Formats and related files
Ministerial Statement#
The devastating earthquakes in Canterbury have had a significant impact on the Government's fiscal position.
The Financial Statements of the Government for the year ended 30 June 2011 include net costs to the Crown of around $9.1 billion in relation to these tragic events.
In 2010/11, there was modest growth in tax revenue reflecting the economic recovery during the period, while core Crown expenses rose sharply due to large one-off factors (such as the Emissions Trading Scheme and the Weathertight homes financial assistance package), together with the impact of higher debt-financing costs due to rising Crown debt.
The net result of these factors is that the operating deficit before gains and losses weakened markedly to $18.4 billion at 30 June 2011. However, the Government has taken a series of decisions that will significantly reduce the deficit in the current year and set the Crown on a path back to surplus.
The recovery in world markets during the year helped produce gains for Crown investment funds (the New Zealand Superannuation Fund, the Accident Compensation Corporation and the Earthquake Commission). Including these gains, the headline operating deficit was $13.4 billion (compared with $4.5 billion a year earlier).
At 30 June 2011, core Crown net debt stood at $40.1 billion or 20.0% of GDP and the Crown's net worth stood at $80.9 billion, or 40.4% of GDP.
The global financial crisis and the Canterbury earthquakes have demonstrated to New Zealanders and to the Government the importance of the Crown maintaining a strong fiscal position.
Looking forward, the Government is committed to rebuilding the Crown's fiscal position to ensure that New Zealand is well placed to deal with any future unexpected shocks.
Hon Bill English
Minister of Finance
30 September 2011
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 New Zealand generally accepted accounting practice and with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as appropriate for public benefit entities.
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.
Gabriel Makhlouf
Secretary to the Treasury
30 September 2011
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 2011 and its operations for the year ended on that date.
Hon Bill English
Minister of Finance
30 September 2011
Commentary#
Introduction#
These financial statements[1] contain the audited results for the financial year ended 30 June 2011. The results are compared against previous years, and against two sets of forecasts:
- the Budget 2010 forecast as published in the 2010 Budget Economic and Fiscal Update, and
- the Budget 2011 forecast as published in the 2011 Budget Economic and Fiscal Update (the “forecast”).
This commentary should be read in conjunction with the financial statements on pages 30 to 180.
At a Glance#
Year ended 30 June | Forecast 30 June 2011 |
|||||||
---|---|---|---|---|---|---|---|---|
$million | Actual 2006 |
Actual 2007 |
Actual 2008 |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Budget 10 | Budget 11 |
Core Crown tax revenue | 50,973 | 53,477 | 56,747 | 54,681 | 50,744 | 51,557 | 53,912 | 51,189 |
Core Crown expenses | 49,320 | 54,004 | 56,997 | 64,002 | 64,013 | 70,450 | 70,651 | 72,794 |
Operating balance before gains and losses | 7,091 | 5,860 | 5,637 | (3,893) | (6,315) | (18,396) | (8,632) | (16,728) |
Operating balance | 9,542 | 8,022 | 2,384 | (10,505) | (4,509) | (13,360) | (7,067) | (9,437) |
Gross debt | 33,903 | 30,647 | 31,390 | 43,356 | 53,591 | 72,420 | 66,969 | 71,578 |
Net debt | 16,163 | 13,380 | 10,258 | 17,119 | 26,738 | 40,128 | 39,965 | 41,502 |
Total Crown net worth | 83,971 | 96,827 | 105,514 | 99,515 | 94,988 | 80,887 | 89,416 | 85,519 |
Notes
- [1]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. Total Crown includes the core Crown, State-owned Enterprises and Crown Entities.
Summary#
The economy continues to recover from recession…
- Figure 1 - Nominal and Real GDP growth
- Source: The Treasury
Despite the Canterbury earthquakes, the economy experienced higher growth in nominal GDP in 2010/11 owing to a recovery in domestic demand as well as higher prices, including for our exports. This translated into higher growth in business profitability and salary and wage earnings.
- Figure 2 - Core Crown tax revenue and core Crown expenses
- Source: The Treasury
...and tax revenue has grown modestly.
Core Crown tax revenue increased by $0.8 billion over the year, reflecting growth in private consumption and company tax but tax policy changes have largely offset the impact of this growth. Table 4 on page 8 summarises the movements for the year.
But expenses have risen sharply...
Of the total Crown expenses of $100.0 billion, $70.4 billion was for core Crown expenses (ie, incurred by Ministers, Departments, Offices of Parliament, the NZS Fund and the Reserve Bank).
Total Crown expenses have increased by $18.9 billion from the previous year of which $13.6 billion was earthquake-related.
Within core Crown expenses, costs have risen by $6.4 billion (figure 2) of which non-earthquake costs increased by $4.5 billion. Health, education and welfare spending have all contributed to this latest financial year’s increase along with the Emissions Trading Scheme and the weathertight homes financial assistance package. Table 6 on page 11 summarises the increases in core Crown expenses.
Earthquake expenses pushed up core Crown expenses by $1.9 billion, including financial support packages for the Red Zone and AMI and social assistance payments. Most earthquake expenses were, however, captured in the Crown Entity segment of these accounts, with EQC's insurance expenses pushed up by a net $7.5 billion (comprising a hike in insurance expenses of $11.7 billion, of which $4.2 billion was offset by reinsurance recoveries).
Although significant earthquake-related expenses have been recognised this year, more earthquake expenses are still to come. The section on Canterbury earthquakes on page 12 provides further details of the impact of the earthquakes on the Financial Statements of Government.
...resulting in a large operating deficit…
- Figure 3 - Components of the operating deficit
- Source: The Treasury
The operating deficit before gains and losses (OBEGAL) increased by $12.1 billion from last year to stand at $18.4 billion in the year ended 30 June 2011 (figure 3).
Recovery in investment markets in the first part of the year however, contributed to the Crown making a net gain in its financial portfolio of $5.0 billion (compared to a $1.8 billion gain in the previous year).
Overall, the operating balance inclusive of gains and losses was in deficit by $13.4 billion.
...leading to increased borrowings…
- Figure 4 - Cash proceeds from issue of market domestic bonds
- Source: The Treasury
Combining the cash impact of the operating results with capital expenditure and advances, the Crown recorded a residual cash deficit for the year of $13.3 billion. This deficit was funded through an increase in borrowings, primarily through the domestic bond programme (figure 4).
...and a reduction in net worth.
Operating deficits have led to a decline in net worth. The Crown's net worth fell $14.1 billion to stand at $80.9 billion at 30 June 2011.
Fiscal Strategy#
The financial statements of the Government provide a snapshot of the progress the Government has made in implementing its fiscal strategy as set out in its Fiscal Strategy Report.
Table 2 - Financial results against the long-term fiscal objectives outlined in the 2011 Fiscal Strategy Report
Revenue#
Year ended 30 June | Forecast 30 June 2011 |
|||||||
---|---|---|---|---|---|---|---|---|
Actual 2006 | Actual 2007 | Actual 2008 | Actual 2009 | Actual 2010 | Actual 2011 | Budget 10 | Budget 11 | |
$ million |
||||||||
Core Crown tax revenue | 50,973 | 53,477 | 56,747 | 54,681 | 50,744 | 51,557 | 53,912 | 51,189 |
Core Crown other revenue | 4,762 | 4,734 | 5,072 | 4,801 | 5,472 | 5,993 | 6,348 | 5,761 |
Core Crown revenue | 55,735 | 58,211 | 61,819 | 59,482 | 56,216 | 57,550 | 60,260 | 56,950 |
Crown entities, SOEs and eliminations | 15,690 | 16,378 | 19,660 | 20,024 | 18,509 | 24,013 | 21,521 | 23,219 |
Total Crown revenue | 71,425 | 74,589 | 81,479 | 79,506 | 74,725 | 81,563 | 81,781 | 80,169 |
% of GDP |
||||||||
Core Crown tax revenue | 31.5% | 31.1% | 31.0% | 29.5% | 26.8% | 25.7% | 26.4% | 25.6% |
Core Crown other revenue | 2.9% | 2.8% | 2.8% | 2.6% | 2.9% | 3.0% | 3.1% | 2.9% |
Core Crown revenue | 34.4% | 33.8% | 33.7% | 32.1% | 29.7% | 28.7% | 29.6% | 28.5% |
Crown entities, SOEs and eliminations | 9.7% | 9.5% | 10.7% | 10.8% | 9.8% | 12.0% | 10.6% | 11.6% |
Total Crown revenue | 44.1% | 43.4% | 44.4% | 42.9% | 39.5% | 40.7% | 40.1% | 40.1% |
- Figure 5 - Core Crown tax revenue
- Source: The Treasury
Total revenue increased over the year by $6.8 billion to $81.6 billion. Core Crown tax revenue contributed $0.8 billion (1.6%) to this increase (figure 5) and $4.2 billion was due to insurance claims on reinsurers as a result of the Canterbury Earthquakes. The impact of the earthquakes on the financial statements is discussed more fully in a separate section on page 12.
Core Crown Tax Revenue
Year ended 30 June | |
---|---|
2010 core Crown tax revenue | 50.7 |
Tax cuts | (2.7) |
Growth in income and domestic consumption | 1.3 |
Higher business profits | 0.5 |
Increase in GST rate | 1.6 |
Other movements | 0.1 |
2011 core Crown tax revenue | 51.5 |
Source: The Treasury
Core Crown tax revenue was close to forecast at $51.5 billion. Growth in tax has been diluted by policy changes introduced in Budget 2010. These policy changes had the impact of reducing taxes levied by $2.7 billion. Table 4 summarises the movements from last year. Specifically:
- Salary and wages have increased during the year although the impact of personal income tax cuts have more than offset any increases in tax coming from source deductions.
- Business profits (both corporate and individual) have also increased over the year but again the impact of policy changes through tax cuts have seen lower tax takes from corporate and ‘other individuals' compared with a year earlier.
- On 1 October 2010, the GST rate increased from 12.5% to 15%. In addition there was a small increase in consumption over the year resulting in an increase in GST revenue.
- Figure 6 - Core Crown tax revenue against forecast
- Source: The Treasury
Compared to forecast, core Crown tax revenue was $0.4 billion (0.7%) more than expected. Included in this result were the following items (figure 6):
- Both source deductions tax and GST revenue were higher than expected (by $0.2 billion and $0.5 billion respectively). The source deductions increase was due to stronger wage growth while GST was due to stronger than forecast consumption.
- In contrast, corporate tax and other tax revenue were lower than forecast (by $0.2 billion and $0.1 billion respectively) reflecting weaker than expected business profits and lower than expected customs and excise duties.
- Figure 7 - Other revenue
- Source: The Treasury
Other Revenue
Other revenue includes other sovereign revenue (eg, ACC levies), sales of goods and services, interest income and dividend income.
Other revenue increased by $6.1 billion over the year to $30.4 billion (figure 7). Of this increase in revenue, $4.2 billion relates to EQC's insurance claim on reinsurers and $0.8 billion relates to an increase in sales of goods and services primarily in the SOE and Crown Entity sectors. However, increases in SOE revenue were largely offset by increases in SOE operating expenses. Likewise, revenue from EQC's reinsurers was more than offset by the increase in insurance expenses (refer the Canterbury Earthquakes section on page 12).
The remainder includes $0.9 billion of increases in ACC levies, Emissions Trading Scheme revenues and interest and dividend revenue (primarily due to the increase in Kiwibank mortgages) ($0.3 billion for each).
Expenses#
Year ended 30 June |
Forecast 30 June 2011 |
|||||||
---|---|---|---|---|---|---|---|---|
Actual 2006 | Actual 2007 | Actual 2008 | Actual 2009 | Actual 2010 | Actual 2011 | Budget 10 | Budget 11 | |
$ million |
||||||||
Social security and welfare | 15,598 | 16,768 | 17,877 | 19,382 | 21,185 | 22,005 | 22,120 | 22,175 |
Health | 9,547 | 10,355 | 11,297 | 12,368 | 13,128 | 13,753 | 14,043 | 13,774 |
Education | 9,914 | 9,269 | 9,551 | 11,455 | 11,724 | 11,650 | 11,992 | 12,039 |
Core government services | 2,507 | 4,817 | 3,371 | 5,293 | 2,974 | 5,563 | 3,979 | 6,357 |
Law and order | 2,235 | 2,699 | 2,894 | 3,089 | 3,191 | 3,382 | 3,537 | 3,526 |
Other core Crown expenses | 9,519 | 10,096 | 12,007 | 12,415 | 11,811 | 14,097 | 14,980 | 14,923 |
Core Crown expenses | 49,320 | 54,004 | 56,997 | 64,002 | 64,013 | 70,450 | 70,651 | 72,794 |
Crown entities, SOEs and eliminations | 15,015 | 14,725 | 18,845 | 19,397 | 17,027 | 29,509 | 19,762 | 24,103 |
Total Crown expenses | 64,334 | 68,729 | 75,842 | 83,399 | 81,040 | 99,959 | 90,413 | 96,897 |
% of GDP |
||||||||
Social security and welfare | 9.6% | 9.7% | 9.8% | 10.5% | 11.2% | 11.0% | 10.8% | 11.1% |
Health | 5.9% | 6.0% | 6.2% | 6.7% | 6.9% | 6.9% | 6.9% | 6.9% |
Education | 6.1% | 5.4% | 5.2% | 6.2% | 6.2% | 5.8% | 5.9% | 6.0% |
Core government services | 1.5% | 2.8% | 1.8% | 2.9% | 1.6% | 2.8% | 2.0% | 3.2% |
Law and order | 1.4% | 1.6% | 1.6% | 1.7% | 1.7% | 1.7% | 1.7% | 1.8% |
Other core Crown expenses | 5.9% | 5.9% | 6.5% | 6.7% | 6.2% | 7.0% | 7.3% | 7.5% |
Core Crown expenses | 30.5% | 31.4% | 31.1% | 34.5% | 33.8% | 35.2% | 34.7% | 36.4% |
Crown entities, SOEs and eliminations | 9.3% | 8.6% | 10.3% | 10.5% | 9.0% | 14.7% | 9.7% | 12.1% |
Total Crown expenses | 39.7% | 39.9% | 41.4% | 45.0% | 42.8% | 49.9% | 44.3% | 48.5% |
- Figure 8 - Core Crown expenses
- Source: The Treasury
Total Crown expenses increased by $18.9 billion from the previous year to stand at $100.0 billion. Of this increase, $13.6 billion was due to expenses arising from the Canterbury earthquakes; EQC insurance expenses were $11.7 billion higher than last year due to the Canterbury earthquakes and core Crown spending increased by $1.9 billion due to earthquake-related expenditure (the balance relates to other SOE and Crown entities). A more detailed analysis of earthquake expenses is provided in the Canterbury Earthquakes section below.
Core Crown expenses excluding earthquake-related expenses also increased by $4.5 billion compared to last year (figure 8). Increases in other operating expenses were also evident across the SOE and CE sectors but these increases were largely offset by increases in operating revenue.
Core Crown Expenses
Year ended 30 June | |
---|---|
2010 core Crown expenses | 64.0 |
Earthquake related expenditure | 1.9 |
Health expenses | 0.6 |
Education expenses | (0.1) |
Benefit expenses (excl. earthquake support) | 0.6 |
Weathertight homes | 0.6 |
Treaty settlements | 0.4 |
ETS provision increase | 0.9 |
Interest expenses | 0.8 |
Other movements | 0.7 |
2011 core Crown expenses | 70.4 |
- Source: The Treasury
Core Crown expenses increased by $6.4 billion compared to the previous year as illustrated in Table 6. The main drivers of the increase included:
- Canterbury earthquake expenditure of $1.9 billion.
- Health expenses increased by $0.6 billion primarily as a result of new spending initiatives.
- Although education expenses decreased by $0.1 billion overall, this is due to a reversal of impairments on student loans of $0.4 billion. Excluding this impairment, education expenditure has increased by $0.3 billion primarily as a result of new spending initiatives.
- Benefit expenses (excluding earthquake-related benefits) increased by $0.6 billion. This increase was primarily attributable to increases in New Zealand Superannuation which rose by $0.5 billion. $0.3 billion of this increase was due to an increase in the number of recipients while indexation of benefits led to an increase of $0.2 billion. Policy changes also increased expenses marginally.
- The establishment of the Crown's weathertight homes financial assistance package has contributed $0.6 billion in expenses this year.
- Treaty settlements have increased in the current year with $0.5 billion of settlements compared to $0.1 billion in 2010.
- The Emissions Trading Scheme (ETS) saw more NZ Units issued compared with the previous year with more sectors entering into the ETS. In 2009/10 only the forestry sector had entered the Scheme.
- Interest expenses have increased compared to last year due to the higher levels of debt held (gross debt has increased from $53.6 billion to $72.4 billion).
- Figure 9 - Core Crown expenses by sector
- Source: The Treasury
Compared to expectations in Budget 2011, core Crown expenses were $2.3 billion lower than forecast primarily as a result of:
- Lower-than-forecast earthquake expenses primarily due to delays in assessing and measuring damage. This resulted in $1.2 billion lower expenses than forecast. These expenses are now expected to occur in the next financial year.
- Fewer NZ units were issued under the ETS than forecast resulting in $0.4 billion lower expenses.
- The remainder of this underspend in other operating expenses was across a number of departments and expense types.
Canterbury Earthquakes#
Operating Balance Impact
The operating deficit before gains and losses included a net cost of $9.1 billion in relation to the Canterbury earthquakes (table 7).
Year ended 30 June $ million |
Actual 2011 |
Budget 2011 |
Difference |
---|---|---|---|
Local infrastructure | 160 | 789 | 629 |
State-owned assets | 46 | 25 | (21) |
Welfare support and emergency responses | 363 | 457 | 94 |
AMI support package | 335 | 427 | 92 |
Red zone properties1 | 653 | 653 | - |
Other costs1 | 36 | 36 | - |
Yet to be allocated | - | 422 | 422 |
Total core Crown | 1,593 | 2,809 | 1,216 |
EQC | 7,471 | 3,050 | (4,421) |
ACC | 7 | 181 | 174 |
Other SOEs and Ces | 16 | 40 | 24 |
Total Crown | 9,087 | 6,080 | (3,007) |
1. Classified as "unallocated" for Budget 2011.
Source: The Treasury
The impact on the OBEGAL consists of $13.6 billion of expenses offset by income (mostly insurance proceeds) of $4.5 billion.
These results do not represent the likely final cost to the Crown arising from the earthquakes, as a number of decisions affecting the cost have still to be made (eg, decisions regarding properties in the Orange zone) or, in the case of local infrastructure costs, have yet to be measured. The total cost is expected to emerge over the next few years as future expenses, such as the cost of the Orange zone, become known.
The major components of this result were:
- EQC insurance costs (net of reinsurance) ($7.5 billion)
- the purchase of residential properties in the Red Zone ($0.7 billion), and
- the AMI support package ($0.3 billion).
On 23 June 2011, the Government announced four zones of land damage in Christchurch and the Waimakariri district (Red, Orange, Green, and White) and its intention to purchase residential property in the Red Zone. The estimated cost of this offer (net of insurance proceeds) was $653 million. Offers made after 30 June 2011 to Orange or White Zone residents are not included in this estimate. Therefore any costs associated with these zones will be recorded in subsequent years.
The Government has agreed to provide back-up support to AMI Insurance in order to give policy holders certainty and to ensure an orderly rebuild of Christchurch. The total amount of the support arrangement was $500 million, of which $335 million represents the portion estimated to be non-recoverable in the event that the support is called on.
Note 30 in these financial statements provides a detailed explanation of the fiscal impact of the earthquakes.
Impact on the National Disaster Fund
The most significant expense recognised in the current financial year relates to the insurance of residential properties by the Earthquake Commission (EQC).
EQC has recorded total insurance expenses of $11.7 billion in the current financial year. Some of these expenses ($4.2 billion) will be met by reinsurers. The majority of the remaining costs are likely to be met by the National Disaster Fund which held around $6 billion prior to the September earthquake. Support will be provided by the Government in the event a shortfall arises in the Fund.
EQC's costs were significantly higher than the $3.1 billion (net of reinsurance) forecast in the May 2011 Budget. This increase reflects an increase in damage estimates for both the February and June earthquakes as building and land damage were estimated to be higher than originally thought.
Charges against the Canterbury Earthquake Recovery Fund
In the 2011 Budget the Government established the Canterbury Earthquake Recovery Fund (CERF) to provide for central government's cost of the earthquakes.
Year ended 30 June $ million |
Actual 2011 |
Budget 2011 |
Difference |
---|---|---|---|
Canterbury Earthquake Recovery Fund |
|||
Absorbed by reprioritisation | 156 | 84 | (72) |
Budget 2010 contingency | 64 | 198 | 134 |
Budget 2011 | 1,373 | 2,527 | 1,154 |
Total Canterbury Earthquake Recovery Fund | 1,593 | 2,809 | 1,216 |
Source: The Treasury
A total of $5.5 billion costs were estimated over a six year period; $2.8 billion of this cost was expected in the current year. Actual costs recorded against the fund this year were $1.6 billion (refer table 8) and includes the estimated cost of purchasing residential property in the Red Zone and the non-recoverable portion of the AMI support package.
While costs recorded against CERF in the current financial year were $1.2 billion less than anticipated, this was primarily caused by delays in assessing and measuring damage. It is therefore likely that this variance will reverse in the next financial year as these assessments are made.
Debt Impact
While the operating deficit increased markedly as a result of the earthquakes, the impact on cash (and net core Crown debt) was much smaller with $1.7 billion paid out during the year. The majority of the cash related to claims payments by EQC ($1.2 billion) out of the National Disaster Fund rather than increasing net core Crown debt.
While a number of expenses are recorded which represent obligations of the Government at 30 June 2011, the cash payments associated with those obligations are made over a longer period of time. Therefore, the full impact on debt is expected to be recorded over a number of years as claims are settled or the rebuild takes place.
Future Costs
The cost of the Government's contribution to repairing essential local infrastructure (fresh water, storm water, waste water, and river management systems) requires judgements on the extent and cost of damage in the Canterbury region, on which information remains limited, and judgements on the approach to rebuilding Christchurch, on which decisions have yet to be made. As a result, costs associated with these repairs have not been included in these financial statements. Instead, a contingent liability has been included in the notes to the financial statements (note 32) describing the types and potential range of costs.
In addition, there are still a number of significant decisions to be made regarding the nature of the reconstruction and rebuild. These decisions will likely have fiscal costs associated with them and they include the need to make decisions on the future of the recently announced orange and white zones.
There will also be expenses which will be incurred in the future, such as demolition costs, as the rebuild of Canterbury continues. These costs will be recognised at the time they are incurred.
It is likely that costs will continue to be recognised over the next few years as these decisions are made and the costs are finalised.
Judgements and Estimations
All financial statements include an element of judgement and estimation. The estimation of claims and provisions arising from the Canterbury earthquakes are key areas of judgement in these financial statements.
Cost estimates have been based on the information available at the time of preparing these financial statements. The largest and most complex valuations have been carried out by independent professional actuaries and represent a best estimate of the costs to date. However the final costs of the Canterbury earthquakes will not be certain for some time and these estimates may differ from those final costs.
Operating Balance#
Year ended 30 June | Forecast 30 June 2011 |
|||||||
---|---|---|---|---|---|---|---|---|
Actual 2006 |
Actual 2007 |
Actual 2008 |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Budget 10 | Budget 11 | |
$ million |
||||||||
Total Crown Operating balance before gains and losses | 7,091 | 5,860 | 5,637 | (3,893) | (6,315) | (18,396) | (8,632) | (16,728) |
Total Crown gains/(losses) | 2,451 | 2,162 | (3,253) | (6,612) | 1,806 | 5,036 | 1,565 | 7,291 |
Total Crown Operating balance | 9,542 | 8,022 | 2,384 | (10,505) | (4,509) | (13,360) | (7,067) | (9,437) |
% of GDP |
||||||||
Total Crown Operating balance before gains and losses | 4.4% | 3.4% | 3.1% | (2.1)% | (3.3)% | (9.2)% | (4.2)% | (8.4)% |
Total Crown gains/(losses) | 1.5% | 1.3% | (1.8)% | (3.6)% | 1.0% | 2.5% | 0.8% | 3.6% |
Total Crown Operating balance | 5.9% | 4.7% | 1.3% | (5.7)% | (2.4)% | (6.7)% | (3.5)% | (4.7)% |
This year's operating deficit of $13.4 billion compares with a deficit of $4.5 billion in the previous financial year (figure 10). While an improvement in financial markets in the first part of the year resulted in the Crown recording large net gains for the full year, the increase in earthquake-related expenditure more than offset those gains so that the Crown's deficit has grown. Excluding the impact of the earthquakes ($9.1 billion), the operating balance deficit would have been similar to last year.
- Figure 10 - Operating balance
- Source: The Treasury
Operating Balance Before Gains and Losses
The operating deficit before gains and losses (OBEGAL) has increased by $12.1 billion to $18.4 billion, primarily as a result of the Canterbury earthquakes.
The OBEGAL deficit is $1.7 billion larger than forecast in Budget 2011. This increased deficit reflects higher than expected total Crown expenses of $3.1 billion offset by $1.4 billion higher revenue. Total Crown expenses exceeded forecast by $3.1 billion primarily due to increases in EQC's insurance costs arising from the Canterbury earthquakes. Small increases in tax revenue and other revenues have contributed to the $1.4 billion higher than forecast revenue. Refer page 8 for further details of revenue movements.
While total Crown expenses have exceeded forecast, core Crown expenses are lower than forecast by $2.3 billion. Refer page 10 for details of core Crown expenses.
Gains and Losses
The Crown recorded net gains of $5.0 billion this year (compared to net gains of $1.8 billion last year).
Year ended 30 June | Forecast 30 June 2011 |
|||||||
---|---|---|---|---|---|---|---|---|
$ million | Actual 2006 |
Actual 2007 |
Actual 2008 |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Budget 10 | Budget 11 |
ACC actuarial gain/(loss) | (706) | (481) | (1,709) | (4,491) | 410 | 996 | - | 1,251 |
GSF actuarial gain/(loss) | 206 | 1,133 | (1,098) | (695) | (1,231) | (574) | - | 287 |
Kyoto net position | (303) | 20 | (226) | 768 | (15) | 47 | - | - |
Investment portfolios: | ||||||||
NZS Fund | 1,130 | 1,313 | (995) | (3,495) | 1,750 | 3,518 | 978 | 3,576 |
ACC | 681 | 419 | (543) | (181) | 745 | 961 | 53 | 945 |
Earthquake Commission | 504 | (84) | (166) | (349) | 37 | 109 | 152 | 136 |
Other gains/(losses) | 939 | (158) | 1,484 | 1,831 | 110 | (21) | 382 | 1,096 |
2,451 | 2,162 | (3,253) | (6,612) | 1,806 | 5,036 | 1,565 | 7,291 |
The total Crown gain of $5.0 billion was $2.3 billion lower than forecast. Subsequent to the finalisation of Budget 2011 forecasts fluctuations in investment markets have seen a decline in investment returns and some previous gains have reversed.
The ACC actuarial gain of $1.0 billion compares with an actuarial gain of $0.4 billion in the previous year. This improvement from the prior year reflects a reduction in the number of claims and the cost of those claims as well as movements in the discount rate.
Each year the Government Superannuation Fund (GSF) estimates the present value of pension commitments that exist in respect of its defined benefit beneficiaries (former public servants). The GSF scheme recorded an actuarial loss of $0.6 billion in 2011 (compared to a loss of $1.2 billion last year and a forecast gain of $0.3 billion). This loss represents an increase in the liability predominantly as a result of changes in actuarial assumptions (meaning that future benefit payments are estimated to be higher than previously assessed).
