Investment statement

He Puna Hao Pātiki: 2022 Investment Statement

Presented to the House of Representatives Pursuant to Section 26NA of the Public Finance Act 1989.

Version Note:

Data in box 2.2 was updated to correct an error on 22 March 2022.

Formats and related files

The Treasury's regular stewardship reports#

With recent changes to the Public Finance Act 1989 and the new Public Service Act 2020, the Treasury must regularly produce four statutory reports: a Long-term Fiscal Statement, a Long-term Insights Briefing, a Wellbeing Report and this Investment Statement.

Long-term Fiscal Statement (LTFS): every four years, the Treasury must prepare a statement on the long-term fiscal position. The LTFS must relate to a period of at least 40 consecutive financial years. The LTFS indicates possible trends in spending, revenue, the operating balance and debt over the relevant period, based on current policy settings and recent history.

Long-term Insights Briefing: every three years the Treasury must present a report to the Minister of Finance, the aim of which is to make publicly available: information about medium- and long-term trends, risks and opportunities that affect or may affect New Zealand; and information and impartial analysis, including policy options (but not recommendations) to respond to these trends, risks and opportunities. This report must be done independently of Ministers. The public must also be consulted on the scope and a draft of the briefing.

Wellbeing Report: every four years the Minister of Finance must present to the House of Representatives a report describing, with the use of indicators, the state of wellbeing in New Zealand; how this has changed over time; and the sustainability of, and any risk to, the state of wellbeing in New Zealand.

Investment Statement: every four years the Minister of Finance must present to the House of Representatives a statement prepared by the Treasury that describes the state and value of significant assets and liabilities; how those have changed in value over time; how they are forecast to change over at least the next two years; and changes since the last statement.


Kia ora koutou#

I am pleased to present He Puna Hao Pātiki: the 2022 Investment Statement. The objective of the Investment Statement is to support a better understanding of the government balance sheet. The balance sheet is a measure of what the government owns (its assets) and owes (its liabilities) at a fixed point in time.

He Puna Hao Pātiki translates to ‘a pool for gathering flounder with a net', a metaphor for wellbeing, and recognises that good management of the government’s balance sheet is an important lever for achieving wellbeing outcomes. In aiming to provide transparency on the balance sheet, the 2022 Investment Statement provides information to enable government to take an active kaitiaki (guardian) role and ensure decisions are made with a long-term view in order to lift living standards for all New Zealanders. The particular Patikitiki tukutuku (woven panel) used on the front cover of this document is special as it was designed for use in the Treasury’s wharenui (meeting house), Ngā Mokopuna a Tāne.

The Treasury's approach to the 2022 Investment Statement

The 2022 Investment Statement is the Treasury's third Investment Statement. The Public Finance Act 1989 (PFA) requires that each Investment Statement describe and state the value of the government's significant assets and liabilities, and state how they have changed and are expected to change in the future.

Unlike previous Investment Statements, the 2022 Investment Statement focuses on the overall health of the balance sheet, as well as the key differences and new challenges we have seen since 2018. This approach reflects two considerations:

  1. COVID-19 and long-term structural change: COVID-19 has been an unprecedented economic shock. Its impacts, combined with other longer-standing trends that are relevant for all the government's assets (such as low neutral interest rates and climate change), have driven us to focus on the composition and strength of the balance sheet as a whole.
  2. A broader suite of stewardship responsibilities: in addition to the Long-term Fiscal Statement and the Investment Statement, which have had several iterations, the Treasury now produces a Long-term Insights Briefing and a Wellbeing Report that also address aspects of the government balance sheet.

The way forward

The experience of the past two years has highlighted how important a well-managed balance sheet is to sustainable public finances. Effectively managed assets and liabilities support governments’ ability both to deliver services that New Zealanders need today and to ensure we have sustainable and resilient public finances that will bolster living standards for future generations.

This report shows that the scale, risk and complexity of the balance sheet has increased as a result of the COVID-19 response, but the overall health of our balance sheet remains strong. Net core Crown debt has increased significantly, reflecting a large increase in spending. The sensitivity of the balance sheet to changes in interest rates has increased as the composition of debt has changed alongside the Reserve Bank of New Zealand’s Large Scale Asset Purchase programme. At the same time, financial and non-financial assets have grown, leading to higher net worth. These changes to the balance sheet underscore the need for effective investment disciplines and careful consideration of ownership rationales. There is also a need to remain alert to opportunities and risks on the horizon, such as climate change, other natural disasters and economic shocks.

The Treasury works towards sustainable public finances as a means to support higher living standards for all New Zealanders. This aligns with a commitment to kaitiakitanga (stewardship), which can be broadly applied to the management of all resources and assets, including the four wealths of the Living Standards Framework - natural environment, human capability, social cohesion, and financial and physical capital.

In preparing this Investment Statement, the Treasury has used its best professional judgement.

Ngā mihi nui

Caralee McLiesh
Te Tumu Whakarae mō Te Tai Ōhanga
Secretary to the Treasury

Foreword (Te Reo)#

Tēnā koutou katoa#

Kua hari koa ahau ki te hora i He Puna Hao Pātiki: te Tauākī Haumitanga mō 2022. Ko e whāinga o te Tauākī Haumitanga ko te whakapiki i te mārama ki te ripanga kaute a te kāwanatanga. He inenga te ripanga kaute o ngā rawa (assets) a te kāwanatanga me ngā taumahatanga (liabilities) kei tētahi wā motuhake.

Ko te tikanga o He Puna Hao Pātiki he whakaritenga ki te oranga, ka āhukahuka i te mea, mā te pai o te whakahaere i te ripanga kaute a te kāwanatanga e āwhina te whakatutuki i ngā putanga oranga. Nā te whāinga kia mahea ai te ripanga kaute, ka tukuna e te Tauākī Haumitanga 2022 ngā pārongo tautoko i te mahi a te kāwanatanga kia tū hei kaitiaki hohe, ki te whakaū hoki kia aro ki te pae tawhiti ki te hiki i ngā paerewa oranga mō ngā iwi katoa o Aotearoa. Ko te tauira Pātikitiki (te tukutuku) kei te uhi o mua o tēnei tuhinga, he tauira motuhake, nā te mea i tāraia mō te wharenui o Te Tai Ōhanga, mō Ngā Mokopuna a Tāne.

Te aronga o te Tai Ōhanga i te Tauākī Haumitanga 2022

Ko te Tauākī Haumitanga 2022 te tuatoru o ngā Tauākī Haumitanga a Te Tai Ōhanga. Kei roto i te Public Finance Act 1989 (arā, Te Ture) te herenga mō ia Tauākī Haumitanga, kia whakamārama, kia whakapuaki hoki i te uara o ngā rawa nui a te kāwanatanga, ā, kia whakaatu hoki i ngā panonitanga uara me ngā matapae panonitanga uara mō āpōpō.

Kāore i te rite ki ngā Tauākī Haumitanga o mua te arotahi a te Tauākī Haumitanga 2022 ki te oranga whānui o te ripanga kaute, me ngā rerekētanga matua, whakatara hoki kua ara mai, mai i te tau 2018. Ka whakaata tēnei i te whai whakaaro ki ēnei mea e rua:

  1. KOWHEORI-19 me ngā panonitanga anga wā roa: He tino raru ohorere te KOWHEORI-19 ki te ōhanga. Ko ngā pānga, e tāpiri nei ki ngā ia tūturu e pā ana ki ngā rawa katoa o te kāwanatanga (pērā ki te heke o ngā reiti huamoni tūturu me te hurihanga āhuarangi), kua akiaki i a mātou ki te arotahi ki te hanga me te kaha o te katoa o te ripanga kaute.
  2. Te whānui ake o ngā haepapa kaitiakitanga: hei tāpiri ki te Long-Term Fiscal Statement me te Tauākī Haumitanga, kua tōaitia anōtia, ka whakaputaina e Te Tai Ōhanga tētahi Long-Term Insights Briefing me tētahi Wellbeing Report e aro ana ki ētahi o ngā āhuatanga o te ripanga kaute o te Kāwanatanga.

Te ara ki mua

Kua miramira ngā wheako o ngā tau e rua kua pahure nei i te hira o te ripanga kaute e pai ana te whakahaere ki te toitū o ngā ahumoni tūmatanui. Ko te pai o te whakahaere o ngā rawa me ngā taumahatanga ka tautoko i te āheitanga o te kāwanatanga ki te tuku i ngā ratonga e tika ana i tēnei wā mō ngā tāngata o Aotearoa, ki te whakaū i te toitū, me te whakapūioio o ngā ahumoni tūmatanui hei toko i ngā paerewa oranga mō ngā whakatipuranga kei te haere mai.

Kei tēnei pūrongo ka kitea te piki o te nui, te tūraru me te matatini o te ripanga kaute nā te urupare ki te KOWHEORI-19, heoi anō kei te kaha tonu te āhua whānui o tō tātou ripanga kaute. Kua kaha te piki o te tapeke noho nama matua a te Karauna, nā te kaha haere o te whakapau moni. Kua piki te whakaraerae o te ripanga kaute ki ngā reiti huamoni, i ngā panonitanga o te hanga o te noho nama, kia hāngai ki te kaupapa Large Scale Asset Purchase a Te Pūtea Matua (arā, te Reserve Bank). Tāpiri atu ki tēnā, kua piki ngā rawa ahumoni me ngā rawa ahumoni-kore, nā reira kua piki hoki te tapeke uara o ngā rawa. Nā ēnei panonitanga ki te ripanga kaute, i miramira ai te matea kia tōtika ngā whakahaerehanga haumitanga, me te āta whai whakaaro ki ngā take mana pupuri. Kia mataara hoki ki ngā mea angitu me ngā tūraru kei te pae, pērā i te hurihanga āhuarangi, te aituā taiao me ngā whētuki ōhanga.

E aro ana ngā mahi a Te Tai Ōhanga ki te toitū o te ahumoni tūmatanui hei whakapiki i ngā paerewa oranga mō ngā tāngata katoa o Aotearoa. Ka hāngai tēnei ki te ū ki te Kaitiakitanga, ka whakaurua whānuitia ki ngā mahi whakahaere i ngā rauemi me ngā rawa katoa, tae atu ki ngā rawa e whā o te Living Standards Framework - te taiao, te āheinga tangata, te whakakotahitanga o te pāpori, me ngā rawa ahumoni, ōkiko hoki.

I ngā mahi whakarite i tēnei Tauākī Haumitanga, kua ū tonu Te Tai Ōhanga ki tōna tino whakawā ngaio

Ngā mihi nui

Caralee McLiesh
Te Tumu Whakarae mō Te Tai Ōhanga
Secretary to the Treasury

Executive summary#

The balance sheet and its role in supporting living standards#

The government balance sheet shows what the government owns (its assets) and what it owes (its liabilities) at a fixed point in time. Governments own assets to support living standards. The balance sheet includes physical infrastructure such as the hospitals, schools and roads that support the delivery of public services, and the debt needed to pay for these assets and financial and commercial assets held for the benefit of New Zealanders.

Reviewing the health and performance of the government balance sheet has three benefits:

  • Transparency: understanding the balance sheet complements other tools used by governments and the public to assess the government’s financial position and ability to support living standards, such as measures of expenditure, revenue, and debt. If the balance sheet as a whole is resilient then firms, markets, households and others can be confident that government has resilience to the next big economic, financial, natural disaster or public health shock. This confidence can promote investment and economic development.
  • Asset and liability management: the government balance sheet has $438.6 billion in assets, $281.4 billion in liabilities and $157.2 billion in equity. Good management of assets and liabilities helps support the efficient, effective, and equitable provision of public services, both now and in the future.
  • Identification of risks and opportunities: review of the balance sheet can help governments to identify, measure, and manage risks and opportunities that may have a material impact on the government’s net worth and ability to support living standards. A key challenge faced by governments, as opposed to businesses, is the presence of potentially significant contingent or implicit risks to the balance sheet.

COVID-19 has re-emphasised the importance of the balance sheet#

The government balance sheet was in good health prior to the COVID-19 pandemic. At the end of December 2019, net core Crown debt (net debt) was 19.0% of gross domestic product (GDP), while net worth was $143.1 billion. The strength of the balance sheet provided the Government with options in how it responded to the pandemic, including the ability to provide significant support to the private sector (and indirectly to households) through policies such as the Wage Subsidy. The fiscal response, has complemented the health response, in conjunction with monetary policy and a broader economic and social response.

The effects of COVID-19 have resulted in significant changes to the government balance sheet. Despite these changes the balance sheet remains resilient:

  • A significant increase in debt: net debt has increased from 19.0% of GDP prior to the COVID-19 pandemic to 30.1% of GDP at the end of the last fiscal year (30 June 2021). Net debt is forecast to peak at 40.1% of GDP in the 2022/23 fiscal year.
  • Changes to the composition of government debt: the Reserve Bank of New Zealand (RBNZ) made use of its balance sheet to deliver monetary policy as the Official Cash Rate approached zero. The RBNZ’s Large Scale Asset Purchase (LSAP) programme had the effect of converting fixed-rate debt to short-term floating debt, making government debt servicing costs more sensitive to changes in interest rates.
  • New assets and liabilities: as part of the COVID-19 response, the government has taken on several new assets and liabilities. An example is the $1.6 billion of loans made to companies under the Small Business Cashflow Scheme. The government also supported the provision of $2.9 billion of loans through the Business Finance Guarantee Scheme.

Even though net debt has increased significantly, government net worth has increased. This is a consequence of three factors:

  • Debt-financed investment: an increase in debt-financed investment in new assets such as infrastructure.
  • Increases in the value of land and the costs ofreplacing physical assets: COVID-19 has lowered interest rates, increasing demand pressures. In New Zealand, where land markets have shown slow supply responsiveness, increased demand has resulted in significant increases in land values. COVID-19 has also resulted in supply-side constraints both domestically and internationally, including a reduced availability of materials and tightness in the labour market.
  • Financial asset values: changes in interest rates have affected financial assets and liabilities. The decline in interest rates during 2020 and 2021 increased the value of financial assets (such as equities in the New Zealand Superannuation Fund) but was offset to some extent by increases in the value of insurance liabilities.

Increasing scale, complexity, and risk#

Management of the balance sheet is becoming progressively more important as it becomes larger, more complex and carries different types of risk. This view is mirrored internationally, with a focus on improving outcomes and reducing risk.In our view, there are five drivers:

  • There is a challenging choice between investing now and preserving resilience: there is evidence that New Zealand has an infrastructure ‘gap'. COVID-19 has prompted an increased focus on the role of infrastructure investment in supporting aggregate demand, lifting productivity and addressing challenges such as climate transition. Choosing not to invest preserves balance sheet resilience in the short term, but there is an opportunity cost to not taking on debt - this foregoes potential investments in productive assets. The ability to borrow when required for unforeseen events, such as earthquakes and pandemics and other fiscal policy needs, must be weighed against the possible wellbeing returns from investment.
  • Investment disciplines matter: in order to provide value for money, investment needs to be managed well and sequenced to reflect the economy's capacity to deliver. Evidence suggests New Zealand is among the least efficient high-income countries at delivering infrastructure. This finding reflects several constraints, including decision-making, capability, planning, and consenting. Given forecast increases in investment, a key challenge for government will be lifting New Zealand's capability at the same time as improving investment disciplines.
  • Improving outcomes from ownership: the balance sheet is now very large. As the balance sheet grows, there is a significant opportunity cost of ownership - approximately $22 billion per annum at the current public sector discount rate of 5% per annum. Given the size of the balance sheet, even small improvements in the outcomes the government receives from ownership – across financial and physical capital, human capability, social cohesion and the natural environment – can make a significant contribution towards living standards. Key areas for potential improvement are the quality of asset management, and ongoing assessment of whether ownership remains the right intervention to support government objectives.
  • New risks and opportunities: climate change will have potentially significant impacts on the government balance sheet. These include the economic and social impacts of climate change and changes in asset values. Net debt has also increased due to the impacts of COVID-19, and that debt has a shorter effective maturity as a result of the RBNZ’s LSAP programme. Recent fiscal forecasts are conditioned on interest rates remaining relatively low, in line with market expectations. A higher level of net debt nonetheless leaves New Zealand more exposed to interest rates increasing, making that debt more expensive to service.
  • Financial and Commercial assets are an increasingly important contributor to resilience: in the past 10 years Financial and Commercial assets on the balance sheet have grown in value and complexity. The government is likely to see more balance sheet volatility from changes in the macroeconomic outlook (such as interest rates) or financial market conditions. This means it will be more important than ever to actively manage these assets and take a whole-of-government view on objectives and risk appetite.

Executive summary (Te Reo)#

Te Whakarāpopototanga Matua#

Te ripanga kaute me tāna mahi hei tautoko i ngā paerewa oranga#

Ka whakaatu te ripanga kaute i ngā rawa a te kāwanatanga (arā, ngā assets) me ngā taumahatanga (arā, ngā liabilities) i tētahi wā motuhake. E pupuri ana te kāwanatanga i ngā rawa hei tautoko i ngā paerewa oranga. Kua whakaurua ki te ripanga kaute ngā hanganga ōkiko, pērā i ngā hōhipera, ngā kura me ngā rōri e tautoko ana i te tuku o ngā ratonga tūmatanui, me ngā nama hei utu mō aua rawa, me ngā rawa ahumoni, arumoni hoki e puritia ana hei painga mō ngā tāngata katoa o Aotearoa.

E toru ngā painga o te arotake i te oranga me te whaihua o te ripanga kaute a te kāwanatanga:

  • Te mahea: mā te mārama ki te ripanga kaute e tautoko ētahi atu utauta a ngā kāwanatanga me te iwi whānui ki te arotake i te tūranga ahumoni a te kāwanatanga, me te āhei ki te toko i ngā paerewa oranga, hei tauira, ngā inenga o te whakapaunga, te whiwhinga pūtea me te noho nama. Mēnā ka manawaroa te ripanga kaute katoa ka whakawhirinaki ngā hinonga, ngā mākete, ngā kāinga me te katoa, kei te kāwanatanga te manawaroa ki te kaupare tērā o ngā whētuki ōhanga, arumoni, aituā taiao, oranga tūmatanui kei te haere mai. Mā tēnei whakawhirinaki pea e whakapiki te haumitanga me te whakawhanaketanga ohaoha.
  • Te whakahaere o ngā rawa me ngā taumahatanga: kei te ripanga kaute a te kāwanatanga, e $438.6 piriona ngā rawa, e $281.4 piriona ngā taumahatanga, ā, $157.2 te whai tūtanga. Mā te pai o te whakahaere o ngā rawa me ngā taumahatanga e toko i te pai o te karawhiu, te tōtika me te taurite o te tuku i ngā ratonga, ināianei, apōpō hoki.
  • Te tautuhi i ngā tūraru me ngā mea angitu: mā te arotake i te ripanga kaute, ka taea e ngā kāwanatanga te tautuhi, te ine me te whakahaere i ngā tūraru me ngā mea angitu tērā pea ka pā kaha mai ki te tapeke uara o ngā rawa a te kāwanatanga, me te āhei ki te tautoko i ngā paerewa oranga. Ko tētahi o ngā wero matua e pā ana ki ngā kāwanatanga, hāunga ko ngā pakihi, ko te kaha o ngā tūraru kumukumu, matahuna rānei ki te ripanga kaute.

