 year as the Government responds to the recent Delta outbreak.
  • The expected strength in economic activity and the stronger-than-expected base provided from the 30 June 2021 results have led to a significant improvement in tax revenue forecasts, which flows through to improve the key fiscal indicators when compared to the Budget Economic and Fiscal Update 2021 (Budget Update).
  • Core Crown tax revenue increases by $36.5 billion over the forecast period, an average of $7.3 billion higher each year. This growth is broadly in line with the economy, with core Crown tax revenue being around 29.0% of GDP over the five-year forecast.
  • Core Crown expenses are initially forecast to increase to $128.0 billion in the 2021/22 year, from $107.8 billion at 30 June 2021. This is primarily owing to COVID-19 related expenditure to support the New Zealand economy through the outbreak of the Delta variant. As this expenditure eases, core Crown expenses are lower in the 2022/23 year, then increasing over the remaining years by $4.5 billion on average. This year‑on-year lift is primarily attributable to future Budget allowances available across the forecast period, as well as an increase in benefit expenses and core Crown finance costs.
  • The operating balance before gains and losses (OBEGAL) is now expected to return to surplus in the 2023/24 year, in contrast, at the Budget Update deficits were expected in all years of the forecast period.
  • Net worth attributable to the Crown is $57.5 billion higher by 2024/25 than was expected at the Budget Update and is forecast to be $166.4 billion in the 2025/26 fiscal year. This is mainly owing to the stronger starting point from the results at 30 June 2021 and the cumulative improvement in the operating balance over the forecast period.
  • Overall, core Crown residual cash broadly follows a similar trend to OBEGAL, with an improvement of $18.3 billion compared to the Budget Update. However, the capital cash flows associated with the Reserve Bank's Funding for Lending Programme (FLP) cause the residual cash trend to differ year-to-year compared to the OBEGAL trend. Residual cash is forecast to return to surplus in the 2024/25 year, one year after OBEGAL. Overall, there is a residual cash shortfall of $36.8 billion across the forecast period.
  • The forecast for net core Crown debt is expected to increase by $35.8 billion by 2025/26, largely to fund the expected cash shortfall over the forecast period. However, net core Crown debt has improved compared to the Budget Update and is now forecast to peak nominally at $165.5 billion in 2023/24 and at 40.1% of GDP in 2022/23. This is $18.7 billion and 7.9 percentage points lower than the Budget Update and is largely a result of the stronger residual cash position and starting point from the results at 30 June 2021. When excluding the impact of the FLP, net core Crown debt peaks at 35.3% of GDP in 2023/24.
Table 2.1 - Fiscal indicators
Year ending 30 June 2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
$billions            
Core Crown tax revenue 98.0  102.6  113.8  120.1  127.3  134.5
Core Crown expenses 107.8  128.0  120.2  124.8  128.5  133.6
Total Crown OBEGAL1 (4.6)  (20.8)  (0.8)  2.1  5.9  8.2
Total Crown operating balance 16.2  (23.8)  3.9  7.7  12.0  14.7
Core Crown residual cash (13.8)  (34.1)  (21.7)  (8.0)  14.5  12.5
Net core Crown debt2 102.1  136.3  157.9  165.5  150.6  137.9
Net core Crown debt (including FLP assets)  99.0  124.4  135.9  146.5  141.2  137.9
Total borrowings 162.6  200.4  226.3  238.9  229.1  221.0
Net worth attributable to the Crown 151.5  127.3  131.4  139.3  151.5  166.4
% of GDP            
Core Crown tax revenue 28.8  28.3  28.9  29.0  29.2  29.5
Core Crown expenses 31.7  35.3  30.5  30.1  29.5  29.3
Total Crown OBEGAL1 (1.3)  (5.7)  (0.2)  0.5  1.4  1.8
Total Crown operating balance 4.8  (6.6)  1.0  1.9  2.8  3.2
Core Crown residual cash (4.1)  (9.4)  (5.5)  (1.9)  3.3  2.7
Net core Crown debt2 30.1  37.6  40.1  39.9  34.6  30.2
Net core Crown debt (including FLP assets)  29.1  34.3  34.5  35.3  32.4  30.2
Total borrowings 47.9  55.2  57.5  57.6  52.6  48.4
Net worth attributable to the Crown 44.6  35.1  33.4  33.6  34.8  36.4

Notes:

  1. Operating balance before gains and losses.
  2. Net core Crown debt excluding the New Zealand Superannuation Fund and advances.

Source: The Treasury

Key judgements and assumptions

The fiscal forecasts are based on assumptions and judgements developed from the best information available at the time they were prepared. Actual events are likely to differ from these assumptions and judgements, while uncertainty around the forecast assumptions and judgements increases over the forecast period.

The forecasts incorporate Government decisions and other circumstances known to the Government and advised to the Treasury (up to 25 November 2021).

The criteria for inclusion in these forecasts, along with the key risks, can be found in the Risks to the Fiscal Forecasts chapter.

In addition to the key assumptions underpinning the economic forecasts (refer to page 9), the following key judgements and assumptions supporting the fiscal forecasts were made:

  • Tax forecasts were completed on 16 November 2021 and are based on the economic forecast completed on 10 November 2021. There have been a number of tax policy changes, which are outlined in Table 2.5, as required under section 26R of the Public Finance Act 1989 (refer to page 33).
  • The cost of commitments not explicitly included in the fiscal forecasts (or variations to the estimates included in the fiscal forecasts) is assumed to be met within the Budget operating allowances, the multi-year capital allowance and the unallocated COVID-19 Response and Recovery Fund (CRRF) and Climate Emergency Response Fund (CERF) included in the fiscal forecasts.
  • The funds remaining in the CRRF are assumed to be spent evenly over the first two years of the forecast period on operating expenditure.
  • The Government has established the CERF and set aside funding of $4.5 billion for it. It is assumed that these funds will be split evenly between operating and capital expenditure and will be uniformly allocated over the forecast period from the 2022/23 year.
  • Departments will continue to spend less than the upper limits of approved spending (referred to as appropriations). A top-down adjustment is made to compensate for this. The adjustment will be higher at the start of the forecast period as departments' appropriations (and therefore expenses) tend to be higher in these years, reflecting the flexibility departments have around transferring underspends to later years.
  • Forecast returns on the large investment portfolios managed by the Accident Compensation Corporation (ACC) and the New Zealand Superannuation Fund (NZS Fund) are based on their expectations of long-term benchmark rates of return for their respective portfolios.
  • No revaluations of property, plant and equipment are projected beyond the current year. Only revaluations that have already been completed are included in these forecasts.
  • Significant valuations (eg, the student loans portfolio, ACC claims liability and Government Superannuation Fund (GSF) retirement liability) are based on underlying assumptions (eg, discount rates, salary increases and inflation) made at the time the valuations were prepared.
  • Contributions to the NZS Fund over the forecast period and the estimated contribution to the NZS Fund, if contributions were based on the legislated contribution formula, are set out in Table 2.2. Over the forecast years, all NZS Fund variables (apart from the capital contributions) are based on those provided by the NZS Fund itself. For more information, refer to the Treasury website for the NZS Fund model.
Table 2.2 - NZS Fund contributions
Year ending 30 June
$billions
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Estimated contributions as prescribed by formula1 1.8 2.0 2.0 2.0 1.9
Forecast contributions in Half Year Update 2.4 2.0 2.0 2.0 1.9

Note:

  1. Calculations of annual contributions using the NZS Fund model.

Source: The Treasury

  • The 2021/22 year is the final year of the Government's committed capital contributions to the NZSF. The Government will contribute more than is required in this year, but in all further years of the Half Year Update both tracks of contributions are derived from the legislative formula.

Further information on the underlying economic assumptions used in these fiscal forecastscan be found on page 52.

Comparison to the Budget Update#

The fiscal outlook is stronger than previously expected…

The financial results since the completion of the Budget Update have outperformed expectations, largely on the back of stronger-than-expected economic activity. This means the starting base for the Half Year Update fiscal forecast is stronger, and this strength in the economy is expected to continue, resulting in a significant upward revision in tax revenue forecasts compared to the Budget Update. In the current year, the Government's temporary fiscal support measures in response to the Delta outbreak have more than offset the increase in tax revenue forecast, while an increase in the level of Budget allowances partially offsets the increase in the tax revenue forecast from 2022/23. Overall, most key fiscal indicators have significantly improved since the Budget Update (Table 2.3).

Table 2.3 - Key fiscal indicators compared to the Budget Update[2]
Year ending 30 June
$billions
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
Core Crown tax revenue          
Half Year Update 98.0 102.6 113.8 120.1 127.3
Budget Update 91.5 93.2 101.7 107.1 113.2
Change 6.5 9.4 12.1 13.0 14.1
Core Crown expenses          
Half Year Update 107.8 128.0 120.2 124.8 128.5
Budget Update 110.7 114.7 115.4 117.8 121.1
Change 2.9 (13.3) (4.8) (7.0) (7.4)
OBEGAL          
Half Year Update (4.6) (20.8) (0.8) 2.1 5.9
Budget Update (15.1) (18.4) (9.5) (5.7) (2.3)
Change 10.5 (2.4) 8.7 7.8 8.2
Core Crown residual cash          
Half Year Update (13.8) (34.1) (21.7) (8.0) 14.5
Budget Update (25.3) (39.2) (25.7) (6.0) 3.3
Change 11.5 5.1 4.0 (2.0) 11.2
Net core Crown debt          
Half Year Update 102.1 136.3 157.9 165.5 150.6
Budget Update 113.7 153.3 178.5 184.2 180.8
Change 11.6 17.0 20.6 18.7 30.2
Total borrowings          
Half Year Update 162.6 200.4 226.3 238.9 229.1
Budget Update 173.2 215.2 245.2 254.5 255.1
Change 10.6 14.8 18.9 15.6 26.0
Net worth attributable to the Crown          
Half Year Update 151.5 127.3 131.4 139.3 151.5
Budget Update 112.0 96.6 91.5 90.8 94.0
Change 39.5 30.7 39.9 48.5 57.5

Source: The Treasury

…as economic activity sees tax revenue improve…

Core Crown tax revenue is forecast to be higher by $12.2 billion per year on average and is $48.6 billion higher in total by the 2024/25 year when compared to the Budget Update.

The tax forecast shows strength in most of the major tax types, as summarised below (Table 2.4).

Table 2.4 - Change in core Crown tax revenue since the Budget Update, by major tax type
Year ending 30 June
$billions
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
Total
change
Corporate tax 3.4 3.4 3.1 2.9 12.8
Source deductions 1.7 2.6 3.4 4.3 12.0
Goods and services tax (GST) 1.7 3.0 2.8 2.9 10.4
Net other persons tax 2.3 2.1 2.4 2.4 9.2
Resident withholding taxes 0.4 0.5 0.5 1.4
Other taxes 0.2 0.4 0.4 0.6 1.6
Total forecasting changes 9.3 11.9 12.6 13.6 47.4
Tax policy change effects 0.1 0.2 0.4 0.5 1.2
Total changes 9.4 12.1 13.0 14.1 48.6
Plus Budget Update tax base 93.2 101.7 107.1 113.2  
Core Crown tax revenue 102.6 113.8 120.1 127.3  

Source: The Treasury

New Zealand's economic performance has been stronger than expected since the Budget Update, reflecting that the economy has been more adaptable and resilient to the COVID‑19 pandemic than previously thought. This increase in real activity, in combination with higher inflation, translates to a large increase in nominal GDP over the forecast period.

Most of the increase to the nominal GDP forecasts compared to the Budget Update fell into operating surplus (broadly, a measure of profits in the economy), which led to increases in the forecasts of corporate tax and other persons tax. Recent tax outturns were above forecast corporate and other persons tax revenue and receipts, indicating that taxable profits for the 2021 tax year were higher than forecast at the Budget Update.

Source deductions are expected to be $1.7 billion higher in the current year, rising to $4.3 billion by 2024/25, mainly owing to a stronger outlook for the labour market. However, most of the upward revision to the total compensation of employees forecast was in wages, rather than employment. As a result, there is a stronger contribution from fiscal drag (the effect on income tax as an individual's tax rate increases as their income increases) when compared to the Budget Update.

GST forecasts are expected to be on average $2.6 billion higher each year compared to the Budget Update, with the biggest drivers being an increase in the forecast for private consumption and residential investment. The expected reopening of the border will also see a small positive contribution from net migration, as non-resident spending in New Zealand is forecast to increase in the later years of the forecast period.

The resident withholding tax forecast is higher mainly as a result of a much stronger deposit interest rate forecast. The increase in other taxes is mostly owing to a higher customs and excise duty revenue forecast, which in turn is driven by indexation (inflation adjusted increases in excise rates).

Policy changes, as outlined in Table 2.5, also contribute to the change in core Crown tax revenue, mainly owing to the denial of interest deduction for residential rental properties.

Tax policy changes

This section details the material changes to forecast tax revenue since the Budget Update as a result of policy changes. Table 2.5 shows a breakdown of the changes and the supplementary text describes each change.

Table 2.5 - Estimated tax effects of policy changes announced since the Budget Update
Year ending 30 June
$millions
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
Total
change
Denial of interest deduction for residential rental properties  80  200  350  490  1,120
Local Authority Taxation Package  -    -    48  24  72
Railway Track User Charges  8  16  21  21  66
COVID-19 Use-of-money interest provisions  (20)  -    -    -    (20)
Other changes  (8)  (3)  (4)  (4)  (19)
Total change  60  213  415  531  1,219

Source: The Treasury

Denial of interest deduction for residential rental properties

Interest deductibility for existing residential rental stock is to be phased out over a four-year period.

Local Authority Taxation Package

This includes changes in the taxation of local authorities, in particular relating to dividends, imputation credits and the charitable giving status of subsidiaries.

Railway Track User Charges

With effect from 15 November 2021, a railway track user charge will apply to any rail freight operator undertaking rail freight business on the national rail network.

COVID-19 Use-of-money interest provisions

The expiry date for some existing use of money interest arrangements related to the COVID‑19 pandemic has been extended from 22 May 2022 to 31 March 2024.

Other changes

There are a number of policy changes, each of which is estimated to have an effect of less than $10 million per annum.

…and a rising carbon price has increased revenue from the Emissions Trading Scheme…

Overall, the net impact from the Emissions Trading Scheme (ETS) is expected to improve OBEGAL by an additional $3.5 billion over the forecast period compared to the Budget Update. ETS revenue is higher by $5.4 billion, partially offset by higher ETS expenses of $1.9 billion. The overall improvement is mainly owing to an increase in the price of tradeable New Zealand Units (NZUs) from $36.90 per unit at the Budget Update to $64.50 per unit used in the Half Year Economic and Fiscal Update (Half Year Update).

This increase in ETS revenue, in addition to higher tax revenue, accounts for the majority of the increase in core Crown revenue, which is higher across all years of the forecast period compared to the Budget Update by an average of $13.6 billion per year, amounting to $54.5 billion.

…while expenditure has also increased.

Core Crown expenses are expected to be higher than the Budget Update in the current year by $13.3 billion and then on average $6.4 billion higher over the following three years.

The increase of $13.3 billion in the current year is largely temporary in nature, relating to the Government's fiscal support measures in response to the COVID-19 pandemic. A number of decisions have been funded from the CRRF to support the economy during the Delta outbreak. However, this expenditure is not expected to persist in the later years of the forecast period. Further details on decisions charged against the CRRF since the Budget Update can be found in the box on pages 43 and 44.

Figure 2.1 - Core Crown expenses compared to the Budget Update

 

Figure 2.1 - Core Crown expenses compared to the Budget Update

Source: The Treasury

Beyond the current year, core Crown expenses have increased compared to the Budget Update by an average of $6.4 billion each year. This is primarily owing to an increase in Budget operating allowances, the establishment of the CERF and increasing finance costs, partially offset by an increase in the operating top-down adjustment. Refer to Table 2.6.

Table 2.6 - Change in core Crown expenses since the Budget Update
Year ending 30 June
$billions
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
Total
change
COVID-19 related spending (11.6) (1.8) 0.9 1.0 (11.5)
Budget operating allowances (3.3) (4.6) (4.9) (12.8)
CERF (0.5) (0.5) (0.5) (1.5)
Finance costs (1.0) (1.1) (1.0) (0.7) (3.8)
Operating top-down adjustment 1.3 1.5 0.8 0.2 3.8
Benefit expenses 0.7 0.3 (0.3) (1.3) (0.6)
Other (2.8) 0.1 (2.2) (1.0) (5.9)
Total change in core Crown expenses (13.4) (4.8) (6.9) (7.2) (32.3)

Source: The Treasury

The Government has signalled its future Budget allowances for Budget 2022 through to Budget 2025 in the Budget Policy Statement 2022 (BPS). The future Budget operating allowances have been increased compared to the Budget Update, resulting in an increase in core Crown expenses of $3.3 billion in 2022/23, rising to an increase of $4.9 billion by 2024/25 (Table 2.7).

Table 2.7 - Cumulative Budget operating allowances compared to the Budget Update
Year ending 30 June
$billions
2023
Forecast
2024
Forecast
2025
Forecast
3-year
Total
Cumulative Budget operating allowance        
Half Year Update 6.0 10.0 13.0 29.0
Budget Update 2.7 5.4 8.1 16.2
Change 3.3 4.6 4.9 12.8

Source: The Treasury

The Government has established the Climate Emergency Response Fund and set aside funding of $4.5 billion for it. This funding is assumed to be spent consistently across the forecast period from 2022/23, split evenly between operating and capital expenditure. Compared to the Budget Update, this has increased core Crown expenses by $0.5 billion in each year from 2022/23.

Core Crown finance costs have increased relatively consistently across the forecast period compared to the Budget Update, averaging $1.0 billion each year. This is in contrast to the Government's cash requirements, which have decreased compared to the Budget Update by an average of $4.6 billion per year (page38).

Offsetting the allowances and finance costs is an increase in the operating top-down adjustment. When compared to the Budget Update, the change to the operating top-down adjustment reduces core Crown expenditure by $3.8 billion across the forecast period. The increase compared to the Budget Update is most notable in the initial years of the forecast. This is largely owing to a significant amount of unspent expenses from the 2020/21 year transferring into the 2021/22 year, likely delays to the implementation of projects owing to COVID-19 alert level restrictions and the impact of higher Budget operating allowances.

Benefit expenses have increased compared to the Budget Update by $0.6 billion over the forecast period as a whole. Benefit expenses are expected to be lower in the near term owing to improved economic conditions reducing beneficiary recipient numbers for the Jobseeker benefit. This trend reverses from 2023/24 with benefit expenses higher in the later years of the forecast period largely because of a stronger wage growth track, as most benefits are indexed against forecast wage growth.

The impact of higher interest and inflation rates on the fiscal forecast

The fiscal forecasts are prepared using inputs from key economic indicators. As outlined in the Economic Outlook chapter, the outlook for both inflation and interest rates have been revised up since the Budget Update, which has had a number of impacts on the fiscal forecasts.

Interest rates

Increases in interest rates since the Budget Update have impacted on the expected financial performance, both to tax revenue and expenditure, and the expected fiscal position owing to the effect on the valuation of long-term liabilities.

The higher interest rates since the Budget Update have had the following impacts:

  • increased resident withholding tax (RWT) on interest and dividends earned from bank accounts and investments held in New Zealand (a positive impact on OBEGAL)
  • increased finance costs as the interest rates on interest-bearing lending goes up. The impact would be both immediate and delayed depending on the forms of borrowing (eg, short-term Treasury bills versus new issuances of Government Bonds)
  • increased investments in interest bearing assets as returns increase, and
  • increased gains from long-term valuations, as the present value of the liability decreases.

Figure 2.2 - Government 10-year bond rate (annual average %)

 

Figure 2.2 - Government 10-year bond rate (annual average %)

Source: The Treasury

Overall, the increase in interest rates has adversely impacted OBEGAL since the Budget Update, as the changes in finance costs have been greater than the improvements in RWT revenue and interest revenue. As mentioned, even though funding requirements have reduced since the Budget Update, this has been more than offset by the increase in interest rates (Figure 2.2).

Inflation

The increase to the inflation track since the Budget Update, has impacted on both the revenue and expenses of the Government. However, a lesser proportion of expenses are exposed to inflation rate risk, which means the expected impact on OBEGAL would not be neutral in any one year.

Most types of tax revenue are in some way sensitive to inflation changes directly or indirectly. For example, movements in the inflation track impact the nominal wage and consumption growth forecast which in turn impact the amount of source deductions and GST revenue collected by the Government.

Core Crown expenses are also impacted by inflation, however, unlike core Crown tax revenue only a portion of core Crown expenses (namely benefit expenses and finance costs) are immediately sensitive to inflation changes. For the year ended 30 June 2021, benefit expenses and finance costs totalled $38.4 billion, which is just over a third of core Crown expenses (35.6%).

Most main benefits are indexed to wage growth, so they are not directly impacted by inflation. However, to the extent that inflation changes impact wage growth, benefit payments would change. There is likely to be a lag before inflation starts to influence wage growth.

Finance costs will tend to increase as inflation increases. Generally, as inflation increases, so will interest rates on bonds. The impact of this would not start fully impacting until later in the forecast period as the existing stock of bonds is replaced by new bonds with higher yields.

The portion of finance costs relating to inflation-indexed bonds has a more instant impact on changing finance costs. The higher the proportion of inflation-indexed bonds is to other liabilities, the more sensitive total finance costs will be to changes in the inflation rate.

The majority of the rest of core Crown expenses are not directly sensitive to inflation changes, however, due to the nature of fixed-nominal baselines[3], increases in inflation rates will place future pressures on Budget Allowances. As the cost of salaries and operating expenditure increases, future cost pressure requests from Departments will also increase, which will have the effect of ‘crowding-out' funding for new investments.

The increase in inflation also impacts on the valuation of long-term liabilities. In the current year, the valuation of the ACC outstanding claims liability has increased by $1.1 billion, while the GSF liability has increased by $207 million, owing to changes in inflation assumptions.

Risk to the fiscal forecasts

The fiscal forecasts reflect the future track for both interest rates and inflation rates; however, recent trends have seen the outcome for these indicators come in higher than the Treasury's expectation. If this trend was to continue, this could have significant impacts on the fiscal forecast.

The Risks to the Fiscal Forecasts chapter includes some fiscal sensitivities to changes in the interest rate tracks, more detail is provided on page 57.

Largely owing to the factors above, OBEGAL improves over much of the forecast period.

The OBEGAL deficit is expected to increase in the current year by $2.4 billion compared to the Budget Update, as the increase in core Crown expenses is greater than the increase in core Crown revenue. However, this trend reverses from 2022/23, resulting in an improvement to OBEGAL in the later years of the forecast period by approximately $8.2 billion per year. OBEGAL is now forecast to return to surplus in the 2023/24 year, which was not expected to occur within the forecast period in the Budget Update (which ended in 2024/25).

Core Crown residual cash returns to a surplus in the 2024/25 fiscal year…

In total, the core Crown residual cash position is expected to improve by $18.3 billion compared to the Budget Update. This is primarilyattributable to the same factors that impact OBEGAL, mentioned above.

Figure 2.3 - Core Crown residual cash compared to the Budget Update

 

Figure 2.3 - Core Crown residual cash compared to the Budget Update

Source: The Treasury

Tax receipts are forecast to be $48.2 billion higher compared to the Budget Update, and while the trend is usually expected to move in line with revenue, there can be differences in the timing of cash receipts which cause it to vary. This is the case in the 2023/24 and 2024/25 fiscal years as the timing of the 2023/24 Matariki holiday (which falls on 28 June 2024) pushes $4.5 billion of GST receipts from the 2023/24 year into the 2024/25 year.

The operating cash flow movements broadly reflect the increases in core Crown expenses previously discussed. However, there are also capital cash flows which impact the residual cash trend only and cause it to differ from the trend in OBEGAL.

An increase to the multi-year capital allowance of $4.0 billion compared to the Budget Update is signalled in the 2022 BPS, adding $2.2 billion of capital expenditure to the forecasts. The remaining $1.8 billion of the $4.0 billion increase to the multi-year capital allowance is expected to fall outside the forecast period.

The CERF is assumed to be spent evenly between operating and capital expenditure from the 2022/23 year onwards. While the operating expenditure is captured through OBEGAL, there is an additional $2.3 billion which impacts on residual cash from the expected capital expenditure to be funded from the CERF.

In addition, the amount of loans expected to be issued from the Reserve Bank's FLP is now forecast to peak at $22.0 billion by 2022/23, rather than $28.0 billion at the Budget Update. In the near term, this has improved the forecast for core Crown residual cash deficits by $5.3 billion as fewer loans are expected to be advanced; however, this consequently causes a weakening in the later years of the forecast period as fewer repayments are now expected.

…resulting in a significantly lower net core Crown debt track…

Net core Crown debt is expected to reduce by $30.2 billion and be 9.0 percentage points of GDP lower by 2024/25 compared to the Budget Update. This is driven by the overall improvements in residual cash, as well as a stronger starting point from the results to 30 June 2021.

The peak in net core Crown debt in nominal terms is still expected in the 2023/24 forecast year; however, it is expected to be $18.7 billion lower than was forecast at the Budget Update. Net core Crown debt as a percentage of GDP is still forecast to peak one year earlier than nominal net core Crown debt; however, it peaks at 40.1% of GDP rather than 48.0% of GDP as per the Budget Update. Net core Crown debt falls to 30.2% of GDP by the end of the forecast period.

Figure 2.4 - Net core Crown debt compared to the Budget Update

 

Figure 2.4 - Net core Crown debt compared to the Budget Update

Source: The Treasury

Net core Crown debt includes the FLP liabilities but excludes the corresponding assets because they are classed as advances, and advances are excluded from the definition of net core Crown debt.

Net core Crown debt, including FLP advances, is forecast to peak at 35.3% of GDP in 2023/24, an improvement of around six percentage points and a year earlier than expected at the Budget Update.

…and a significantly improved balance sheet.

The total Crown operating balance (including gains and losses) flows through to impact net worth attributable to the Crown. When compared to the Budget Update, the operating balance has improved by $18.5 billion over the forecast period largely owing to changes in core Crown tax revenue and expenses, with the addition of the net gains/(losses) on financial and non-financial instruments.

Table 2.8 - Total Crown operating balance compared to the Budget Update
Year ending 30 June
$billions
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
Total Crown operating balance        
Half Year Update (23.8) 3.9 7.7 12.0
Budget Update (15.6) (5.2) (0.9) 3.0
Change (8.2) 9.1 8.6 9.0

Source: The Treasury

The improved operating balance, in addition to the stronger net worth starting position from the 30 June 2021 results (the actual result of $151.5 billion was $39.5 billion better than forecast at the Budget Update), has led to net worth attributable to the Crown being $57.5 billion higher than the Budget Update by the end of the forecast period.

Fiscal Outlook for the Half Year Update#

The Half Year Update forecast illustrates the position of the New Zealand economy.

The results reported in the Financial Statements of Government for the year ended 30 June 2021 illustrated the resilience of the New Zealand economy as it rebounded swiftly from the initial impact of the COVID-19 pandemic. While this provided a stronger base for the Half Year Update forecast, it is evident that the 2021/22 year will be heavily impacted by COVID-19 support measures. The outlook after the initial year of the forecast significantly improves across the remaining period from the 2022/23 year.

Core Crown tax revenue is expected to grow broadly in line with the economy…

Core Crown tax revenue is forecast to increase by $36.5 billion across the forecast period, reaching $134.5 billion in 2025/26 at an average increase of $7.3 billion per year. As a percentage of GDP, core Crown tax revenue rises gradually over the forecast period and reaches 29.5% of GDP in 2025/26 (Figure 2.5).

Figure 2.5 - Core Crown tax revenue

 

Figure 2.5 - Core Crown tax revenue

Source: The Treasury

When compared to growth in the economy, core Crown tax revenue is forecast to grow at a slower rate than nominal GDP in 2021/22; however, from 2022/23 it then grows at a stronger rate over the remainder of the forecast period (Figure 2.6).

Figure 2.6 - Core Crown tax revenue and nominal GDP growth

 

Figure 2.6 - Core Crown tax revenue and nominal GDP growth

Source: The Treasury

The core Crown tax revenue results for the year to 30 June 2021 were stronger than expected and have provided a high starting base for the Half Year Update. The large tax-to-GDP increase in 2020/21 was a result of:

  • source deductions, other persons tax and corporate tax growing at a faster rate than their underlying drivers (ie, compensation of employees and operating surplus), and
  • an increase in the effective GST rate, which is likely linked to households spending more money in New Zealand instead of overseas.

Following on from the 2020/21 year, there is expected to be slower growth in the 2021/22 year, which can be attributed to:

  • resident withholding tax on dividends returning to its pre-2021 level, and the reversal of the higher-than-usual effective GST rate in 2021, and
  • the impact of policy measures relating to commercial building depreciation and low-value asset expensing that were introduced last year to support businesses through the COVID-19 pandemic.

However, this slower growth was offset by an increase in terminal tax for companies in 2022 to make up for the under-accrual in provisional tax through 2021.

From the 2022/23 year onwards, tax revenue growth is forecast to marginally exceed nominal GDP growth. This is mainly because various components of the GDP forecast that affect tax revenue grow at a faster rate than nominal GDP. The major contributors to the rising tax-to-GDP ratio include fiscal drag, tax policy effects and increasing deposit interest rates.

…and the level of expenditure increases in the 2021/22 year owing to temporary expenditure, which subsides in the 2022/23 year…

Core Crown expenses are expected to increase by $25.8 billion across the forecast period. While this increase is fairly steady at an average of $4.5 billion per year over the last three years of the forecast, the trend in the first two years reflects the Government's support measures in response to the COVID-19 pandemic.

Core Crown expenses are expected to reach $128.0 billion in the current year, an increase of $20.2 billion from the 2020/21 year, before declining to $120.2 billion in the 2022/23 year (Figure 2.7).

Figure 2.7 - Core Crown expenses

 

Figure 2.7 - Core Crown expenses

Source: The Treasury

The higher level of core Crown expenses in the current year includes COVID-19 related spending, particularly from recent decisions in response to the outbreak of the Delta variant since August 2021. For example, $5.3 billion of wage subsidy scheme payments and $3.2 billion in COVID-19 resurgence support payments. These expenses are expected to be largely temporary in nature and subside in the second year of the forecast and beyond.

From the 2022/23 year, core Crown expenses increase by $13.4 billion to reach $133.6 billion in the last year of the forecast period. While core Crown expenses are forecast to increase each year after 2022/23, as a percentage of GDP they decline across the forecast, falling to 29.3% of GDP by 2025/26.

The increase in spending from 2022/23 onwards is partly attributable to an increase of $8.9 billion in benefit expenses, primarily owing to a lift in New Zealand Superannuation. The increase in benefit expenses is driven by increasing wage growth to which the major benefit categories' payments are indexed, as well as a significant increase in the number of New Zealand Superannuation recipients towards the end of the forecast period.

Allowances for new spending in future Budgets also account for $16.0 billion of the growth in expenditure by the end of the forecast. In the Budget Policy Statement 2022, the Government has signalled an operating allowance of $6.0 billion for Budget 2022, $4.0 billion for Budget 2023 and $3.0 billion each for Budgets 2024 and 2025. Decisions averaging $1.3 billion per year have already been pre-committed against the Budget 2022 operating allowances.

Likewise, the CERF is expected to contribute $0.6 billion to the growth in core Crown expenses over the forecast period.

While the Budget 2022 operating allowance is higher than normal, this is expected to be a one-off, reflecting a number of significant reform programmes expected to be funded through Budget 2022. Budget allowances beyond Budget 2022 revert back to levels of investment similar to those announced in recent Budgets.

These allowances can be used for a combination of revenue and expenditure initiatives when allocated; however, for forecasting purposes, Budget allowances are assumed to be expenditure. The fiscal forecasts also assume that any additional costs in relation to Government commitments and future cost pressures will be met from operating allowances, such as those outlined in the Risks to the Fiscal Forecasts (page 53).

Figure 2.8 - Operating allowances

 

Figure 2.8 - Operating allowances

Source: The Treasury

Core Crown finance costs are also higher by $1.6 billion by 2025/26, largely driven by an increase in the Government's borrowing programme.

More details on the functional classification of core Crown expenses, including large short-term expenses relating to the COVID-19 pandemic, can be found in the Core Crown Expense Tables on page 139.