The NZS Fund, established to part-fund future New Zealand superannuation costs, recorded a gain of $3.5 billion this year contributing to an operating balance of $3.0 billion for the year (refer table 11 below). The investment return for the year was 25.05% (compared to 15.45% last year). This strong return has resulted in an operating balance that was on track with forecast. Since inception the Fund has returned 7.83% (annualised) or 2.23% more than the rolling yield on 90 day Treasury bills.
Year ended 30 June | Actual 2006 |
Actual 2007 |
Actual 2008 |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Forecast 30 June 2011 |
|
---|---|---|---|---|---|---|---|---|
$ million | Budget 10 | Budget 11 | ||||||
Opening net worth | 6,555 | 9,855 | 12,973 | 14,212 | 13,688 | 15,656 | 16,066 | 15,656 |
Revenue | 359 | 436 | 385 | 383 | 433 | 518 | 520 | 495 |
Current tax expense | (468) | (707) | (237) | (4) | 27 | (872) | (310) | (795) |
Inter-entity expenses | - | 171 | 63 | 400 | (421) | (58) | (46) | (32) |
Other expenses | (52) | (119) | (97) | (77) | (81) | (111) | (89) | (235) |
Gains/(losses) | 1,130 | 1,313 | (995) | (3,495) | 1,750 | 3,518 | 978 | 3,576 |
Operating balance | 969 | 1,094 | (881) | (2,793) | 1,708 | 2,995 | 1,053 | 3,009 |
Gross contribution from the Crown | 2,337 | 2,048 | 2,104 | 2,243 | 250 | - | - | - |
Other movements in reserves | (6) | (24) | 16 | 26 | 10 | 1 | 5 | 3 |
Closing net worth | 9,855 | 12,973 | 14,212 | 13,688 | 15,656 | 18,652 | 17,124 | 18,668 |
Debt#
Year ended 30 June | Actual 2006 |
Actual 2007 |
Actual 2008 |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Forecast 30 June 2011 |
|
---|---|---|---|---|---|---|---|---|
Budget 10 | Budget 11 | |||||||
Net debt ($m) | 16,163 | 13,380 | 10,258 | 17,119 | 26,738 | 40,128 | 39,965 | 41,502 |
Net debt (% GDP) | 10.0% | 7.8% | 5.6% | 9.2% | 14.1% | 20.0% | 19.6% | 20.8% |
Gross debt ($m) | 33,903 | 30,647 | 31,390 | 43,356 | 53,591 | 72,420 | 66,969 | 71,578 |
Gross debt (% GDP) | 20.9% | 17.8% | 17.1% | 23.4% | 28.3% | 36.2% | 32.8% | 35.8% |
- Figure 11 - Net debt
- Source: The Treasury
Net Debt
Net debt increases as a result of cash deficits and declines as a result of cash surpluses. It also fluctuates in line with valuation movements in the underlying financial assets and liabilities of the Crown and movements in the amounts of currency issued to New Zealand banks.
The $13.4 billion increase in net debt over the year (figure 11) was primarily due to additional borrowings and a run-down of assets to meet the residual cash deficit of $13.3 billion recorded this year (refer table 13).
Year ended 30 June | Actual 2006 |
Actual 2007 |
Actual 2008 |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Forecast 30 June 2011 |
|
---|---|---|---|---|---|---|---|---|
$ million | Budget 10 | Budget 11 | ||||||
Opening net debt | 19,879 | 16,163 | 13,380 | 10,258 | 17,119 | 26,738 | 26,642 | 26,738 |
Net core Crown cash flow from operations | (8,859) | (8,586) | (7,292) | 1,967 | 4,991 | 9,285 | 8,339 | 10,551 |
Contributions to NZS Fund | 2,337 | 2,048 | 2,104 | 2,243 | 250 | - | - | - |
Purchase of physical assets | 1,826 | 1,755 | 1,433 | 1,625 | 1,778 | 1,524 | 2,240 | 1,786 |
Advances and capital injections | 1,711 | 1,990 | 1,698 | 2,804 | 1,981 | 2,534 | 2,748 | 2,614 |
Core Crown residual cash (surplus)/deficit | (2,985) | (2,793) | (2,057) | 8,639 | 9,000 | 13,343 | 13,327 | 14,951 |
Movements in circulating currency | (165) | (81) | (86) | (475) | (15) | (234) | (181) | (34) |
Other valuation changes in financial assets and financial liabilities | (566) | 91 | (979) | (1,303) | 634 | 281 | 177 | (153) |
Closing net debt | 16,163 | 13,380 | 10,258 | 17,119 | 26,738 | 40,128 | 39,965 | 41,502 |
The residual cash deficit was $1.6 billion lower than forecast and $4.3 billion larger than last year.
Table 14 summarises the movement in residual cash over the year. Specifically:
- Core Crown tax receipts were $0.8 billion higher than last year consistent with the increase in core Crown tax revenue.
- Benefit payments have increased by $0.6 billion in line with the increase in benefit expenses.
- While core Crown expenses have increased by $6.4 billion, other operating cash payments have only increased by $4.5 billion. This is due to a number of these increases not having an immediate cash impact (eg, earthquake related provisions, the weathertight homes financial assistance package and the increase in the ETS provision).
- Offsetting the increase in the residual cash deficit was the reduction in contributions to the NZS Fund.
Year ended 30 June | |
---|---|
2010 core Crown residual cash | (9.0) |
Tax receipts | 0.8 |
Benefit payments | (0.6) |
Other operating cash flows | (4.5) |
Reduction in NZS Fund contributions | 0.3 |
Other movements | (0.3) |
2011 core Crown residual cash | (13.3) |
Source: The Treasury
- Figure 12 - Reconciliation of the operating deficit and core Crown residual cash for the year ended 30 June 2011 ($ billion)
Gross Debt
- Figure 13 - Gross debt
- Source: The Treasury
Gross debt at 30 June 2011 was $18.8 billion higher than a year earlier (figure 13). The majority of this increase came from the issue of $19.5 billion of domestic market bonds (New Zealand Government bonds). No repayments of market domestic bonds were made during the year. When combined with the proceeds from non-market domestic bonds, the net issuance of domestic bonds increased gross debt by $18.9 billion (table 15).
The New Zealand Debt Management Office (NZDMO) increased the 2010/11 domestic bond programme by $1 billion to $13.5 billion in December 2010. The 2011 Budget approved a further $6 billion increase, allowing the issue of bonds up to $20 billion. These increases enabled the NZDMO to continue issuance over the fiscal year in line with market demand and means borrowing requirements in future years will be less than they would have needed to be in the absence of this additional pre-emptive borrowing. Net debt did not increase by the same amount as gross debt because surplus proceeds from these bond issuances were invested in financial assets.
Year ended 30 June | Actual 2006 |
Actual 2007 |
Actual 2008 |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Forecast 30 June 2011 |
|
---|---|---|---|---|---|---|---|---|
$ million | Budget 10 | Budget 11 | ||||||
Domestic bonds (market) | 2,375 | 2,294 | 1,757 | 5,775 | 12,424 | 19,468 | 12,776 | 20,760 |
Repayment of domestic bonds (market) | (2,574) | (2,777) | - | (2,750) | (4,197) | - | - | - |
Net increase/(decrease) in market domestic bonds | (199) | (483) | 1,757 | 3,025 | 8,227 | 19,468 | 12,776 | 20,760 |
Domestic bonds (non-market) | 740 | 570 | 130 | 541 | 799 | 270 | 224 | 372 |
Repayment of domestic bonds (non-market) | (375) | (421) | - | (515) | (656) | (803) | - | (1,153) |
Net increase/(decrease) in non-market domestic bonds | 365 | 149 | 130 | 26 | 143 | (533) | 224 | (781) |
Net total bond issuance/(repayment) | 166 | (334) | 1,887 | 3,051 | 8,370 | 18,935 | 13,000 | 19,979 |
Notes
Net Worth#
Year ended 30 June | Actual 2006 |
Actual 2007 |
Actual 2008 |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Forecast 30 June 2011 |
|
---|---|---|---|---|---|---|---|---|
$ million | Budget 10 | Budget 11 | ||||||
Opening net worth | 54,240 | 83,971 | 96,827 | 105,514 | 99,515 | 94,988 | 96,479 | 94,988 |
Operating balance | 9,542 | 8,022 | 2,384 | (10,505) | (4,509) | (13,360) | (7,067) | (9,437) |
Property, plant and equipment revaluations | 20,199 | 5,232 | 6,214 | 4,235 | 196 | (443) | - | 69 |
Other movements in reserves | (10) | (398) | 89 | 271 | (214) | (298) | 4 | (101) |
Closing net worth | 83,971 | 96,827 | 105,514 | 99,515 | 94,988 | 80,887 | 89,416 | 85,519 |
- Figure 14 - Net worth
- Source: The Treasury
While assets increased by $21.9 billion, a $36.0 billion increase in liabilities and the continuation of operating deficits resulted in a decrease in the Crown's net worth for the third consecutive year (figure 14).
Assets grew by just under 10% (compared to 3% in the previous year). Financial assets increased by $19.4 billion while the property, plant and equipment held by the Crown increased by $1.5 billion. Growth in assets was mainly due to the increase in marketable securities from the increase in bond issues during the year.
Growth in liabilities at 28% was mainly due to an increase in gross debt as discussed in the previous section. Earthquake obligations have also contributed to this increase.
The composition of the balance sheet has changed from last year with property, plant and equipment and borrowings now making up 47% of assets and 55% of liabilities respectively (51% and 54% last year).
Year ended 30 June | Actual 2006 |
Actual 2007 |
Actual 2008 |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Forecast 30 June 2011 |
|
---|---|---|---|---|---|---|---|---|
$ million | Budget 10 | Budget 11 | ||||||
Property, plant and equipment | 89,141 | 95,598 | 103,329 | 110,135 | 113,330 | 114,854 | 117,742 | 116,933 |
Financial assets | 66,396 | 73,718 | 85,063 | 93,359 | 95,971 | 115,362 | 104,566 | 109,680 |
Other assets | 9,503 | 11,031 | 12,443 | 13,657 | 14,054 | 14,999 | 14,609 | 14,799 |
Total assets | 165,040 | 180,347 | 200,835 | 217,151 | 223,355 | 245,215 | 236,917 | 241,412 |
Borrowings | 40,027 | 41,898 | 46,110 | 61,953 | 69,733 | 90,245 | 89,416 | 91,003 |
Other liabilities | 41,042 | 41,622 | 49,211 | 55,683 | 58,634 | 74,083 | 58,085 | 64,890 |
Total liabilities | 81,069 | 83,520 | 95,321 | 117,636 | 128,367 | 164,328 | 147,501 | 155,893 |
Net worth | 83,971 | 96,827 | 105,514 | 99,515 | 94,988 | 80,887 | 89,416 | 85,519 |
Assets
- Figure 15 - Total Crown assets
- Source: The Treasury
Total Crown assets increased by $21.9 billion this year to reach $245.2 billion at 30 June 2011 (figure 15).
Property, plant and equipment increased by $1.5 billion (1.3%) since 2010. Asset purchases of $6.6 billion were offset by depreciation of $3.7 billion and disposals of $0.4 billion. The remaining movements related to asset revaluations and foreign exchange movements.
Significant asset purchases by sector were:
- Transport and communications - including state highways and KiwiRail ($2.8 billion)
- Economic and industrial - including the energy SOE's ($2.0 billion)
- Education - including school property ($0.6 billion)
- Health - including hospitals ($0.6 billion)
- Law and order - including correctional facilities ($0.4 billion).
Asset revaluations across asset classes resulted in downwards revaluations with the exception of the Crown's electricity generation assets. Of these asset classes, State highways and buildings were the largest of the downwards revaluations.
Financial assets (eg, advances) increased by $19.4 billion over the year. The largest contributor to the increase related to ‘other receivables' which increased by $6.9 billion from June 2010 due to insurance claims receivable from reinsurers of $4.2 billion and $0.7 billion estimate of recoveries from receiverships under the deposit guarantee scheme. Cash and marketable securities and derivatives in gain increased by $7.4 billion due to increased borrowings over the year. The value of Kiwibank's mortgage book rose by $1.0 billion while increases in the value of share investments also contributed $2.0 billion to the increase in financial assets.
Other assets (including intangible assets, equity accounted investments and inventory) increased by $0.9 billion. The largest increase was in relation to the Crown's investment in Tertiary Education Institutions which increased $0.2 billion reflecting the increase in the net worth of these entities.
- Figure 16 - Total Crown liabilities
- Source: The Treasury
Liabilities
Total Crown liabilities increased by $36.0 billion (28.0%) compared to June 2010 (figure 16). The largest driver of the increase related to borrowings (an increase of $20.5 billion or 29.4%).
Borrowings are a combination of gross debt (discussed earlier), the financial liabilities of Crown entities and SOE's and liabilities associated with the Reserve Bank's settlement cash and bank bills.
Table 18 summarises the increase in borrowings over the year. While gross debt[4] increased by $18.8 billion, a portion of that increase related to debt held by other government reporting entities (which are excluded from total Crown borrowings). In addition, Reserve Bank settlement cash and Reserve Bank bills decreased by $0.4 billion over the year and Kiwibank deposits increased by $1.0 billion (mirroring the increase in their loan book).
Year ended 30 June | |
---|---|
2010 Borrowings | 69.7 |
Increase in gross debt | 18.8 |
Increase in gross debt held by Crown entities and SOE's | 2.8 |
Reduction in settlement cash and Reserve bank bills | (0.4) |
Increase in Kiwibank deposits | 1.0 |
Other movements | (1.7) |
2011 Borrowings | 90.2 |
Source: The Treasury
The ACC claims liability remained static in comparison to the previous year.
Other liabilities (eg, accounts payable) increased by $15.5 billion. The main increase was in relation to EQC's insurance liability and the AMI financial support package increasing insurance liabilities from $0.1 billion to $12.3 billion. In addition earthquake-related provisions increased other liabilities by $1.2 billion. Other increases in liabilities were offset by a $0.7 billion reduction in the deposit guarantee scheme payment provision arising from payments to guaranteed depositors during the year.
Notes
- [4]Gross debt is defined as gross sovereign-issued debt excluding Reserve Bank settlement cash and Reserve Bank bills.
Historical Financial Information#
Year ended 30 June $ million |
2002 Actual |
2003 Actual |
2004 Actual |
2005 Actual |
2006 Actual |
2007 Actual |
2008 Actual |
2009 Actual |
2010 Actual |
2011 Actual |
---|---|---|---|---|---|---|---|---|---|---|
Statement of financial performance |
||||||||||
Core Crown tax revenue | 36,809 | 40,518 | 43,358 | 47,468 | 50,973 | 53,477 | 56,747 | 54,681 | 50,744 | 51,557 |
Core Crown other revenue | 3,136 | 2,922 | 2,861 | 3,577 | 4,762 | 4,734 | 5,072 | 4,801 | 5,472 | 5,993 |
Core Crown revenue | 39,945 | 43,440 | 46,219 | 51,045 | 55,735 | 58,211 | 61,819 | 59,482 | 56,216 | 57,550 |
Crown entities, SOE revenue and eliminations | 10,003 | 13,170 | 13,051 | 14,322 | 15,690 | 16,378 | 19,660 | 20,024 | 18,509 | 24,013 |
Total Crown revenue | 49,948 | 56,611 | 59,271 | 65,367 | 71,425 | 74,589 | 81,479 | 79,506 | 74,725 | 81,563 |
Social security and welfare | 13,485 | 13,907 | 14,252 | 14,682 | 15,598 | 16,768 | 17,877 | 19,382 | 21,185 | 22,005 |
Health | 7,032 | 7,501 | 8,111 | 8,813 | 9,547 | 10,355 | 11,297 | 12,368 | 13,128 | 13,753 |
Education | 6,473 | 7,016 | 7,585 | 7,930 | 9,914 | 9,269 | 9,551 | 11,455 | 11,724 | 11,650 |
Core government services | 1,890 | 2,130 | 2,091 | 2,567 | 2,507 | 4,817 | 3,371 | 5,293 | 2,974 | 5,563 |
Other core Crown expenses | 8,633 | 9,343 | 9,843 | 10,903 | 11,754 | 12,795 | 14,901 | 15,504 | 15,002 | 17,479 |
Core Crown expenses | 37,513 | 39,897 | 41,882 | 44,895 | 49,320 | 54,004 | 56,997 | 64,002 | 64,013 | 70,450 |
Crown entities, SOE expenses and eliminations | 9,964 | 12,347 | 11,816 | 13,397 | 15,015 | 14,725 | 18,845 | 19,397 | 17,027 | 29,509 |
Total Crown expenses | 47,476 | 52,245 | 53,698 | 58,292 | 64,334 | 68,729 | 75,842 | 83,399 | 81,040 | 99,959 |
OBEGAL | 2,471 | 4,366 | 5,573 | 7,075 | 7,091 | 5,860 | 5,637 | (3,893) | (6,315) | (18,396) |
Gains/(losses) | (185) | (2,745) | 1,736 | (1,144) | 2,451 | 2,162 | (3,253) | (6,612) | 1,806 | 5,036 |
Operating balance | 2,286 | 1,621 | 7,309 | 5,931 | 9,542 | 8,022 | 2,384 | (10,505) | (4,509) | (13,360) |
Statement of financial position |
||||||||||
Property, plant and equipment | 50,536 | 52,667 | 57,940 | 67,494 | 89,141 | 95,598 | 103,329 | 110,135 | 113,330 | 114,854 |
Financial assets | 22,497 | 27,799 | 32,654 | 42,005 | 66,396 | 73,718 | 85,063 | 93,359 | 95,971 | 115,362 |
Other assets | 14,846 | 18,461 | 18,756 | 19,714 | 9,503 | 11,031 | 12,443 | 13,657 | 14,054 | 14,999 |
Total assets | 87,879 | 98,927 | 109,351 | 129,212 | 165,040 | 180,347 | 200,835 | 217,151 | 223,355 | 245,215 |
Borrowings | 38,492 | 39,327 | 37,720 | 37,728 | 40,027 | 41,898 | 46,110 | 61,953 | 69,733 | 90,245 |
Other liabilities | 26,562 | 31,588 | 32,036 | 37,243 | 41,042 | 41,622 | 49,211 | 55,683 | 58,634 | 74,083 |
Total liabilities | 65,055 | 70,915 | 69,756 | 74,972 | 81,069 | 83,520 | 95,321 | 117,636 | 128,367 | 164,328 |
Net worth | 22,825 | 28,012 | 39,595 | 54,240 | 83,971 | 96,827 | 105,514 | 99,515 | 94,988 | 80,887 |
Debt Indicators |
||||||||||
Net debt | 25,388 | 24,531 | 23,858 | 19,879 | 16,163 | 13,380 | 10,258 | 17,119 | 26,738 | 40,128 |
Gross debt | 36,650 | 36,617 | 36,017 | 35,478 | 33,903 | 30,647 | 31,390 | 43,356 | 53,591 | 72,420 |
Year ended 30 June as % of GDP |
2002 Actual |
2003 Actual |
2004 Actual |
2005 Actual |
2006 Actual |
2007 Actual |
2008 Actual |
2009 Actual |
2010 Actual |
2011 Actual |
---|---|---|---|---|---|---|---|---|---|---|
Nominal GDP (revised) | 127,511 | 134,659 | 145,200 | 154,376 | 161,890 | 172,060 | 183,325 | 185,449 | 189,359 | 200,291 |
Statement of financial performance |
||||||||||
Core Crown tax revenue | 28.9% | 30.1% | 29.9% | 30.7% | 31.5% | 31.1% | 31.0% | 29.5% | 26.8% | 25.7% |
Core Crown other revenue | 2.5% | 2.2% | 2.0% | 2.3% | 2.9% | 2.8% | 2.8% | 2.6% | 2.9% | 3.0% |
Core Crown revenue | 31.3% | 32.3% | 31.8% | 33.1% | 34.4% | 33.8% | 33.7% | 32.1% | 29.7% | 28.7% |
Crown entities, SOE and elimination revenue | 7.8% | 9.8% | 9.0% | 9.3% | 9.7% | 9.5% | 10.7% | 10.8% | 9.8% | 12.0% |
Total Crown revenue | 39.2% | 42.0% | 40.8% | 42.3% | 44.1% | 43.4% | 44.4% | 42.9% | 39.5% | 40.7% |
Social security and welfare | 10.6% | 10.3% | 9.8% | 9.5% | 9.6% | 9.7% | 9.8% | 10.5% | 11.2% | 11.0% |
Health | 5.5% | 5.6% | 5.6% | 5.7% | 5.9% | 6.0% | 6.2% | 6.7% | 6.9% | 6.9% |
Education | 5.1% | 5.2% | 5.2% | 5.1% | 6.1% | 5.4% | 5.2% | 6.2% | 6.2% | 5.8% |
Core government services | 1.5% | 1.6% | 1.4% | 1.7% | 1.5% | 2.8% | 1.8% | 2.9% | 1.6% | 2.8% |
Other core Crown expenses | 6.8% | 6.9% | 6.8% | 7.1% | 7.3% | 7.4% | 8.1% | 8.4% | 7.9% | 8.7% |
Core Crown expenses | 29.4% | 29.6% | 28.8% | 29.1% | 30.5% | 31.4% | 31.1% | 34.5% | 33.8% | 35.2% |
Crown entities, SOE and elimination expenses | 7.8% | 9.2% | 8.1% | 8.7% | 9.3% | 8.6% | 10.3% | 10.5% | 9.0% | 14.7% |
Total Crown expenses | 37.2% | 38.8% | 37.0% | 37.8% | 39.7% | 39.9% | 41.4% | 45.0% | 42.8% | 49.9% |
OBEGAL | 1.9% | 3.2% | 3.8% | 4.6% | 4.4% | 3.4% | 3.1% | -2.1% | -3.3% | -9.2% |
Gains/(losses) | -0.1% | -2.0% | 1.2% | -0.7% | 1.5% | 1.3% | -1.8% | -3.6% | 1.0% | 2.5% |
Operating balance | 1.8% | 1.2% | 5.0% | 3.8% | 5.9% | 4.7% | 1.3% | -5.7% | -2.4% | -6.7% |
Statement of financial position |
||||||||||
Property, plant and equipment | 39.6% | 39.1% | 39.9% | 43.7% | 55.1% | 55.6% | 56.4% | 59.4% | 59.8% | 57.3% |
Financial assets | 17.6% | 20.6% | 22.5% | 27.2% | 41.0% | 42.8% | 46.4% | 50.3% | 50.7% | 57.6% |
Other assets | 11.6% | 13.7% | 12.9% | 12.8% | 5.9% | 6.4% | 6.8% | 7.4% | 7.4% | 7.5% |
Total assets | 68.9% | 73.5% | 75.3% | 83.7% | 101.9% | 104.8% | 109.6% | 117.1% | 118.0% | 122.4% |
Borrowings | 30.2% | 29.2% | 26.0% | 24.4% | 24.7% | 24.4% | 25.2% | 33.4% | 36.8% | 45.1% |
Other liabilities | 20.8% | 23.5% | 22.1% | 24.1% | 25.4% | 24.2% | 26.8% | 30.0% | 31.0% | 37.0% |
Total liabilities | 51.0% | 52.7% | 48.0% | 48.6% | 50.1% | 48.5% | 52.0% | 63.4% | 67.8% | 82.0% |
Net worth | 17.9% | 20.8% | 27.3% | 35.1% | 51.9% | 56.3% | 57.6% | 53.7% | 50.2% | 40.4% |
Debt Indicators |
||||||||||
Net debt | 19.9% | 18.2% | 16.4% | 12.9% | 10.0% | 7.8% | 5.6% | 9.2% | 14.1% | 20.0% |
Gross debt | 28.7% | 27.2% | 24.8% | 23.0% | 20.9% | 17.8% | 17.1% | 23.4% | 28.3% | 36.2% |
Report of the Auditor General#
To the Readers of the Financial Statements of the Government of New Zealand for the year ended 30 June 2011#
I have audited the financial statements of the Government of New Zealand for the year ended 30 June 2011 using my staff, resources and appointed auditors and their staff.
The financial statements of the Government of New Zealand on pages 30 to 180 comprise:
- the annual financial statements that include the statement of financial position as at 30 June 2011, the statement of financial performance, analysis of expenses by functional classification, statement of comprehensive income, statement of changes in net worth and statement of cash flows for the year ended on that date, a statement of segments, and the notes to the financial statements that include accounting policies, a statement of borrowings in note 24, and other explanatory information; and
- the statement of unappropriated expenditure, statement of expenses or capital expenditure incurred in emergencies and statement of trust money.
Opinion
In my opinion, the financial statements of the Government of New Zealand on pages 30 to 180:
- comply with generally accepted accounting practice in New Zealand; and
- fairly reflect the Government of New Zealand's:
- financial position as at 30 June 2011;
- financial performance and cash flows for the year ended on that date; and
- the borrowings as at 30 June 2011, and unappropriated expenditure, expenses or capital expenditure incurred in emergencies, and trust money managed by the Government, for the year ended on that date.
Emphasis of matter - uncertainties due to the Canterbury earthquakes
Without modifying my opinion, I draw your attention to note 30 to the financial statements about the effects of the Canterbury earthquakes. The most significant effects of the earthquakes relate to the Earthquake Commission (EQC), the AMI support package, the Canterbury residential red zone support package, and the government's share of local authority costs in response to the earthquakes and its share of costs for restoring local authority infrastructure damaged by the earthquakes.
The note describes:
- the inherent uncertainties involved in estimating EQC's and AMI's earthquake related outstanding claims liabilities and reinsurance receivables, using actuarial assumptions (see notes 30a and 30c);
- the inherent uncertainties involved in estimating the provision resulting from the government's offer to purchase properties in the Canterbury residential red zone, using actuarial assumptions (see note 30b); and
- the high level of uncertainty associated with the government's share of costs for restoring local authority infrastructure damaged by the earthquakes (see note 30d). The uncertainty is such that it is not possible to reliably estimate the costs; therefore a provision has not been recognised for them. Instead, there is disclosure of a contingent liability for these unquantifiable costs.
I consider the disclosures about the uncertainties related to the Canterbury earthquakes to be adequate.
My audit was completed on 30 September 2011. This is the date at which my opinion is expressed.
The basis of my opinion is explained below. In addition, I outline the responsibilities of the Treasury and the Minister of Finance, and my responsibilities, and I explain my independence.
Basis of opinion
Using my staff and appointed auditors and their staff, I have carried out the audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require ethical requirements to be complied with. They also require me to plan and carry out the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
Material misstatements are differences or omissions of amounts and disclosures that would affect a reader's overall understanding of the financial statements. If material misstatements had been found that were not corrected, I would have referred to them in my opinion.
An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the judgements of my staff and appointed auditors and their staff. Also, the procedures depend on my judgement, including my assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments I consider internal control relevant to the Treasury’s preparation of the financial statements that fairly reflect the matters to which they relate. I consider internal control in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Treasury’s internal control.
An audit also involves evaluating:
- the appropriateness of accounting policies used and whether they have been consistently applied;
- the reasonableness of the significant accounting estimates and judgements made;
- the adequacy of all disclosures in the financial statements; and
- the overall presentation of the financial statements.