Kua whakaūngia anōtia te hiranga o te ripanga kaute e KOWHEORI-19#

I te pai te ora o te ripanga kaute a te kāwanatanga i mua i te urutā KOWHEORI-19. I te mutunga o te Hakihea 2019, he 19.0% o te tapeke wāriu hokonga (GDP) te tapeke noho nama matua a te Karauna (net debt), ā, ko te tapeke uara he $143.1 piriona. Nā tērā ripanga kaute kaha rā, i whai wāhi ai te Kāwanatanga ki te whiriwhiri i āna urupare ki te urutā, tae ana ki te āhei ki te tuku i te āwhina nui ki te rāngai tūmatanui (ā, mā reira ki ngā kāinga) mā ngā kaupapa here pērā i te Pūtea Tautoko Mate Korona. Kua tautoko te urupare moni tūmatanui i te urupare hauora, ka hāngai hoki ki te kaupapahere ahumoni me te urupare whānui mō te ōhanga me te pāpori.

Nā te pānga o te KOWHEORI-19, kua maha ngā panonitanga nui ki te ripanga kaute a te kāwanatanga. Ahakoa ēnei panonitanga, kei te manawaroa tonu te ripanga kaute:

  • Kua kaha te piki i te noho nama: kua piki te tapeke noho nama mai i te 19.0% o te GDP i mua i te urutā KOWHEORI-19 ki te 30.1% o te GDP i te mutunga o tērā tau pūtea (30 Pipiri 2021). Kua matapaetia ka eke te tapeke noho nama matua a te Karauna ki te 40.1% o te GDP ā te tau pūtea 2022/23 kātahi ka heke anō.
  • Ngā panonitanga ki te hanga o te noho nama a te kāwanatanga: I whakamahi Te Pūtea Matua i tōna ripanga kaute ki te tuku i te kaupapa here ahumoni i te hekenga o te Pae Ōkawa Pūtea (arā, te Official Cash Rate) kia tata ki te kore. Nā te kaupapa Large Scale Asset Purchase (LSAP) a Te Pūtea Matua, ka whakawhitia te noho nama pāpātanga pūmau hei nama pāpātanga taurangi wā-poto, nā reira ka kaha te whakaaweawe o ngā panonitanga reiti huamoni ki te utu mō te noho nama o te kāwanatanga.
  • Ngā rawa me ngā taumahatanga hou: hei wāhanga anō o te urupare, kua riro i te Kāwanatanga ētahi rawa me ētahi taumahatanga hou. Hei tauira, ko te $1.6 piriona ngā nama kua tukuna ki ngā kamupene i raro i te Small Business Cashflow Scheme. I āwhina hoki te Kāwanatanga ki te tuku i te $2.9 piriona ngā nama, i tukuna mā te Business Finance Guarantee Scheme.

Ahakoa te nui o te piki o te noho nama, kua piki hoki te tapeke rawa katoa o te kāwanatanga. He hua tērā o ngā āhuatanga e toru nei:

  • Te haumitanga ā-moni taurewa: kua piki te haumitanga ā-moni taurewa ki te hoko i ngā rawa hou pērā i te hangahanga.
  • Ko te piki i te uara o te whenua, me ngā utu ki te whakahou i ngā rawa ā-kiko: nā KOWHEORI-19, kua heke ngā reiti huamoni, nā reira ka piki hoki te kaha popono. Kei Aotearoa nei, kua āhua pōturi te urupare o ngā mākete hokohoko whenua ki ngā nekehanga o te taha whakarato, ā, nā te piki i te popono kua hua mai he kaha te piki i te uara whenua. Nā te KOWHEORI-19 kua puta hoki he kōpiri ki te taha whakarato, kei konei, kei tāwāhi hoki, tae ana ki te heke i te wātea o ngā rauemi me ngā āheitanga o te mākete mahi.
  • Uara rawa ahumoni: kua pā ngā nekenekehanga o ngā reiti huamoni ki ngā rawa ahumoni me ngā taumahatanga hoki. I te heke o ngā reiti huamoni i ngā tau 2020 me 2021, ka piki te uara o ngā rawa ahumoni (pērā i ngā tūtanga kei te New Zealand Superannuation Fund), engari ka memehatia hoki ērā nā te piki i te uara o ngā taumahatanga inihua.

Te piki o te rahi, te matatini me te tūraru#

Kei te piki haere te hiranga o ngā mahi whakahaere, i te piki o te rahi, o te matatini me ngā momo tūraru o te ripanga kaute. Ka pērā tonu i tāwāhi, kei te huri te arotahi ki te whakapiki i ngā hua me te whakaheke i ngā tūraru. Ki tō mātou tirohanga, e rima ngā take:

  • He uaua ki te kōwhiri i te haumitanga ināianei, i te whakapūmau i te manawaroa rānei: kua kitea he taunakitanga o tētahi ‘āputa hanganga’ (infrastructure gap) kei Aotearoa nei. Nā te KOWHEORI-19 kua whakakahangia te arotahi ki te mahi o te haumitanga hangahanga hei toko i te tapeke popono, hei whakapiki i te kaha whakaputa hua, me te ārai i ngā wero pērā i te hurihanga āhuarangi. Mā te kōwhiringa kia kaua e haumi, ka pūmau tonu ai te manawaroa o te ripanga kaute mō te pae tata, engari he utu huānga o te kore kuhu ki te noho nama – ka kore e taea te haumi ki ērā o ngā rawa whai hua ka ara mai pea. Ka taea te tono mō te moni tārewa mō ngā raru ohorere ka pā mai, hei tauira, te rū whenua, te urutā me ētahi atu matea kaupapa here ahumoni, engari me whakataurite tērā ki ngā hua oranga ka puta pea i te haumitanga.
  • He mea nui ngā tū momo haumitanga: kia pai ai te whai hua o te moni, me āta whakahaere, āta whakaraupapa hoki ngā haumitanga, kia whakaata i te āhei o te taiōhanga ki te tuku painga. O ngā whenua katoa o te Ao, e kaha ana ki te whiwhi pūtea, kua kitea te taunakitanga ko Aotearoa tētahi o ngā whenua ngoikore rawa ki te te whakawhanake hangahanga. Nā tēnei ka kitea ai ētahi haukoti, ko te āhei whakataunga tētahi, ko ngā pūkenga, te whakamahere me te whakaae ētahi anō. Nā ngā pikinga haumitanga kua matapaetia, ko tētahi o ngā wero nui mō te kāwanatanga ko te whakakotahi i te hiki i te āheitanga o Aotearoa me te whakakaha i ngā āheinga mō ngā momo haumitanga.
  • Te whakatipu i ngā hua o te mana pupuri: kua tipu te ripanga kaute kia tino nui ināianei. I te tipu o te ripanga kaute, ka puta te utu huānga nui mō te mana pupuri – tata ki te $22 piriona i ia tau kei te reiti whakaheke utu o nāianei o te rāngai tūmatanui, kei te 5% i ia tau. Nā te nui o te ripanga kaute, tērā pea mā te iti o ngā whakapainga o ngā hua e whiwhi ana te kāwanatanga i te mana pupuri – i ngā rawa ahumoni me ngā rawa ōkiko, ngā pūkenga, te whakakotahitanga o te pāpori me te taiao– ka nui pea te tāpaetanga ki te whakawhanake i ngā paerewa oranga. Ko ētahi o ngā āhuatanga matua hei whakapiki pea ko te pai o te whakahaere rawa, me te whakamatau tonu mēna ko te mana pupuri te whakawhāititanga tika hei toko i ngā whāinga a te kāwanatanga.
  • Ngā tūraru me ngā mea angitu hou: tērā pea ka kaha te pānga o te hurihanga āhuarangi ki te ripanga kaute a te kāwanatanga. Tae ana ēnei ki ngā pānga ōhanga me ngā pānga pāpori o te hurihanga āhuarangi me ngā panoni i ngā uara o ngā rawa. Kua piki te tapeke noho nama nā ngā pānga o KOWHEORI-19, ā, kua poto te maoatanga mō aua nama nā te kaupapa LSAP a Te Pūtea Matua. Kua ahu mai ngā matapae ahumoni inātata nei i te whakatau ka noho kia māmā ngā reiti kia hāngai ki ngā matapae o te mākete. Heoi anō, ki te piki te noho nama, ka piki hoki te whakaraerae o Aotearoa ki te piki o ngā reiti huamoni, nā reira ka piki hoki te utu ki te whakaea taurewa.
  • Kei te piki te tāpaetanga o ngā rawa ahumoni me ngā rawa arumoni ki te manawaroa: i ngā 10 tau kua hipa atu nei, kua tipu te uara me te matatini o ngā rawa ahumoni me ngā rawa arumoni kei te ripanga kaute. E tinga ana ka kite te kāwanatanga kei te kaha haere ngā piki me ngā heke o te ripanga kaute nā ngā panonitanga ōhanga whārahi (pērā i ngā reiti huamoni), nā ngā āhuatanga o ngā mākete ahumoni rānei. Nā reira ka piki rawa te hiranga kia āta whakahaeretia ēnei rawa, kia aro hoki ki te katoa o te kāwanatanga e pā ana ki ēnei whāinga me te kaupae tūraru e hiahiatia ana.

1.0  The government balance sheet#

This section:

  • explains what the government balance sheet is
  • shows past, present and forecast balance sheets and summary information
  • discusses how the balance sheet supports the living standards of all New Zealanders
  • highlights why the balance sheet does not capture everything relevant to the financial strength of government or the balance sheet's contribution to living standards.

1.1  The government balance sheet#

What is the balance sheet?

The government 'balance sheet' shows what the government owns (its assets) and what it owes (its liabilities) at a fixed point in time.[1] The difference between the two represents the government's 'net worth'.

The government's assets and liabilities are recorded in the Financial Statements of the Government (FSG). The balance sheet (the 'Statement of Financial Position') is produced alongside the 'operating statement' (the 'Statement of Financial Performance'). The standards by which FSGs are produced, called Generally Accepted Accounting Practice (GAAP), define the criteria for when assets and liabilities are recognised.[2] The values of assets and liabilities generally reflect their market values or their replacement values (ie, they reflect their financial values). The FSG and the balance sheet are 'accrual' based. This means that transactions and other events are recognised when they occur, regardless of the timing of the related cash receipts and payments. New Zealand has been preparing a balance sheet since 1992. New Zealand has very good information on its assets and liabilities relative to most of its international peers. As of 2018, only 22 OECD countries prepared a balance sheet. Of these countries, an even smaller number prepare or publish monthly balance sheets.[3]

Relationship with the operating statement

The operating statement shows the revenue and expenses the government incurs each year. The difference between revenue and expenses and gains and losses (which are changes in the values of assets and liabilities) is known as the 'operating balance'. The operating balance flows through to the balance sheet and net worth. If the operating balance is positive, net worth increases; if it is negative, net worth decreases (see Figure 1).

When the government buys an asset, it can fund this by reducing another asset such as cash or by borrowing and incurring a liability. While this will not change net worth at a point in time, it will change the composition and risk/return profile of the balance sheet.

What is not on the balance sheet?

GAAP seeks to establish the financial information that is most relevant for accountability and decision-making purposes. Other financial information is not captured on the balance sheet but is still relevant to decision-making. It includes:

  • the value of future revenue and expenditure: the balance sheet does not include the present value of future tax revenue and operating expenditure; these are the government's largest future assets and liabilities.[4]Including the net present value of these future assets and liabilities (known as a 'comprehensive balance sheet') provides a greater understanding of the financial impacts of running current fiscal policy into the future, even though they are subject to significant uncertainty and volatility.[5] A significant positive balance would suggest that there is scope to increase public services or reduce taxes, whereas a significant negative position would imply a clear signal that the opposite is the case. In He Tirohanga Mokopuna 2021: the combined Long-term Fiscal Statement and Long-term Insights Briefing (LTFS), the Treasury discussed trends and issues relating to future revenue and expenditure.[6]
  • risks to the balance sheet: the government faces several risks to its balance sheet that are not reported under GAAP. These can be explicit (and captured as contingent liabilities in the FSG) or implicit liabilities (an example might be the choice by government to provide support during a natural disaster or financial crisis).[7] These risks can have a significant impact on government finances.[8] The Public Finance Act 1989 (PFA) includes a requirement for the government to disclose, as specific fiscal risks, all government decisions or circumstances known to the government that may have material effects on the fiscal outlook but that are not certain enough in timing or quantum to be included in the fiscal forecasts.[9]

Figure 1: Relationship between the operating balance and the balance sheet

Figure 1: Relationship between the operating balance and the balance sheet

1.2  The role of the balance sheet in supporting wellbeing#

The balance sheet and government policy

Effective balance sheet management has a key role to play in supporting governments to meet their objectives. A well-managed balance sheet contributes to higher living standards by supporting the provision of public services while also underpinning the overall economy's performance.

Balance sheet management can be divided into two-levels: a whole-of-balance-sheet level and an asset and liability level. First, at a whole-of-balance-sheet level, good management can help governments to:

  • provide resilience to adverse events: the balance sheet can allow the government to maintain essential public services during periods of poor economic performance or in response to the next economic, financial or natural-disaster shock. The International Monetary Fund (IMF) has found that countries with strong balance sheets experience shorter, shallower recessions than those with weaker balance sheets.[10] Resilience also allows the government to respond to circumstances based on need and opportunity rather than when they are affordable.
  • maintain a strong credit rating: a strong credit rating keeps the cost of capital low for both the government and the private sector. The IMF has found that financial markets consider governments' asset positions in addition to debt levels when determining their borrowing costs. Emerging and advanced economies with stronger balance sheets enjoy a lower cost of borrowing than economies with weaker balance sheets.[11]
  • manage risk: good management includes identifying, measuring and managing material risks to government net worth. Since the Global Financial Crisis, several countries have seen unanticipated risks negatively impact their balance sheets when hit with shocks.

Second, at an asset and liability level, good management of the balance sheet can also help governments to:

  • deliver social and economic outcomes: governments own assets to deliver services. The balance sheet includes government-owned infrastructure such as hospitals, schools and roads to support the living standards of New Zealanders. It also includes the debt needed to pay for these assets, and Financial and Commercial assets held for the benefit of the public.
  • make efficient and effective use of resources: good management of assets in the Social, Financial and Commercial Portfolios (see Box 1.1) helps to ensure government services are provided cost effectively and efficiently, now and in the future.
  • allow for an equitable distribution of benefits, costs and risks for current and future generations: this includes, for example, minimising the transfer of today's costs to future generations, and spreading the costs of long-lived infrastructure across the generations that benefit from it. Debt allows the costs of investments to be spread over their useful lives, so those that benefit contribute to the costs. Saving through the balance sheet also allows for future costs to be met by those who will benefit from them.

Balance sheet management

Effective balance sheet management requires the following four elements:[12]

  • Owning the right assets and managing them well - owning assets that are aligned with government priorities and managing them well optimises the outcomes that can be generated from existing resources (see Box 1.2).
  • Identifying and managing risks - to enhance the resilience of public services to shocks and to minimise unexpected costs. Best-practice risk management involves ensuring that risks that could have financially material impacts on the balance sheet are identified, measured and managed within the Government of the day's risk appetite.
  • Sustainable financing - to ensure durable fiscal policy settings and resilience to shocks. This includes strong fiscal frameworks.
  • Strong systems - to support and ensure the efficient and effective management of assets and liabilities by agencies and government.

Box 1.1  Assets and liabilities by purpose

The 2022 Investment Statement groups the assets and liabilities on the government balance sheet into three classifications: Social, Financial, and Commercial. These classifications aim to reflect the primary purpose for holding the asset or liability. The 2022 Investment Statement uses the classifications to better understand the composition of the balance sheet and to support high-level analysis.

  • Social assets and liabilities: Social assets and liabilities are held to support the delivery of public services such as schools, roads, hospitals and national parks. Social assets are mainly managed by government departments and Crown entities. Social assets are the largest component of the balance sheet (56% of assets).
  • Financial assets and liabilities: Financial assets and liabilities are held to support a balance sheet management purpose. Assets are predominantly held to prefund government expenditure or obligations for future expenditure. Liabilities include borrowing by the government to fund investment or operating deficits, including $153 billion of government debt held by New Zealand Debt Management (NZDM).  
  • Commercial assets and liabilities: the assets and liabilities of entities  that carry out commercial activities and are expected to act as successful businesses. The entities are largely independent entities operating in competitive environments. The government has ownership interests in 18 commercial entities: four of these entities are listed and 14 are unlisted.

Box 1.2  When should government own assets?

The choice to own should be assessed against alternatives, such as policy, regulation, spending or tax. Ownership can be an effective intervention in the right circumstances, including where:

  • the social and economic benefits of ownership outweigh the costs, or ownership provides a more equitable distribution of benefits and costs
  • service delivery involves specialised assets that the private sector has trouble providing on an ongoing basis
  • government has the most relevant expertise
  • government needs to be directly accountable for results
  • ownership is necessary to meet the Crown's Treaty obligations adequately.

The factors above explain why the government tends to own Social assets such as prisons and hospitals, leases many of the buildings used to house government agencies and holds Financial assets in the New Zealand Super Fund (NZSF) to smooth out the fiscal pressures from an aging population. For Commercial assets, the case for government ownership applies in a more limited sub-set of cases, including where:[13]

  • regulation is considered insufficient in moderating the behaviour of a monopoly
  • government ownership supports international treaties or obligations
  • the market is seen as not having the scale or coordination needed to support the investment or the service levels needed to support living standards
  • ownership is seen as the most effective way to ensure continuity in the provision of goods and services.

Comparisons between Investment Statements and financial years

The balance sheet data for the 2022 Investment Statement is based on the most recent financial year available, which is 30 June 2021. Similarly, the 2018 Investment Statement was based on data to 30 June 2017 and the 2014 Investment Statement on data to 30 June 2013.

