Year end financial statements

Financial Statements of the Government of New Zealand for the Year Ended 30 June 2008

Prepared and furnished to the House of Representatives in accordance with Part III of the Public Finance Act 1989.

These are the first full financial statements prepared according to New Zealand International Financial Reporting Standards (NZ IFRS).

The Treasury has also prepared a summary version of these financial statements: Summary Financial Statements of the Government of New Zealand for the Year Ended 30 June 2008.

Fiscal Summary for the year ended 30 June 2008#

Fiscal Summary for the year ended 30 June 2008
Forecast Fiscal Strategy Fiscal Indicators/Financial Statements Actual

Original
Budget
$ billion

Estimated
Actuals
$ billion

30 June
2008
$ billion

30 June
2007
$ billion

31.6% 31.5% Taxes… Taxation as % of GDP 31.5% 31.7%
54.7 56.7   Core Crown taxation 56.7 53.5
5.8 4.5 … combined with other revenue… Other Core Crown operating items 4.2 7.0
(56.1) (57.4) … fund core Crown expenses… Core Crown expenses (57.0) (54.0)
2.0 (1.2) … and with the results of entities
outside the budget process…
Net surpluses/(deficits) of
SOEs and Crown entities
(1.5) 1.5
6.4 2.6 … results in a surplus or deficit…

Operating balance

2.4 8.0
(1.4) 2.6 …part of which is gains or losses set
aside for fiscal strategy purposes…
Other (gains)/losses 3.2 (2.1)
5.0 5.2 … and so we have developed an operating
indicator excluding these items.

OBEGAL

5.6 5.9
(0.1) Some of this is income retained
that is not available for fiscal purposes
Net return on NZS Fund (excl. revaluations) (0.1) 0.4
(1.7) (0.6)   Net retained surpluses of
SOEs and Crown entities
(0.8) (1.7)
1.8 2.4 ... and some is income and expenses
not impacting cash
Non-cash items and working
capital movements
2.6 4.0
5.0 7.0 The operating cash flow that results, needs
to provide sufficient funds for

Core Crown Cash flow from Operations

7.3 8.6
(2.1) (2.1) ... building up assets in NZ Superannuation Contribution to NZS Fund (2.1) (2.0)
(1.8) (1.5) ... meeting the capital expenditure budget, and Purchase of physical assets (1.4) (1.8)
(2.1) (2.5) ... making advances (eg, to students and DHBs) Advances and capital injections (1.7) (2.0)
(1.0) 0.9 with a residual impact on debt
consistent with fiscal strategy

Residual Cash

2.1 2.8
-0.6% 0.5%  

… and as a percentage of GDP

1.1% 1.7%

Summary Statement of Financial Performance for the year ended 30 June 2008#

Summary Statement of Cash Flows for the year ended 30 June 2008
Forecast   Actual

Original
Budget
$ billion

Estimated
Actuals
$ billion

30 June
2008
$ billion

30 June
2007
$ billion

   

Revenue

   
54.2 56.2 Taxation revenue 56.4 53.1
3.7 3.9 Other sovereign revenue 3.9 3.5
57.9 60.0

Total revenue levied through the Crown's sovereign power

60.3 56.6
13.3 13.7 Sales of goods and services 15.4 12.6
3.4 3.2 Interest revenue and dividends 3.2 3.0
2.4 2.9 Other revenue 2.6 2.4
19.0 19.8

Total revenue earned through operations

21.2 18.0
76.9 79.8

Total revenue (excluding gains)

81.5 74.6
   

Expenses

   
21.3 22.3 Social security and welfare 21.5 19.8
11.7 10.8 Health 10.8 10.0
10.3 10.8 Education 10.4 9.9
7.7 7.2 Transport and communications 7.4 6.9
17.9 20.7 Other functional expenses 22.6 19.2
2.7 3.0 Finance costs 3.1 2.9
0.3 (0.2) Forecasting adjustments
71.9 74.6

Total expenses (excluding losses)

75.8 68.7
5.0 5.2

Operating balance before gains and losses (OBEGAL)

5.6 5.9
1.4 (0.8) Net gains/(losses) on financial instruments (0.6) 1.6
(2.0) Net gains/(losses) on non-financial instruments (2.9) 0.5
1.4 (2.8)

Total gains/(losses)

(3.5) 2.1
0.1 0.2 Net surplus/(deficit) from associates and joint ventures 0.3 0.2
6.4 2.6

Operating balance from continuing activities

2.4 8.1
Gain/(loss) from discontinued operations (0.1)
6.4 2.6

Operating balance (including minority interest)

2.5 8.0
Operating balance attributable to minority interest in Air NZ (0.1)
6.4 2.6

Operating Balance

2.4 8.0
0.1 Total income/(expense) recognised directly in Net Worth 6.3 4.8
6.5 2.6

Total recognised income and expense

8.7 12.8

Summary Statement of Cash Flows for the year ended 30 June 2008#

Summary Statement of Cash Flows for the year ended 30 June 2008
Forecast   Actual

Original
Budget
$ billion

Estimated
Actuals
$ billion

30 June
2008
$ billion

30 June
2007
$ billion

   

Cash Flows From Operations

   
   

Cash was provided from

   
54.3 55.7 Taxation receipts 55.2 52.2
21.9 22.7 Other operating receipts 23.4 20.9
   

Cash was disbursed to

   
(19.5) (18.2) Social assistance and official development assistance (18.0) (16.3)
(44.4) (46.5) Personnel and operating payments (46.0) (41.9)
(2.5) (2.7) Interest payments (2.8) (2.4)
9.8 11.1

Net cash flows from operations

11.8 12.5
   

Cash Flows From Investing Activities

   
   

Cash was provided from

   
9.2 23.1 Sale of shares and other securities 26.2 20.0
1.4 2.5 Other capital receipts 1.7 2.6
   

Cash was disbursed to

   
(6.9) (6.2) Purchase of physical assets (5.3) (5.6)
(13.7) (28.0) Purchase of shares and other securities (32.3) (28.6)
(2.7) (3.3) Issue of advances (3.8) (2.9)
(0.3) (1.3) Purchase of other assets (0.8) (0.6)
(0.2) (0.7) Forecast adjustments
(13.2) (13.9)