My staff and appointed auditors and their staff did not examine every transaction. Therefore, I do not guarantee complete accuracy of the financial statements. I have obtained all the information and explanations I have required and I believe I have obtained sufficient and appropriate audit evidence to provide a basis for my audit opinion.
Responsibilities of the Treasury and the Minister of Finance
The Treasury is responsible for preparing financial statements of the Government that:
- comply with generally accepted accounting practice in New Zealand;
- fairly reflect the Government's financial position, financial performance and cash flows; and
- fairly reflect the Government's borrowings, unappropriated expenditure, expenses or capital expenditure incurred in emergencies, and trust money.
The Treasury is also responsible for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
The Minister of Finance is responsible for forming an opinion that the financial statements fairly reflect the financial position and financial performance of the Government.
The responsibilities of the Treasury and the Minister of Finance arise from the Public Finance Act 1989.
Responsibilities of the Auditor
I am responsible for expressing an independent opinion on the financial statements of the Government and reporting that opinion to you based on my audit. My responsibility arises from section 15 of the Public Audit Act 2001 and section 30 of the Public Finance Act 1989.
Independence
As an Officer of Parliament, I am constitutionally and operationally independent of the Government. Prior to commencing my role as Auditor-General on 5 October 2009, I was Deputy Commissioner of the New Zealand Police. Thus the Deputy Auditor-General deals with all matters relating to the New Zealand Police or the Independent Police Conduct Authority. Other than this matter, and in exercising functions and powers under the Public Audit Act 2001 as the auditor of public entities, I have no relationship with or interests in the Government.
Lyn Provost
Controller and Auditor-General
Wellington, New Zealand
Audited Financial Statements#
Statement of Financial Performance#
for the year ended 30 June 2011
Forecast 30 June 2011 |
Note | Actual | |||
---|---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
||
Revenue |
|||||
53,457 | 50,640 | Taxation revenue | 2 | 51,128 | 50,347 |
5,759 | 5,444 | Other sovereign revenue | 2 | 5,281 | 4,682 |
59,216 | 56,084 | Total revenue levied through the Crown's sovereign power | 56,409 | 55,029 | |
15,399 | 15,128 | Sales of goods and services | 3 | 15,084 | 14,331 |
4,063 | 2,618 | Interest revenue and dividends | 4 | 2,570 | 2,315 |
3,103 | 6,339 | Other revenue | 5 | 7,500 | 3,050 |
22,565 | 24,085 | Total revenue earned through operations | 25,154 | 19,696 | |
81,781 | 80,169 | Total revenue (excluding gains) | 81,563 | 74,725 | |
Expenses |
|||||
22,628 | 22,340 | Transfer payments and subsidies | 6 | 22,172 | 21,213 |
19,109 | 18,859 | Personnel expenses | 7 | 19,088 | 18,477 |
4,428 | 4,786 | Depreciation and amortisation | 8 | 4,682 | 4,229 |
35,927 | 38,137 | Other operating expenses | 9 | 35,829 | 31,338 |
4,612 | 3,506 | Interest expenses | 10 | 3,596 | 2,777 |
3,725 | 9,519 | Insurance expenses | 11 | 14,592 | 3,006 |
394 | - | Forecast new operating spending | - | - | |
(410) | (250) | Top-down expense adjustment | - | - | |
90,413 | 96,897 | Total expenses (excluding losses) | 99,959 | 81,040 | |
(8,632) | (16,728) | Operating balance before gains/(losses) | (18,396) | (6,315) | |
1,250 | 5,144 | Net gains/(losses) on financial instruments | 12 | 4,619 | 2,522 |
181 | 1,890 | Net gains/(losses) on non-financial instruments | 13 | 79 | (960) |
1,431 | 7,034 | Total gains/(losses) | 4,698 | 1,562 | |
134 | 257 | Net surplus from associates and joint ventures | 237 | 227 | |
(7,067) | (9,437) | Operating balance (including minority interest) | (13,461) | (4,526) | |
- | - | Operating balance attributable to minority interest in Air New Zealand | 101 | 17 | |
(7,067) | (9,437) | Operating balance | (13,360) | (4,509) |
The accompanying notes (including accounting policies) are an integral part of these statements.
Statement of Comprehensive Income#
for the year ended 30 June 2011
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
(7,067) | (9,437) | Operating balance (including minority interest) | (13,461) | (4,526) |
Other comprehensive income | ||||
- | 69 | Revaluation of physical assets | (443) | 129 |
- | - | Share of associates revaluation of physical assets | - | 67 |
5 | (52) | Effective portion of changes in the fair value of cash flow hedges | (252) | (112) |
(1) | (16) | Net change in fair value of cash flow hedges transferred to operating profit | 17 | (62) |
- | (8) | Net change in fair value of cash flow hedges transferred to the hedged item | 95 | (3) |
- | (37) | Foreign currency translation differences for foreign operations | (37) | (11) |
1 | 4 | Valuation gains/(losses) on investments available for sale taken to reserves | (1) | 3 |
(1) | 8 | Other movements | 1 | (1) |
4 | (32) | Total other comprehensive income | (620) | 10 |
(7,063) | (9,469) | Total comprehensive income | (14,081) | (4,516) |
Attributable to: | ||||
- | - | - minority interest in Air New Zealand | (74) | (34) |
(7,063) | (9,469) | - the Crown | (14,007) | (4,482) |
(7,063) | (9,469) | Total comprehensive income | (14,081) | (4,516) |
The accompanying notes (including accounting policies) are an integral part of these statements.
Analysis of Expenses by Functional Classification#
for the year ended 30 June 2011
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Total Crown expenses |
||||
26,127 | 25,637 | Social security and welfare | 25,324 | 24,206 |
363 | 289 | GSF pension expenses | 311 | 333 |
13,379 | 13,118 | Health | 13,068 | 12,673 |
12,861 | 12,783 | Education | 12,406 | 12,440 |
3,922 | 6,083 | Core government services | 5,515 | 2,830 |
3,746 | 3,724 | Law and order | 3,567 | 3,354 |
1,862 | 1,850 | Defence | 1,778 | 1,771 |
8,184 | 8,244 | Transport and communications | 8,402 | 7,991 |
8,114 | 14,078 | Economic and industrial services | 18,818 | 7,541 |
1,742 | 1,624 | Primary services | 1,603 | 1,373 |
3,344 | 3,805 | Heritage, culture and recreation | 3,437 | 2,584 |
1,102 | 1,781 | Housing and community development | 1,655 | 1,087 |
1,071 | 625 | Other | 479 | 80 |
4,612 | 3,506 | Finance costs | 3,596 | 2,777 |
394 | - | Forecast new operating spending | - | - |
(410) | (250) | Top-down expense adjustment | - | - |
90,413 | 96,897 | Total Crown expenses excluding losses | 99,959 | 81,040 |
Below is an analysis of core Crown expenses by functional classification. Core Crown expenses include expenses incurred by Ministers, Departments, Offices of Parliament, the NZS Fund and the Reserve Bank, but not Crown entities and State-owned enterprises.
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Core Crown expenses |
||||
22,120 | 22,175 | Social security and welfare | 22,005 | 21,185 |
357 | 281 | GSF pension expenses | 305 | 328 |
14,043 | 13,774 | Health | 13,753 | 13,128 |
11,992 | 12,039 | Education | 11,650 | 11,724 |
3,979 | 6,357 | Core government services | 5,563 | 2,974 |
3,537 | 3,526 | Law and order | 3,382 | 3,191 |
1,912 | 1,890 | Defence | 1,809 | 1,814 |
2,417 | 2,330 | Transport and communications | 2,281 | 2,345 |
2,828 | 2,755 | Economic and industrial services | 2,609 | 2,839 |
757 | 731 | Primary services | 706 | 507 |
2,037 | 2,437 | Heritage, culture and recreation | 1,966 | 1,281 |
370 | 1,046 | Housing and community development | 876 | 306 |
1,088 | 625 | Other | 479 | 80 |
3,230 | 3,078 | Finance costs | 3,066 | 2,311 |
394 | - | Forecast new operating spending | - | - |
(410) | (250) | Top-down expense adjustment | - | - |
70,651 | 72,794 | Total core Crown expenses excluding losses | 70,450 | 64,013 |
The accompanying notes (including accounting policies) are an integral part of these statements.
Statement of Cash Flows#
for the year ended 30 June 2011
Forecast 30 June 2011 |
Actual | ||||
---|---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
Note | 30 June 2011 $m |
30 June 2010 $m |
|
Cash Flows From Operations |
|||||
Cash was provided from |
|||||
52,681 | 50,094 | Taxation receipts | 2 | 50,418 | 50,104 |
4,792 | 4,768 | Other sovereign receipts | 2 | 4,693 | 4,268 |
15,173 | 15,027 | Sales of goods and services | 14,899 | 14,411 | |
3,592 | 2,558 | Interest and dividend receipts | 2,682 | 2,378 | |
2,960 | 3,204 | Other operating receipts | 2,990 | 2,974 | |
79,198 | 75,651 | Total cash provided from operations | 75,682 | 74,135 | |
Cash was disbursed to |
|||||
22,642 | 22,426 | Transfer payments and subsidies | 22,172 | 21,335 | |
54,693 | 56,604 | Personnel and operating payments | 55,152 | 50,767 | |
3,979 | 3,378 | Interest payments | 3,107 | 2,420 | |
394 | - | Forecast new operating spending | - | - | |
(410) | (250) | Top-down expense adjustment | - | - | |
81,298 | 82,158 | Total cash disbursed to operations | 80,431 | 74,522 | |
(2,100) | (6,507) | Net cash flows from operations | (4,749) | (387) | |
Cash Flows From Investing Activities |
|||||
Cash was provided from |
|||||
450 | 1,221 | Sale of physical assets | 521 | 437 | |
35,401 | 43,891 | Sale of shares and other securities | 42,120 | 42,248 | |
- | - | Sale of intangible assets | 1 | - | |
2,286 | 1,630 | Repayment of advances | 2,295 | 3,521 | |
- | - | Cash balance in relation to AMI | 152 | - | |
1 | 45 | Sale of investments in associates | 53 | 70 | |
38,138 | 46,787 | Total cash provided from investing activities | 45,142 | 46,276 | |
Cash was disbursed to |
|||||
8,292 | 8,523 | Purchase of physical assets | 6,517 | 6,302 | |
36,489 | 48,581 | Purchase of shares and other securities | 50,525 | 40,156 | |
513 | 432 | Purchase of intangible assets | 601 | 377 | |
3,712 | 3,974 | Issue of advances | 3,298 | 3,831 | |
469 | 24 | Acquisition of investments in associates | 32 | 268 | |
282 | - | Forecast for new capital spending | - | - | |
(300) | (100) | Top-down capital adjustment | - | - | |
49,457 | 61,434 | Total cash disbursed to investing activities | 60,973 | 50,934 | |
(11,319) | (14,647) | Net cash flows from investing activities | (15,831) | (4,658) | |
(13,419) | (21,154) | Net cash flows from operating and investing activities | (20,580) | (5,045) |
The accompanying notes (including accounting policies) are an integral part of these statements.
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
(13,419) | (21,154) | Net cash flows from operating and investing activities | (20,580) | (5,045) |
Cash Flows From Financing Activities |
||||
Cash was provided from |
||||
104 | 359 | Issue of circulating currency | 234 | 15 |
13,464 | 22,705 | Issue of Government stock and treasury bills1 | 25,302 | 13,866 |
1 | 2,360 | Issue of foreign currency borrowings | 2,379 | 3,414 |
7,578 | 8,487 | Issue of other New Zealand dollar borrowings | 6,245 | 5,091 |
21,147 | 33,911 | Total cash provided from financing activities | 34,160 | 22,386 |
Cash was disbursed to |
||||
1,746 | 3,000 | Repayment of Government stock and treasury bills1 | 4,214 | 6,709 |
5,321 | 3,892 | Repayment of foreign currency borrowings | 570 | 118 |
680 | 4,362 | Repayment of other New Zealand dollar borrowings | 6,151 | 8,842 |
- | - | Dividends paid to minority interests | 13 | 13 |
7,747 | 11,254 | Total cash disbursed to financing activities | 10,948 | 15,682 |
13,400 | 22,657 | Net cash flows from financing activities | 23,212 | 6,704 |
(19) | 1,503 | Net movement in cash | 2,632 | 1,659 |
6,143 | 7,774 | Opening cash balance | 7,774 | 6,268 |
2 | (174) | Foreign-exchange gains/(losses) on opening cash | (605) | (153) |
6,126 | 9,103 | Closing cash balance | 9,801 | 7,774 |
- Net issues of Government stock and treasury bills is after elimination of holdings by entities such as NZS Fund, ACC and EQC. Further information on the proceeds and repayments of Government stock ("domestic bonds") is available on page 183.
The accompanying notes (including accounting policies) are an integral part of these statements.
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Reconciliation Between the Net Cash Flows from Operations and the Operating Balance |
||||
(2,100) | (6,507) | Net Cash Flows from Operations | (4,749) | (387) |
Items included in the operating balance but not in net cash flows from operations | ||||
Gains/(losses) |
||||
1,250 | 5,144 | Net gains/(losses) on financial instruments | 4,619 | 2,522 |
181 | 1,890 | Net gains/(losses) on non-financial instruments | 79 | (960) |
1,431 | 7,034 | Total gains/(losses) | 4,698 | 1,562 |
Other Non-cash Items in Operating Balance |
||||
(4,428) | (4,786) | Depreciation and amortisation | (4,682) | (4,229) |
(896) | (805) | Write-down on initial recognition of financial assets | (807) | (855) |
5 | 52 | Impairment of financial assets (excl receivables) | 105 | 33 |
337 | 382 | Decrease/(increase) in defined benefit retirement plan liabilities | 358 | 284 |
(1,329) | (5,922) | Decrease/(increase) in insurance liabilities | (13,179) | (974) |
135 | 260 | Other | 238 | 244 |
(6,176) | (10,819) | Total other non-cash items in operating balance | (17,967) | (5,497) |
Movements in Working Capital |
||||
225 | 3,779 | Increase/(decrease) in receivables | 6,605 | (338) |
(162) | (68) | Increase/(decrease) in accrued interest | (599) | (420) |
51 | 150 | Increase/(decrease) in inventories | 149 | 78 |
(7) | (13) | Increase/(decrease) in prepayments | 39 | 18 |
109 | 195 | Decrease/(increase) in deferred revenue | (46) | (202) |
(438) | (3,188) | Decrease/(increase) in payables/provisions | (1,490) | 677 |
(222) | 855 | Total movements in working capital | 4,658 | (187) |
(7,067) | (9,437) | Operating balance | (13,360) | (4,509) |
The accompanying notes (including accounting policies) are an integral part of these statements.
Statement of Changes in Net Worth#
for the year ended 30 June 2011
Forecast Total Net Worth |
Actual | ||||||
---|---|---|---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
Note | Taxpayer funds $m |
Reserves $m |
Minority interest $m |
Total net worth $m |
|
99,515 | 99,515 | Net worth at 30 June 2009 | 36,382 | 62,686 | 447 | 99,515 | |
(3,179) | (4,526) | Operating balance | (4,509) | - | (17) | (4,526) | |
323 | 196 | Net revaluations | - | 196 | - | 196 | |
(180) | (96) | Transfers to/(from) reserves | (785) | 689 | - | (96) | |
- | (60) | (Gains)/losses transferred to the statement of financial performance | - | (60) | - | (60) | |
- | (30) | Other movements | (1) | (12) | (17) | (30) | |
(3,036) | (4,516) | Total comprehensive income | (5,295) | 813 | (34) | (4,516) | |
- | (11) | Transactions with minority interest in Air New Zealand | - | - | (11) | (11) | |
96,479 | 94,988 | Net worth at 30 June 2010 | 31,087 | 63,499 | 402 | 94,988 | |
(7,067) | (9,437) | Operating Balance | (13,360) | - | (101) | (13,461) | |
- | 69 | Net revaluations | - | (443) | - | (443) | |
5 | (44) | Transfers to/(from) reserves | 460 | (739) | - | (279) | |
(1) | (16) | (Gains)/losses transferred to the statement of financial performance | - | 17 | - | 17 | |
- | (41) | Other movements | 1 | 57 | 27 | 85 | |
(7,063) | (9,469) | Total comprehensive income | (12,899) | (1,108) | (74) | (14,081) | |
- | - | Transactions with minority interest in Air New Zealand | - | - | (20) | (20) | |
89,416 | 85,519 | Net worth at 30 June 2011 | 28 | 18,188 | 62,391 | 308 | 80,887 |
The accompanying notes (including accounting policies) are an integral part of these statements.
Statement of Financial Position#
as at 30 June 2011
Forecast 30 June 2011 |
Actual | ||||
---|---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
Note | 30 June 2011 $m |
30 June 2010 $m |
|
Assets |
|||||
6,126 | 9,103 | Cash and cash equivalents | 9,801 | 7,774 | |
14,038 | 17,514 | Receivables | 14 | 21,690 | 13,884 |
46,220 | 49,006 | Marketable securities, deposits and derivatives in gain | 15 | 49,056 | 43,687 |
17,771 | 14,206 | Share investments | 16 | 14,248 | 12,179 |
20,411 | 19,851 | Advances | 17 | 20,567 | 18,447 |
1,228 | 1,309 | Inventory | 18 | 1,308 | 1,160 |
1,488 | 1,668 | Other assets | 19 | 1,996 | 1,661 |
117,742 | 116,933 | Property, plant & equipment | 20 | 114,854 | 113,330 |
9,440 | 9,398 | Equity accounted investments | 21 | 9,301 | 9,049 |
2,596 | 2,524 | Intangible assets and goodwill | 22 | 2,394 | 2,184 |
282 | - | Forecast for new capital spending | - | - | |
(425) | (100) | Top-down capital adjustment | - | - | |
236,917 | 241,412 | Total assets | 245,215 | 223,355 | |
Liabilities |
|||||
4,251 | 4,380 | Issued currency | 4,254 | 4,020 | |
10,001 | 9,169 | Payables | 23 | 11,099 | 9,931 |
1,222 | 1,433 | Deferred revenue | 1,674 | 1,628 | |
89,416 | 91,003 | Borrowings | 24 | 90,245 | 69,733 |
28,635 | 31,802 | Insurance liabilities | 25 | 39,314 | 27,131 |
8,821 | 9,271 | Retirement plan liabilities | 26 | 10,156 | 9,940 |
5,155 | 8,835 | Provisions | 27 | 7,586 | 5,984 |
147,501 | 155,893 | Total liabilities | 164,328 | 128,367 | |
89,416 | 85,519 | Total assets less total liabilities | 80,887 | 94,988 | |
Net Worth |
|||||
26,983 | 21,720 | Taxpayer funds | 18,188 | 31,087 | |
62,086 | 63,600 | Property, plant and equipment revaluation reserve | 62,690 | 63,593 | |
(100) | (203) | Other reserves | (299) | (94) | |
88,969 | 85,117 | Total net worth attributable to the Crown | 80,579 | 94,586 | |
447 | 402 | Net worth attributable to minority interest in Air New Zealand | 308 | 402 | |
89,416 | 85,519 | Total net worth | 28 | 80,887 | 94,988 |
The accompanying notes (including accounting policies) are an integral part of these statements.
Statement of Segments#
Core Crown | Crown entities | State-owned enterprises | Inter-segment eliminations | Total Crown | ||||||
---|---|---|---|---|---|---|---|---|---|---|
Actual 2011 |
Estimated Actuals 2011 |
Actual 2011 |
Estimated Actuals 2011 |
Actual 2011 |
Estimated Actuals 2011 |
Actual 2011 |
Estimated Actuals 2011 |
Actual 2011 |
Estimated Actuals 2011 |
|
$m | $m | $m | $m | $m | $m | $m | $m | $m | $m | |
Revenue |
||||||||||
Taxation revenue | 51,557 | 51,189 | - | - | - | - | (429) | (549) | 51,128 | 50,640 |
Other sovereign revenue | 1,275 | 1,346 | 5,080 | 5,209 | - | - | (1,074) | (1,111) | 5,281 | 5,444 |
Revenue from core Crown funding | - | - | 23,442 | 23,552 | - | - | (23,442) | (23,552) | - | - |
Sales of goods and services | 1,443 | 1,487 | 1,795 | 1,703 | 12,510 | 12,640 | (664) | (702) | 15,084 | 15,128 |
Interest revenue and dividends | 2,169 | 2,185 | 1,234 | 1,106 | 801 | 763 | (1,634) | (1,436) | 2,570 | 2,618 |
Other revenue | 1,106 | 743 | 6,485 | 5,444 | 935 | 1,017 | (1,026) | (865) | 7,500 | 6,339 |
Total Revenue (excluding gains) | 57,550 | 56,950 | 38,036 | 37,014 | 14,246 | 14,420 | (28,269) | (28,215) | 81,563 | 80,169 |
Expenses |
||||||||||
Transfer payments and subsidies | 22,227 | 22,396 | - | - | - | - | (55) | (56) | 22,172 | 22,340 |
Personnel expenses | 5,996 | 5,905 | 10,410 | 10,309 | 2,695 | 2,654 | (13) | (9) | 19,088 | 18,859 |
Other operating expenses | 39,161 | 41,663 | 32,670 | 27,566 | 9,727 | 9,841 | (26,455) | (26,628) | 55,103 | 52,442 |
Interest expenses | 3,066 | 3,078 | 248 | 247 | 1,027 | 1,010 | (745) | (829) | 3,596 | 3,506 |
Forecast new operating spending and top down adjustment | - | (250) | - | - | - | - | - | - | - | (250) |
Total Expenses (excluding losses) | 70,450 | 72,792 | 43,328 | 38,122 | 13,449 | 13,505 | (27,268) | (27,522) | 99,959 | 96,897 |
Operating Balance before gains/(losses) | (12,900) | (15,842) | (5,292) | (1,108) | 797 | 915 | (1,001) | (693) | (18,396) | (16,728) |
Gains/(losses) | 3,633 | 4,951 | 2,149 | 2,523 | (470) | 49 | (276) | (232) | 5,036 | 7,291 |
Operating Balance | (9,267) | (10,891) | (3,143) | 1,415 | 327 | 964 | (1,277) | (925) | (13,360) | (9,437) |
Assets |
||||||||||
Financial assets | 76,475 | 74,041 | 36,391 | 33,897 | 20,241 | 17,613 | (17,745) | (15,871) | 115,362 | 109,680 |
Property, plant and equipment | 29,549 | 30,334 | 48,480 | 49,722 | 36,825 | 36,877 | - | - | 114,854 | 116,933 |
Investments in associates, CEs and SOEs | 30,093 | 29,878 | 7,979 | 7,977 | 197 | 382 | (28,968) | (28,839) | 9,301 | 9,398 |
Other assets | 2,848 | 2,948 | 808 | 789 | 2,097 | 1,792 | (55) | (28) | 5,698 | 5,501 |
Forecast adjustments | - | (100) | - | - | - | - | - | - | - | (100) |
Total Assets | 138,965 | 137,101 | 93,658 | 92,385 | 59,360 | 56,664 | (46,768) | (44,738) | 245,215 | 241,412 |
Liabilities |
||||||||||
Borrowings | 76,827 | 76,942 | 5,123 | 5,129 | 23,099 | 22,600 | (14,804) | (13,668) | 90,245 | 91,003 |
Other liabilities | 27,207 | 26,427 | 45,105 | 38,439 | 9,021 | 6,732 | (7,250) | (6,708) | 74,083 | 64,890 |
Total Liabilities | 104,034 | 103,369 | 50,228 | 43,568 | 32,120 | 29,332 | (22,054) | (20,376) | 164,328 | 155,893 |
Net Worth | 34,931 | 33,732 | 43,430 | 48,817 | 27,240 | 27,332 | (24,714) | (24,362) | 80,887 | 85,519 |
Cost of Acquisition of Physical Assets | 1,465 | 1,682 | 2,462 | 2,839 | 2,590 | 4,002 | - | - | 6,517 | 8,523 |
Core Crown | Crown entities | State-owned enterprises | Inter-segment eliminations | Total Crown | ||||||
---|---|---|---|---|---|---|---|---|---|---|
Actual 2011 |
Actual 2010 |
Actual 2011 |
Actual 2010 |
Actual 2011 |
Actual 2010 |
Actual 2011 |
Actual 2010 |
Actual 2011 |
Actual 2010 |
|
$m | $m | $m | $m | $m | $m | $m | $m | $m | $m | |
Revenue |
||||||||||
Taxation revenue | 51,557 | 50,744 | - | - | - | - | (429) | (397) | 51,128 | 50,347 |
Other sovereign revenue | 1,275 | 1,015 | 5,080 | 4,840 | - | - | (1,074) | (1,173) | 5,281 | 4,682 |
Revenue from core Crown funding | - | - | 23,442 | 23,084 | - | - | (23,442) | (23,084) | - | - |
Sales of goods and services | 1,443 | 1,387 | 1,795 | 1,642 | 12,510 | 11,979 | (664) | (677) | 15,084 | 14,331 |
Interest revenue and dividends | 2,169 | 2,135 | 1,234 | 1,146 | 801 | 626 | (1,634) | (1,592) | 2,570 | 2,315 |
Other revenue | 1,106 | 935 | 6,485 | 1,934 | 935 | 974 | (1,026) | (793) | 7,500 | 3,050 |
Total Revenue (excluding gains) | 57,550 | 56,216 | 38,036 | 32,646 | 14,246 | 13,579 | (28,269) | (27,716) | 81,563 | 74,725 |
Expenses |
||||||||||
Transfer payments and subsidies | 22,227 | 21,484 | - | - | - | - | (55) | (271) | 22,172 | 21,213 |
Personnel expenses | 5,996 | 5,991 | 10,410 | 10,043 | 2,695 | 2,455 | (13) | (12) | 19,088 | 18,477 |
Other operating expenses | 39,161 | 34,227 | 32,670 | 21,379 | 9,727 | 9,512 | (26,455) | (26,545) | 55,103 | 38,573 |
Interest expenses | 3,066 | 2,311 | 248 | 245 | 1,027 | 845 | (745) | (624) | 3,596 | 2,777 |
Total Expenses (excluding losses) | 70,450 | 64,013 | 43,328 | 31,667 | 13,449 | 12,812 | (27,268) | (27,452) | 99,959 | 81,040 |
Operating Balance before gains/(losses) | (12,900) | (7,797) | (5,292) | 979 | 797 | 767 | (1,001) | (264) | (18,396) | (6,315) |
Gains/(losses) | 3,633 | 797 | 2,149 | 1,394 | (470) | (132) | (276) | (253) | 5,036 | 1,806 |
Operating Balance | (9,267) | (7,000) | (3,143) | 2,373 | 327 | 635 | (1,277) | (517) | (13,360) | (4,509) |
Assets |
||||||||||
Financial assets | 76,475 | 65,981 | 36,391 | 28,136 | 20,241 | 16,065 | (17,745) | (14,211) | 115,362 | 95,971 |
Property, plant and equipment | 29,549 | 29,986 | 48,480 | 48,109 | 36,825 | 35,235 | - | - | 114,854 | 113,330 |
Investments in associates, CEs and SOEs | 30,093 | 28,663 | 7,979 | 7,760 | 197 | 223 | (28,968) | (27,597) | 9,301 | 9,049 |
Other assets | 2,848 | 2,585 | 808 | 743 | 2,097 | 1,716 | (55) | (39) | 5,698 | 5,005 |
Total Assets | 138,965 | 127,215 | 93,658 | 84,748 | 59,360 | 53,239 | (46,768) | (41,847) | 245,215 | 223,355 |
Liabilities |
||||||||||
Borrowings | 76,827 | 57,583 | 5,123 | 4,835 | 23,099 | 19,747 | (14,804) | (12,432) | 90,245 | 69,733 |
Other liabilities | 27,207 | 24,963 | 45,105 | 33,421 | 9,021 | 6,612 | (7,250) | (6,362) | 74,083 | 58,634 |
Total Liabilities | 104,034 | 82,546 | 50,228 | 38,256 | 32,120 | 26,359 | (22,054) | (18,794) | 164,328 | 128,367 |
Net Worth | 34,931 | 44,669 | 43,430 | 46,492 | 27,240 | 26,880 | (24,714) | (23,053) | 80,887 | 94,988 |
Cost of Acquisition of Physical Assets | 1,465 | 1,667 | 2,462 | 2,433 | 2,590 | 2,202 | - | - | 6,517 | 6,302 |
Notes to the Financial Statements#
Note 1: Summary of Accounting Policies
These financial statements are prepared in accordance with the Public Finance Act 1989 and with New Zealand generally accepted accounting practice (NZ GAAP). For this purpose, the Government reporting entity is designated as a public benefit entity. These financial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) as appropriate for public benefit entities.