COVID-19 response and recovery

At the 2020 Budget, the Government signalled $62.1 billion of funding to support the COVID‑19 response and recovery, consisting of a $12.1 billion initial package (17 March 2020 Economic Response Package) and the establishment of the CRRF of $50.0 billion.

The Government has made a large number of decisions since March 2020 and with the onset of the Delta outbreak additional funding has been made available in the CRRF.

In September 2021, the Government announced that the CRRF would be increased by $7.0 billion (with an additional $3.0 billion available to spend from amounts previously allocated from the fund but not spent), bringing the total funding to support the COVID-19 response and recovery to $69.1 billion. In total, the Government has allocated $64.8 billion of the funding that had been set aside, leaving $4.3 billion available to allocate in the future.

Since the 2021 Budget Update, the remaining unallocated portion of the CRRF has reduced by $0.8 billion. The top-up to the CRRF of $7.0 billion and the additional $3.0 billion made available have been more than offset by the number of decisions ($10.8 billion) managed against the CRRF since the Budget Update (Table 2.9).

Table 2.9 - Movements in the unallocated CRRF since the Budget Update
  $billions
Funding remaining at the Budget Update 5.1
Changes since the Budget Update  
Net operating decisions (10.6)
Net capital decisions (0.2)
Top-up to the CRRF 7.0
Reallocated amounts returned to the CRRF 3.0
Total change since the Budget Update (0.8)
Funding unallocated at the Half Year Update 4.3

Source: The Treasury

The fiscal forecasts have assumed that the unallocated portion of the CRRF ($4.3 billion) will be spent over the next two years, phased evenly between 2021/22 and 2022/23. The Treasury has based the phasing on high-level assumptions, owing to the continued level of uncertainty.

Decisions managed against the CRRF since the Budget Update

Since the Budget Update, new decisions have allocated $10.6 billion of operating expenditure and $0.2 billion of capital expenditure from the CRRF, most of which is expected to impact the 2021/22 fiscal year. The impact to OBEGAL is shown below (Table 2.10).

Table 2.10 - COVID-19 operating decisions made since the Budget Update
Year ending 30 June
$billions
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Total
Increase in social assistance expenditure 6.8 - - - - 6.8
Increase in other operating expenditure 2.6 0.8 0.2 0.1 0.1 3.8
  9.4 0.8 0.2 0.1 0.1 10.6
Unspent expenses transferred from 2020/21 1.2 - - - - 1.2
Change in unallocated CRRF phasing since the Budget Update1 1.0 1.0 (1.1) (1.1) - (0.2)
Impact on OBEGAL from the COVID-19 response since the Budget Update (11.6) (1.8) 0.9 1.0 (0.1) (11.6)

Note:

  1. At the Budget Update, part of the unallocated CRRF was forecast for 2020/21 and is not included in the table above. Therefore, the overall change will not reconcile to Table 2.9.

Source: The Treasury

The forecast increases of $6.8 billion in social assistance and $3.8 billion in operating expenditure reflect a number of decisions made since the Budget Update. The most significant of these are:

  • Wage Subsidy Support payments ($3.8 billion)[4]
  • Resurgence Support Payments ($3.0 billion)[4], and
  • other operating decisions totalling $3.8 billion. Most relate to decisions made to support New Zealand's health response to COVID-19 ($2.8 billion), which consists of:
    • COVID-19 testing, case investigation and contact tracing services
    • implementing New Zealand’s COVID-19 vaccine strategy
    • raising the intensive care and inpatient capacity to meet COVID-19 demand, and
    • additional funding for Pharmac for COVID-19 treatments and products.

The Government may need to make further decisions in response to COVID-19 managed against the CRRF, after these fiscal forecasts were finalised on 25 November. Although these individual decisions will not be captured in the fiscal forecasts, they are unlikely to have a significant impact on the fiscal outlook as the fiscal costs will be managed against the remaining unallocated portion of the CRRF, which has been included in the fiscal forecasts.

Authority for expenditure for CRRF decisions since the Budget Update

As the above decisions have occurred after the finalisation for introduction of the Appropriation (2021/22 Estimates) Bill, the parliamentary authority to incur expenses and capital expenditure for these decisions has been provided by the Imprest Supply Acts for 2021/22.

The Imprest Supply Acts for each financial year ensure that the Government has legal authority to incur expenditure prior to the Appropriation (Estimates) Act coming into force and provides the flexibility to amend expenditure plans in case circumstances change. The Imprest Supply (Second for 2021/22) Act 2021 provides the Government with authority to incur expenses of $24 billion, capital expenditure of $15 billion and capital injections of $2 billion in advance of appropriation. It is important to note these amounts are upper limits so include a significant buffer in case of any unforeseen events. There is a high level of uncertainty around how much of the authority provided by the Imprest Supply (Second for 2021/22) Act may be required and as it is an upper limit there is not a direct correlation back to the fiscal forecasts (which are prepared on a best estimates basis) presented in the Half Year Update.

Any decisions where the Government has used Imprest Supply to provide authority to incur expenses or capital expenditure or make capital injections will be included in the Appropriation (2021/22 Supplementary Estimates) Bill. The process for passing this Bill provides an opportunity for Parliament to scrutinise the decisions that impact expenses, capital expenditure and capital injections since the finalisation for introduction of the Appropriation (2021/22 Estimates) Bill.

… contributing to an increase in the OBEGAL deficit in the current year before it improves, returning to a surplus in 2023/24.

While OBEGAL is initially expected to worsen to a deficit of $20.8 billion in 2021/22, it then returns to surplus in the 2023/24 year, reaching a surplus of $8.2 billion by the last year of the forecast period.

The initial increase in the OBEGAL deficit is owing to the significant increase in core Crown expenses relating to the fiscal support measures in response to COVID-19. This leads to the growth in core Crown expenses outpacing the growth in core Crown revenue. As the majority of COVID-19 spending is expected to be temporary, this trend reverses after 2021/22, leading to an improvement in OBEGAL across the rest of the forecast period.

Figure 2.9 - Components of OBEGAL by segment

 

Figure 2.9 - Components of OBEGAL by segment

Source: The Treasury

Crown entity and SOE results have remained relatively static across the forecast period…

Crown entity results fluctuate slightly year-on-year across the period but ultimately only contribute marginally to the OBEGAL improvement. Within this net change, ACC results have weakened owing to higher CPI inflation forecasts and updated information around claims costs, which together increase insurance expenses. This has been partially offset by improved results across several different Crown entities.

The State-owned enterprise segment contributes a further net positive change to OBEGAL across the forecast period of $0.8 billion.

… and the operating balance moves broadly in line with OBEGAL.

The total Crown operating balance largely follows the OBEGAL trend; however, it is also impacted by net gains and losses on financial and non-financial instruments. In the current year, a net loss on non-financial instruments causes the operating balance deficit to exceed the OBEGAL deficit by $3.0 billion, a trend which then reverses as the operating balance surpluses exceed those of OBEGAL by an average of $5.7 billion per year over the remaining forecast period.

In the 2021/22 year, the net loss on non-financial instruments is the result of actuarial losses on ACC outstanding claims of $3.2 billion and net losses on the ETS of $3.0 billion (largely owing to the increase in the market price of NZ units), both of which are not forecast beyond the current year.

Beyond the 2021/22 year, the operating balance improves by $38.5 billion. The operating balance is forecast to be back in surplus in the 2022/23 year and ends the forecast period in a surplus position of $14.7 billion.

A near-term decline in net worth attributable to the Crown is expected, which then improves over the latter half of the forecast period.

Net worth attributable to the Crown improves over the forecast period by $14.9 billion, mainly reflecting the forecast operating balance results.

While this represents a significant improvement, net worth attributable to the Crown initially falls from the 2020/21 position and only returns to that level in the 2024/25 fiscal year. By the end of the forecast period, net worth attributable to the Crown is forecast to be $166.4 billion.

As a percentage of GDP, net worth attributable to the Crown is forecast to decline in the first two years of the forecast period, before increasing from 2023/24 onwards.

Core Crown residual cash deficits increase in the current year, then reduce over the forecast period, returning to surplus in 2024/25…

Core Crown residual cash strengthens across the forecast period and is forecast to return to a surplus of $14.5 billion in 2024/25, one year later than OBEGAL. Across the forecast period, the residual cash deficits total $36.8 billion.

Figure 2.10 - Core Crown residual cash

 

Figure 2.10 - Core Crown residual cash

Source: The Treasury

Residual cash is broadly influenced by the same contributors to OBEGAL, reflected by the larger cash deficits expected in the first two years of the forecast, which are primarily in response to the COVID-19 related expenses mentioned above.

The timing difference causing residual cash to return to surplus one year after OBEGAL, has occurred owing to the inclusion of capital cash flows, as well as the Reserve Bank's FLP.

A multi-year capital allowance of $9.8 billion has been signalled in the BPS, in addition to the operating allowances mentioned previously. This will provide additional funding to be spent on capital and will consequently impact the core Crown residual cash position forecast.

Table 2.11 shows net capital expenditure that has an impact on core Crown residual cash and net core Crown debt. It excludes capital spending undertaken directly by SOEs and Crown entities funded from their own resources (including third-party financing). Capital spending is forecast to be greater in the first three years of the forecast period, which is reflected in the residual cash deficits forecast in those years.

Table 2.11 - Net capital expenditure activity[5]
Year ending 30 June
$billions
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
5-year
Total
Education 1.7 1.6 1.3 0.9 0.7 6.2
Defence 1.3 1.5 0.7 0.5 0.1 4.1
Health 0.2 0.2 0.2 0.2 0.2 1.0
Corrections 0.3 0.2 0.1 0.1 0.1 0.8
Social Development 0.2 0.2 0.1 0.1 0.1 0.7
Police 0.1 0.1 0.1 0.1 0.1 0.5
Justice 0.1 0.1 0.1 0.1 0.1 0.5
Business, Innovation and Employment 0.1 0.1 0.1 0.1 0.1 0.5
Internal Affairs 0.1 0.1 0.1 0.1 0.1 0.5
Foreign Affairs 0.1 0.1 0.1 0.1 0.1 0.5
Other 0.6 0.1 0.1 0.1 0.1 1.0
Net purchase of physical assets 4.8 4.3 3.0 2.4 1.8 16.3
NZTA 0.4 0.5 0.8 (0.1) (0.1) 1.5
Housing Infrastructure Fund 0.3 0.4 0.1 0.8
Student Loans 0.1 0.1
Small Business Cashflow Loan Scheme 0.1 (0.2) (0.3) (0.4) (0.2) (1.0)
Funding for Lending Programme 8.8 10.1 (3.1) (9.5) (9.4) (3.1)
Other (0.4) 0.1 (0.1) (0.1) (0.2) (0.7)
Net advances 9.2 10.9 (2.5) (10.1) (9.9) (2.4)
NZTA 1.6 1.3 1.1 1.8 1.6 7.4
District Health Boards 0.8 2.5 2.8 0.6 0.6 7.3
KiwiRail 0.6 0.8 0.9 0.5 0.3 3.1
Housing Acceleration Fund 0.4 0.5 0.5 0.3 0.1 1.8
City Rail Link 0.5 0.5 0.3 0.1 1.4
Ngāpuhi 0.2 0.2 0.2 0.2 0.8
Crown Infrastructure Partners 0.1 0.1 0.1 0.1 0.4
New Zealand Venture Capital Fund 0.1 0.1 0.1 0.3
Crown Regional Holdings Limited 0.2 0.2
New Zealand Green Investment Fund 0.2 0.2
Southern Response 0.1 0.1 0.2
Other 0.3 0.1 0.1 (0.1) 0.1 0.5
Net investments 5.0 6.2 6.1 3.6 2.7 23.6
Future new capital spending 1.7 2.5 2.8 3.2 3.3 13.5
Top-down capital adjustment (2.2) (1.4) (1.3) (0.8) (0.5) (6.2)
Contribution to NZS Fund 2.4 2.0 2.0 2.0 1.9 10.3
Net capital spending 20.9 24.5 10.1 0.3 (0.7) 55.1

Source: The Treasury

In addition to capital spending, advances are being forecast in the near term from the Reserve Bank's FLP, which reach a peak of $22.0 billion of issued loans by 2022/23. However, after 2022/23 these advances begin to be repaid and are expected to be fully repaid by the end of the forecast period. These repayments have a positive impact on residual cash supporting the return to surplus by 2024/25.

…with the residual cash balances flowing through to net core Crown debt…

To fund the residual cash deficits, net core Crown debt is forecast to increase in nominal terms until 2023/24, then reduce as residual cash returns to surplus. As a percentage of GDP, net core Crown debt peaks a year earlier at 40.1% of GDP in 2022/23, before reducing to 30.2% of GDP by the end of the forecast period.

Figure 2.11 shows net core Crown debt as a percentage of GDP as per the existing definition (ie, excluding the FLP assets) and also shows what net core Crown debt would look like across the forecast if the FLP assets were included.

Figure 2.11 - Net core Crown debt

 

Figure 2.11 - Net core Crown debt

Source: The Treasury

When including the FLP assets, net core Crown debt is expected to peak a year later in 2023/24 at 35.3% of GDP. By the end of the forecast period in 2025/26, net core Crown debt, including FLP assets, is expected to be the same as without the FLP assets, at 30.2% of GDP as the FLP advances are expected to be fully repaid.

Table 2.12 - Impact of FLP on net core Crown debt
Year ending 30 June
$billions
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Net core Crown debt 136.3 157.9 165.5 150.6 137.9
Add financial assets from FLP 11.9 22.0 19.0 9.4
Net core Crown debt (incl FLP assets) 124.4 135.9 146.5 141.2 137.9
As a percentage of GDP          
Net core Crown debt 37.6 40.1 39.9 34.6 30.2
Net core Crown debt (incl FLP assets) 34.3 34.5 35.3 32.4 30.2

Source: The Treasury

…and increasing the forecast issuance of Government bonds.

The core Crown borrowing programme includes the issuance of both New Zealand Government bonds and short-term borrowings (eg, Treasury Bills). Consistent with the profile of core Crown residual cash, net Government bond issuance is predominantly in the first year of the forecast period.

In total, the bond programme is expected to raise funds of $83.0 billion over the forecast period. Bond maturities and repurchases will result in repayments of $60.2 billion of existing debt. In addition, short-term borrowing is expected to be $6.0 billion lower at the end of the forecast period, relative to the end of 2020/21 (Table 2.13). Overall, the core Crown borrowing programme will provide net funds of $16.8 billion to cover core Crown residual cash deficits and to ensure cash is available for upcoming bond maturities in the 2026/27 fiscal year.

However, the improvement in the fiscal outlook compared to the Budget Update has led to a lower borrowing requirement. In addition, a gradual reduction in financial asset holdings is forecast, reflecting the need for a lower cash buffer. Combined, these result in a decrease to the core Crown borrowing programme compared to the Budget Update.

Table 2.13 - Net issuance of market Government bonds and short-term borrowing[6]
Year ending 30 June
$billions
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
5-year
Total
Face value of Government bonds issued 20.0 18.0 18.0 18.0 10.0 84.0
Debt programme cash flows            
Cash proceeds from issue of Government bonds 19.7 18.1 17.7 17.7 9.8 83.0
Repayment of Government bonds (2.5) (16.2) (13.8) (14.9) (12.8) (60.2)
Net issue/(repayment) of short-term borrowings (5.4) (0.6) - - - (6.0)
Net debt programme cash flows 11.8 1.3 3.9 2.8 (3.0) 16.8

Source: The Treasury

Cyclically-adjusted balance, structural balance, and total fiscal impulse

Cyclically-adjusted balance and structural balance[7]

The cyclically-adjusted balance (CAB) and structural balance help illustrate the significant impacts the COVID-19 pandemic has had on the fiscal position, including on fiscal sustainability.

The CAB shows what the operating balance would have been in the absence of fluctuations in expenses and tax revenue that happen automatically with the economic cycle (known as automatic stabilisers). The structural balance helps show the underlying fiscal position by also adjusting for significant one-off expenditure items.[8]

Following the COVID-19 shock, OBEGAL moved into deficit as economic activity contracted. However, because much of the fiscal support provided by the Government was temporary, the structural balance fell by less. For example, Figure 2.12 shows that in 2019/20, OBEGAL was -7.3% of nominal potential GDP, whereas the structural balance was -1.9% of nominal potential GDP. OBEGAL and the CAB were very similar over 2019/20 and 2020/21. This reflects that on an annual basis the economy has operated close to its potential level, despite significant quarterly fluctuations in economic activity due to higher alert level restrictions and rebounds in activity when restrictions were eased. Together, the structural balance and CAB suggest that discretionary stimulus has played a greater role in supporting economic activity than the automatic stabilisers over the COVID-19 shock.

In 2021/22, the structural balance is expected to decline to -2.3% of nominal potential GDP due to additional one-off spending to respond to the Delta outbreak and some COVID-19 related spending being transferred into 2021/22. Then, the structural balance moves into surplus from 2023/24 onwards as one-off COVID-19 related support wanes. The CAB is expected to return to surplus in 2024/25, one year later than OBEGAL, and remain below OBEGAL. This reflects that the economy is expected to be operating slightly above potential.

Figure 2.12 - OBEGAL, CAB, and structural balance

 

Figure 2.12 - OBEGAL, CAB, and structural balance

Source: The Treasury

Total fiscal impulse[9]

The total fiscal impulse estimates the total impact of Government support on aggregate demand from one year to the next, including the impacts of discretionary fiscal policy, automatic stabilisers, and finance costs. It is calculated as the change in the fiscal balance, which is residual cash adjusted for some expenditure items that do not directly affect domestic demand. This is a cash measure and therefore differs from OBEGAL, the CAB, and the structural balance. A positive total fiscal impulse implies that the level of fiscal support is expanding compared to the previous year, while a negative total fiscal impulse implies it is contracting. The total fiscal impulse does not estimate the absolute level of support or the economic impact of that support, which will vary depending on factors such as the composition of spending.

As with the structural balance, the fiscal deficit decreased in 2020/21 and is forecast to increase in 2021/22 owing to additional one-off spending to respond to the Delta outbreak and some COVID-19 related spending being transferred into 2021/22. This resulted in a negative total fiscal impulse in 2020/21 as the Government contributed less to aggregate demand than it did in 2019/20. This is expected to reverse in 2021/22 as spending related to the Delta outbreak means the Government is contributing more to aggregate demand than it did the year before. From 2022/23, the total fiscal impulse is negative, and it then wanes over the forecast period as COVID-19 related fiscal support is withdrawn and the fiscal balance returns to surplus.[10]

Figure 2.13 - Total fiscal impulse and fiscal balance

 

Figure 2.13 - Total fiscal impulse and fiscal balance

Source: The Treasury

Key Economic Assumptions Used in the Forecast Financial Statements#

The Forecast Financial Statements are prepared on the basis of underlying economic forecasts. Such forecasts are critical for determining revenue and expense estimates. For example:

  • a nominal GDP forecast is needed to forecast tax revenue
  • a forecast of average weekly earnings is needed because social assistance benefits are generally indexed to wage growth, and
  • forecasts of interest rates are needed to forecast finance costs, interest income and discount rates.

A summary of the key economic forecasts that are particularly relevant to the forecast financial statements is provided in Table 2.14.

Table 2.14 - Summary of key economic forecasts used in the Forecast Financial Statements
Year ending 30 June 2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Real GDP1 (annual average % change) 5.1 0.8 4.9 2.2 2.3 2.3
Nominal GDP2 ($billions) 339.7 362.8 393.9 414.7 435.8 456.5
CPI (annual average % change) 1.9 5.3 3.5 2.9 2.5 2.3
Govt 10-year bonds (annual average %) 1.2 2.3 2.8 3.1 3.3 3.4
5-year bonds (annual average %) 0.5 2.1 2.8 3.1 3.3 3.3
90-day bill rate (annual average %) 0.3 1.2 3.0 3.2 3.1 3.1
Unemployment rate (annual average %) 4.7 3.2 3.2 3.5 3.8 4.0
Employment (annual average % change) 0.7 3.7 0.9 0.9 1.1 1.2
Average weekly earnings3 (annual % change) 8.9 2.8 4.6 4.6 4.4 4.2

Notes:

  1. Production measure.
  2. Expenditure measure.
  3. Ordinary time.

Sources: The Treasury, Stats NZ, Reserve Bank of New Zealand

Notes

  1. [2] Favourable variances against previous forecast have a positive sign and unfavourable variances against previous forecast have a negative sign.
  2. [3] Fixed nominal baselines mean that the amount of funding an agency receives each year (the baseline) does not automatically increase to adjust for inflation. Instead agencies are expected to absorb price increases; in effect this acts as an annual efficiency dividend on Government expenditure.
  3. [4] Note that this is in addition to existing funding and funding transferred from the previous year.
  4. [5] In addition to the capital spending outlined above, some capital projects have been undertaken through Public Private Partnerships (PPPs). Unlike capital spending, where cash payments are made as the asset is constructed, cash flows in relation to PPPs do not typically commence until the completion of the project.
  5. [6] More information on the bond programme can be found at https://debtmanagement.treasury.govt.nz/investor-resources/media-statements
  6. [7] Note that we have made changes to the method for calculating the CAB and structural balance since the Budget Update. These changes are outlined in https://www.treasury.govt.nz/publications/guide/methodologies-cyclically-adjusted-structural-balance-fiscal-impulse. The CAB now cyclically adjusts Sole Parent Support payments and has been made more internationally comparable by realigning the tax categories with international standards and presenting the indicators as a percentage of nominal potential GDP rather than nominal GDP. The structural balance uses this new CAB measure and uses explicit criteria to guide judgements about which one-off impacts to exclude.
  7. [8] These one-offs include, for example, the Wage Subsidy Scheme, vaccine purchases, and payments relating to the Christchurch and Kaikōura earthquakes.
  8. [9] Note that we have replaced the fiscal impulse indicator with this total fiscal impulse measure. This new measure shows the total impact of fiscal support by including the impact of the automatic stabilisers and net finance costs. This change is outlined in https://www.treasury.govt.nz/publications/guide/methodologies-cyclically-adjusted-structural-balance-fiscal-impulse
  9. [10] With the Matariki holiday falling on 28 June 2024, tax due on this day will be received in the 2024/25 fiscal year. As a result, the fiscal impulse calculation has adjusted tax receipts between the 2023/24 and 2024/25 fiscal years to better reflect the economic impact.

Risks to the Fiscal Forecasts#

Overview#

The Treasury's fiscal forecasts are based on a number of assumptions and key judgements using the best information available and our best professional judgement. As with any kind of forecast, there is a risk that actual events will differ from expectations. This chapter outlines the key risks to the fiscal forecasts.

Risks to the fiscal forecasts can be either positive or negative, and can affect revenue and spending or assets and liabilities. The key risks to the fiscal forecasts can be broadly classified into the following categories:

Type of risk Description
1    Fundamentally uncertain events Significant events relating to changes in the external environment (eg, climate-induced events, natural disasters, pandemics, and international events).
2    Deviation from key assumptions and judgements Any deviations from the key assumptions and judgements used for the economic and fiscal forecasts (eg, changes in nominal GDP used to forecast tax revenue) that have flow-on impacts for the fiscal forecasts.
3    Contingent liabilities and assets Potential costs or income to the Crown that depend on whether particular events occur.
4    Policy changes Potential decisions likely to be taken by the Government related to both new policy and existing policy settings (eg, changes to eligibility criteria for a benefit).
5    Cost pressures and variances associated with existing policies Changes in demand or pricing that impact the cost of delivering services under existing policy settings (eg, an increase in the number of students enrolling in schools). This category includes variances to costs of policies included in the fiscal forecasts.

COVID-19#

The August 2021 Delta outbreak of COVID-19 in the community has already had a significant fiscal impact on the Government's finances and has demonstrated the high degree of uncertainty from COVID-19. The fiscal forecasts for the 2021/22 year include Wage Subsidy payments of $5.3 billion and Resurgence Support Payments of $3.2 billion.

It is likely that the uncertainty created by the COVID-19 pandemic, in particular the Delta outbreak, will pose a risk to the fiscal forecasts presented in the 2021 Half Year Economic and Fiscal Update (Half Year Update). The statement of specific fiscal risks in this chapter identifies a number of fiscal risks directly and indirectly caused or affected by COVID-19. Despite the disclosure of risks in this chapter, the level of uncertainty means there are risks to the fiscal forecasts that remain too broad in nature to disclose in the statement of specific fiscal risks. These risks concern:

  • The impact on the economy - the economic recovery from COVID-19 will depend on many unknown factors (eg, the shift to the COVID-19 Protection Framework, the easing of border restrictions). Forecasts for tax revenue, benefit expenses and finance costs are particularly sensitive to economic conditions. The Economic Outlook chapter, from page 25,includes scenarios that model the fiscal impact of how the economy might evolve if some of the key judgements around COVID-19 in the main forecast were altered.
  • The Government's response - the Government has already implemented policies to respond to COVID-19, mostly funded through the $57 billion COVID-19 Response and Recovery Fund (CRRF). Policies announced and communicated up to 25 November 2021 have been included in the fiscal forecasts based on the best information available. There is a risk that actual costs and/or timing of these policies may differ from the judgements and assumptions used to prepare the fiscal forecasts, as well as that a larger fiscal response is needed in response to future outbreaks.
  • The Government's role in responding to the current and any future outbreaks - the fiscal forecasts include funding of around $4.3 billion that is left in the CRRF to manage future costs from COVID-19. The inclusion of the unallocated portion of the CRRF in the fiscal forecasts has required some judgement on the nature (eg, operating or capital) and timing of future COVID-19 response initiatives. In addition, there is uncertainty about the level of funding that may be required for future costs of the current outbreak and of any further outbreaks.
  • The impact on valuations of assets and liabilities, and contingent liabilities - a number of assets and liabilities on the Crown balance sheet are valued using market information (eg, land and buildings, share investments and ACC's outstanding claims liability). The impact of COVID-19 is likely to cause some ongoing volatility in the market that will affect the future value of assets and liabilities on the Government's balance sheet. In addition, the effects from COVID-19 may result in costs from some of the Government's existing contingent liabilities converting into expenses during the forecast period. In particular, there is a risk that there may be calls on some uncalled capital facilities and that some Crown guarantees and indemnities may crystallise.

Climate Change#

Climate change poses significant challenges to New Zealand's wellbeing and to the Government's fiscal position and operations. These risks appear in two domains:

  • Mitigation (Reducing emissions)

    Mitigation represents New Zealand's contribution to the global effort to reduce emissions and prevent warming. This involves reducing emissions domestically as well as supporting overseas emissions reductions.
  • Adaptation (Responding to the physical impacts of climate change)

    Adaptation is about taking steps within New Zealand to respond to challenges presented by the physical effects of climate change, such as more frequent and severe weather events.

Several mitigation measures are included in the fiscal forecasts…

The Emissions Trading Scheme (ETS) is the Government's key tool to mitigate emissions within New Zealand. The fiscal forecasts include the:

  • forecast cash proceeds from New Zealand Unit (NZU) auctions
  • revenues from NZU surrenders
  • expenses from NZUs issued to foresters and trade-exposed industries, and
  • consequent stock of outstanding NZUs, assuming a continuation of current policy settings (refer to Note 14 in the Forecast Financial Statements).

The market price of $64.50 as at 30 September 2021 was used to determine the size of forecast NZU provision.

The forecasts also include $4.5 billion allocated to the Climate Emergency Response Fund over the forecast period. This reflects the public commitment the Government has made to recycle ETS proceeds into climate-related actions. Over the longer term, mitigation costs to achieve international and domestic targets are likely to be significantly higher, but are not yet sufficiently certain for particular years to be included in the fiscal forecasts.

…while others appear as specific fiscal risks.

New Zealand's ‘Nationally Determined Contribution' to global mitigation efforts is to reduce net greenhouse emissions by 50% below gross 2005 levels by 2030. This equates to an emissions budget for the target period (2021 to 2030) of 571Mt. To achieve this, New Zealand will need to pursue sizeable domestic or offshore abatement to mitigate emissions over 2021 to 2030.

The Climate Change Response (Zero Carbon) Amendment Act 2019 also requires the Government to set domestic greenhouse gas emissions budgets. Each emissions budget covers a period of five years (except the first emissions budget which will cover the period 2022 to 2025). Emissions budgets will act as stepping-stones, or interim targets, to reaching our 2050 emissions reduction targets. The Government has consulted on its choices around how it achieves its climate targets and must publish its first emissions reduction plan in May 2022.

Achieving both domestic and international emissions targets will involve significant costs to the Crown, starting in the current fiscal forecast period. There is an overview specific fiscal risk for this and several subsidiary specific fiscal risks.

Several adaptation measures appear in the fiscal forecasts…

Government agencies include expenditure in their forecasts to avoid, control or transfer (eg, through insurance) risks associated with their assets. Government agencies that have response and recovery functions in the event of natural hazard events make some provision for this activity and this is included in the forecasts, but actual costs may vary from this provision.

…and there is an adaptation-focused specific fiscal risk.

In August 2020, the Government released the first National Climate Change Risk Assessment. This highlighted risks from our ecosystems and communities to buildings and the financial system, including risks to governments from economic costs associated with lost productivity, disaster relief expenditure and unfunded contingent liabilities resulting from extreme events and ongoing, gradual changes.

The Government is now developing its response to the risks in the report, through the National Adaptation Plan, which must be consulted on early in 2022 and will be published by August 2022.

While significant adaptation planning is already in development and funded in these forecasts (eg, policy work on Resource Management Act reform), it is likely that the National Adaptation Plan will generate further adaptation activity that is not currently forecast. This activity is published as an adaptation-focused specific fiscal risk.

Fiscal Sensitivities#

Table 3.1 sets out some rules of thumb on the sensitivities of the fiscal position to small changes in specific variables. For example, if nominal GDP growth is one percentage point higher than forecast in each year up to June 2026, tax revenue would be around $6.9 billion higher than forecast in the June 2026 year. The sensitivities are broadly symmetric: if nominal GDP growth is one percentage point lower than expected each year, tax revenue would be around $6.6 billion lower than forecast in the June 2026 year. The figures are indicative and can be influenced by the composition of growth as different types of activity have different effective tax rates.

Table 3.1 - Fiscal sensitivity analysis
Years ending 30 June
($millions)
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Impact on tax revenue of a one percentage point increase in growth of          
Nominal GDP 1,025 2,270 3,640 5,185 6,900
Wages and salaries 465 995 1,610 2,310 3,105
Taxable business profits 220 540 885 1,275 1,705
Impact of 1% lower interest rates on          
Interest income1 -112 -269 -346 -300 -192
Interest expenses1 -370 -791 -988 -1,051 -1,018
Net impact on operating balance 258 522 642 751 826

Note:

  1. Interest sensitivities now relate to consolidated external exposures of both the Treasury (Debt Management) and the Reserve Bank of New Zealand. Recent forecasts (including Budget 2021) reported interest sensitivities relating only to funds managed by the Treasury (Debt Management).

Source: The Treasury

The forecast financial position is based on judgements and assumptions about the future. To inform these judgements and assumptions we rely on market information, such as foreign exchange rates, share prices, the carbon price and property prices. For example, foreign-currency-denominated financial assets and liabilities are converted into New Zealand dollars, the Government's listed share investments are reported on market prices, and property owned by the Crown is valued using market information. Where the actual outcome differs from our assumptions, the Crown’s actual financial position is likely to differ from the forecasts. In addition, changes in these variables can also have flow-on effects for the Crown’s operating balance. For example, a strengthening of share prices may result in higher returns from the Government’s direct share investments.

Balance Sheet Risks#

The size and nature of the Government's balance sheet are important to the financial resilience of New Zealand. They enable the Government to absorb shocks on behalf of New Zealanders, and to adapt to risks and trends. They therefore play a significant role in macro-economic risk management.

The operational and financial capability that is reflected in the balance sheet is itself subject to hazards and risks, which, if they crystallise, may impair the Government's ability to achieve its operating and financial objectives. For assessing these risks, the Government's balance sheet can be usefully categorised by function or purpose as illustrated in Table 3.2.

Table 3.2 - Balance sheet functional classifications[11]
Social Assets and liabilities held to provide public services. These include assets such as roads, schools, and the national parks, and liabilities such as outstanding accident compensation claims. Social assets also include tax receivables and student loans managed by the Inland Revenue Department (IRD), and Crown-owned companies that do not have purely commercial objectives, such as Crown Research Institutes (CRIs).
Financial Assets and liabilities that finance or prefund government expenditure and obligations for future expenditure. This category consists of financial assets and liabilities of the Crown financial institutions (CFIs), the Reserve Bank of New Zealand, and government borrowing via the Treasury.
Commercial Assets and liabilities of entities with commercial objectives. The companies are largely independent entities operating in competitive environments. This category comprises commercial priority companies and listed companies.