Net cash flows from investing activities

(14.3) (15.0)
(3.4) (2.9)

Net cash flows from operating and investing activities

(2.6) (2.6)
   

Cash Flows From Financing Activities

   
   

Cash was provided from

   
0.2 0.3 Issues of circulating currency 0.1 0.1
3.9 3.3 Issue of  Government stock and treasury bills 2.8 2.9
2.2 2.7 Issue of other borrowing 3.4 8.5
   

Cash was disbursed to

   
(1.6) (1.0) Repayment of Government stock and treasury bills (1.1) (6.6)
(1.2) (1.3) Repayment of other borrowing (3.0) (1.8)
3.5 3.9

Net cash flows from financing activities

2.2 3.1
0.1 1.1

Net movement in cash

(0.4) 0.5
3.1 4.2 Opening Cash Balance 4.2 3.7
3.2 5.2

Closing Cash Balance

3.8

 

4.2

Summary Statement of Financial Position as at 30 June 2008#

Summary Statement of Financial Position as at 30 June 2008
Forecast   Actual

Original
Budget
$ billion

Estimated
Actuals
$ billion

30 June
2008
$ billion

30 June
2007
$ billion

   

Assets

   
3.2 5.2 Cash and cash equivalents 3.8 4.2
12.5 12.3 Receivables 14.2 12.1
35.1 36.4 Marketable securities, deposits and derivatives in gain 41.2 33.2
17.0 12.5 Share investments 13.0 13.6
12.8 13.9 Advances 12.9 10.7
96.0 98.4 Property, plant & equipment 103.3 95.6
10.7 11.6 Other assets 12.4 10.9
0.7 Forecast Adjustments
187.3 191.0

Total assets

200.8 180.3
   

Liabilities

   
3.7 3.7 Issued currency 3.5 3.4
9.0 8.4 Payables 10.9 8.1
0.8 1.0 Deferred revenue 1.3 1.0
46.4 45.5 Borrowings 46.1 41.9
19.0 20.8 Insurance liabilities 20.5 17.4
8.4 8.1 Retirement plan liabilities 8.3 7.2
3.9 4.0 Provisions 4.8 4.6
91.3 91.7

Total liabilities

95.3 83.5
96.1 99.4

Total assets less total liabilities

105.5 96.8
   

Net Worth

   
89.6 96.8 Net worth at start of year 96.8 84.0
6.4 2.6 Operating Balance excluding minority interest 2.4 8.0
0.1 Net revaluations and other movements 6.3 4.8
96.1 99.4

Total net worth

105.5 96.8

These summary financial statements comply with generally accepted accounting practice as it relates to summary financial statements.

The information in these summary statements is drawn from and is consistent with information presented in the full financial statements of the Government for the year ended 30 June 2008, which were the first NZ IFRS full financial statements. These were authorised for issue on 30 September 2008.

The Government is a public benefit entity and the full financial statements of the Government have been prepared in accordance with generally accepted accounting practice as it applies to such entities. The recognition and measurement disclosure changes resulting from the change to NZ IFRS were not significant in the context of this summary information. The full financial statements received an unqualified audit opinion.

These summary financial statements cannot be expected to provide as complete an understanding as provided by the full financial statements, which can be obtained from www.treasury.govt.nz/government/financialstatements/.

Ministerial Statement#

Since 2000, New Zealand has enjoyed the longest uninterrupted period of economic expansion since World War II.

That growth, accompanied by a dramatic rise in employment, big fall in unemployment, strong increases in workers' wages and firms' profits, all assisted Crown revenue growth which in turn assisted the government to dramatically lift public investment in health, education, infrastructure and other public goods.

But just as important, the government has been utilising favourable economic conditions to position the Crown in a strong financial position to better withstand any future external shocks to our economy and society.

Since 1999, the government has driven gross sovereign-issued debt down, from over 35 percent of GDP to be nearer the government's long-term target of 20 percent of GDP, while simultaneously building up the financial assets of the New Zealand Superannuation Fund to part pre-fund future pension liabilities.

In 2006, the New Zealand Government's net financial asset position moved into positive territory for the first time in the nation's history, a position maintained in the 2007/08 financial statements for the year ended 30 June.

These statements are the first prepared under New Zealand International Financial Reporting Standards (NZ IFRS). The statements show an operating profit before gains and losses (OBEGAL) of $5,637 million, $410 million higher than forecast in the 2008 Budget Economic and Fiscal Update. The operating balance was on target at $2,384 million. This result compares with the previous year's operating balance of $8,022 million which included some large actuarial gains on the Government's long term liabilities while this year's result has been impacted by the decline in overseas equity markets.

Core Crown residual cash was $736 million less than in the previous year but $1,149 million higher than forecast. The delay in the $690 million KiwiRail purchase to 1 July drove most of this surplus with operating cash flows $274 million higher than forecast.

Gross sovereign-issued debt (excluding Reserve Bank settlement cash) continued to fall as a percentage of GDP at 17.4 percent in 2008 compared with 18.2 percent last year. This continues to be consistent with the Government's long term debt objective to keep gross sovereign-issued debt broadly stable at 20 percent of GDP over the next ten years.

As at 30 June 2008 the financial statements show that the Crown's net financial asset position inclusive of the assets of the New Zealand Superannuation Fund was equivalent to a positive 7.9 percent of GDP, compared with a positive 5.3 percent of GDP a year earlier.

The New Zealand Superannuation Fund grew by $1,239 million over the year to a net worth of $14,212 million. The Fund was adversely impacted by the downturn in overseas equity markets, making an $881 million operating loss for the year ended 30 June 2008. The Fund's annualised return since inception remains positive at 10.34% (over 3% above the risk free rate of return for the same period).

 

Hon Dr Michael Cullen
Minister of Finance

30 September 2008

Statement of Responsibility#

These financial statements have been prepared by the Treasury in accordance with the provisions of the Public Finance Act 1989. The financial statements comply with generally accepted accounting practice.

The Treasury is responsible for establishing and maintaining a system of internal control designed to provide reasonable assurance that the transactions recorded are within statutory authority and properly record the use of all public financial resources by the Crown. To the best of my knowledge, this system of internal control has operated adequately throughout the reporting period.