These financial statements were authorised for issue by the Minister of Finance on 30 September 2011.
Reporting Entity
The consolidated financial statements for the Government reporting entity (financial statements of the Government of New Zealand), as defined in section 2(1) of the Public Finance Act 1989, means:
- the Sovereign in right of New Zealand, and
- the legislative, executive, and judicial branches of the Government of New Zealand.
The description “consolidated financial statements for the Government reporting entity” and the description “financial statements of the Government” have the same meaning and can be used interchangeably.
Basis of Preparation
The financial statements have been prepared on the basis of historic cost modified by the revaluation of certain assets and liabilities.
The financial statements are prepared on an accrual basis.
The financial statements are presented in New Zealand dollars rounded to the nearest million, unless separately identified.
Judgements and Estimations
The preparation of these financial statements requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. For example, the present value of large cash flows that are predicted to occur a long time into the future, as with the settlement of ACC outstanding claim obligations and Government Superannuation retirement benefits, depends critically on judgements regarding future cash flows, including inflation assumptions and the risk free discount rate used to calculate present values. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
A second area of uncertainty relates to the immature nature of the claims experience available to assist in estimating the claims and provisions arising from the Canterbury earthquakes. Actuarial valuations of these liabilities using the best available information have been used, however it is common in such cases for adjustments to be required as the claims experience develops.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Where these judgements significantly affect the amounts recognised in the financial statements they are described below and in the following notes.
Early Adoption Standards and Interpretations
The Government has elected to early-adopt all NZ IFRSs and Interpretations applicable to public benefit entities that had been approved by the New Zealand Accounting Standards Review Board as at 30 June 2011 but that are not yet effective, with the exception of NZ IFRS 9: Financial Instruments. The first of three phases of this new standard (which is incomplete as at 30 June 2011) were approved by the Accounting Standards Review Board in November 2009 and November 2010. The standard addresses the issues of classification and measurement of financial assets and financial liabilities and becomes effective for annual reporting periods commencing on or after 1 January 2013.
An initial assessment of standards approved since 30 June 2010 do not indicate any issues which would have a material impact on these financial statements.
Significant Accounting Policies
Reporting and Forecast Period
The reporting and forecast period for the financial statements of the Government of New Zealand is the financial year from 1 July to 30 June.
Where necessary the financial information for State-owned enterprises and Crown entities that have a balance date other than 30 June has been adjusted for any transactions or events that have occurred since their most recent balance date and that are significant for the Government's financial statements. Such entities are primarily in the education sector.
Basis of Combination
These financial statements combine the following entities using the acquisition method of combination:
Core Crown entities
- Ministers of the Crown
- Government departments
- Offices of Parliament
- the Reserve Bank of New Zealand
- New Zealand Superannuation Fund
Other entities
- State-owned enterprises
- Crown entities (excluding Tertiary Education Institutions)
- Air New Zealand Limited
- AMI Insurance Limited
- Organisations listed in Schedule 4 of the Public Finance Act 1989
Corresponding assets, liabilities, income and expenses, are added together line by line. Transactions and balances between these sub-entities are eliminated on combination. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by the Government reporting entity.
Tertiary education institutions are equity accounted for the reasons explained in the notes to the financial statements. This treatment recognises these entities' net assets, including asset revaluation movements, surpluses and deficits.
The basis of combination for joint ventures depends on the form of the joint venture.
- Jointly controlled operations: The Government reporting entity recognises the assets it controls, the liabilities and expenses that it incurs, and its share of the jointly controlled operations' income.
- Jointly controlled assets: The Government reporting entity recognises its share of the jointly controlled assets, its share of any liabilities and expenses incurred jointly, any other liabilities and expenses it has incurred in respect of the jointly controlled asset, and income from the sale or use of its share of the output of the jointly controlled asset.
- Jointly controlled entities: Jointly controlled entities are equity accounted, whereby the Government reporting entity initially recognises its share of interest in these entities' net assets at cost and subsequently adjusts the cost for changes in net assets. The Government reporting entity's share of the jointly controlled entities' surpluses and deficits are recognised in the statement of financial performance.
Income
Taxation revenue levied through the Crown's sovereign power
The Government provides many services and benefits that do not give rise to revenue. Further, payment of tax does not of itself entitle a taxpayer to an equivalent value of services or benefits, since there is no relationship between paying tax and receiving Crown services and transfers. Such revenue is received through the exercise of the sovereign power of the Crown in Parliament.
Where possible, taxation revenue is recognised at the time the debt to the Crown arises.
Revenue type | Revenue recognition point |
---|---|
Source deductions | When an individual earns income that is subject to PAYE |
Resident withholding tax (RWT) | When an individual is paid interest or dividends subject to deduction at source |
Fringe benefit tax (FBT) | When benefits are provided that give rise to FBT |
Provisional tax | When taxable income is earned |
Terminal tax | Assessment filed date |
Goods and services tax (GST) | When the liability to the Crown is incurred |
Customs and excise duty | When goods become subject to duty |
Road user charges and motor vehicle fees | When payment of the fee or charge is made |
Stamp, cheque and credit card duties | When the liability to the Crown is incurred |
Exhaustible resources levy | When the resource is extracted |
Other indirect taxes | When the debt to the Crown arises |
Levies (eg, ACC levies) | When the obligation to pay the levy is incurred |
Revenue earned through operations
Revenue from the supply of goods and services to third parties is measured at the fair value of consideration received. Revenue from the supply of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from the supply of services is recognised on a straight-line basis over the specified period of the services unless an alternative method better represents the stage of completion of the transaction.
Interest income
Interest income is accrued using the effective interest rate method.
The effective interest rate exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. The method applies this rate to the principal outstanding to determine interest income each period.
Dividend income
Dividend income from investments is recognised when the Government's rights as a shareholder to receive payment have been established.
Rental income
Rental income is recognised in the statement of financial performance on a straight-line basis over the term of the lease. Lease incentives granted are recognised evenly over the term of the lease as a reduction in total rental income.
Donated or subsidised assets
Where an asset is acquired for nil or nominal consideration, the fair value of the asset received is recognised as income in the statement of financial performance.
Expenses
General
Expenses are recognised in the period to which they relate.
Welfare benefits and entitlements
Welfare benefits and entitlements, including New Zealand Superannuation, are recognised in the period when an application for a benefit has been received and the eligibility criteria met.
Grants and subsidies
Where grants and subsidies are discretionary until payment, the expense is recognised when the payment is made. Otherwise, the expense is recognised when the specified criteria have been fulfilled and notice has been given to the Crown.
Interest expense
Interest expense is accrued using the effective interest rate method.
The effective interest rate exactly discounts estimated future cash payments through the expected life of the financial liability to that liability's net carrying amount. The method applies this rate to the principal outstanding to determine interest expense each period.
Foreign Currency
Transactions in foreign currencies are initially translated at the foreign exchange rate at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of financial performance, except when recognised in the statement of comprehensive income when hedge accounting is applied.
Non-monetary assets and liabilities measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies and measured at fair value are translated into New Zealand dollars at the exchange rate applicable at the fair value date. The associated foreign exchange gains or losses follow the fair value gains or losses to either the statement of financial performance or the statement of comprehensive income.
Foreign exchange gains and losses arising from translating monetary items that form part of the net investment in a foreign operation are reported in a translation reserve in net worth and recognised in the statement of comprehensive income.
Sovereign Receivables and Taxes Repayable#
Receivables from taxes, levies and fines (and any penalties associated with these activities) as well as social benefit receivables which do not arise out of a contract are collectively referred to as sovereign receivables.
Sovereign receivables are initially assessed at nominal amount or face value; that is, the receivable reflects the amount of tax owed, levy, fine charged, or social benefit debt payable. These receivables are subsequently adjusted for penalties and interest as they are charged, and tested for impairment. Interest and penalties charged on tax receivables are presented as tax revenue in the statement of financial performance.
Taxes repayable represent refunds due to taxpayers and are recognised at their nominal value. They are subsequently adjusted for interest once account and refund reviews are complete.
Financial instruments#
Financial assets
Financial assets are designated into the following categories: loans and receivables, financial assets available-for-sale, financial assets held-for-trading, and financial assets designated as fair value through profit and loss. This designation is made by reference to the purpose of the financial instruments, policies and practices for their management, their relationship with other instruments and the reporting costs and benefits associated with each designation.
The maximum loss due to default on any financial asset is the carrying value reported in the statement of financial position.
Major financial asset type | Designation |
---|---|
Trade and other receivables | All designated as loans and receivables |
Student loans | All designated as loans and receivables |
Kiwibank mortgages | Generally designated as loans and receivables |
Other advances | Generally designated as loans and receivables |
IMF financial assets | All designated as loans and receivables |
Share investments | Generally designated as fair value through profit and loss |
Marketable securities | Generally designated as fair value through profit and loss |
Loans and receivables are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method (refer interest income policy). Loans and receivables issued with a duration of less than 12 months are recognised at their nominal value, unless the effect of discounting is material. Allowances for estimated irrecoverable amounts are recognised when there is objective evidence that the asset is impaired. Interest, impairment losses and foreign exchange gains and losses are recognised in the statement of financial performance.
Financial assets held-for-trading and financial assets designated as fair value through profit or loss are recorded at fair value with any realised and unrealised gains or losses recognised in the statement of financial performance.
A financial asset is designated as fair value through profit and loss if acquired principally for the purpose of trading in the short term. It may also be designated into this category if the accounting treatment results in more relevant information because it either significantly reduces an accounting mismatch with related liabilities or is part of a group of financial assets that is managed and evaluated on a fair value basis, such as with the NZ Superannuation Fund. Gains or losses from interest, foreign exchange and other fair value movements are separately reported in the statement of financial performance. Transaction costs are expensed as they are incurred.
Available-for-sale financial assets are initially recorded at fair value plus transaction costs. They are subsequently recorded at fair value with any resultant fair value gains or losses recognised in the statement of comprehensive income with some exceptions. Those exceptions are for impairment losses, any interest calculated using the effective interest method and, in the case of monetary items (such as debt securities), foreign exchange gains and losses resulting from translation differences due to changes in amortised cost of the asset. These latter items are recognised in the statement of financial performance. For non-monetary available-for-sale financial assets (eg, some unlisted equity instruments) the fair value movements recognised in the statement of comprehensive income include any related foreign exchange component. At derecognition, the cumulative fair value gain or loss previously recognised in the statement of comprehensive income, is recognised in the statement of financial performance.
Cash and cash equivalents include cash on hand, cash in transit, bank accounts and deposits with an original maturity of no more than three months.
Fair values of quoted investments are based on current bid prices. Regular way purchases and sales of all financial assets are accounted for at trade date. If the market for a financial asset is not active, fair values for initial recognition and, where appropriate, subsequent measurement are established by using valuation techniques, as set out in the notes to the financial statements. At each balance date an assessment is made whether there is objective evidence that a financial asset or group of financial assets is impaired.
Financial liabilities
Major financial liability type | Designation |
---|---|
Accounts payable | All designated at amortised cost |
Government stock | Generally designated at amortised cost |
Treasury bills | Generally designated at amortised cost |
Government retail stock | All designated at amortised cost |
Settlement deposits with Reserve Bank | All designated as fair value through profit and loss |
Issued currency | Not designated: Recognised at face value |
Financial liabilities held for trading and financial liabilities designated as fair value through profit and loss are recorded at fair value with any realised and unrealised gains or losses recognised in the statement of financial performance. A financial liability is designated as fair value through profit and loss if acquired principally for the purpose of trading in the short term. It may also be designated into this category if the accounting treatment results in more relevant information because it either eliminates or significantly reduces an accounting mismatch with related assets or is part of a group of financial liabilities that is managed and evaluated on a fair value basis. Gains or losses from interest, foreign exchange and other fair value movements are separately reported in the statement of financial performance. Transaction costs are expensed as they are incurred.
Other financial liabilities are recognised initially at fair value less transaction costs and subsequently measured at amortised cost using the effective interest rate method. Financial liabilities entered into with durations of less than 12 months are recognised at their nominal value. Amortisation and, in the case of monetary items, foreign exchange gains and losses, are recognised in the statement of financial performance as is any gain or loss when the liability is derecognised.
Currency issued for circulation, including demonetised currency after 1 July 2004, is recognised at face value. Currency issued represents a liability in favour of the holder.
Derivatives
Derivative financial instruments are recognised both initially and subsequently at fair value. They are reported as either assets or liabilities depending on whether the derivative is in a net gain or net loss position respectively. Recognition of the movements in the value of derivatives depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged (see Hedging section below).
Derivatives that are not designated for hedge accounting are classified as held-for-trading financial instruments with fair value gains or losses recognised in the statement of financial performance. Such derivatives may be entered into for risk management purposes, although not formally designated for hedge accounting, or for tactical trading.
Hedging
Individual entities consolidated within the Government reporting entity apply hedge accounting after considering the costs and benefits of adopting hedge accounting, including:
- whether an economic hedge exists and the effectiveness of that hedge
- whether the hedge accounting qualifications could be met, and
- the extent to which it would improve the relevance of reported results.
Transactions between entities within the Government reporting entity do not qualify for hedge accounting in the financial statements of the Government (although they may qualify for hedge accounting in the separate financial statements of the individual entities). Where a derivative is used to hedge the foreign exchange exposure of a monetary asset or liability, the effects of the hedge relationship are automatically reflected in the statement of financial performance so hedge accounting is not necessary.
(a) Cash flow hedge
Where a derivative qualifies as a hedge of variability in asset or liability cash flows (cash flow hedge), the effective portion of any gain or loss on the derivative is recognised in the statement of comprehensive income and the ineffective portion is recognised in the statement of financial performance. Where the hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability (eg, where the hedge relates to the purchase of an asset in a foreign currency), the amount recognised in the statement of comprehensive income is included in the initial cost of the asset or liability. Otherwise, gains or losses recognised in the statement of comprehensive income transfer to the statement of financial performance in the same period as when the hedged item affects the statement of financial performance (eg, when the forecast sale occurs). Effective portions of the hedge are recognised in the same area of the statement of financial performance as the hedged item.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in net worth at that time remains in net worth and is recognised when the forecast transaction is ultimately recognised in the statement of financial performance. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in the statement of comprehensive income is transferred to the statement of financial performance.
(b) Fair value hedge
Where a derivative qualifies as a hedge of the exposure to changes in fair value of an asset or liability (fair value hedge) any gain or loss on the derivative is recognised in the statement of financial performance together with any changes in the fair value of the hedged asset or liability.
The carrying amount of the hedged item is adjusted by the fair value gain or loss on the hedged item in respect of the risk being hedged. Effective parts of the hedge are recognised in the same area of the statement of financial performance as the hedged item.
Note 1: Summary of Accounting Policies (continued)#
Inventories#
Inventories are recorded at the lower of cost (calculated using a weighted average method) and net realisable value. Inventories held for distribution for public benefit purposes are recorded at cost, adjusted where applicable for any loss of service potential. Where inventories are acquired at no cost, or for nominal consideration, the cost is deemed to be the current replacement cost at the date of acquisition.
Inventories include unissued currency and harvested agricultural produce (eg, logs and wool).
The cost of harvested agricultural produce is measured at fair value less estimated costs to sell at the point of harvest.
Property, Plant and Equipment (PPE)#
Items of property, plant and equipment are initially recorded at cost. Cost may include transfers from net worth of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Where an asset is acquired for nil or nominal consideration the asset is recognised initially at fair value, where fair value can be reliably determined, and as income in the statement of financial performance.
Revaluations are carried out for a number of classes of property, plant and equipment to reflect the service potential or economic benefit obtained through control of the asset. Revaluation is based on the fair value of the asset, with changes reported by class of asset.
Subsequent to initial recognition, classes of property, plant and equipment are accounted for as set out below.
Class of PPE | Accounting policy |
---|---|
Land and buildings |
Land and buildings are recorded at fair value less impairment losses and, for buildings, less depreciation accumulated since the assets were last revalued. Valuations undertaken in accordance with standards issued by the New Zealand Property Institute are used where available. Otherwise, valuations conducted in accordance with the Rating Valuation Act 1998, may be used if they have been confirmed as appropriate by an independent valuer. When revaluing buildings, there must be componentisation to the level required to ensure adequate representation of the material components of the buildings. At a minimum, this requires componentisation to three levels: structure, building services and fit-out. |
Specialist military equipment |
Specialist military equipment is recorded on a depreciated replacement cost basis less depreciation and impairment losses accumulated since the assets were last revalued. Valuations are obtained through specialist assessment by New Zealand Defence Force advisers, and the bases of these valuations are confirmed as appropriate by an independent valuer. |
State highways | State highways are recorded on a depreciated replacement cost basis less depreciation and impairment losses accumulated since the assets were last revalued. Land associated with the state highways is valued using an opportunity cost based on adjacent use, as an approximation to fair value. |
Rail network | The rail network is recorded on a depreciated replacement cost basis less depreciation and impairment losses accumulated since the assets were last revalued. Land associated with the rail network is valued using an opportunity cost based on adjacent use, as an approximation to fair value. |
Aircraft | Aircraft (excluding specialised military equipment) are recorded at fair value less depreciation and impairment losses accumulated since the assets were last revalued. |
Electricity distribution network | Electricity distribution network assets are recorded at cost, less depreciation and impairment losses accumulated since the assets were purchased. |
Electricity generation assets | Electricity generation assets are recorded at fair value less depreciation and impairment losses accumulated since the assets were last revalued. |
Specified cultural and heritage assets | Specified cultural and heritage assets comprise national parks, conservation areas and related recreational facilities, as well as National Archives holdings and the collections of the National Library, Parliamentary Library and Te Papa. Such physical assets are recorded at fair value less subsequent impairment losses and, for non-land assets, less subsequent accumulated depreciation. Assets are not reported with a financial value in cases where they are not realistically able to be reproduced or replaced, and when they do not generate cash flows and where no market exists to provide a valuation. |
Other plant and equipment | Other plant and equipment, which includes motor vehicles and office equipment, are recorded at cost less depreciation and impairment losses accumulated since the assets were purchased. |
Classes of property, plant and equipment that are revalued, are revalued at least every five years or whenever the carrying amount differs materially to fair value.
Items of property are revalued to fair value for the highest and best use of the item on the basis of the market value of the item, or on the basis of market evidence, such as discounted cash flow calculations. If no market evidence of fair value exists, an optimised depreciated replacement cost approach is used as the best proxy for fair value. Where an item of property is recorded at its optimised depreciated replacement cost, this cost is based on the estimated present cost of constructing the existing item of property by the most appropriate method of construction, less allowances for physical deterioration and optimisation for obsolescence and relevant surplus capacity. Where an item of property is recorded at its optimised depreciated replacement cost, the cost does not include any borrowing costs.
Unrealised gains and losses arising from changes in the value of property, plant and equipment are recognised as at balance date. To the extent that a gain reverses a loss previously charged to the statement of financial performance for the asset class, the gain is credited to the statement of financial performance. Otherwise, gains are credited to an asset revaluation reserve for that class of asset. To the extent that there is a balance in the asset revaluation reserve for the asset class any loss is debited to the reserve. Otherwise, losses are reported in the statement of financial performance.
Realised gains and losses arising from disposal of property, plant and equipment are recognised in the statement of financial performance in the period in which the transaction occurs. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to taxpayer funds.
Generally, Government borrowings are not directly attributable to individual assets. Therefore, any borrowing costs incurred during the period required to complete and prepare assets for their intended use are expensed rather than capitalised.
Where an asset's recoverable amount is less than its carrying amount, it is reported at its recoverable amount and an impairment loss is recognised. The main reason for holding some assets (for example, electricity generation assets) is to generate cash. For these assets the recoverable amount is the higher of the amount that could be recovered by sale (after deducting the costs of sale) or the amount that will be generated by using the asset through its useful life. Some assets do not generate cash (for example, state highways) and for those assets, depreciated replacement cost is used. Losses resulting from impairment are reported in the statement of financial performance, unless the asset is carried at a revalued amount in which case any impairment loss is treated as a revaluation decrease.
Depreciation is charged on a straight-line basis at rates calculated to allocate the cost or valuation of an item of property, plant and equipment, less any estimated residual value, over its remaining useful life.
Typically, the estimated useful lives of different classes of property, plant and equipment are as follows:
Class of PPE | Estimated useful lives |
---|---|
Buildings | 25 to 60 years |
Specialist military equipment | 5 to 55 years |
State highways: | |
Pavement (surfacing) | 7 years |
Pavement (other) | 50 years |
Bridges | 70 to 105 years |
Rail Network: | |
Track and ballast | 25 to 40 years |
Tunnels and bridges | 60 to 100 years |
Overhead traction and signalling | 10 to 40 years |
Aircraft (excluding specialist military equipment) | 10 to 20 years |
Electricity distribution network | 2 to 80 years |
Electricity generation assets | 25 to 55 years |
Other plant and equipment | 3 to 30 years |
Specified heritage and cultural assets are generally not depreciated.
Equity Accounted Investments#
The applicable financial reporting standards that determine the basis of combination of entities that make up the Government reporting entity are NZ IAS 27: Consolidated and Separate Financial Statements and NZ IAS 28: Investments in Associates. NZ IAS 27 refers to guidance provided in IPSAS 6: Consolidated and Separate Financial Statements and FRS 37: Consolidating Investments in Subsidiaries which shall be used by public benefit entities in determining whether they control another entity.
These standards are, however, not clear about how the definitions of control and significant influence should be applied in some circumstances in the public sector, particularly where legislation provides public sector entities with statutory autonomy and independence, in particular with Tertiary Education Institutions. Treasury's view is that because the Government cannot determine its operating and financing policies, but does have a number of powers in relation to these entities, it is appropriate to treat them as associates.
Biological Assets#
Biological assets (eg, trees and sheep) managed for harvesting into agricultural produce (eg, logs and wool) or for transforming into additional biological assets are measured at fair value less estimated costs to sell, with any realised and unrealised gains or losses reported in the statement of financial performance. Where fair value cannot be reliably determined, the asset is recorded at cost less accumulated depreciation and accumulated impairment losses. For commercial forests, fair value takes into account age, quality of timber and the forest management plan.
Biological assets not managed for harvesting into agricultural produce, or being transformed into additional biological assets are reported as property, plant and equipment in accordance with the policies for property, plant and equipment.
Intangible Assets#
Intangible assets are initially recorded at cost. Where an intangible asset is created for nil or nominal consideration it is also initially carried at cost, which by definition is nil/nominal.
The cost of an internally generated intangible asset represents expenditure incurred in the development phase of the asset only. The development phase occurs after the following can be demonstrated: technical feasibility; ability to complete the asset; intention and ability to sell or use; and development expenditure can be reliably measured. Research is “original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding”. Expenditure incurred on the research phase of an internally generated intangible asset is expensed when it is incurred. Where the research phase cannot be distinguished from the development phase, the expenditure is expensed when it is incurred.
The Government's holdings of assigned amount units arising from the Kyoto protocol are reported at fair value. Other intangible assets with finite lives are subsequently recorded at cost less any amortisation and impairment losses. Amortisation is charged to the statement of financial performance on a straight-line basis over the useful life of the asset. Typically, the estimated useful life of computer software is three to five years.
Intangible assets with indefinite useful lives are not amortised, but are tested at least annually for impairment.
Realised gains and losses arising from disposal of intangible assets are recognised in the statement of financial performance in the period in which the transaction occurs.
Intangible assets with finite lives are reviewed at least annually to determine if there is any indication of impairment. Where an intangible asset's recoverable amount is less than its carrying amount, it is reported at its recoverable amount and an impairment loss is recognised. Losses resulting from impairment are reported in the statement of financial performance.
Goodwill is tested for impairment annually.
Note 1: Summary of Accounting Policies (continued)#
Non-current Assets Held for Sale and Discontinued Operations#
Non-current assets or disposal groups are separately classified where their carrying amount will be recovered through a sale transaction rather than continuing use; that is, where such assets are available for immediate sale and where sale is highly probable. Non-current assets or disposal groups are recorded at the lower of their carrying amount and fair value less costs to sell.
Investment Property#
Investment property is property held primarily to earn rentals or for capital appreciation or both. It does not include property held primarily for strategic purposes or to provide a social service (eg, affordable housing) even though such property may earn rentals or appreciate in value - such property is reported as property, plant and equipment.
Investment properties are measured at fair value. Gains or losses arising from fair value changes are included in the statement of financial performance. Valuations are undertaken in accordance with standards issued by the New Zealand Property Institute.
Employee Benefits#
Pension liabilities
Obligations for contributions to defined contribution retirement plans are recognised in the statement of financial performance as they fall due. Obligations for defined benefit retirement plans are recorded at the latest actuarial value of the Crown liability. All movements in these liabilities, including actuarial gains and losses, are recognised in full in the statement of financial performance in the period in which they occur.
Other employee entitlements
Employee entitlements to salaries and wages, annual leave, long service leave, retiring leave and other similar benefits are recognised in the statement of financial performance when they accrue to employees. Employee entitlements to be settled within 12 months are reported at the amount expected to be paid. The liability for long-term employee entitlements is reported as the present value of the estimated future cash outflows.
Termination benefits
Termination benefits are recognised in the statement of financial performance only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid, otherwise they are reported as the present value of the estimated future cash outflows.
Insurance Contracts#
The future cost of outstanding insurance claims liabilities are valued annually based on the latest actuarial information. The estimate includes estimated payments associated with claims reported and accepted, claims incurred but not reported, claims that may be re-opened, and the costs of managing these claims. Movements of the claims liabilities are reflected in the statement of financial performance. Financial assets backing these liabilities are designated at fair value through profit and loss.
Reinsurance
Premiums paid to reinsurers are recognised as reinsurance expense in the statement of financial performance from the attachment date over the period of indemnity of the reinsurance contract, in accordance with the expected pattern of the incidence of risk. Prepaid reinsurance premiums are included in prepayments in the Statement of Financial Position.
Reinsurance and other recoveries receivable
Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid, and unexpired risk liabilities are recognised as income in the statement of financial performance.
Recoveries receivable are assessed in a manner similar to the assessment of outstanding claims and are measured as the present value of the expected future receipts.
Deferred Acquisition Costs#
Accident compensation and earthquake commission levies are imposed through regulation and do not attract acquisition costs. Costs incurred in obtaining other insurance contracts are deferred and recognised as assets where they can be reliably measured and where it is probable that they will give rise to premium revenue that will be recognised in the Statement of Comprehensive Income in subsequent reporting periods.