Balance sheet risks are therefore risks that assets and liabilities will not be able to provide public services, finance or prefund future government expenditure and obligations, or achieve commercial objectives. The resilience of the balance sheet refers to its ability to absorb and adapt to shocks and stresses that might otherwise hinder the achievement of these objectives.

Sources of (Social) balance sheet risk to public services

Physical assets such as land, buildings, state highways and military equipment are susceptible to external natural hazards, the impact of climate change and the quality of asset management in delivering services. In managing these risks, the Government generally relies on asset management, including built-in redundancies (eg, in network capacities), and its ability to reallocate or repurpose assets rather than risk transfer instruments such as insurance. The Government is also developing a National Adaptation Plan in response to climate change risks the Climate Change Commission has identified.

The replacement costs of physical assets are also susceptible to valuation movements through changes in property market conditions, in demand and in the costs of construction. The Half Year Update forecasts incorporate valuations up to 30 September 2021.

Social insurance and retirement liabilities (eg, Accident Compensation, veterans' disability entitlements and the Government Superannuation Fund (GSF)) are prone to volatility through their actuarial valuations. As well as variability in claims experience, the valuations of these obligations are particularly subject to changes in the assessment of the future value of money, driven by changes in expectations of future interest rates and inflation rates.

Social assets also include significant concessionary lending made available to achieve public policy purposes. This lending includes student loans, the Small Business Cashflow Scheme, and Progressive Home Ownership loans. This lending brings counterparty risk, and also exposes the Crown to risks associated with changes in assumptions about the future value of money, affecting how these future repayments are discounted. Expected credit losses from this lending are closely monitored.

The Crown also faces contingent liabilities, for example, indemnities of activities in the public interest, environmental claims, and legal proceedings.

Sources of (Financial) balance sheet risk to finance or prefund future government expenditure and obligations

The deployment of the Government's fiscal capacity since COVID-19 has meant that the balance sheet is now more highly leveraged than previously. In addition, monetary policy activities including the Large Scale Asset Purchases (LSAP) programme, the Funding for Lending Programme (FLP), foreign-exchange swaps to manage short‑term interest rate pressures, and lending to the finance sector by the Reserve Bank have significantly increased interest-rate risk to the Government.

Financial assets held by the Accident Compensation Corporation (ACC) and the New Zealand Superannuation Fund (NZSF) are sensitive to financial market volatility, such as movements in interest rates, exchange rates and equity prices. Crown financial institutions set long-term investment strategies based on underlying policy objectives. These strategies aim to look through short-term volatility and take exposures that would offset the impact of long-term social insurance or retirement liabilities.

The Crown incurs liquidity risk with respect to its ability to raise cash to meet its obligations. Each agency manages its own specific liquidity risk while the Treasury manages the Crown's liquidity requirements. The Government's funding strategy operates within a risk management framework approved by the Minister of Finance. This framework specifies policies for managing credit risk, market risk, operational risk, funding risk and liquidity risk that aim to ensure that risk is maintained within the organisational risk appetite while enabling the delivery of core roles and responsibilities.

Sources of (Commercial) balance sheet risk to meet commercial objectives

Crown entities with commercial objectives are exposed to changes in customer demand for their products and services, the availability and price of business inputs in order to provide these products and services, changes to the competitive landscape brought about by new technologies they and their competitors adopt, new market entrants and externally generated shocks and trends.

Crown entities with commercial objectives are governed by boards that operate at arm's length from Ministers. Commercial balance sheet risks are managed through each board's accountability to Ministers for the entity's overall performance and through use of the levers provided to Ministers as shareholders of companies by the applicable legislation to influence the performance of entities and companies.

When there are opportunities or challenges for businesses that require or otherwise involve the Crown injecting new capital, this is effectively managed for most entities through the conditions set on accessing this capital.

For listed companies in which the Crown has ownership interests, the rules of the NZX apply. For 100% Crown-owned entities, the two most important levers available to Ministers are the appointment of effective boards and the annual business planning and reporting process.

Update on current management of balance sheet risk 

The Crown's exposure to balance sheet risks is unavoidable if it is to pursue its objectives. The Government's fiscal management approach has been to identify, measure and treat these risks where practicable, to maintain debt at prudent levels and to hold a healthy level of net worth. This approach enabled the Government to effectively absorb much of the economic shock of COVID‑19.

The build-up and subsequent deployment of fiscal resilience in response to COVID‑19 have underscored the importance of responsible fiscal management, including maintaining Crown debt at prudent levels - acknowledging that what is seen as prudent may change over time.

The current risk management challenge is to shift from absorption to adaptation, as the Government moves from fighting the virus and cushioning its blow towards economic recovery, resetting the Crown's balance sheet objectives and rebuilding its capacity to absorb shocks in the future.

Specific Fiscal Risks#

This statement of specific fiscal risks is required by the Public Finance Act 1989. In addition to the discussion of other types of risks to the economic and fiscal forecasts outlined in this chapter, it sets out all government decisions and other circumstances known to the Government that may have a material effect on the fiscal outlook but are not certain enough in timing or quantum to include in the fiscal forecasts. This section covers:

  • how specific fiscal risks are managed
  • criteria for inclusion and exclusion of specific fiscal risks
  • a statement of specific fiscal risks of the Government
  • narrative summaries of all specific fiscal risks, and
  • a table of risks that have been removed from the statement of specific fiscal risks since the Budget Economic and Fiscal Update (Budget Update).

The risks disclosed in this chapter reflect those that are known at the date of the finalisation of the fiscal forecasts, 25 November 2021. Although the process for disclosure of specific fiscal risks involves several entities, including government departments, the Treasury and the Minister of Finance, it is still possible that not every significant risk is identified.

Within each category of risks (new, changed, updated, and unchanged), risks are grouped by portfolio and classified as either policy change or cost pressure or variance risks:

  • Policy change risks relate to potential decisions likely to be taken by the Government relating to both new and existing policy settings.
  • Cost pressure or variance risks relate to the cost pressures faced by agencies in the future owing to changes in demand or costs of inputs used in the delivery of existing services or products and/or the variance costs of items included in the fiscal forecasts. The key drivers of future cost pressures are likely to come from population changes, wage increases (both pay negotiations and progression through pay scales) and the price inflation of inputs.

A key principle guiding the disclosure of risks is transparency. This means that material risks are disclosed in this section regardless of whether they can be managed through existing funding sources (eg, through prioritisation of funding already available to departments, the Budget operating and capital allowances, policy choices, the CERF and/or the CRRF). This ensures a prudent approach to the disclosure of risks, to improve transparency and to avoid prejudging future decisions by governments about what may or may not be funded from allowances.

Criteria for Inclusion either in the Fiscal Forecasts or as a Specific Fiscal Risk

The Half Year Update must incorporate, to the fullest extent possible that is consistent with section 26V of the Public Finance Act 1989 (the limitations on the disclosure requirements), all Government decisions and all other circumstances that may have a material effect on the fiscal and economic outlook. Specific criteria based on section 26U of the Public Finance Act 1989 determine what is included in the forecast financial statements as opposed to what is disclosed as a specific fiscal risk.

The forecast financial statements must include all quantified fiscal implications of Government decisions and all other circumstances (excluding those that are not required to be disclosed by section 26V) that may have a material effect on the fiscal and economic outlook and which can be quantified for particular years with reasonable certainty by the day on which the forecast financial statements are finalised. Where the fiscal implications of those Government decisions and other circumstances cannot be quantified for, or assigned to, particular years with reasonable certainty, they are required to be disclosed in the statement of specific fiscal risks.

Fiscal forecasts Specific fiscal risks

Matters are incorporated into the fiscal forecasts when:

  • the matter can be quantified for particular years with reasonable certainty, and
  • a decision has been taken, or
  • a decision has not yet been taken but it is reasonably probable[12] that the matter will be approved or the situation will occur.

Matters are disclosed as specific fiscal risks if the likely impact is $100 million or more over the forecast period and either:

  • a decision has not yet been taken but it is reasonably possible[13] (but not probable) that the matter will be approved or the situation will occur, or
  • it is reasonably probable or possible that the matter will be approved or the situation will occur, but the matter cannot be quantified for, or assigned to, particular years with reasonable certainty.

General Risks Not Included as Specific Fiscal Risks

There is a range of general risks to the fiscal forecasts but these are not separately disclosed as specific fiscal risks, such as:

  • risks from changes to economic assumptions, including as a result of COVID-19, the most significant of which have been recognised elsewhere in this chapter and in the Half Year Update
  • business risks and volatility in the returns from, and valuation of, the Government's investments relating to the broader economic and commercial environment, and
  • the costs of future individual natural disasters, individual events resulting from climate change, and other major events (including biosecurity incursions), as their occurrence, nature and timing cannot be predicted.

New Zealand will continue to experience natural disasters and for some of these the frequency and/or severity is likely to increase with climate change, for example, increased coastal flooding because of sea level rise and extreme weather events. Once such an event does occur, various choices arise about how to respond, and when to recognise potential liabilities. Specific risks are disclosed at that point based on the range of possible responses.

Exclusions to Disclosure

The Minister of Finance may determine, under section 26V of the Public Finance Act 1989, that a matter not be included in the fiscal forecasts or a specific fiscal risk not be disclosed, if such disclosure is likely to:

  • prejudice the substantial economic interests of New Zealand
  • prejudice the security or defence of New Zealand or international relations of the Government
  • compromise the Government in a material way in negotiation, litigation or commercial activity, or
  • result in a material loss of value to the Government.

Section 26V requires the Minister of Finance to determine that:

  • incorporating the decision and/or circumstance in the Half Year Update is likely to result in one of the consequences listed above, and
  • there is no reasonable way that the Government can avoid this prejudice, compromise or material loss by:
    • in the case of a circumstance, making a decision before the day the fiscal forecasts are finalised, or
    • in the case of a decision or circumstance, incorporating in the update the fiscal implications of that decision or circumstance, or the nature of that decision or circumstance, but without reference to its fiscal implications.

Statement of Specific Fiscal Risks#

New Risks
Portfolio Risk Title Type of Risk
Climate Change Emissions Trading Scheme - Abatement Obligations Arising from Price Ceilings Being Exceeded Cost Pressure - Expenses
Education ICT Capabilities to Support Future Education Policy Change - Expenses and Capital
Work Programme to Grow Māori Medium and Kaupapa Māori Education Policy Change - Expenses and Capital
Foreign Affairs Aid to Support Our Pacific Neighbours: Support for Pacific Fiscal Crises Policy Change - Expenses
Time-limited International Climate Financing Funding: Unfunded 2026-29 Commitment Period Policy Change - Expenses
Health Enhanced Immunisation Programmes in 2022 Cost Pressure or Variance - Expenses
COVID-19 Response - Ongoing Costs of Current Response Cost Pressure or Variance - Expenses
Justice Legal Aid Demand Pressures Cost Pressure or Variance - Expenses
Ocean and Fisheries Aquaculture Settlements Cost Pressure or Variance - Expenses
Social Development and Employment Social Unemployment Insurance Policy Change - Expenses
Transport Increases in the Fuel Excise Duty and/or Road User Charges Policy Change - Revenue
Maintaining International Air Connectivity (MIAC) Scheme Policy Change - Expenses
Cross-portfolio Adverse Weather Events Cost Pressure or Variance - Expenses and Capital
National Adaptation Plan Policy Change - Expenses
Changed Risks
Portfolio Risk Title Type of Risk
Children Enabling Community and Iwi to Help Children Policy Change - Expenses
Education Learning Support Cost Pressure or Variance - Expenses and Capital
Health Health System Sustainability Cost Pressure or Variance - Expenses
Transport Auckland City Rail Link Cost Pressure or Variance - Expenses and Capital
Updated Risks
Portfolio Risk Title Type of Risk
ACC ACC Levies Cost Pressure or Variance - Expenses and Revenue
Broadcasting and Media Delivery of the Government's Public Media Outcomes Policy Change - Expenses and Capital
Climate Change Emissions Trading Scheme - Variations in Revenue and Expenses Cost Pressure or Variance - Revenue and Expenses
Conservation Department of Conservation's Compliance with the Water Services Act 2021 Cost Pressure or Variance - Expenses and Capital
COVID-19 Response Managed Isolation and Quarantine Cost Pressure or Variance - Expenses
Economic and Regional Development New Zealand Screen Production Grant - International Cost Pressure or Variance - Expenses
Regional Strategic Partnership Fund Policy Change - Expenses and Capital
Education Change in Demand for Tertiary Education and Training Cost Pressure or Variance - Expenses
Ka Ora, Ka Ako | Healthy School Lunch Programme Policy Change - Expenses and Capital
Reform of Vocational Education Policy Change - Expenses and Capital
Finance Air New Zealand's Proposed Capital Raise Cost Pressure or Variance - Capital
Alternative Monetary Policy Tools Cost Pressure or Variance - Expenses
Depositor Compensation Scheme Policy Change - Revenue and Expenses
Health Health Capital Pressure Cost Pressure or Variance - Capital
Internal Affairs National Archival and Library Services Storage Capacity Policy Change - Expenses and Capital
Local Government Three Waters Infrastructure Investment and Reform Programme Policy Change - Expenses and Capital
Māori Development Waitangi Tribunal Recommendations and Claims Policy Change - Expenses
Revenue International Tax Policy Change - Revenue
Potential Tax Policy Changes Policy Change - Revenue
Transport Auckland City Rail Link Ownership Issues Policy Change - Expenses
City Centre to Māngere Rapid Transit Project Policy Change - Expenses and Capital
Future of Rail Commitments Policy Change - Expenses and Capital
New Zealand Upgrade Programme Cost Pressure or Variance - Expenses and Capital
Wellington Transport Investment Programme Policy Change - Expenses and Capital
Veterans Veterans' Support Entitlements Liability Cost Pressure or Variance - Expenses
Cross-portfolio Achieving New Zealand's International and Domestic Climate Change Targets Policy Change - Expenses and Capital
Carbon Neutral Government Programme Policy Change - Expenses and Capital
Further COVID-19 Business Support Policy Change - Expenses
Other Capital Cost Pressures Cost Pressure or Variance - Capital
Other Operating Cost Pressures Cost Pressure or Variance - Operating
Unchanged Risks
Portfolio Risk Title Type of Risk
ACC Impacts of Changes to Accident Compensation Policy Settings Policy Change - Expenses
Non-Earners' Account Cost Pressure or Variance - Expenses
Work-related Gradual Process Disease and Infection Policy Change - Expenses
Biosecurity Mycoplasma Bovis Biosecurity Response Policy Change - Revenue and Expenses
COVID-19 Response COVID-19 Vaccine Strategy Cost Pressure or Variance - Expenses
Defence Disposal of New Zealand Defence Force Assets Policy Change - Revenue and Expenses
Defence Funding Requirements to Deliver New Zealand's Defence Strategy Policy Change - Expenses and Capital
Education Early Learning Action Plan Policy Change - Expenses
Education Operating Cost Pressures Cost Pressure or Variance - Expenses
Replacing Deciles with the Equity Index Policy Change - Expenses
Finance, Earthquake Commission Earthquake Commission Cost Pressure or Variance - Expenses
Southern Response Earthquake Services Support Cost Pressure or Variance - Expenses and Capital
Health Health and Disability System Reform Policy Change - Expenses
Mental Health Support for Children Policy Change - Expenses
Reducing Planned Care Waiting Lists Policy Change - Expenses
Housing Divestment and Development of Kāinga Ora - Homes and Communities' Housing Cost Pressure or Variance - Expenses
Emergency Housing Special Needs Grant Cost Pressure or Variance - Expenses
Housing Acceleration Fund Cost Pressure or Variance - Expenses and Capital
Increases to Market Rent Cost Pressure or Variance - Expenses
KiwiBuild - Fiscal and Delivery Risks Cost Pressure or Variance - Revenue, Expenses and Capital
Large-scale Housing and Urban Development Projects Cost Pressure or Variance - Expenses and Capital
Revenue Cash Held in Tax Pools Cost Pressure or Variance - Revenue
Research and Development Tax Incentive Cost Pressure or Variance - Expenses
Small Business Cashflow Scheme Cost Pressure or Variance - Expenses and Capital
Student Loans - Valuation Cost Pressure or Variance - Expenses
Transformation and Technology Renewal Cost Pressure or Variance - Expenses
Social Development and Employment Changes to the Welfare System Policy Change - Expenses
Increasing Special Needs Grant Limits for Emergency Dental Treatment Policy Change - Expenses
Speaker of the House of Representatives Future Parliamentary Accommodation Cost Pressure or Variance - Capital
Tourism Proposed Changes to the International Visitor Levy Policy Change - Revenue
Treaty of Waitangi Negotiations Relativity Clause Cost Pressure or Variance - Expenses
Treaty Settlement Forecasts Cost Pressure or Variance - Expenses
Cross-portfolio Information and Communications Technology Operating and Capital Pressures Cost Pressure or Variance - Expenses and Capital
Non-government Providers Receiving Funding from the Crown Cost Pressure or Variance - Expenses
Outcomes from Other Government Inquiries and Reviews Policy Change - Expenses
Pay Equity Claims Cost Pressure or Variance - Expenses
Services Funded by Third Parties Cost Pressure or Variance - Expenses
State Sector Employment Agreements Cost Pressure or Variance - Expenses
Unexpected Maintenance for Crown-owned Buildings Cost Pressure or Variance - Capital

New Risks by Portfolio#

The following section outlines policy change and cost pressure or variance risks that have been newly identified or disclosed since the Budget Update. The expectation is that these risks will be managed through existing funding sources and/or the Budget operating and capital allowances to the greatest extent possible.

Climate Change

Emissions Trading Scheme - Abatement Obligations Arising from Price Ceilings Being Exceeded (Cost Pressure - Expenses)

New Zealand's Emissions Trading Scheme has a price ceiling, called the “Cost Containment Reserve” (CCR), which releases additional New Zealand Units (NZUs) at auction if a certain price threshold is reached. Under the Climate Change Response Act 2002, if releasing these units causes an emissions budget to be exceeded, the Minister of Climate Change must obtain equivalent emissions reductions to ‘back' these NZUs. This obligation also applies to NZUs allocated through industrial allocation, or the stockpile of privately-held units. If this were to occur, there is a fiscal risk associated with the cost of obtaining the emissions reductions required. The overall fiscal impact of this risk is uncertain and depends on the cost of obtaining equivalent emissions-reductions, which could be achieved through domestic or offshore mitigation.

Education

ICT Capabilities to Support Future Education (Policy Change - Expenses and Capital)

The Government has agreed to establish an Education Service Agency, Te Mahau, within a redesigned Ministry of Education Te Tāhuhu o te Mātauranga. This will require changes to foundational ICT infrastructure and systems, and significant investment, which has yet to be quantified, will be needed in systems and capabilities to support business outcomes and future education reforms.

Work Programme to Grow Māori Medium and Kaupapa Māori Education (Policy Change - Expenses and Capital)

In September 2021, Cabinet agreed to the Ministry of Education developing a work programme to grow Māori medium education and Kaupapa Māori education (MME), with a target of 30% of Māori learners participating in MME by 2040 (up from 10% in 2020). Part of the work programme will be estimating the costings to 2040 of growing MME by this amount.

Foreign Affairs

Aid to Support Our Pacific Neighbours: Support for Pacific Fiscal Crises (Policy Change - Expenses)

The Government is committed to strengthening the long-term resilience of Pacific Island countries, while responding to the immediate impacts of COVID-19, and has been providing emergency budget support through grant financing to Pacific Island countries facing fiscal crises due to the continuing impact of COVID-19. This enables Pacific Island countries to lead their own COVID-19 response and recovery without increasing their debt. The need for, and scale of, additional emergency budget support depends in part on the countries' domestic revenues and may exceed what is provided for in the fiscal forecasts.

Time-limited International Climate Financing Funding: Unfunded 2026-29 Commitment Period (Policy Change - Expenses)

New Zealand's international climate finance commitment is increasing to $1.3 billion over the four year period 2022 to 2025. While the timing and quantum of New Zealand's next international climate finance commitment for the period 2026 to 2029 are unknown, continuing the 2022 to 2025 commitment is likely to require more than is provided for in the fiscal forecasts.

Health

Enhanced Immunisation Programmes in 2022 (Cost Pressure or Variance - Expenses)

With the reopening of the borders, viruses such as the flu virus that have been largely absent for the past two years are likely to re-enter New Zealand and may have more significant effects than they have had previously. There is a risk that the funding required for enhanced immunisation programmes will exceed what is provided for in the fiscal forecasts.

COVID-19 Response - Ongoing Costs of Current Response (Cost Pressure or Variance - Expenses)

The fiscal forecasts provide for the public health response to the current significant outbreaks of the COVID-19 Delta variant and for the purchase of COVID-19 therapeutics. If the scale of outbreaks increases, there is a risk that additional funding may be required for the public health response, including the distribution and use of therapeutics in the health system, as well as for additional therapeutic purchases.

Justice

Legal Aid Demand Pressures (Cost Pressure or Variance - Expenses)

Entitlement to legal aid is mandated by legislation and costs are driven by the volume and complexity of cases. The average cost per case has increased as a result of growth in more serious cases. Volumes can be affected, either positively or negatively, by changes to justice sector policy settings and trends in crime. There is a risk that additional funding will be required if volumes are higher or cases more complex than assumed in the forecasts.

Oceans and Fisheries

Aquaculture Settlements (Cost Pressure or Variance - Expenses)

Fisheries New Zealand delivers the Crown's aquaculture settlement obligations under the Māori Commercial Aquaculture Claims Settlement Act 2004. Based on current forecasts of settlements, what is provided for in the fiscal forecasts will be insufficient to fund all expected settlements.

Social Development and Employment

Social Unemployment Insurance (Policy Change - Expenses)

As part of Budget 2021, the Government announced its intention to design a Social Unemployment Insurance scheme jointly with BusinessNZ and the New Zealand Council of Trade Unions. The scheme that is being developed is intended to be funded from levies. Fiscal implications include the levy costs for public sector employees and as funder of start-up costs including the technical infrastructure and potentially the costs of initial claims until sufficient levy revenue is received. There is currently too much uncertainty to estimate the fiscal impact from a Social Unemployment Insurance scheme to include it in the fiscal forecasts.

Transport

Increases in the Fuel Excise Duty and/or Road User Charges (Policy Change - Revenue)

There is a risk that fuel excise duty (FED) and/or road user charges (RUC) will need to be increased in order to manage pressures on the National Land Transport Fund and enable repayment of a $2 billion loan, which is being provided to support delivery of the National Land Transport Plan 2021. If FED and/or RUC were to be increased, it is likely that any increases would take effect no sooner than 1 July 2024.

Maintaining International Air Connectivity (MIAC) Scheme (Policy Change - Expenses)

Current COVID-19 border settings limit the number of international flights that can operate commercially to and from New Zealand. The Maintaining International Air Connectivity (MIAC) scheme is in place to ensure a minimum level of international connectivity is maintained while border restrictions are in place. The fiscal forecasts include funding for the MIAC to 31 March 2022. If sufficient international flights have not resumed by this date, then funding additional to what is provided for in the fiscal forecasts may be required to ensure connectivity is maintained.

Cross-portfolio

Adverse Weather Events (Cost Pressure or Variance - Expenses and Capital)

There is an increasing risk that, in responding to the increased frequency of adverse weather events, the Crown will incur additional costs across a range of portfolios including, but not limited to, Emergency Management (essential infrastructure recovery), Earthquake Commission (Natural Disaster Fund guarantee), Housing (temporary accommodation), and Social Development and Employment (emergency benefits, rural support payments, and grants). The likelihood, timing and fiscal impact are uncertain.

National Adaptation Plan (Policy Change - Expenses)

The first National Climate Change Risk Assessment prepared pursuant to the Climate Change Response (Zero Carbon) Amendment Act 2019 was released in August 2020. It identified 43 priority risks across five value domains (natural environment, human, economy, built environment and governance) and highlighted 10 risks considered to be the most significant. The Government is now working on developing its response to the risks in the report, through the National Adaptation Plan (NAP), which is due by August 2022. The NAP will be an all-of-government plan to guide how New Zealand will adapt to the effects of climate change over the next six years. Depending on the policy decisions taken in its development, implementation of the NAP is likely to impact on the Government's operating balance and net core Crown debt.

Changed Risks by Portfolio#

The following section outlines policy change and cost pressureor variance risks that have significantly changed in nature or substance since the BudgetUpdate. This may relate to a change in the underlying driver(s) of the risk and/or the risk's scope. Risks that have been updated, but which do not meet this definition of change, are listed in the Updated Risks by Portfolio section of this chapter.

Children

Enabling Community and Iwi to Help Children (Policy Change - Expenses)

The Government is committed to ensuring that community, iwi, hapū and Māori organisations are able to find appropriate solutions for children in need. This is in line with the statutory National Care Standards and is likely to have fiscal implications in excess of what is in the fiscal forecasts.

Education

Learning Support (Cost Pressure or Variance - Expenses and Capital)

The Government's Learning Support Action Plan 2019-2025 (the Action Plan) notes the need to provide better support for disabled children and young people, and those with additional learning needs. Some Action Plan priorities may need further funding, such as strengthening support for neuro-diverse learners and those who require alternatives to mainstream schooling, or support to attend regularly and/or are at risk of disengaging from education. In addition, some existing learning support services provided and/or funded by the Ministry of Education face volume and price pressures. There is a risk that these pressures cannot be met within the existing provision in the fiscal forecasts.

Health

Health System Sustainability (Cost Pressure or Variance - Expenses)

There is a significant risk that District Health Boards' (DHBs) deficits for the 2021/22 financial year will be higher than what is in the fiscal forecasts. In addition, the health system is likely to face significant volume and cost pressures to maintain the delivery of existing services, which may increase as a result of the COVID-19 response. The fiscal forecasts also assume that future health expenditure growth will be met from future Budget allowances, but the cost of operating the health system under Health New Zealand, including additional investment in such areas as digital services and primary health care and any efficiency savings in the longer term, has yet to be fully assessed. The Government has signalled an increase in the level of funding available for the Budget 2022 operating allowance to manage the costs of the investment in a reformed health system. As there is a degree of uncertainty on the funding required for a reformed health system, there remains a risk that the overall investments through Budget 2022 will exceed the signalled Budget 2022 operating allowance, which would adversely impact the operating balance and net core Crown debt.

Transport

Auckland City Rail Link (Cost Pressure or Variance - Expenses and Capital)

The Government has committed to funding 50% of the costs associated with the City Rail Link project, which is estimated to cost $4.4 billion. Based on this estimate, the Crown contribution to the project will be around $2.2 billion. There is a risk that the timing, scope and amount of the Crown contribution to the project could be different from what is included in the fiscal forecasts, in particular because of additional costs and delays arising from the impact of COVID-19 (primarily Alert Levels 3 and 4), including supply chain disruption (delays and extra costs with shipping), obstacles/delays in obtaining and retaining skilled overseas workers, and higher-than-expected construction cost inflation.

Updated Risks by Portfolio#

The following section outlines policy change and cost pressure or variance risks that are unchanged in nature and substance since the Budget Update, but have been updated. Any necessary update to the narrative of a risk since the Budget Update, no matter how small, is reflected in this section. Among other reasons, risks may, for example, be classified as updated risks as a result of the progression of legislation or the provision of more complete information.

ACC

ACC Levies (Cost Pressure or Variance - Expenses and Revenue)

The fiscal forecasts reflect unchanged ACC levies until at least 1 April or 1 July 2022 and indicative future levy rates for the Work, Earners' and Motor Vehicle accounts. Final levy decisions made by the Government for the next three levy years (but not in time to be reflected in the fiscal forecasts) may differ from the forecast levy path. Actual revenue from the levies set for these accounts may be more or less than that required to cover the cost of claims. Also, if factors such as claims experience, ACC performance, and economic assumptions (particularly discount rates and unemployment rates) differ from the forecasts, ACC's levy revenue, claims costs, and liability may also differ from the forecasts. Any variance will have a corresponding impact on the operating balance.

Broadcasting and Media

Delivery of the Government's Public Media Outcomes (Policy Change - Expenses and Capital)

Both public and privately owned media organisations are under increasing pressure from international competition, declining revenue shares and changes to the way people access content. The Government is committed to strengthening New Zealand's public media and has commissioned a detailed business case on the viability of a preferred approach. Significant additional investment may be required to deliver on the Government's public media outcomes, but the extent of this will not be clear until final decisions are made.

Climate Change

Emissions Trading Scheme - Variations in Revenue and Expenses (Cost Pressure or Variance - Revenue and Expenses)

The Emissions Trading Scheme (ETS) earns revenue and incurs expenses for the Crown, both of which are uncertain. The uncertainty is partly owing to the future market price of New Zealand Units (NZUs) and the responses of participants (eg, the extent of afforestation and deforestation activity, and the timing of industrial responses such as the closure of Tiwai Point aluminium smelter). As a result of these factors, actual revenue and expenses may vary from the fiscal forecasts, which for both revenue and expenses assume a carbon price value based on the market price at 30 September 2021 of $64.50.

Conservation

Department of Conservation's Compliance with the Water Services Act 2021 (Cost Pressure or Variance - Expenses and Capital)

The Department of Conservation provides drinking, waste and storm water services and infrastructure across its recreational and corporate assets, including more than 2,000 huts, campsites, visitor centres and networked town supplies. The Water Services Act 2021 imposes significant new regulatory requirements on the Department, with upgrades to assets and changes in service provision required to become compliant. The associated extensive fiscal implications are likely to exceed what is provided for in the fiscal forecasts.

COVID-19 Response

Managed Isolation and Quarantine (Cost Pressure or Variance - Expenses)

The changing global situation and uncertainty with respect to COVID-19 remains. Demand for space in Managed Isolation and Quarantine (MIQ) and the health and security arrangements required may change rapidly. Any changes in demand will put pressure on current MIQ supply and appropriated funding. While less MIQ capacity is expected to be required for international travellers over time, MIQ may have an ongoing role in the management of domestic COVID-19 outbreaks. MIQ is currently funded to June 2022, but may need to continue beyond this date in some form.

Economic and Regional Development

New Zealand Screen Production Grant - International (Cost Pressure or Variance - Expenses)

The New Zealand Screen Production Grant is an uncapped, on-demand grant that incentivises international studios to locate production work in New Zealand by offering them a rebate on their qualifying expenditure. Although potential delays to productions as a result of COVID-19 may offset some of this risk in the near term, there remains a high level of international interest in New Zealand as a place to do screen business over the forecast period. There nevertheless remains a risk that demand for the Screen Production Grant will exceed what is included in the fiscal forecasts if more large-budget productions choose to locate in New Zealand.

Regional Strategic Partnership Fund (Policy Change - Expenses and Capital)

The Regional Strategic Partnership is a $200 million fund to support regional economic development plans and initiatives. One-third of this amount was appropriated for 2021/22 and included in the fiscal forecasts. The exact nature and timing of the remaining two-thirds are not sufficiently certain to be included in the fiscal forecasts but will likely have an impact during the forecast period.

Education

Change in Demand for Tertiary Education and Training (Cost Pressure or Variance - Expenses)

There is ongoing uncertainty about the impact of COVID-19 on unemployment, changes in the net migration of New Zealand residents, transitions of school leavers, and the scale of the increased enrolments in tertiary education that may result. Due to the uncertainty around the impact of COVID-19, learner demand could be higher, or lower, than the available number of funded places. During 2021, there has been significant growth in the demand for tertiary education and training (particularly for apprenticeships). There is funding pressure related to apprentices over 2021 to 2023, but ongoing funding pressure from provider-based enrolments over 2022 to 2024 is less certain.

Ka Ora, Ka Ako | Healthy School Lunch Programme (Policy Change - Expenses and Capital)

The Ka Ora, Ka Ako | Healthy School Lunch Programme was established as a prototype to test different models of delivery to students in selected schools. The programme has been expanded in both 2020 and 2021 and the fiscal forecasts provide for funding for the programme until December 2023. If the Government confirms an extension or expansion of the programme, additional ongoing funding will be required.