John Whitehead
Secretary to the Treasury

30 September 2008

 

I accept responsibility for the integrity of these financial statements, the information they contain and their compliance with the Public Finance Act 1989.

In my opinion, these financial statements fairly reflect the financial position of the Crown as at 30 June 2008 and its operations for the year ended on that date.

Hon Dr Michael Cullen
Minister of Finance

30 September 2008

Commentary#

Introduction#

This commentary outlines the key trends for each of the fiscal indicators along with a comparison to the forecasts provided in the 2008 Budget Economic and Fiscal Update. It should be read in conjunction with the financial statements on pages 24 to 157.

These are the first set of annual audited financial statements of the Government prepared in accordance with NZ IFRS. Comparative figures have been restated to align with NZ IFRS. Restated data prior to 30 June 2007 has not been subject to audit.

Each section in the commentary follows the components of the Government's fiscal strategy (outlined in the 2008 Fiscal Strategy Report - which is summarised on page 5):

  • Revenue (including taxes)
  • Expenses
  • Surpluses
  • Cash Position
  • Debt, and
  • The New Zealand Superannuation Fund (NZS Fund).

The financial statements of the Government of New Zealand refer to both core Crown and total Crown results. Core Crown includes Ministers, Departments, Offices of Parliament, the NZS Fund and the Reserve Bank of New Zealand but excludes state-owned enterprises (SOEs) and Crown entities (CEs). Total Crown includes the core Crown, SOEs and CEs.

Summary#

The key results were:

  • both the operating balance and OBEGAL for the year were in line with the 2008 Budget forecasts (after taking into account a reclassification of the ACC actuarial loss)
  • residual cash was $1,149 million higher than forecast for the year although this was essentially timing in nature (eg, the $690 million purchase of KiwiRail expected on 30 June took place on 1 July)
  • debt was also lower than forecast at year end, primarily driven by the higher than expected residual cash surplus and, as such, is also considered to be timing in nature, and
  • the NZS Fund recorded an operating deficit of $881 million for the year ended 30 June 2008 as a result of the downturn in equity markets (particularly the United States). The Fund's net worth at 30 June 2008 was $14,212 million.

Commentary (continued)#

Fiscal Strategy#

The Government's fiscal strategy (outlined in more detail in the 2008 Fiscal Strategy Report) is to strengthen its fiscal position so that it is well placed to respond to future challenges such as those associated with population ageing. The strategy is summarised in Figure 1.

The Government is implementing this strategy primarily by building up financial assets in the New Zealand Superannuation Fund (NZS Fund) and maintaining gross sovereign-issued debt at around 20% of GDP. In order to keep debt at around 20% of GDP, the Government has said it intends to run its cash flow position so that borrowing tracks in line with GDP over time. In practice, this means running operating surpluses, on average, that are sufficient to cover the contributions to the NZS Fund and some capital spending needs.

The Financial Statements of the Government provide a record of the Government's financial performance over financial year ended 30 June 2008 and its financial position as at 30 June 2008. They provide a comparison with the fiscal forecasts in the 2008 Budget Economic and Fiscal Update. They also provide the public with a snapshot of the progress the Government has made in implementing its fiscal strategy as set out in the Fiscal Strategy Report.

Figure 1 - Fiscal strategy at a glance
Figure 1 - Fiscal strategy at a glance.

Fiscal Indicators for the Year Ended to 30 June 2008#

Table 1 - Fiscal indicators
Year ended 30 June
$ million 
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Actual
Original
Budget
Est
Actuals
2008
Actual

Revenue and expenses

               
Core Crown revenue excl NZS Fund 43,371 46,165 51,088 55,844 58,482 59,304 61,814 61,671
Core Crown expenses 39,897 41,882 44,895 49,320 54,004 56,096 57,364 56,997

Surpluses

               
Total Crown OBEGAL 4,366 5,573 7,075 7,091 5,860 4,958 5,227 5,637
Total Crown OBEGAL
excl NZS Fund retained revenue
4,297 5,526 7,140 7,252 6,250 4,860 5,219 5,586
Total Crown operating balance 1,621 7,309 5,931 9,542 8,022 6,431 2,559 2,384

Cash position

               
Core Crown residual cash 1,217 520 3,104 2,985 2,793 (976) 908 2,057

Debt

               
GSID (excl settlement cash) 36,617 36,017 35,478 33,903 30,647 34,477 31,763 31,390
Net core Crown debt
incl NZS Fund financial assets
16,093 11,613 4,538 (1,817) (7,467) (10,784) (11,254) (12,953)
Net core Crown debt 17,977 15,569 11,093 8,044 4,109 4,655 1,846 (19)

NZS Fund

               
NZS Fund net worth 1,884 3,956 6,555 9,855 12,973 15,977 14,461 14,212
Nominal GDP1 132,738 143,170 151,993 158,321 168,672 173,187 180,137 180,077

% of GDP

               

Revenue and expenses

               
Core Crown revenue excl NZS Fund 32.7 32.2 33.6 35.3 34.7 34.2 34.3 34.2
Core Crown expenses 30.1 29.3 29.5 31.2 32.0 32.4 31.8 31.7

Surpluses

               
Total Crown OBEGAL 3.3 3.9 4.7 4.5 3.5 2.9 2.9 3.1
Total Crown OBEGAL
excl NZS Fund retained revenue
3.2 3.9 4.7 4.6 3.7 2.8 2.9 3.1
Total Crown operating balance 1.2 5.1 3.9 6.0 4.8 3.7 1.4 1.3

Cash position

               
Core Crown residual cash 0.9 0.4 2.0 1.9 1.7 (0.6) 0.5 1.1

Debt

               
GSID (excl settlement cash) 27.6 25.2 23.3 21.4 18.2 19.9 17.6 17.4
Net core Crown debt
incl NZS Fund financial assets
12.1 8.1 3.0 (1.1) (4.4) (6.2) (6.2) (7.2)
Net core Crown debt 13.5 10.9 7.3 5.1 2.4 2.7 1.0 (0.0)

NZS Fund

               
NZS Fund net worth 1.4 2.8 4.3 6.2 7.7 9.2 8.0 7.9
  1. GDP for the year ended 30 June 2008 is the forecast GDP published in the 2008 Pre-election Economic and Fiscal Update (Source: Treasury).