Deferred acquisition costs are amortised systematically in accordance with the expected pattern of the incidence of risk under the insurance contracts to which they relate. This pattern of amortisation corresponds to the earning pattern of the corresponding premium revenue. Risks under the Group's general insurance contracts cover a period of up to 12 months, therefore, deferred acquisition costs are amortised within 1 year.
Leases#
Finance leases transfer, to the Crown as lessee, substantially all the risks and rewards incident on the ownership of a leased asset. Initial recognition of a finance lease results in an asset and liability being recognised at amounts equal to the lower of the fair value of the leased property or the present value of the minimum lease payments. The capitalised values are amortised over the period in which the Crown expects to receive benefits from their use.
Operating leases, where the lessor substantially retains the risks and rewards of ownership, are recognised in a systematic manner over the term of the lease. Leasehold improvements are capitalised and the cost is amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is shorter. Lease incentives received are recognised evenly over the term of the lease as a reduction in rental expense.
Other Liabilities and Provisions#
Other liabilities and provisions are recorded at the best estimate of the expenditure required to settle the obligation. Liabilities and provisions to be settled beyond 12 months are recorded at the present value of their estimated future cash outflows.
Contingent Liabilities and Contingent Assets#
Contingent liabilities and contingent assets are reported at the point at which the contingency is evident or when a present liability is unable to be measured with sufficient reliability to be recorded in the financial statements (unquantifiable liability). Contingent liabilities, including unquantifiable liabilities, are disclosed if the possibility that they will crystallise is not remote. Contingent assets are disclosed if it is probable that the benefits will be realised.
Commitments#
Commitments are future expenses and liabilities to be incurred on contracts that have been entered into at balance date.
Cancellable commitments that have penalty or exit costs explicit in the agreement on exercising the option to cancel are reported at the value of that penalty or exit cost (ie, the minimum future payments).
Commitments are classified as:
- capital commitments: aggregate amount of capital expenditure contracted for but not recognised as paid or provided for at balance date
- non-cancellable operating leases with a lease term of more than one year, and
- other non-cancellable commitments (these may include consulting contracts, cleaning contracts and ship charters).
Interest commitments on debts and commitments relating to employment contracts are not included in the Statement of Commitments.
Comparatives#
When presentation or classification of items in the financial statements is amended or accounting policies are changed voluntarily, comparative figures have been restated to ensure consistency with the current period unless it is impracticable to do so.
Comparatives referred to as Budget 10 were forecasts published in the 2010 Budget Economic and Fiscal Update while Budget 11 were forecasts published in the 2011 Budget Economic and Fiscal Update. These forecasts include budget adjustments for new unallocated spending during the year (both operating and capital) and top-down adjustments which reduce the bias for forecast expenditure by departments to reflect maximum spending limits instead of mid-point estimates.
Segment Analysis#
The Government reporting entity is not required to provide segment reporting as it is a public benefit entity. Nevertheless, information is presented for material institutional components and major economic activities within or undertaken by the Government reporting entity. The three major institutional components of the Crown are:
- Core Crown: This group, which includes Ministers, Departments, Offices of Parliament, the Reserve Bank of New Zealand and the New Zealand Superannuation Fund most closely represents the budget sector and provides information that is useful for fiscal analysis purposes.
- State-owned enterprises: This group includes entities governed by the State-owned Enterprises Act 1986, and for the purposes of these statements also includes Air New Zealand Limited and AMI Insurance. This group represents entities that undertake commercial activity.
- Crown entities: This group includes entities governed by the Crown Entities Act 2004. These entities have separate legal form and specified governance frameworks (including the degree to which each Crown entity is required to give effect to, or be independent of, government policy).
Functional analysis is also provided of a number of financial statement items. This functional analysis is drawn from the Classification of the Functions of Government as developed by the Organization for Economic Co-operation and Development (OECD).
Related Parties#
Related parties of the Government include key management personnel, and their close family members. Key management personnel are Ministers of the Crown, and their close family members are their spouses, children and dependants. Transactions between these related parties and a Government entity are disclosed in these financial statements only if they have taken place within a Minister's portfolio and they are not transactions entered into in the same capacity as an ordinary citizen.
Tertiary Education Institutions, joint ventures and the Government Superannuation Fund are also related parties of the Government due to the Government's influence over these entities. Transactions between these entities and Government entities are separately disclosed where material.
There are no other related parties as no other parties control the Government, and no other parties are controlled by the Government, other than those that are consolidated into the Government's financial statements.
The Government comprises a large number of commonly controlled entities. Transactions between these entities are eliminated in these financial statements and therefore not separately disclosed.
Transactions where the financial results may have been affected by the existence of a related party relationship are disclosed in the financial statements.
Note 2: Tax and Levies Collected through the Crown's Sovereign Power (Accrual)#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 | Budget 11 | 30 June 2011 | 30 June 2010 | |
$m | $m | $m | $m | |
Direct Income Tax Revenue (accrual) |
||||
Individuals |
||||
20,174 | 20,670 | Source deductions | 20,857 | 21,774 |
4,403 | 3,822 | Other persons | 3,791 | 3,987 |
(1,484) | (1,681) | Refunds | (1,679) | (1,831) |
430 | 461 | Fringe benefit tax | 462 | 461 |
23,523 | 23,272 | Total individuals | 23,431 | 24,391 |
Corporate Tax |
||||
8,214 | 6,907 | Gross companies tax | 6,687 | 6,698 |
(376) | (363) | Refunds | (197) | (379) |
628 | 498 | Non-resident withholding tax | 467 | 884 |
8 | 1 | Foreign-source dividend withholding payments | - | (3) |
8,474 | 7,043 | Total corporate tax | 6,957 | 7,200 |
Other Direct Income Tax |
||||
1,465 | 1,707 | Resident withholding tax on interest income | 1,704 | 1,804 |
240 | 203 | Resident withholding tax on dividend income | 195 | 130 |
1 | 2 | Estate and gift duties | 2 | 2 |
1,706 | 1,912 | Total other direct income tax | 1,901 | 1,936 |
33,703 | 32,227 | Total direct income tax | 32,289 | 33,527 |
Indirect Income Tax Revenue (accrual) |
||||
Goods and Services Tax |
||||
23,968 | 23,253 | Gross goods and services tax | 23,484 | 19,797 |
(9,524) | (10,047) | Refunds | (9,776) | (7,880) |
14,444 | 13,206 | Total goods and services tax | 13,708 | 11,917 |
Other Indirect Taxation |
||||
955 | 995 | Road user charges | 1,016 | 910 |
907 | 862 | Petroleum fuels excise - domestic production | 872 | 805 |
657 | 625 | Alcohol excise - domestic production | 623 | 600 |
209 | 238 | Tobacco excise - domestic production | 220 | 217 |
600 | 650 | Petroleum fuels excise - imports1 | 575 | 622 |
242 | 234 | Alcohol excise - imports1 | 229 | 225 |
1,020 | 953 | Tobacco excise - imports1 | 924 | 851 |
198 | 154 | Other customs duty | 188 | 175 |
228 | 218 | Gaming duties | 214 | 219 |
175 | 169 | Motor vehicle fees | 172 | 171 |
81 | 73 | Approved issuer levy and cheque duty | 62 | 69 |
38 | 36 | Energy resources levies | 36 | 39 |
5,310 | 5,207 | Total other indirect taxation | 5,131 | 4,903 |
19,754 | 18,413 | Total indirect taxation | 18,839 | 16,820 |
53,457 | 50,640 | Total taxation revenue | 51,128 | 50,347 |
Other Sovereign Revenue (accrual) |
||||
3,823 | 3,670 | ACC levies | 3,586 | 3,261 |
309 | 313 | Fire service levies | 312 | 301 |
87 | 87 | EQC levies | 88 | 86 |
629 | 535 | Child support | 523 | 572 |
284 | 198 | Court fines | 190 | 238 |
627 | 641 | Other miscellaneous items | 582 | 224 |
5,759 | 5,444 | Total other sovereign revenue | 5,281 | 4,682 |
59,216 | 56,084 | Total sovereign revenue | 56,409 | 55,029 |
1. Customs excise-equivalent duty.
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Direct Income Tax Receipts (cash) |
||||
Individuals |
||||
20,314 | 20,575 | Source deductions | 20,699 | 21,744 |
4,875 | 4,320 | Other persons | 4,386 | 4,630 |
(2,255) | (2,445) | Refunds | (2,463) | (2,793) |
433 | 456 | Fringe benefit tax | 457 | 469 |
23,367 | 22,906 | Total individuals | 23,079 | 24,050 |
Corporate Tax |
||||
9,051 | 7,871 | Gross companies tax | 7,588 | 8,650 |
(1,314) | (970) | Refunds | (772) | (1,644) |
627 | 494 | Non-resident withholding tax | 462 | 889 |
8 | 1 | Foreign-source dividend withholding payments | (1) | 6 |
8,372 | 7,396 | Total corporate tax | 7,277 | 7,901 |
Other Direct Income Tax |
||||
1,463 | 1,714 | Resident withholding tax on interest income | 1,701 | 1,833 |
240 | 202 | Resident withholding tax on dividend income | 196 | 114 |
1 | 2 | Estate and gift duties | 2 | 2 |
1,704 | 1,918 | Total direct other income tax | 1,899 | 1,949 |
33,443 | 32,220 | Total direct income tax | 32,255 | 33,900 |
Indirect Tax Receipts (cash) |
||||
Goods and Services Tax |
||||
23,052 | 22,056 | Gross goods and services tax | 22,162 | 18,797 |
(9,124) | (9,393) | Refunds | (9,177) | (7,456) |
13,928 | 12,663 | Total goods and services tax | 12,985 | 11,341 |
Other Indirect Taxation |
||||
955 | 995 | Road user charges | 1,015 | 908 |
907 | 862 | Petroleum fuels excise - domestic production | 869 | 805 |
657 | 625 | Alcohol excise - domestic production | 625 | 622 |
209 | 238 | Tobacco excise - domestic production | 181 | 214 |
2,060 | 1,991 | Customs duty | 2,005 | 1,805 |
228 | 220 | Gaming duties | 216 | 218 |
175 | 169 | Motor vehicle fees | 171 | 195 |
81 | 75 | Approved issuer levy and cheque duty | 60 | 59 |
38 | 36 | Energy resources levies | 36 | 37 |
5,310 | 5,211 | Total other indirect taxation | 5,178 | 4,863 |
19,238 | 17,874 | Total indirect taxation | 18,163 | 16,204 |
52,681 | 50,094 | Total tax receipts collected | 50,418 | 50,104 |
Other Sovereign Receipts (cash) |
||||
3,761 | 3,688 | ACC levies | 3,612 | 3,291 |
309 | 313 | Fire service levies | 312 | 301 |
87 | 90 | EQC levies | 88 | 86 |
207 | 218 | Child support | 208 | 190 |
182 | 177 | Court fines | 179 | 184 |
246 | 282 | Other miscellaneous items | 294 | 216 |
4,792 | 4,768 | Total other sovereign receipts | 4,693 | 4,268 |
57,473 | 54,862 | Total sovereign receipts | 55,111 | 54,372 |
Note 3: Sales of Goods and Services#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
8,124 | 7,786 | Sales of goods | 7,590 | 7,222 |
112 | 116 | Deposit guarantee schemes - guarantee fees | 118 | 163 |
7,163 | 7,226 | Rendering of services | 7,376 | 6,946 |
15,399 | 15,128 | Total sales of goods and services | 15,084 | 14,331 |
By source |
||||
1,481 | 1,487 | Core Crown | 1,443 | 1,387 |
14,057 | 14,391 | Crown entities | 14,680 | 14,107 |
12,849 | 12,640 | State-owned enterprises | 12,510 | 11,979 |
(12,988) | (13,390) | Inter-segment eliminations | (13,549) | (13,142) |
15,399 | 15,128 | Total sales of goods and services | 15,084 | 14,331 |
Note 4: Interest Revenue and Dividends#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
506 | 501 | Student loans (interest unwind) | 484 | 463 |
236 | 273 | Other financial assets classified as amortised cost or available for sale | 913 | 645 |
4 | 3 | Financial assets classified as held for trading | 40 | 3 |
2,736 | 1,488 | Financial assets classified as fair value through profit and loss | 705 | 815 |
3,482 | 2,265 | Total interest revenue | 2,142 | 1,926 |
581 | 353 | Dividends | 428 | 389 |
4,063 | 2,618 | Total interest revenue and dividends | 2,570 | 2,315 |
By source |
||||
2,487 | 2,185 | Core Crown | 2,169 | 2,135 |
939 | 1,106 | Crown entities | 1,234 | 1,146 |
1,550 | 763 | State-owned enterprises | 801 | 626 |
(913) | (1,436) | Inter-segment eliminations | (1,634) | (1,592) |
4,063 | 2,618 | Total interest revenue and dividends | 2,570 | 2,315 |
Included in total interest revenue above is interest on impaired financial assets of: |
||||
Impaired student loans | 420 | 463 | ||
Impaired other financial assets classified as amortised cost or available for sale | 7 | 4 | ||
Total interest revenue on impaired financial assets | 427 | 467 |
Note 5: Other Revenue#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
535 | 416 | Sale of royalties | 399 | 353 |
1,062 | 1,091 | Rental income | 1,082 | 1,042 |
- | 3,200 | EQC insurance claim on reinsurers | 4,185 | - |
1,506 | 1,632 | Other revenue | 1,834 | 1,655 |
3,103 | 6,339 | Total other revenue | 7,500 | 3,050 |
Note 6: Transfer Payments and Subsidies#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Social Assistance Grants |
||||
8,822 | 8,833 | New Zealand superannuation | 8,830 | 8,290 |
2,239 | 2,214 | Family tax credit | 2,139 | 2,168 |
1,756 | 1,765 | Domestic purposes benefit | 1,757 | 1,693 |
1,319 | 1,307 | Invalids benefit | 1,306 | 1,303 |
1,221 | 1,202 | Accommodation supplement | 1,197 | 1,154 |
969 | 959 | Unemployment benefit | 943 | 930 |
760 | 742 | Sickness benefit | 743 | 710 |
597 | 592 | In-work tax credit | 585 | 595 |
656 | 626 | Student allowances | 620 | 570 |
559 | 559 | Income related rents | 553 | 522 |
421 | 410 | Disability allowances | 409 | 411 |
1,645 | 1,599 | Other social assistance benefits | 1,553 | 1,408 |
20,964 | 20,808 | Total social assistance grants | 20,635 | 19,754 |
Subsidies |
||||
1,179 | 1,039 | KiwiSaver subsidies | 1,042 | 1,024 |
Other transfer payments |
||||
485 | 493 | Official development assistance | 495 | 435 |
22,628 | 22,340 | Total transfer payments and subsidies | 22,172 | 21,213 |
Note 7: Personnel Expenses#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
17,923 | 17,705 | Salaries and wages | 17,913 | 17,282 |
368 | 304 | Costs incurred on GSF and other defined benefit plans | 314 | 341 |
384 | 352 | Costs incurred on SSRSS and other defined contribution plans | 468 | 380 |
434 | 498 | Other personnel expenses | 393 | 474 |
19,109 | 18,859 | Total personnel expenses | 19,088 | 18,477 |
By source |
||||
6,076 | 5,905 | Core Crown | 5,996 | 5,991 |
10,516 | 10,309 | Crown entities | 10,410 | 10,043 |
2,526 | 2,654 | State-owned enterprises | 2,695 | 2,455 |
(9) | (9) | Inter-segment eliminations | (13) | (12) |
19,109 | 18,859 | Total personnel expenses | 19,088 | 18,477 |
Key management personnel compensation |
||||
Salaries and other short-term employee benefits | 8 | 8 | ||
Post-employment benefits | - | - | ||
Other long-term benefits | - | - | ||
Termination benefits | - | - | ||
8 | 8 |
Key management personnel are the 27 Ministers of the Crown who are members of the Executive Council.
Note 8: Depreciation and Amortisation#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Depreciation expense |
||||
1,116 | 1,120 | Buildings | 1,080 | 1,073 |
105 | 130 | Electricity distribution network | 147 | 140 |
399 | 384 | Electricity generation assets | 374 | 356 |
212 | 197 | Aircraft (excluding military) | 171 | 173 |
386 | 377 | State highways | 408 | 403 |
208 | 229 | Rail network | 210 | 208 |
315 | 279 | Specialist military equipment | 272 | 286 |
21 | 19 | Specified cultural and heritage assets | 19 | 17 |
1,072 | 1,032 | Other plant and equipment | 1,046 | 926 |
3,834 | 3,767 | Total depreciation expense | 3,727 | 3,582 |
594 | 1,019 | Amortisation and impairment of non-financial assets | 955 | 647 |
4,428 | 4,786 | Total depreciation and amortisation | 4,682 | 4,229 |
Note 9: Other Operating Expenses#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
19 | 343 | Retail deposit guarantee scheme - expenses accrued for entities in default and valuation of receivables |
282 | (25) |
5,009 | 4,940 | Donations and ex-gratia payments | 4,220 | 3,486 |
6 | 6 | Fees paid to audit firms (refer below) | 7 | 4 |
196 | 251 | Inventory expenses | 467 | 526 |
1,711 | 1,528 | Impairment of financial assets | 1,300 | 1,278 |
- | - | Impairment of inventory | 8 | 11 |
447 | 464 | Lottery prize payments | 521 | 436 |
1,116 | 1,111 | Rental and leasing costs | 1,156 | 1,121 |
896 | 805 | Write-down on initial recognition of financial assets | 807 | 855 |
26,527 | 28,689 | Other operating expenses | 27,061 | 23,646 |
35,927 | 38,137 | Total other operating expenses | 35,829 | 31,338 |
By source |
||||
37,200 | 39,803 | Core Crown | 37,454 | 32,822 |
16,374 | 16,562 | Crown entities | 16,368 | 16,854 |
8,814 | 8,401 | State-owned enterprises | 8,125 | 8,206 |
(26,461) | (26,629) | Inter-segment eliminations | (26,118) | (26,544) |
35,927 | 38,137 | Total other operating expenses | 35,829 | 31,338 |
Operating expenses relate to those expenses incurred in the course of undertaking the functions and activities of entities included in the financial statements of the Government, excluding those expenses separately identified in the statement of financial performance and other notes. Items disclosed separately are those required by financial reporting standards.
Other operating expenses is the large residual item. Most of these costs represent payments made for services provided by third parties (road maintenance for example) or for raw materials (fuel, medicines or inventory for example). They also include other day-to-day operating costs.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Audit and related expenses |
||
Auditor-General fees for the audit of financial statements1 | 34 | 34 |
Auditor-General fees for assurance and related services | 1 | 1 |
Fees for other services | 1 | - |
36 | 35 | |
Inter-segment eliminations | (36) | (35) |
Total audit and related expenses | - | - |
Fees for other work2 |
||
Fees for assurance and related services | 4 | 2 |
Fees for tax services | 1 | 1 |
Fees for other services | 2 | 1 |
Fees paid to audit firms | 7 | 4 |
1. The audit of financial statements are those of the Government reporting entity and its sub-entities. Audit fees are eliminated because the Office of the Auditor-General is consolidated into these financial statements.
2. External auditing firms carry out other work for entities that they audit on behalf of the Auditor-General.
Note 10: Interest Expenses#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
1,783 | 3,216 | Financial liabilities classified as amortised cost | 3,060 | 2,221 |
- | - | Financial liabilities classified as held for trading | 7 | - |
2,754 | 211 | Financial liabilities classified as fair value through profit and loss | 478 | 503 |
75 | 79 | Interest unwind on provisions | 51 | 53 |
4,612 | 3,506 | Total interest expenses | 3,596 | 2,777 |
By source |
||||
3,230 | 3,078 | Core Crown | 3,066 | 2,311 |
181 | 247 | Crown entities | 248 | 245 |
1,733 | 1,010 | State-owned enterprises | 1,027 | 845 |
(532) | (829) | Inter-segment eliminations | (745) | (624) |
4,612 | 3,506 | Total interest expenses | 3,596 | 2,777 |
Note 11: Insurance Expenses#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By entity |
||||
3,668 | 3,103 | Accident Compensation Corporation (ACC) | 2,979 | 2,922 |
39 | 6,389 | Earthquake Commission | 11,776 | 64 |
- | - | AMI insurance | 151 | - |
18 | 27 | Other | 22 | 20 |
- | - | Inter-segment eliminations | (336) | - |
3,725 | 9,519 | Total insurance expenses | 14,592 | 3,006 |
By type |
||||
Property damage claims in relation to Canterbury earthquakes | 11,475 | - | ||
Personal accident and injury claims | 2,979 | 2,922 | ||
Other insurance expenses | 138 | 84 | ||
Total insurance expenses | 14,592 | 3,006 |
Insurance expenses include costs associated with the Canterbury earthquakes. Refer to note 30 for further discussion. These expenses do not include any proceeds from reinsurance. These proceeds are included as “other revenue” in the statement of financial performance.
AMI insurance expenses only include costs incurred after 7 April 2011 (the date that AMI Insurance became controlled by the government and combined as part of the government reporting entity). As a result, the insurance expenses of AMI are not included in the 2010 comparatives.
Claims expense is the sum of claims incurred and claims management expenses relating to claims incurred plus the movement in the outstanding claims liability.
Total claims and other expenses are those related to claims that have occurred prior to reporting date. Within these expenses are expenses relating to actuarial gains/(losses) and operating costs (eg, costs for processing claims and injury prevention promotion) that due to their nature are reported elsewhere in the statement of financial performance (eg, under gains and losses or personnel expenses).
Insurance expenses represents underwriting expenses less those expenses reported elsewhere (ie, insurance expenses largely comprise direct settlement of claims and expected movements in the outstanding liability and unexpired risk liability).
Actual | ||
---|---|---|
Analysis of ACC insurance expense | 30 June 2011 $m |
30 June 2010 $m |
By type |
||
ACC claims expense | 2,396 | 3,275 |
Movement in ACC unexpired risk liability | (105) | (459) |
Other underwriting expenses | 90 | 81 |
Total ACC claims and other expenses | 2,381 | 2,897 |
less actuarial gain/(loss) | 996 | 410 |
less operating costs relating to claims | (398) | (385) |
Total ACC insurance expenses (excluding losses and operations) | 2,979 | 2,922 |
Given the uncertainty over insurance claims, it is likely that the final cost will be different from the original liability established. Claims development refers to the adjustment in the liability arising from claims incurred in the current financial year and reassessment of claims incurred in previous years. This reassessment results from new information on these claims (including new claims relating to incidents incurred in previous years) and changes in assumptions.
Historical Analysis#
Actual | ||||
---|---|---|---|---|
30 June 2011 $m |
30 June 2010 $m |
30 June 2009 $m |
30 June 2008 $m |
|
ACC Claims Development |
||||
Current year net ACC claims incurred |
||||
Gross claims incurred and related expenses - undiscounted | 7,800 | 7,422 | 7,511 | 5,804 |
Reinsurance and other recoveries - undiscounted | - | - | - | - |
Net claims incurred - undiscounted | 7,800 | 7,422 | 7,511 | 5,804 |
Discount and discount movement | ||||
- gross claims incurred | (4,857) | (4,286) | (3,996) | (2,923) |
- reinsurance and other recoveries | - | - | - | - |
Net discount movement | (4,857) | (4,286) | (3,996) | (2,923) |
Total current year net claims incurred | 2,943 | 3,136 | 3,515 | 2,881 |
Previous years' net ACC claims incurred |
||||
Gross claims incurred and related expenses - undiscounted | 348 | 1,188 | 14,698 | 6,763 |
Reinsurance and other recoveries - undiscounted | - | - | - | - |
Net claims incurred - undiscounted | 348 | 1,188 | 14,698 | 6,763 |
Discount and discount movement |
||||
- gross claims incurred | (895) | (1,049) | (9,607) | (4,522) |
- reinsurance and other recoveries | - | - | - | - |
Net discount movement | (895) | (1,049) | (9,607) | (4,522) |
Total previous years' net claims incurred | (547) | 139 | 5,091 | 2,241 |
ACC claims expense | 2,396 | 3,275 | 8,606 | 5,122 |
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Net ACC Underwriting Result |
||
Premium revenue | 3,586 | 3,261 |
Recoveries revenue (including reinsurance recovery) | - | - |
ACC underwriting revenue | 3,586 | 3,261 |
Less claims and other expenses | (2,381) | (2,897) |
Net ACC underwriting surplus/(deficit) | 1,205 | 364 |
The underwriting surplus/(deficit) represents the net effect on the statement of financial performance from claims incurred prior to reporting date. It includes actuarial gains/(losses).
Underwriting revenue is reported separately in the financial statements under other sovereign revenue.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
ACC operating cash flows associated with the underwriting result are: |
||
Cash receipts | 3,612 | 3,291 |
Cash payments | (3,017) | (3,558) |
Net ACC operating cash flows | 595 | (267) |
Actual | ||
---|---|---|
Analysis of EQC insurance expense | 30 June 2011 $m |
30 June 2010 $m |
By type |
||
EQC claims expense | 11,446 | 25 |
Movement in EQC unexpired risk liability | 281 | 6 |
Other underwriting expenses | 49 | 33 |
Total EQC claims and other expenses | 11,776 | 64 |
less actuarial gain/(loss) | - | - |
less operating costs relating to claims | - | - |
Total EQC insurance expenses (excluding losses and operations) | 11,776 | 64 |
Net EQC Underwriting Result |
||
Premium revenue | 88 | 86 |
Recoveries revenue (including reinsurance recovery) | 4,185 | - |
EQC underwriting revenue | 4,273 | 86 |
Less claims and other expenses | 11,776 | 64 |
Net EQC underwriting surplus/(deficit) | (7,503) | 22 |
EQC operating cash flows associated with the underwriting result are: |
||
Cash receipts | 88 | 86 |
Cash payments | 1,230 | 63 |
Net EQC operating cash flows | (1,142) | 23 |
Prior to the Canterbury earthquakes EQC insurance expenses were immaterial. As a result, an historical analysis of the EQC claims expense has not been provided.
Analysis of the insurance liabilities is provided in note 25.