1.3  The balance sheet by the numbers#

Figure 2: Change in assets and liabilities since the 2018 Investment Statement

Figure 2: Change in assets and liabilities since the 2018 Investment Statement - Assets

Figure 2: Change in assets and liabilities since the 2018 Investment Statement - Liabilities

At 30 June 2021 the value of government assets totalled $438.6 billion, of which the largest components were:

  • property, plant and equipment (PP&E), such as land and buildings, of $213.2 billion
  • marketable securities and share investments of $105.3 billion
  • advances of $45.6 billion including student loans and advances made by the RBNZ under the Funding for Lending programme.

The government's liabilities totalled $281 billion, the most significant of which were:

  • borrowings of $162.5 billion. This includes government debt issued by NZDM, settlement deposits with the RBNZ, and Kiwibank customer deposits
  • insurance liabilities of $60.3 billion. These liabilities relate primarily to obligations for accident compensation.

Net worth was $157.2 billion, the difference between assets and liabilities.

Table 1 sets out the past, present and forecast balance sheets of the government. Table 1 shows that between 2013 and the end of the most recent fiscal year (2021), the value of government assets increased by $194.2 billion, or 79%, while liabilities increased by $107.0 billion, or 61%.

Figure 3 describes how the balance sheet has changed by classification since the 2018 Investment Statement.

The government's balance sheet position

Table 1: The government's balance sheet, actual and forecast 2013-2026[14]

Table 1: The government's balance sheet, actual and forecast 2013-2026
June years ($millions)  2013
Cash and cash equivalents  14,924  18,732 18,755 16,816 15,389 15,615 15,980 16,039
Receivables  19,883  18,529 26,829 25,809 27,213 32,804 28,288 29,030
Marketable securities, deposits and derivatives in gain  44,000  50,506 56,783 51,081 53,583 57,103 60,299 63,246
Share investments  17,359  30,700 48,539 52,436 55,683 59,177 62,981 66,939
Advances  22,613  28,583 45,612 57,409 70,218 70,451 64,367 57,871
Investments in controlled enterprises - - 4,718 5,273 6,267 7,618 9,235 10,949
Inventory 1,140 1,167 2,194 2,331 2,693 3,121 3,507 3,837
Other assets 2,295 3,079 3,928 3,614 3,693 3,454 3,358 3,456
Property, plant and equipment  109,833 144,550 213,216 223,315 231,959 239,083 242,002 244,419
Equity accounted investments 9,593  14,210 14,421 15,084 15,644 16,028 16,271 16,435
Intangible assets and goodwill 2,776 3,553 3,601 4,061 4,202 4,131 3,980 3,849
Forecast for new capital spending - - 1,745 4,254 7,058 10,229 13,491
Top-down capital adjustment - - - -2,240 -3,650 -4,910 -5,670 -6,180
Total assets 244,416 313,609 438,596 456,734 487,148 510,733 514,827 523,381
Issued currency 4,691 5,980 8,256 8,582 8,668 8,755 8,842 8,931
Payables 11,160 14,794 17,577 16,088 16,864 18,249 18,861 19,584
Deferred revenue 1,714 2,224 2,549 2,690 2,846 3,078 3,189 3,294
Borrowings 100,087 111,806 162,560 200,357 226,323 238,855 229,132 220,972
Insurance liabilities 37,712 42,786 60,336 65,062 67,230 69,792 72,564 75,642
Retirement plan liabilities 11,903 11,006 11,038 10,040 9,333 8,679 8,054 7,443
Provisions 7,138 8,541 19,087 21,085 19,052 18,528 17,143 15,550
Total liabilities 174,405 197,137 281,403 323,904 350,316 365,936 357,785 351,416
Total net worth attributable to the Crown 68,071 110,532 151,469 127,282 131,417 139,325 151,504 166,358
Net worth attributable to minority interest 1,940 5,940 5,724 5,548 5,415 5,472 5,538 5,607
Total net worth 70,011 116,472 157,193 132,830 136,832 144,797 157,042 171,965

Source: The Treasury

Figure 3: Balance sheet performance

Figure 3: Balance sheet performance

Figure 3: Balance sheet performance - Social

Figure 3: Balance sheet performance - Social

Figure 3: Balance sheet performance - Financial

Figure 3: Balance sheet performance - Financial

Figure 3: Balance sheet performance - Commercial

Figure 3: Balance sheet performance - Commercial

Notes for Figure 3:

Most data are based on Treasury balance sheet data unless otherwise specified.

F1 Social assets: for the purposes of the 2022 Investment Statement, Social assets also include tax receivables and student loans managed by the Inland Revenue Department (IRD). Social assets also include entities with mixed commercial and non-commercial objectives, such as the Crown Research Institutes. Social liabilities are mainly accounts payable and employee entitlements.

F2 Hospital statistics:

F3 Transport statistics:

F4 Public housing statistics:

F5 Education assets:

F6 Education asset age:

F7 ACC statistics:

F8 NZSF statistics:

F9 The Treasury (NZDM).

F10 The Treasury.

F11 Transpower overview: Transpower 2020/21 Integrated Annual Report:

F12 Airways overview:

F13 NZ Post overview:

F14 Other assets consist largely of cash holdings and PP&E across the remaining Social entities. 'Other' liabilities include current accounts payable balances and employee entitlement provisions.

F15 Balance sheet data is drawn from each entity's publicly available annual report. Please note that:

  1. whole-of-government assets and liabilities do not match the sum of Financial assets and liabilities due to consolidation
  2. ACC and NZSF overall assets and liabilities do not correspond exactly with fund size.

F16 Balance sheet data from Treasury data except for listed companies which come from individual entity publications:

F17 New Zealand Post is 100% owned by the government. New Zealand Post owns 53% of Kiwi Group Holdings (KGH). KGH is the parent of Kiwibank, KiwiWealth (a provider of KiwiSaver funds and private wealth), and New Zealand Home Loans. KGH's other two owners are also government entities: the NZSF (25%) and ACC (22%).

F18 Other' amounts to the effect of new investment assigned to capital allowances. These amounts are yet to be allocated.

F19 KiwiRail. In 2019 the accounting treatment of KiwiRail's network assets in the FSG changed. It was assessed that KiwiRail's rail network assets were primarily held to support the broader transport system. The assets are now valued at replacement cost, rather than as cash-generating assets. This change in accounting treatment has resulted in a significant increase in the value of KiwiRail's assets. KiwiRail's assets and liabilities are included in balance sheet aggregates and forecasts (ie, total assets and liabilities for both the government balance sheet and the Commercial Portfolio). Given KiwiRail's increasing focus on broader objectives, KiwiRail is not one of the 18 commercial entities identified in the 2022 Investment Statement, nor is it included in analysis by commercial valuation or shareholder returns.

1.4  Broader perspectives on the balance sheet#

The Living Standards Framework and He Ara Waiora

The Treasury's vision is to lift living standards for all New Zealanders.[15] To support this vision the Treasury uses two core frameworks: the Living Standards Framework (LSF) and He Ara Waiora.

The LSF reflects local and international developments in the conceptualisation and measurement of wellbeing.[16] In the LSF, wellbeing is underpinned by stocks of four aspects of New Zealand's national wealth. The four 'wealths' are the natural environment, social cohesion, human capability, and financial and physical capital (see Figure 4). These wellbeing stocks comprise both the tangible and intangible aspects of the life experience of New Zealanders that support wellbeing. The stocks are interlinked and constantly changing. Higher living standards and wellbeing depend on each of the four wealths being strong and well managed.

The balance sheet records an accounting measure of the government's physical and financial capital.[17] It does not reflect the physical and financial capital of New Zealanders more generally. The government's physical and financial capital can help support different aspects of our wellbeing. A strong balance sheet with low levels of net debt and high levels of net worth provides resilience to shocks. A strong balance sheet also provides government with choices, including an ability to invest in public services. Components of the balance sheet aim to directly support wellbeing. For example, government-owned hospitals support the delivery of free (or low-cost) at the point of need healthcare.

Figure 4: Living Standards Framework

Figure 4: Living Standards Framework

He Ara Waiora provides another lens to help understand the balance sheet. It offers principles, derived from mātauranga Māori, to guide the process of policy development to support the wellbeing of Māori and all New Zealanders (see Figure 5).[18] He Ara Waiora brings a focus on how we do things, as well as the end results. Its key principles are:

  • Kotahitanga: working in an aligned, coordinated way
  • Tikanga: making decisions in accordance with the right values and processes, including in partnership with the Treaty partner
  • Whanaungatanga: fostering strong relationships through kinship and/or shared experience that provide a shared sense of wellbeing
  • Manaakitanga: enhancing the mana of others through showing proper care and respect
  • Tiakitanga: guardianship, stewardship (of the environment, particular taonga and other important processes and systems).

Figure 5: He Ara Waiora framework

Figure 21: He Ara Waiora framework


Both the LSF and He Ara Waiora help to link the assets and liabilities on the balance sheet to wellbeing outcomes. This includes:

  • the outcomes the government is seeking and generating from its assets
  • understanding whether the government owns the right amount or types of assets to deliver those outcomes
  • the choices available to government, including alternatives to ownership[19]
  • intergenerational choices, such as investing now while running higher debt.

Given the different ways in which assets and the balance sheet may provide wellbeing benefits, it is important that good investment decisions consider the full array of benefits and costs, both now and in the future. The LSF and He Ara Waiora also emphasise that:

  • it is important to take a holistic view of the balance sheet: for some assets and liabilities, an accounting measure will only indirectly reflect their contribution to living standards. Other aspects of wellbeing, including the natural environment, social cohesion and human capability, may not be reflected on the balance sheet at all. The conservation estate provides a good example. The conservation estate makes up around a third of New Zealand's surface area. It has a value of $7.2 billion in the FSG based on estimates of market value. An accounting value provides only one measure of value. There are social and cultural benefits of allowing New Zealanders and visitors access to the conservation estate. The conservation estate helps the government to protect biodiversity, which provides resilience against unknown shocks in the future and respects the intrinsic existence value of both New Zealand’s taonga species and the environment (taiao). An estimate of market value (typically based on unimproved land) may not consider alternative uses. In the context of climate transition, for example, current values do not reflect the potential use of the conservation estate to support emissions reduction (for example for renewable energy such as wind).
  • how we manage the balance sheet is important: the strength of institutions and the level of trust in government are important 'assets'. Preserving these assets requires providing opportunities for participation and representation in decision-making. It includes a partnership approach between government and iwi and Māori that acknowledges the importance of tikanga values and recognises the government's Treaty responsibilities.

The Treasury's first Wellbeing Report, to be released at the end of 2022, will explore the sustainability of, risks to, and resilience of wellbeing. In addition to financial and physical capital, this will also consider the contribution of human capability and the natural environment.

  1. [1] See:
  2. [2] Under GAAP almost all government-controlled entities are consolidated line-by-line, and any related transactions are eliminated. A small number of entities are reported as equity-accounted investments. This means that the net value of the government's investment is presented as an asset on the balance sheet. At 30 June 2021, the balance sheet showed $14.4 billion in equity-accounted investments, primarily in universities and wānanga ($12.6 billion). Local authorities are not included in the FSG; they are separate entities not controlled by government.
  3. [3] In addition to New Zealand, this group comprised Australia, Canada, Finland, Hungary and Mexico. See OECD (2019) Budgeting and Public Sector Expenditure in OECD Countries. Retrieved from:
  4. [4] The Treasury's modelling has historically indicated that around 70% of the government's financial risk is sourced from changes in the economy driving change in revenue and expenditure, with the remainder attributable to valuation changes in assets and liabilities. For background papers, see: Given the balance sheet has increased in scale and now has a higher weighting towards Financial assets, it is likely that the role of valuation changes will also have increased.
  5. [5] The 'comprehensive balance sheet' is also referred to the 'intertemporal balance sheet'. For background, see Koshima, Y, Harrison, J, Tieman, A, De Sanctis, A (2021) The Cost of Future Policy: Intertemporal Public Sector Balance Sheets in the G7. IMF Working Paper, 2021(128). Retrieved from:
  6. [6] See:
  7. [7] Polackova, H (1998) Contingent Government Liabilities A Hidden Fiscal Risk. International Monetary Fund - Finance and Development, 36(1). Retrieved from:
  8. [8] Between 1990 and 2014, the International Monetary Fund identified 230 explicit and implicit risks that had been realised: these risks had an average fiscal cost of 6.1% of the affected country’s GDP. See Bova E, Ruiz-Arranz M, Toscani F, Ture H (2016) The Fiscal Costs of Contingent Liabilities: A New Dataset. IMF Working Paper, 2016(014). Retrieved from: In New Zealand, the net cost to government of the Canterbury earthquakes (ie, including reinsurance proceeds and the assets in the Natural Disaster Fund) was most recently estimated at $15.1 billion.
  9. [9] See section 26Q(3)(a) of the PFA:
  10. [10] IMF (2018) World Economic and Financial Survey: Managing Public Wealth. Retrieved from:
  11. [11] An IMF study found that increasing a government’s net worth by 1% of GDP or decreasing a government’s gross debt by 1% of GDP led to comparable reductions in that government’s borrowing costs. Yousefi S (2019) Public Sector Balance Sheet Strength and the Macro Economy. IMF Working Paper, 2019(170). Retrieved from:
  12. [12] These elements were also discussed in the 2014 Investment Statement and the 2018 Investment Statement.
  13. [13] OECD (2020) State-Owned Enterprise Governance: A Stocktaking of Government Rationales for Enterprise Ownership, 2020. Retrieved from:, which notes that “the overarching question for the government owners of [commercial entities] is why these companies need to be owned by the state.” The OECD notes that “it may be assumed that the reason for continued state ownership is that they are expected to act, at least in some respects, differently from private companies in like circumstances. The one exception from this rule may be certain listed and highly competitive [commercial entities], which are part-owned by the government in order to prevent them from being taken over by other companies”. See Christiansen, H (2013) Balancing Commercial and Non-Commercial Priorities of State-Owned Enterprises. OECD Corporate Governance Working Papers, 2013(6). Retrieved from:
  14. [14] The forecasts are subject to several assumptions. The most significant in terms of impact are that the returns to the large investment funds managed by the ACC and the NZSF track long-term benchmark rates of return and that there are no revaluations of property, plant and equipment.
  15. [15] See:
  16. [16] See for a summary of the LSF.
  17. [17] In the LSF, government is one of six actors. The other actors are: Whānau, hāpu and iwi; Families and households; Civil society; Firms and markets; and International Connections.
  18. [18] He Ara Waiora was initially developed with the Tax Working Group, which considered how tikanga Māori could help create a more future-focused tax system. This involved a process of engaging with iwi and Māori, with the ongoing input of several Māori businesses and thought leaders. For background, see working papers:
  19. [19] Under the LSF, government performs four roles: providing infrastructure, providing services, regulating, and investing in and safeguarding New Zealand's national wealth.

2.0  Key developments#

This section:

  • sets out our assessment of the state of the government balance sheet
  • notes key developments in the scale, composition, risk, or performance of assets and liabilities.

2.1  A changing context#

The 2018 Investment Statement was prepared in stable economic conditions and showed the government balance sheet recovering from the Global Financial Crisis and the Canterbury earthquakes. The Treasury forecast ongoing operating surpluses, resulting in net core Crown debt (net debt) tracking downwards.[20]

The Treasury also considered that the government's balance sheet was strong and resilient in the face of adverse events.[21] Stress testing indicated that the balance sheet would be broadly tolerant to large but plausible adverse shocks in the form of a major earthquake, a widespread agricultural disease outbreak or an international economic downturn. However, the balance sheet nonetheless remained susceptible to risk and the Treasury recommended rebuilding buffers.

The balance sheet has changed substantially since 2018, predominantly due to two factors: COVID-19 and a changing macroeconomic context.

  • The response to COVID-19: the resilience of the government balance sheet prior to the COVID-19 pandemic allowed the Government to support the wellbeing of New Zealanders through an extraordinary shock. New Zealand's fiscal response was large by international standards;[22] this response has been critical in minimising unemployment, supporting a swift economic recovery, and preventing longer-lasting impacts on living standards. The fiscal response complemented a broader economic, social, and health response, including the RBNZ's monetary policy response.[23] New Zealand entered several lockdowns over the course of 2020 and 2021. This resulted in a sharp decline in economic activity and significantly lower tax receipts. The economy bounced back quickly, with both GDP and tax receipts rebounding to above pre-pandemic levels.[24] COVID-19 has also disrupted supply chains.
  • A changing macroeconomic context: prior to COVID-19, 'neutral interest rates' (the rate that neither stimulates nor constrains the economy) had been in a period of long-term decline. While there is no consensus on the reason for the decline in neutral interest rates, the decline is generally attributed to structural factors such as an aging population, lower productivity growth, and an increased preference for safe assets.[25] The result has been that neutral interest rates have been lower than growth rates, a condition that reduces the welfare costs of debt and creates more fiscal headroom.[26] Neutral interest rates are now trending up. There are differing views on their ultimate trajectory.[27] We nonetheless anticipate that ongoing structural factors mean neutral interest rates will stabilise at a level that remains low from a historical perspective.[28] This changing context has had several impacts on the balance sheet. Each is discussed in this section: it is more likely that monetary policy choices will be shaped by the 'effective lower bound' on the Official Cash Rate (OCR), government financing costs are likely to be lower but the government will be exposed to greater interest rate risk, and the value of some assets and liabilities has changed and may change in the future.[29]

2.2  The state of the balance sheet#

As a consequence of the response to COVID-19 and a changing macroeconomic context the government balance sheet looks significantly different than forecast in the 2018 Investment Statement. The 2018 Investment Statement forecast that the government would have $342.7 billion in assets and $195.6 billion of liabilities at 30 June 2021. At 30 June 2021 the government had $438.6 billion of assets (28% more than forecast) and $281.4 billion of liabilities (44% more than forecast). The key drivers of that change have been a significant increase in government borrowing (a key contributor to a $62.7 billion growth in Financial liabilities) and a substantial rise in the value of Financial and Social assets (25% and 32% higher than forecast respectively).

In the Treasury's assessment the overall health of the balance sheet remains strong. The Treasury considers that net debt continues to remain within prudent levels. The government's net worth is also higher than it was prior to COVID-19. At the same time there has been an increase in the risk and complexity of the government balance sheet. The government has taken on new assets and liabilities as part of its COVID-19 response and the government's exposure to interest rate risk has risen because of the RBNZ's Large Scale Asset Purchase programme.

Net debt has increased significantly but remains within prudent levels

Net debt has increased from 19.0% of GDP prior to the COVID-19 pandemic (30 June 2019) to 30.1% of GDP at the end of the last fiscal year (30 June 2021). Net debt is forecast to peak at 40.1% of GDP in the 2022/23 fiscal year. Figure 6 below shows net debt over time.[30]

While net debt is higher than it has been since the early 1990s, the macroeconomic and fiscal context has also changed. Net debt reached its peak of 54.8% of GDP in 1992. In that year, the government's liabilities exceeded its assets (ie, net worth was negative), financial assets accounted for 3.8% of GDP, New Zealand government debt was rated AA-, and 43% of government debt was denominated in foreign currency.[31]

Higher net debt increases risks to debt sustainability and could manifest if the capital markets or rating agencies became concerned about government's ability to service its debt. If this occurred, the government would face increased government financing costs as investors sought a greater premium to lend. At current levels of net debt, the Treasury considers this risk to be low (see Box 2.1).