Fiscal Strategy Perspective on the Financial Results to June#

The following table shows how the fiscal strategy is represented in the financial results.

Table 2 - Fiscal Strategy Perspective
Fiscal Strategy Fiscal Indicators/Financial Statements Actual
30 June 2007
$million
Forecast
Original Budget
$million
Forecast
Estimated Actuals
$million
Actual
30 June 2008
$million
Taxes … Taxation as % of GDP 31.7% 31.6% 31.5% 31.5%
  Core Crown taxation 53,477 54,707 56,673 56,747
… combined with other revenue … Other Core Crown operating items 7,037 5,852 4,420 4,141
… fund core crown expenses … Core Crown expenses (54,004) (56,096) (57,364) (56,997)
… and with the results of entities outside the budget process … Net surpluses/(deficits) of SOEs and Crown entities 1,512 1,968 (1,170) (1,507)
… results in a surplus or deficit… Operating balance 8,022 6,431 2,559 2,384
…part of which is gains or losses set aside for fiscal strategy purposes… Other (gains)/losses (2,162) (1,473) 2,668 3,253
… and so we have developed an operating indicator excluding these items. OBEGAL 5,860 4,958 5,227 5,637
Some of this is income retained that is not available for fiscal purposes Net return on NZS Fund (excl. revaluations) 390 (98) (8) (51)
Some of this is income retained that is not available for fiscal purposes Net retained surpluses of SOEs and CEs (1,652) (1,652) (655) (814)
and some is income and expenses not impacting cash Non-cash items and working capital movements 3,988 1,830 2,454 2,520
The Operating cash flow that results, needs to provide sufficient funds for Core Crown Cash flow from Operations 8,586 5,038 7,018 7,292
- building up assets in NZ Superannuation Contribution to NZS Fund (2,048) (2,103) (2,103) (2,104)
- meeting the capital expenditure budget, and Purchase of physical assets (1,755) (1,803) (1,544) (1,433)
- making advances (e.g. to students and DHBs) Advances and capital injections (1,990) (2,108) (2,463) (1,698)
with a residual impact on debt consistent with fiscal strategy Residual Cash 2,793 (976) 908 2,057
  … and as a percentage of GDP 1.7% -0.6% 0.5% 1.1%

Revenue#

Table 3 - Breakdown of revenue
Year ended 30 June
$ million
Actual
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Forecast
Original
Budget
Forecast
Est
Actuals
Actual
2008
Core Crown tax revenue 40,518 43,358 47,468 50,973 53,477 54,707 56,673 56,747
Core Crown other revenue 2,922 2,861 3,577 4,762 4,734 4,695 5,263 5,072
Core Crown revenue 43,440 46,219 51,045 55,735 58,211 59,402 61,936 61,819
Crown entities, SOE and eliminations 13,170 13,051 14,322 15,690 16,378 17,470 17,877 19,660
Total Crown revenue 56,611 59,271 65,367 71,425 74,589 76,872 79,813 81,479
Core Crown revenue 43,440 46,219 51,045 55,735 58,211 59,402 61,936 61,819
Less NZS Fund revenue (69) (131) (191) (359) (436) (447) (381) (385)
Add back NZS Fund intra-segment revenue 77 234 468 707 349 259 237
Core Crown revenue (excl NZS Fund) 43,371 46,165 51,088 55,844 58,482 59,304 61,814 61,671

Revenue consists mainly of tax revenue. Other revenue includes interest, dividends, and sales of goods and services.

Core crown revenue excluding the NZS Fund represents the revenue available to meet the Government's spending needs and treats the NZS Fund as a third party (ie, its revenue is not included but the tax it pays is).

Core Crown revenue excluding the NZS Fund was $143 million (0.2%) lower than forecast at $61,671 million. While interest revenue was $219 million (8.5%) lower than forecast due to changes in interest rates and investment levels, this was partially offset by core Crown tax revenue being $74 million (0.1%) higher than forecast. While core Crown tax revenue was largely on target, there were two compensating variances within this result.

  • source deduction revenue was $613 million (2.7%) higher than forecast largely due to higher than forecast wage growth, offset by
  • GST revenue was $662 million (5.6%) lower than forecast due in the main to weaker-than-expected domestic consumption. In addition the forecast assumed the gap would close between GST revenue and receipts but this did not eventuate.
Figure 2 - Core Crown revenue excluding the NZS Fund
Figure 2 - Core Crown revenue excluding the NZS Fund.
Source: The Treasury
Figure 3 - Core Crown tax revenue
Figure 3 - Core Crown tax revenue.
Source: The Treasury

Compared to last year, core Crown revenue excluding the NZS Fund increased by $3,189 million (5.5%). This increase was mainly in source deductions tax revenue, caused by high wage and employment growth.

Core Crown tax revenue has increased as a percentage of GDP since 1999 as a result of the progressive nature of the personal tax scale (coupled with the introduction of the 39% personal income tax rate), growth in taxable corporate profits ahead of GDP growth, and increases in interest rates which have led to increases in withholding taxes on interest-bearing deposits.

Expenses#

Table 4 - Breakdown of expenses
Year ended 30 June
$ million
Actual
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Forecast
Original
Budget
Forecast
Est
Actuals
Actual
2008
Social security and welfare 13,907 14,252 14,682 15,598 16,768 17,698 18,071 17,877
Health 7,501 8,111 8,813 9,547 10,355 11,613 11,343 11,297
Education 7,016 7,585 7,930 9,914 9,269 9,719 10,046 9,551
Core government services 2,130 2,091 2,567 2,507 4,817 2,479 3,222 3,371
Other core Crown expenses 9,343 9,843 10,903 11,754 12,795 14,587 14,682 14,901
Core Crown expenses 39,897 41,882 44,895 49,320 54,004 56,096 57,364 56,997
Crown entities, SOE and eliminations 12,347 11,816 13,397 15,015 14,725 15,818 17,222 18,845
Total Crown expenses 52,245 53,698 58,292 64,334 68,729 71,914 74,586 75,842
Figure 4 - Core Crown expenses
Figure 4 - Core Crown expenses.
Source: The Treasury
Figure 5 - Core Crown expenses by sector
Figure 5 - Core Crown expenses by sector.
Source: The Treasury

Core Crown expenses represent the day-to-day operating spending of the Government (ie, it does not include purchases of physical assets or capital spending).