Note 12: Gains and Losses on Financial Instruments#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
- | (15) | Foreign exchange gains on financial assets measured at amortised cost | 15 | - |
(22) | (131) | Foreign exchange losses on financial assets measured at amortised cost | (445) | (339) |
- | - | Change in fair value of financial assets classified as held for trading | 2 | (8) |
- | (9) | Gain/(loss) on disposal of financial assets measured at amortised cost | (25) | (17) |
770 | 1,344 | Change in fair value of financial assets classified as fair value through profit and loss | (1,979) | 457 |
748 | 1,189 | Net gains/(losses) on financial assets | (2,432) | 93 |
- | 3 | Foreign exchange gain on financial liabilities measured at amortised cost | 178 | 154 |
- | (75) | Foreign exchange loss on financial liabilities measured at amortised cost | (119) | (7) |
- | - | Change in fair value of financial liabilities classified as held for trading | - | 3 |
- | 177 | Gain/(loss) on disposal of financial liabilities measured at amortised cost | (5) | 5 |
63 | (66) | Change in fair value of financial liabilities classified as fair value through profit and loss | 270 | (37) |
63 | 39 | Net gains/(losses) on financial liabilities | 324 | 118 |
439 | 3,916 | Net gain/(loss) on derivatives | 6,727 | 2,311 |
1,250 | 5,144 | Net gains/(losses) on financial instruments | 4,619 | 2,522 |
By source |
||||
1,231 | 4,455 | Core Crown | 4,116 | 2,094 |
209 | 1,082 | Crown entities | 1,058 | 787 |
(11) | (163) | State-owned enterprises | (281) | (105) |
(179) | (230) | Inter-segment eliminations | (274) | (254) |
1,250 | 5,144 | Net gains/(losses) on financial instruments | 4,619 | 2,522 |
Note 13: Gains and Losses on Non-Financial Instruments#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
- | - | Foreign exchange gains/(losses) | (153) | (40) |
- | 287 | Actuarial gains/(losses) on GSF liability | (574) | (1,231) |
- | 1,251 | Actuarial gains/(losses) on ACC outstanding claims | 996 | 410 |
19 | 225 | Other gains/(losses) on non-financial liabilities | 187 | (80) |
(5) | (37) | Gains/(losses) on disposal or revaluation of property, plant and equipment | (565) | (170) |
166 | 169 | Gains/(losses) on agricultural assets | 310 | 183 |
- | - | Gains/(losses) on intangible assets | 1 | (18) |
1 | (5) | Other gains/(losses) on non-financial assets | (123) | (14) |
181 | 1,890 | Net gains/(losses) on non-financial instruments | 79 | (960) |
By source |
||||
21 | 441 | Core Crown | (588) | (1,351) |
(17) | 1,241 | Crown entities | 931 | 398 |
177 | 208 | State-owned enterprises | (264) | (7) |
- | - | Inter-segment eliminations | - | - |
181 | 1,890 | Net gains/(losses) on non-financial instruments | 79 | (960) |
The GSF and ACC liabilities are valued by an independent actuary (refer notes 25 and 26). Actuarial gains/(losses) represent differences between actual results and what the actuary had assumed when originally calculating the liability (experience adjustments) and the effect of changes in actuarial assumptions.
Note 14: Receivables#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
6,288 | 6,449 | Tax receivables | 7,104 | 6,864 |
3,769 | 3,792 | Levies, fines and penalty receivables | 3,440 | 3,560 |
549 | 470 | Social benefit receivables | 480 | 461 |
10,606 | 10,711 | Sovereign receivables | 11,024 | 10,885 |
320 | 723 | Recoveries from receiverships | 739 | - |
3,112 | 6,080 | Trade and other receivables | 9,927 | 2,999 |
14,038 | 17,514 | Total receivables | 21,690 | 13,884 |
By maturity |
||||
12,718 | 12,658 | Expected to be realised within one year | 14,916 | 12,912 |
1,320 | 4,856 | Expected to be outstanding for more than one year | 6,774 | 972 |
14,038 | 17,514 | Total receivables | 21,690 | 13,884 |
By source |
||||
8,357 | 8,956 | Core Crown | 11,376 | 8,776 |
5,033 | 8,218 | Crown entities | 8,999 | 4,713 |
2,229 | 2,223 | State-owned enterprises | 3,576 | 1,740 |
(1,581) | (1,883) | Inter-segment eliminations | (2,261) | (1,345) |
14,038 | 17,514 | Total receivables | 21,690 | 13,884 |
In determining the recoverability of a tax or other sovereign receivables, the Government uses information about the extent to which the tax or levy payer is contesting the assessment and experience of the outcomes of such disputes, from lateness of payment, and other information obtained from credit collection actions taken. Due to the size of the tax base, the concentration of credit risk is limited and this is not a risk that is managed.
The Government does not hold any collateral or any other credit enhancements over receivables which are past due.
All sovereign receivables are denominated in New Zealand dollars.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Tax Receivables |
||
Gross tax receivable | 11,248 | 10,784 |
Impairment of tax receivables | (4,144) | (3,920) |
Total tax receivables | 7,104 | 6,864 |
Gross Tax Receivable |
||
Current | 6,138 | 5,958 |
Past due | 5,110 | 4,826 |
Total gross tax receivable | 11,248 | 10,784 |
% past due | 45% | 45% |
Impairment of Tax Receivables |
||
Opening balance | 3,920 | 3,996 |
Impairment losses recognised during the year | 1,009 | 591 |
Amounts written off as uncollectible | (785) | (667) |
Impairment losses reversed | - | - |
Closing balance | 4,144 | 3,920 |
The Inland Revenue Department (IRD) administers the majority of the tax receivable portfolio. The recoverable amount of the portfolio is calculated by forecasting the expected repayments based on analysis of historical debt data, deducting an estimate of service costs and then discounting at the current market rate. If the recoverable amount of the portfolio is less than the carrying amount, the carrying amount is reduced to the recoverable amount. Alternatively, if the recoverable amount is more, the carrying amount is increased.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
The estimated recoverable amount of this portfolio and key | ||
assumptions underpinning the valuation are: | ||
Recoverable amount of tax receivables (current) | 6,102 | 5,907 |
Recoverable amount of tax receivables (past due) | 1,002 | 957 |
Discount rate | 6.10% | 8.50% |
Impact on recoverable amount of a 2% increase in discount rate | (16) | (15) |
Impact on recoverable amount of a 2% decrease in discount rate | 17 | 16 |
Tax receivables are classified as past due when any outstanding tax is not paid by the taxpayer's due date. Due dates will vary depending on the type of tax outstanding (eg, GST, income tax, PAYE) and the taxpayer's balance date. Past due debt includes debt collected under instalment, debt under dispute, default assessments and debts of taxpayers who are bankrupt, in receivership or in liquidation. IRD has debt management policies and procedures to actively manage the collection of past due debt.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Ageing of Tax Receivables Past Due (Gross) |
||
Less than six months | 982 | 948 |
Between six months and one year | 467 | 601 |
Between one year and two years | 1,014 | 1,097 |
Greater than two years | 2,647 | 2,180 |
Tax receivables past due | 5,110 | 4,826 |
The carrying amount of tax receivables provides a reasonable approximation of their fair value.
Note 14: Receivables (continued)#
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Levies, Fines and Penalty Receivables |
||
Gross ACC levy receivables | 3,251 | 3,355 |
Gross other levies, fines and penalty receivables | 2,205 | 2,014 |
Total gross levies, fines and penalty receivables | 5,456 | 5,369 |
Impairment of ACC levy receivables | (79) | (80) |
Impairment of other levies, fines and penalty receivables | (1,937) | (1,729) |
Total impairment of receivables | (2,016) | (1,809) |
Total levies, fines and penalty receivables | 3,440 | 3,560 |
Impairment of ACC Levy Receivables |
||
Opening balance | 80 | 72 |
Impairment losses recognised during the year | 11 | 8 |
Amounts written off as uncollectible | (12) | - |
Impairment losses reversed | - | - |
Closing balance | 79 | 80 |
Collective impairment allowance | 79 | 80 |
Individual impairment allowance | - | - |
Impairment of ACC Levy Receivables | 79 | 80 |
Impairment of other Levies, Fines and Penalty Receivables |
||
Opening balance | 1,729 | 1,428 |
Impairment losses recognised during the year | 370 | 497 |
Amounts written off as uncollectible | - | - |
Impairment losses reversed | (162) | (196) |
Closing balance | 1,937 | 1,729 |
Collective impairment allowance | 1,937 | 1,729 |
Individual impairment allowance | - | - |
Impairment of other Levies, Fines and Penalty Receivables | 1,937 | 1,729 |
Ageing of Levies, Fines and Penalty Receivables Past Due But Not Impaired |
||
Less than six months | - | 34 |
Between six months and one year | - | - |
Greater than one year | - | - |
Total levies, fines and penalty receivables past due but not impaired | - | 34 |
The ACC levy receivables are short term, so their carrying amount provides a reasonable approximation of their fair value. Of the other levy, fines and penalties receivables, the majority is in the debtor portfolio administered by the Ministry of Justice (ie, court fines, associated court fees and enforcement fees) with a carrying value of $226 million (2010: $230 million). Their carrying amount provides a reasonable approximation of their fair value. The recoverable amount of these Justice receivables is calculated using discounted cash flows (net of estimated service costs).
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Social Benefit Receivables |
||
Gross social benefit receivables | 1,050 | 982 |
Impairment of social benefit receivables | (570) | (521) |
Total social benefit receivables | 480 | 461 |
Impairment of Social Benefit Receivables |
||
Opening balance | 521 | 528 |
Impairment losses recognised during the year | 60 | 45 |
Amounts written off as uncollectible | (11) | (52) |
Impairment losses reversed | - | - |
Closing balance | 570 | 521 |
Collective impairment allowance | 570 | 521 |
Individual impairment allowance | - | - |
Impairment of Social Benefit Receivables | 570 | 521 |
Ageing of Social Benefit Receivables Past Due But Not Impaired |
||
Less than six months | - | - |
Between six months and one year | - | - |
Greater than one year | 101 | 100 |
Total social benefit receivables past due but not impaired | 101 | 100 |
Social benefit receivables comprise benefit overpayments, advances on benefits and recoverable special needs grants primarily administered by the Ministry of Social Development with a carrying value of $466 million (2010: $450 million). The recoverable amount of social benefit receivables is determined by discounting the expected future cash flows (net of estimated service costs).
Their carrying amount provides a reasonable approximation of their fair value.
30 June 2011 $m |
30 June 2010 $m |
|
---|---|---|
Recoveries from receiverships |
||
Opening balance of recoveries expected from receiverships | 13 | - |
Recoveries expected from entities defaulting during the year | 1,104 | - |
Revision of expected recoveries | (236) | - |
Payments received from receivers | (142) | - |
Closing balance | 739 | - |
Total payments to depositors under the Guarantee scheme | 1,897 | 43 |
As a consequence of payments made to depositors of failed finance companies under the deposit guarantee scheme, the Crown has inherited the beneficial interest in the proceeds that can be recovered from the secured assets of the receiverships. The reported receivables represent the receivers’ best prudent estimates of likely recoveries from the receiverships. However the eventual return to the Crown is dependent upon the value that can be realised from these entities’ assets and the timing of receipts. A range of outcomes for eventual recoveries is possible. The Crown monitors the receiverships to obtain assurance that optimal proceeds are realised as soon as possible. In the 2010 financial statements the recoveries from receiverships were disclosed as part of the provision for the deposit guarantee scheme (refer note 27).
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Trade and Other Receivables |
||
Gross trade and other receivables | 10,009 | 3,064 |
Impairment of trade and other receivables | (82) | (65) |
Total trade and other receivables | 9,927 | 2,999 |
Impairment of Trade and Other Receivables |
||
Opening balance | 65 | 43 |
Impairment losses recognised during the year | 33 | 26 |
Amounts written off as uncollectible | (15) | (3) |
Impairment losses reversed | (1) | (1) |
Closing balance | 82 | 65 |
Collective impairment allowance | 68 | 54 |
Individual impairment allowance | 14 | 11 |
Impairment of Trade and Other Receivables | 82 | 65 |
Ageing of Trade and Other Receivables Past Due But Not Impaired |
||
Less than six months | 175 | 136 |
Between six months and one year | 9 | 14 |
Greater than one year | 5 | 3 |
Total trade and other receivables past due but not impaired | 189 | 153 |
Trade and other receivables include $5,381 million relating to AMI and EQC relating to reinsurance receivables. The rest of the trade and other receivables are short term, with $4,310 million (2010: $2,776 million) expected to be settled in the next year. Their carrying amount provides a reasonable approximation of their fair value.
Note 15: Marketable securities, deposits and derivatives in gain#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
39,663 | 41,485 | Marketable securities | 39,214 | 35,732 |
2,240 | 2,161 | Long term deposits | 2,259 | 2,784 |
1,771 | 3,053 | Derivatives in gain | 5,415 | 2,972 |
2,546 | 2,307 | IMF financial assets | 2,168 | 2,199 |
46,220 | 49,006 | Total marketable securities, deposits and derivatives in gain | 49,056 | 43,687 |
By maturity |
||||
36,443 | 38,131 | Expected to be realised within one year | 36,448 | 32,446 |
9,777 | 10,875 | Expected to be held for more than one year | 12,608 | 11,241 |
46,220 | 49,006 | Total marketable securities, deposits and derivatives in gain | 49,056 | 43,687 |
By source |
||||
36,998 | 39,236 | Core Crown | 39,686 | 35,376 |
14,333 | 15,744 | Crown entities | 16,939 | 14,091 |
3,093 | 3,188 | State-owned enterprises | 2,651 | 2,566 |
(8,204) | (9,162) | Inter-segment eliminations | (10,220) | (8,346) |
46,220 | 49,006 | Total marketable securities, deposits and derivatives in gain | 49,056 | 43,687 |
Marketable securities comprise bonds, commercial paper, debentures and similar tradable financial assets held by the Government for the purposes of realising capital gains or interest revenue. Marketable securities and derivatives in gain are reported at their fair value. Fair value is either based on quoted market price or using a valuation model if there is no active market. The valuation models used generally calculate the expected cash flows under the terms of each specific contract and then discounts these values back to present value.
Long-term deposits are instruments with maturities greater than three months that are not traded in an active market. Long-term deposits are measured at amortised cost. Their carrying amount provides a reasonable approximation of their fair value.
Note 16: Share Investments#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By maturity |
||||
11,936 | 8,660 | Expected to be realised within one year | 8,284 | 7,451 |
5,835 | 5,546 | Expected to be held for more than one year | 5,964 | 4,728 |
17,771 | 14,206 | Total share investments | 14,248 | 12,179 |
By source |
||||
9,948 | 7,101 | Core Crown | 6,879 | 5,768 |
7,786 | 7,088 | Crown entities | 7,198 | 6,392 |
65 | 57 | State-owned enterprises | 207 | 60 |
(28) | (40) | Inter-segment eliminations | (36) | (41) |
17,771 | 14,206 | Total share investments | 14,248 | 12,179 |
Share investments are reported at fair value. The fair value of listed share investments is based on quoted market prices. The fair value of unlisted share investments is determined from the initial cost of the investment and adjusted for performance of the business and changes in equity market conditions since inception date.
Note 17: Advances#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
7,300 | 7,325 | Student loans | 7,460 | 6,790 |
12,411 | 11,255 | Kiwibank mortgages | 11,495 | 10,419 |
700 | 1,271 | Other advances | 1,612 | 1,238 |
20,411 | 19,851 | Total advances | 20,567 | 18,447 |
By source |
||||
11,543 | 12,267 | Core Crown | 12,447 | 11,088 |
364 | 368 | Crown entities | 368 | 416 |
12,762 | 11,720 | State-owned enterprises | 12,382 | 11,114 |
(4,258) | (4,504) | Inter-segment eliminations | (4,630) | (4,171) |
20,411 | 19,851 | Total advances | 20,567 | 18,447 |
Student Loans |
||||
12,050 | 12,024 | Nominal value | 12,070 | 11,145 |
(4,750) | (4,699) | Write-down on initial recognition and impairment | (4,610) | (4,355) |
7,300 | 7,325 | Total student loans | 7,460 | 6,790 |
Gross carrying value | 8,697 | 8,152 | ||
Impairment of student loans | (1,237) | (1,362) | ||
Total student loans | 7,460 | 6,790 | ||
By maturity |
||||
Expected to be repaid within one year | 787 | 759 | ||
Expected to be outstanding for more than one year | 6,673 | 6,031 | ||
Total student loans | 7,460 | 6,790 | ||
Movement During the Year |
||||
6,874 | 6,790 | Opening balance | 6,790 | 6,553 |
1,616 | 1,579 | Amount lent in the current year | 1,564 | 1,525 |
(772) | (707) | Less initial write-down to fair value | (713) | (728) |
(826) | (786) | Repayments made during the year | (802) | (754) |
506 | 501 | Interest unwind | 484 | 463 |
(110) | (64) | Impairment losses (recognised)/reversed during the year | 125 | (280) |
12 | 12 | Other movements | 12 | 11 |
7,300 | 7,325 | Closing balance student loans | 7,460 | 6,790 |
Impairment of Student Loans |
||||
Opening balance | 1,362 | 1,082 | ||
Impairment losses recognised during the year | (125) | 280 | ||
Amounts written off as uncollectible | - | - | ||
Impairment losses reversed | - | - | ||
Closing balance | 1,237 | 1,362 |
Student loans are recognised initially by writing the amount lent down to fair value plus transaction costs, and subsequently measured at amortised cost using the effective interest rate method, less any impairment loss. Fair value on initial recognition of student loans is determined by projecting forward expected repayments required under the scheme and discounting them back at an appropriate discount rate. The difference between the amount lent and the fair value on initial recognition is expensed on initial recognition. The subsequent measurement at amortised cost is determined using the effective interest rate calculated at initial recognition. This rate is used to spread the Crown's interest income across the life of the loan and determines the loan's carrying value at each reporting date.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Significant assumptions behind the carrying value are: | ||
Effective interest rate - current year | 8.1% | 9.5% |
Effective interest rate - weighted average | 7.1% | 7.0% |
Interest rate applied to loans for overseas borrowers | 6.6%-6.7% | 6.6%-6.8% |
CPI | 2.5%-2.8% | 2.4%-3.0% |
Future salary inflation | 3.5%-3.8% | 3.0%-3.5% |
In contrast with the amortised cost approach described above, fair value is the amount for which the loans could be exchanged between knowledgeable, willing parties in an arm's-length transaction as at 30 June 2011. It is determined by discounting the cash flows at an appropriate discount rate.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Fair value of the student loan portfolio | 7,221 | 6,366 |
Impact on fair value of a 1% increase in discount rate | (416) | (361) |
Impact on fair value of a 1% decrease in discount rate | 475 | 412 |
The fair value differs from the carrying value due to changes in market interest rates at reporting date. The carrying value is not adjusted for such changes as it is valued using the effective interest rate determined when the loan was initially drawn. However, the fair value was calculated on a discount rate that was current at 30 June 2011. At that date the fair value was calculated on a discount rate of 7.6% (2010: 7.7%) whereas a weighted average effective interest rate of 7.1% was used for the carrying value. Therefore the lower fair value does not represent an impairment of the asset.
Through the everyday operations of the student loan scheme the Government is exposed to the risk that borrowers will default on their obligation to repay their loans or die before their loan is repaid. The student loan scheme does not require borrowers to provide any collateral or security to support their borrowings. As the total sum advanced is widely dispersed over a large number of borrowers, the scheme does not have any material individual concentrations of credit risk. The credit risk is reduced by collection of repayments through the tax system.
The Student Loan Scheme Annual Report contains more information on the student loan scheme.
Note 17: Advances (continued)#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Kiwibank Mortgages |
||||
By maturity |
||||
993 | 1,045 | Expected to be repaid within one year | 1,028 | 908 |
11,418 | 10,210 | Expected to be outstanding for more than one year | 10,467 | 9,511 |
12,411 | 11,255 | Total Kiwibank mortgages | 11,495 | 10,419 |
Impairment of Kiwibank Mortgages |
||||
Opening balance | 20 | 12 | ||
Impairment losses recognised on mortgages | 56 | 8 | ||
Amounts written off as uncollectible | 12 | - | ||
Impairment losses reversed | (1) | - | ||
Closing balance | 87 | 20 | ||
Collective impairment allowance | 37 | 10 | ||
Individual impairment allowance | 50 | 10 | ||
Impairment of Kiwibank Mortgages | 87 | 20 | ||
Ageing of Kiwibank Mortgages Past Due But Not Impaired |
||||
Less than six months | 185 | 218 | ||
Between six months and one year | - | - | ||
Greater than one year | - | - | ||
Total Kiwibank mortgages past due but not impaired | 185 | 218 | ||
Fair value of collateral held | 166 | 207 | ||
Measurement Basis for Kiwibank Mortgages |
||||
Kiwibank mortgages measured at amortised cost | 11,047 | 9,183 | ||
Kiwibank mortgages measured at fair value | 448 | 1,236 | ||
Total Kiwibank mortgages | 11,495 | 10,419 |
Kiwibank mortgages originating since 1 January 2008 are measured at amortised cost as these mortgages are generally managed on a held-to-maturity basis. Retail fixed rate lending issued prior to 1 January 2008 has been designated at fair value through the profit and loss, as this significantly reduces an accounting mismatch, which would arise if such loans were carried at amortised cost, and the derivatives, which have been entered into to offset the interest rate risk on the retail fixed loans are held for trading. Movements in fair value are reported in the statement of financial performance.
The fair value of Kiwibank mortgages measured at amortised cost is $11,107 million (2010: $9,218 million). This valuation is based on a discounted cash flow model with reference to market interest rates, prepayment rates and estimated credit losses.
The maximum loss due to default on Kiwibank mortgages is the carrying value reported in the statement of financial position. Collateral is obtained to mitigate any risk of loss, which in the case of Kiwibank mortgages are primarily in the form of properties.
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Other Advances |
||||
By maturity |
||||
70 | 235 | Expected to be repaid within one year | 763 | 269 |
630 | 1,036 | Expected to be outstanding for more than one year | 849 | 969 |
700 | 1,271 | Total other advances | 1,612 | 1,238 |
Impairment of Other Advances |
||||
Opening balance | 84 | 102 | ||
Impairment losses recognised during the year | 141 | 67 | ||
Amounts written off as uncollectible | (33) | (78) | ||
Impairment losses reversed | (2) | (7) | ||
Closing balance | 190 | 84 | ||
Collective impairment allowance | 134 | 73 | ||
Individual impairment allowance | 56 | 11 | ||
Impairment of Other Advances | 190 | 84 | ||
Ageing of Other Advances Past Due But Not Impaired |
||||
Less than six months | - | 14 | ||
Between six months and one year | - | - | ||
Greater than one year | - | - | ||
Total other advances past due but not impaired | - | 14 | ||
Measurement Basis for Other Advances |
||||
680 | 1,024 | Other advances measured at amortised cost | 1,367 | 1,011 |
20 | 247 | Other advances measured at fair value | 245 | 227 |
700 | 1,271 | Total other advances | 1,612 | 1,238 |
The NZS Fund, Public Trust and a number of SOE's manage the majority of these advances.
Other advances measured at fair value are those that are managed and performance is evaluated on a fair value basis. As they are designated at fair value through profit and loss, the value of these instruments will be affected by changes in interest rates. Changes to interest rates may arise from features specific to these assets (ie, changes to credit risk on these assets) and broader market sentiment changes.
Their carrying amount provides a reasonable approximation of their fair value.
Note 18: Inventory#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
Inventories held for sale | 100 | 93 | ||
Military inventories | 317 | 287 | ||
Other consumables | 891 | 780 | ||
1,228 | 1,309 | Total inventory | 1,308 | 1,160 |
By maturity |
||||
1,035 | 1,083 | Expected to be sold or consumed within one year | 1,112 | 959 |
193 | 226 | Expected to be sold or consumed after one year | 196 | 201 |
1,228 | 1,309 | Total inventory | 1,308 | 1,160 |
By source |
||||
472 | 450 | Core Crown | 450 | 422 |
178 | 193 | Crown entities | 180 | 177 |
578 | 666 | State-owned enterprises | 678 | 561 |
- | - | Inter-segment eliminations | - | - |
1,228 | 1,309 | Total inventory | 1,308 | 1,160 |
Note 19: Other Assets#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
354 | 415 | Prepayments | 467 | 428 |
56 | 65 | Investment property | 56 | 71 |
664 | 704 | Agricultural assets | 759 | 664 |
315 | 379 | Investment in supranational organisations | 360 | 302 |
99 | 105 | Other | 354 | 196 |
1,488 | 1,668 | Total other assets | 1,996 | 1,661 |
By maturity |
||||
488 | 543 | Expected to be realised within one year | 859 | 642 |
1,000 | 1,125 | Expected to be held for more than one year | 1,137 | 1,019 |
1,488 | 1,668 | Total other assets | 1,996 | 1,661 |
By source |
||||
963 | 1,125 | Core Crown | 1,241 | 1,041 |
123 | 152 | Crown entities | 199 | 149 |
431 | 420 | State-owned enterprises | 611 | 509 |
(29) | (29) | Inter-segment eliminations | (55) | (38) |
1,488 | 1,668 | Total other assets | 1,996 | 1,661 |
Note 20: Property, Plant and Equipment#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Net Carrying Value |
||||
By class of asset |
||||
16,570 | 16,803 | Land (valuation) | 16,372 | 16,688 |
25,831 | 24,822 | Buildings (valuation) | 24,539 | 24,019 |
2,887 | 2,812 | Electricity distribution network (cost) | 2,690 | 2,251 |
12,333 | 13,953 | Electricity generation assets (valuation) | 14,439 | 13,642 |
2,347 | 2,083 | Aircraft (excluding military) (valuation) | 1,805 | 1,731 |
25,596 | 25,838 | State highways (valuation) | 25,126 | 24,838 |
13,224 | 12,554 | Rail network (valuation) | 12,749 | 12,437 |
3,835 | 3,382 | Specialist military equipment (valuation) | 3,331 | 3,413 |
8,645 | 8,522 | Specified cultural and heritage assets (valuation) | 8,133 | 8,505 |
6,474 | 6,164 | Other plant and equipment (cost) | 5,670 | 5,806 |
117,742 | 116,933 | Total property, plant and equipment | 114,854 | 113,330 |
By source |
||||
31,877 | 30,334 | Core Crown | 29,549 | 29,986 |
49,453 | 49,722 | Crown entities | 48,480 | 48,109 |
36,412 | 36,877 | State-owned enterprises | 36,825 | 35,235 |
- | - | Inter-segment eliminations | - | - |
117,742 | 116,933 | Total property, plant and equipment | 114,854 | 113,330 |
By holding |
||||
1,639 | 1,121 | Leasehold | 1,316 | 1,166 |
116,103 | 115,812 | Freehold | 113,538 | 112,164 |
117,742 | 116,933 | Total property, plant and equipment | 114,854 | 113,330 |
Property, plant and equipment pledged to secure borrowing | 1,246 | 1,156 |
Borrowing by the Crown is, under Section 55 of the Public Finance Act 1989, a charge on the revenue of the Crown equally and rateably. Therefore, no property, plant and equipment owned by the core Crown has been pledged as security for liabilities. Government-owned property, plant and equipment is, however, subject to a significant number of legislative and policy restrictions with respect to its use and disposal.