Figure 6: Government net debt 2012-2026

Figure 6: Government net debt 2012-2026

Source: The Treasury

The Treasury's assessment of prudent debt is supported by New Zealand's current credit ratings

Credit ratings are assigned to countries by international credit rating agencies. The agencies provide investors with indications of the creditworthiness of entities in which they are considering investing. These ratings, although only one part of the picture, provide external metrics by which people can assess the health of balance sheets.

Strong credit ratings allow New Zealand to borrow at low cost and maintain good access to international capital markets. This reduces the cost of government financing, supports lower-cost public services and provides resilience against future shocks.

There are three major internationally recognised credit rating agencies: S&P Global Ratings (S&P), Moody's Investors Service (Moody's) and Fitch Ratings (Fitch). New Zealand's long-term foreign-currency rating has fluctuated between AAA/Aaa and AA-/Aa3 over the past three decades. Triple A (AAA: S&P and Fitch, Aaa: Moody's) indicates the strongest level of creditworthiness.

Currently, New Zealand has long-term foreign-currency ratings of AA+/Aaa/AA, reflecting ratings at or near the top of the respective agencies' scales (see Figure 7). While elements of New Zealand's rating have weakened slightly as a result of COVID-19 (see Figure 8), New Zealand was the first government to be upgraded by S&P in the pandemic. New Zealand's strong credit ratings reflects the following factors:

  • Rating agencies consider that the balance sheet has enough resilience to address potential future shocks.
  • New Zealand is seen to have strong institutional and policy settings, including a demonstrated commitment to its fiscal frameworks and fiscal management approach.
  • Less than 2% of debt is foreign currency denominated.

Rating agencies consider New Zealand's primary risk factors to be its external imbalances, including current account deficits that are high relative to other countries, and a negative international investment position. Other risk factors cited by ratings agencies are high household and agriculture sector debt, a lack of diversity in exports, and high house prices (seen as creating a risk to financial system stability in the event of a correction).[32]

Alternative monetary policy has changed the composition of government liabilities

The RBNZ's main tool for influencing interest rates and therefore aggregate demand in the New Zealand economy has traditionally been the OCR.[33] When COVID-19 hit, the OCR was at an all-time low of 1%.

To stimulate the economy, the RBNZ cut the OCR a further 75 basis points to 0.25%. To further lower interest rates and provide additional monetary stimulus, three alternative monetary policy tools were deployed. The tools used were:

  • forward guidance: in March 2020, the RBNZ announced that the OCR would remain at 0.25% for at least 12 months. This provided more certainty to markets and households that short-term interest rates were going to remain low for the near future.
  • the Large Scale Asset Purchase (LSAP) programme: the aim of the LSAP programme was to inject money into the economy to lower borrowing costs to households and businesses, restore the functioning of bond markets and provide liquidity to the financial system. Under this programme, the RBNZ bought New Zealand Government Bonds (NZGBs) and Local Government Funding Agency (LGFA) bonds in the secondary market. This created extra demand for bonds, increasing their price and reducing market yields. As financial markets use government bond yields as a reference point (often referred to as the 'risk free rate'), lowering yields on NZGBs and LGFA bonds led to lower interest rates across the rest of the New Zealand economy.
  • the Funding for Lending (FLP) programme: the RBNZ uses the FLP to provide collateralised funding to commercial banks at the OCR. This reduces banks' funding costs, supporting lower bank lending and deposit rates and encouraging more lending and less saving.

The RBNZ is consolidated onto the government balance sheet. The RBNZ created settlement cash to fund both the buying of bonds under the LSAP programme and lending through the FLP programme. This has changed the composition of government debt and has also had an impact on net debt (see Box 2.2).

Figure 7: New Zealand's credit rating versus select advanced economies

Figure 7: New Zealand's credit rating versus select advanced economies

Source: S&P, Bloomberg

Figure 8: Components of New Zealand's S&P credit rating 2020-2022

Figure 8: Components of New Zealand's S&P credit rating 2020-2022

Source: The Treasury

Box 2.1  LTFS assessment of prudent debt

The PFA requires governments to 'reduce debt to prudent levels' and maintain it at those levels. Defining 'prudent' requires both analytical and value judgements, including considering the value of additional expenditure, how decisions to allocate resources affect current and future living standards, the resilience New Zealand needs to respond to future shocks, and the impact of higher debt on future generations.

In the LTFS, the Treasury indicated that it views current levels of net debt as prudent, considering three different approaches: debt sustainability, market access, and wellbeing. The LTFS indicated that long-term expenditure trends mean that, without any policy adjustments, net debt will likely breach the prudent upper limit at some future point. The key trends are:

  • New Zealand Superannuation expenses increase from 5.0% of GDP in 2021 to 7.7% by 2061, due to demographic change
  • health expenditure increases from 6.9% of GDP in 2021 to 10.6% in 2061. Demographic change accounts for around one third of the projected increase, with increasing demand for healthcare, rising prices for health services, and wage growth making up most of the remainder.

Climate change will also have significant economic and fiscal impacts both now and into the future. The scale of these impacts remains uncertain, partly because many policy decisions are still to be taken.

If the key trends are unaddressed, the gap between government revenue and expenditure will grow significantly. If this continues, net debt will start increasing exponentially. Increases in debt to higher levels will make achieving fiscal sustainability more challenging as higher debt levels put upward pressure on interest rates and subsequently debt-financing costs. In addition, higher debt levels are also likely to lower longer-term welfare as economic growth is constrained by crowding out private investment and the higher future taxes required to meet debt-financing costs.

Box 2.2  Impact of alternative monetary policy on the balance sheet

LSAP programme
Impact on the government balance sheet

The LSAP programme resulted in the RBNZ buying $53 billion of NZGBs on the secondary market; during this time $67 billion of NZGBs were issued (see Figure 9). From a whole-of-government perspective, the LSAP programme changed the composition of government debt: from NZGBs paying fixed-rates to settlement cash paying the OCR. 

Figure 9: LSAP programme and net supply of NZGBs

Figure 9: LSAP programme and net supply of NZGBs

Source: The Treasury, RBNZ

Note: Net NZGB supply includes the impact of NZGB issuance, purchases under the LSAP programme, as well as the NZDM and the RBNZ's early repurchase programmes and maturities of existing bonds.

The LSAP programme acted to reduce government financing costs for newly issued debt by reducing economy-wide interest rates. These benefits are potentially material. The RBNZ estimated in August 2020 that NZGB yields were at least 50 basis point lower, and potentially more than 100 basis points lower, than they would have been without the LSAP programme. The LSAP programme is also expected to have increased tax revenue by supporting broader economic output.[34]

The LSAP programme has had three other impacts on the balance sheet: initial recorded losses, debt servicing savings, and impacts on debt servicing variability.   

NZGBs are valued at a historical cost on the government balance sheet.[35] At the time the LSAP programme occurred, interest rates were at historical lows. For most outstanding NZGBs, interest rates had fallen since issuance, increasing their market value relative to their issue price. At the time of purchase, the NZGBs bought by the RBNZ under the LSAP programme cost $7.2 billion more than their value on the government balance sheet. This was recorded as a loss on the government balance sheet and resulted in an increase in net debt.  

At the time the RBNZ made their LSAP purchases, the $7.2 billion loss on the purchase of NZGBs was expected to be offset by a reduction in government finance costs of about the same amount over the life of the programme.[36] The upfront loss on the government balance sheet and ongoing debt servicing costs should be considered together. In establishing the LSAP programme it was understood that uncertainty over the future path of the OCR meant that the programme could result in a material gain or loss.

Interest rates, both current and those expected in the future, have increased more than expected since the LSAP programme occurred. This means that the loss on the government balance sheet and reduction in debt servicing costs are no longer expected to offset each other. Based on current interest rate expectations, the net direct fiscal cost from the LSAP programme is currently expected to be $5.1 billion.[37] The ultimate loss or gain from the LSAP programme will not be known until it is unwound as it will depend on how interest rates evolve and will require assessment of all the factors explained above.

The LSAP programme has also altered the balance sheet's interest rate risk profile. The programme has changed the maturity profile of debt and meant that the government's debt servicing costs are now more sensitive to changes in the OCR (see Figure 10).[38]

Figure 10: Maturity profile of government liabilities

Figure 10: Maturity profile of government liabilities

Source: The Treasury

LSAP programme unwind

LSAP programme purchases were halted in July 2021. In August 2021, the Monetary Policy Committee directed RBNZ staff to develop an operational strategy to manage the LSAP portfolio.

In February 2022, the RBNZ signalled that it would begin unwinding the LSAP portfolio. This would occur through sales of NZGBs to NZDM at an expected rate of $5 billion per fiscal year, and the RBNZ not re‑investing proceeds from bonds as they matured (see Figure 11). The RBNZ considers sales to NZDM to be the most efficient approach, providing the market with clarity on net bond supply. The RBNZ’s intention is that sales of bonds in addition to maturities will be done gradually and predictably to maintain market functioning and avoid unnecessary volatility in interest rates. The RBNZ will hold the LGFA bonds in the LSAP portfolio ($1.6 billion as at January 2022) until they mature.

The fiscal impacts of maturities or sales are expected to be minimal.

Figure 11: LSAP unwind

Figure 11: LSAP unwind

Source: RBNZ

Note: Nominal and inflation-indexed NZGBs only. Sales are in addition to bond maturities and are expected to begin mid-2022.

FLP programme

The FLP programme has increased net debt because settlement cash is included in the indicator while the advances made under the programme are not. FLP programme has increased forecast net debt by nearly the full size of the scheme (5.6% of GDP) in the 2021 Half Year Economic and Fiscal Update (HYEFU) forecasts even though the advances are low risk and are not considered to have any material impact on the government's net worth or the longer-term fiscal position. The Treasury's view is that it is appropriate to look through the impact of the FLP programme in setting fiscal policy. This issue is discussed further in section 3.3.

Government finance costs are low despite the increase in debt

Low interest rates have had a substantial impact on the cost of debt. Figure 12 shows that government finance costs have fallen since the onset of COVID-19, driven by lower short- and long-term interest rates globally and in New Zealand, supported by central banks increasing monetary stimulus. The weighted average cost of government funding was 2.5% in December 2021, down from 3.6% in December 2019.

As indicated in Box 2.2, the LSAP programme has also reduced government finance costs by changing the composition of debt so that a higher proportion pays the OCR - which is currently lower than longer-term fixed rates. In doing so it has changed the balance sheet interest-rate risk profile, as changes in the OCR relative to current expectations will affect government finance costs.

Figure 12: Net debt and government finance costs 1996-2026 - as a % of GDP

Figure 12: Net debt and government finance costs 1996-2026 - as a % of GDP

Source: The Treasury

Net worth has remained resilient as low interest rates and supply-side constraints have increased asset values

Net debt is the measure commonly used in international comparisons of government finances. On its own, however, net debt provides an incomplete view of a government's financial position. Net worth is a broader measure (see Box 2.3).

Government net worth has proven resilient and is now higher than it was before COVID-19 (see Figure 13). In addition to the impact of COVID-19, a key driver has been changes in asset values; this can be seen in the role of 'net revaluations' and 'net gains and losses' in Figure 14.[39]

Increasing land values

PP&E assets on the government's balance sheet have increased by $68.7 billion (48%) since the 2018 Investment Statement.[40] These increases have occurred across several asset classes including land, buildings, state highways, electricity generation assets and the rail network (see Figure 15).

The land and building asset classes have seen the largest increases in value, reflecting significant growth in residential property values (and therefore underlying land values) across New Zealand.[41] The Treasury's analysis suggests that the increase in land values primarily reflects:[42]

  • lower interest rates: in a traditional 'abundant land' model, higher house prices caused by lower interest rates should generate a supply response, driving rents lower and house prices back to the cost of construction.[43] This does not appear to have happened in the past 20 years - rather than rents falling, prices have risen. The implication is that the availability of new land to build on has been restricted over time
  • slow supply responsiveness: in the long-term, population growth and regulatory barriers (such as the time and regulatory processes associated with planning, development and building) have meant that demand for housing has exceeded supply. This has resulted in shortages pushing prices up.

Figure 13: Government assets, liabilities and net worth 2013-2021

Figure 13: Government assets, liabilities and net worth 2013-2021

Source: The Treasury

Figure 14: Drivers of change in net worth 2015-2021

Figure 14: Drivers of change in net worth 2015-2021

Source: The Treasury

Figure 15: PP&E revaluations 2015-2021

Figure 15: PP&E revaluations 2015-2021

Source: The Treasury

Impacts of low interest rates on financial asset and liability values

Neutral interest rates have declined progressively for the last two decades. Interest rates then declined further through 2020. There is evidence that returns on capital for financial assets such as equities have not fallen to the same extent, albeit with significant volatility during both the Global Financial Crisis and the COVID-19 pandemic (see Figure 16).[44] An increase in riskier financial asset values has strengthened the government balance sheet; for example the NZSF recorded investment returns of $11.3 billion after tax in 2021.

Lower interest rates have also affected other parts of the balance sheet, particularly insurance liabilities.[45] Insurance liabilities accounted for around 21% of total liabilities in 2021. As interest rates fell to historical lows in 2019/20 and 2020/21, the discount rate used to value insurance liabilities also fell. All else being equal, this increases the value of the liability. ACC holds an investment portfolio that aims to offset this risk by holding investment assets that tend to rise in value when real interest rates decline (see Figure 17).


In addition to the increases in asset values highlighted above, there has been continued new investment in Social and Financial assets. This has included new capital investment[46] and $5.1 billion in contributions to the NZSF.[47]

Figure 16: NZGB yields and yields on global equities 1990-2021

Figure 16: NZGB yields and yields on global equities 1990-2021

Source: The Treasury

Figure 17: ACC outstanding claims liability versus assets 2012-21

Figure 17: ACC outstanding claims liability versus assets 2012-21

Source: ACC, The Treasury

Box 2.3  Net worth and net financial worth

Net debt excludes several important assets and liabilities (for example, Commercial assets and liabilities and many Financial assets). Net worth is calculated as the government's total assets less total liabilities and captures changes to all of the assets and liabilities on the balance sheet. Because net worth includes all assets and liabilities, it can help to provide visibility over whether changes in the government financial position are being driven by fiscal deficits/surpluses, investment or valuation changes:

  • Investment: in contrast to net debt, net worth distinguishes between debt that is used to finance investment and debt that is used to finance deficits.[48] Relative to net debt, net worth provides stronger incentives to focus on the management of assets and non-debt liabilities, and avoids what the IMF terms 'fiscal illusions', where the government's financial position is superficially improved through the sale of assets.[49]
  • Valuation changes: increases in the value of Social assets increase net worth but do not impact on net debt. However, the impact of such changes on government financial strength and wellbeing is not necessarily straightforward. Social assets generally do not directly generate revenue; instead, the public services they provide are funded by various forms of taxation. Increases in the value of Social assets (for example the land under state highways) do not necessarily impact on the quantity or quality of public services and may not be easily realised. Increases in asset values may indicate increases in the costs of providing similar services in the future, or prompt consideration of whether ownership remains the most efficient way of providing public services (for example, an increase in the value of land may mean that leasing assets may provide better value for money).

One way to adjust for the challenges associated with the valuation of Social assets is to use a measure that focuses solely on Financial and Commercial assets and liabilities such as financial net worth.[50] For Financial and Commercial assets valuation changes are more closely tied to the financial benefits they provide, and financial net worth may therefore provide a more complete picture of balance sheet resilience than net debt alone (noting that adjustment needs to be made for the riskiness, liquidity, and natural hedge of assets and liabilities). A high proportion of the recent increase in government asset values is related to Social assets; financial net worth has decreased since the onset of COVID-19 (see Table 2).

Table 2: Financial net worth 2013-21
Year to 30 June ($ billion) 2013 2014 2015 2016 2017 2018 2019 2020 2021
Financial net worth -38.2 -35.4 -29.8 -34.7 -26.1 -21.2 -27.6 -64.4 -46.6

As discussed in section 3.3, fiscal indicators have a range of purposes and criteria, meaning that even though net worth and financial net worth provide broader measures of the government's financial position, they are not necessarily more useful than alternatives such as net debt.[51]

The balance sheet comprises a more complex set of assets and liabilities

New Zealand has seen an increasing use of the government balance sheet to support policy objectives, beyond the traditional use of Social assets to deliver services such as health and education. General examples include using the balance sheet to provide government loans, purchasing equity, and offering guarantees/indemnities. Specific examples include:

  • the creation or expansion of 'impact' investment institutions: the Elevate NZ venture capital fund ($300 million of new capital), New Zealand Green Investment Finance ($100 million of capital announced in 2018 and a further $300 million in 2021), and Kānoa, previously the Provincial Development Unit, which provides government funding in a variety of forms to support economic development in regional New Zealand
  • loans: through COVID-19 the government has made $1.6 billion of concessional loans through the Small Business Cash Flow Scheme. This lending brings counterparty risk
  • an increase in borrowing by Crown entities directly from capital markets: most notably Kāinga Ora ($5.5 billion of bonds on issue at 30 June 2021)
  • contingent liabilities: contingent liabilities do not appear on the balance sheet but still result in risk for government. Since the 2018 Investment Statement government has taken on or increased several contingent liabilities. These include, for example, an increase in EQC's insurance cap and the Business Finance Guarantee Scheme.

The use of the balance sheet in these ways is not novel. For example, the government has long provided the student loan scheme using its balance sheet, which is currently valued at $10.8 billion. Using the balance sheet to achieve policy objectives can be effective and may in some cases provide better value for money than more traditional policy interventions. For example, government may structure its involvement to help the private sector 'bridge’ an unfavourable risk/return profile, providing a policy outcome while providing a return to government of some or all its investment. At the same time, such an approach can generate different risks and challenges if it is not subject to appropriate policy frameworks, risk management and governance. This reinforces the need to ensure that all potential interventions are subject to rigorous options and cost-benefit analysis to ensure they provide best value for money for taxpayers. This has been a focus in other countries in recent years, particularly the UK.[52]

In the case of borrowing by Crown entities (see Figure 18), for example, this type of borrowing has been argued as providing greater scrutiny of the borrowing entity, allowing for better long-term planning and providing transparency. On the other hand, if this borrowing is not structured in a way that the lender bears explicit project risks (such as cost or time overruns) or has incentives for whole-of-life cost optimisation, this type of lending may increase costs without providing equivalent benefits.