Reform of Vocational Education (Policy Change - Expenses and Capital)

Te Pūkenga - New Zealand Institute of Skills and Technology, established in 2020, is transforming its national network of education providers (the 16 former Institutes of Technology and Polytechnics), including integrating support for work-based training such as apprenticeships. It may seek significant additional Crown funding to complete the transformation, including implementing a Unified Funding System (UFS) for vocational education and training.

Finance

Air New Zealand's Proposed Capital Raise (Cost Pressure or Variance - Capital)

The Crown has provided Air New Zealand with a $1.5 billion interest-bearing loan facility, of which $455 million had been drawn at 26 October 2021, to assist it through the difficult trading period that has arisen from COVID-19's impact on air travel volumes. Air New Zealand has also announced that it will raise new debt and equity capital. Subject to Cabinet being satisfied with the terms of the company's proposed capital raise, the Crown would participate in an equity capital raise by purchasing the number of new shares necessary to maintain a majority shareholding. Air New Zealand's intention is that the Crown loan will be repaid from the proceeds of the proposed capital raise. The size and terms of the capital raise and the future debt/equity mix for Air New Zealand are still being determined, and therefore the fiscal impacts on the Government cannot be determined at this time.

Alternative Monetary Policy Tools (Cost Pressure or Variance - Expenses)

The fiscal forecasts already include an assumed fiscal impact from the Large Scale Asset Purchases (LSAP) programme and the Funding for Lending Programme, which have been implemented by the Reserve Bank. There is a risk that the fiscal impact of both these programmes may differ from what is assumed in the fiscal forecasts. This may include changes to expenses from the LSAP programme as a result of interest rate risk. Any additional use of Alternative Monetary Policy tools in response to future shocks could impact key fiscal indicators.

Depositor Compensation Scheme (Policy Change - Revenue and Expenses)

Cabinet has agreed to implement a depositor compensation scheme (DCS) with a target timeframe of 2023. The DCS will have a coverage limit of $100,000 per eligible depositor, per licensed deposit taker. The DCS will be administered by the Reserve Bank of New Zealand and will be fully funded over time by levies on licensed deposit takers. The funding framework for the DCS will be determined through a funding strategy and levy regulations set by the Minister of Finance. The funding strategy and levies are expected to be determined prior to implementation of the DCS. An estimate of the levy revenue is included in the fiscal forecasts. However, as further policy work is required to develop the funding strategy and levies, there is significant uncertainty around the estimates. Because of the uncertainty of the losses that might arise under the scheme, and uncertainty around the accounting treatment of them, expenses relating to the scheme have not been included in the fiscal forecasts. They may need to be included in future fiscal forecasts once the accounting treatment and full scope of deposit takers and depositors eligible for the DCS are confirmed.

Health

Health Capital Pressure (Cost Pressure or Variance - Capital)

Capital pressures relating mainly to hospitals, but also to the Ministry of Health and other parts of the health system, remain significant over the forecast period. Asset condition issues, pressures arising from demographic change (population growth and an ageing population), and information technology capability all need to be addressed and will require more resourcing than is in the fiscal forecasts.

Internal Affairs

National Archival and Library Services Storage Capacity (Policy Change - Expenses and Capital)

There are capacity and condition issues with the current property portfolio for the storage of New Zealand's documentary heritage. Budget 2019 and Budget 2020 provided funding for the development and subsequent lease of the new Wellington Archives New Zealand facility and the land purchase and design for a new Regional Shared Repository (RSR). Funding in excess of what is provided for in the fiscal forecasts will be needed for the construction of the new RSR to respond to forecast storage growth to 2050 for the three institutions (Archives New Zealand, National Library of New Zealand and Ngā Taonga Sound & Vision).

Local Government

Three Waters Infrastructure Investment and Reform Programme (Policy Change - Expenses and Capital)

The Three Waters Review highlighted systemic challenges facing the three waters sector including infrastructure deficiencies, asset management, service delivery, capacity and capability issues, and funding and affordability constraints. The Crown is providing funding to support the establishment of multi-regional water services entities and the transfer of associated assets, liabilities, staff and services from local authorities to those entities. It is possible that more funding than is provided for in the financial forecasts will be required to meet the establishment and transfer costs (including the possibility of costs resulting from litigation). There is also a risk that the Crown has a future financial exposure to the multi-regional water services entities that are to be established if the ownership and governance structures change from those currently agreed by Cabinet.

Māori Development

Waitangi Tribunal Recommendations and Claims (Policy Change - Expenses)

The Waitangi Tribunal has recommended government action in its reports on several claims including Wai 262, which focuses on the protection of Māori culture and identity and the nature of the Māori-Crown relationship in a post-settlement environment. The Government has identified addressing issues related to Wai 262 as a priority in its Māori manifesto. These and other issues raised through Waitangi Tribunal claims that the Government is working to address, such as Wai 2750 (relating to Housing Policy and Services), represent a fiscal risk.

Revenue

International Tax (Policy Change - Revenue)

The Government is currently considering options for reform of the international tax framework, in light of the challenges posed by digitalisation and globalisation. The Government's preference is to continue working with the Organisation for Economic Co‑operation and Development (OECD) to find a multilaterally agreed solution to these challenges. There has been significant progress on this work during 2021, with 136 countries and territories agreeing to key design features of the solution in October. As part of this agreement, countries have agreed to a moratorium on imposing any new digital services tax on multinationals until 31 December 2023 in order to give the OECD-led solution a chance to be successfully implemented. However, the Government may consider a digital services tax if the OECD solution falters. The revenue impact of a digital services tax or OECD solution would depend on how it is designed.

Potential Tax Policy Changes (Policy Change - Revenue)

The Government's tax policy work programme (which includes international tax) was released on 20 July 2021 (see https://taxpolicy.ird.govt.nz/news/2021/2021-07-20-tax-policy-work-programme). The measures on the work programme, and their collective fiscal implications, are subject to change.

Transport

Auckland City Rail Link Ownership Issues (Policy Change - Expenses)

In addition to the risk of cost increases associated with the City Rail Link project (see separate risk on page 73), there is a risk relating to the value of the Crown's investment reflected in the fiscal forecasts. The value of the Crown's investment will depend on the final ownership structure of the City Rail Link, such as allocation of assets. The timeframe for decisions on future ownership has yet to be finalised. An agreement between Sponsors and City Rail Link Limited allows for a decision to be made as late as 2022, but this timeframe may be altered depending on the outcome of work currently underway.

City Centre to Māngere Rapid Transit Project (Policy Change - Expenses and Capital)

The Auckland Light Rail Establishment Unit has prepared and provided to project sponsors an indicative business case (IBC) clarifying the strategic case for investment and presenting a short-list of options for mode and route. Three options have been shortlisted and there is a 50% likelihood that the costs of these options would be $9 billion for a surface light rail option, $14.6 billion for a tunnelled light rail option and $16.3 billion for a Light Metro option. Cabinet is yet to consider the IBC and determine a preferred mode and route. The costs and benefits of the project are expected to change as more detailed work is undertaken, informed by more detailed business case assessment, stakeholder and market engagement, detailed design, and associated master-planning. At this stage, it is not possible to determine the level of capital or operational funding contribution that may be needed from either the Crown or Auckland local government. A bespoke value capture mechanism will also be investigated. Notwithstanding the need for a mix of funding sources, a significant Crown contribution will be required to fund the project.

Future of Rail Commitments (Policy Change - Expenses and Capital)

The Crown has already provided some funding to implement the outcomes of the Future of Rail review. Further Crown funding may be sought for investment into the rail network, for maintenance and renewal through the Rail Network Investment Programme (RNIP), and replacement of the remaining ageing rolling stock.

New Zealand Upgrade Programme (Cost Pressure or Variance - Expenses and Capital)

The transport component of the New Zealand Upgrade Programme (the Programme) consists of projects delivered by both Waka Kotahi NZ Transport Agency and KiwiRail within a fixed funding envelope of $6.8 billion. Waka Kotahi has advised that its component of the Programme is facing a significant increase in forecast costs, primarily due to property price escalations and acquisitions, inflation, and revised standards and assumptions behind cost estimates. A baselining exercise has been undertaken across delivery agencies Waka Kotahi and KiwiRail to better define the scope, costs, outcomes and schedules for the projects, and identify options for moving the Programme forward.

Wellington Transport Investment Programme (Policy Change - Expenses and Capital)

The Government Policy Statement on land transport (GPS) 2021 was developed with the expectation that Let's Get Wellington Moving (LGWM), along with the Government's other priorities, could be funded from the National Land Transport Fund (NLTF), based on information available at the time. LGWM Board partners have indicated that the LGWM indicative package in the GPS 2021 is expected to cost significantly more than previously estimated, increasing the risk that it may not be delivered in full. It is possible that central government will be asked to contribute funding to LGWM if these additional costs materialise and if these costs are not funded through the NLTF. The ability to deliver LGWM in full also relies on local government providing its own share. Due to competing funding priorities of local councils, it is also possible that central government is asked to contribute funding to LGWM.

Veterans

Veterans' Support Entitlements Liability (Cost Pressure or Variance - Expenses)

The fiscal forecasts include a $3.0 billion liability for veterans' entitlements, including the additional qualifying operational service announced since July 2020. The amount of the liability is an estimate based on the limited data currently available to value it. There is a risk that the amount of the liability may be under- or over-stated by up to 20%. As more data are collected over time, this uncertainty will reduce and the estimate of the liability will become more accurate.

Cross-portfolio

Achieving New Zealand's International and Domestic Climate Change Targets (Policy Change - Expenses and Capital)

The Climate Change Response (Zero Carbon) Amendment Act 2019 requires the Government to set and achieve domestic greenhouse gas emissions targets and achieve emissions budgets starting in 2022 to 2025, and to contribute to the global effort under the Paris Agreement to limit global average temperature increases. New Zealand will need to pursue sizeable domestic and offshore abatement to meet its 2021 to 2030 emissions commitments under the Paris Agreement on top of its domestic commitments. Emissions Trading Scheme settings will affect government revenue and expenses, while complementary decarbonisation initiatives could result in substantial fiscal costs. The Government has choices around how it achieves these climate targets. It is likely that fulfilling its commitments will involve significant costs to the Crown, starting within the current fiscal forecast period.

Carbon Neutral Government Programme (Policy Change - Expenses and Capital)

As part of its own contribution to achieving New Zealand's climate change targets, the Government has established the Carbon Neutral Government Programme, supported by the existing State Sector Decarbonisation Fund, with the aim of accelerating emission reductions and making a number of government organisations carbon neutral by 2025. Funding was provided for this in Budget 2021; however, a fiscal risk exists to the extent that government commitments are unable to be met through existing provisions in the fiscal forecasts.

Further COVID-19 Business Support (Policy Change - Expenses)

Through various policy decisions, the Government has committed to supporting businesses in response to COVID-19. Were the Government to provide additional support including resurgence support payments to businesses, this would represent a fiscal risk. This risk relates to the extent that the timing, extent and/or nature of COVID-19 business support may differ from that included in the fiscal forecasts, and where additional costs cannot be met from existing underspends.

Other Capital Cost Pressures (Cost Pressure or Variance - Capital)

Agencies are likely to face capital expenditure pressures related to replacing ageing infrastructure and other capital requirements driven by demand pressures. These are likely to be exacerbated by the impact from COVID-19, supply chain disruption and the tight labour market. These pressures are risks to the fiscal forecasts to the extent that they cannot be managed through agencies' existing balance sheets and baselines, new capital spending set aside in forecasts from the multi-year capital allowance, or other funding mechanisms (eg, Crown Infrastructure Partners).

Other Operating Cost Pressures (Cost Pressure or Variance - Operating)

As in previous years, agencies are likely to face operating expenditure pressures in the future as a result of changes in the demand for, and price of, the services they provide or because some of their funding is time limited. The majority of spending by agencies is not automatically adjusted for increases driven by demand or price pressures. These pressures, which are most significant in the education and health sectors, are risks to the fiscal forecasts to the extent that they cannot be managed through reprioritisation or new spending set aside in the forecasts. The Government's stated intention is that all pressures are managed through these mechanisms.

Unchanged Risks by Portfolio#

The following section outlines policy change and cost pressure or variance risks that are unchanged in nature and substance since the Budget Update.

ACC

Impacts of Changes to Accident Compensation Policy Settings (Policy Change - Expenses)

The Government has signalled it will review a number of Accident Compensation scheme policy settings. Some of the policy issues identified would require either legislative or regulatory change. These changes could result in a significant fiscal impact.

Non-Earners' Account (Cost Pressure or Variance - Expenses)

The amount of funding provided by the Crown (and included in the fiscal forecasts) for the Non-Earners' Account may be more or less than is required to cover the cost of future claims. If factors such as claims experience, ACC performance, and economic assumptions (particularly discount rates) turn out differently from what has been forecast, any such variance will have a corresponding fiscal impact.

Work-related Gradual Process Disease and Infection (Policy Change - Expenses)

Under current legislation, the Government incurs an obligation for Work-related Gradual Process Disease and Infection claims when the claim is made, and an expense is recognised at this point. The liability for commercial accident and sickness insurance contracts would usually be recognised when exposure to conditions that will give rise to a claim occurs. An amendment to legislation would be required to recognise claims at the same time as for commercial contracts. An initial adjustment to the liability and an expense of about $1.5 billion to $2.0 billion would need to be reported if such an amendment were to be enacted.

Biosecurity

Mycoplasma Bovis Biosecurity Response (Policy Change - Revenue and Expenses)

The Government and the farming sector have agreed to attempt to eradicate the cattle disease Mycoplasma bovis. Crown funding has been appropriated and included in the forecasts for response activities in 2021/22 only. The timing of farming sector contributions may differ from what is in the fiscal forecasts. The need for Crown funding to be appropriated for 2022/23 and subsequent years will be considered depending on progress in eradicating the disease.

COVID-19 Response

COVID-19 Vaccine Strategy (Cost Pressure or Variance - Expenses)

The Government has provided for ongoing costs of COVID-19 vaccines, and the costs of vaccinating New Zealanders throughout this year. There is a risk that further funding may be required for additional booster or updated vaccines in the future, or that liability may materialise under any indemnities given by the Minister of Finance in relation to COVID-19 vaccine purchase agreements.

Defence

Disposal of New Zealand Defence Force Assets (Policy Change - Revenue and Expenses)

The Government continues to consider the potential to dispose of a number of New Zealand Defence Force assets. Depending on market conditions, the timing of disposal and the sale price received could have either a positive or a negative impact on the Government's overall financial position.

Defence Funding Requirements to Deliver New Zealand's Defence Strategy (Policy Change - Expenses and Capital)

In 2018, the Government updated Defence policy settings in the Strategic Defence Policy Statement 2018. These policy settings, and the Defence Capability Plan 2019 subsequently agreed by the Government in 2019, provide an indication of future Defence capital and operating funding requirements. However, the precise quantum and timing of actual Defence spending will depend on the approval of future business cases and Budget decisions.

Education

Early Learning Action Plan (Policy Change - Expenses)

Following public consultation between November 2018 and March 2019 and subsequent Cabinet approval, the Government released He Taonga te Tamaiti - Every Child a Taonga: Early Learning Action Plan 2019-2029 in December 2019. The estimated cost of the Early Learning Action Plan (ELAP) in the forecast period is approximately $1.2 billion. This estimated cost relates to actions that are indicated in the ELAP as likely to begin within the forecast period, such as improving adult-to-child ratios. There is a risk that these costs may not be met within the existing provision in the fiscal forecasts.

Education Operating Cost Pressures (Cost Pressure or Variance - Expenses)

The education sector is exposed to changing levels of demand in early childhood education (ECE) and schooling, which can result from factors such as population growth and changes in participation levels. Demographic change has an impact on expenditure on ECE subsidies, especially for the 20 hours' fully subsidised entitlement for three- to five-year-olds; the per-pupil component of schools' operational funding; and schools' full-time teaching equivalent entitlement, which is based on staff-to-student ratios. In addition, the Ministry of Education faces compounding departmental operating expenditure pressures as a result of the increasing demand for, and the price of, education services, and other cost pressures experienced by its work programmes. These pressures, which include difficult-to-control inflationary pressures, represent risks to the extent that they cannot be managed through reprioritisation or new funding that does not entirely cover all demand.

Replacing Deciles with the Equity Index (Policy Change - Expenses)

The Government has committed to replacing deciles with the Equity Index as part of its manifesto commitments and fiscal plan. The index provides a more refined measure to understand whether there are socio-economic factors present in the lives of learners that can impact educational outcomes. This will inform how the schooling system can be resourced to provide all learners with an equitable chance of success. Additional funding for schools and implementation will be required in the future to transition to the new system.

Finance, Earthquake Commission

Earthquake Commission (Cost Pressure or Variance - Expenses)

The Earthquake Commission's (EQC's) independent actuary undertakes half-yearly valuations of the total EQC earthquake liability to the Crown. This includes settled and yet-to-settle claims (including those in litigation), an estimation of future claims not yet received and any associated reinsurance recoveries. Based on these valuations, a profile of the yet-to-settle claims is included in the fiscal forecasts. There are risks that EQC's remaining settlement expenditure relating to the Canterbury earthquakes will differ from (be higher or lower than) forecast. This is because EQC's remaining settlement expenditure relating to the Canterbury earthquakes does not incorporate any liability recognition or provision for costs relating to the over-cap portion of any building claims, whether they are on-sold remedial building claims or otherwise. EQC recognises expected future costs only where it is liable for such costs under the Earthquake Commission Act 1993. The risks include litigation and the level of future remedial claims. It is not possible at this stage to fully quantify the potential financial impact or the timing of these risks owing to the uncertainty associated with them, and variance from what is in the fiscal forecasts could be material.

Southern Response Earthquake Services Support (Cost Pressure or Variance - Expenses and Capital)

The ultimate cost to the Crown of settling earthquake claims is subject to uncertainty. Forecasts currently assume that the actual cost to settle claims will align with the actuary's central estimate of the claims provision. There is a risk that the actual cost could be higher than this estimate, which is sensitive to its underlying assumptions such as damage estimates, recent and future court decisions, claims emerging in the future and the forecast profile of claims settlement.

Health

Health and Disability System Reform (Policy Change - Expenses)

The Government has announced its intention to reform the health and disability system. Funding has been provided in Budget 2021 for the establishment of Health New Zealand and a Māori Health Authority. Further decisions are required on the ongoing funding to support reform, including policy and funding changes to support the transformation of Hauora Māori and primary and community services, digital enablement and consumer-centred digital services, and any remaining costs of structural changes and system improvements.

Mental Health Support for Children (Policy Change - Expenses)

The Speech from the Throne reaffirmed the Government's commitment to expand the Mana Ake programme throughout the rest of the country over the next five years and ensure that every primary and intermediate age child has access to mental health support. Budget 2021 provided funding to continue the existing Mana Ake programme in 2021/22 in Canterbury and Kaikōura and to enable the co-design of mental wellbeing supports in primary and intermediate schools in five new areas, including Northland, Counties Manukau, Lakes, Bay of Plenty and the West Coast. The exact nature and timing of the rest of the costs of the nationwide rollout are not sufficiently certain to be included in the fiscal forecasts, but will likely have an impact during the forecast period.

Reducing Planned Care Waiting Lists (Policy Change - Expenses)

The New Zealand Labour Party's 2020 election manifesto includes a commitment to provide $200 million of additional funding to reduce waiting lists for planned surgery and diagnostic services so that New Zealanders can access procedures in a timely manner close to where they live.

Housing

Divestment and Development of Kāinga Ora - Homes and Communities' Housing (Cost Pressure or Variance - Expenses)

The Crown's fiscal forecasts include business-as-usual divestments, acquisitions and the redevelopment of land and housing as part of Kāinga Ora's asset management strategy. The Crown also faces commercial and financial risks inherent in large-scale build and urban development programmes, the magnitude of which has increased as a result of the adverse impact of COVID-19 on Kāinga Ora's pipeline, international supply chains and the financial viability of its build partners.

Emergency Housing Special Needs Grant (Cost Pressure or Variance - Expenses)

Emergency Housing Special Needs Grants help individuals and families with the cost of staying in short-term accommodation if they are unable to access a transitional or public housing place. If demand increases and/or the number of transitional or public housing places does not increase as forecast, this would increase demand for the grants, with associated fiscal costs.

Housing Acceleration Fund (Cost Pressure or Variance - Expenses and Capital)

The Housing Acceleration Fund includes contestable funding for infrastructure projects across New Zealand. There is a risk that the phasing of funding and delivery will be different from what is currently forecast, which would affect Crown fiscal indicators. There is also a risk that while the fiscal forecasts are based on a best estimate of the current split between operating and capital costs, this will be subject to change, as costs are further refined.

Increases to Market Rent (Cost Pressure or Variance - Expenses)

Over $1 billion of payments per annum for housing assistance, such as income-related rent subsidies and accommodation payments for transitional housing, are linked to market-based rent levels. Should market rents increase above what is assumed for the forecasts, further funding may be required to maintain current levels of support.

KIwiBuild - Fiscal and Delivery Risks (Cost Pressure or Variance - Revenue, Expenses and Capital)

Changes in the housing market and economy may have an impact on the costs of delivering homes and associated revenue recycling. If the prices of underwritten houses fall, Crown underwrites may be called, thereby increasing debt, and the value of the portfolio may fall, impacting the operating balance. To achieve programme goals, there may be a need to change policy settings or provide support to developers and/or homebuyers. The Crown also faces general commercial risks associated with development and with implementing a large and evolving programme, which pose fiscal and delivery risks.

Large-scale Housing and Urban Development Projects (Cost Pressure or Variance - Expenses and Capital)

Kāinga Ora is currently carrying out a number of large-scale infrastructure redevelopment projects, including the Tāmaki Regeneration Project. Some projects will be funded from sale proceeds from land sold for affordable and market housing. There is ongoing risk around cost overrun, given the scale and complexity of the projects. Risks also remain around the sale proceeds of land sold for affordable and market housing not meeting expectations. The funding source for any future cost overruns or reduced proceeds would need to be identified. There is also a risk that while the fiscal forecasts are based on our best estimate of the current split between operating and capital costs, these will be subject to change, as costs are further refined. In addition, if the sale of land to be used for affordable and market housing is lower than its carrying value this may necessitate expense write-offs in the future.

Revenue

Cash Held in Tax Pools (Cost Pressure or Variance - Revenue)

Funds held in tax pools are recognised as a Crown asset. There is a risk that funds held in these pools may be withdrawn by the depositor, resulting in a reduction in the Crown's available cash reserves.

Research and Development Tax Incentive (Cost Pressure or Variance - Expenses)

The Research and Development (R&D) Tax Incentive allows eligible firms to receive a tax credit based on a percentage of their expenditure on R&D. Under certain circumstances, eligible firms may receive a cash payment in place of a tax credit. There is a risk that costs may differ from forecasts owing to the limited availability of data for forecasting purposes on future R&D expenditure, including how firms' R&D expenditure will respond to the subsidy.

Small Business Cashflow Scheme (Cost Pressure or Variance - Expenses and Capital)

The Small Business Cashflow Scheme was introduced to support small-to-medium businesses affected by COVID-19. There is a risk that the total value of the lending may differ, either positively or negatively, from what is currently forecast, as the lending under the scheme is dependent on demand until the application closing date of 31 December 2023. As new lending occurs, an initial write-down to fair value is made based on assumptions about when and how much borrowers will repay in the future. The fair value write-down reflects the cost the Crown incurs in making a loan at below-market terms. The fair value of the loan portfolio may change over time and will depend on borrower repayments and defaults over the life of the scheme, which are based on volatile factors that are subject to change.

Student Loans - Valuation (Cost Pressure or Variance - Expenses)

The value of student loans is sensitive to assumptions such as the borrower's future income and general economic factors such as risk-free interest rates, risk premiums, unemployment levels, salary inflation and the Consumers Price Index (CPI). As new lending occurs, an initial write-down to fair value is made, and an expense is incurred, reflecting the cost the Crown incurs in making an interest-free loan and the risk that borrowers may not repay their loans. However, the assumptions made at the time of lending rely on volatile factors that are subject to change.

Transformation and Technology Renewal (Cost Pressure or Variance - Expenses)

The Business Transformation programme agreed by the previous Government in 2015 is reflected in the fiscal forecasts. There are risks that the remaining implementation costs, revenue gains and operating costs savings may differ from forecasts. In addition, changes in government policies could materially affect the programme's costs and benefits.

Social Development and Employment

Changes to the Welfare System (Policy Change - Expenses)

The Government's vision for the welfare system is to ensure that people have an adequate income and standard of living, are treated with respect and can live with dignity, and are able to participate meaningfully in their communities. Cabinet has agreed to a multi-year policy work programme to deliver on this vision. Any changes agreed to in future will likely have legislative, operational, ICT and fiscal implications. Cabinet will be provided with detailed information on the scale of change, implications and associated costs as part of future decisions.

Increasing Special Needs Grant Limits for Emergency Dental Treatment (Policy Change - Expenses)

The New Zealand Labour Party's 2020 election manifesto includes a commitment to increase the maximum grant limit for Special Needs Grants for emergency dental treatments from $300 to $1,000. The exact nature and timing of this funding are not sufficiently certain to be included in the fiscal forecasts but will likely have an impact during the forecast period.

Speaker of the House of Representatives

Future Parliamentary Accommodation (Cost Pressure or Variance - Capital)

The Parliamentary Service is considering options for the future provision of accommodation for Parliament. This includes exploring the remediation of the earthquake-prone Executive Wing Annex, a new Secure Deliveries building and the construction of a Members' Building. Further work is still required to finalise the design, enter the consenting process and refine costings.

Tourism

Proposed Changes to the International Visitor Levy (Policy Change - Revenue)

The Government is reviewing the International Visitor Conservation and Tourism Levy and there are a range of options under consideration which could increase the levy, impacting revenue. Prior to COVID-19 the levy was forecast to collect around $75 million per annum. However, future levels of international tourism are uncertain. It is intended that revenue remain hypothecated, so the impact of any change should be fiscally neutral overall. There is a risk that the expected increase in revenue does not occur.

Treaty of Waitangi Negotiations

Relativity Clause (Cost Pressure or Variance - Expenses)

The Deeds of Settlement negotiated with Waikato-Tainui and Ngāi Tahu include a relativity mechanism. Now that the total redress amount for all historical Treaty settlements exceeds $1.0 billion in 1994 present-value terms, the mechanism provides that the Crown is liable to make payments to maintain the real value of Ngāi Tahu's and Waikato-Tainui's settlements as a proportion of all Treaty settlements. The agreed relativity proportions are 17.0% for Waikato-Tainui and 16.1% for Ngāi Tahu. There is a risk that the timing and amount of the expense for the relativity payments may differ from the fiscal forecasts. There is also uncertainty on how various disputes concerning the interpretation of the mechanism will be resolved.

Treaty Settlement Forecasts (Cost Pressure or Variance - Expenses)

The fiscal forecasts include provision for the cost of future Treaty settlements. Given that settlements are finalised through negotiations, there is a risk that the timing and amount of the settlements could be different from the profile included in the fiscal forecasts.

Cross-portfolio

Information and Communications Technology Operating and Capital Pressures (Cost Pressure or Variance - Expenses and Capital)

A number of agencies are facing increasing operating and capital pressures related to ageing information and communications technology (ICT) assets and capability that are no longer fit for purpose. In addition, COVID-19 has highlighted the need for some agencies, particularly in the education sector, to expand existing digital services, in line with increased demand and changed circumstances. This risk is aligned with the need for agencies to transition to cloud based solutions in line with the Government's Cloud-First policy. These pressures are fiscal risks to the extent that they cannot be managed through agencies' existing balance sheets and/or other funding mechanisms as outlined in this chapter.

Non-government Providers Receiving Funding from the Crown (Cost Pressure or Variance - Expenses)

The Government is facing ongoing pressure from non-government providers of Crown-funded services to fund a greater proportion of their costs, or to fund cost pressures. This includes providers in the health, disability, welfare, justice, and child protection sectors.

Outcomes from Other Government Inquiries and Reviews (Policy Change - Expenses)

A number of inquiries and reviews across government (not specifically mentioned elsewhere in this chapter) are underway or have recently released findings. At this point it is uncertain what the fiscal impact from the outcomes of these reviews may be.

Pay Equity Claims (Cost Pressure or Variance - Expenses)

A number of claims have been raised in relation to the Equal Pay Act 1972 providing for pay equity (equal pay for work of equal value) and further claims may be raised following commencement of the Equal Pay Amendment Act 2020 in November 2020. The forecasts include an estimate of the expected cost to settle current and future claims; however, there is a risk that the costs may differ depending on the number of further claims that are raised, and the outcomes reached from applying the pay equity principles to each particular claim, and any subsequent funding decisions.

Services Funded by Third Parties (Cost Pressure or Variance - Expenses)

A wide range of government services are funded through third-party fees and charges. Demand for these services can vary, with a direct effect on revenue received. If revenue collected is lower than the total costs of providing the service, there is a risk that the Government may need to provide additional funding or that changes will be required to the way government services are delivered, which could result in costs to the Crown. In particular, measures related to COVID-19, such as the border closure have significantly reduced the third-party revenue some agencies receive.

State Sector Employment Agreements (Cost Pressure or Variance - Expenses)

All collective agreements in the State sector are due to be renegotiated over the forecast period. As well as direct fiscal implications for the employers of workforces covered by any changes to remuneration, the renegotiation of agreements can have flow-on effects for remuneration for other employers across the sector.

Unexpected Maintenance for Crown-owned Buildings (Cost Pressure or Variance - Capital)

There is a possibility that the Crown will incur costs when unexpected maintenance is required for the buildings it owns. Examples include earthquake strengthening for some of the buildings that do not meet modern building standards and maintenance for buildings with weather-tightness issues. The likelihood, timing and fiscal impact of any repairs are uncertain.

Risks Removed Since the Budget Update#

The following table outlines risks that were published in the Budget Update but are no longer disclosed as specific fiscal risks, because they are provided for in the forecasts, are adequately captured by existing risks, or no longer meet the materiality threshold for publication.

Risks Removed Since the Budget Update
Portfolio Title Reason for removal
Climate Change Recycling Emissions Trading Scheme Proceeds This is included in the fiscal forecasts.
Economic and Regional Development Provincial Growth Fund This no longer meets the materiality threshold for publication.
Education Education Workforce Strategy This no longer meets the materiality threshold for publication.
Response to the Tomorrow's Schools Review This is included in the fiscal forecasts.
Finance Business Finance Guarantee Scheme As this scheme has closed, this risk no longer meets the materiality threshold for publication.
Foreign Affairs Official Development Assistance This has been divided into specific fiscal risks ‘Aid to Support our Pacific Neighbours: Support for Pacific Fiscal Crises' and ‘Time-limited International Climate Financing Funding: Unfunded 2026-29 Commitment Period'.
Research, Science and Innovation Research and Development Spending Target This no longer meets the materiality threshold for publication.
Revenue Tax Treatment of Rental Property This is included in the fiscal forecasts.
Social Development and Employment Implications for New Zealand Superannuation from Quarterly Employment Survey Redevelopment This is included in the fiscal forecasts.
Transport Incentivising Uptake of Low Emissions Vehicles This is included in the fiscal forecasts.
Cross-portfolio Progressively Extending Living Wage Guarantees to Contractors in the Public Sector The Government has directed core Public Service departments and agencies to absorb the costs arising from this within their baselines.

Contingent Liabilities and Contingent Assets#

Contingent liabilities are possible costs that have arisen from past events, but the amount of the liability, or whether it will eventuate, will not be confirmed until a particular event occurs; or they are present liabilities that are unable to be measured with sufficient reliability to be recorded in the fiscal forecasts.

Typically, contingent liabilities consist of guarantees and indemnities, uncalled capital and legal disputes and claims. The contingent liabilities facing the Crown are a mixture of operating and balance sheet risks, and they can vary greatly in magnitude and likelihood of realisation.

In general, if a guarantee or indemnity qualifies as a financial guarantee contract, or the amount becomes sufficiently reliable to record as a liability, it would reduce the operating balance and net worth. When a contingent liability crystallises, and is settled, there is an increase in net core Crown debt. In the case of some contingencies (eg, uncalled capital), the negative impact would be restricted to net core Crown debt because the cost would be offset by the acquisition of an asset.

Where contingent liabilities have arisen as a consequence of legal action being taken against the Crown, the amount shown is the amount claimed and thus the maximum potential cost. It does not represent either an admission that the claim is valid or an estimation of the amount of any award against the Crown.