Core Crown expenses were $367 million (0.6%) lower than forecast at $56,997 million. The main variances were:

  • social security and welfare expenses were $194 million (1.1%) lower than forecast mainly relating to lower than forecast family assistance expenditure
  • education expenses were $495 million (4.9%) lower than forecast as the impairment of student loans was $491 million lower than expected
  • core government expenses were $149 million (4.6%) higher then forecast. Impairment of tax receivables was $265 million higher than expected reflecting an increase in the underlying overdue debt. This variance was partially offset by underspends across a number of departments (none of which was individually significant), and
  • other core Crown expenses were $219 million (1.5%) higher than forecast due in the main to treaty settlements being earlier than forecast.

In comparison to the previous year, Core Crown expenses were $2,993 million (5.5%) higher. Significant expenditure increases were:

  • annual indexation of welfare benefits
  • expense initiatives introduced in the 2007 Budget (including the introduction of KiwiSaver), and
  • higher demand-driven education expenses.

This increase was partially offset by a decrease in sovereign receivable impairment expenses resulting from a large one-off tax receivable impairment in the year ended 30 June 2007.

Core Crown expenses have increased as a percentage of GDP by 1.6% since 2003 (30.1% in 2003 to 31.7% in 2008) with the introduction of major Government policies such as Working for Families and KiwiSaver.

Surpluses#

Table 5 - Total Crown OBEGAL and total Crown operating balance
Year ended 30 June
$ million
Actual
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Forecast
Original
Budget
Forecast
Est
Actuals
Actual
2008
Total Crown OBEGAL 4,366 5,573 7,075 7,091 5,860 4,958 5,227 5,637
Total Crown gains/(losses) (2,745) 1,736 (1,144) 2,451 2,162 1,473 (2,668) (3,253)
Total Crown Operating balance 1,621 7,309 5,931 9,542 8,022 6,431 2,559 2,384

OBEGAL#

OBEGAL is the operating balance before gains and losses for the total Crown. By excluding gains and losses the OBEGAL gives a more direct indication of the underlying stewardship of the Government.

Figure 6 - OBEGAL
Figure 6 - OBEGAL.
Source: The Treasury

OBEGAL was $410 million (7.8%) higher than forecast for the year ended 30 June 2008 primarily as a result of a forecasting error included in the Budget. A portion of ACC's actuarial loss was forecast as an insurance expense. This error does not impact on the operating balance as it was a reclassification between expenses and losses.

Within this result, the electricity generating SOEs reported large, equal, and opposite variances in both revenue and expenses of approximately $1,400 million. These variances resulted from higher than expected electricity spot prices.

The OBEGAL (excluding the NZS Fund retained revenue) is a measure of the operating balance that recognises that the NZS Fund has been set up to meet future spending pressures and as a result the returns it earns are not available to the Crown to meet current spending requirements. OBEGAL (excluding the NZS Fund retained revenue) was $5,586 million for the year; $367 million lower than forecast.

Operating Balance#

Figure 7 - Operating balance
Figure 7 - Operating balance.
Source: The Treasury

The operating balance shows whether the government sector has generated enough revenues (including gains) to cover its expenses (including losses) in any given year.

The operating balance for the total Crown was $175 million (6.8%) lower than forecast at $2,384 million.

Losses of $3,253 million resulted in a decline in the operating balance for the year ended 30 June 2008 and were $585 million (21.9%) more than forecast. These losses compare to gains of $2,162 million for the previous year. The difference is a reflection of the recent decline in overseas equity markets and increases in the ACC claims and GSF liabilities.

The total Crown operating balance is not drawn upon to fund core Crown operations, as current policy is for the NZS Fund, SOEs and CEs to retain a portion of their surpluses for the purpose of achieving their long-term objectives. For the year ended 30 June 2008 SOEs and CEs recorded an overall deficit of $803 million. This deficit includes an operating deficit of $2,408 million in ACC due to equity market and ACC claims liability losses mentioned above. When ACC is excluded the SOE and CE surpluses totalled $1,605 million (refer pages 164 to 166 for a breakdown by individual entity).

During the year $575 million was returned to the Crown as dividends.

Cash Position#

Table 6 - Residual cash reconciliation
Year ended 30 June
$ million
Actual
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Forecast
Original
Budget
Forecast
Est
Actuals
Actual
2008
Net core Crown cash flow from operations 4,856 5,443 8,560 8,859 8,586 5,038 7,018 7,292
Contributions to NZS Fund (1,200) (1,879) (2,107) (2,337) (2,048) (2,103) (2,103) (2,104)
Purchase of physical assets (1,059) (1,299) (1,372) (1,826) (1,755) (1,803) (1,544) (1,433)
Advances and capital injections (1,380) (1,745) (1,977) (1,711) (1,990) (2,108) (2,463) (1,698)
Core Crown residual cash 1,217 520 3,104 2,985 2,793 (976) 908 2,057

Core Crown residual cash represents the core Crown cash surplus (or deficit) after operating and investing cash requirements (including contributions to the NZS Fund) are met. It represents the money available to the Government to invest, repay debt or, alternatively, the money the Government needs to fund in any given year.

Figure 8 - Residual cash
Figure 8 - Residual cash.
Source: The Treasury

Residual cash was $1,149 million higher than forecast for the year ended 30 June 2008 at $2,057 million. Increases in the cash surplus were mainly due to:

  • the delay in the $690 million KiwiRail purchase from 30 June to 1 July
  • KiwiSaver payments being $210 million lower than forecast with regards to kick-start payments and employer tax credits, and
  • department cash requirements being $545 million less than expected.

These surpluses were partially offset by tax receipts which were $417 million (0.7%) lower than forecast. In particular, the following tax types were lower than forecast:

  • corporate tax receipts were $419 million (4.0%) lower than forecast due in the main to lower-than-expected provisional tax receipts through May and June from large corporate entities
  • GST receipts were $148 million (1.3%) lower than forecast reflecting the effects of recent economic activity, and
  • net other individuals tax receipts were $130 million (3.3%) lower than forecast due to lower than expected provisional tax payments from the agricultural sector.