While there has been increasing use of the government balance sheet to achieve policy objectives, the balance sheet was not as significant to New Zealand's COVID-19 response as was the experience in other countries (see Figure 19). As at March 2021, the IMF estimated the total global fiscal policy response to be USD16 trillion, with USD6 trillion coming through 'balance sheet' tools such as equity, loans and guarantees.[53] As with the Global Financial Crisis, this may leave a legacy of new assets and liabilities for some countries.

Figure 18: Crown entity borrowings as a % of GDP - actual and forecast 2008-25

Figure 18: Crown entity borrowings as a % of GDP - actual and forecast 2008-25

Source: The Treasury

Figure 19: Equity, loans, and guarantees as part of the discretionary response to the COVID-19 crisis in selected advanced economies as a % of GDP

Figure 19: Equity, loans, and guarantees as part of the discretionary response to the COVID-19 crisis in selected advanced economies as a % of GDP

Source: IMF

2.3  The government balance sheet relative to peers#

Comparing government balance sheets is difficult owing to both data limitations and the different measurement approaches used by different countries, although the quality of government balance sheet information has improved over time.

The IMF produces cross-country comparisons of debt using its General Government Net Debt measure (which differs in construction from net debt) as presented in Figure 20. When compared using this measure, New Zealand has lower General Government Net Debt as a share of GDP than many other countries.

The New Zealand government balance sheet has the following features relative to other countries:

  • The growth of the NZSF means New Zealand has a relatively high proportion of Financial assets: the countries with a higher proportion of Financial assets are those with large sovereign wealth funds, such as Norway and Singapore. The NZSF is slightly larger than Australia's Future Fund as a share of GDP.
  • Liabilities other than debt are relatively low: the most significant liabilities (other than debt) for many governments are public sector defined benefit pension schemes.[54] In comparison, New Zealand pension liabilities are modest.
  • Commercial asset ownership remains relatively large as a proportion of GDP: this reflects the size of New Zealand's listed commercial entities and Kiwibank (see Figure 22).
  • The level of Social assets on the balance sheet reflects policy choices on how best to deliver public services: as with many other countries, the New Zealand government balance sheet includes roads, schools and prisons. Differences exist in respect of other assets reflecting different policy choices. For example, there are significant housing assets on the government balance sheet ($41.3 billion, or 12.1% of GDP). This reflects the choice of governments to provide social housing centrally to those with high housing needs. Many other countries devolve housing provision to local authorities or have larger not-for-profit sectors.[55]

Historically, New Zealand government net worth has been higher than most available comparator countries (see Figure 21). Cross-country assessment of net worth must be treated cautiously, given that comprehensive data is relatively dated and does not account for the impacts of COVID-19.[56]

Figure 20: IMF general government net debt in 2024 as % of GDP

Figure 20: IMF general government net debt in 2024 as % of GDP

Source: IMF

Figure 21: Government net worth for selected advanced economies

Figure 21: Government net worth for selected advanced economies

Source: IMF

Figure 22: OECD product market regulation indicators, including government commercial entity ownership

Figure 22: OECD product market regulation indicators, including government commercial entity ownership

Source: OECD (2018), OECD Product Market Regulation Indicator

Note: This chart displays the overall Product Market Regulation (PMR) Indicator value as well as its selected sub-components. Other SAE (Small Advanced Economies) are Austria, Belgium, Denmark, Finland, Ireland, Israel, the Netherlands, Norway, Sweden and Switzerland.

2.4  Key developments in scale, composition, risk and performance#

The Social Portfolio has many older assets and faces increased pressure to adapt

The 2018 Investment Statement identified that many assets were at the end of their useful lives[57] and often in the wrong locations. Given the fixed and specialised nature of Social assets, they can be inflexible and difficult to adapt to changing circumstances.

Demographic, climate and technology changes present risks to achieving government objectives and value for money through stranded and/or redundant Social assets:

  • Demographic change: population growth, increased urbanisation and an aging population are likely to place significant additional pressure on already stretched social infrastructure.
  • Technology changes: changes to the way services are delivered (eg, from physical infrastructure to online) could also have implications for the Social Portfolio.
  • Climate change: social assets may be directly affected by climate change, for example through damage to coastal highways or public conservation land. Climate change and its impacts on the balance sheet are discussed further in section 3.2.

While the 2022 Investment Statement does not present a disaggregated review of all Social assets and liabilities, the Treasury considers that the challenges around older and poorly maintained assets remain significant. This theme has been reflected in recent reviews.[58] For example:

  • asset renewal: Kāinga Ora is currently in a period of peak asset renewal. This provides visibility on the investment required to bring homes up to higher service delivery standards. The average age of the portfolio is 45 years, and many homes require retrofitting or complex remediation. Kāinga Ora also needs to meet its commitments to healthy homes legislation. Over the next 20 years 80% of homes (more than 50,000) will need renewal. The cost of retrofitting 6,800 homes in the next four years is estimated to be $4.9 billion[59]
  • asset management maturity: the recent National Asset Management Programme (NAMP) for District Health Boards (DHBs) identified that many health assets are older and poorly maintained. The average age of buildings ranged from 28 to 53 years. The NAMP noted that several factors had contributed to this result, including weakness in asset management, the prioritisation of operational rather than capital expenditure leading to a significant backlog of deferred maintenance, and the inability of DHBs to adapt quickly to changing demands, including health technologies
  • depreciation spending: the Treasury has recently reviewed two pilot groups of government agencies (Justice and Natural Resources) to consider issues of value for money, cost pressures and reprioritisation. The review identified underinvestment in maintaining and replacing assets over many years. Many assets are no longer fit for purpose due to changes in demand or operational strategy. The assets' poor condition may be the result of practices relating to depreciation spending. Ongoing funding for depreciation is often spent on immediate priorities, rather than on maintaining assets or preparing for asset replacement (see Figure 23).

There has been a sustained increase in investment in Social assets since the 2018 Investment Statement. Current and future investments in Social assets and infrastructure will have significant implications for the government's balance sheet (see section 3.1 for a discussion on the 'infrastructure gap') and will require careful choices about how the planned capital investment programme is delivered, how it is funded and financed and its timing and sequencing.

Figure 23: Liquid assets as % of accumulated depreciation 2007-2025

Figure 23: Liquid assets as % of accumulated depreciation 2007-2025

Source: The Treasury

New Zealand's Financial assets are performing well, but there are opportunities to clarify risk appetite at a whole-of-government level

The government owns a large and growing pool of Financial assets. These are predominantly held by the Crown Financial Institutions, namely ACC and NZSF.[60] The risks taken in the Financial Portfolio depend on the entity managers' investment strategies, subject to their governance arrangements. The Crown Financial Institutions have performed well, with returns in excess of each fund's passive benchmark (see Table 3).[61]

Current projections estimate that NZSF and ACC will reach approximately 40% of government assets by 2060 (see Figure 24). As the balance sheet becomes more financially orientated, discretionary choices about risk and return on the balance sheet have a greater impact on overall government finances. The government is also likely to see more balance sheet volatility from changes in the macroeconomic outlook (such as interest rates or stress events). Since the 2018 Investment Statement, several new investment entities have also been created or expanded. Collectively these changes suggest there is benefit in clarifying objectives and risk appetite at a whole-of-government level.

Table 3: Returns from select Crown Financial Institutions
Fund Performance expectation/objective % 2021 2018 5-year average
ACC Returns are greater than 0.3% (after costs) above its passive benchmark Return 10.6 9.9 9.4
Passive Benchmark 8.5 9.9 8.7
Difference 2.1 0 0.7
GSF Maximise the Fund's excess return relative to NZGBs with a one-in-four chance of under-performing over rolling 10-year periods Return 29 10.5 10.6
Passive Benchmark 23.9 11 11.7
Difference 6.1 -0.4 -1.1
NZSF Exceed the New Zealand Treasury Bill return by at least 2.7% annum Return 29.6 12.4 13.9
Passive Benchmark 27.9 10.4 12.6
Difference 1.7 2 1.3

Source: The Treasury

Figure 24: Forecast growth in total government assets 2021-2060

Figure 24: Forecast growth in total government assets 2021-2060

Source: The Treasury

Note the long-term asset data in Figure 24 is based on the Long-term Fiscal Model (LTFM) and differs from the actual outturn used throughout the rest of the 2022 Investment Statement.

A larger debt portfolio brings new management challenges

Debt servicing risk

Higher levels of debt increase the risks of government financing costs affecting the choices available to government. Lowering government financing costs through time allows more to be spent on public services that support wellbeing. In the LTFS the Treasury considered the impacts of several interest rate scenarios on net debt. That analysis showed that government financing costs affect the level of net debt (and the cost of government financing) but do not fundamentally change its trajectory.[62]

Factors other than debt servicing costs are also important. These factors include potential volatility in debt servicing costs, refinancing risk, investor diversification and capital market development.[63]

Short-term debt (including floating-rate debt) typically has lower debt servicing costs than long-term debt. However, short-term debt means the balance sheet is more sensitive to changes in interest rates and this means debt servicing costs may be more volatile. Short-term debt instruments also have greater refinancing risk. The impact of volatility in debt servicing costs on the overall government balance sheet will depend on the presence of natural hedges. For example, both interest rates and tax revenue are cyclical. Therefore, an increase in debt servicing costs due to higher interest rates may be in part or entirely offset by higher tax revenue stabilising net debt and net worth and keeping debt servicing costs low as a proportion of overall government spending through time.

In contrast, longer-term debt can reduce refinancing risk, improve investor diversification and support capital market development. Long-term debt is typically more expensive as investors demand a term premium. The lower interest rate sensitivity of long-term debt means it reduces the volatility of debt servicing costs. However, net debt and net worth may be more volatile if debt servicing no longer provides a natural hedge to other factors such as tax revenue. After the Global Financial Crisis NZDM has gradually increased the average weighted maturity of the NZGB portfolio (see Figure 25).[64]

Issuance of long-term debt may also be beneficial if the government is able to lock in low borrowing costs. However, long-term interest rates incorporate market expectations for short-term rates making it difficult to systematically benefit from this approach. Any benefit also needs to be material enough to offset the additional costs associated with the term premium.

Liquidity risk

COVID-19 has highlighted the liquidity risk that governments face during shocks.

Historically in New Zealand, around $2 billion has been held as a 'liquidity buffer’ to meet unexpected government cash flows. In 2020 around $30 billion more than forecast was borrowed to support the fiscal response to COVID-19 (see Figure 26), but it had to be raised quickly at a time of significant economic uncertainty.[65]

A larger liquidity buffer could have mitigated the risk of a temporary loss of market access or unfavourable funding costs. Recognising this, the government recently announced its intention to retain around $15 billion (4.4% of GDP) as a buffer to manage liquidity risk in future shocks.[66] The revised $15 billion level is based on the experience through 2020, scenario analyses of potential shocks, and the practices of sovereign debt managers in OECD countries (see Figure 27). The buffer comprises cash and liquid, high-quality financial assets.

Figure 25: Average weighted maturity of total NZGB portfolio

Figure 25: Average weighted maturity of total NZGB portfolio

Source: The Treasury

Figure 26: NZGBs issued, annual and cumulative: 2020 forecast vs 2021

Figure 26: NZGBs issued, annual and cumulative: 2020 forecast vs 2021

Source: The Treasury

Figure 27: Year end central government cash balances at central bank - as a % of GDP

Figure 27: Year end central government cash balances at central bank - as a % of GDP

Source: IMF

The RBNZ's balance sheet remains an important policy tool

Historically, the size of the RBNZ's balance sheet averaged around 10% of GDP.[67] Immediately prior to COVID-19, the RBNZ's assets and liabilities were approximately $30 billion. These assets were held to support the delivery of more traditional functions.

As at December 2021, assets and liabilities had increased to $89 billion, equivalent to around 25% of GDP (see Figure 28). This significant change has been predominately driven by the implementation of the LSAP programme and to a lesser extent the FLP.

If interest rates remain low, alternative monetary policy is likely to be a more common part of the policy toolkit. The Treasury has worked closely with the RBNZ on indemnities and other mechanisms to enable independent decisions on alternative monetary policy, while ensuring transparency on government balance sheet impacts and risk appetite.

Figure 28: Impact of alternative monetary policy on the RBNZ balance sheet 2019-2021

Figure 28: Impact of alternative monetary policy on the RBNZ balance sheet 2019-2021

Source: RBNZ

The performance of commercial entities has been mixed

The government owns 18 commercial entities that carry out commercial activities and are expected to act as successful businesses. Four of these entities have equity (ie, shares) listed on the NZX: three energy companies (Meridian, Mercury Energy, and Genesis Energy) and Air New Zealand. The remaining 14 are unlisted.[68]

The government's Commercial assets and liabilities are a significant part of the balance sheet. The commercial entities have $73.0 billion in assets and $41.6 billion in liabilities. The entities are estimated to be worth $20.8 billion by 'commercial valuation’ (more than 10% of the government’s net worth) and paid $425 million in dividends in FY21.[69]

From a shareholder returns perspective,[70] the performance of the commercial entities has been mixed (see Figure 29):

  • Listed entities: the listed entities have outperformed their cost of capital.[71] The 'market capitalisation' of the listed entities has increased from $9.3 billion in 2017 to $14.5 billion in 2021. This growth has come from the three energy companies and has been driven predominantly by an increase in 'earnings multiples’.[72] Air New Zealand has been heavily impacted by COVID-19, suffering a loss of $454 million in FY20 and a loss of $289 million in FY21.
  • Unlisted entities: the unlisted entities have underperformed their cost of capital. Revenue, earnings and dividends have all trended down over the past five years.

COVID-19 has had a significant impact on the commercial entities. Several commercial entities sought new capital from the government (see Table 4), including Air New Zealand. Not all support has been called or provided. For several entities COVID-19 has also accelerated the disruption within their industries, particularly owing to a shift to online models and eCommerce.

Many of the government's unlisted entities are now in sectors with limited growth prospects, exposing some entities to future disruption risks (for example, disruptive technology and shifting consumer preferences). There are also entities in the Commercial Portfolio where the government's focus on outcomes beyond shareholder returns has increased (for example in relation to the broader transport system or climate transition). For these entities a key management challenge will be to be transparent about the trade-off between shareholder returns and those broader outcomes, including clear financial expectations. The appropriate form of several entities has been or is currently under review, including TVNZ and KiwiRail.

The current Commercial Portfolio reflects the result of broader policy choices over time so does not have a unifying set of commercial or ownership objectives. Good practice is that the rationale for ownership should continually be monitored.[73] Listed entities are subject to continuous review by the market. Ownership rationales are generally articulated for unlisted entities through shareholding Ministers' letters of expectation and sometimes through strategic reviews.

Table 4: Equity or debt capital committed for commercial entities
Company Amount
Air New Zealand $2,000.0 Initial loan facility of up to $1.5 billion; later revised in 2021 to a loan facility of $1 billion and $1 billion of preference shares
Airways $165.0 Share capital $70m + uncalled share capital facility of $95m
New Zealand Post $150.0 Share capital $80m + uncalled share capital facility of $70m. The uncalled facility was cancelled following results better than forecast
Hawkes' Bay Airport $4.5 A loan (government share 50%) was not taken up as a more advantageous commercial loan was secured
Television New Zealand $30.0 Uncalled share capital facility, which was cancelled following results better than forecast

Source: The Treasury

Figure 29: Total shareholder returns (TSR) | listed and unlisted entities[74]