Contingent assets are possible assets that have arisen from past events but the amount of the asset, or whether it will eventuate, will not be confirmed until a particular event occurs.

Only contingent liabilities and contingent assets involving amounts of over $100 million are separately disclosed in this chapter. Quantifiable contingencies of less than $100 million are aggregated in the ‘other quantifiable' total.

Some contingencies of the Crown are not able to be quantified. We have disclosed unquantifiable contingent liabilities and unquantifiable contingent assets that potentially could have an impact in excess of $20 million and are not expected to be remote.[14]

The contingencies have been stated as at 31 October 2021, being the latest set of published Financial Statements of the Government.

Statement of Contingent Liabilities and Contingent Assets

Quantifiable Contingent Liabilities
  Status[15] 31 October 2021
($millions) 
30 June 2021
($millions) 
Uncalled capital      
Asian Development Bank Unchanged 3,053  3,157 
International Monetary Fund - promissory notes Unchanged 1,801  1,862 
International Bank for Reconstruction and Development Unchanged 1,595  1,637 
International Monetary Fund - arrangements to borrow Unchanged 1,325  1,366 
Asian Infrastructure Investment Bank Unchanged 514  527 
Other uncalled capital Unchanged 18  19 
    8,306 8,568 
Guarantees and indemnities      
New Zealand Export Credit guarantees Unchanged 178  181 
Other guarantees and indemnities Unchanged 164  167 
    342  348 
Legal proceedings and disputes      
Inland Revenue - legal tax proceedings Unchanged 159  160 
New Zealand Transport Agency Unchanged  84  84 
Other legal proceedings and disputes Unchanged 70  69 
    313  313 
Other quantifiable contingent liabilities      
Unclaimed monies Unchanged 199  186 
Air New Zealand Partnership Agreement Unchanged 169  100 
Ministry for Primary Industries - Biosecurity Act compensation Unchanged 127  127 
Waitangi Tribunal Binding Recommendations New 200 
Other quantifiable contingent liabilities Unchanged 153  154 
    848  567 
Total quantifiable contingent liabilities    9,809  9,796 
Quantifiable Contingent Assets
  Status[16] 31 October 2021
($millions)
30 June 2021
($millions)
Other contingent assets Unchanged 59  58 
Total quantifiable contingent assets   59  58 
Unquantifiable Contingent Liabilities
Indemnities Status
Contact Energy Limited Unchanged
Earthquake Commission (EQC) Unchanged
Genesis Energy Unchanged
Justices of the Peace, Community Magistrates and Disputes Tribunal Referees Unchanged
Maui Partners Unchanged
New Zealand Aluminium Smelters and Rio Tinto Aluminium (formerly Comalco) Unchanged
New Zealand Local Authorities Unchanged
New Zealand Railways Corporation Unchanged
Reserve Bank Unchanged
Southern Response Earthquake Services Limited (SRES) Unchanged
Synfuels-Waitara Outfall Indemnity Unchanged
Westpac New Zealand Limited Unchanged
Legal proceedings and disputes  
Accident Compensation Corporation (ACC) litigation Unchanged
Aquaculture Settlements Unchanged
Ministry for Primary Industries - Biosecurity Act 1993 compensation Unchanged
Treaty of Waitangi claims Unchanged
Proprietors of Wakatū Unchanged
Other unquantifiable contingent liabilities  
Accident Compensation Corporation (ACC) Sensitive Claims Unchanged
Criminal Proceeds (Recovery) Act 2009 Unchanged
Environmental liabilities Unchanged
Holidays Act 2003 compliance Unchanged
Pay Equity Claims Unchanged
Treaty of Waitangi claims - settlement relativity payments Unchanged

Description of Quantifiable Contingent Liabilities (over $100 million)

Uncalled Capital

As part of the Crown's commitment to a multilateral approach to ensure global financial and economic stability, New Zealand, as a member country of the organisations listed below, contributes capital by subscribing to shares in certain institutions. The capital (when called) is typically used to raise additional funding for loans to member countries, or in the case of the quota contributions to directly finance lending to members. For New Zealand and other donor countries, capital contributions comprise both ‘paid-in' capital and ‘callable capital or promissory notes'.

The Crown's uncalled capital subscriptions over $100 million are outlined on page 92.

Guarantees and Indemnities

Guarantees are legally binding promises made by the Crown to assume responsibility for a debt, or the performance of an obligation, of another party, should that party default. Guarantees generally relate to the payment of money but may require the performance of services.

Indemnities are legally binding promises where the Crown undertakes to accept the risk of loss or damage that another party may suffer and to hold the other party harmless against loss caused by a specific stated event.

New Zealand Export Credit guarantees

The New Zealand Export Credit provides a range of guarantee products to assist New Zealand exporters to manage risk and capitalise on trade opportunities around the globe. The obligations to third parties are guaranteed by the Crown and are intended to extend the capacity of facilities in the private sector.

Legal proceedings and disputes
Inland Revenue - legal tax proceedings

When a taxpayer disagrees with an assessment issued following the dispute process, the taxpayer may challenge that decision by filing proceedings with the Taxation Review Authority or the High Court. This contingent liability represents the maximum liability Inland Revenue has in respect of these cases.

New Zealand Transport Agency

There are claims of $83.9 million relating to a variety of roading and other contract disputes including contractual claims arising from property acquisitions and disposals.

Waka Kotahi is currently working with roading contractors, and public-private partnership operators on COVID-19-related claims resulting from lockdowns and restrictions imposed by the Government since 17 August 2021.

Apart from the above matters, there is continual dialogue between Waka Kotahi and its contractors over technical and commercial matters that may result in material dispute between the parties.

Other quantifiable contingent liabilities
Unclaimed monies

Under the Unclaimed Money Act 1971, entities (eg, financial institutions, insurance companies) hand over money not claimed after six years to Inland Revenue. The funds are repaid to the entitled owner on proof of identification.

Ministry for Primary Industries - Biosecurity Act 1993 compensation

Under section 162A of the Biosecurity Act 1993, compensation may be payable as a result of the exercise of powers to manage or eradicate organisms. Compensation is payable where there are verifiable losses as a result of the damage to or destruction of a person's property or restrictions on the movement of a person's goods. The Ministry for Primary Industries has been notified compensation will be sought following biosecurity responses for incursions including Bonamia ostreae, as well as claims for losses incurred following the destruction of bud-stock, known as the post-entry quarantine (PEQ) response. While these claims can be quantified, they do not meet the tests for recognising a provision.

Air New Zealand Partnership

The Air New Zealand Group has a partnership agreement with Pratt & Whitney in relation to the Christchurch Engine Centre (CEC), holding a 49% interest. By the nature of the agreement, joint and several liabilities exist between the two parties; the contingent liability represents Air New Zealand's share of CEC's liabilities.

Waitangi Tribunal Binding Recommendations (New)

On 29 September 2021, the Waitangi Tribunal issued interim recommendations under section 8A of the Treaty of Waitangi Act 1975 in relation to the transfer of 7,676 hectares of the Mangatū Crown forest licensed land to a trust comprising Te Aitanga a Māhaki, Ngā Uri o Tamanui and Te Whānau a Kai. Should the recommendation become final, compensation will be payable to the recipients under Schedule 1 to the Crown Forest Assets Act 1989. The Tribunal has indicated the value of the compensation is approximately $200 million. The Crown is considering whether to seek judicial review of the Tribunal's interim recommendations, including the Tribunal's approach to assessing compensation. If the Crown decides to seek review, a stay of the interim recommendations will be sought pending the outcome of judicial review.

Description of Unquantifiable Contingent Liabilities

This part of the statement provides details of the contingent liabilities of the Crown which are not quantified, excluding those that are considered remote, reported by indemnities, legal disputes, and other contingent liabilities.

The indemnities and claims that are disclosed individually, while they cannot be quantified, have the potential to exceed $20 million in costs and are not considered to be remote.

Indemnities

A number of these indemnities are provided to organisations within the Crown's control. If these indemnities were to crystallise, the Crown would compensate the individual entity for the loss and there would likely be an adverse impact on core Crown expenses and core Crown net debt.

Party indemnified Instrument of indemnification Actions indemnified
Contact Energy Limited A number of documents have been signed with Contact Energy to settle in full Contact Energy's outstanding land rights and geothermal asset rights at Wairākei The documents contain two reciprocal indemnities with Contact to address the risk of certain losses to the respective parties' assets arising from the negligence or fault of the other party.
Earthquake Commission (EQC) Section 16 of the Earthquake Commission Act 1993

As set out in the Earthquake Commission Act 1993, the Crown shall fund any deficiency in EQC's assets to cover its financial liabilities on such terms and conditions as the Minister of Finance determines. Such funding may be provided by means of an advance or a grant.

As the contingency has no end date, it is not possible to quantify natural hazard events which are covered by the Earthquake Commission Act 1993.

 Genesis Energy Genesis acquisition of Tekapo A & B power stations Indemnity against any damage to the beds of lakes and rivers subject to operating easements.
Justices of the Peace, Community Magistrates and Disputes Tribunal Referees Section 50 of the District Court Act 2016, section 4F of the Justices of the Peace Act 1957 and section 58 of the Disputes Tribunal Act 1988 Damages or costs awarded against them as a result of exceeding their jurisdiction, provided a High Court Judge certifies that they have exceeded their jurisdiction in good faith and ought to be indemnified.
Maui Partners Confidentiality agreements with Maui Partners in relation to the provision of gas reserves information Any losses arising from a breach of the deed.
New Zealand Aluminium Smelters Limited and Rio Tinto Aluminium Limited (formerly Comalco) The Minister of Finance signed indemnities in November 2003 and February 2004 in respect of aluminium dross currently stored at another site in Invercargill Costs incurred in removing the dross and disposing of it at another site if required to do so by an appropriate authority.
New Zealand Local Authorities Section 39 of the Civil Defence Emergency Management Act 2002 - National Civil Defence Emergency Management Plan The Guide to the National Civil Defence Emergency Management Plan (‘the Guide') states that, with the approval of the Minister, the Government will reimburse local authorities, in whole or in part, for certain types of response and recovery costs incurred as a result of a local or national emergency. The Guide was approved and issued by the Director of Civil Defence Emergency Management.
New Zealand Railways Corporation Section 10 of the Finance Act 1990 Guarantees all loan and swap obligations of the New Zealand Railways Corporation.
Reserve Bank A letter of indemnity provided by the Crown to the Reserve Bank to cover losses arising from the large-scale asset purchases of New Zealand domestic government bonds

In March 2020, the Crown agreed to indemnify the Reserve Bank in respect of losses which the Reserve Bank incurs in respect of Indemnified Bonds under the Large Scale Asset Purchases (LSAP) programme. The indemnity was amended and restated several times, and the current indemnity came into effect on 12 August 2020.

The Crown may terminate coverage for any additional purchases at any time after 31 August 2022 (Termination Date) by giving one day's notice to the Reserve Bank. Otherwise, obligations under this letter of indemnity may be terminated by agreement between the Crown and the Reserve Bank if they both believe the programme is no longer needed as a monetary policy tool.

Termination of this indemnity will not release the Crown from any liability in respect of losses occurring after the termination date in respect of the Indemnified Bonds.

Indemnified Bonds means all New Zealand domestic nominal government bonds, inflation-
indexed government bonds and
Local Government Funding Agency bonds purchased by the Reserve Bank under the LSAP programme prior to the Termination Date - Including the reinvestments of maturing bonds up to the cap.

As at 12 August 2020, the cap means 60% of the face value of all New Zealand government nominal bonds on issue on the date of purchase; 30% of the face value of all New Zealand government inflation-indexed bonds on issue on the date of purchase; and 30% of the face value all LGFA bonds on issue on the date of purchase of any LGFA bonds or such amount agreed between the Minister and the Reserve Bank from time to time.

Southern Response Earthquake Services Limited (SRES) Deed of Indemnity SRES continues to work through and settle the claims of AMI residential policyholders that arose from the Canterbury earthquake series. However, many of the remaining claims are also complex or are otherwise challenging to settle through the internal process with external assistance such as mediation. In light of certain litigation that has arisen, the Minister of Finance provided SRES with a Deed of Indemnity for certain litigation on 25 September 2018. Claims covered by this indemnity were extended on 11 December 2020 to include those settled by the company in connection with the package agreed by the Government on 7 December 2020.
Synfuels-Waitara Outfall Indemnity 1990 sale of the Synfuels plant and operations to New Zealand Liquid Fuels Investment Limited (NZLFI) The Crown transferred to NZLFI the benefit and obligation of a Deed of Indemnity between the Crown and Borthwick-CWS Limited (and subsequent owners) in respect of the Waitara effluent transfer line which was laid across the Waitara meat processing plant site. The Crown has the benefit of a counter indemnity from NZLFI, which has since been transferred to Methanex Motunui Limited.
Westpac New Zealand Limited The Domestic Transaction Banking Services Master

The Crown Transactional Banking Services Agreement with Westpac New Zealand Limited was entered into on 24 September 2015. The Crown has indemnified Westpac New Zealand Limited:

  • against certain costs, damages and losses to third parties resulting from:
    • unauthorised, forged or fraudulent payment instructions
    • unauthorised or incorrect direct debit instructions, or
    • cheques mistakenly drawn in favour of a third party rather than drawn in favour of the Crown.
Legal claims and proceedings

There are numerous legal actions that have been brought against the Crown. However, in the majority of these actions it is considered a remote possibility that the Crown would lose the case, or if the Crown were to lose it would be unlikely to have greater than a $20 million impact. Based on these factors, not all legal actions are individually disclosed. The claims that are disclosed individually, while they cannot be quantified, have the potential to exceed $20 million in costs.

Accident Compensation Corporation (ACC) litigation

Litigation involving ACC arises mainly from challenges to operational decisions made by ACC through the statutory review and appeal process. No accrual has been made for contingent liabilities, which could arise, as these disputes are issue based and ACC's active management of litigation means that it will be either settling or defending, depending on the merits of the issue in dispute.

Aquaculture Settlements

Under the Māori Commercial Aquaculture Claims Settlement Act 2004 the Crown is obligated to provide regional Iwi with 20% of future aquaculture growth. This settlement is ongoing and includes prospective settlement. As aquaculture in New Zealand grows, settlement obligations arise. Iwi may choose to accept settlement as either cash, marine rights, or a combination following the negotiation process. The amount and timing of settlements are therefore uncertain, as they are dependent on sector growth, as well as the preferred nature of settlement, this results in challenges with regards to reliably estimating the Crown's potential obligations.

Ministry for Primary Industries - Biosecurity Act compensation

Under section 162A of the Biosecurity Act 1993, compensation may be payable as a result of the exercise of powers to manage or eradicate organisms. Compensation is payable where there are verifiable losses as a result of the damage or destruction of a person's property, or restrictions on the movement of a person's goods. The Ministry for Primary Industries has been notified that compensation will be sought for incursions including Mycoplasma bovis outbreak remains unquantified. This is due to the Ministry for Primary Industries being unable to reliably estimate the period of time losses will be incurred as a result of its actions under the Biosecurity Act 1993.

Treaty of Waitangi claims

Under the Treaty of Waitangi Act 1975, any Māori may lodge certain claims relating to land or actions counter to the principles of the Treaty with the Waitangi Tribunal. Where the Tribunal finds a claim is well founded, it may recommend to the Crown that action be taken to compensate those affected. The Tribunal can make recommendations that are binding on the Government with respect to land that has been transferred by the Government to a State-owned enterprise (SOE), universities, wānanga or Te Pūkenga - New Zealand Institute of Skills and Technology, or is subject to the Crown Forest Assets Act 1989.

On occasion, Māori claimants pursue the resolution of particular claims through higher courts. Failure to successfully defend such actions may result in a liability for historical Treaty grievances in excess of that currently anticipated.

Proprietors of Wakatū

Crown Law is acting for the Attorney-General on behalf of the Crown in right of New Zealand in Proprietors of Wakatū v Attorney-General (CIV‑2010-485-181), in which it is claimed that the Crown breached trust, fiduciary and other equitable obligations relating to land transactions in the top of the South Island in the 1840s. The plaintiff seeks the return of land he says the Crown holds on trust for the successors of the original owners and compensation, or other relief, for alleged breach of trust, fiduciary and other equitable obligations. In February 2017, the Supreme Court held that the Crown owed a fiduciary duty in relation to the land transactions concerned, but remitted matters of breach, defences and remedy to the High Court for a further hearing or hearings. The matter is large and complex and could take many years to resolve.

Other unquantifiable contingent liabilities
Accident Compensation Corporation (ACC) sensitive claims

ACC provides victims of sexual violence and abuse who suffer mental injury support (sensitive claims) in the form of counselling services, weekly compensation and other entitlements. Due to the nature of these injuries, many years may pass before the individual starts receiving treatment. Based on section 36 of the Accident Compensation Act 2001, the date of mental injury is generally recorded as the date the person first receives treatment for that injury. Once a client starts receiving treatment a liability is recorded in ACC's Outstanding Claims Liability (OCL). With the information ACC holds for these claims, a reliable estimate of the mental injuries incurred but not yet reported as sensitive claims is unable to be made and therefore no liability is recorded in the OCL for these unreported claims.

Criminal Proceeds (Recovery) Act 2009

The Ministry of Justice is responsible for administering the Criminal Proceeds (Recovery) Act 2009. The Act requires the Crown to give an undertaking as to damages or costs in relation to asset restraining orders. In the event that the Crown is found liable, payment may be required.

Environmental liabilities

Under common law and various statutes, the Crown may have a responsibility to remedy adverse effects on the environment arising from Crown activities. Entities managing significant Crown properties have implemented systems to identify, monitor and assess potential contaminated sites.

In accordance with PBE IPSAS 19: Provisions, Contingent Liabilities and Contingent Assets, any contaminated sites for which costs can be reliably measured have been included in the statement of financial position as provisions. Where costs cannot be reliably measured, they are disclosed as an unquantified contingent liability.

Holidays Act compliance

A number of entities are undertaking or have completed a review of calculations in recent years to ensure compliance with the Holidays Act 2003. Where possible, a provision has been made in these financial statements for obligations arising from those reviews that have been made in the current year or previous years. To the extent that an obligation cannot reasonably be quantified, there is an unquantified contingency. Further work continues to be undertaken by entities to calculate the potential liability. For some entities, there are complexities and this issue is taking longer to resolve (eg, DHBs and schools).

Pay Equity Claims - See page 89
Treaty of Waitangi claims - settlement relativity payments - See page 88

Contingent Assets

There are no material quantifiable or unquantifiable contingent assets at 31 October 2021.

Notes

  1. [11] See He Puna Hao Pātiki: 2018 Investment Statement: https://treasury.govt.nz/publications/investment-statement/he-puna-hao-patiki-2018-investment-statement-html
  2. [12] For these purposes, 'reasonably probable' is taken to mean that the matter is more likely than not to be approved within the forecast period (ie, there is a greater than 50% chance of the matter occurring or being approved).
  3. [13] For these purposes, 'reasonably possible' is taken to mean that the matter might be approved within the forecast period (ie, there is a 20% to 50% chance of the matter occurring or being approved).
  4. [14] 'Remote' is defined as being an item with less than a 10% chance of occurring.
  5. [15] Status of contingent liabilities or assets when compared with the Financial Statements of the Government for the year ended 30 June 2021, (based on the nature of the contingency, not the dollar value of contingencies which are regularly updated) for the year ended 30 June 2021, published on 12 October 2021
  6. [16] Status of contingent liabilities or assets when compared with the Financial Statements of the Government for the year ended 30 June 2021, (based on the nature of the contingency, not the dollar value of contingencies which are regularly updated) published on 12 October 2021.

Forecast Financial Statements#

These forecasts have been prepared in accordance with the Public Finance Act 1989.

They are based on the accounting policies and assumptions that follow. As with all such assumptions, there is a degree of uncertainty surrounding them. This uncertainty increases as the forecast horizon extends. There are risks to the fiscal forecasts which are discussed further in the Risks to the Fiscal Forecasts chapter.

These forecasts have been prepared in accordance with the Statement of Responsibility and reflect the judgements and information known at the time they were prepared. They reflect all government decisions and circumstances communicated to 25 November 2021, where these can be reliably measured.

The finalisation dates and key assumptions that underpin the preparation of the Forecast Financial Statements are outlined in the Fiscal Outlook chapter (pages 27 to 52).

Statement of Accounting Policies#

Significant Accounting Policies

The Forecast Financial Statements have been prepared in accordance with the accounting policies that are expected to be used in the comparable audited actual Financial Statements of the Government. They comply with generally accepted accounting practice (GAAP) as required by the Public Finance Act 1989 and have been prepared in accordance with Public Benefit Entity Financial Reporting Standard 42: Prospective Financial Statements.

All forecasts use the accrual basis of accounting. Forecasts have been prepared for the consolidated Financial Statements of the Government reporting entity, which includes all entities controlled by the Government (as defined by applicable financial reporting standards).

The Forecast Financial Statements reflect the accounting standards in place in the year that they are prepared. Adoption of new accounting standards in future financial years are consequently not reflected in these Forecast Financial Statements. Where accounting standards are to be adopted within the fiscal forecasts period, this has been signalled in the note disclosures where impacts may be significant.

The specific accounting policies are included on the Treasury's website at https://www.treasury.govt.nz/information-and-services/state-sector-leadership/guidance/reporting-financial/accounting-policies

Forecast Policies

The Forecast Financial Statements have been prepared on the basis of the Treasury's best professional judgement. Actual financial results for the periods covered are likely to vary from the information presented in these forecasts. Factors that may lead to a material difference between information in these Forecast Financial Statements and the actual reported results in future years are set out in the Risks to the Fiscal Forecasts chapter on pages 53 to 101. Key forecast assumptions are set out on pages 29 to 30.

Reporting and Forecast Period

The reporting periods for these Forecast Financial Statements are the years ended 30 June 2022 to 30 June 2026. The “Previous Budget” figures are the original forecasts to 30 June 2022 as presented in the 2021 Budget Update and the “2021 Actual” figures are the audited actual results reported in the Financial Statements of Government (FSG) for the year ended 30 June 2021.

Government Reporting Entity as at 25 November 2021#

These Forecast Financial Statements are for the Government Reporting Entity as specified in Part 3 of the Public Finance Act 1989. This comprises Ministers of the Crown and the following entities (classified in the three institutional components used for segmental reporting). The following tables list the entities within each institutional component. (Subsidiaries are consolidated by their parents and are not listed separately).

Core Crown Segment

Departments
  1. Crown Law Office
  2. Department of Conservation
  3. Department of Corrections
  4. Department of Internal Affairs - (includes Ministry for Ethnic Communities as a departmental agency)
  5. Department of the Prime Minister and Cabinet - (includes National Emergency Management Agency as a departmental agency)
  6. Education Review Office
  7. Government Communications Security Bureau
  8. Inland Revenue Department
  9. Land Information New Zealand
  10. Ministry for Culture and Heritage
  11. Ministry for Pacific Peoples
  12. Ministry for Primary Industries
  13. Ministry for the Environment (services Strategic Planning Reform Board as an interdepartmental executive board)
  14. Ministry for Women
  15. Ministry of Business, Innovation, and Employment
  16. Ministry of Defence
  17. Ministry of Education
  18. Ministry of Foreign Affairs and Trade
  19. Ministry of Health - (includes Cancer Control Agency, Health New Zealand and Māori Health Authority[17] as departmental agencies)
  20. Ministry of Housing and Urban Development
  21. Ministry of Justice - (includes Te Arawhiti – Office for Māori Crown Relations as a departmental agency)
  22. Ministry of Māori Development - Te Puni Kōkiri
  23. Ministry of Social Development
  24. Ministry of Transport
  25. New Zealand Customs Service (services Border Executive Board as an interdepartmental executive board)
  26. New Zealand Defence Force
  27. New Zealand Police
  28. New Zealand Security Intelligence Service
  29. Office of the Clerk of the House of Representatives
  30. Oranga Tamariki - Ministry for Children
  31. Parliamentary Counsel Office
  32. Parliamentary Service
  33. Public Service Commission - (includes Social Wellbeing Agency as a departmental agency)
  34. Serious Fraud Office
  35. Statistics New Zealand
  36. Te Kāhui Whakamana Rua Tekau mā Iwa - Pike River Recovery Agency
  37. The Treasury
Offices of Parliament
  1. Controller and Auditor-General
  2. Office of the Ombudsman
  3. Parliamentary Commissioner for the Environment
Others
  1. New Zealand Superannuation Fund
  2. Reserve Bank of New Zealand

State-owned Enterprises Segment

State-owned Enterprises
  1. Airways Corporation of New Zealand Limited
  2. Animal Control Products Limited
  3. AsureQuality Limited
  4. Electricity Corporation of New Zealand Limited
  5. KiwiRail Holdings Limited
  6. Kordia Group Limited
  7. Landcorp Farming Limited
  8. Meteorological Service of New Zealand Limited
  9. New Zealand Post Limited
  10. New Zealand Railways Corporation
  11. Quotable Value Limited
  12. Transpower New Zealand Limited
Mixed ownership model companies (Public Finance Act Schedule 5)
  1. Genesis Energy Limited
  2. Mercury NZ Limited
  3. Meridian Energy Limited
Other
  1. Air New Zealand Limited
  2. Kiwi Group Holdings Limited (including Kiwibank)

Crown Entities Segment

Crown Entities
  1. Accident Compensation Corporation
  2. Accreditation Council
  3. Arts Council of New Zealand Toi Aotearoa
  4. Broadcasting Commission
  5. Broadcasting Standards Authority
  6. Callaghan Innovation
  7. Children's Commissioner
  8. Civil Aviation Authority of New Zealand
  9. Climate Change Commission
  10. Commerce Commission
  11. Criminal Cases Review Commission
  12. Crown Irrigation Investments Limited
  13. Crown Research Institutes (7)
  14. District Health Boards (20)
  15. Drug Free Sport New Zealand
  16. Earthquake Commission
  17. Education New Zealand
  18. Electoral Commission
  19. Electricity Authority
  20. Energy Efficiency and Conservation Authority
  21. Environmental Protection Authority
  22. External Reporting Board
  23. Financial Markets Authority
  24. Fire and Emergency New Zealand
  25. Government Superannuation Fund Authority
  26. Guardians of New Zealand Superannuation
  27. Health and Disability Commissioner
  28. Health Promotion Agency
  29. Health Quality and Safety Commission
  30. Health Research Council of New Zealand
  31. Heritage New Zealand Pouhere Taonga
  32. Human Rights Commission
  33. Independent Police Conduct Authority
  34. Kāinga Ora - Homes and Communities
  35. Law Commission
  36. Maritime New Zealand
  37. Mental Health and Wellbeing Commission
  38. Museum of New Zealand Te Papa Tongarewa Board
  39. New Zealand Antarctic Institute
  40. New Zealand Artificial Limb Service
  41. New Zealand Blood Service
  42. New Zealand Film Commission
  43. New Zealand Growth Capital Partners Limited
  44. New Zealand Infrastructure Commission/Te Waihanga
  45. New Zealand Lotteries Commission
  46. New Zealand Productivity Commission
  47. New Zealand Qualifications Authority
  48. New Zealand Symphony Orchestra
  49. New Zealand Tourism Board
  50. New Zealand Trade and Enterprise
  51. New Zealand Transport Agency
  52. New Zealand Walking Access Commission
  53. Office of Film and Literature Classification
  54. Pharmaceutical Management Agency
  55. Privacy Commissioner
  56. Public Trust
  57. Radio New Zealand Limited
  58. Real Estate Agents Authority
  59. Retirement Commissioner
  60. School Boards of Trustees (2,423)
  61. Social Workers Registration Board
  62. Sport and Recreation New Zealand
  63. Takeovers Panel
  64. Taumata Arowai—the Water Services Regulator
  65. Te Pūkenga—New Zealand Institute of Skills and Technology
  66. Te Reo Whakapuaki Irirangi (Māori Broadcasting Funding Agency)
  67. Te Taura Whiri i te Reo Māori (Māori Language Commission)
  68. Television New Zealand Limited
  69. Tertiary Education Commission
  70. Transport Accident Investigation Commission
  71. WorkSafe New Zealand
Organisations listed in Schedule 4 of the Public Finance Act 1989
  1. Agricultural and Marketing Research and Development Trust
  2. Asia New Zealand Foundation
  3. Fish and Game Councils (12)
  4. Game Animal Council
  5. Māori Trustee
  6. National Pacific Radio Trust
  7. New Zealand Fish and Game Council
  8. New Zealand Game Bird Habitat Trust Board
  9. New Zealand Government Property Corporation
  10. New Zealand Lottery Grants Board
  11. Ngāi Tahu Ancillary Claims Trust
  12. Pacific Co-operation Foundation
  13. Pacific Island Business Development Trust
  14. Reserves Boards (21)
  15. Te Ariki Trust
Non-listed companies in which the Crown is majority or sole shareholder (Public Finance Act Schedule 4A)
  1. Crown Asset Management Limited
  2. Crown Infrastructure Partners Limited
  3. Crown Regional Holdings Limited (formerly Provincial Growth Fund Limited)
  4. Education Payroll Limited
  5. New Zealand Green Investment Finance Limited
  6. Ngāpuhi Investment Fund Limited
  7. Ōtākaro Limited
  8. Predator Free 2050 Limited
  9. Research and Education Advanced Network New Zealand Limited
  10. Southern Response Earthquake Services Limited
  11. Tāmaki Redevelopment Company Limited
  12. The Network for Learning Limited
Legal entities created by Treaty of Waitangi settlement Acts (Public Finance Act Schedule 6)
  1. Te Urewera
Others
  1. Christ Church Cathedral Reinstatement Trust
  2. Venture Capital Fund

Other entities not fully consolidated into the Forecast Financial Statements of the Government with only the Crown’s interest in them being included.

Crown entities
  1. Tertiary Education Institutions (11)
  2. (8 Universities and 3 Wānanga)
Non-listed companies in which the Crown is majority or sole shareholder (Public Finance Act Schedule 4A)
  1. City Rail Link Limited

Notes

  1. [17] Health New Zealand and Māori Health Authority departmental agencies were established from 1 September 2021 and are transitional agencies in relation to the implementation of health and disability system reforms.