In contrast, stronger than expected wage growth contributed to source deduction tax receipts being $124 million (0.5%) higher than forecast.

Over recent years residual cash surpluses have reflected strong economic growth coupled with some departmental underspending.

The residual cash of $2,057 million has resulted in an increase in core Crown financial assets as discussed on page 15.

Capital Investment#

Core Crown purchases of physical assets ($1,433 million) and advances and capital injections ($1,698 million) represent the capital investment of the core Crown (refer Table 6).

Advances and capital injections are often used by CEs and SOEs to purchase physical assets (such as roading and rail assets). Therefore, to obtain a complete picture of the Government's capital investment it is necessary to “look through” core Crown advances and capital injections and consider total Crown physical asset purchases.

Figures 9 to 11, therefore, show the purchase of physical assets (referred to as “PPE”) of the total Crown, offset by asset disposals.

Figure 9 - Total Crown net purchases of PPE ($ million)
Figure 9 - Total Crown net purchases of PPE ($ million).
Source: The Treasury
Figure 10 - Total Crown net purchases of PPE by sector ($m and % of total) for year ended 30 June 2008
Figure 10 - Total Crown net purchases of PPE by sector ($m and % of total) for year ended 30 June 2008.
Source: The Treasury
Figure 11 - Total Crown net purchases of PPE by asset type ($m and % of total) for year ended 30 June 2008
Figure 11 - Total Crown net purchases of PPE by asset type ($m and % of total) for year ended 30 June 2008.
Source: The Treasury

Total Crown net PPE purchases for the current financial year included:

  • $986 million on state highway roading
  • $571 million on electricity generation assets
  • $509 million on education facilities such as schools
  • $446 million by district health boards
  • $320 million on specialist military equipment, and
  • $234 million on rail assets (excluding KiwiRail).

The $690 million purchase of KiwiRail occurred on 1 July and is therefore not included in this capital investment analysis.

Debt#

Table 8 - Gross sovereign-issued debt (GSID) and net core Crown debt
Year ended 30 June
$ million
Actual
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Forecast
Original
Budget
Forecast
Est
Actuals
Actual
2008
Gross sovereign-issued debt 36,617 36,017 35,478 35,867 36,805 40,400 37,673 37,745
Less Reserve Bank settlement cash
 (incl. Kiwibank)
(1,964) (7,758) (7,523) (7,510) (7,955)
Add back changes to DMO borrowing due to settlement cash 1,600 1,600 1,600 1,600
Gross sovereign-issued debt excluding settlement cash 36,617 36,017 35,478 33,903 30,647 34,477 31,763 31,390
Gross sovereign-issued debt 36,617 36,017 35,478 35,867 36,805 40,400 37,673 37,745
Less core Crown financial assets (20,524) (24,404) (30,940) (37,684) (44,272) (51,184) (48,927) (50,698)
Net core Crown debt (incl NZS Fund) 16,093 11,613 4,538 (1,817) (7,467) (10,784) (11,254) (12,953)
Add back NZS Fund holdings of core Crown financial assets and NZS Fund financial assets 1,884 3,956 6,555 9,861 11,576 15,439 13,100 12,934
Net core Crown debt 17,977 15,569 11,093 8,044 4,109 4,655 1,846 (19)

Gross Sovereign-issued Debt (GSID)#

GSID (excluding settlement cash) represents the debt issued by the sovereign (ie, core Crown) and includes Government stock held by the NZS Fund, ACC and EQC but excludes money deposited with the Reserve Bank by banks (settlement cash).

GSID (excluding settlement cash) was lower than forecast by $373 million (1.2%) at $31,390 million (17.4% of GDP). This result reflected lower than forecast levels of domestic bonds issuance (refer table 9) partially offset by higher than forecast derivative liabilities.

Figure 12 - GSID (excluding settlement cash)
Figure 12 - GSID (excluding settlement cash).
Source: The Treasury

One of the key components of GSID is the domestic bond programme. Table 9 sets out the historical net issuances and repayments.

Table 9 - Net bond issuance
Year ended 30 June
$ million
Actual
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Forecast
Original
Budget
Forecast
Est
Actuals
Actual
2008
Domestic bonds (market) 2,551 2,212 2,146 2,375 2,294 2,520 2,415 1,757
Repayment of domestic bonds (market) (2,823) (3,044) (2,797) (2,574) (2,777)
Net increase/(decrease) in market domestic bonds (272) (832) (651) (199) (483) 2,520 2,415 1,757
Domestic bonds (non-market) 279 478 459 740 570 208 189 130
Repayment of domestic bonds (non-market) (737) (357) (338) (375) (421)
Net increase/(decrease) in non-market domestic bonds (458) 121 121 365 149 208 189 130
Net total bond issuance/(repayment) (730) (711) (530) 166 (334) 2,728 2,604 1,887

Net Core Crown Debt#

Figure 13 - Net core Crown debt
Figure 13 - Net core Crown debt.
Source: The Treasury
Figure 14 - Core Crown financial assets (excluding NZS Fund)
Figure 14 - Core Crown financial assets (excluding NZS Fund).
Source: The Treasury

Net core Crown debt equates to core Crown borrowings (gross sovereign-issued debt) less core Crown financial assets (excluding the financial assets of the NZS Fund).

By deducting financial assets (excluding the NZS Fund), net debt can provide additional information about the sustainability of the Government's accounts. However, it is important to view net debt alongside GSID (excluding settlement cash) as some financial assets are not very easily converted to cash (eg, student loans) in the short term.

Net core Crown debt was lower than forecast by $1,865 million (101%) which resulted in a net asset position of $19 million at 30 June 2008. This position is a result of the higher than forecast residual cash surplus in addition to net valuation gains on financial assets and financial liabilities.

Net core Crown debt has decreased by $4,128 million since 30 June 2007. Table 10 provides a breakdown of core Crown net debt by portfolio.

The majority of the decrease in net core Crown debt was in the financial instruments administered by the New Zealand Debt Management Office (NZDMO) ($2,776 million).