Figure 29: Total shareholder returns (TSR) | listed and unlisted entities

Source: The Treasury

  1. [20] New Zealand's headline net debt indicator is net core Crown debt. Net core Crown debt is calculated as core government borrowings less financial assets (excluding advances and NZSF financial assets). Net debt is a measure of financial sustainability (ie, solvency). See:
  2. [21] See:
  3. [22] See: Spending and foregone revenue from economic stabilisers is forecast to be $5.8 billion over the three years to June 2022. The Government also committed to spend $12 billion on infrastructure (the New Zealand Upgrade Programme) in January 2022, shortly before the impact of COVID-19 became apparent.
  4. [23] McLeish, C (2021, June 22) New Challenges for macroeconomic stability policy: The role of fiscal policy [Speech]. The Treasury. Retrieved from:
  5. [24] See:
  6. [25] Lane, P (2019, November 28) Determinants of the real interest rate [Speech]. European Central Bank. Retrieved from:
  7. [26] For a description of how r<g conditions suggest reconsidering the welfare costs of debt see Blachard, M (2021) Fiscal Policy Under Low Interest Rates, retrieved from:
  8. [27] There are differing views around the future direction of neutral interest rates. Some suggest that neutral interest rates may continue to fall. For example, Rachel, L, Summers, L (2019) On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagnation. BPEA Conference Drafts, March 7-9 2019. Retrieved from: In contrast, others suggest that demographic changes will lead to higher inflation long-term and therefore higher neutral interest rates. See for example, Goodhart C, Pradham, M (2020) The great demographic reversal and what it means for the economy. Retrieved from:
  9. [28] See:
  10. [29] The effective lower bound is the point at which further cuts in a central bank's policy rate (for New Zealand this is the OCR) would be ineffective. This rate may be below zero. Central banks have found that as their policy rates have approached their effective lower bound, they have had to use alternative monetary policy tools. Orr, A (2020, March 20), Navigating at Low Altitude; Monetary Policy with Very Low Interest Rates [Speech]. RBNZ, Retrieved from:
  11. [30] The chart presents net debt, both including and excluding liabilities associated with the RBNZ's Funding for Lending programme to support historical comparison. Assets associated with the Funding for Lending programme are excluded from this measure, meaning the programme has had a relatively significant impact on net debt figures since its inception. This issue is discussed further in both Box 2.3 and Section 3.3.
  12. [31] See:
  13. [32] See also OECD (2022) OECD Economic Surveys: New Zealand January 22. Retrieved from:
  14. [33] The OCR is the interest rate paid by the RBNZ on settlement account balances held by banks. Banks use their settlement accounts to facilitate payments between themselves during the day. If a bank has a shortfall of settlement cash it can borrow from the RBNZ overnight at the OCR plus 0.5%. The RBNZ sets no limit with regards to how much it might borrow or lend at rates related to the OCR. This means that the OCR influences the rates that banks can borrow and lend at and therefore all interest rates in the New Zealand economy.
  15. [34] RBNZ (2021, August 25) RBNZ's Additional Monetary Policy toolkit- RAMPed up [Press release]. Retrieved from:
  16. [35] Under GAAP, NZGBs are carried at roughly their issue price and have ongoing interest costs close to the interest rate at the time they were issued.
  17. [36] Bond prices reflect market expectations of future interest rates. Therefore, if the OCR evolved over the remaining life of the NZGBs as priced at the time of purchase, themost reasonable expectation would have been full recovery of the $7.2 billion loss recorded on the government balance sheet.
  18. [37] This is calculated as the fair value of the government indemnity to the RBNZ, valued at $5.5 billion in January 2022, less cumulative interest savings to date of $0.4 billion. The indemnity represents an estimate of the losses on the LSAP programme at a fixed point in time (it is for this reason that cumulative interest savings are also relevant). The indemnity itself simply transfers any losses from the RBNZ to the Treasury and does not have any impact on the government balance sheet.
  19. [38] The impact of the LSAP programme on the government's overall level of risk is more nuanced: while debt servicing costs are more exposed to changes in the OCR, the government's overall fiscal position (including revenue and expenditure) will generally improve when the economy improves and interest rates rise.
  20. [39] This is consistent with broader trends seen for household and business balance sheets. Recent research by McKinsey & Company (2021) notes that asset values are now 50% higher than the long-run average relative to income. For background information, see:
  21. [40] In the 2018 Investment Statement these increases were forecast to be $14.1 billion. See:
  22. [41] The 2021 FSG noted that the largest movements in PP&E related to Kāinga Ora's housing portfolio and the value of state highways (including state highway corridor land), schools and New Zealand Defence Force land and buildings. See:
  23. [42] See: For specialist assets increases in PP&E values typically reflect higher replacement cost estimates (for example due to increases in construction costs). There has also been an increase in PP&E due to a change in the accounting treatment of KiwiRail’s rail network. Rail network assets are now valued at replacement value rather than as a cash-generating asset. See:
  24. [43] Where an 'abundant land' model assumes that land is freely available and land markets are competitive.
  25. [44] Daly, K (2016) A Secular Increase in Equity Risk Premium. International Finance, 19 (2). Retrieved from:
  26. [45] Low interest rates also have other less significant impacts. For example, low interest rates reduce the amount the government receives on investment income (known as resident withholding tax).
  27. [46] Additions to PP&E provide a proxy for the creation of new assets. Additions were $10.7 billion in 2021 and $9.6 billion in 2020, having risen significantly in recent years.
  28. [47] Government contributions to the NZSF were suspended between 2009 and 2017. Contributions resumed in December 2017.
  29. [48] Ball, I, Crompton, J, Detter, D (2022) Mapping the Unknown: Government facing a fiscal crunch should seek out hidden assets. Retrieved from:
  30. [49] Irwin, C (2016) Dispelling Fiscal Illusion: How Much Progress Have Governments Made in Getting Assets and Liabilities on Balance Sheet? IMF Working Papers, 2016 (095). Retrieved from:
  31. [50] Financial net worth is calculated as the government's Financial and Commercial assets less total liabilities.
  32. [51] For example, both net worth and financial net worth are much harder to compare internationally and include many components outside the direct control of the Government.
  33. [52] From 2017 to 2020 the UK completed a review that sought to identify opportunities to improve management of their government balance sheet. HM Treasury (2020) The Balance Sheet Review Report: Improving public sector balance sheet management. Retrieved from: The review identified a need to create central capacity and capability to manage complex assets and liabilities.
  34. [53] IMF (2021) Fiscal Monitor April 2021. Retrieved from:
  35. [54] Many government pension liabilities are not fully reported, but several countries face substantial future liabilities from their schemes. The UK, for example, had net pension liabilities of 1.9 trillion as at 31 March June 2019 (approximately 95.0% of GDP). New Zealand's defined benefit pension scheme (GSF) closed to new members in 1992. GSF has an unfunded liability of $11.0 billion (3.2% of GDP).
  36. [55] OECD data indicates that New Zealand has one of the highest rates of government ownership of social housing. See: OECD (2020) Public policies towards affordable housing. Retrieved from:
  37. [56] Alves, M, Clerck, S, Arbelaez, J (2020) Public Sector Balance Sheet Database: Overview and Guide for Compilers and Users. IMF Working Papers, 2020(130). Retrieved from:
  38. [57] For example, the 2018 Investment Statement identified that 25,000 state houses and approximately 38% of school buildings were older than 50 years. See:
  39. [58] For example, see background papers:;; and
  40. [59] The large upfront costs associated with the renewal programmes will be partially offset by downstream benefits in the form of lower maintenance expenditure as the average age of the portfolio decreases overtime, and higher rents due to improved stock.
  41. [60] The Crown Financial Institutions are ACC, NZSF, EQC, the Government Superannuation Fund and the National Provident Fund.
  42. [61] NZSF and GSF have 'reference portfolios' as their passive benchmarks. These portfolios are designed to meet their performance objectives through passive and low-cost investments.
  43. [62] See:
  44. [63] While predominantly focused on the US context, the recent arguments made in favour of increasing the maturity of government debt primarily rest on a view that: (i) the government should have a low risk appetite, and there is benefit in the certainty provided by longer-term debt, and (ii) interest rate risk is asymmetrical. See Orszag, P, Rubin, R, Stiglitz, J (2021) Fiscal Resilience in a Deeply Uncertain World: The Role of Semiautonomous Discretion. Peterson Institute for International Economics, 21(2). Retrieved from:
  45. [64] This change has improved the government's asset-liability matching, taking into account the interest rate sensitivity of the government's long-dated assets. It has supported investor diversification by capturing demand from investors with long-dated liabilities and has helped reduce refinancing risk. It has also contributed to the development of New Zealand's capital markets overall. See NZDM (2021) Investigating NZGB Curve Extension. Retrieved from:
  46. [65] Figure 26 shows a difference of $19 billion between forecast and actual NZGB issuance in 2020. NZDM also issued $9 billion more Treasury Bills than forecast.
  47. [66] NZDM (2021) Building resilience in the Crown's liquidity management. Retrieved from:
  48. [67] An exception to this was during the mid-to-late 2000s when the RBNZ's balance sheet more than doubled in nominal terms following changes to the monetary policy implementation regime, an increase in foreign reserves and policy actions during the Global Financial Crisis. RBNZ (2021, June 21), A Strategic View of Te Pūtea Matua’s Balance Sheet [Press release]. Retrieved from
  49. [68] The unlisted entities are Airways, AsureQuality, Kordia, Landcorp, MetService, New Zealand Post, Orillion, Public Trust, QV, Transpower and TVNZ. The government also holds ownership interests in Christchurch Airport (25%), Dunedin Airport (50%) and Hawkes Bay Airport (25%). Several unlisted entities have listed debt securities, for example Transpower.
  50. [69] Commercial value is a forward-looking measure, generally based on the net present value of future free cash flows, often called the discounted cash flow method. For the listed entities, their current 'market capitalisation' has been used. The commercial value of equity can deviate from the 'book value' (their assets minus their liabilities) if the earning power of the assets has changed since they were acquired (or revalued). Book values are also affected by accounting policy decisions. For the listed entities, the share prices from which market capitalisation is calculated reflect the market value of a minority stake in the companies. The government’s holdings in these entities also includes a control premium.
  51. [70] Shareholder returns measure financial performance from an investor perspective. Total shareholder returns (TSR) measures the combined return from dividends and growth in the value of a commercial entity.
  52. [71] Cost of capital is a measure of expected return for the commercial entities.
  53. [72] Being the ratio of a commercial entities' share price to its earnings.
  54. [73] OECD (2015) OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition. Retrieved from:
  55. [74] Given the assessment in the FSG that KiwiRail's rail network assets are held to support the broader transport system, KiwiRail has not been included in Figure 29.

3.0  New challenges#

This section looks at challenges that have grown in scale or importance since 2018. It covers:

  • public investment in infrastructure
  • climate change
  • fiscal indicators.

3.1  Public investment in infrastructure#


'Infrastructure' refers to the fixed, long-lived structures that facilitate the production of goods and services, including transport, water, energy, Social assets, and digital infrastructure such as our broadband and mobile networks. Infrastructure assets have unique features in that they often: are intergenerational; have large up-front costs; are interconnected and interdependent; provide shared services to many people; and generate wider spill-over effects.

Infrastructure is delivered by both governments and the private sector, although the mix varies across countries. In New Zealand, telecommunications and energy infrastructure is operated commercially and funded via consumer pricing. In contrast, transport services, hospitals and schools are generally operated through non-profit public entities and funded largely through a combination of general taxation, petrol taxes, user charges, other taxes and rates set by local government.

Several recent reviews suggest New Zealand may have an infrastructure 'gap', both currently and in terms of what is planned over the next 30 years (see Box 3.1). From a balance sheet perspective, the Treasury considers that at least some of the investment to address the infrastructure gap needs to be made by government. There is international evidence that additional public investment can catalyse private investment.[75] Increased certainty about the path of public investment can also allow the relevant industries, like construction, to plan and prepare for higher levels of activity.

Prior to COVID-19, the challenges to the sustainable wellbeing of New Zealanders were long-standing. They included:

  • low productivity growth: this has long been a feature of the New Zealand economy. In the medium term, productivity growth underpins progress in many other dimensions of living standards. New Zealand's capital intensity - the amount of capital per unit of labour - is low relative to other OECD countries and is one factor behind lower levels of labour productivity[76]
  • weaknesses in broader wellbeing outcomes: these point to particular long-standing problems in social and economic inclusion - particularly for Māori and Pacific Peoples - and affordability challenges in housing
  • risks associated with climate change: greenhouse gas emissions have continued to increase, and regulatory regimes have failed to adequately deal with the environmental externalities associated with increased land-use intensity.

The policy responses to these complex challenges are likely to be multifaceted. However, overall living standards would likely benefit from a higher level of appropriate investment in infrastructure. Higher rates of private and public investment are likely to be critical to achieving objectives for housing, climate change and productivity. In each of these areas, sustained multi-decade increases in investment are likely to be needed to address the transition to better functioning urban housing markets, a less-carbon-intensive economy and more productive firms.

Box 3.1  Infrastructure gap estimates

Several studies have attempted to assess New Zealand's level of infrastructure using different methodologies.

The New Zealand Infrastructure Commission, Te Waihanga (Te Waihanga)

Since the 2018 Investment Statement, Te Waihanga has been established to coordinate, develop and promote an approach to infrastructure that improves New Zealanders' wellbeing.

Te Waihanga supports government investment by providing a system-wide perspective with a focus on the opportunities and challenges for investment both now and in the next 30 years.

In 2021 Te Waihanga assessed the level of network assets held in central and local government ownership using a top-down approach where public capital was assumed to move in tandem with private capital, and private sector infrastructure investment was assumed to keep pace with demand. This resulted in estimates of:[77]

  • a historical infrastructure gap of $104 billion. The gap comprises a shortfall in public investment of $83 billion and an estimated $21 billion of infrastructure needed to eliminate the current housing shortage
  • a future infrastructure gap of $106 billion, assuming that current public investment trends continue for the next 30 years. The estimate allows for quality improvements and rising sea-level impacts.

The combined infrastructure gap is estimated at $210 billion (in 2020 prices). Central government accounts for around three-quarters of this gap.

Te Waihanga has recently undertaken a further analysis of public and infrastructure investment.[78] It found that between 2015 and 2019, New Zealand invested an average 4.5% of GDP in four network infrastructure areas (electricity, telecommunications, transport and water) and social infrastructure (education and health).

Using Global Infrastructure Hub (GIH) data (see below), Te Waihanga compared New Zealand's network infrastructure investments with those of 17 other high-income countries. It concluded that New Zealand's investment in transport and water infrastructure is similar to the high-income average but significantly lower than Australia's. New Zealand's investment in telecommunications infrastructure is greater than that in other high-income countries, reflecting significant investments in broadband and mobile networks.

Global Infrastructure Hub

An earlier assessment of New Zealand's infrastructure gap by the GIH examined seven sectors: roads, rail, airports, ports, electricity, water and telecommunications. These sectors are a subset of both government and private infrastructure.[79]

The assessment extrapolated spending trends at the time (around 2.75% of GDP per year) out to 2040 using country-specific data, and used quantitative benchmarking analysis to establish infrastructure needs. The gap is estimated at $17 billion. The IMF, which uses the GIH estimates, noted that the estimated gap should be treated with caution. This was because it might not account for risks specific to New Zealand and the sectoral analysis had limitations, being based strongly on quantitative analysis.

Three Waters

The Department of Internal Affairs commissioned the Water Industry Commission for Scotland (WICS) to assess the investment needs of New Zealand's 'three waters' (drinking water, wastewater and stormwater). WICS's analysis suggested an investment need in water infrastructure over the next 30 years of between $120 billion and $185 billion.[80] WICS's approach included assumptions on both network growth and increased service levels, the need for asset replacement and refurbishment, and potential efficiency gains.


Estimates of infrastructure levels vary significantly depending on the methodology used and the scope and timing. Producers and users of estimates acknowledge that they should be interpreted with caution. Nonetheless, available estimates point to the presence of an infrastructure gap in New Zealand. Successive Governments' large-scale investment programmes, and observed infrastructure challenges such as urban congestion, the availability of developable land and high-profile water network failures provide anecdotal evidence that supports quantitative measures of a gap. All of this points to a likely potential need for additional infrastructure investment to maximise the contribution that infrastructure provides to productivity and wellbeing outcomes.

At a macroeconomic level, higher public investment over time is likely to be supportive of economic growth and living standards. With low real interest rates, the economic costs of higher levels of public debt and infrastructure financing are more favourable if high-value projects can be delivered. While macroeconomic modelling needs to be interpreted with caution, in general it suggests long-term economic gains from increased infrastructure, particularly where there is an initial gap.[81] In 2018 the IMF examined the impacts of additional public investment that closes New Zealand's infrastructure gap, as estimated in the Global Infrastructure Outlook.[82] In the long term, real GDP would be as much as 0.8% higher. Given that the additional investment in this scenario is 0.3% of GDP, the long-term fiscal multiplier is therefore around 2.7.

This analysis is supported by recent Treasury work on the size of the fiscal multiplier from government investment.[83] The estimated fiscal multiplier is around one after the first year, and around two after two years. Importantly, the application of estimated fiscal multipliers requires a careful consideration of the wider economic context, particularly the degree to which the economy is operating below or above capacity. For example, when the economy is operating above capacity, additional public investment runs the risk of crowding out private investment. In contrast, when the economy is operating well below capacity and interest rates are near the so-called effective lower bound for monetary policy, the fiscal multiplier for public investment may be larger.

What are the key choices for government?

Although there is uncertainty about the size of the gap, the analysis to date indicates that New Zealand needs to increase both private and public spending on infrastructure over the next 30 years. This would have the potential to support wellbeing and the macro economy. However, Te Waihanga notes that increased infrastructure spending will only be part of the solution. Te Waihanga has also identified the need to make better use of infrastructure, undertake better project selection, broaden funding and financing options (see below) and streamline delivery.

A key challenge is that, historically, New Zealand has not built infrastructure well. New Zealand ranks 46th overall, and 43rd out of the 54 high-income countries, on the World Economic Forum's infrastructure quality index.[84] Te Waihanga's benchmarking analysis suggests that New Zealand is among the world's least-efficient high-income countries when it comes to delivering infrastructure.[85] Efficiency is determined by factors such as geography, population density and the quality of infrastructure investment decision-making. In this context institutional settings are important, as the impacts of infrastructure spending on wider living standards will depend on the nature of investment, including the quality of investment decisions and accompanying reforms. There are challenges in timing infrastructure spending with respect to the short-term economic cycle given that projects typically experience delays (see Box 3.2).

In its draft New Zealand Infrastructure Strategy report, Te Waihanga identified a set of core principles for infrastructure decision-making including an emphasis on quantification, business cases, analysis of alternative solutions, and public engagement. Te Waihanga stresses the importance of increasing the efficiency of infrastructure delivery and that reducing the gap will also mean using a broader range of funding and financing options.[86] Suggestions include:

  • using new funding tools like congestion charging
  • considering alternative models that take greater advantage of private capital
  • using debt funding to ensure intergenerational equity.

Any increase in investment will require a careful investigation of the options to ensure the appropriate capital investment programme is delivered. This includes considering how it will be funded and financed given the implications for public debt levels, and its timing and sequencing. Significant upward revaluations of PP&E in recent years (partly reflecting increased construction costs, general inflation and technology improvements) indicate increased costs to replace or expand existing assets.

Sustained growth in the construction sector means it is operating at near capacity. The amount of new construction needed in future years is likely to constrain delivery capacity for the government and the market, which in turn will increase the risks to price and the quality of delivery relative to the benefits that are to be achieved. It will be important to ensure that this limited capability is directed to investments that provide the greatest value to New Zealanders.

Box 3.2  System settings

New Zealand government system settings for investment management have robust foundations. The overarching expectations are clear, and there is guidance on specific areas like infrastructure, procurement and business casing.[87] The different stages of the investment management system are set out in Figure 30.

Figure 30: The investment management system

Figure 30: The investment management system

Source: The Treasury

While New Zealand's foundations are robust, there is evidence that government investment management and asset management practices are not universally mature or high performing. Key challenges include:

  • the investment pipeline: New Zealand has historically found it difficult to develop a clear and credible investment pipeline to support construction-sector planning. Initial steps are being taken to address this challenge (for example Te Waihanga has developed a pipeline of funded or committed projects).[88]
  • investment disciplines: relatively few investment proposals coming through the investment management system are well-planned (including options analysis, strategies for managing risk, and a view on whole-of-life cost). The use of business cases to support investment decision-making is variable.[89]
  • capability and capacity constraints: New Zealand faces market capacity constraints. In addition, there is a limited pool of expertise and capability in the public sector to support sector investment planning and delivery. This is an area where strategic consideration of New Zealand's ability to access global capability is likely to be beneficial.
  • asset management practices: asset management practices are inconsistent, while the incentives to maintain assets well or look at ways to improve value for money are often limited. This has implications for both value-for-money and service quality: the cost of asset delivery is often as low as 10% of an asset's whole-of-life cost.[90]

Many of the issues noted above are long-standing.[91] Historically New Zealand has tended to manage issues such as fiscal sustainability and value-for-money more through a macroeconomic lens than at a project level.

Government investment has been increasing and is forecast to increase further, particularly in infrastructure. Given this context, it will be critical to ensure that the investment management system supports good decision-making, value-for-money, and wellbeing outcomes. Asset management practices will also come under greater pressure, due to the age profile of existing assets, changing service expectations, and new challenges such as climate change.

3.2  Climate change#

This section:

  • discusses climate policy choices and their balance sheet impacts
  • sets out the risks and opportunities of climate change
  • notes opportunities to manage climate risk.