Forecast Financial Statements#

Forecast Statement of Financial Performance
for the years ending 30 June

  Note 2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Revenue                
Taxation revenue 1 97,362 92,674 102,081 113,254 119,459 126,530 133,662
Other sovereign revenue 1 7,038 6,895 8,083 8,593 9,494 9,976 10,470
Total Revenue Levied through the Crown's Sovereign Power   104,400 99,569 110,164 121,847 128,953 136,506 144,132
Sales of goods and services   18,500 17,676 17,271 18,689 20,032 20,696 20,925
Interest revenue 2 1,943 2,020 2,110 2,441 2,661 2,811 3,021
Other revenue   4,492 4,604 4,721 4,892 5,279 5,405 5,528
Total revenue earned through the Crown's operations   24,935 24,300 24,102 26,022 27,972 28,912 29,474
Total revenue (excluding gains)   129,335 123,869 134,266 147,869 156,925 165,418 173,606
Expenses                
Transfer payments and subsidies 3 35,427 36,955 44,182 38,245 40,026 42,069 44,073
Personnel expenses   29,817 29,981 31,700 31,079 30,348 30,257 30,361
Depreciation   5,566 5,756 6,145 6,330 6,458 6,685 6,740
Other operating expenses 4 53,802 58,973 62,901 54,954 55,356 53,286 52,487
Finance costs 2 2,272 2,351 3,121 3,566 4,319 4,747 4,972
Insurance expenses 5 6,838 6,538 6,763 7,454 8,142 8,724 9,257
Forecast new operating spending 6 4,221 4,412 9,128 11,270 14,164 17,876
Top-down operating expense adjustment 6 (2,775) (4,130) (2,300) (1,475) (850) (750)
Total expenses (excluding losses)   133,722 142,000 155,094 148,456 154,444 159,082 165,016
Gains/(losses)                
Net gains/(losses) on large scale asset purchases   (3,976) (791) (1)
Net gains/(losses) on financial instruments 2 18,130 3,769 3,039 4,712 5,593 6,020 6,462
Net gains/(losses) on non-financial instruments 7 6,869 (135) (5,939) (74) (80) (80) (80)
Total gains/(losses) (including minority interests)   21,023 2,843 (2,901) 4,638 5,513 5,940 6,382
Net surplus/(deficit) from associates and joint ventures   (360) (98) 106 87 117 146 170
Less minority interests share of operating balance   (117) (262) (203) (224) (410) (428) (437)
Operating balance (excluding minority interests)   16,159 (15,648) (23,826) 3,914 7,701 11,994 14,705
Minority interest share of operating balance   117 262 203 224 410 428 437
Operating balance (including minority interests)   16,276 (15,386) (23,623) 4,138 8,111 12,422 15,142

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Comprehensive Revenue and Expense
for the years ending 30 June

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Operating Balance (including minority interest) 16,276 (15,386) (23,623) 4,138 8,111 12,422 15,142
Other comprehensive revenue and expense              
Revaluation of physical assets 22,539 (69)
Revaluation of defined benefit retirement plan schemes 2,325 216 332 201 176 160 149
Net revaluations of veterans' disability entitlements 436
Transfers to/(from) reserves (143) (25) 22 9 4 (8)
(Gains)/losses transferred to the statement of financial performance 181 (138) (9) 1 6 2
Foreign currency translation differences on foreign operations 8 4 (12)
Other movements 15 (14) (459) 12 22 11
Total other comprehensive revenue and expense 25,361 206 (371) 226 208 181 143
Total comprehensive revenue and expense 41,637 (15,180) (23,994) 4,364 8,319 12,603 15,285
Attributable to:              
 - minority interest 488 259 193 229 411 424 431
 - the Crown 41,149 (15,439) (24,187) 4,135 7,908 12,179 14,854
Total comprehensive revenue and expense 41,637 (15,180) (23,994) 4,364 8,319 12,603 15,285

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Changes in Net Worth
for the years ending 30 June

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Opening net worth 115,943 117,263 157,193 132,830 136,832 144,797 157,042
Operating balance (including minority interest) 16,276 (15,386) (23,623) 4,138 8,111 12,422 15,142
Net revaluations of physical assets 22,539 (69)
Net revaluations of defined benefit retirement plan schemes 2,325 216 332 201 176 160 149
Net revaluations of veterans' disability entitlements 436
Transfers to/(from) reserves (143) (25) 22 9 4 (8)
(Gains)/losses transferred to the Statement of Financial Performance 181 (138) (9) 1 6 2
Foreign currency translation differences on foreign operations 8 4 (12)
Other movements 15 (14) (459) 12 22 11
Comprehensive income 41,637 (15,180) (23,994) 4,364 8,319 12,603 15,285
Transactions with minority interest (387) (373) (369) (362) (354) (358) (362)
Closing net worth 157,193 102,187 132,830 136,832 144,797 157,042 171,965

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Cash Flows
for the years ending 30 June

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Cash Flows from Operations              
Cash was provided from              
Taxation receipts 95,382 92,582 100,978 111,757 113,699 131,162 132,737
Other sovereign receipts 6,424 6,008 6,775 6,867 7,393 7,769 8,081
Sales of goods and services 17,732 17,995 17,122 19,025 20,351 20,471 20,839
Interest receipts 1,670 1,737 1,671 2,090 2,072 2,217 2,432
Other operating receipts 4,814 4,257 4,307 5,159 6,217 6,646 6,890
Total cash provided from operations 126,022 122,579 130,853 144,898 149,732 168,265 170,979
Cash was disbursed to              
Transfer payments and subsidies 35,515 37,271 44,345 38,441 40,139 43,230 44,403
Personnel and operating payments 84,256 91,242 96,098 89,277 87,953 87,006 87,274
Interest payments 3,147 2,962 3,112 3,700 4,195 4,688 4,842
Forecast new operating spending 4,221 4,412 9,128 11,270 14,164 17,876
Top-down operating expense adjustment (2,775) (4,130) (2,300) (1,475) (850) (750)
Total cash disbursed to operations 122,918 132,921 143,837 138,246 142,082 148,238 153,645
Net cash flows from operations 3,104 (10,342) (12,984) 6,652 7,650 20,027 17,334
Cash Flows from Investing Activities              
Cash was provided from/(disbursed to)              
Net (purchase)/sale of physical assets (9,393) (16,039) (15,607) (15,330) (14,159) (10,269) (9,737)
Net (purchase)/sale of shares and other securities 4,189 (4,749) 15,302 7,354 3,739 (9,683) (2,215)
Net (purchase)/sale of intangible assets (898) (951) (1,208) (901) (701) (633) (611)
Net (issue)/repayment of advances (5,663) (16,195) (11,260) (13,168) (479) 5,834 6,216
Net acquisition of investments in associates (392) (674) (615) (473) (272) (97) 4
Forecast new capital spending (2,033) (1,745) (2,509) (2,804) (3,171) (3,262)
Top-down capital adjustment 2,425 2,240 1,410 1,260 760 510
Net cash flows from investing activities (12,157) (38,216) (12,893) (23,617) (13,416) (17,259) (9,095)
Net cash flows from operating and investing activities (9,053) (48,558) (25,877) (16,965) (5,766) 2,768 8,239
Cash Flows from Financing Activities              
Cash was provided from/(disbursed to)              
Net Issue/(repayment) of circulating currency 234 84 326 86 87 88 88
Net issue/(repayment) of government bonds1 1,158 464 16,538 9,324 9,041 9,133 (1,355)
Net issue/(repayment) of foreign-currency borrowings 348 (210) (3,628) (115) 306 930 (194)
Net issue/(repayment) of other New Zealand dollar borrowings 5,847 45,958 11,230 6,602 (3,093) (12,187) (6,335)
Dividends paid to minority interests2 (373) (267) (365) (359) (349) (367) (384)
Net cash flows from financing activities 7,214 46,029 24,101 15,538 5,992 (2,403) (8,180)
Net movement in cash (1,839) (2,529) (1,776) (1,427) 226 365 59
Opening cash balance 21,927 14,947 18,755 16,816 15,389 15,615 15,980
Foreign-exchange gains/(losses) on opening cash (1,333) 4 (163)
Closing cash balance 18,755 12,422 16,816 15,389 15,615 15,980 16,039
  1. Further information on the proceeds and repayments of government bonds is available in the core Crown residual cash summary included in the attached Fiscal Indicator Analysis section.
  2. Excludes transactions with ACC and NZS Fund.

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Cash Flows (continued)
for the years ending 30 June

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Reconciliation Between the Net Cash Flows from Operations and the Operating Balance              
Net Cash Flows from Operations 3,104 (10,342) (12,984) 6,652 7,650 20,027 17,334
Items included in the operating balance but not in net cash flows from operations              
Gains/(losses) and Other Interests              
Net gains/(losses) on large scale asset purchases (3,976) (791) (1)
Net gains/(losses) on financial instruments 18,130 3,769 3,039 4,712 5,593 6,020 6,462
Net gains/(losses) on non-financial instruments 6,869 (135) (5,939) (74) (80) (80) (80)
Net surplus/(deficit) from associates and joint ventures (360) (98) 106 87 117 146 170
Minority interest share of operating balance (117) (262) (203) (224) (410) (428) (437)
Total gains/(losses) and other interests 20,546 2,483 (2,998) 4,501 5,220 5,658 6,115
Other Non-cash Items in Operating Balance              
Depreciation (5,566) (5,756) (6,145) (6,330) (6,458) (6,685) (6,740)
Amortisation (1,198) (831) (873) (926) (931) (907) (904)
Cost of concessionary lending (1,039) (746) (763) (727) (665) (643) (671)
Impairment of financial assets (excluding receivables) (1) (100) (73) (89) (44) (21) (25)
Decrease/(increase) in insurance liabilities (1,868) (1,445) (1,492) (2,168) (2,562) (2,773) (3,077)
Other 149
Total other non-cash Items (9,523) (8,878) (9,346) (10,240) (10,660) (11,029) (11,417)
Working Capital and Other Movements              
Increase/(decrease) in receivables 1,481 (550) (681) 1,229 5,507 (4,516) 741
Increase/(decrease) in accrued interest 1,126 983 377 398 400 460 372
Increase/(decrease) in inventories 421 424 137 362 428 386 330
Increase/(decrease) in prepayments 63 12 49 (5) (25) 5 4
Decrease/(increase) in deferred revenue 40 (339) (141) (156) (232) (111) (105)
Decrease/(increase) in payables/provisions (1,832) (192) 782 441 (1,297) 420 644
Defined benefit retirement plan net expenditure 733 751 979 732 710 694 687
Total working capital and other movements 2,032 1,089 1,502 3,001 5,491 (2,662) 2,673
Operating balance (excluding minority interests) 16,159 (15,648) (23,826) 3,914 7,701 11,994 14,705

The accompanying notes and accounting policies are an integral part of these Statements.

Forecast Statement of Financial Position
as at 30 June

  Note 2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Assets                
Cash and cash equivalents 8 18,755 12,422 16,816 15,389 15,615 15,980 16,039
Receivables 8 26,829 24,660 25,809 27,213 32,804 28,288 29,030
Marketable securities, deposits and derivatives in gain 8 56,783 57,208 51,081 53,583 57,103 60,299 63,246
Share investments 8 48,539 46,248 52,436 55,683 59,177 62,981 66,939
Advances 8 45,612 63,739 57,409 70,218 70,451 64,367 57,871
Investments in controlled enterprises 8 4,718 5,126 5,273 6,267 7,618 9,235 10,949
Inventory   2,194 2,499 2,331 2,693 3,121 3,507 3,837
Other assets   3,928 3,447 3,614 3,693 3,454 3,358 3,456
Property, plant and equipment 10 213,216 201,003 223,315 231,959 239,083 242,002 244,419
Equity accounted investments1   14,421 14,695 15,084 15,644 16,028 16,271 16,435
Intangible assets and goodwill   3,601 4,384 4,061 4,202 4,131 3,980 3,849
Forecast for new capital spending 6 2,033 1,745 4,254 7,058 10,229 13,491
Top-down capital adjustment   (3,225) (2,240) (3,650) (4,910) (5,670) (6,180)
Total assets   438,596 434,239 456,734 487,148 510,733 514,827 523,381
Liabilities                
Issued currency   8,256 8,503 8,582 8,668 8,755 8,842 8,931
Payables 12 17,577 15,402 16,088 16,864 18,249 18,861 19,584
Deferred revenue   2,549 2,670 2,690 2,846 3,078 3,189 3,294
Borrowings 15 162,560 215,234 200,357 226,323 238,855 229,132 220,972
Insurance liabilities 5 60,336 59,973 65,062 67,230 69,792 72,564 75,642
Retirement plan liabilities 13 11,038 11,859 10,040 9,333 8,679 8,054 7,443
Provisions 14 19,087 18,411 21,085 19,052 18,528 17,143 15,550
Total liabilities   281,403 332,052 323,904 350,316 365,936 357,785 351,416
Total assets less total liabilities   157,193 102,187 132,830 136,832 144,797 157,042 171,965
Net Worth                
Taxpayers' funds   19,857 (11,061) (4,400) (463) 7,265 19,272 33,977
Property, plant and equipment revaluation reserve   134,003 112,003 133,902 133,915 133,922 133,927 133,931
Defined benefit plan revaluation reserve   (1,560) (3,035) (1,228) (1,027) (851) (691) (542)
Veterans' disability entitlements reserve   (659) (1,095) (659) (659) (659) (659) (659)
Other reserves   (172) (261) (333) (349) (352) (345) (349)
Total net worth attributable to the Crown   151,469 96,551 127,282 131,417 139,325 151,504 166,358
Net worth attributable to minority interest   5,724 5,636 5,548 5,415 5,472 5,538 5,607
Total net worth 16 157,193 102,187 132,830 136,832 144,797 157,042 171,965
  1. Equity accounted investments include Universities, Wānanga and City Rail Link Limited.

The accompanying notes and accounting policies are an integral part of these Statements.

Statement of Actual Commitments
as at 31 October

  As at
31 October
2021
$m
As at
30 June
2021
$m
Capital Commitments    
State highways 2,745 2,745
Specialist military equipment 2,354 5,166
Land and buildings 6,204 6,044
Other property, plant and equipment 4,473 1,863
Other capital commitments 942 1,031
Universities and Wānanga 875 875
Total capital commitments 17,593 17,724
Operating Commitments    
Non-cancellable accommodation leases 5,308 5,342
Other non-cancellable leases 3,855 3,866
Universities and Wānanga 1,137 1,137
Total operating commitments 10,300 10,345
Total commitments 27,893 28,069
Total Commitments by Segment    
Core Crown 13,796 14,090
Crown entities 9,151 9,063
State-owned Enterprises 6,897 6,896
Inter-segment eliminations (1,951) (1,980)
Total commitments 27,893 28,069

The accompanying notes and accounting policies are an integral part of these Statements.

Statement of Actual Contingent Liabilities and Assets
as at 31 October

  As at
31 October
2021
$m
As at
30 June
2021
$m
Quantifiable Contingent Liabilities    
Uncalled capital 8,306 8,568
Guarantees and indemnities 342 348
Legal proceedings and disputes 313 313
Other contingent liabilities 848 567
Total quantifiable contingent liabilities 9,809 9,796
Total Quantifiable Contingent Liabilities by Segment    
Core Crown 9,483 9,538
Crown entities 157 157
State-owned Enterprises  264 196
Inter-segment eliminations  (95) (95)
Total quantifiable contingent liabilities 9,809 9,796
Quantifiable Contingent Assets by Segment    
Core Crown 38 37
Crown entities 21 21
State-owned Enterprises
Total quantifiable contingent assets 59 58

More information on contingent liabilities (quantified and unquantified) is outlined in the Risks to the Fiscal Forecasts chapter.

The accompanying notes and accounting policies are an integral part of these Statements.

Notes to the Forecast Financial Statements#

NOTE 1: Sovereign Revenue (Accrual)

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Taxation Revenue (accrual)              
Individuals              
Source deductions 38,164 39,449 41,172 44,342 47,454 50,824 54,320
Other persons 8,773 7,076 9,244 10,095 11,089 11,744 12,446
Refunds (1,716) (2,015) (1,829) (2,027) (2,136) (2,237) (2,340)
Fringe benefit tax 608 648 622 645 670 697 723
Total individuals 45,829 45,158 49,209 53,055 57,077 61,028 65,149
Corporate Tax              
Gross companies tax 15,640 13,009 16,350 19,888 20,085 21,131 22,212
Refunds (344) (389) (407) (435) (436) (448) (463)
Non-resident withholding tax 472 472 579 641 689 712 732
Total corporate tax 15,768 13,092 16,522 20,094 20,338 21,395 22,481
Other Direct Income Tax              
Resident w/holding tax on interest income 1,000 1,016 869 1,461 1,670 1,808 1,897
Resident w/holding tax on dividend income 1,519 713 859 940 994 1,045 1,091
Total other direct income tax 2,519 1,729 1,728 2,401 2,664 2,853 2,988
Total direct income tax 64,116 59,979 67,459 75,550 80,079 85,276 90,618
Goods and Services Tax              
Gross goods and services tax 39,814 40,118 41,984 45,888 48,100 50,464 52,764
Refunds (14,252) (15,070) (15,242) (16,377) (17,138) (17,837) (18,535)
Total goods and services tax 25,562 25,048 26,742 29,511 30,962 32,627 34,229
Other Indirect Taxation              
Road and track user charges 1,930 1,953 1,929 2,067 2,152 2,226 2,294
Petroleum fuels excise – domestic production 1,084 1,212 1,008 33 33 34 34
Alcohol excise – domestic production 780 829 848 936 986 1,034 1,081
Petroleum fuels excise – imports1 1,061 1,016 1,075 2,077 2,108 2,141 2,168
Alcohol excise – imports1 469 446 509 526 555 582 608
Tobacco excise – imports1 1,637 1,463 1,761 1,793 1,810 1,818 1,821
Other customs duty 169 161 179 181 184 191 198
Gaming duties 237 235 245 258 265 273 281
Motor vehicle fees 231 222 231 227 230 233 235
Approved issuer levy and cheque duty 63 80 65 65 65 65 65
Energy resources levies 23 30 30 30 30 30 30
Total other indirect taxation 7,684 7,647 7,880 8,193 8,418 8,627 8,815
Total indirect taxation 33,246 32,695 34,622 37,704 39,380 41,254 43,044
Total taxation revenue 97,362 92,674 102,081 113,254 119,459 126,530 133,662
Other Sovereign Revenue (accrual)              
ACC levies 3,270 3,278 3,243 3,553 3,868 4,234 4,624
Emissions Trading revenue 1,634 1,467 2,741 2,831 3,180 3,223 3,317
Fire and Emergency levies 607 600 616 628 641 654 667
EQC levies 520 527 528 533 539 544 549
Child support and working for families penalties 383 203 285 221 232 231 231
Court fines 138 115 115 115 115 115 115
Other miscellaneous items 486 705 555 712 919 975 967
Total other sovereign revenue 7,038 6,895 8,083 8,593 9,494 9,976 10,470
Total sovereign revenue 104,400 99,569 110,164 121,847 128,953 136,506 144,132
  1. Customs excise-equivalent duty.

NOTE 1 (continued): Sovereign Receipts (Cash)

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Taxation Receipts (cash)              
Individuals              
Source deductions 37,307 39,229 41,234 44,109 47,206 50,558 54,034
Other persons 8,302 7,588 9,608 10,440 11,290 12,429 12,822
Refunds (2,307) (2,448) (2,425) (2,631) (2,693) (2,857) (2,991)
Fringe benefit tax 575 648 627 650 675 702 728
Total individuals 43,877 45,017 49,044 52,568 56,478 60,832 64,593
Corporate Tax              
Gross companies tax 16,973 14,685 16,759 20,258 20,809 22,848 23,348
Refunds (1,116) (1,456) (1,319) (1,249) (1,406) (1,440) (1,539)
Non-resident withholding tax 456 472 579 641 689 712 732
Total corporate tax 16,313 13,701 16,019 19,650 20,092 22,120 22,541
Other Direct Income Tax              
Resident w/holding tax on interest income 1,060 1,016 869 1,461 1,670 1,808 1,897
Resident w/holding tax on dividend income 1,491 713 859 940 994 1,045 1,091
Total other direct income tax 2,551 1,729 1,728 2,401 2,664 2,853 2,988
Total direct income tax 62,741 60,447 66,791 74,619 79,234 85,805 90,122
Goods and Services Tax              
Gross goods and services tax 38,576 39,419 41,379 45,277 43,032 54,414 52,181
Refunds (13,604) (14,910) (15,082) (16,217) (16,978) (17,677) (18,375)
Total goods and services tax 24,972 24,509 26,297 29,060 26,054 36,737 33,806
Other Indirect Taxation              
Road and track user charges 1,913 1,953 1,929 2,067 2,152 2,226 2,294
Petroleum fuels excise – domestic production 1,087 1,212 1,075 33 33 34 34
Alcohol excise – domestic production 768 829 848 936 986 1,034 1,081
Customs duty 3,304 3,065 3,467 4,462 4,650 4,725 4,789
Gaming duties 241 235 245 258 265 273 281
Motor vehicle fees 272 222 231 227 230 233 235
Approved issuer levy and cheque duty 61 80 65 65 65 65 65
Energy resources levies 23 30 30 30 30 30 30
Total other indirect taxation 7,669 7,626 7,890 8,078 8,411 8,620 8,809
Total indirect taxation 32,641 32,135 34,187 37,138 34,465 45,357 42,615
Total taxation receipts 95,382 92,582 100,978 111,757 113,699 131,162 132,737
Other Sovereign Receipts (cash)              
ACC levies 3,098 3,197 3,123 3,414 3,818 4,180 4,571
Emissions Trading receipts 1,322 707 1,588 1,182 1,140 1,073 976
Fire and Emergency levies 607 602 614 626 638 651 664
EQC levies 525 526 528 532 538 543 548
Child support and working for families penalties 203 191 212 205 213 213 213
Court fines 142 102 93 93 93 93 93
Other miscellaneous items 527 683 617 815 953 1,016 1,016
Total other sovereign receipts 6,424 6,008 6,775 6,867 7,393 7,769 8,081
Total sovereign receipts 101,806 98,590 107,753 118,624 121,092 138,931 140,818

NOTE 2: Investment Revenue/(Expenditure)

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Interest revenue 1,943 2,020 2,110 2,441 2,661 2,811 3,021
Interest Expenses              
Interest on financial liabilities 2,188 2,232 3,019 3,386 4,097 4,508 4,728
Interest unwind on provisions 84 119 102 180 222 239 244
Total interest expenses 2,272 2,351 3,121 3,566 4,319 4,747 4,972
Net interest revenue/(expense) (329) (331) (1,011) (1,125) (1,658) (1,936) (1,951)
Dividend revenue 903 1,101 1,069 1,225 1,330 1,439 1,546
Net gains/(losses) on large scale asset purchases (3,976) (791) (1)
Net gains/(losses) on financial instruments 18,130 3,769 3,039 4,712 5,593 6,020 6,462
Total investment revenue/(expenditure) 14,728 3,748 3,096 4,812 5,265 5,523 6,057

NOTE 3: Transfer Payments and Subsidies

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
New Zealand superannuation 16,569 17,691 17,794 19,342 20,745 22,050 23,593
Wage subsidy scheme 1,197 500 5,345
Family tax credit 2,103 2,064 2,098 2,293 2,333 2,511 2,538
Jobseeker support and emergency benefit 3,224 3,857 3,340 3,391 3,419 3,584 3,756
Accommodation assistance 2,302 2,498 2,325 2,241 2,188 2,239 2,296
Supported living payment 1,826 2,061 2,040 2,217 2,327 2,431 2,535
Sole parent support 1,455 1,720 1,698 1,803 1,836 1,858 1,893
KiwiSaver subsidies 916 974 977 1,026 1,074 1,123 1,171
Official development assistance 804 820 840 1,058 1,111 1,111 961
Other working for families tax credits 585 647 598 605 604 615 615
Student allowances 590 656 625 688 693 743 802
Winter energy payment 812 530 514 518 524 535 546
Disability assistance 409 417 414 424 434 443 452
Hardship assistance 479 591 505 548 589 638 689
Orphan's/unsupported child's benefit 293 332 319 366 388 406 422
Best start tax credit 271 405 374 413 414 417 418
COVID-19 resurgence support payment 200 3,157
Income related rent subsidy 106 80 110 111 110 110 110
Other social assistance benefits 1,286 1,112 1,109 1,201 1,237 1,255 1,276
Total transfer payments and subsidies 35,427 36,955 44,182 38,245 40,026 42,069 44,073

NOTE 4: Other Operating Expenses

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Grants and subsidies 9,594 10,675 11,585 10,126 10,057 9,298 9,358
Repairs and maintenance 2,368 2,082 1,939 1,976 2,066 2,148 2,161
Rental and leasing costs 1,516 1,551 1,599 1,597 1,594 1,607 1,605
Amortisation and impairment of non-financial assets 1,198 831 873 926 931 907 904
Impairment of financial assets 928 1,114 1,068 1,103 1,035 1,015 1,020
Cost of concessionary lending 1,039 746 763 727 665 643 671
Lottery prize payments 814 737 779 841 886 912 918
Inventory expenses and clinical supplies 2,096 2,177 2,166 2,425 2,592 2,813 2,717
Other operating expenses 34,249 39,060 42,129 35,233 35,530 33,943 33,133
Total other operating expenses 53,802 58,973 62,901 54,954 55,356 53,286 52,487

NOTE 5: Insurance

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Insurance expense by entity              
ACC 6,539 6,313 6,520 7,191 7,845 8,428 8,919
EQC 167 223 232 252 269 266 307
Southern Response 108 (18) (18) (19) (2) (1)
Other (incl. inter-segment eliminations) 24 20 29 30 30 31 31
Total insurance expenses 6,838 6,538 6,763 7,454 8,142 8,724 9,257
Insurance liability by entity              
ACC 59,133 59,328 64,309 66,633 69,287 72,214 75,291
EQC 803 542 632 516 434 283 286
Southern Response 353 53 58 18 7 2
Other (incl. inter-segment eliminations) 47 50 63 63 64 65 65
Total insurance liabilities 60,336 59,973 65,062 67,230 69,792 72,564 75,642
ACC liability
Calculation information

Taylor Fry has prepared an independent actuarial estimate of the ACC outstanding claims liability as at 30 June 2021. This estimate includes the expected future payments relating to accidents that occurred prior to balance date (whether or not the associated claims have been reported to, or accepted by, ACC) and also the expected future administrative expenses of managing these claims. The estimate also includes a risk margin to provide for a higher degree of certainty that the liability for outstanding claims, at balance date, will be adequate to cover possible adverse developments. The assumptions underpinning this valuation form the basis of the five-year forecast of the outstanding claims liability.

The key economic variables that impact on changes to the valuation are the long-term Labour Cost Index (LCI), Average Weekly Earnings (AWE), the rate of inflation and the discount rate. Discount rates were derived from the yield curve for New Zealand Government bonds. For these forecast statements, the claims liability has been updated for the latest discount rates as at 30 September 2021. The equivalent single effective discount rate, taking into account ACC's projected future cash flow patterns, is 2.87% and allows for a long-term discount rate of 4.30% from 2065.

Other key variables in each valuation are the forecast increases in claim costs over and above the economic variables above, and the assumed rate at which long-term claimants will leave the scheme over the period. This assessment is largely based on scheme history.

Presentation approach

ACC has a portfolio of assets that offset the claims liability. The assets below (less cross-holdings of NZ Government stock) are included as assets in the Statement of Financial Position.

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Gross ACC Liability              
Opening gross liability 64,946 57,608 59,133 64,309 66,633 69,287 72,214
Net change (5,813) 1,720 5,176 2,324 2,654 2,927 3,077
Closing gross liability 59,133 59,328 64,309 66,633 69,287 72,214 75,291
Less Net Assets Available to ACC              
Opening net asset value 48,987 50,831 53,143 53,703 54,500 55,594 56,874
Net change 4,156 260 560 797 1,094 1,280 1,390
Closing net asset value 53,143 51,091 53,703 54,500 55,594 56,874 58,264
Net ACC Reserves (Net Liability)              
Opening reserves position (15,959) (6,777) (5,990) (10,606) (12,133) (13,693) (15,340)
Net change 9,969 (1,460) (4,616) (1,527) (1,560) (1,647) (1,687)
Closing reserves position (net liability)/net asset (5,990) (8,237) (10,606) (12,133) (13,693) (15,340) (17,027)

NOTE 6: Forecast New Spending and Top-down Adjustments

  2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Forecast New Operating Spending          
Unallocated operating contingencies 2,255 2,086 2,286 2,299 2,216
COVID-19 response and recovery funding 2,157 2,157
Climate Emergency Response Fund 353 303 303 458
Forecast new spending for Budget 2022 4,532 4,681 4,562 5,202
Forecast new spending for Budget 2023 4,000 4,000 4,000
Forecast new spending for Budget 2024 3,000 3,000
Forecast new spending for Budget 2025 3,000
Total forecast new operating spending 4,412 9,128 11,270 14,164 17,876

Unallocated operating contingencies represent operating expenses included in Budget 2021 and previous Budgets that have yet to be allocated to departments. Forecast new spending indicates the expected spending increases from future Budgets.

The forecast for new operating spending for Budget 2022 is $6.0 billion. Some of this allowance has been pre-committed as at the forecast finalisation date of 25 November 2021, with only the unallocated portion of the allowance included in this note.

As signalled in the 2022 Budget Policy Statement there will be scope for the Government to use future Budget operating allowances to fund multi-year funding decisions. This is likely to mean the amounts allocated by Budget year in the above table may differ. However, the impacts by fiscal year may not be affected.

  2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Post-2026
$m
Total
$m
Forecast New Capital Spending (annual)              
Unallocated capital contingencies 1,745 1,140 629 535 395 200 4,644
Climate Emergency Response Fund 563 563 563 563 2,252
Forecast new spending for Budgets 2022 - 2025 806 1,612 2,073 2,304 2,419 9,214
Total forecast new capital spending 1,745 2,509 2,804 3,171 3,262 2,619 16,110
Forecast new capital spending (cumulative) 1,745 4,254 7,058 10,229 13,491    

The Government has signalled a capital allowance of $9.8 billion for Budget 2022 through to Budget 2025. As at 25 November 2021, $9.2 billion of funding is assumed to remain available. Unallocated capital contingencies represent capital spending yet to be allocated to departments. Forecast new capital spending indicates the funding available for capital spending from future Budgets.

  2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Top-down Adjustments          
Top-down operating expense adjustment (4,130) (2,300) (1,475) (850) (750)
Top-down capital adjustment (cumulative) (2,240) (3,650) (4,910) (5,670) (6,180)

NOTE 7: Net Gains and Losses on Non-Financial Instruments

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Actuarial gains/(losses) on ACC outstanding claims 8,222 (3,235)
Gains/(losses) on the Emissions Trading Scheme (1,489) (3,033)
Other 136 (135) 329 (74) (80) (80) (80)
Net gains/(losses) on non-financial instruments 6,869 (135) (5,939) (74) (80) (80) (80)

NOTE 8: Financial Assets (including receivables)

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Cash and cash equivalents 18,755 12,422 16,816 15,389 15,615 15,980 16,039
Tax receivables 15,642 13,942 15,020 15,701 20,720 15,382 15,622
Trade and other receivables 11,187 10,718 10,789 11,512 12,084 12,906 13,408
Student loans (refer note 9) 10,841 10,615 10,561 10,357 10,147 9,923 9,665
Kiwi Group Holdings loans and advances 25,155 26,800 27,769 30,446 33,461 36,518 39,724
Long-term deposits 5,108 3,997 4,939 4,450 4,376 4,413 4,457
IMF financial assets 2,479 2,420 5,031 5,031 5,031 5,031 5,031
FLP advances 2,558 18,620 11,894 22,000 18,959 9,420
Other advances 7,058 7,704 7,185 7,415 7,884 8,506 8,482
Share investments 48,539 46,248 52,436 55,683 59,177 62,981 66,939
Investments in controlled enterprises 4,718 5,126 5,273 6,267 7,618 9,235 10,949
Derivatives in gain 4,509 5,811 3,529 2,518 2,197 2,060 1,927
Other marketable securities 44,687 44,980 37,582 41,584 45,499 48,795 51,831
Total financial assets (including receivables) 201,236 209,403 208,824 228,353 242,768 241,150 244,074
Financial Assets by Segment              
The Treasury 54,903 47,233 43,304 31,933 25,137 32,161 31,276
Reserve Bank of New Zealand 44,935 94,474 51,780 53,402 44,358 27,639 16,205
NZS Fund 62,312 64,862 65,741 71,203 77,354 83,919 90,708
Other core Crown 35,095 27,855 33,803 33,189 37,807 32,012 32,719
Intra-segment eliminations (68,586) (99,029) (58,158) (36,800) (23,625) (23,224) (21,032)
Total core Crown segment 128,659 135,395 136,470 152,927 161,031 152,507 149,876
ACC 54,271 51,340 54,498 54,577 55,680 56,968 58,364
EQC 602 452 566 641 743 787 950
Other Crown entities 16,788 13,834 15,360 16,932 19,292 20,636 21,369
Intra-segment eliminations (4,132) (2,991) (4,671) (5,515) (5,534) (5,565) (5,615)
Total Crown entities segment 67,529 62,635 65,753 66,635 70,181 72,826 75,068
Total State-owned Enterprises segment 32,872 35,827 35,215 38,192 41,840 45,659 49,313
Inter-segment eliminations (27,824) (24,454) (28,614) (29,401) (30,284) (29,842) (30,183)
Total financial assets (including receivables) 201,236 209,403 208,824 228,353 242,768 241,150 244,074

NOTE 9: Student Loans

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Nominal value (including accrued interest) 16,260 16,491 16,402 16,608 16,791 16,971 17,151
Opening book value 10,395 10,833 10,841 10,561 10,357 10,147 9,923
Net new lending (including fees) 1,430 1,576 1,488 1,613 1,647 1,704 1,756
Less initial write-down to fair value (469) (515) (523) (588) (609) (638) (667)
Repayments made during the year (1,495) (1,508) (1,518) (1,562) (1,620) (1,684) (1,750)
Interest unwind 235 194 235 296 336 359 368
Unwind of administration costs 38 35 38 37 36 35 35
Experience/actuarial adjustments:              
-   Expected repayment adjustments 487
-   Discount rate adjustments 220
Closing book value 10,841 10,615 10,561 10,357 10,147 9,923 9,665

NOTE 10: Property, Plant and Equipment

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Net Carrying Value1              
By class of asset              
Land 70,292 58,185 71,096 71,149 71,216 71,569 72,323
Buildings 53,507 53,466 58,247 62,804 66,072 66,420 66,105
State highways 42,666 43,348 44,752 46,390 48,148 49,670 50,949
Electricity generation assets 17,979 16,583 18,820 19,042 18,969 18,867 19,070
Electricity distribution network (cost) 4,318 4,485 4,240 4,414 4,590 4,836 5,091
Aircraft (excluding military) 3,611 4,005 3,901 4,176 4,786 5,370 5,953
Specialist military equipment 3,649 4,194 4,262 5,103 5,622 5,791 5,401
Specified cultural and heritage assets 3,156 3,103 3,173 3,190 3,197 3,203 3,209
Rail network 7,407 6,755 7,737 8,089 8,561 8,622 8,802
Other plant and equipment (cost) 6,631 6,879 7,087 7,602 7,922 7,654 7,516
Total property, plant and equipment 213,216 201,003 223,315 231,959 239,083 242,002 244,419
Land breakdown by usage              
Housing 25,826 20,065 26,481 26,607 27,002 27,268 27,924
State highway corridor land 18,469 14,323 18,243 17,999 17,555 17,515 17,475
Conservation estate 7,159 6,726 7,144 7,151 7,153 7,154 7,156
Rail network 3,802 3,875 3,855 3,907 3,946 3,973 4,001
Schools 7,106 6,165 7,239 7,319 7,399 7,479 7,559
Commercial (SOEs) excluding Rail 1,167 1,196 1,232 1,245 1,243 1,252 1,264
Other 6,763 5,835 6,902 6,921 6,918 6,928 6,944
Total land 70,292 58,185 71,096 71,149 71,216 71,569 72,323
Schedule of Movements              
Cost or Valuation              
Opening balance 205,689 215,933 231,234 247,093 261,858 275,247 284,663
Additions2 10,762 16,094 16,556 15,755 14,133 9,787 9,298
Disposals (1,101) (1,062) (549) (889) (644) (299) (793)
Net revaluations 16,131    -  (69)    -     -     -     - 
Other (247) (82) (79) (101) (100) (72) (71)
Total cost or valuation 231,234 230,883 247,093 261,858 275,247 284,663 293,097
Accumulated Depreciation and Impairment              
Opening balance 19,187 24,376 18,018 23,778 29,899 36,164 42,661
Eliminated on disposal (636) (252) (393) (200) (192) (189) (719)
Eliminated on revaluation (5,979)    -     -     -     -     -     - 
Impairment losses charged to operating balance (58)    -     -     -     -     -     - 
Depreciation expense 5,566 5,756 6,145 6,330 6,458 6,685 6,740
Other (62)    -  8 (9) (1) 1 (4)
Total accumulated depreciation and impairment 18,018 29,880 23,778 29,899 36,164 42,661 48,678
Total property, plant and equipment 213,216 201,003 223,315 231,959 239,083 242,002 244,419
  1. Using a revaluation methodology unless otherwise stated.
  2. Additions do not include any purchases which may result from the allocation of the forecast for new capital spending (separately disclosed in the Statement of Financial Position).

