Financial Statements of the Government of New Zealand for the Year Ended 30 June 2022

Ministerial Statement#

The 2021/22 financial year covers what, in many cases, was the toughest year for New Zealanders since the global COVID-19 pandemic began.

As a country, we faced the Delta and Omicron outbreaks, requiring significant financial support for businesses and families. We were in a strong position to deal with these outbreaks given our protections through vaccinations and therapeutics and the investment in our health and social response. The year also saw us approach the end of emergency COVID-19 measures, and our reconnection with the world. This has seen us secure new trade deals, open up our immigration system and restart key sectors of the economy like tourism.

The Government’s financial accounts for the year show that we managed this with a stronger economy and a lower deficit than forecast. Unemployment is at record lows, and our net debt remains among the lowest in the world due to balanced spending decisions and strong growth.

New Zealanders can be proud of what we’ve done together during the pandemic. Our focus on protecting lives and jobs means families and the economy came through the pandemic in a better position than after the Global Financial Crisis. As clouds continue over the global economic situation, our strong starting point means we can continue to invest in a more secure economy that provides higher wages and drives down carbon emissions.

The accounts for the year to 30 June 2022 show the operating balance before gains and losses (OBEGAL) recorded a deficit of $9.7 billion, roughly half of what was forecast at Budget 2022. This was due to stronger economic conditions and lower spending than forecast.

Core Crown revenue was 4.1 percent ahead of forecast, as our economic settings provided for strong business results and more people in work in the economy than ever before, contributing to higher tax revenue.

Core Crown expenses were 2.2 percent below forecast, as our successful COVID-19 response meant allocated pandemic-related spending was not required in full. Some of these expenses, such as ongoing investment in protections like therapeutics and vaccines, will shift into the 2022/23 fiscal year. However, the end of the 2021/22 financial year marks the closing of the COVID-19 Response and Recovery Fund and the end of emergency spending which was necessary to underpin our pandemic response.

Net debt ended the year at 17.2 percent of GDP, in line with Budget 2022 forecasts. This is one of the lowest levels in the OECD and well below the Government’s debt ceiling of 30 percent, ensuring we are well positioned to weather further economic shocks. On a comparative measure produced by the IMF, our debt position as a percentage of GDP is roughly half the level of Australia, a quarter of the UK, and a fifth of the US.

While much of the focus for the Government was on dealing with the immediate pandemic response, we continued to invest in an economic plan to increase productivity, profits and wages. These accounts show $10.3 billion was invested in building critical infrastructure including roads, hospitals, new houses, and classrooms during the year. This represents the largest investment in Crown infrastructure in recent history. We contributed $2.4 billion to the New Zealand Superannuation Fund, an investment in the future of all Kiwis.

These accounts are published at a time of increasing global uncertainty, with the IMF recently downgrading its forecasts for global growth due to the war in Ukraine, COVID‑19 supply chain disruptions and high global inflation. This will affect New Zealand’s economy. But the accounts show we are in a strong position to respond to the challenges ahead and provide all New Zealanders with greater economic security.

Our borders are open, COVID-19 restrictions are largely gone, and we are in a position to lock in the gains of the near record low unemployment, rising incomes and a larger economy than before the COVID-19 pandemic. We’re set to accelerate our progress as tourists and international students arrive back and working holidaymakers and skilled migrants fill workforce gaps.

Despite the challenges that the world has, and will continue to throw at us, we have every reason to be optimistic about the future for Aotearoa New Zealand.

Hon Grant Robertson
Minister of Finance

30 September 2022

Financial Statements Summary#

The financial results of the Government for the 2021/22 year was generally weaker compared to the 2021 year. However, the financial results with the exception of net debt, were better than forecast in Budget 2022.

• Total revenue at $141.6 billion was $12.3 billion higher than last year and higher than the Budget 2022 forecast by $5.8 billion. These differences were largely due to growth in tax revenue (page 8).
• Total expenses were $151.0 billion, $17.2 billion higher than last year and $3.9 billion lower than the Budget 2022 forecast (page 11). The increase from last year was largely due to the additional expenditure on the Government’s COVID-19 response (page 16).
• The operating balance was a deficit of $16.9 billion largely a result of expenses exceeding revenues by $9.4 billion combined with $7.6 billion of net losses (page 15).
• Excluding net gains and losses the OBEGAL result was a deficit of $9.7 billion (-2.7% of GDP), $5.1 billion more than the prior year’s deficit but $9.3 billion better than the deficit forecast in Budget 2022 (page 18).
• Net worth increased by $17.1 billion to $174.3 billion (page 30) largely as a result of significant upward property, plant and equipment revaluations offset by the operating balance deficit (page 30).
• Net debt at $61.9 billion (17.2% of GDP), was $25.9 billion higher than the June 2021 level, but close to the $61.2 billion (16.9% of GDP) forecast in Budget 2022 (page 21).