In its recently released Working Group II contribution to the Sixth Assessment Report, the Intergovernmental Panel on Climate Change highlighted the scale of human-induced changes to the global climate and the expectation that adverse impacts such as flooding, drought and other extreme weather events, would continue to increase.[92]

Tackling climate change is likely to require significant investment as countries aim to reduce emissions and adapt to climate change impacts. The government balance sheet can be used to support the achievement of climate policy goals by, for example, investing in Social assets such as public transportation and energy-efficient hospitals, and accelerating private sector action through co-investments in climate-aligned opportunities.

There are also opportunities to:

  • strengthen the balance sheet through climate-aligned investment practices
  • retain and increase the resilience of core physical assets
  • pursue new commercial opportunities.

The impacts on the government balance sheet are highly uncertain and will depend on the mitigation targets to be met, the policy tools to be used and the balance between domestic and international mitigation. Factors outside the government's control, such as the cost of mitigation technology and developments in global climate policy, will also have impacts.

It will inevitably be challenging to assess the scale and timing of the risks and opportunities posed by climate change to the government balance sheet. However, climate change will be a significant area of future work for the Treasury. This section provides a largely qualitative summary of the impacts of policy decisions on the balance sheet, and the impact of climate change on government assets and liabilities.

The policy response to climate change

The Government's climate change policy response has two core elements - mitigation and adaptation.

  • Mitigation: taking action to reduce emissions in order to constrain global temperature rise and avoid or mitigate the adverse impacts of climate change. New Zealand's mitigation commitments are reflected in New Zealand's 'nationally determined contribution' (NDC) under the Paris Agreement and the Climate Change Response (Zero Carbon) Amendment Act 2019.[93]
  • Adaptation: the process of adjustment to the actual and expected effects of climate change.[94]
Indirect impacts on the balance sheet

The government has choices on the degree to which the public and private sectors bear any costs of New Zealand's low-emissions transition. This has implications for the impacts of climate policy on the government balance sheet. For example, supplementing existing tools such as the Emissions Trading Scheme (ETS) with additional complementary measures such as subsidies may come at an additional fiscal cost and shift some of the transition burden from the private sector to government. However, some policy responses, such as new and additional regulatory measures, may impose less fiscal cost by shifting more of the costs of adjustment to the private sector. The policy levers available to the government are discussed in the LTFS 2021.[95]

To date, New Zealand's main policy instrument for driving emission reductions has been the ETS, which creates a price signal for emitters that drives emission reductions. The ETS covers around 50% of New Zealand's domestic emissions, with a notable current exception being the agriculture sector, which accounts for a little under half of New Zealand's emissions.

The ETS has a secondary effect of generating revenue for the government. The amount of this revenue is uncertain and linked to anticipated future ETS prices. At the time of writing, the ETS price was more than $70 per New Zealand Unit.[96] It is anticipated that this price will continue to rise, driving further gross emission reductions, and potentially increase the revenue the government receives through auctioning units.

Other indirect impacts on the balance sheet include:

  • the NDC: under the Paris Agreement, New Zealand has committed to reducing its net emissions to 50% below the 2005 level by 2030. At this stage it is difficult to estimate the cost of meeting the NDC, but under certain scenarios it may be significant. The NDC is not considered a liability under GAAP, as government has no statutory obligation to meet it and the cost can be passed on to other actors. However, it is considered a potential future risk to the balance sheet given the potential requirement for significant expenditure to meet it, either domestically or through purchases of offshore emission reductions
  • implications for other revenue streams: mode shifts and the increasing use of electric vehicles are likely to have implications for the revenue streams from fuel excise duty and road user charges ($4.2 billion in the year to June 2021).[97] The National Land Transport Fund is funded predominantly from these two sources.
Direct use of the balance sheet

The more government wishes to bring forward and centrally fund the climate transition, the more it may choose to use its balance sheet directly. Examples that involve making direct use of the balance sheet to support mitigation and adaptation policy include:

  • investing in Social assets such as public transportation infrastructure and energy-efficient buildings such as schools and hospitals. The Government has established the Climate Emergency Response Fund as a multi-year funding mechanism to allocate towards initiatives that support the climate transition[98]
  • acquiring or investing in Commercial and Financial assets, such as through direct investment in climate-aligned assets with risk/return profiles that may be unattractive to private sector investors alone. This includes investing to achieve demonstration effects or in a manner that brings together otherwise uncoordinated private sector actors. This is a key role of New Zealand Green Investment Finance
  • taking on additional debt to support climate mitigation or adaptation to redistribute anticipated costs in a more equitable manner between central government, local government, Iwi and Māori as Treaty Partner and the private sector.

Climate-related risks and opportunities for the balance sheet

Understanding the balance sheet impacts of climate-change-related risk poses a unique challenge due to the combination of many discrete, slowly developing risks alongside other, more acute and fast-moving risks. In addition, some of the risks are a direct result of our changing climate, while others arise from policy, market and consumer responses to the threat of climate change.

Globally, there is growing recognition of the importance of consistent, transparent and reliable information on financial exposures to climate change. This can be seen in the increasing uptake of recommendations provided by the Task Force on Climate-Related Financial Disclosures (TCFD).[99] The TCFD also provides a risk-identification framework that organisations can use to classify and understand the financial implications of climate-related risks and opportunities (see Figure 31).

Developing a comprehensive and transparent assessment of the risks posed by climate change to the government balance sheet will be increasingly important. Agencies currently do not systematically assess the risks and opportunities of climate change, apart from those subject to the TCFD (or voluntarily reporting under a similar approach). There are several risks and opportunities that might affect the Social, Financial and Commercial Portfolios:

  • Social assets: extreme weather events and sea-level rise present the greatest risks to the value of the physical assets held on the government balance sheet. Exposed assets include roads, schools and hospitals within the Social Portfolio. Research by the National Institute of Water and Atmospheric Research indicates that, in the next 30 years, sea-level rise could expose to coastal flooding $18.49 billion worth of New Zealand’s buildings, 2,000 kilometres of roads, 4,000 kilometres of water pipelines, 1,600 square kilometres of agricultural land and 14 airports.[100] In responding to these risks, there is a significant opportunity for greater investment in more climate-resilient Social assets, including those with higher levels of energy efficiency.
  • Financial assets and liabilities: the significant assets held in overseas and domestic equities expose the government to global market, legal, technological and political risks relating to climate change. However, given the scope and scale of the global climate investment opportunity, this global exposure also presents significant opportunities for the portfolio. The exposure of the entire Financial Portfolio is uncertain, but elements of the portfolio, such as the NZSF, have taken a view that the market currently under-prices carbon risk. There is also a growing focus on environmental, social and governance issues in financial markets and an increasing scrutiny of debt issuers' environmental footprints, potentially affecting investor preferences for NZGBs.
  • Commercial assets: some commercial assets, such as rail assets and transmission lines, could be exposed to physical risks. However, transition risks and opportunities are more significant in the Commercial Portfolio. Several commercial entities have also identified emerging product and service opportunities from changes in consumer preferences and demand, or the potential for more favourable climatic conditions for their ongoing operations.

Figure 32 provides an overview of the key risks and opportunities identified by select government Social, Financial, and Commercial entities through TCFD-aligned reports.[101]

Contingent and implicit risk

Beyond direct risks to Social, Commercial, and Financial assets and liabilities, government faces several contingent risks from climate change. These include, as examples:

  • potential government support for communities, local authorities and other countries affected by the acute impacts of climate change, such as floods and droughts
  • impacts as insurers retreat from coastal and other flood-prone locations. This could increase government's potential implicit exposure in the event of a shock and may also increase the pressure on government to step in to address perceived market failures
  • the Earthquake Commission's exposure to storm-related events being greater than historical averages as a result of climate change.

Figure 31: Climate-related risks and opportunities

Figure 31: Climate-related risks and opportunities

Source: TCFD

Figure 32: Summary of published climate-related risks

Figure 32: Summary of published climate-related risks

Source: The Treasury

What are the key choices?

The importance of information

Improving understanding of the physical risks to New Zealand's infrastructure assets allows better identification of opportunities to increase climate resilience. Both the government and the private sector need access to robust information on the physical and transitional risks presented by climate change to inform policy responses, understand risks and make investment decisions.

The 2018 Investment Statement highlighted the need for better environmental data, analysis and reporting arrangements. Since then the Climate Change Response (Zero Carbon) Amendment Act 2019 has been introduced, requiring the Climate Change Commission to produce a National Climate Change Risk Assessment every six years. It is to include an update on the key physical and transitional risks and opportunities presented by climate change in New Zealand out to 2100.[102]

Many investments are long-lived; this makes it difficult to transition quickly away from carbon-intensive assets without significant cost. However, a growing amount of information can be leveraged to support decision-making and the identification and management of climate risks and opportunities. This information and its updates will be important to ensuring the responsible management of the balance sheet.

New Zealand has recently required climate-related risk reporting from New Zealand's largest companies and securities issuers. New Zealand's regime, which is aligned to the TCFD framework, does not apply to government agencies unless they are listed, but there are opportunities to extend the application of the framework given the level of public and investor interest in the climate response and risks.[103]

Investing well

Globally, focus on environmental, social and governance (ESG) issues has grown significantly across financial markets over the last decade.[104] The government is increasingly engaged with this trend, including through a shift towards a responsible investment framework for the Crown Financial Institutions (see Box 3.3).

To support its climate-change objectives, and to provide support for the development of domestic sustainable-finance markets, the Government has also announced its intention to issue sovereign green bonds (see Box 3.4).

Box 3.3  Crown Responsible Investment Framework for Crown Financial Institutions

The Crown Financial Institutions manage financial assets to support the delivery of government policies, including universal superannuation and accident compensation. These financial assets are expected to grow significantly, to approximately $500 billion by 2050.

Climate change presents risks to these assets. For example, as the global economy transitions away from fossil fuels, the value of investments exposed to these sectors could be affected, and changing weather patterns and extreme events could generate investment risks.

There is an opportunity to use the Crown Financial Institutions to help achieve climate outcomes by directing capital to green sectors and influencing companies' practices.

The Crown Responsible Investment Framework aims to support greater investment performance, manage risks and enable the Financial Portfolio to support the government's climate-policy response. It conveys the Government's climate change expectations for the Crown Financial Institutions:

  • Measure and report investment portfolio carbon footprints on a transparent and consistent basis, aligned with the TCFD recommendations.
  • Reduce investment portfolio net emissions to zero by 2050 and set interim reduction targets aligned with, at a minimum, global best practise standards to maintain a 1.5-degree global warming outcome.
  • Influence the transition to a low-carbon economy by seeking investments that generate additionality and engaging with investee companies on developing transition strategies.

Box 3.4  Green bonds

What are green bonds?

Green bonds are debt instruments that provide finance for specific projects with established environmental outcomes, such as energy efficiency, sustainable water and wastewater management, clean transport and climate change adaption.

Globally, the third quarter of 2021 saw sovereign green bond issuance increase significantly to USD23.7 billion (the second-quarter figure was USD14.2 billion), partly driven by debut green issues by Spain and the UK. This represents a small but growing share of total sovereign bond issuance.

Why issue them?

There are several benefits associated with green bonds:

  • they help ensure that government projects with robust environmental outcomes are financed, delivered, monitored and reported on. This typically includes a robust eligibility process, ongoing monitoring and governance, external assurance and the publication of reporting.
  • in New Zealand, the issuance of green bonds is expected to provide a further diversified investor base and support development in the broader New Zealand sustainable-finance market.
  • green bonds can help demonstrate the government's commitment to managing climate change, and thus support investor demand for New Zealand sovereign debt. There are also signs that sovereign labelled bonds are starting to attract a 'Greenium' - a premium that investors are willing to pay for labelled bonds.

In achieving these objectives, green bonds help to support the government policy response to climate change and help it to manage the risks that climate change presents to the balance sheet.

3.3  Fiscal indicators#

This section:

  • discusses the role and importance of fiscal indicators
  • outlines issues with the current suite of fiscal indicators and potential modifications to address them.


Fiscal indicators play a central role in supporting effective measurement of the government balance sheet. They:

  • provide summary information about the government's financial performance and position. Fiscal indicators have several purposes and attributes, summarised in Table 5
  • are typically used by the Government to measure progress towards delivering its fiscal strategy. The PFA requires the Government to set a fiscal strategy in accordance with the principles of responsible fiscal management.

The PFA requires the Government to use five general fiscal indicators to report on its fiscal strategy: revenue, expenses, the balance between revenue and expenses, debt, and net worth. The financial statements and fiscal forecasts are prepared using GAAP, and some fiscal indicators (such as net worth) are GAAP measures. The Government can choose:

  • the specific definitions of indicators that are not prescribed by GAAP (for example, net debt)
  • to provide more fiscal indicators, over and above the five prescribed in the PFA
  • the fiscal indicators on which it wants to focus its fiscal strategy.

Since the late 2000s, successive Governments have used 'operating balance before gains and losses' (OBEGAL) and 'net debt' as their headline fiscal indicators.[105] These have proven useful as they are closely linked to fiscal sustainability and are fairly directly linked to the policy choices of the Government of the day. Given that no single indicator can provide a full picture of fiscal trends, it is also typical to present a broader suite of fiscal indicators. Table 6 shows New Zealand's current suite of fiscal indicators.[106]

International comparability

The fiscal indicators employed by the New Zealand Government use GAAP inputs and are prepared in accordance with GAAP. This means an independently determined set of standards governs the recognition and measurement of the government's financial position and fiscal indicators.[107]

Table 5: Purposes of fiscal indicators
By telling us something about the high-level dimensions of fiscal policy… fiscal indicators can support these functions... and fiscal indicators should ideally have these attributes

Fiscal sustainability: including solvency and liquidity, so that current policies can be financed in the medium to long term without significant changes

Structure of government: for example, the size of the state

The macroeconomic impacts of fiscal policy on aggregate demand and national saving

Fiscal management: setting fiscal objectives and measuring progress against those objectives

Transparency and accountability: information that enables independent judgements to be made about the public finances

Prepared on basis of consistent, well-understood, established standards: supporting confidence and consistency through time

Internationally comparable: to allow New Zealand to be assessed against its peers

Other countries use a range of accounting standards, with varying methodologies for measuring their fiscal positions. This means that governments' financial statements are prepared in different ways, making international comparisons challenging.[108] However, measures prepared in accordance with standardised international methodologies - such as the IMF's Government Finance Statistics (GFS) methodology - can be useful for international comparisons. For example, the Treasury uses GFS General Government Net Debt as a measure for international comparisons. The measure captures the debts of all levels of government (central, regional and local) and nets off certain financial assets. As set out in figure 20, New Zealand's net debt is lower under this measure than that of many of our main comparator economies.

Table 6: New Zealand's current fiscal indicators
Category Indicator
Net worth Total Crown net worth
Total net worth attributable to the Crown
Surpluses/Deficits Total Crown OBEGAL
Total Crown operating balance
Cyclically adjusted balance
Structural balance
Revenue and expenses Total Crown revenue
Total Crown expenses
Core Crown tax revenue
Core Crown revenue
Core Crown expenses
Cash position Core Crown residual cash
Fiscal impulse
Debt Total borrowings
Gross sovereign issued debt
Gross debt
Net core Crown debt
Net core Crown debt (incl NZSF)

Changes in the macroeconomic context and the balance sheet

The Treasury is reviewing, and advising the Minister of Finance on, the appropriateness of the current suite of fiscal indicators. The review has been driven by a recognition that the indicators' usefulness has been affected by four changes in the macroeconomic environment and the balance sheet:

  • alternative monetary policy: The FLP programme has increased net debt because settlement cash, which funds the programme, counts towards the net debt, while the advances made under the programme do not. FLP has increased forecast net debt by nearly the full size of the programme (5.6% of GDP) in the 2021 HYEFU forecasts. The advances are low risk and are not considered to have any material impact on the government's net worth or the longer-term fiscal position.
  • Crown entity borrowing: Crown entity borrowing has increased in recent years to approximately 2.5% of GDP (see Figure 18). Further borrowing is forecast, primarily by Kāinga Ora. As Crown entity borrowings are not included in net debt, material borrowing by Crown entities risks undermining the usefulness of net debt as a headline measure of fiscal sustainability (ie, solvency).
  • low interest rates: Low interest rates have made debt more affordable in recent years, and this is an important consideration when judging prudent debt levels. New Zealand's debt servicing costs are at their lowest level in recent decades, despite higher levels of public debt, particularly when considered in real terms. As discussed earlier in the 2022 Investment Statement, this may reflect long-term structural changes that have led to a decline in the neutral interest rate. Lower interest rates have also resulted in favourable debt dynamics, where economic growth rates exceed interest rates.
  • growth in Financial assets: Another important change in the economic environment relevant to the fiscal indicators is growth in Financial assets. The NZSF is particularly relevant since its assets are relatively liquid, and it has been growing significantly as a share of GDP.

Options to address these challenges

Choices on the fiscal indicators that are not defined by GAAP (such as net debt, OBEGAL and residual cash) are a matter for the Government of the day. In considering changes in the macroeconomic context, the Treasury has identified benefits in:

  • including a broader set of liabilities in net debt
  • including a broader set of assets in net debt
  • creating a debt servicing indicator.
Including a broader set of liabilities

The Treasury considers that there would be benefit in including Crown entity borrowings in the headline net debt indicator. This is because the impacts of these borrowings on fiscal sustainability are similar to those for net debt, government support for the entities is likely to be high, and the Government has a high degree of control over any borrowing, as Ministerial authorisation is required. In many cases, Crown entity revenue also comes from government.

Inclusion of assets

The Treasury considers there would be value in including advances in the assets netted off against debt. The effect of the FLP has been to reduce net debt's usefulness as a measure of fiscal sustainability.[109] Including FLP liabilities but not assets could create incentives to tighten fiscal policy to compensate for monetary policy. Many countries net off advances in their measures of net debt. This reflects the fact that advances are loans expected to be repaid and provide offsets to debt. FLP loans make up a large portion of core Crown advances (see Figure 33), and student loans are currently a major component. If this approach were taken, the fair value of advances - representing the amounts expected to be repaid - would be netted off against debt.[110]

Advances were excluded from New Zealand's net debt when it was adopted as a headline fiscal indicator in 2009, because they are less liquid than other financial assets and are not held for the purposes of government financing.[111] However, advances could be either included or excluded depending on the extent to which net debt is intended as a measure of government solvency or liquidity. The Treasury consider the primary focus of net debt to be financial sustainability (ie, solvency), so advances are relevant from this perspective.

New Zealand Superannuation Fund

The financial assets of the NZSF have not been netted off against debt in the net debt indicator used as a headline fiscal indicator by Governments in recent years. However, the NZSF assets are relatively liquid, providing something of an offset to debt. Australia includes approximately 70% of the assets of its sovereign wealth fund in its headline net debt indicator.[112] The IMF GFS net debt indicator includes cash and debt instrument assets (eg, bonds, loans and deposits) of central government entities like the NZSF and ACC.