NOTE 11: NZ Superannuation Fund

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Revenue 742 864 800 911 1,014 1,127 1,252
Less current tax expense 2,156 993 838 1,174 1,279 1,394 1,524
Less other expenses 125 217 237 280 302 328 356
Add gains/(losses) 12,786 3,514 2,775 4,289 4,649 5,043 5,489
Operating balance 11,247 3,168 2,500 3,746 4,082 4,448 4,861
Opening net worth 43,997 53,480 57,365 62,285 68,015 74,057 80,509
Gross contribution from the Crown 2,120 2,420 2,420 1,984 1,960 2,004 1,851
Operating balance 11,247 3,168 2,500 3,746 4,082 4,448 4,861
Other movements in reserves 1
Closing net worth 57,365 59,068 62,285 68,015 74,057 80,509 87,221
Comprising:              
Financial assets 62,312 64,862 65,741 71,203 77,354 83,919 90,708
Financial liabilities (4,949) (5,784) (3,442) (3,169) (3,276) (3,386) (3,458)
Net other assets 2 (10) (14) (19) (21) (24) (29)
Closing net worth 57,365 59,068 62,285 68,015 74,057 80,509 87,221

NOTE 12: Payables

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Accounts payable 12,179 10,235 10,597 11,325 12,662 13,225 13,900
Taxes repayable 5,398 5,167 5,491 5,539 5,587 5,636 5,684
Total payables 17,577 15,402 16,088 16,864 18,249 18,861 19,584

NOTE 13: Retirement Plan Liabilities

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Government Superannuation Fund 11,038 11,846 10,034 9,327 8,673 8,048 7,437
Other funds 13 6 6 6 6 6
Total retirement plan liabilities 11,038 11,859 10,040 9,333 8,679 8,054 7,443

The net liability of the Government Superannuation Fund (GSF) was calculated by GSF's actuary as at 30 September 2021. The liability arises from closed schemes for past and present public sector employees as set out in the Government Superannuation Fund Act 1956. A Projected Unit Credit method was used to calculate the liability as at 30 June 2022, based on membership data as at 30 June 2021. The funding method requires the benefits payable from GSF in respect of past service to be calculated and then discounted back to the valuation date. For these Forecast Financial Statements, the net GSF liability was updated for the latest discount rates derived from the market yield curve for New Zealand Government bonds as at 30 September 2021.

Other principal long-term financial assumptions were an inflation rate, as measured by the Consumers Price Index (CPI), of 2.01% p.a. for the year ended 30 June 2022 It stays at this level until 2058 when it decreases to 2.0% p.a. and remains at 2.0% p.a. for all years after that. In addition an annual salary growth rate, before any promotional effects, of 2.5% p.a. (2.5% p.a. at 30 June 2020).

The 2021/22 projected decrease in the net GSF liability is $1,004 million, reflecting a decrease in the GSF liability of $850 million and an increase in the GSF net assets of $154 million.

The overall decrease in the GSF liability of $850 million includes an actuarial gain (which decreases the liability) between 1 July 2021 and 30 June 2022, of $32 million, largely owing to movements in the demographic assumptions ($227 million) which are largely offset by changes in the CPI rates ($207 million). The difference of $818 million is owing to the current service cost and interest unwind (increases the liability) which is more than offset by benefits paid to members (reducing the liability).

The increase in the value of the net assets of GSF of $154 million includes a revaluation gain of $301 million reflecting the updated market value of assets at 30 September 2021. The balance of $147 million is owing to the total of the expected investment returns and expected investment gains/losses and contributions received/receivable, which is more than offset by expenses and the benefits paid/payable to members.

The changes in the projected net GSF liability from 2021/22 onwards reflect the net of the expected current service cost, interest cost, investment returns and contributions.

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
GSF Liability              
Opening GSF liability 18,238 17,328 16,240 15,390 14,679 14,017 13,384
Net projected change (1,998) (831) (850) (711) (662) (633) (621)
Closing GSF liability 16,240 16,497 15,390 14,679 14,017 13,384 12,763
Less Net Assets Available to GSF              
Opening net asset value 4,268 4,617 5,202 5,356 5,352 5,344 5,336
Investment valuation changes 1,146 226 320 261 261 261 260
Contribution and other income less benefit payments (212) (192) (166) (265) (269) (269) (270)
Closing net asset value 5,202 4,651 5,356 5,352 5,344 5,336 5,326
Net GSF Liability              
Opening unfunded liability 13,970 12,711 11,038 10,034 9,327 8,673 8,048
Net projected change (2,932) (865) (1,004) (707) (654) (625) (611)
Closing unfunded liability 11,038 11,846 10,034 9,327 8,673 8,048 7,437

NOTE 14: Provisions

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Provision for employee entitlements 6,363 6,396 5,557 4,827 4,814 4,405 4,369
Provision for NZ ETS credits 5,824 5,339 9,092 8,782 8,031 7,131 6,046
Provision for National Provident Fund guarantee 762 709 694 631 572 516 460
Veterans' disability entitlements 3,036 3,452 2,944 2,862 2,789 2,723 2,663
Other provisions 3,102 2,515 2,798 1,950 2,322 2,368 2,012
Total provisions 19,087 18,411 21,085 19,052 18,528 17,143 15,550
Provision for NZ ETS credits

The New Zealand Emissions Trading Scheme (NZ ETS) was established to assist New Zealand in meeting its domestic and international climate change targets. The scheme puts a price on greenhouse gas (GHG) emissions to create a financial incentive for businesses to reduce their emissions, and landowners to plant forests to absorb carbon. The NZ ETS creates tradable New Zealand Units (NZUs) which the Government can allocate for free to certain business to recognise the impact that the additional costs imposed by the NZ ETS could have on their international competitiveness. The Government also allocates NZUs to participants for GHG emissions removals. The allocation of NZUs creates a provision if allocated for free; the provision is reduced, and revenue recognised, as NZUs are surrendered to the Crown by emitters. The Government also sells a limited volume of NZUs directly to the market via auction. The NZ ETS provision represents the tradeable NZUs outstanding that will be accepted as emitters honour the emissions obligations under the NZ ETS.

Emitters can meet their emissions obligations by surrendering NZUs they hold to the Crown. NZUs purchased through Government auctions result in cash receipts for the Crown. NZUs purchased at Government auctions result in an increase to the NZ ETS provision as new units are created, but not immediately surrendered.

The prices for NZUs used to calculate the NZ ETS provision are assumed to remain constant over the forecast period and are based on market price at 30 September 2021 ($64.50).

The movement in the NZ ETS provision is as follows:

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Opening provision 3,804 5,255 5,824 9,092 8,782 8,031 7,131
Additional provision 938 844 1,388 1,339 1,289 1,250 1,256
Provision utilised (529) (1,467) (2,674) (2,831) (3,180) (3,223) (3,317)
Auctioned units 336 707 1,521 1,182 1,140 1,073 976
(Gains)/losses 1,489    -  3,033    -     -     -     - 
Other movements (214)    -     -     -     -     -     - 
Closing provision for NZ ETS credits 5,824 5,339 9,092 8,782 8,031 7,131 6,046

NOTE 15: Borrowings

NOTE 15: Borrowings
  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Borrowings              
Government bonds 70,653 69,350 87,410 96,542 105,206 113,880 112,068
Treasury bills 7,593 4,797 3,588 2,986 2,983 2,981 2,979
Government retail stock 182 214 170 170 170 170 170
Settlement deposits with Reserve Bank 29,466 79,152 48,296 61,076 59,118 35,568 24,387
Derivatives in loss 5,056 2,982 5,022 3,948 3,685 3,457 3,344
Finance lease liabilities 1,307 1,309 1,363 1,381 1,108 1,134 1,232
Other borrowings 48,303 57,430 54,508 60,220 66,585 71,942 76,792
Total borrowings 162,560 215,234 200,357 226,323 238,855 229,132 220,972
By guarantee              
Sovereign-guaranteed debt 117,641 162,365 149,675 171,016 178,009 163,235 150,577
Non sovereign-guaranteed debt 44,919 52,869 50,682 55,307 60,846 65,897 70,395
Total borrowings 162,560 215,234 200,357 226,323 238,855 229,132 220,972

This note constitutes a Statement of Borrowings as required by the Public Finance Act 1989.

Total borrowings can be split into sovereign-guaranteed and non-sovereign-guaranteed debt. This split reflects the fact that borrowings by SOEs and Crown entities are not explicitly guaranteed by the Crown.

NOTE 16: Changes in Net Worth

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Taxpayers' funds 19,857 (11,061) (4,400) (463) 7,265 19,272 33,977
Property, plant and equipment revaluation reserve 134,003 112,003 133,902 133,915 133,922 133,927 133,931
Defined benefit plan revaluation reserve (1,560) (3,035) (1,228) (1,027) (851) (691) (542)
Veterans' disability entitlements reserve (659) (1,095) (659) (659) (659) (659) (659)
Intangible asset reserve (7) (7) (7) (7) (7) (7) (7)
Cash flow hedge reserve (297) (433) (430) (452) (461) (457) (462)
Fair value hedge reserve 195 236 174 180 186 189 190
Foreign currency translation reserve (63) (57) (70) (70) (70) (70) (70)
Net worth attributable to minority interests 5,724 5,636 5,548 5,415 5,472 5,538 5,607
Total net worth 157,193 102,187 132,830 136,832 144,797 157,042 171,965
Taxpayers' funds              
Opening taxpayers' funds 3,154 4,600 19,857 (4,400) (463) 7,265 19,272
Operating balance excluding minority interests 16,159 (15,648) (23,826) 3,914 7,701 11,994 14,705
Transfers from/(to) other reserves 536 32
Other movements 8 (13) (463) 23 27 13
Closing taxpayers' funds 19,857 (11,061) (4,400) (463) 7,265 19,272 33,977
Property, Plant and Equipment Revaluation Reserve              
Opening property, plant and equipment revaluation reserve 112,334 112,003 134,003 133,902 133,915 133,922 133,927
Net revaluations 22,539 (69)
Transfers from/(to) other reserves (439) (32) 13 7 5 4
Net revaluations attributable to minority interests (431)
Closing property, plant and equipment revaluation reserve 134,003 112,003 133,902 133,915 133,922 133,927 133,931

Statement of Segments#

Statement of Financial Performance
for the year ended 30 June 2021

  Core Crown
2021
Actual
$m
Crown entities
2021
Actual
$m
State-owned
Enterprises
2021
Actual
$m
Inter-segment
eliminations
2021
Actual
$m
Total Crown
2021
Actual
$m
Revenue          
Taxation revenue 97,983 (621) 97,362
Other sovereign revenue 2,745 6,220 (1,927) 7,038
Revenue from core Crown funding 36,138 761 (36,899)
Sales of goods and services 1,543 3,104 14,474 (621) 18,500
Interest revenue 716 785 791 (349) 1,943
Other revenue 1,981 3,804 839 (2,132) 4,492
Total revenue (excluding gains) 104,968 50,051 16,865 (42,549) 129,335
Expenses          
Social assistance and official development assistance 36,521 (1,094) 35,427
Personnel expenses 9,358 17,929 2,582 (52) 29,817
Other operating expenses 59,967 27,210 13,570 (41,379) 59,368
Interest expenses 1,918 218 592 (456) 2,272
Insurance expenses 6,831 6 1 6,838
Total expenses (excluding losses) 107,764 52,188 16,750 (42,980) 133,722
Total gains/(losses) and other items 7,500 11,927 139 980 20,546
Operating balance 4,704 9,790 254 1,411 16,159
Expenses by functional classification          
Social security and welfare 36,759 7,968 (1,835) 42,892
Health 22,784 18,856 (19,042) 22,598
Education 16,039 12,841 (11,496) 17,384
Transport and communications 5,656 4,259 5,836 (5,416) 10,335
Other 24,608 8,046 10,322 (4,735) 38,241
Finance costs 1,918 218 592 (456) 2,272
Total expenses (excluding losses) 107,764 52,188 16,750 (42,980) 133,722

Statement of Financial Position
as at 30 June 2021

  Core Crown
2021
Actual
$m
Crown entities
2021
Actual
$m
State-owned
Enterprises
2021
Actual
$m
Inter-segment
eliminations
2021
Actual
$m
Total Crown
2021
Actual
$m
Assets          
Cash and cash equivalents 13,129 4,686 1,993 (1,053) 18,755
Receivables 20,237 7,385 2,218 (3,011) 26,829
Other financial assets 95,294 55,457 28,662 (23,761) 155,652
Property, plant and equipment 51,920 119,682 41,614 213,216
Equity accounted investments 53,877 12,836 309 (52,601) 14,421
Intangible assets and goodwill 1,637 833 1,364 (233) 3,601
Inventory and other assets 3,261 1,595 1,490 (224) 6,122
Total assets 239,355 202,474 77,650 (80,883) 438,596
Liabilities          
Borrowings 132,543 11,836 38,433 (20,252) 162,560
Other liabilities 46,274 74,494 9,702 (11,627) 118,843
Total liabilities 178,817 86,330 48,135 (31,879) 281,403
Total assets less total liabilities 60,538 116,144 29,515 (49,004) 157,193
Net worth          
Taxpayers' funds 29,364 38,227 7,494 (55,228) 19,857
Reserves 31,174 77,917 15,965 6,556 131,612
Net worth attributable to minority interest 6,056 (332) 5,724
Total net worth 60,538 116,144 29,515 (49,004) 157,193

Forecast Statement of Segments (continued)#

Statement of Financial Performance
for the year ended 30 June 2022

  Core Crown
2022
Forecast
$m
Crown entities
2022
Forecast
$m
State-owned
Enterprises
2022
Forecast
$m
Inter-segment
eliminations
2022
Forecast
$m
Total Crown
2022
Forecast
$m
Revenue          
Taxation revenue 102,561 (480) 102,081
Other sovereign revenue 3,751 6,355 (2,023) 8,083
Revenue from core Crown funding 39,577 653 (40,230)
Sales of goods and services 1,662 2,612 13,621 (624) 17,271
Interest revenue 780 766 896 (332) 2,110
Other revenue 1,979 4,557 1,047 (2,862) 4,721
Total revenue (excluding gains) 110,733 53,867 16,217 (46,551) 134,266
Expenses          
Social assistance and official development assistance 45,418 (1,236) 44,182
Personnel expenses 9,842 19,760 2,139 (41) 31,700
Other operating expenses 69,795 29,994 13,254 (43,997) 69,046
Interest expenses 2,688 220 629 (416) 3,121
Insurance expenses 3 6,752 8 6,763
Forecast for future new spending 4,412 4,412
Top-down operating expense adjustment (4,130) (4,130)
Total expenses (excluding losses) 128,028 56,726 16,030 (45,690) 155,094
Total gains/(losses) and other items (338) (2,681) 240 (219) (2,998)
Operating balance (17,633) (5,540) 427 (1,080) (23,826)
Expenses by functional classification          
Social security and welfare 43,342 8,114 (1,902) 49,554
Health 27,813 20,836 (21,238) 27,411
Education 18,227 14,142 (13,352) 19,017
Transport and communications 4,834 5,079 6,877 (4,628) 12,162
Other 30,842 8,335 8,524 (4,154) 43,547
Finance costs 2,688 220 629 (416) 3,121
Forecast for future new spending 4,412 4,412
Top-down operating expense adjustment (4,130) (4,130)
Total expenses (excluding losses) 128,028 56,726 16,030 (45,690) 155,094

Statement of Financial Position
as at 30 June 2022

  Core Crown
2022
Forecast
$m
Crown entities
2022
Forecast
$m
State-owned
Enterprises
2022
Forecast
$m
Inter-segment
eliminations
2022
Forecast
$m
Total Crown
2022
Forecast
$m
Assets          
Cash and cash equivalents 12,067 3,769 2,033 (1,053) 16,816
Receivables 19,788 6,578 1,918 (2,475) 25,809
Other financial assets 104,615 55,406 31,264 (25,086) 166,199
Property, plant and equipment 54,111 126,433 42,771 223,315
Equity accounted investments 58,886 13,025 293 (57,120) 15,084
Intangible assets and goodwill 2,038 826 1,446 (249) 4,061
Inventory and other assets 3,259 1,708 1,098 (120) 5,945
Forecast for new capital spending 1,745 1,745
Top-down capital adjustment (2,240) (2,240)
Total assets 254,269 207,745 80,823 (86,103) 456,734
Liabilities          
Borrowings 163,809 15,431 41,420 (20,303) 200,357
Other liabilities 47,632 77,967 8,851 (10,903) 123,547
Total liabilities 211,441 93,398 50,271 (31,206) 323,904
Total assets less total liabilities 42,828 114,347 30,552 (54,897) 132,830
Net worth          
Taxpayers' funds 11,301 36,549 8,848 (61,098) (4,400)
Reserves 31,527 77,798 15,823 6,534 131,682
Net worth attributable to minority interest 5,881 (333) 5,548
Total net worth 42,828 114,347 30,552 (54,897) 132,830

Statement of Financial Performance
for the year ended 30 June 2023

  Core Crown
2023
Forecast
$m
Crown entities
2023
Forecast
$m
State-owned
Enterprises
2023
Forecast
$m
Inter-segment
eliminations
2023
Forecast
$m
Total Crown
2023
Forecast
$m
Revenue          
Taxation revenue 113,753 (499) 113,254
Other sovereign revenue 3,909 6,822 (2,138) 8,593
Revenue from core Crown funding 37,311 634 (37,945)
Sales of goods and services 1,712 2,863 14,737 (623) 18,689
Interest revenue 820 848 1,148 (375) 2,441
Other revenue 2,088 5,192 720 (3,108) 4,892
Total revenue (excluding gains) 122,282 53,036 17,239 (44,688) 147,869
Expenses          
Social assistance and official development assistance 39,536 (1,291) 38,245
Personnel expenses 9,329 19,730 2,062 (42) 31,079
Other operating expenses 61,581 28,119 13,543 (41,959) 61,284
Interest expenses 2,925 305 832 (496) 3,566
Insurance expenses 3 7,443 8 7,454
Forecast for future new spending 9,128 9,128
Top-down operating expense adjustment (2,300) (2,300)
Total expenses (excluding losses) 120,202 55,597 16,445 (43,788) 148,456
Total gains/(losses) and other items 4,301 586 (258) (128) 4,501
Operating balance 6,381 (1,975) 536 (1,028) 3,914
Expenses by functional classification          
Social security and welfare 40,011 8,853 (1,954) 46,910
Health 23,903 19,396 (20,488) 22,811
Education 17,747 14,038 (13,058) 18,727
Transport and communications 3,815 4,609 7,296 (3,926) 11,794
Other 24,973 8,396 8,317 (3,866) 37,820
Finance costs 2,925 305 832 (496) 3,566
Forecast for future new spending 9,128 9,128
Top-down operating expense adjustment (2,300) (2,300)
Total expenses (excluding losses) 120,202 55,597 16,445 (43,788) 148,456

Statement of Financial Position
as at 30 June 2023

  Core Crown
2023
Forecast
$m
Crown entities
2023
Forecast
$m
State-owned
Enterprises
2023
Forecast
$m
Inter-segment
eliminations
2023
Forecast
$m
Total Crown
2023
Forecast
$m
Assets          
Cash and cash equivalents 11,305 3,142 1,907 (965) 15,389
Receivables 20,709 6,922 2,002 (2,420) 27,213
Other financial assets 120,913 56,571 34,283 (26,016) 185,751
Property, plant and equipment 55,862 132,338 43,759 231,959
Equity accounted investments 64,939 13,123 298 (62,716) 15,644
Intangible assets and goodwill 2,104 825 1,561 (288) 4,202
Inventory and other assets 3,306 2,107 1,091 (118) 6,386
Forecast for new capital spending 4,254 4,254
Top-down capital adjustment (3,650) (3,650)
Total assets 279,742 215,028 84,901 (92,523) 487,148
Liabilities          
Borrowings 184,928 17,690 44,548 (20,843) 226,323
Other liabilities 45,403 80,217 9,054 (10,681) 123,993
Total liabilities 230,331 97,907 53,602 (31,524) 350,316
Total assets less total liabilities 49,411 117,121 31,299 (60,999) 136,832
Net worth          
Taxpayers' funds 17,682 39,324 9,740 (67,209) (463)
Reserves 31,729 77,797 15,818 6,536 131,880
Net worth attributable to minority interest 5,741 (326) 5,415
Total net worth 49,411 117,121 31,299 (60,999) 136,832

Statement of Financial Performance
for the year ended 30 June 2024

  Core Crown
2024
Forecast
$m
Crown entities
2024
Forecast
$m
State-owned
Enterprises
2024
Forecast
$m
Inter-segment
eliminations
2024
Forecast
$m
Total Crown
2024
Forecast
$m
Revenue          
Taxation revenue 120,131 (672) 119,459
Other sovereign revenue 4,465 7,286 (2,257) 9,494
Revenue from core Crown funding 37,130 658 (37,788)
Sales of goods and services 1,833 2,975 15,854 (630) 20,032
Interest revenue 854 872 1,316 (381) 2,661
Other revenue 2,236 5,483 808 (3,248) 5,279
Total revenue (excluding gains) 129,519 53,746 18,636 (44,976) 156,925
Expenses          
Social assistance and official development assistance 41,411 (1,385) 40,026
Personnel expenses 9,219 19,144 2,027 (42) 30,348
Other operating expenses 60,939 28,838 14,424 (42,387) 61,814
Interest expenses 3,393 536 916 (526) 4,319
Insurance expenses 2 8,131 9 8,142
Forecast for future new spending 11,270 11,270
Top-down operating expense adjustment (1,475) (1,475)
Total expenses (excluding losses) 124,759 56,649 17,376 (44,340) 154,444
Total gains/(losses) and other items 4,981 793 (398) (156) 5,220
Operating balance 9,741 (2,110) 862 (792) 7,701
Expenses by functional classification          
Social security and welfare 41,460 9,525 (2,083) 48,902
Health 23,684 19,322 (20,564) 22,442
Education 17,643 13,948 (12,947) 18,644
Transport and communications 4,193 4,665 8,061 (4,450) 12,469
Other 24,591 8,653 8,399 (3,770) 37,873
Finance costs 3,393 536 916 (526) 4,319
Forecast for future new spending 11,270 11,270
Top-down operating expense adjustment (1,475) (1,475)
Total expenses (excluding losses) 124,759 56,649 17,376 (44,340) 154,444

Statement of Financial Position
as at 30 June 2024

  Core Crown
2024
Forecast
$m
Crown entities
2024
Forecast
$m
State-owned
Enterprises
2024
Forecast
$m
Inter-segment
eliminations
2024
Forecast
$m
Total Crown
2024
Forecast
$m
Assets          
Cash and cash equivalents 10,989 3,330 2,205 (909) 15,615
Receivables 26,136 7,168 2,072 (2,572) 32,804
Other financial assets 123,906 59,683 37,563 (26,803) 194,349
Property, plant and equipment 56,640 137,486 44,957 239,083
Equity accounted investments 70,901 13,229 307 (68,409) 16,028
Intangible assets and goodwill 2,037 823 1,601 (330) 4,131
Inventory and other assets 3,054 2,557 1,081 (117) 6,575
Forecast for new capital spending 7,058 7,058
Top-down capital adjustment (4,910) (4,910)
Total assets 295,811 224,276 89,786 (99,140) 510,733
Liabilities          
Borrowings 191,729 20,677 47,806 (21,357) 238,855
Other liabilities 44,752 83,759 9,387 (10,817) 127,081
Total liabilities 236,481 104,436 57,193 (32,174) 365,936
Total assets less total liabilities 59,330 119,840 32,593 (66,966) 144,797
Net worth          
Taxpayers' funds 27,423 42,042 10,976 (73,176) 7,265
Reserves 31,907 77,798 15,822 6,533 132,060
Net worth attributable to minority interest 5,795 (323) 5,472
Total net worth 59,330 119,840 32,593 (66,966) 144,797

Statement of Financial Performance
for the year ended 30 June 2025

  Core Crown
2025
Forecast
$m
Crown entities
2025
Forecast
$m
State-owned
Enterprises
2025
Forecast
$m
Inter-segment
eliminations
2025
Forecast
$m
Total Crown
2025
Forecast
$m
Revenue          
Taxation revenue 127,287 (757) 126,530
Other sovereign revenue 4,565 7,731 (2,320) 9,976
Revenue from core Crown funding 36,351 598 (36,949)
Sales of goods and services 1,870 3,227 16,242 (643) 20,696
Interest revenue 792 896 1,506 (383) 2,811
Other revenue 2,423 5,496 328 (2,842) 5,405
Total revenue (excluding gains) 136,937 53,701 18,674 (43,894) 165,418
Expenses          
Social assistance and official development assistance 43,455 (1,386) 42,069
Personnel expenses 9,129 19,153 2,017 (42) 30,257
Other operating expenses 58,953 27,794 14,653 (41,429) 59,971
Interest expenses 3,620 650 1,025 (548) 4,747
Insurance expenses 3 8,712 9 8,724
Forecast for future new spending 14,164 14,164
Top-down operating expense adjustment (850) (850)
Total expenses (excluding losses) 128,474 56,309 17,704 (43,405) 159,082
Total gains/(losses) and other items 5,331 936 (421) (188) 5,658
Operating balance 13,794 (1,672) 549 (677) 11,994
Expenses by functional classification          
Social security and welfare 43,405 10,156 (2,261) 51,300
Health 23,618 19,309 (20,605) 22,322
Education 17,467 13,785 (12,723) 18,529
Transport and communications 3,545 3,653 8,425 (3,857) 11,766
Other 23,505 8,756 8,254 (3,411) 37,104
Finance costs 3,620 650 1,025 (548) 4,747
Forecast for future new spending 14,164 14,164
Top-down operating expense adjustment (850) (850)
Total expenses (excluding losses) 128,474 56,309 17,704 (43,405) 159,082

Statement of Financial Position
as at 30 June 2025

  Core Crown
2025
Forecast
$m
Crown entities
2025
Forecast
$m
State-owned
Enterprises
2025
Forecast
$m
Inter-segment
eliminations
2025
Forecast
$m
Total Crown
2025
Forecast
$m
Assets          
Cash and cash equivalents 10,649 3,962 2,277 (908) 15,980
Receivables 21,180 7,457 2,322 (2,671) 28,288
Other financial assets 120,678 61,407 41,060 (26,263) 196,882
Property, plant and equipment 56,215 140,541 45,246 242,002
Equity accounted investments 74,807 13,366 316 (72,218) 16,271
Intangible assets and goodwill 1,954 808 1,589 (371) 3,980
Inventory and other assets 2,920 2,955 1,096 (106) 6,865
Forecast for new capital spending 10,229 10,229
Top-down capital adjustment (5,670) (5,670)
Total assets 292,962 230,496 93,906 (102,537) 514,827
Liabilities          
Borrowings 177,010 21,491 51,275 (20,644) 229,132
Other liabilities 42,663 87,516 9,507 (11,033) 128,653
Total liabilities 219,673 109,007 60,782 (31,677) 357,785
Total assets less total liabilities 73,289 121,489 33,124 (70,860) 157,042
Net worth          
Taxpayers' funds 41,217 43,695 11,432 (77,072) 19,272
Reserves 32,072 77,794 15,832 6,534 132,232
Net worth attributable to minority interest 5,860 (322) 5,538
Total net worth 73,289 121,489 33,124 (70,860) 157,042

Statement of Financial Performance
for the year ended 30 June 2026

  Core Crown
2026
Forecast
$m
Crown entities
2026
Forecast
$m
State-owned
Enterprises
2026
Forecast
$m
Inter-segment
eliminations
2026
Forecast
$m
Total Crown
2026
Forecast
$m
Revenue          
Taxation revenue 134,457 (795) 133,662
Other sovereign revenue 4,658 8,227 (2,415) 10,470
Revenue from core Crown funding 36,301 575 (36,876)
Sales of goods and services 1,880 3,163 16,536 (654) 20,925
Interest revenue 740 867 1,793 (379) 3,021
Other revenue 2,562 5,487 360 (2,881) 5,528
Total revenue (excluding gains) 144,297 54,045 19,264 (44,000) 173,606
Expenses          
Social assistance and official development assistance 45,460 (1,387) 44,073
Personnel expenses 9,062 19,320 2,022 (43) 30,361
Other operating expenses 58,392 27,530 14,833 (41,528) 59,227
Interest expenses 3,564 725 1,232 (549) 4,972
Insurance expenses 2 9,246 9 9,257
Forecast for future new spending 17,876 17,876
Top-down operating expense adjustment (750) (750)
Total expenses (excluding losses) 133,606 56,821 18,096 (43,507) 165,016
Total gains/(losses) and other items 5,701 1,042 (433) (195) 6,115
Operating balance 16,392 (1,734) 735 (688) 14,705
Expenses by functional classification          
Social security and welfare 45,447 10,702 (2,302) 53,847
Health 23,668 19,296 (20,668) 22,296
Education 17,561 13,790 (12,721) 18,630
Transport and communications 3,550 3,644 8,660 (3,921) 11,933
Other 22,690 8,664 8,204 (3,346) 36,212
Finance costs 3,564 725 1,232 (549) 4,972
Forecast for future new spending 17,876 17,876
Top-down operating expense adjustment (750) (750)
Total expenses (excluding losses) 133,606 56,821 18,096 (43,507) 165,016

Statement of Financial Position
as at 30 June 2026

  Core Crown
2026
Forecast
$m
Crown entities
2026
Forecast
$m
State-owned
Enterprises
2026
Forecast
$m
Inter-segment
eliminations
2026
Forecast
$m
Total Crown
2026
Forecast
$m
Assets          
Cash and cash equivalents 10,174 4,154 2,617 (906) 16,039
Receivables 21,722 7,806 2,245 (2,743) 29,030
Other financial assets 117,980 63,108 44,451 (26,534) 199,005
Property, plant and equipment 55,465 142,863 46,091 244,419
Equity accounted investments 77,444 13,513 333 (74,855) 16,435
Intangible assets and goodwill 1,863 798 1,594 (406) 3,849
Inventory and other assets 2,978 3,310 1,110 (105) 7,293
Forecast for new capital spending 13,491 13,491
Top-down capital adjustment (6,180) (6,180)
Total assets 294,937 235,552 98,441 (105,549) 523,381
Liabilities          
Borrowings 164,315 22,258 55,028 (20,629) 220,972
Other liabilities 40,795 91,207 9,779 (11,337) 130,444
Total liabilities 205,110 113,465 64,807 (31,966) 351,416
Total assets less total liabilities 89,827 122,087 33,634 (73,583) 171,965
Net worth          
Taxpayers' funds 57,608 44,290 11,872 (79,793) 33,977
Reserves 32,219 77,797 15,835 6,530 132,381
Net worth attributable to minority interest 5,927 (320) 5,607
Total net worth 89,827 122,087 33,634 (73,583) 171,965

Fiscal Indicator Analysis#

The purpose of the following fiscal indicator analysis is to provide a link between the Forecast Financial Statements (pages 109 to 131) based on GAAP, and the key fiscal indicators used to measure performance against the fiscal objectives set out in the Fiscal Strategy Report and the Budget Policy Statement.