These carrying values critically depend on judgements of useful lives to determine depreciation and the assumptions used in revaluations. Depreciation rates are affirmed to be appropriate each year by those responsible for managing the assets, whereas assurance on the assumptions used in valuations is provided by the use of independent valuers as noted below.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Total Property, Plant and Equipment |
||
Cost or Valuation |
||
Opening balance | 123,941 | 119,547 |
Additions | 6,558 | 6,274 |
Acquisitions through business combinations | 86 | 281 |
Disposals | (1,283) | (977) |
Net revaluations | (2,471) | (1,143) |
Net foreign currency exchange differences | (9) | (19) |
Other | (221) | (22) |
Total cost or valuation | 126,601 | 123,941 |
Accumulated Depreciation and Impairment |
||
Opening balance | 10,611 | 9,412 |
Eliminated on disposal | (832) | (587) |
Eliminated on revaluation | (1,884) | (1,349) |
Impairment losses charged to operating balance | 30 | 4 |
Reversals of impairment losses charged to operating balance | (21) | (465) |
Depreciation expense | 3,727 | 3,582 |
Net foreign currency exchange differences | 1 | (12) |
Other | 115 | 26 |
Total accumulated depreciation and impairment | 11,747 | 10,611 |
Total property, plant and equipment | 114,854 | 113,330 |
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Land (valuation) |
||
Opening balance | 16,688 | 16,289 |
Additions | 180 | 224 |
Acquisitions through business combinations | - | 4 |
Disposals | (148) | (135) |
Net revaluations | (376) | 302 |
Other | 28 | 4 |
Carrying value of land | 16,372 | 16,688 |
By holding |
||
Leasehold | - | - |
Freehold | 16,372 | 16,688 |
Carrying value of land | 16,372 | 16,688 |
The value of the land underneath state highways and the rail network, as well as land set aside for cultural and heritage purposes (i.e. national parks, forest parks, conservation areas and recreational facilities) is included as a component of the value of those separate classes of assets.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Buildings (valuation) |
||
Opening balance | 26,051 | 25,184 |
Additions | 1,537 | 1,819 |
Acquisitions through business combinations | 33 | 19 |
Disposals | (157) | (306) |
Net revaluations | (702) | (564) |
Net foreign currency exchange differences | (8) | (13) |
Other | (102) | (88) |
Total buildings (valuation) | 26,652 | 26,051 |
Accumulated Depreciation and Impairment on Buildings |
||
Opening balance | 2,032 | 1,465 |
Eliminated on disposal | (118) | (22) |
Eliminated on revaluation | (902) | 36 |
Impairment losses charged to operating balance | 3 | 1 |
Reversals of impairment losses charged to operating balance | 6 | (462) |
Depreciation expense | 1,080 | 1,073 |
Net foreign currency exchange differences | - | (12) |
Other | 12 | (47) |
Accumulated depreciation and impairment on buildings | 2,113 | 2,032 |
Carrying value of buildings | 24,539 | 24,019 |
By holding |
||
Leasehold | 216 | 253 |
Freehold | 24,323 | 23,766 |
Carrying value of buildings | 24,539 | 24,019 |
Independent valuations of the Government's land and buildings have been performed by a number of valuers to determine the fair value of the land and buildings. The valuations, which conform to International Valuation Standards, were determined by reference to prices for similar properties and in some cases by reference to discounted cash flows or depreciated replacement cost.
Note 20: Property, Plant and Equipment (continued)#
Valuation details for land and buildings with a carrying value over $500 million are as follows:
Category | Valuer/Reviewer | Approach | Timing | Carrying value ($m) |
---|---|---|---|---|
Housing stock | Quotable Value NZ Limited | Valuations based on market evidence or adjusted current rating valuations. | Annual valuation cycle. Latest valuation completed as at 30 June 2011. |
14,998 (2010: 15,165) |
School property | Darroch Limited or experienced ministry staff (reviewed by Darroch) | Valuations based on market evidence where possible, or depreciated replacement cost. | Annual valuation cycle. Latest valuation completed as at 30 June 2011. |
10,170 (2010: 10,048) |
Corrections Land and Buildings | Darroch Limited | The latest full valuation was based on market evidence, except for prison buildings, which were valued at optimised depreciated replacement cost. | Two-year valuation cycle. Latest full valuation completed as at 30 June 2011. |
2,070 (2010: 1,978) |
NZ Defence Force Land and Buildings | Darroch Limited | Valuations were based on market evidence or rating valuations. | Five-year valuation cycle. Latest full valuation completed as at 30 June 2010. |
1,851 (2010: 1,819) |
Landcorp land and buildings on owned land (excluding protected land and buildings on leased land) | Quotable Value NZ Limited | Valuations based on market evidence where possible. Buildings on leased land and protected land is not revalued. | Annual valuation cycle. Latest valuation completed as at 30 June 2011. |
1,176 (2010: 997) |
Auckland District Health Board land and Buildings | Telfer Young | The latest full valuation for land was based on market evidence, while buildings were valued at optimised depreciated replacement cost. | Annual valuation cycle. Latest full valuation completed as at 30 June 2011. |
754 (2010: 790) |
New Zealand Police Land and Buildings | Experienced staff undertake the property valuation in-house, using Beca Valuations Ltd as an expert adviser. | Valuations based on market evidence where possible, or depreciated replacement cost. | Three-year valuation cycle. Latest full valuation performed as at 30 June 2009. |
727 (2010: 746) |
Ministry of Justice Land and Buildings | Beca Valuations Ltd | Valuations based on market evidence where possible. | Annual valuation cycles with physical inspections every three years. The latest full physical inspection was as at 30 June 2009. |
584 (2010: 583) |
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Electricity Distribution Network (cost) |
||
Opening balance | 2,993 | 2,677 |
Additions | 484 | 320 |
Disposals | (7) | (3) |
Other | 77 | (1) |
Total electricity distribution network (cost) | 3,547 | 2,993 |
Accumulated Depreciation and Impairment on Electricity Distribution Network |
||
Opening balance | 742 | 631 |
Eliminated on disposal | (32) | (30) |
Depreciation expense | 147 | 140 |
Other | - | 1 |
Accumulated depreciation and impairment on electricity distribution network | 857 | 742 |
Carrying value of electricity distribution network | 2,690 | 2,251 |
By holding |
||
Leasehold | - | - |
Freehold | 2,690 | 2,251 |
Carrying value of electricity distribution network | 2,690 | 2,251 |
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Electricity Generation Assets (valuation) |
||
Opening balance | 13,816 | 12,079 |
Additions | 366 | 406 |
Acquisitions through business combinations | - | 236 |
Disposals | (6) | (9) |
Net revaluations | 633 | 993 |
Net foreign currency exchange differences | 7 | - |
Other | (361) | 111 |
Total electricity generation assets | 14,455 | 13,816 |
Accumulated Depreciation and Impairment on Electricity Generation Assets |
||
Opening balance | 174 | 415 |
Eliminated on disposal | (9) | (8) |
Eliminated on revaluation | (414) | (589) |
Depreciation expense | 374 | 356 |
Other | (109) | - |
Accumulated depreciation and impairment on electricity generation assets | 16 | 174 |
Carrying value of electricity generation assets | 14,439 | 13,642 |
By holding |
||
Leasehold | 2 | 2 |
Freehold | 14,437 | 13,640 |
Carrying value of electricity generation assets | 14,439 | 13,642 |
Independent valuations of the Government's electricity generation assets have been performed as detailed below:
Entity | Valuer/Reviewer | Approach | Timing | Carrying value ($m) |
---|---|---|---|---|
Meridian Energy Limited | Pricewaterhouse Coopers | Valuations of generation structures and plant are based on both the capitalisation of earnings methodology, applied to Meridian as a whole, and the discounted cash flow methodology. | Regular revaluations not to exceed five years. Latest valuation completed as at 30 June 2011. |
7,558 (2010: 8,031) |
Mighty River Power Limited | Pricewaterhouse Coopers | Valuations based on net present value of future earnings of the assets on an existing use basis, excluding disposal and restoration costs. | Regular revaluations not to exceed five years. All generation assets were last valued as at 30 June 2011. |
4,418 (2010: 4,061) |
Genesis Power Limited | Internal valuation performed by management which was independently reviewed by Pricewaterhouse Coopers. | The valuation was based on the present value of future cash flows associated with the assets on an existing use basis. | Regular revaluations not to exceed five years. Latest valuation completed as at 30 June 2011. |
2,603 (2010: 1,479) |
Note 20: Property, Plant and Equipment (continued)#
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Aircraft (excluding military) (valuation) |
||
Opening balance | 1,743 | 1,957 |
Additions | 671 | 126 |
Disposals | (16) | (11) |
Net revaluations | (578) | (312) |
Other | 1 | (17) |
Total aircraft (excluding military) | 1,821 | 1,743 |
Accumulated Depreciation and Impairment on Aircraft |
||
Opening balance | 12 | 5 |
Eliminated on disposal | (6) | (5) |
Eliminated on revaluation | (161) | (147) |
Impairment losses charged to operating balance | - | 1 |
Reversals of impairment losses charged to operating balance | - | (1) |
Depreciation expense | 171 | 173 |
Other | - | (14) |
Accumulated depreciation and impairment on aircraft | 16 | 12 |
Carrying value of aircraft (excluding military) | 1,805 | 1,731 |
By holding |
||
Leasehold | 1,040 | 812 |
Freehold | 765 | 919 |
Carrying value of aircraft (excluding military) | 1,805 | 1,731 |
Aircraft and related assets are valued annually. Independent valuations as at 30 June 2011 have been obtained from The Aircraft Value Analysis Company and Ascend Worldwide Limited to ascertain indicative market values of each aircraft on a stand-alone basis. The carrying value of the aircraft is recorded at an average of the valuations provided by the two valuers.
Related assets include spare engines and flight simulators.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
State Highways (valuation) |
||
Opening balance | 24,838 | 24,067 |
Additions | 1,351 | 1,289 |
Disposals | (28) | (43) |
Net revaluations | (1,050) | (470) |
Other | 15 | (5) |
Total state highways | 25,126 | 24,838 |
Accumulated Depreciation and Impairment on State Highways |
||
Opening balance | - | - |
Eliminated on revaluation | (408) | (403) |
Depreciation expense | 408 | 403 |
Accumulated depreciation and impairment on state highways | - | - |
Carrying value of state highways | 25,126 | 24,838 |
By holding |
||
Leasehold | - | - |
Freehold | 25,126 | 24,838 |
Carrying value of state highways | 25,126 | 24,838 |
State highways comprise the land, formation works, road structure, drainage works and traffic facilities of the roads, bridges, culverts, tunnels, stock and pedestrian underpasses, protection works and retaining structures. The state highways valuation is performed by an independent valuer, Opus International Consultants Limited with property valuations supplied by Darroch Limited. All 14 state highway regions were subject to a full revaluation in 2008/09. A cyclical basis is now being used so that each region is revalued at an interval not exceeding 3.5 years. Those regions that are not subject to a full revaluation in a particular year will be subject to a valuation update through the use of price indices.
State highways are valued at depreciated replacement cost based on the estimated present cost of constructing the existing assets by the most appropriate method of construction, reduced by factors for the age and condition of the asset. State highway corridor land, is included as part of the state highway, and is valued using an opportunity cost based on adjacent use, as an approximation to fair value.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Rail Network (valuation) |
||
Opening balance | 12,635 | 12,520 |
Additions | 577 | 462 |
Disposals | (55) | - |
Net revaluations | - | (347) |
Total rail network | 13,157 | 12,635 |
Accumulated Depreciation and Impairment on Rail Network |
||
Opening balance | 198 | 14 |
Eliminated on disposal | 11 | - |
Eliminated on revaluation | - | (24) |
Reversals of impairment losses charged to operating balance | (12) | - |
Depreciation expense | 210 | 208 |
Other | 1 | - |
Accumulated depreciation and impairment on rail network | 408 | 198 |
Carrying value of rail network | 12,749 | 12,437 |
By holding |
||
Leasehold | - | - |
Freehold | 12,749 | 12,437 |
Carrying value of rail network | 12,749 | 12,437 |
The rail network assets comprise land, buildings, and rail infrastructure assets (bridges, tunnels, tracks, level crossings, signals and electrification). The assets are recorded at their fair value at the date of the last revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
Valuations are undertaken in accordance with the standards issued by the New Zealand Property Institute. Land and buildings were valued at 30 June 2010 by Darroch Limited. The last valuation of rail infrastructure assets was as at 30 June 2009 and was conducted by DTZ New Zealand Limited.
Railway infrastructure assets and specialised land and buildings are valued using optimised depreciated replacement cost. Non-specialised land and buildings which could be sold with relative ease are valued at market value. Land associated with the rail corridor is valued using an opportunity cost based on adjacent use, as an approximation to fair value.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Specialist Military Equipment (valuation) |
||
Opening balance | 3,889 | 4,394 |
Additions | 198 | 176 |
Disposals | (42) | (23) |
Net revaluations | 6 | (658) |
Other | (13) | - |
Total specialist military equipment | 4,038 | 3,889 |
Accumulated Depreciation and Impairment on Specialist Military Equipment |
||
Opening balance | 476 | 467 |
Eliminated on disposal | (42) | (31) |
Eliminated on revaluation | 1 | (245) |
Depreciation expense | 272 | 286 |
Other | - | (1) |
Accumulated depreciation and impairment on specialist military equipment | 707 | 476 |
Carrying value of specialist military equipment | 3,331 | 3,413 |
By holding |
||
Leasehold | - | - |
Freehold | 3,331 | 3,413 |
Carrying value of specialist military equipment | 3,331 | 3,413 |
Valuations use a market based approach, except where reliable market evidence is unavailable and then optimised depreciated replacement cost is used to calculate fair value.
The internally assessed valuation for specialist military equipment was performed at 30 June 2010 and was reviewed by an independent registered valuer (Beca Valuations Limited).
Note 20: Property, Plant and Equipment (continued)#
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Specified Cultural and Heritage Assets (valuation) |
||
Opening balance | 8,872 | 8,957 |
Additions | 64 | 75 |
Disposals | (19) | (12) |
Net revaluations | (405) | (87) |
Other | 1 | (61) |
Total specified cultural and heritage assets | 8,513 | 8,872 |
Accumulated Depreciation and Impairment on Specified Cultural and Heritage Assets |
||
Opening balance | 367 | 375 |
Eliminated on disposal | (6) | (48) |
Eliminated on revaluation | - | 23 |
Reversals of impairment losses charged to operating balance | (22) | - |
Depreciation expense | 19 | 17 |
Other | 22 | - |
Accumulated depreciation and impairment on specified cultural and heritage assets | 380 | 367 |
Carrying value of specified cultural and heritage assets | 8,133 | 8,505 |
By holding |
||
Leasehold | - | - |
Freehold | 8,133 | 8,505 |
Carrying value of specified cultural and heritage assets | 8,133 | 8,505 |
By group |
||
National Archives | 440 | 522 |
National Library | 844 | 984 |
Conservation property | 6,021 | 6,240 |
Parliamentary Library | 29 | 29 |
Te Papa | 776 | 725 |
Other | 23 | 5 |
Carrying value of specified cultural and heritage assets | 8,133 | 8,505 |
There are difficulties associated with obtaining an objective valuation for the specified cultural and heritage assets of the Government. These are discussed below:
National Archives Holdings#
Archives in the possession of the Department of Internal Affairs (previously held by Archives New Zealand) have been valued and recorded at a best estimate of fair value as at 30 June 2011. Non exceptional items are revalued every three years and were last revalued in June 2011 using a methodology that divided the collection into categories by format and age, to associate records that could be said to have a broad commonality of value. Benchmark valuations were obtained from an independent valuer, Dunbar Sloane, through market assessments and from other collections of a similar nature to Government archives. Accessions since the date of valuation are valued on the basis of these benchmarks.
The value of the Treaty of Waitangi was based on a valuation as at 30 June 2011, supported by Sotheby's, an independent valuer. Other items of exceptional value were based on a valuation from Dunbar Sloane, also obtained in June 2011. These valuations were based on market assessments and comparisons with other items of a similar nature.
The Protected New Zealand Objects Act 1975 requires protected records to be kept in safe custody in accordance with the directions of the Minister for Arts, Culture and Heritage. Also, the Public Records Act 2005 establishes a recordkeeping framework, focusing on supporting good recordkeeping in Government.
National Library collections#
The Heritage Collections are valued at fair value with valuations performed every three years. The latest valuation was performed by National Library staff as at 30 June 2011. The carrying value includes the value of purchases for the collections since the last revaluation and the value of material received through donation and legal deposit.
Section 11 of the National Library of New Zealand (Te Puna Mātauranga o Aotearoa) Act 2003 requires the Crown to own the collections of the Alexander Turnbull Library in perpetuity. The Heritage Collections are not depreciated.
Conservation Property#
Conservation property includes the Conservation Estate land (national parks, forest parks, conservation areas) and recreational facilities. The Conservation Estate land is initially recognised at cost and is revalued based on rateable valuations supplied by PropertyIQ. Land not matched to a rateable valuation is assessed using an average per hectare rate. Land values were independently confirmed as appropriate by Crightonstone Limited.
The Department of Conservation recreational facilities were recorded at their fair value.
The use and disposal of all the Crown land managed by the Department of Conservation is determined by legislation, in particular the Reserves Act 1977, the National Parks Act 1980 and the Conservation Act 1987. The Crown land managed by the Department is not subject to mortgages or other charges. Specific areas may, however, be included in the Treaty settlements if the Crown decides to offer those areas to claimants. Some areas may be subject to leases, licences or permits issued by the Department under concession provisions of the relevant legislation.
Parliamentary Library#
The Library Heritage collection is valued at current market value on an annual basis by the Service's library staff in accordance with guidelines released by the New Zealand Library Association and the National Library of New Zealand.
Library Reference Collections are measured at historic cost.
Te Papa's collections#
Te Papa's collections have been valued at cost or market value, with the exception of the Natural Environment collections, which are shown at replacement cost. Collections are valued annually, with each class of collection valued at least once every three years. Acquisitions to collections between revaluations are recorded at cost. As the collections tend to have an indefinite life and are generally not of a depreciable nature, depreciation is not applicable.
The valuation for the Library, History and Photographic collections was undertaken by Webb's (Auckland) as independent valuers in 2011.
The valuation of the Botanical, Vertebrate and Invertebrate Collections was conducted by a Te Papa-developed in house model based on current replacement costs. The model was independently validated by Simon Storey, of Simon Storey Valuers, Sydney, an accredited valuer of similar collections for the Australian Government.
Crown Research Institutes “collection type” asset values#
The Crown, when establishing Crown Research Institutes in 1992, transferred various national databases and reference collections to individual Institutes at nil value. No reliable valuation is able to be obtained for these assets, and so they remain at nil value. Many of the databases and collections were specifically identified by the Foundation for Research, Science and Technology (now part of the Ministry of Science and Innovation) as being of significant importance and as such have covenants attached to them restricting an Institute's ability to deal with them.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Other Plant and Equipment (cost) |
||
Opening balance | 12,416 | 11,423 |
Additions | 1,130 | 1,377 |
Acquisitions through business combinations | 53 | 22 |
Disposals | (805) | (435) |
Net revaluations | 1 | - |
Net foreign currency exchange differences | (8) | (6) |
Other | 133 | 35 |
Total other plant and equipment | 12,920 | 12,416 |
Accumulated Depreciation and Impairment on Other Plant and Equipment |
||
Opening balance | 6,610 | 6,040 |
Eliminated on disposal | (630) | (443) |
Impairment losses charged to operating balance | 27 | 2 |
Reversals of impairment losses charged to operating balance | 7 | (2) |
Depreciation expense | 1,046 | 926 |
Net foreign currency exchange differences | 1 | - |
Other | 189 | 87 |
Accumulated depreciation and impairment on other plant and equipment | 7,250 | 6,610 |
Carrying value of other plant and equipment | 5,670 | 5,806 |
By holding |
||
Leasehold | 58 | 99 |
Freehold | 5,612 | 5,707 |
Carrying value of other plant and equipment | 5,670 | 5,806 |
Note 21: Equity Accounted Investments#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
7,558 | 7,972 | Tertiary Education Institutions | 7,968 | 7,740 |
1,882 | 1,426 | Other | 1,333 | 1,309 |
9,440 | 9,398 | Total equity accounted investments | 9,301 | 9,049 |
Tertiary Education Institutions (TEIs)#
TEIs are Crown entities, and the Government has a number of legislative powers with respect to them in the interests of public accountability and has some significant reserve controls in the event of an institution facing financial risk. However, the Government does not determine the operating and financing policies of TEIs, if they are not at financial risk, but rather is committed to safeguarding their academic freedom and autonomy. By so doing, the Government obtains the benefits of an effective tertiary education sector. Their relationship to the Crown is managed by a plan agreed between them and the Tertiary Education Commission.
The applicability of the test for consolidation in accounting standards as it applies to TEIs and the Government is unclear, and is still under consideration by the relevant accounting authorities. In the interim the TEIs have been included in the accounts as a 100% equity accounted investment.
The financial year of TEIs is the academic year ending 31 December. Half-year information is used to incorporate TEI information into the financial statements. All other associates have a 30 June balance date.
Summarised financial information in respect of TEIs is set out below:
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Operating Results |
||||
2,208 | 2,239 | Revenue from Crown | 2,200 | 2,232 |
1,982 | 1,972 | Other revenue | 2,217 | 1,968 |
(4,138) | (4,002) | Expenses | (4,249) | (3,992) |
52 | 209 | Net surplus | 168 | 208 |
Net worth |
||||
Assets |
||||
1,275 | 1,435 | Financial assets | 1,450 | 1,435 |
7,431 | 7,864 | Property, plant and equipment | 7,867 | 7,638 |
328 | 291 | Other assets | 322 | 285 |
9,034 | 9,590 | Total assets | 9,639 | 9,358 |
Liabilities |
||||
230 | 242 | Borrowings | 228 | 242 |
1,246 | 1,376 | Other liabilities | 1,443 | 1,376 |
1,476 | 1,618 | Total liabilities | 1,671 | 1,618 |
7,558 | 7,972 | Net worth | 7,968 | 7,740 |
Note 22: Intangible Assets and Goodwill#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
Computer software | 1,266 | 1,260 | ||
Net Kyoto position | 291 | 212 | ||
Goodwill | 485 | 487 | ||
Other intangible assets | 352 | 225 | ||
2,596 | 2,524 | Total intangible assets and goodwill | 2,394 | 2,184 |
By maturity |
||||
Expected to be sold or consumed within one year | 398 | 363 | ||
Expected to be sold or consumed after one year | 1,996 | 1,821 | ||
Total intangible assets and goodwill | 2,394 | 2,184 | ||
By source |
||||
1,327 | 1,375 | Core Crown | 1,157 | 1,122 |
503 | 444 | Crown entities | 430 | 417 |
766 | 705 | State-owned enterprises | 807 | 645 |
- | - | Inter-segment eliminations | - | - |
2,596 | 2,524 | Total intangible assets and goodwill | 2,394 | 2,184 |
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Computer Software |
||
Internally-Generated Computer Software |
||
Cost |
||
Opening balance | 2,148 | 1,934 |
Additions | 225 | 202 |
Disposals | (121) | (29) |
Other movements | 80 | 41 |
Total cost | 2,332 | 2,148 |
Accumulated Amortisation |
||
Opening balance | 1,393 | 1,173 |
Eliminated on disposal | (102) | (19) |
Impairment losses charged to operating balance | 4 | 5 |
Reversals of impairment losses charged to operating balance | - | 29 |
Amortisation | 235 | 222 |
Other movements | 21 | (17) |
Total accumulated amortisation | 1,551 | 1,393 |
Carrying value of internally-generated computer software | 781 | 755 |
Purchased Computer Software |
||
Cost |
||
Opening balance | 1,526 | 1,315 |
Additions | 178 | 271 |
Disposals | (202) | (32) |
Other movements | 1 | (28) |
Total cost | 1,503 | 1,526 |
Accumulated Amortisation |
||
Opening balance | 1,021 | 899 |
Eliminated on disposal | (172) | (23) |
Impairment losses charged to operating balance | (2) | 18 |
Reversals of impairment losses charged to operating balance | - | (29) |
Amortisation | 163 | 141 |
Other movements | 8 | 15 |
Total accumulated amortisation | 1,018 | 1,021 |
Carrying value of purchased computer software | 485 | 505 |
Total computer software | 1,266 | 1,260 |
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Net Kyoto Position |
||
Opening net asset/(provision) | 212 | 207 |
Change in the price of carbon and foreign exchange rate | (123) | (30) |
Change in net projected emission units | 202 | 35 |
Closing net asset | 291 | 212 |
30 June 2011 | 30 June 2010 | |
---|---|---|
Emission Units million tonnes (Mt) |
Emission Units million tonnes (Mt) |
|
Net Kyoto Position |
||
Kyoto target (assigned amount units) | 309.6 | 309.6 |
Less AAUs allocated to emission reducing projects | 3.4 | 5.0 |
Total commitment target | 306.2 | 304.6 |
Projected emission units |
||
Agriculture | 170.1 | 177.6 |
Energy (incl. transport) and industrial processes | 183.6 | 184.9 |
Waste | 9.9 | 8.2 |
Solvent and other product use | 0.1 | 0.2 |
Total projected emission units | 363.7 | 370.9 |
Removals via forest | 89.3 | 89.1 |
Deforestation emissions | (6.6) | (9.2) |
Less net removals via forests | 82.7 | 79.9 |
Net projected emission units | 281.0 | 291.0 |
Less net transfers of AAUs | 3.4 | 2.4 |
Surplus units | 21.8 | 11.2 |
The New Zealand Government has committed under the Kyoto Protocol to ensuring that New Zealand's average net emissions of greenhouse gases over 2008-2012 (the first commitment period of the Kyoto Protocol or CP1) is reduced to 1990 levels or to take responsibility for the difference. New Zealand can meet its commitment through emissions reductions and use of the Kyoto Protocol flexibility mechanisms such as Joint Implementation, the Clean Development Mechanism, and offsetting increased emissions with carbon removed by forests. New Zealand's Kyoto Protocol compliance over the first commitment period will not be finalised until 2015 when the annual submission covering the period 1990 to 2012 is submitted and internationally reviewed. These financial statements report on the New Zealand Government's obligations for the first commitment period, but not for future commitment periods which are currently being negotiated.
New Zealand's net Kyoto position as at 30 June 2011 of $NZ291 million (2010: $NZ212 million) is based on the projected surplus of 21.8million Kyoto Protocol emission units and a carbon price of €7.63 per unit. The carbon price in New Zealand dollars equates to $NZ13.31 (2010: $NZ18.94), using the 30 June 2011 exchange rate of €0.5734 =$NZ1 (30 June 2010: €0.5677 = $NZ1, and a carbon price of €10.75 per unit).
The carbon price has been determined by the Ministry for the Environment based on a report commissioned from Point Carbon on the international market transactions that have occurred in the AAU markets.
Note 22: Intangible Assets and Goodwill (continued)#
Net Kyoto Position (continued)#
The projected balance of Kyoto Protocol units (the net position) is compiled by the Ministry for the Environment using sectoral projection reports from across government. This includes reports on agriculture emissions and net removals from eligible forests from the Ministry of Agriculture and Forestry; energy emissions (including transport) and industrial processes emissions from the Ministry of Economic Development, and emissions from the waste sector from the Ministry for the Environment. Details of the net position can be found on the Ministry for the Environment's website: www.mfe.govt.nz. The sectoral reports from other departments can also be found by following links on this website. The projections use the latest information from the national inventory of greenhouse gas emissions and removals submitted to the United Nations Framework Convention on Climate Change secretariat on 15 April 2011.
No liability for periods beyond 2012 has been recognised, as New Zealand currently has no specific obligations beyond the first commitment period. However, a view about the outcome of negotiations for future periods is intrinsic to the market price for carbon that has been used to measure the position.
Beyond 2012, the financial impact of New Zealand's climate change response will depend on the global stabilisation goal, the global cap/emission reducing strategy, the rules regarding which activities can be used to achieve emission reductions and the target that New Zealand signs up to.
Within New Zealand, the Emissions Trading Scheme (ETS) will transfer a price of carbon through the economy. Determinations as to when sectors are covered under the ETS and how much free allocation is made to these sectors will therefore also impact the financial statements of government. Foresters opt-in to the ETS and are allocated units. Because units are allocated free-of-charge, the Crown incurs an expense. The outstanding balance of these units is reported as the provision for ETS credits in note 27 of these financial statements. When the forests are harvested, the foresters may use the units to meet their carbon obligations.