1. Favourable variances against forecast have a positive sign and unfavourable variances have a negative sign.
2. Excluding minority interests.
3. GDP is updated to reflect the most recently published numbers – refer historical time series on page 180 for the nominal GDP figures (Source: Stats NZ).

Source: The Treasury

This commentary should be read in conjunction with the audited financial statements on pages 46 to 166. The Financial Statements of the Government received an unmodified auditor’s opinion for the year ended 30 June 2022.

• The 2021/22 financial results of the Government continue to reflect the effects of the COVID-19 pandemic. The outbreak of the Delta and Omicron variants in 2021 and 2022 prompted the Government to provide temporary support measures, such as the wage subsidy scheme, to help businesses and households through parts of the year. In addition, the Government’s COVID-19 response strategy focused on keeping New Zealanders safe. This involved spending on the COVID-19 immunisation programme, managed isolation and quarantine facilities, and testing and laboratory capacity. As a result, COVID-19 related expenses make up most of the increase of $17.2 billion in total expenses compared to last year. Despite this, the uncertainty around the impact of COVID-19 has been a key factor for total expenses in the 2021/22 year coming in $3.9 billion lower than forecast at Budget 2022, with less spending than expected.
• Although there were disruptions to the economy during the 2021/22 year from COVID-19 restrictions, the New Zealand economy remained resilient. Stats NZ reported growth in nominal GDP of 5.1% and an unemployment rate of 3.3% on average over the June 2022 year. The strong economic conditions experienced by most sectors led to growth across most tax types and is the key contributor to the increase of $12.3 billion in total revenue compared to last year. In some cases economic data released since the completion of the forecast for the Budget 2022 have come in stronger than expected (eg, Stats NZ’s firms’ net operating surplus data). In addition, the prior-year income tax returns filed by companies and other persons were stronger than expected. The combination of these factors has seen tax revenue come in higher than forecast at Budget 2022, which is the key driver of the variance in total revenue of $5.8 billion (a 4.3% increase).
• Movements in financial market conditions had a significant impact on the financial results of the Government in the 2021/22 year. The sharp rise in inflation has seen the Reserve Bank of New Zealand (the Reserve Bank) respond by increasing the Official Cash Rate (OCR), which in turn flows into the discount rates used to value some of the Government’s long-term liabilities (eg, ACC outstanding claims liability). The movement in discounts rates has seen a reduction in the ACC outstanding claims liability compared to last year and is the main reason for the reported actuarial gain this year of $6.7 billion. However, the performance of equity markets has been weak through the 2021/22 year, likely owing to high global inflation rates, increasing interest rates in many countries, geopolitical tensions, the war in Ukraine and constrained supply chains. Lower equity prices have been the key driver for the reported losses on financial instruments of $9.7 billion. The price of New Zealand Units (NZUs) has also increased through the year increasing the Government’s liability under the New Zealand Emissions Trading Scheme (NZETS), resulting in a loss being recognised. The $6.7 billion of actuarial gains reported on the ACC liability as at 30 June 2022 were $10.2 billion higher than forecast, while losses on financial instruments were $8.3 billion more than expected. Combined this has led to total net losses overall ending up being $2.0 billion less than expected.
• The growth in total expenses exceeded the growth in total revenue and with net losses reported, this has resulted in an operating balance deficit of $16.9 billion, which was a weaker result compared to last year by $33.1 billion. However, the deficit was smaller by $11.0 billion when compared to Budget 2022. Excluding the net losses, the operating balance before gains and losses (OBEGAL) was a deficit of $9.7 billion. Similar to the operating balance, the OBEGAL deficit is weaker compared to last year, but better when compared to Budget 2022.
• The need to fund part of the OBEGAL deficit and the Government’s capital investment programme, coupled with the adverse valuation impact on financial instruments (mentioned above) resulted in net debt increasing by $25.9 billion during the year, ending up at $61.9 billion (17.2% of GDP). The net debt position was slightly higher than forecast compared to Budget 2022. The improvement in revenue and lower spending (mentioned above) has been more than offset by valuation changes in the financial instruments (eg, value of equities held by NZS Fund) included in the net debt measure.
• The operating balance deficit has adversely impacted the Government’s net worth position. However, the revaluation of some of the Government’s physical assets has more than offset this impact, resulting in net worth increasing by $17.1 billion from last year. Several factors, such as increases in land value and material costs are behind the upwards revaluation of physical assets. Net worth was $44.0 billion higher than forecast at Budget 2022, which comprises the improvement in the operating balance (mentioned above) and the revaluation of physical assets, which are not forecast beyond the base month used for the Treasury’s Budget 2022 forecast.

The results are compared against the previous year and against forecasts for the 2021/22 year:

• Budget 2021 refers to the 2021 Budget Economic and Fiscal Update published in May 2021, and
• Budget 2022 refers to the 2022 Budget Economic and Fiscal Update published in May 2022.