The fiscal indicator analysis comprises five statements. These statements and their key purposes are described below:

Reconciliation between the Operating Balance and the Operating Balance before Gains and Losses

OBEGAL represents core Crown revenue less core Crown expenses plus surpluses from State-owned Enterprises and Crown Entities but does not include certain gains or losses from Government reporting entities. OBEGAL can provide a more useful measure of underlying stewardship than the operating balance as short-term market fluctuations are not included in the calculation.

Expenses by Functional Classification

This analysis is based on the Classification of Functions of Government as produced by the Organisation for Economic Co-operation and Development (OECD) and permits trends in government expenditure on particular functions to be examined over time.

Core Crown Residual Cash

The core Crown residual cash statement measures the core Crown cash surplus (or deficit), after operating and investing cash requirements are met, that is available for the Government to invest, repay debt, or, in the case of a deficit, fund in any given year.

Debt Indicators

The debt statement presents the calculation of both gross debt and net core Crown debt indicators.

Gross debt is defined as gross-sovereign issued debt and represents debt issued by the sovereign (core Crown) and includes Government stock held by the NZS Fund, Accident Compensation Corporation, and the Earthquake Commission. Gross debt excludes Reserve Bank settlement cash and Reserve Bank bills.

Net core Crown debt represents gross sovereign-issued debt less core Crown financial assets (excluding advances and financial assets held by the NZS Fund). Advances and financial assets held by the NZS Fund are excluded as these assets are less liquid and/or they are made for public policy reasons rather than for the purposes associated with government financing.

Reconciliation between the Financial Statements and the Key Fiscal Indicators

This statement shows how key lines in the financial statements flow through to the key fiscal indicators used to measure performance against the government's fiscal objectives.

The Government's key fiscal indicators

Under the Public Finance Act (1989) the Government is required to prepare financial statements and forecast financial statements in accordance with generally accepted accounting practice (GAAP). As part of communicating its fiscal strategy, the Government must report a number of GAAP fiscal measures, such as the operating balance and net worth. In addition, the Government can choose to accompany the GAAP fiscal measures with non‑GAAP fiscal indicators to help communicate progress towards its fiscal objectives.

Since the late 2000s, governments have been using the operating balance before gains and losses (OBEGAL) and net core Crown debt, which are both non-GAAP measures, as headline indicators to communicate their fiscal strategy.

Review of the fiscal indicators

As signalled in the Budget Update, the Treasury has been reviewing the appropriateness of the Government's current suite of fiscal indicators, primarily focussed on the current headline operating and debt indicator.

The recommendations from this review on changes to the current suite of fiscal indicators will be communicated as part of the He Puna Hao Pātiki: 2022 Investment Statement, with the aim for any changes to be implemented by Budget 2022.

Reconciliation Between the Operating Balance and the Operating Balance before Gains and Losses
for the years ending 30 June

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Operating Balance              
Total revenue 129,335 123,869 134,266 147,869 156,925 165,418 173,606
Total expenses 133,722 142,000 155,094 148,456 154,444 159,082 165,016
Total gains/(losses) 21,023 2,843 (2,901) 4,638 5,513 5,940 6,382
Net surplus from associates and joint ventures (360) (98) 106 87 117 146 170
Less Minority interests share of operating balance (117) (262) (203) (224) (410) (428) (437)
Operating balance 16,159 (15,648) (23,826) 3,914 7,701 11,994 14,705
Reconciliation Between the Operating Balance and the Operating Balance before Gains and Losses              
Operating balance 16,159 (15,648) (23,826) 3,914 7,701 11,994 14,705
Less items excluded from OBEGAL:              
Net gains/(losses) on large scale asset purchases (3,976) (791) (1)
Net gains/(losses) on financial instruments 18,130 3,769 3,039 4,712 5,593 6,020 6,462
Net gains/(losses) on non-financial instruments 6,869 (135) (5,939) (74) (80) (80) (80)
Minority interests share of total gains/(losses) 56 16 (187) 20 (8) (7) (4)
Net surplus from associates and joint ventures (360) (98) 106 87 117 146 170
OBEGAL (4,560) (18,409) (20,844) (831) 2,079 5,915 8,157

Expenses by Functional Classification
for the years ending 30 June

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Total Crown expenses              
By functional classification1              
Social security and welfare 42,892 45,005 49,554 46,910 48,902 51,300 53,847
Health 22,598 24,609 27,411 22,811 22,442 22,322 22,296
Education 17,384 19,166 19,017 18,727 18,644 18,529 18,630
Core government services 5,602 5,641 6,315 5,788 5,907 5,363 5,255
Law and order 5,533 5,848 5,999 6,016 5,942 5,894 5,879
Transport and communications 10,335 11,960 12,162 11,794 12,469 11,766 11,933
Economic and industrial services 13,429 11,010 14,846 10,800 10,732 10,439 10,477
Defence 2,648 2,735 2,780 2,738 2,848 2,876 2,881
Heritage, culture and recreation 3,023 3,179 3,328 3,048 3,054 3,055 3,076
Primary services 2,398 2,439 2,589 2,185 2,068 1,985 1,983
Housing and community development 3,351 4,389 4,474 4,712 4,688 5,067 4,314
Environmental protection 1,889 1,905 2,712 2,373 2,231 2,026 1,951
GSF pension expenses 114 103 91 77 73 70 67
Other 254 214 413 83 330 329 329
Finance costs 2,272 2,351 3,121 3,566 4,319 4,747 4,972
Forecast new operating spending 4,221 4,412 9,128 11,270 14,164 17,876
Top-down operating expense adjustment (2,775) (4,130) (2,300) (1,475) (850) (750)
Total Crown expenses excluding losses 133,722 142,000 155,094 148,456 154,444 159,082 165,016

Below is an analysis of core Crown expenses by functional classification. Core Crown expenses include expenses incurred by Ministers, Departments, Offices of Parliament, the NZS Fund and the Reserve Bank, but not Crown entities and SOEs.

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Core Crown expenses              
By functional classification1              
Social security and welfare 36,759 38,917 43,342 40,011 41,460 43,405 45,447
Health 22,784 25,048 27,813 23,903 23,684 23,618 23,668
Education 16,039 17,869 18,227 17,747 17,643 17,467 17,561
Core government services 5,754 5,639 6,158 5,778 5,968 5,488 5,353
Law and order 5,202 5,361 5,537 5,553 5,495 5,388 5,374
Transport and communications 5,656 4,371 4,834 3,815 4,193 3,545 3,550
Economic and industrial services 4,481 4,403 7,682 3,658 3,448 3,249 3,344
Defence 2,664 2,752 2,797 2,756 2,866 2,894 2,899
Heritage, culture and recreation 1,420 1,392 1,537 1,148 1,070 1,048 1,048
Primary services 1,015 1,063 1,195 939 857 848 824
Housing and community development 1,813 2,565 2,672 2,612 2,257 2,169 1,505
Environmental protection 1,906 1,918 2,776 2,385 2,243 2,038 1,963
GSF pension expenses 99 71 75 61 57 54 51
Other 254 214 413 83 330 329 329
Finance costs 1,918 1,688 2,688 2,925 3,393 3,620 3,564
Forecast new operating spending 4,221 4,412 9,128 11,270 14,164 17,876
Top-down operating expense adjustment (2,775) (4,130) (2,300) (1,475) (850) (750)
Total core Crown expenses excluding losses 107,764 114,717 128,028 120,202 124,759 128,474 133,606
  1. The classifications of the functions of the Government reflect current approved baselines. Forecast new operating spending is shown as a separate line item in the above analysis and will be allocated to functions of the Government once decisions are made in future Budgets.

Core Crown Residual Cash
for the years ending 30 June

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Core Crown Residual Cash              
Core Crown Cash Flows from Operations              
Tax receipts 96,551 95,986 104,033 113,677 115,384 133,048 134,808
Other sovereign receipts 2,287 1,612 2,532 2,312 2,416 2,413 2,317
Interest receipts 249 217 374 380 387 341 294
Sale of goods and services and other receipts 2,980 2,834 3,162 2,920 3,130 3,245 3,318
Transfer payments and subsidies (36,574) (38,492) (45,583) (39,730) (41,525) (44,617) (45,790)
Personnel and operating costs (63,894) (70,364) (74,766) (66,986) (64,657) (62,823) (62,602)
Interest payments (2,642) (2,082) (2,635) (3,005) (3,206) (3,496) (3,362)
Forecast for future new operating spending (4,221) (4,412) (9,128) (11,270) (14,164) (17,876)
Top-down operating expense adjustment 2,775 4,130 2,300 1,475 850 750
Net core Crown operating cash flows (1,043) (11,735) (13,165) 2,740 2,134 14,797 11,857
Core Crown Capital Cash Flows              
Net purchase of physical assets (3,137) (4,612) (4,781) (4,367) (2,985) (2,318) (1,786)
Net increase in advances (3,868) (14,175) (9,183) (10,883) 2,458 10,055 9,739
Net purchase of investments (3,599) (6,682) (5,046) (6,150) (6,056) (3,605) (2,669)
Contribution to NZS Fund (2,120) (2,420) (2,420) (1,984) (1,960) (2,004) (1,851)
Forecast for future new capital spending (2,033) (1,745) (2,509) (2,804) (3,171) (3,262)
Top-down capital adjustment 2,425 2,240 1,410 1,260 760 510
Net core Crown capital cash flows (12,724) (27,497) (20,935) (24,483) (10,087) (283) 681
Residual cash (deficit)/surplus (13,767) (39,232) (34,100) (21,743) (7,953) 14,514 12,538
The residual cash (deficit)/surplus is funded or invested as follows:              
Debt Programme Cash Flows              
Market:              
    Issue of government bonds 48,497 31,046 19,730 18,051 17,711 17,620 9,799
    Repayment of government bonds (11,059) (2,506) (16,198) (13,800) (14,850) (12,839)
    Net issue/(repayment) of short-term borrowing1 (4,148) (2,800) (5,359) (600)
Total market debt cash flows 33,290 28,246 11,865 1,253 3,911 2,770 (3,040)
Non-market:              
    Issue of government bonds
    Repayment of government bonds
    Net issue/(repayment) of short-term borrowing (460) (812) (201)
Total non-market debt cash flows (460) (812) (201)
Total debt programme cash flows 33,290 27,786 11,053 1,052 3,911 2,770 (3,040)
Other Borrowing Cash Flows              
Net (repayment)/issue of other New Zealand dollar borrowing (30,089) 13,095 9,090 9,244 (4,154) (11,318) (9,678)
Net (repayment)/issue of foreign currency borrowing 608 (229) (2,335) (118) 304 930 (194)
Total other borrowing cash flows (29,481) 12,866 6,755 9,126 (3,850) (10,388) (9,872)
Investing Cash Flows              
Net sale/(purchase) of marketable securities and deposits 6,042 (1,581) 16,824 11,461 7,803 (6,989) 282
Net issues/(repayments) of circulating currency 234 84 326 86 87 88 88
Decrease/(increase) in cash 3,682 77 (858) 18 2 5 4
Total investing cash flows 9,958 (1,420) 16,292 11,565 7,892 (6,896) 374
Residual cash deficit/(surplus) funding/(investing) 13,767 39,232 34,100 21,743 7,953 (14,514) (12,538)
  1. Short-term borrowing consists of Treasury Bills and may include Euro-Commercial Paper.

Debt Indicators
as at 30 June

  2021
Actual
$m
2022
Previous
Budget
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Net Debt:              
Gross sovereign-issued debt1 131,256 174,495 161,569 182,674 189,478 174,757 162,060
Less liquid financial assets (per net debt definition) (29,176) (21,184) (25,264) (24,783) (23,980) (24,118) (24,130)
Net core Crown Debt 102,080 153,311 136,305 157,891 165,498 150,639 137,930
Analysis of financial liabilities and assets included in net debt              
Gross sovereign-issued debt:              
Core Crown borrowings2 133,473 177,605 163,809 184,928 191,729 177,010 164,315
Add back NZS Fund holdings of sovereign-issued debt and NZS Fund borrowings (2,217) (3,110) (2,240) (2,254) (2,251) (2,253) (2,255)
Gross sovereign-issued debt1 131,256 174,495 161,569 182,674 189,478 174,757 162,060
Liquid financial assets:              
Core Crown financial assets3 108,461 117,335 116,682 132,218 134,895 131,327 128,154
Less NZS Fund holdings of core Crown financial assets and NZS Fund financial assets (60,557) (61,895) (63,894) (69,202) (75,269) (81,752) (88,495)
Less FLP advances (3,059) (18,720) (11,894) (22,000) (18,959) (9,420)
Less other advances (15,669) (15,536) (15,630) (16,233) (16,687) (16,037) (15,529)
NZS Fund and advances (79,285) (96,151) (91,418) (107,435) (110,915) (107,209) (104,024)
Liquid financial assets (per net debt definition) 29,176 21,184 25,264 24,783 23,980 24,118 24,130
Additional net debt analysis              
Net core Crown debt 102,080 153,311 136,305 157,891 165,498 150,639 137,930
Less NZS Fund and advances (79,285) (96,151) (91,418) (107,435) (110,915) (107,209) (104,024)
Net core Crown debt (incl. NZS Fund and advances) 22,795 57,160 44,887 50,456 54,583 43,430 33,906
Net core Crown debt 102,080 153,311 136,305 157,891 165,498 150,639 137,930
less FLP advances (3,059) (18,720) (11,894) (22,000) (18,959) (9,420)
Net core Crown debt (incl. FLP advances) 99,021 134,591 124,411 135,891 146,539 141,219 137,930
Gross Debt:              
Gross sovereign-issued debt1 131,256 174,495 161,569 182,674 189,478 174,757 162,060
Less Reserve Bank settlement cash and Reserve Bank bills (30,421) (80,152) (49,196) (61,976) (60,019) (36,468) (25,288)
Add back changes to government borrowing owing to settlement cash4 1,600 1,600 1,600 1,600 1,600 1,600 1,600
Gross sovereign-issued debt excluding Reserve Bank settlement cash and Reserve Bank bills 102,435 95,943 113,973 122,298 131,059 139,889 138,372
Monetary Liabilities              
Issued currency 8,256 8,503 8,582 8,668 8,755 8,842 8,931
Settlement deposits with Reserve Bank 29,466 79,152 48,296 61,076 59,118 35,568 24,387
Total Monetary Liabilities 37,722 87,655 56,878 69,744 67,873 44,410 33,318

Monetary liabilities facilitate payments to be effected in New Zealand dollars, thereby ensuring the smooth functioning of the economy.

Notes on borrowings
  1. Gross sovereign-issued debt (GSID) represents debt issued by the sovereign (the core Crown) and includes any government stock held by the other Crown reporting entities.
  2. Core Crown borrowings in this instance include unsettled purchases of securities (classified as accounts payable in the Statement of Financial Position).
  3. Core Crown financial assets exclude receivables, except for unsettled sales of securities.
  4. The Reserve Bank has used $1.6 billion of settlement cash to purchase reserves that were to have been funded by the government borrowing programme. Therefore, the impact of settlement cash on GSID is adjusted by this amount.

Reconciliation between the Financial Statements and the Key Fiscal Indicators

Financial Results 2021
Actual
$m
2022
Forecast
$m
2023
Forecast
$m
2024
Forecast
$m
2025
Forecast
$m
2026
Forecast
$m
Core Crown taxation revenue... 97,983 102,561 113,753 120,131 127,287 134,457
...combined with other core Crown revenue... 6,985 8,172 8,529 9,388 9,650 9,840
...funds core Crown expenses... (107,764) (128,028) (120,202) (124,759) (128,474) (133,606)
...and with SOE and CE1 results... (1,764) (3,549) (2,911) (2,681) (2,548) (2,534)
...this results in an operating balance before gains and losses (OBEGAL)... (4,560) (20,844) (831) 2,079 5,915 8,157
...with gains/losses leading to operating surplus/(deficit)... 16,159 (23,826) 3,914 7,701 11,994 14,705
...with income in SOEs, CEs1 and the NZS Fund retained... (22,702) 3,693 (1,279) (2,042) (2,648) (3,174)
...and some items do not impact cash 5,500 6,968 105 (3,525) 5,451 326
This leads to an operating residual cash surplus/(deficit)... (1,043) (13,165) 2,740 2,134 14,797 11,857
...used to make contributions to the NZS Fund... (2,120) (2,420) (1,984) (1,960) (2,004) (1,851)
...and to use for capital expenditure... (3,137) (4,781) (4,367) (2,985) (2,318) (1,786)
...and to make advances (eg, to students) (3,868) (9,183) (10,883) 2,458 10,055 9,739
...and to purchase investments (3,599) (5,046) (6,150) (6,056) (3,605) (2,669)
Adjusting for forecast adjustments (top-down/new spending)... 495 (1,099) (1,544) (2,411) (2,752)
...results in a borrowing requirement (cash (deficit)/surplus) (13,767) (34,100) (21,743) (7,953) 14,514 12,538
Opening net core Crown debt... 83,375 102,080 136,305 157,891 165,498 150,639
...when combined with the residual cash (surplus)/deficit... 13,767 34,100 21,743 7,953 (14,514) (12,538)
...and other fair value movements in financial assets and financial liabilities... 4,938 125 (157) (346) (345) (171)
...results in a closing net core Crown debt... 102,080 136,305 157,891 165,498 150,639 137,930
...which as a % of GDP is 30.1% 37.6% 40.1% 39.9% 34.6% 30.2%

Note:

  1. State-owned enterprises (SOEs) and Crown entities (CEs)

Core Crown Expense Tables#

($millions) 2017
Actual
2018
Actual
20191
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Social security and welfare 25,294 25,999 28,740 44,028 36,759 43,342 40,011 41,460 43,405 45,447
Health 16,223 17,159 18,268 19,891 22,784 27,813 23,903 23,684 23,618 23,668
Education 13,281 13,629 14,293 16,322 16,039 18,227 17,747 17,643 17,467 17,561
Core government services1 3,957 4,670 5,166 6,083 5,754 6,158 5,778 5,968 5,488 5,353
Law and order 3,882 4,184 4,625 4,911 5,202 5,537 5,553 5,495 5,388 5,374
Transport and communications 2,176 2,559 2,889 3,179 5,656 4,834 3,815 4,193 3,545 3,550
Economic and industrial services 2,544 2,732 3,006 3,988 4,481 7,682 3,658 3,448 3,249 3,344
Defence 2,146 2,251 2,395 2,499 2,664 2,797 2,756 2,866 2,894 2,899
Heritage, culture and recreation 850 850 918 1,106 1,420 1,537 1,148 1,070 1,048 1,048
Primary services 644 807 960 961 1,015 1,195 939 857 848 824
Housing and community development 539 552 727 1,015 1,813 2,672 2,612 2,257 2,169 1,505
Environmental protection 871 1,238 1,119 1,485 1,906 2,776 2,385 2,243 2,038 1,963
GSF pension expenses1 217 150 66 73 99 75 61 57 54 51
Other 181 299 96 63 254 413 83 330 329 329
Finance costs1 3,534 3,497 3,691 3,228 1,918 2,688 2,925 3,393 3,620 3,564
Forecast new operating spending  ..   ..   ..   ..   ..  4,412 9,128 11,270 14,164 17,876
Top-down operating expense adjustment  ..   ..   ..   ..   ..  ( 4,130) ( 2,300) ( 1,475) ( 850) (750)
Core Crown expenses 76,339 80,576 86,959 108,832 107,764 128,028 120,202 124,759 128,474 133,606

The classifications of the functions of the Government reflect current approved baselines. Forecast new operating spending is shown as a separate line item in the above analysis and will be allocated to functions of the Government once decisions are made in future Budgets.

  1. 'The '2019 Actual' has been restated for the impact of new accounting standards effective from 1 July 2019. At this point in time, the earlier years in this time series have not yet been restated.

Source: The Treasury

Table 5.1 - Social security and welfare expenses
($millions) 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Welfare benefits (see below) 23,339 24,005 26,689 41,308 33,671 39,626 36,555 38,327 40,291 42,346
Social rehabilitation and compensation 220 241 249 260 333 358 385 411 423 440
Departmental expenses 1,417 1,593 1,784 2,062 2,424 2,727 2,616 2,400 2,412 2,410
Flexi-wage subsidy ..  ..  ..  ..  8 149 142 ..  ..  .. 
COVID-19 Income Relief Assistance ..  ..  ..  15 182 ..  ..  ..  ..  .. 
Other non-departmental expenses1 318 160 18 383 141 482 313 322 279 251
Social security and welfare expenses 25,294 25,999 28,740 44,028 36,759 43,342 40,011 41,460 43,405 45,447
  1. From 2020, other non-departmental expenses includes costs in relation to the Government's response to COVID-19.

Source: The Treasury

Table 5.2 - Welfare benefit expenses
($millions) 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
New Zealand Superannuation 13,043 13,699 14,562 15,521 16,569 17,794 19,342 20,745 22,050 23,593
Jobseeker Support and Emergency Benefit 1,697 1,697 1,854 2,285 3,224 3,340 3,391 3,419 3,584 3,756
Supported living payment 1,533 1,541 1,556 1,650 1,826 2,040 2,217 2,327 2,431 2,535
Sole parent support 1,159 1,117 1,115 1,231 1,455 1,698 1,803 1,836 1,858 1,893
Family Tax Credit 1,723 1,639 2,131 2,189 2,103 2,098 2,293 2,333 2,511 2,538
Other working for families tax credits 596 556 635 641 585 598 605 604 615 615
Accommodation Assistance 1,127 1,204 1,640 1,923 2,302 2,325 2,241 2,188 2,239 2,296
Income-Related Rents 815 890 974 1,071 1,202 1,304 1,399 1,495 1,497 1,497
Disability Assistance 377 379 386 395 409 414 424 434 443 452
Winter energy ..  ..  441 669 812 514 518 524 535 546
Best start ..  ..  48 184 271 374 413 414 417 418
Orphan's/Unsupported Child's Benefit 152 165 225 248 293 319 366 388 406 422
Hardship Assistance 353 355 300 418 479 505 548 589 638 689
Paid Parental Leave 274 288 369 422 503 610 630 660 695 725
Childcare Assistance 199 196 183 144 145 149 165 172 179 181
Veteran's Support Entitlement1 98 93 90 66 ..  ..  ..  ..  ..  .. 
Veteran's Pension 175 163 153 145 139 134 131 126 121 117
Wage Subsidy Scheme     ..  12,095 1,197 5,345 ..  ..  ..  .. 
Other benefits2 18 23 27 11 157 65 69 73 72 73
Benefit expenses 23,339 24,005 26,689 41,308 33,671 39,626 36,555 38,327 40,291 42,346
  1. The Veteran's support entitlement appropriation was discontinued from 2021 owing to a change in accounting treatment.
  2. The '2021 Actuals' for other benefits expenses includes costs in relation to the Government's response to COVID-19.

Source: The Treasury

Beneficiary numbers1
(Thousands)
2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
New Zealand Superannuation 717 741 767 795 825 851 879 907 937 968
Jobseeker Support and Emergency Benefit 131 129 139 162 211 194 176 169 171 172
Supported living payment 97 96 95 96 97 97 98 99 100 101
Sole parent support 64 60 59 61 66 70 69 68 66 65
Accommodation Supplement 290 285 295 318 364 354 346 345 350 354
  1. Actual numbers have been reclassified so may differ from previous published Economic and Fiscal Update numbers.

Source: Ministry of Social Development

Table 5.3 - Health expenses
($millions) 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Departmental outputs 192 200 210 236 298 471 410 425 373 370
Health services purchasing (see below) 14,855 15,449 16,311 18,176 19,541 20,751 20,970 20,920 20,923 20,915
Other non-departmental outputs 365 816 937 634 623 685 781 792 759 780
Health payments to ACC 697 682 782 812 1,038 1,149 1,252 1,354 1,372 1,412
COVID-19 vaccine ..  ..  ..  ..  375 1,366 ..  ..  ..  .. 
National health response to COVID-19 ..  ..  ..  ..  231 2,453 417 140 140 140
Isolation and Quarantine Management ..  ..  ..  ..  655 880 19 ..  ..  .. 
Other expenses 114 12 28 33 23 58 54 53 51 51
Health expenses 16,223 17,159 18,268 19,891 22,784 27,813 23,903 23,684 23,618 23,668

Source: The Treasury

Table 5.4 - Health services purchasing
($millions) 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Payments to DHBs1 13,281 13,829 14,563 15,749 16,943 18,372 18,651 18,596 18,598 18,598
National disability support services 1,188 1,256 1,358 1,599 1,659 1,830 1,826 1,826 1,826 1,826
Public health services purchasing2 386 364 390 828 939 549 493 498 499 491
Health services purchasing 14,855 15,449 16,311 18,176 19,541 20,751 20,970 20,920 20,923 20,915
  1. From 2022, individual DHBs will be replaced by Health New Zealand and the Māori Health Authority and payments to DHBs will be replaced by payments to these new entities.
  2. From 2020, public health services purchasing includes costs in relation to the Government's response to COVID-19.

Source: The Treasury

Table 5.5 - Education expenses
($millions) 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Early childhood education 1,805 1,844 1,896 2,007 2,132 2,297 2,356 2,426 2,495 2,561
Primary and secondary schools (see below) 6,116 6,334 6,823 7,104 8,136 8,123 8,000 8,034 7,962 7,938
Tertiary funding (see below) 4,051 4,112 4,112 5,621 3,776 5,193 5,130 5,098 5,154 5,234
Departmental expenses 1,190 1,281 1,416 1,534 1,656 2,002 1,888 1,878 1,826 1,818
Training incentive allowance ..  ..  ..  ..  ..  27 38 38 14 1
COVID-19 apprentice support ..  ..  ..  ..  156 253 19 ..  ..  .. 
Other education expenses 119 58 46 56 183 332 316 169 16 9
Education expenses 13,281 13,629 14,293 16,322 16,039 18,227 17,747 17,643 17,467 17,561

Source: The Treasury

Number of places provided1 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Early childhood education 211,492 217,241 221,137 221,945 223,919 228,185 233,031 237,832 243,530 249,932
  1. Full-time equivalent based on 1,000 funded child hours per calendar year. Historical place numbers have been revised so may differ from previous published Economic and Fiscal Update numbers.
  2. At the time these forecasts were prepared, funding data for 2021 was only available until May 2021, therefore the 2021 Actual places is comprised of five months of actual data and seven months of forecast data.

Source: The Ministry of Education

Table 5.6 - Primary and secondary schools
($millions) 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Primary 3,091 3,216 3,452 3,600 4,107 4,040 3,980 3,965 3,914 3,888
Secondary 2,336 2,407 2,606 2,683 3,043 3,046 3,029 3,068 3,067 3,066
School transport 186 195 206 208 216 224 200 200 200 200
Special needs support 410 429 447 515 641 656 645 651 649 652
Professional development 88 82 104 91 104 131 118 125 124 124
Schooling improvement 5 5 8 7 25 26 28 25 8 8
Primary and secondary education expenses 6,116 6,334 6,823 7,104 8,136 8,123 8,000 8,034 7,962 7,938

Source: The Treasury

Number of places provided1 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Primary 511,588 520,496 527,429 530,379 529,859 528,445 527,582 522,394 517,273 510,746
Secondary 278,428 277,734 279,904 286,511 294,216 302,145 309,579 315,561 317,382 316,715
  1. These are snapshots as at 1 July for primary year levels (years 1 to 8) and 1 March for secondary year levels (years 9 to 13). These numbers exclude home schooling. They are the number of full-time equivalent students enrolled in New Zealand schools, including State, State-integrated, Private-Fully Registered, Private-Provisionally Registered and other Vote Education. Note that historical figures have been revised to include Special School Roll, so may differ from figures published in previous Economic and Fiscal Updates.

Source: The Ministry of Education

Table 5.7 - Tertiary funding
($millions) 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Tuition1 2,466 2,552 2,571 3,911 2,019 3,290 3,129 3,053 3,026 3,022
Other tertiary funding 520 561 606 637 698 755 725 743 747 743
Student allowances 465 511 583 567 590 625 688 693 743 802
Student loans 600 488 352 506 469 523 588 609 638 667
Tertiary education expenses 4,051 4,112 4,112 5,621 3,776 5,193 5,130 5,098 5,154 5,234
  1. The '2020 Actual' includes increased funding to provide revenue certainty to tertiary education organisations for the June to December 2020 period due to the impact of COVID-19. There is a corresponding reduction in the '2021 Forecast' with the timing of funding returning to normal from 2022.

Source: The Treasury

Number of places provided1 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Actual delivered and estimated funded places 223,645 220,717 217,767 213,715 239,000 242,300 235,400 227,200 226,100 226,100
  1. Tertiary places are the number of equivalent full time (EFT) students in: student achievement component; adult and community education; and youth guarantee programmes. Place numbers are based on calendar years rather than fiscal years. Note that historical place numbers have been revised so may differ from previous published Economic and Fiscal Update numbers. The forecast number of places provided is based on the number of places that can be funded under the current funding and not a forecast based on demand.

Source: Tertiary Education Commission

Table 5.8 - Core government services expenses
($millions) 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Official development assistance 520 643 708 736 804 840 1,058 1,111 1,111 961
Indemnity and guarantee expenses 22 18 16 14 6 2 3 4 5 5
Departmental expenses1 1,835 2,119 2,199 2,249 2,271 2,836 2,353 2,248 2,246 2,222
Non-departmental expenses 511 683 961 785 905 980 1,066 993 955 1,000
Tax receivable write-down and impairments 493 616 829 1,356 882 841 841 841 841 841
Science expenses 91 94 103 113 121 118 119 119 117 117
Crown Research Institutes: COVID-19 ..  ..  ..  45 45 ..  ..  ..  ..  .. 
Shovel Ready Project Funding to Otakaro ..  ..  ..  ..  137 18 ..  ..  ..  .. 
Other expenses2,3 485 497 350 785 583 523 338 652 213 207
Core government service expenses 3,957 4,670 5,166 6,083 5,754 6,158 5,778 5,968 5,488 5,353
  1. Departmental expenses includes costs relating to the Inland Revenue Business Transformation project.
  2. The '2019 Actual' has been restated for the impact of new accounting standards effective from 1 July 2019. At this point in time, the earlier years in this time series have not yet been restated.
  3. From 2020 other expenses includes costs in relation to the Government's response to COVID-19.

Source: The Treasury

Table 5.9 - Law and order expenses
($millions) 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Forecast
2023
Forecast
2024
Forecast
2025
Forecast
2026
Forecast
Police 1,539 1,629 1,760 1,997 2,079 2,148 2,153 2,150 2,041 2,031
Ministry of Justice 479 502 542 591 642 684 663 654 653 652
Department of Corrections 1,145 1,301 1,417 1,527 1,641 1,665 1,717 1,702 1,707 1,707
NZ Customs Service 171