NZDMO financial assets have increased by $3,594 million which has been primarily financed by:

  • the current year's residual cash surplus of $2,057 million, and
  • additional borrowings as NZDMO has continued its recent practice of maintaining a smooth bond issuance program year to year.

NZDMO borrowings have increased by around $818 million. As mentioned above the majority of the additional borrowings have been invested in financial assets, so are net debt neutral.

Table 10 - Net core Crown debt by portfolio
  Year ended 30 June 2008 Year ended 30 June 2007
$ million NZDMO Reserve
Bank
Student
loans
Other Total NZDMO Reserve
Bank
Student
loans
Other Total
Core Crown borrowings 28,861 8,689 195 37,745 28,043 8,508 254 36,805
Core Crown financial assets 17,001 13,735 6,741 287 37,764 13,407 13,023 6,011 255 32,696
Net core Crown debt 11,860 (5,046) (6,741) (92) (19) 14,636 (4,515) (6,011) (1) 4,109

NZS Fund#

Table 11 - NZS Fund net worth
Year ended 30 June
$ million
Actual
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Forecast
Original
Budget
Forecast
Est
Actuals
Actual
2008
Opening net worth 615 1,884 3,956 6,555 9,855 12,910 12,973 12,973
Revenue 69 131 191 359 436 447 381 385
Less current tax expense (77) (234) (468) (707) (349) (259) (237)
Less other expenses (7) (22) (52) 52 (51) (34)
Gains/(losses) 146 557 1,130 1,313 866 (686) (995)
Operating balance 69 193 492 969 1,094 964 (615) (881)
Gross contribution from the Crown 1,200 1,879 2,107 2,337 2,048 2,103 2,103 2,104
Other movements in reserves (6) (24) 16
Closing net worth 1,884 3,956 6,555 9,855 12,973 15,977 14,461 14,212

The NZS Fund (“the Fund”) is an important component of the Government's fiscal strategy. The Fund's assets provide the means for the Government to partially pre-fund future fiscal pressures, particularly those pressures arising from an ageing population.

The Government's contributions to the Fund are calculated over a 40 year rolling horizon to ensure that superannuation entitlements over the next 40 years can be met.

The Fund made an operating loss of $881 million for the year ended 30 June 2008. This compares to an operating profit of $1,094 million in the previous year and a forecast loss of $615 million for the current year. This loss results from the downturn in equity markets (particularly the United States). The Fund's full year return was -4.92% bringing its annualised return since inception to 10.34%. This return compares to the risk-free rate of return for the same period of 6.73%.

The Fund's net worth at 30 June 2008 was $14,212 million, an increase of $1,239 million since 30 June 2007. $2,104 million of this increase is from Government contributions which were offset by the Fund's investment performance.

Figure 15 - NZS Fund net worth
Figure 15 - NZS Fund net worth.
Source: The Treasury

Historical Financial Information#

Year ended 30 June
$ million
1999
Actual
2000
Actual
2001
Actual
2002
Actual
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Actual
2008
Actual
Statement of financial performance                    
Core Crown tax revenue 30,875 32,598 35,345 36,809 40,518 43,358 47,468 50,973 53,477 56,747
Core Crown other revenue 2,005 2,348 2,497 3,136 2,922 2,861 3,577 4,762 4,734 5,072
Core Crown revenue 32,880 34,946 37,842 39,945 43,440 46,219 51,045 55,735 58,211 61,819
Crown entities, SOE revenue and eliminations 7,086 6,666 7,259 10,003 13,170 13,051 14,322 15,690 16,378 19,660
Total Crown revenue 39,966 41,612 45,101 49,948 56,611 59,271 65,367 71,425 74,589 81,479
Social security and welfare 12,889 12,883 13,207 13,485 13,907 14,252 14,682 15,598 16,768 17,877
Health 5,875 6,146 6,660 7,032 7,501 8,111 8,813 9,547 10,355 11,297
Education 5,337 5,712 6,136 6,473 7,016 7,585 7,930 9,914 9,269 9,551
Core government services 1,984 1,992 2,148 1,890 2,130 2,091 2,567 2,507 4,817 3,371
Other core Crown expenses 7,854 8,096 8,408 8,633 9,343 9,843 10,903 11,754 12,795 14,901
Core Crown expenses 33,939 34,829 36,559 37,513 39,897 41,882 44,895 49,320 54,004 56,997
Crown entities, SOE expenses and eliminations 5,899 6,189 7,120 9,964 12,347 11,816 13,397 15,015 14,725 18,845
Total Crown expenses 39,838 41,018 43,679 47,476 52,245 53,698 58,292 64,334 68,729 75,842
OBEGAL 128 594 1,422 2,471 4,366 5,573 7,075 7,091 5,860 5,637
Gains/(losses) 1,577 811 (214) (185) (2,745) 1,736 (1,144) 2,451 2,162 (3,253)
Operating balance 1,705 1,405 1,208 2,286 1,621 7,309 5,931 9,542 8,022 2,384
Statement of financial position                    
Property, plant and equipment 42,102 43,609 45,954 50,536 52,667 57,940 67,494 89,141 95,598 103,329
Financial assets 18,564 18,756 21,419 22,497 27,799 32,654 42,005 66,396 73,719 85,063
Other assets 11,305 11,459 11,467 14,846 18,461 18,756 19,714 9,503 11,031 12,443
Total assets 71,971 73,824 78,840 87,879 98,927 109,351 129,212 165,040 180,348 200,835
Borrowings 38,715 37,527 38,130 38,492 39,327 37,720 37,728 40,027 41,898 46,110
Other liabilities 23,134 23,692 25,260 26,562 31,588 32,036 37,243 41,042 41,623 49,211
Total liabilities 61,850 61,219 63,390 65,055 70,915 69,756 74,972 81,069 83,521 95,321
Net worth 10,121 12,605 15,450 22,825 28,012 39,595 54,240 83,971 96,827 105,514
Fiscal Indicators                    
Core Crown revenue (excl NZS Fund) 32,880 34,946 37,842 39,930 43,371 46,165 51,088 55,844 58,482 61,671
Core Crown expenses 33,939 34,829 36,559 37,513 39,897 41,882 44,895 49,320 54,004 56,997
OBEGAL 128 594 1,422 2,471 4,366 5,573 7,075 7,091 5,860 5,637
OBEGAL (excl NZS Fund) 128 594 1,422 2,456 4,297 5,526 7,140 7,252 6,250 5,586
Operating balance 1,705 1,405 1,208 2,286 1,621 7,309 5,931 9,542 8,022 2,384
Core Crown residual cash 2,048 (386) 349 216 1,217 520 3,104 2,985 2,793 2,057
GSID (excluding settlement cash) 37,307 36,580 37,194 36,650 36,617 36,017 35,478 33,903 30,647 31,390
Net core Crown debt 22,275 21,900 20,293 19,666 17,977 15,569 11,093 8,044 4,109 (19)
NZS Fund net worth 615 1,884 3,956 6,555 9,855 12,973 14,212