To enable the effects of the NZSF to be monitored, versions of net debt are published both with and without NZSF assets. Each indicator has relative advantages for different uses. The version including the NZSF better represents New Zealand's fiscal sustainability. It recognises that contributing to the NZSF builds a relatively liquid financial asset that generates returns. The purpose of the NZSF is to support fiscal sustainability as the population ages. It is likely that if New Zealand did not have the NZSF, at least some of the contributed funds would have been used to reduce debt.

Likewise, including the NZSF provides an internationally comparable measure of fiscal sustainability. This is partly because some of New Zealand's peer jurisdictions either net off most of their superannuation funds (such as Australia) or do not have sizable superannuation funds (such as the UK and the United States). This is reflected in how the headline debt indicators of New Zealand's key comparator jurisdictions compare to standardised definitions of debt. Table 7 shows the differences between each country's headline debt indicator and the standardised IMF GFS debt indicator. Including the NZSF puts New Zealand's metric closer to the standardised IMF measure, and with a similar average relativity to our peer jurisdictions.[113]

Figure 33: Core Crown advances as % of GDP

Figure 33: Core Crown advances as % of GDP

Source: The Treasury

Table 7: International comparison of headline debt measures
Jurisdiction National headline debt measure[114] Level of debt in 2021 (% of GDP, actual or estimate)
National headline debt measure[115] IMF GFS general govt net debt (Dec 2021) Difference between headline and GFS net debt
New Zealand Net core Crown debt
(excluding the NZSF)
30.1% 14.8% +15.2%
Net core Crown debt
(including the NZSF)
12.2% -2.6%
Euro area General government gross debt[116] (Maastricht definition) 97.7% 82.8% +14.9%
Canada Federal debt (a net debt measure)[117] 47.6% 34.9% +12.7%
United States Debt held by the public
(a federal gross debt measure)[118]
102.3% 101.9% +0.4%
Australia Federal net debt[119] 28.6% 38.1% -9.5%
UK Public Sector Net Debt
excluding the Bank of England[120]
82.7% 97.2% -14.5%

Sources: NZ Treasury, IMF, Eurostat, Canadian Department of Finance, United States Congressional Budget Office, The Commonwealth of Australia, UK Office for National Statistics

Balanced against these advantages, the measure excluding NZSF assets is less volatile and aligns more closely with international methodologies in some other respects. The volatility arises from the large size of the fund and the potential for its value to change significantly. The NZSF is expected to be nearly 20% of GDP by the end of the forecast period - a percentage that is approximately three times greater as a share of GDP than it was before the Global Financial Crisis. The NZSF estimate that a shock the size of the Global Financial Crisis would approximately halve the value of the NZSF now.[121] With a fund size of 20% of GDP, this would affect the indicator, including the NZSF, by 10 percentage points of GDP.

In addition, international net debt measures are most commonly defined as debt less assets equivalent to debt instruments. As the NZSF is invested largely in equities, including the NZSF would move net debt away from this concept. The IMF GFS net debt measure only includes the cash and fixed-interest assets of the NZSF (the IMF's inclusion of a range of other assets further reduces its measure to a similar level to the New Zealand measure - net core Crown debt including the NZSF).[122] Nevertheless, a few countries (such as Australia) still include equities and/or fixed assets in net debt.

Measures both including and excluding the NZSF will continue to be important in interpreting the fiscal position.

Debt servicing indicator

Lower interest rates have made debt more affordable in recent years, and this is an important consideration when judging prudent debt levels. At present, New Zealand's debt servicing costs are at their lowest level in recent decades, despite higher levels of public debt, particularly when considered in real terms. This may reflect long-term structural changes that have led to a decline in the neutral interest rate. The trend of falling interest rates has also resulted in favourable debt dynamics, where economic growth rates exceed interest rates, which helps to reduce debt as a percentage of GDP. Given these global trends, it could be worthwhile to give a greater consideration to indicators of debt servicing costs alongside traditional measures of the stock of debt.

Debt servicing costs and debt levels should be considered together, as looking at debt servicing alone has some limitations. These include a potentially high sensitivity to unpredictable movements in interest rates, and a sensitivity to the structure of government debt.

OBEGAL and net worth

The Treasury considers that OBEGAL remains fit for purpose as a fiscal indicator. It has broad coverage, is accrual based and is well understood.

OBEGAL removes gains and losses that are subject to market fluctuations. By removing volatility, it allows for comparisons of results against short-term intentions. This makes it a useful indicator of the Government's performance against its fiscal strategy.

Net worth

Much of this section has discussed the merits of including a broader set of assets and liabilities in net debt. As more Financial assets and liabilities are included in an indicator, it starts to measure the concept of financial net worth rather than net debt. As more Commercial and Social assets are included, it starts to approach net worth.

As noted earlier in the 2022 Investment Statement, a key consideration with net worth is the interpretation of the value of Social assets. Given the influence of these values, it can be challenging to use net worth as a headline fiscal indicator for fiscal management. Nevertheless, it remains an essential part of the suite of fiscal indicators for monitoring broader trends in the government's fiscal position.

Future directions for fiscal indicators

The Government intends to announce its fiscal strategy at Budget 22, and this will include an announcement of its fiscal indicators. It will remain important to keep monitoring the suitability of fiscal indicators over time, as the macroeconomic and fiscal context changes.

  1. [75] Dreger, C and Reimers, H (2016) Does Public Investment Stimulate Private Investment? Evidence for the euro area. Economic Modelling, 58, pp.154-158.
  2. [76] New Zealand Productivity Commission (2021) New Zealand firms: Reaching for the frontier. Retrieved from:
  3. [77] Te Waihanga (2021(b)) New Zealand's infrastructure challenge: Quantifying the gap and path to close it. Retrieved from:
  4. [78] Te Waihanga (2021(c)) Investment gap or efficiency gap? Benchmarking New Zealand's investment in infrastructure. Retrieved from:
  5. [79] Global Infrastructure Outlook (2017) Infrastructure investment needs 50 countries, 7 sectors to 2040. Retrieved from:
  6. [80] Water Industry Commission for Scotland (2021) Economic Analysis of water services aggregation. Retrieved from:
  7. [81] Ramey, V (2020) The Macroeconomic Consequences of Infrastructure Investment. NBER Working Paper, 2020(27625). Retrieved from:
  8. [82] IMF (2018) New Zealand Selected Issues. IMF Country Report, 18(203). Retrieved from:
  9. [83] See:
  10. [84] World Economic Forum (2019) Global Competitiveness Report. Retrieved from:
  11. [85] Te Waihanga (2021(c))
  12. [86] Te Waihanga (2021(d)) Draft New Zealand Infrastructure Strategy. Retrieved from:
  13. [87] Department of Prime Minister and Cabinet (2019) CO(19)6: Investment Management and Asset Performance in State Services. Retrieved from:
  14. [88] Te Waihanga (2022) Pipeline. Retrieved from:
  15. [89] Only 17 of the 30 initiatives reviewed by the Treasury's Capital Panel for the 2021 Budget completed business cases.
  16. [90] World Economic Forum (2016) Shaping the Future of Construction: A Breakthrough in Mindset and Technology. Retrieved from:
  17. [91] For example both the 2014 Investment Statement and the 2018 Investment Statements identified gaps between the current and desired levels of investment management and asset management.
  18. [92] International Panel on Climate Change (IPCC) (2022) Climate Change 2022: Impacts, Adaptation and Vulnerability. Retrieved from:
  19. [93] In addition to setting mitigation targets and related frameworks, the Act established the framework for adaptation within New Zealand. This includes the publication of a National Climate Change Risk Assessment every six years, and the publication of a National Adaption Plan in response.
  20. [94] IPCC 2022.
  21. [95] See:
  22. [96] A New Zealand Unit represents one tonne of carbon dioxide equivalent.
  23. [97] Waka Kotahi (2021) National Land Transport Fund annual report: 30 June 2021. Retrieved from:
  24. [98] See:
  25. [99] Task Force on Climate-Related Financial Disclosures (TCFC) (2017) Final Report: Recommendation of the Task Force on Climate-related Financial Disclosures. Retrieved from:
  26. [100] The Deep South (2019) New reports highlight flood risk under climate change [Press release]. Retrieved from:
  27. [101] Figure 30 reflects disclosures from ACC, Air New Zealand, NZSF, Mercury, Meridian and Transpower.
  28. [102] Ministry for the Environment (2021) Arotakenga Huringa Āhuarangi: A Framework for the National Climate Change Risk Assessment for Aotearoa New Zealand. Retrieved from:
  29. [103] For example, Waka Kotahi NZ Transport Agency provided its first climate-related disclosure against the TCFD recommendations through its 2021 Annual Report. For background, see:
  30. [104] The NZSF considers that ESG considerations, including climate change, are fundamental to managing long-term risks and returns. Evidence on performance is mixed but it suggests that ESG investment does not necessarily result in lower returns relative to risk. For example, see Vanguard (2021), Is there a Performance Price for ESG Investing?; Whelan, T, Ulrich, A, Van Holt, T and Clark, C (2021) Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 - 2020. NYU Stern, Center for Sustainable Business.
  31. [105] Noting that New Zealand's net debt indicator is 'net core Crown debt', calculated as core government borrowings less financial assets (excluding advances and NZSF financial assets).
  32. [106] The Treasury recently updated its methodologies for the cyclically adjusted balance, structural balance and fiscal impulse. For a description of these indicators and the changes, see:
  33. [107] Dippelsman, R, Dziobek, C, Mangas, C (2012) What lies beneath: The Statistical Definition of Public Sector Debt. An overview of the Coverage of Public Sector Debt from 61 Countries. IMF Staff Discussion Note, 12(9). Retrieved from:
  34. [108] Flynn, S, Moretti, D, Cavenagh, J (2016) Implementing Accrual Accounting in the Public Sector. IMF Technical Notes and Manuals, 2016(006). Retrieved from:
  35. [109] LSAP impacts have also created volatility for net debt, although their impact on the measure do more fairly represent the LSAP programme's impact on the government balance sheet.
  36. [110] The alternative option for addressing the impacts of alternative monetary policy tools on the indicator would be to exclude the RBNZ from net debt, as most countries do. However, excluding the RBNZ would risk not recognising the fiscal impacts of the government's financial choices related to the RBNZ. These choices include determining its capital level, providing financial backing to alternative monetary policy tools, and agreeing parameters for the management of foreign exchange reserves. Recognising the financial impacts of the RBNZ in the net debt indicator would therefore generally support it as a measure of fiscal sustainability for fiscal management. Furthermore, keeping the LSAP programme impacts in the indicator would be beneficial given that they more fairly represent the impacts of the scheme on the government balance sheet.
  37. [111] Advances had been included in New Zealand’s net debt measure until 2009.
  38. [112] Australia's largest sovereign wealth fund is the Future Fund, with assets of over AUD200 billion. When calculating net debt, Australia nets off the Future Fund's cash and fixed interest assets and assets held in collective investment vehicles (CIVs). The netted assets together comprise around 70% of the assets of the Future Fund. CIVs are pooled instruments which hold a range of asset classes. Equities directly held by the Future Fund are not netted off in net debt (these are around 30% of the Fund), consistent with GFS. For background, see Parliament of Australia (2019) Net debt and investment funds - Trends and balance sheet implications. Retrieved from: Parliamentary_Budget_Office/Publications/Research_reports/Net_debt_and_investment_funds_-_Trends_and_balance_sheet_implications and Australian Government (2022) Mid-Year Economic and Fiscal Outlook (MYEFO). Retrieved from:
  39. [113] A range of other factors accounts for the differences between each country's headline debt measure and the IMF GFS general government net debt measure. These include sector coverage (eg, central, state and local government), instrument coverage and accounting measurement methods.
  40. [114] Where a country has multiple headline debt measures, we have used the net debt measure.
  41. [115] The time periods for the national headline debt measures range from March 2021 to December 2021, depending on each organisation's reporting cycle.
  42. [116] Eurostat (2021) Government finance statistics - quarterly update. Retrieved from:
  43. [117] Government of Canada (2021) Annual Financial Report of the Government of Canada Fiscal Year 2020-21. Retrieved from:
  44. [118] Congress Budget Office (2021) An Update to the Budget and Economic Outlook: 2021 to 2031. Retrieved from: 57218#:~:text=If%20current%20laws %20generally%20remain,percent%20in%20calendar%20year%202021
  45. [119] MYEFO (2022).
  46. [120] Office for National Statistics (2021) Public Sector Finances, UK December 2021. Retrieved from: publicsectorfinance/bulletins/publicsectorfinances/december2021
  47. [121] NZSF (2022) Risk and Volatility. Retrieved from:
  48. [122] Key factors contributing to the difference between the IMF GFS general government net debt measure and the net core Crown debt measure (excluding the NZSF) are: the inclusion of NZSF cash and fixed-interest assets, the inclusion of Crown entity cash and fixed-interest assets (primarily ACC assets), the exclusion of Kāinga Ora (as it is classified as a commercial entity under the IMF's categorisation), the exclusion of the RBNZ, and the inclusion of accounts payable and receivable.

4.0  Bringing it all together#

The balance sheet remains resilient#

The 2022 Investment Statement is the third Investment Statement that the Treasury has produced under the PFA. It is published to improve the profile and transparency of the government balance sheet and its management. The 2022 Investment Statement builds on the regular financial reporting presented in the FSG.

The 2014 Investment Statement discussed in some detail the Treasury's perspectives on the disciplines that contribute to efficient and effective balance sheet management, summarised as: 'right assets, managed risks, sustainability'. In producing the 2014 Investment Statement the Treasury increased its focus on the condition and performance of government assets; a key enabler to the delivery of public services. The 2018 Investment Statement continued the Treasury's focus on government assets and built on it by discussing the balance sheet's resilience to large-scale but plausible shocks and conceptual issues around the measurement of natural capital as a component of the LSF.

Since the 2018 Investment Statement was published, New Zealand, like the rest of the world, has been materially impacted by the COVID-19 pandemic. The public health response has included isolation requirements under alert-level and traffic-light systems, and restrictions on international travel. While necessary to limit the spread of COVID-19 and support New Zealanders' health, these responses have had significant impacts on businesses and economic activity. The Government's fiscal response, in conjunction with monetary policy and a broader economic and social response, has been to use the balance sheet in a variety of ways with the aim of buffering the impacts of the pandemic on individuals, firms and the economy.

Compared to the actual impacts of the pandemic, the shocks contemplated as part of the stress tests in the 2018 Investment Statement look modest. Despite these changes, the balance sheet has been resilient to the impacts of COVID-19. Net debt has increased significantly but remains prudent, and government net worth is now higher than it was prior to COVID-19.

The Treasury's role as kaitiaki of the balance sheet#

Since the 2018 Investment Statement the balance sheet has grown in scale, complexity, and risk. With $439.6 billion of assets and $281.4 billion of liabilities, even small improvements in outcomes or returns from assets owned by the government can make a substantial contribution to better, higher-quality public services and lower taxes. In our role as kaitiaki (guardian) of the balance sheet, the Treasury considers that more deliberate, strategic, and centralised management may have benefits in supporting the achievement of government objectives and living standards for all New Zealanders, including:

  • improving the measurement of balance sheet risk: an enhanced focus on the measurement of risk to the balance sheet, for example from shocks and long-term trends such as climate change. The experience of other countries, for example during the Global Financial Crisis, highlights the long-lasting implications that the materialisation of balance sheet risks can have on government net worth and living standards[123]
  • more consistent use of cost-benefit analysis and investment management disciplines: rigorous use of cost-benefit analyses and business cases is important to ensure the right investment is delivered at the right time to allow New Zealanders to get the best outcomes and maximise living standards and productivity. This rigour also extends to the planning and sequencing of investment, given the scale of potential future investment and capacity pressures in the economy
  • active management of assets and liabilities: the public finance system tends to focus on new investment. Given the scale of the balance sheet (with assets worth more than a year of GDP), effective asset and liability management is more important than ever. Improvements can be made to support better asset management through a whole-of-life approach, and in turn to support both the efficient use of capital in the public sector and wellbeing outcomes. This includes keeping ownership rationales under review and ensuring that the government can take advantage of opportunities to better support living standards when they arise
  • developing options to preserve balance sheet capacity: the government has choices around how it funds investment. This includes options around user or beneficiary pays revenue, either commercial or through targeted levies/taxes. While subject to value judgements, these options retain the link between those that pay and benefit from investment, provide incentives for good analysis of projects (including ongoing cost management), and can preserve balance sheet capacity for the investments that only government can fund.

The importance of strong foundations#

COVID-19 has not only re-emphasised the importance of the balance sheet - it has also heightened the importance of good information and strong institutional settings. For the Treasury, these include:

  • striking the right balance between prudent debt and prudent investment: the LTFS highlighted that New Zealand faces long-term fiscal pressures, particularly from rising New Zealand Superannuation costs and health expenditure. At the same time, the Government has a significant investment programme, including in response to climate change, and there is some evidence that New Zealand has an 'infrastructure gap'. A key challenge will be striking the right mix to ensure the balance sheet can act as an effective buffer against future shocks and sustain long-term fiscal pressures while allowing value-enhancing prudent investment that supports New Zealanders' wellbeing and economic productivity
  • fiscal frameworks: choices on prudent debt and prudent investment require close attention to rules on both operating and capital expenditure. These rules help to preserve both balance sheet resilience and 'intergenerational equity'.[124] While there is no perfect fiscal framework, it is important to use a comprehensive set of fiscal indicators that set the right incentives for prudent debt and prudent investment, while ensuring adequate weight is placed on the other tools available to government, such as regulation
  • measuring and understanding wellbeing: the balance sheet provides an accounting measure of the portion of New Zealand's financial and physical capital that is owned by government. The PFA was amended in 2021 to require the Treasury produce at four yearly intervals a Wellbeing Report. The first Wellbeing Report under this requirement will be published in November 2022. The PFA requires the Treasury to describe using indicators the current state of wellbeing in New Zealand, how that state has changed over time, and the sustainability of, and any risk to, that state. To undertake such an assessment, there is a need to measure social cohesion, human capability and the natural environment alongside New Zealand's physical and financial capital. Measuring the wealth of New Zealand is no small task and the Treasury is one part of a wider community of institutions and organisations working towards this. The upcoming Wellbeing Report will take steps towards enhancing the measurement of human capability and the natural environment, building on the foundations of the LSF Dashboard. At the same time, there is wider work to establish indicators for He Ara Waiora, an ao Māori framework for understanding wellbeing.
  1. [123] IMF (2012) Fiscal Transparency, Accountability and Risk. Retrieved from:
  2. [124] Intergenerational equity means the current generation pays for its own consumption, meaning debt can be used for investments that also provide returns to future generations.