Historical Financial Information (continued)#

Year ended 30 June
$ million
1999
Actual
2000
Actual
2001
Actual
2002
Actual
2003
Actual
2004
Actual
2005
Actual
2006
Actual
2007
Actual
2008
Actual
GDP 104,651 111,039 118,357 125,808 132,738 143,170 151,993 158,321 168,672 180,077
Statement of financial performance                    
Core Crown tax revenue 29.5% 29.4% 29.9% 29.3% 30.5% 30.3% 31.2% 32.2% 31.7% 31.5%
Core Crown other revenue 1.9% 2.1% 2.1% 2.5% 2.2% 2.0% 2.4% 3.0% 2.8% 2.8%
Core Crown revenue 31.4% 31.5% 32.0% 31.8% 32.7% 32.3% 33.6% 35.2% 34.5% 34.3%
Crown entities, SOE and elimination revenue 6.8% 6.0% 6.1% 8.0% 9.9% 9.1% 9.4% 9.9% 9.7% 10.9%
Total Crown revenue 38.2% 37.5% 38.1% 39.7% 42.6% 41.4% 43.0% 45.1% 44.2% 45.2%
Social security and welfare 12.3% 11.6% 11.2% 10.7% 10.5% 10.0% 9.7% 9.9% 9.9% 9.9%
Health 5.6% 5.5% 5.6% 5.6% 5.7% 5.7% 5.8% 6.0% 6.1% 6.3%
Education 5.1% 5.1% 5.2% 5.1% 5.3% 5.3% 5.2% 6.3% 5.5% 5.3%
Core government services 1.9% 1.8% 1.8% 1.5% 1.6% 1.5% 1.7% 1.6% 2.9% 1.9%
Other core Crown expenses 7.5% 7.3% 7.1% 6.9% 7.0% 6.9% 7.2% 7.4% 7.6% 8.3%
Core Crown expenses 32.4% 31.4% 30.9% 29.8% 30.1% 29.3% 29.5% 31.2% 32.0% 31.7%
Crown entities, SOE and elimination expenses 5.6% 5.6% 6.0% 7.9% 9.3% 8.3% 8.8% 9.5% 8.7% 10.5%
Total Crown expenses 38.1% 36.9% 36.9% 37.7% 39.4% 37.5% 38.4% 40.6% 40.7% 42.1%
OBEGAL 0.1% 0.5% 1.2% 2.0% 3.3% 3.9% 4.7% 4.5% 3.5% 3.1%
Gains/(losses) 1.5% 0.7% -0.2% -0.1% -2.1% 1.2% -0.8% 1.5% 1.3% -1.8%
Operating balance 1.6% 1.3% 1.0% 1.8% 1.2% 5.1% 3.9% 6.0% 4.8% 1.3%
Statement of financial position                    
Property, plant and equipment 40.2% 39.3% 38.8% 40.2% 39.7% 40.5% 44.4% 56.3% 56.7% 57.4%
Financial assets 17.7% 16.9% 18.1% 17.9% 20.9% 22.8% 27.6% 41.9% 43.7% 47.2%
Other assets 10.8% 10.3% 9.7% 11.8% 13.9% 13.1% 13.0% 6.0% 6.5% 6.9%
Total assets 68.8% 66.5% 66.6% 69.9% 74.5% 76.4% 85.0% 104.2% 106.9% 111.5%
Borrowings 37.0% 33.8% 32.2% 30.6% 29.6% 26.3% 24.8% 25.3% 24.8% 25.6%
Other liabilities 22.1% 21.3% 21.3% 21.1% 23.8% 22.4% 24.5% 25.9% 24.7% 27.3%
Total liabilities 59.1% 55.1% 53.6% 51.7% 53.4% 48.7% 49.3% 51.2% 49.5% 52.9%
Net worth 9.7% 11.4% 13.1% 18.1% 21.1% 27.7% 35.7% 53.0% 57.4% 58.6%
Fiscal Indicators                    
Core Crown revenue (excl NZS Fund) 31.4% 31.5% 32.0% 31.7% 32.7% 32.2% 33.6% 35.3% 34.7% 34.2%
Core Crown expenses 32.4% 31.4% 30.9% 29.8% 30.1% 29.3% 29.5% 31.2% 32.0% 31.7%
OBEGAL 0.1% 0.5% 1.2% 2.0% 3.3% 3.9% 4.7% 4.5% 3.5% 3.1%
OBEGAL (excl NZS Fund) 0.1% 0.5% 1.2% 2.0% 3.2% 3.9% 4.7% 4.6% 3.7% 3.1%
Operating balance 1.6% 1.3% 1.0% 1.8% 1.2% 5.1% 3.9% 6.0% 4.8% 1.3%
Core Crown residual cash 2.0% -0.3% 0.3% 0.2% 0.9% 0.4% 2.0% 1.9% 1.7% 1.1%
GSID (excluding settlement cash) 35.6% 32.9% 31.4% 29.1% 27.6% 25.2% 23.3% 21.4% 18.2% 17.4%
Net core Crown debt 21.3% 19.7% 17.1% 15.6% 13.5% 10.9% 7.3% 5.1% 2.4% 0.0%
NZS Fund net worth 0.0% 0.0% 0.0% 0.5% 1.4% 2.8% 4.3% 6.2% 7.7% 7.9%