During the first commitment period, the Ministry for the Environment estimate that 89.3 million tonnes of credits will be generated by carbon removals via forests (2010: 89.1 million tonnes). Of this amount, 14.4 million tonnes has been allocated to foresters through the ETS as at 30 June 2011 (2010: 5.1 million tonnes). To the extent that these forests are harvested (in subsequent commitment periods), and a future international agreement is negotiated, there will be an associated liability generated that will need to be repaid. As the forestry credits have been incorporated when calculating the current position for the first commitment period, the associated obligation of the Crown in respect of future commitment periods has been reported as a separate contingent liability (refer note 32). Using the carbon price for measuring the net Kyoto position as at 30 June 2011, this contingent liability can be measured at $NZ997 million (ie, 74.9 million tonnes x $NZ13.31) (2010: $1,590 million).
The measurement of the Kyoto position is, by its nature, more uncertain than a number of other items in the statement of financial position. Fluctuations in the value of the estimate may occur through changes in the assumptions underlying the quantum, movements in the price of carbon, the exchange rate with the European currency unit, and government policy changes.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Goodwill |
||
Cost |
||
Opening balance | 706 | 679 |
Additions | 4 | 30 |
Disposals | - | (3) |
Other movements | (3) | - |
Total cost | 707 | 706 |
Accumulated Impairment |
||
Opening balance | 219 | 218 |
Eliminated on disposal | - | - |
Impairment losses charged to operating balance | - | 2 |
Reversals of impairment losses charged to operating balance | - | - |
Amortisation charge | 2 | - |
Other movements | 1 | (1) |
Total accumulated impairment | 222 | 219 |
Carrying value of goodwill | 485 | 487 |
Goodwill in relation to Air New Zealand of $258 million (2010: $258 million) has been tested for impairment in June 2011 based on a value in use discounted cash flow valuation. Cash flow forecasts were prepared for five years using Air New Zealand board reviewed business plans. Key assumptions include exchange rates, jet fuel costs, passenger load factors and route yields. These assumptions have been based on historical data and current market information. The cash flow forecasts are particularly sensitive to fluctuations in fuel prices and exchange rates and are extrapolated using an average nominal growth rate of approximately 1.5%. The cash flow projections are discounted using post-tax discount rate scenarios of 10 - 10.5%. The 2011 valuation confirmed that there was no impairment to the goodwill asset required.
Note 23: Payables#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
6,242 | 5,941 | Accounts payable | 7,337 | 6,703 |
3,759 | 3,228 | Taxes repayable | 3,762 | 3,228 |
10,001 | 9,169 | Total payables | 11,099 | 9,931 |
By maturity |
||||
9,649 | 8,892 | Expected to be settled within one year | 10,721 | 9,734 |
352 | 277 | Expected to be outstanding for more than one year | 378 | 197 |
10,001 | 9,169 | Total payables | 11,099 | 9,931 |
By source |
||||
7,011 | 6,160 | Core Crown | 6,997 | 7,120 |
3,680 | 4,747 | Crown entities | 5,587 | 4,390 |
4,876 | 4,842 | State-owned enterprises | 4,779 | 4,652 |
(5,566) | (6,580) | Inter-segment eliminations | (6,264) | (6,231) |
10,001 | 9,169 | Total payables | 11,099 | 9,931 |
Government entities have financial internal control procedures in place to ensure that accounts payable are settled accurately and on a timely basis. The carrying value is a reasonable approximation of the fair value for accounts payable, as they are typically short-term in nature.
Taxes repayable represent refunds due to the taxpayer as a result of assessments being filed. Refunds are issued to taxpayers once account and refund reviews are complete. The carrying value is a reasonable approximation of the fair value for taxes repayable.
Note 24: Borrowings#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
41,328 | 47,016 | Government stock1 | 46,018 | 27,926 |
9,509 | 6,698 | Treasury bills | 7,028 | 7,625 |
337 | 270 | Government retail stock | 261 | 309 |
7,602 | 6,736 | Settlement deposits with Reserve Bank | 6,276 | 6,679 |
1,369 | 1,777 | Derivatives in loss2 | 2,767 | 2,376 |
1,037 | 1,231 | Finance lease liabilities | 1,176 | 920 |
28,234 | 27,275 | Other borrowings | 26,719 | 23,898 |
89,416 | 91,003 | Total borrowings3 | 90,245 | 69,733 |
By source |
||||
73,196 | 76,942 | Core Crown | 76,827 | 57,583 |
4,988 | 5,129 | Crown entities | 5,123 | 4,835 |
23,646 | 22,600 | State-owned enterprises | 23,099 | 19,747 |
(12,414) | (13,668) | Inter-segment eliminations | (14,804) | (12,432) |
89,416 | 91,003 | Total borrowings | 90,245 | 69,733 |
By maturity |
||||
58,458 | 47,662 | Expected to be settled within one year | 33,384 | 30,246 |
30,958 | 43,341 | Expected to be outstanding for more than one year | 56,861 | 39,487 |
89,416 | 91,003 | Total borrowings | 90,245 | 69,733 |
By guarantee |
||||
65,890 | 68,536 | Sovereign-guaranteed debt4 | 67,765 | 50,017 |
23,526 | 22,467 | Non-sovereign debt | 22,480 | 19,716 |
89,416 | 91,003 | Total borrowings | 90,245 | 69,733 |
This note constitutes a Statement of Borrowings as required by the Public Finance Act 1989.
All principal, interest and other money payable in relation to money borrowed by the core Crown is a charge on, and payable out of, the revenues of the core Crown equally and rateably with all other general borrowing obligations of the core Crown.
The Government is not liable to contribute towards the payments of debts of Government entities, their subsidiaries or any entity in which the Government has an interest or that is controlled or wholly owned by the Government. Exceptions to this rule only occur for items the Government is liable for under any Act, any guarantee given by the Government, by virtue of an action a creditor has against the Government, or liability the Government has to a creditor of the Reserve Bank.
1. Government stock includes $395 million of infrastructure bonds (2010: $395 million).
2. Derivatives are included in either borrowings or marketable securities depending on their gain or loss position at balance date. This treatment leads to fluctuations in individual items primarily due to exchange rate movements.
3. Total borrowings are the total borrowings (both sovereign-guaranteed and non-sovereign guaranteed) of the total Crown. This equates to the amount in the total Crown statement of financial position and represents the complete picture of whole-of-Crown debt obligations to external parties.
4. Total borrowings can be split into sovereign-guaranteed and non-sovereign-guaranteed debt. This split reflects the fact that borrowings by State-owned enterprises and Crown entities are not explicitly guaranteed by the Crown.
Government Stock#
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Government stock measured at amortised cost | 42,971 | 26,814 |
Government stock measured at fair value | 3,047 | 1,112 |
Total Government stock | 46,018 | 27,926 |
Government stock is measured at amortised cost, unless it is managed and its performance is evaluated on a fair value basis. Where it is evaluated on a fair value basis it is reported at fair value with movements in fair value reported in the statement of financial performance.
The fair value of government stock measured at amortised cost is $47,244 million (2010: $27,836 million). This valuation is based on observable market prices.
The valuation of government stock reported at fair value is also based on observable market prices. There have been no changes in the Standard & Poor’s or Moody’s international credit ratings for New Zealand. Accordingly changes in fair value are due to factors other than Sovereign credit risk.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Government stock measured at fair value |
||
Carrying value | 3,047 | 1,112 |
Amount payable on maturity | 324 | 904 |
Fair value impact from changes in credit risk for the year | - | - |
Cumulative fair value impact from changes in credit risk | - | - |
Treasury Bills#
Treasury bills are reported at either amortised cost or fair value, with fair value based on observable market price. As these are short-term sovereign-issued instruments, the carrying value is not materially affected by changes in Sovereign credit risk and the carrying value approximates the amount payable at maturity.
Note 24: Borrowings (continued)#
Settlement Deposits with Reserve Bank#
Settlement deposits with the Reserve Bank represent the level of money deposited with the Reserve Bank by commercial banks. They represent a liquidity mechanism used to settle wholesale obligations amongst the banks and provide the basis for settling most of the retail transactions that occur every working day between corporates and individuals.
Settlement deposits with the Reserve Bank are technically a form of borrowing by the Reserve Bank, where the liability is matched by a corresponding financial asset (reported as an element of marketable securities and deposits - refer note 15). Settlement deposits are reported at fair value, which is equivalent to the amount payable to depositors given the short term (ie, overnight) nature of these liabilities.
Settlement accounts are administered through the Exchange Settlement Account System (ESAS). ESAS account holders receive interest at the Official Cash Rate on their end-of-day balances. The Reserve Bank provides collateralised overnight borrowing facilities for banks, at an interest rate set at a margin over the Official Cash Rate.
Finance Lease Liabilities#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By source |
||||
7 | 11 | Core Crown | 16 | 12 |
46 | 51 | Crown entities | 49 | 46 |
984 | 1,174 | State-owned enterprises | 1,115 | 866 |
- | (5) | Inter-segment eliminations | (4) | (4) |
1,037 | 1,231 | Total finance lease liabilities | 1,176 | 920 |
Undiscounted Minimum Lease Payments |
||||
No later than one year | 136 | 110 | ||
Later than one year and not later than five years | 581 | 459 | ||
Later than five years | 596 | 516 | ||
Total undiscounted minimum lease payments | 1,313 | 1,085 | ||
Present Value of Minimum Lease Payments |
||||
No later than one year | 120 | 90 | ||
Later than one year and not later than five years | 518 | 392 | ||
Later than five years | 541 | 445 | ||
Total present value of minimum lease payments | 1,179 | 927 | ||
Future finance charges | 134 | 158 |
Finance leases relate to aircraft, electricity generation and transmission equipment and office equipment. The Government entities entering into finance leases generally have options to purchase the equipment for a nominal amount at the conclusion of the lease agreements. The Government's obligations under finance leases are secured by the lessors' title to the leased assets.
The fair value of finance lease liabilities is approximately equal to their carrying value.
Other Borrowings#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
16,951 | 15,727 | Other borrowings measured at amortised cost | 20,999 | 18,587 |
11,283 | 11,548 | Other borrowings measured at fair value | 5,720 | 5,311 |
28,234 | 27,275 | Total other borrowings | 26,719 | 23,898 |
Other borrowings are reported at fair value with movements in fair value reported in the statement of financial performance when they are held for trading or they are managed and performance is evaluated on a fair value basis.
The fair value of other borrowings measured at amortised cost is $20,688 million (2010: $18,571 million). The fair value of financial liabilities with standard terms and conditions traded on active liquid markets are determined by reference to quoted market prices. Where such prices are not available use is made of estimated discounted cash flows models with reference to market interest rates.
For those other borrowings designated at fair value through profit and loss, the value of these instruments will be affected by changes in interest rates due to credit risk and broader market influences.
Of these borrowings, $7,179 million (2010: $6,414 million) is sovereign-issued debt administered by the Reserve Bank and NZDMO. As there have been no changes in the international credit rating for Sovereign debt there has been no value change attributable to credit risk for these borrowings.
The remaining borrowings of $19,530 million (2010: $17,484 million) comprise non-sovereign-issued debt of Crown entities and State-owned enterprises. The following table identifies the difference between the carrying amount and amount payable at maturity as well as the extent that fair value movements have resulted from changes in credit risk of the issuing entity. The carrying value can differ to the amount actually payable on maturity where the effect of discounting cash flows is material.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Other borrowings measured at fair value |
||
Carrying value | 5,720 | 5,311 |
Amount payable on maturity | 6,424 | 5,011 |
Fair value impact from changes in credit risk for the year | 121 | (7) |
Cumulative fair value impact from changes in credit risk | (311) | (191) |
Note 25: Insurance Liabilities#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By entity |
||||
28,483 | 26,761 | ACC liability | 26,939 | 26,997 |
86 | 4,985 | EQC property damage liability | 10,570 | 88 |
- | - | AMI insurance liability | 2,082 | - |
66 | 56 | Other insurance liabilities | 59 | 46 |
- | - | Inter-segment eliminations | (336) | - |
28,635 | 31,802 | Total insurance liabilities | 39,314 | 27,131 |
By component |
||||
Outstanding claims liability | 36,422 | 24,517 | ||
Unearned premium liability | 2,572 | 2,508 | ||
Unearned premium liability deficiency | 320 | 106 | ||
Other | - | - | ||
Total insurance liabilities | 39,314 | 27,131 | ||
By maturity |
||||
5,586 | 10,169 | Expected to be settled within one year | 8,880 | 4,919 |
23,049 | 21,633 | Expected to be outstanding for more than one year | 30,434 | 22,212 |
28,635 | 31,802 | Total insurance liabilities | 39,314 | 27,131 |
Assets arising from insurance obligations are: |
||||
Receivables for premiums | 3,101 | 3,230 | ||
Reinsurance claim recoveries | 5,381 | - |
Information on insurance expenses can be found in note 11. Additional information on the risks and uncertainties in relation to the Canterbury earthquakes can be found in note 30.
The Crown acquired effective control of AMI on the 7th of April 2011 (refer note 34). As a result, the insurance obligations of AMI are not included in the 2010 comparatives.
The objectives, policies and procedures for managing these risks are set out in the governing statutes and policy documents of each entity.
All assets held by the three insurance entities are considered available to back present and future claims obligations. ACC and EQC have not deferred any acquisition costs (eg, marketing costs) in respect of insurance obligations at the reporting date. AMI had deferred acquisition costs of $2.1 million at 30 June 2011.
Analysis of insurance liabilities#
The remainder of the note provides a detailed analysis of the ACC, EQC and AMI insurance liabilities. Further information on these liabilities may also be found in the annual reports of each of these entities and on their respective websites. The analysis includes a breakdown of the outstanding claims liability, unearned premium liability, and the unearned premium liability deficiency.
The outstanding claims liability is the present value of the central estimate of expected payments for claims incurred including a risk margin.
The unearned premium liability represents premiums received in advance of the insured period.
The unearned premium liability deficiency is the extent that the unearned premium liability is insufficient to cover expected future claims (ie, payments for future accidents within the period covered by the premiums received).
Analysis of ACC insurance liability#
ACC's insurance obligations arise primarily from the accident compensation scheme provision of personal injury cover for all New Zealand citizens, residents and temporary visitors to New Zealand.
PricewaterhouseCoopers Actuarial Pty Limited have prepared the independent actuarial estimate of the ACC outstanding claims liability as at 30 June 2011. The actuary is satisfied with the nature, sufficiency and accuracy of the data used to determine the outstanding claims liability.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
The ACC liability comprises: |
||
ACC outstanding claims liability | 24,510 | 24,430 |
ACC unearned premium liability | 2,429 | 2,462 |
ACC unearned premium liability deficiency | - | 105 |
Total ACC liability | 26,939 | 26,997 |
Analysis of Outstanding ACC Claims Liability |
||
Undiscounted outstanding claims liability | 74,895 | 69,768 |
Discount adjustment | (53,174) | (48,114) |
Risk margin | 2,789 | 2,776 |
Total outstanding ACC claims liability | 24,510 | 24,430 |
Expected future claims payments - central estimate | 20,374 | 20,342 |
Claims handling expenses | 1,347 | 1,312 |
Outstanding claims liability before risk margin | 21,721 | 21,654 |
Risk margin | 2,789 | 2,776 |
Total outstanding ACC claims liability | 24,510 | 24,430 |
Movement in Outstanding ACC Claims Liability |
||
Opening balance | 24,430 | 23,786 |
Claims incurred for the year | 3,652 | 3,913 |
Claims paid out in the year | (2,896) | (3,175) |
Discount rate unwind | 832 | 708 |
Experience adjustments (actuarial gains and losses): |
||
- actual and assumed claim experience | (1,966) | (1,661) |
- change in discount rate | 862 | 1,170 |
- change in inflation rate | 108 | 49 |
- change in other economic assumptions | - | 32 |
Other movements | (512) | (392) |
Closing outstanding ACC claims liability | 24,510 | 24,430 |
Movement in ACC Unearned Premium Liability |
||
Opening balance | 2,462 | 2,095 |
Earning of premiums previously deferred | (2,462) | (2,095) |
Deferral of premiums on current year contracts | 2,429 | 2,462 |
Other | - | - |
Closing ACC unearned premium liability | 2,429 | 2,462 |
Note 25: Insurance Liabilities (continued)#
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Analysis of ACC unearned premium liability deficiency |
||
Unearned premium liability | 2,429 | 2,462 |
Adjusted for unearned premium relating to residual claims and premium liabilities without deficiency | (2,429) | (2,327) |
Adjusted ACC unearned premium liability | - | 135 |
Central estimate of discounted cash flows for future claims | - | 195 |
Central estimate of discounted future reinsurance recoveries | - | - |
Risk margin | - | 45 |
Present value of expected cash flows for future accident claims | - | 240 |
Total ACC unearned premium liability deficiency | - | 105 |
Unearned premiums relating to residual claims are excluded from this calculation as they relate to accidents that occurred prior to 1999.
Key Assumptions#
The key assumptions and the methodology applied in the valuation of the outstanding ACC claims obligation are as follows:
(i) Risk-free discount rates
The projected cash flows were discounted using a series of forward discount rates at the balance date derived from the yield curve for New Zealand government bonds. The equivalent single effective discount rate taking into account ACC's projected future cash flow patterns is a short term discount rate of 5.61% (2010: 5.69% up to 10 years) and a long term discount rate of 6.00% beyond 17 years (2010: 6.00% beyond 16 years).
(ii) Risk margin
The outstanding claims liability includes a risk margin that relates to the inherent uncertainty in the central estimate of the present value of expected future payments. The overall risk margin is intended to achieve a 75% probability of sufficiency in meeting the actual amount of liability to which it relates.
(iii) Inflation and indexation
ACC claims and costs are subject to inflation. Some costs are assumed to increase faster than the general rate of inflation (referred to as superimposed inflation) due to factors such as innovation in medical treatment.
(iv) Case management and the ‘tail' of claims
Assumptions for the incidence of settlements and claims closures are primarily based on investigations of previous experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.
(v) Liability adequacy test
An unearned premium liability deficiency is recognised when the amount of the present value of expected future claim cash outflows, plus a risk margin, exceeds the unearned premium liability.
30 June 2011 | 30 June 2011 | 30 June 2010 | 30 June 2010 | |
---|---|---|---|---|
Next Year | Beyond Next Year |
Next Year | Beyond Next Year |
|
Summary of assumptions |
||||
Average weighted term to settlement from reporting date | 14 years | 13 years | ||
7 months | 10 months | |||
Weighted average risk margin | 12.8% | 12.8% | ||
Probability of adequacy of liability | 75.0% | 75.0% | ||
Risk margin for liability adequacy test | 18.0% | 18.0% | ||
Probability of adequacy of liability to cover unearned premiums | 75.0% | 75.0% | ||
Risk-free discount rate1 | 2.8% | 3.8% to 6.2% | 3.5% | 4.5% to 6.2% |
Inflation rates (excluding superimposed inflation): | ||||
Weekly compensation | 3.8% | 3.5% | 3.4% | 3.4% to 3.5% |
Impairment benefits | 4.5% | 2.5% to 2.9% | 2.0% | 2.4% to 5.9% |
Social rehabilitation benefits (serious and non serious injury) | 3.0% | 2.7% | 2.6% | 2.6% to 2.7% |
Hospital rehabilitation benefits | 3.0% | 2.7% | 2.6% | 2.6% to 2.7% |
Medical costs | 3.0% | 2.7% | 2.6% | 2.6% to 2.7% |
Superimposed inflation: | ||||
Social rehabilitation benefits (serious injury) | 1.7% | 2.9% to 4.9% | 2.3% | 2.4% to 8.6% |
Social rehabilitation benefits (non-serious injury) | 2.5% | 2.0% to 2.5% | 4.5% | 2.0% to 2.5% |
Hospital rehabilitation benefits | 5.0% | 4.0% to 5.0% | 5.0% | 4.0% to 5.0% |
Medical costs (GP's & physiotherapists) | 2.0% | 2.0% to 3.0% | 1.0% | 3.5% to 9.5% |
Medical costs others (specialists) | 1.8% | 1.8% to 2.5% | 2.0% | 2.5% to 6.0% |
1. The risk-free discount rate beyond 17 years is 6.0% (2010: the rate beyond 16 years was 6.0%).
Note 25: Insurance Liabilities (continued)#
Sensitivity Analysis#
The present value of the ACC claims obligation is sensitive to underlying assumptions such as the discount rate, inflation rates and expected medical costs. These assumptions are closely linked. For example, a change to the discount rate may have implications on the inflation rate used. Therefore, when calculating the present value of claims it is unlikely that an assumption will change in isolation.
If the assumptions described above were to change in isolation, this would impact the measurement of the ACC claims obligation as per the table below:
Change | Impact on liability Actual | ||
---|---|---|---|
30 June 2011 $m |
30 June 2010 $m |
||
Sensitivity of assumptions |
|||
Average weighted term to settlement from reporting date | +1 year | (735) | (732) |
-1 year | 758 | 754 | |
Risk-free discount rate | +1% | (3,005) | (2,828) |
-1% | 3,937 | 3,668 | |
Inflation rates (including superimposed inflation) | +1% | 4,085 | 3,850 |
-1% | (3,163) | (2,986) | |
Social rehabilitation benefits - superimposed inflation for non-serious injury claims | +1% | 741 | 737 |
-1% | (719) | (528) | |
Social rehabilitation benefits - superimposed inflation after four years for serious injury claims | +1% | 1,904 | 1,606 |
-1% | (1,415) | (1,217) |
Undiscounted outstanding claims liability#
The reported outstanding claims liability (before risk margin) of $21,721 million (2010: $21,654 million) represents the net present value of estimated cash flows associated with this obligation. The following table represents the timing of future undiscounted cash flows for claims to 30 June 2011. These estimated cash flows include the effects of assumed future inflation.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
No later than 1 year | 1,834 | 2,025 |
Later than 1 year and no later than 2 years | 1,378 | 1,495 |
Later than 2 years and no later than 5 years | 3,728 | 3,936 |
Later than 5 years and no later than 10 years | 5,884 | 6,040 |
Later than 10 years and no later than 15 years | 5,800 | 5,896 |
Later than 15 years and no later than 20 years | 5,842 | 5,876 |
Later than 20 years and no later than 25 years | 5,952 | 5,867 |
Later than 25 years and no later than 30 years | 6,034 | 5,793 |
Later than 30 years and no later than 35 years | 5,996 | 5,613 |
Later than 35 years and no later than 40 years | 5,845 | 5,331 |
Later than 40 years and no later than 45 years | 5,567 | 4,958 |
Later than 45 years and no later than 50 years | 5,136 | 4,468 |
Later than 50 years | 15,899 | 12,470 |
Undiscounted outstanding claims liability | 74,895 | 69,768 |
Analysis of EQC insurance liability#
EQC covers the following types of hazard: earthquake, natural landslip, volcanic eruption, hydrothermal activity and tsunami, as well as fire caused by any of the above.
EQC recognises a liability in respect of outstanding claims and assesses the adequacy of its unearned premium liability. As required by financial reporting standards, a risk margin is applied to a central estimate to increase to 75% the likelihood that claims will be settled within this amount.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
The EQC liability comprises: |
||
EQC outstanding claims liability | 10,204 | 12 |
EQC unearned premium liability | 46 | 46 |
EQC unearned premium liability deficiency | 320 | 30 |
Total EQC liability | 10,570 | 88 |
By type |
||
Property damage claims in relation to Canterbury earthquakes | 10,151 | - |
Other insurance liabilities | 419 | 88 |
Total EQC liability | 10,570 | 88 |
Analysis of Outstanding EQC Insurance Liability |
||
Undiscounted outstanding claims liability | 10,535 | 12 |
Discount adjustment | (891) | - |
Risk margin | 560 | - |
Total outstanding EQC insurance liability | 10,204 | 12 |
Expected future claims payments - central estimate | 9,035 | 11 |
Claims handling expenses | 609 | 1 |
Outstanding claims liability before risk margin | 9,644 | 12 |
Risk margin | 560 | - |
Total outstanding EQC insurance liability | 10,204 | 12 |
Movement in Outstanding EQC Insurance Liability |
||
Opening balance | 12 | 9 |
Claims incurred for the year - Canterbury earthquakes | 11,380 | - |
Claims incurred for the year - other | 68 | 40 |
Claims paid out in the year | (1,256) | (37) |
Discount rate unwind | - | - |
Experience adjustments (actuarial gains and losses): | - | |
- actual and assumed claim experience | - | - |
- change in discount rate | - | - |
- change in inflation rate | - | - |
- change in other economic assumptions | - | - |
Other movements | - | - |
Closing outstanding EQC insurance liability | 10,204 | 12 |
Note 25: Insurance Liabilities (continued)#
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Movement in EQC Unearned Premium Liability |
||
Opening balance | 46 | 45 |
Earning of premiums previously deferred | (46) | (45) |
Deferral of premiums on current year contracts | 46 | 46 |
Other | - | - |
Closing EQC unearned premium liability | 46 | 46 |
Analysis of EQC unearned premium liability deficiency |
||
Unearned premium liability | 46 | 46 |
Central estimate of discounted cash flows for future claims | 313 | 76 |
Central estimate of discounted future reinsurance recoveries | (11) | (8) |
Risk margin | 64 | 8 |
Present value of expected cash flows for future claims | 366 | 76 |
Total EQC unearned premium liability deficiency | 320 | 30 |
Key Assumptions#
The key assumptions and the methodology applied in the valuation of the outstanding EQC claims obligation are as follows:
(i) Weighted average term to settlement
The weighted average term to settlement varies by valuation groupings having regard to the estimated future patterns of gross claim payments for these groupings.
(ii) Claims inflation rate
The claims inflation rates have made some allowance for higher levels of claims inflation for the building claims. In addition, the risk margin implicitly allows for somewhat higher levels of claims inflation.
(iii) Risk-free discount rate
Where applicable, claims and recoveries have been discounted using a risk-free rate based on New Zealand government bonds and the payment profile of the underlying recovery payments.
(iv) Risk margin
The risk margins are derived directly from the claims distributions produced by the net incurred claims models. The risk margin is expressed as a percentage of the net discounted outstanding claims liability and is intended to achieve a 75% probability of adequacy in meeting the actual amount of liability to which it relates.
(v) Claims handling expenses ratio
Claims handling expenses are subdivided into event groups and estimated on a per-claim basis using per-claim assumptions derived from an analysis of expenses. Risk margins are also applied to claims handling expenses. The claims handling expenses ratio is expressed as a percentage of the gross undiscounted outstanding claims liability.
30 June 2011 | |
---|---|
Summary of assumptions | |
Weighted average term to settlement | 0.3 to 1.9 years |
Claims inflation rate | 2.5% to 5.0% |
Risk-free discount rate | 2.84% to 6.24% |
Risk margin | 10.4% |
Claims handling expense ratio | 6.1% |
Sensitivity Analysis#
The value of the EQC claims liability is sensitive to underlying assumptions such as the construction inflation, nil claim rate and reinstatement percentage.
If the assumptions described above were to change in isolation, this would impact the measurement of the EQC claims liability as per the table below:
Impact on liability Actual |
||
---|---|---|
30 June 2011 $m |
||
Sensitivity of assumptions |
||
Weighted average term to settlement | + 0.5 years | (31) |
- 0.5 years | 35 | |
Claims inflation rate | +1% | 105 |
-1% | (107) | |
Risk-free discount rate | +1% | (125) |
-1% | 143 | |
Risk margin | +1% | 54 |
-1% | (54) | |
Claims handling expense ratio | +1% | 59 |
-1% | (59) |
Note 25: Insurance Liabilities (continued)#
Analysis of AMI insurance liability#
AMI is a fire and general insurance company, specialising in motor vehicle, house, contents, boat and farm insurance.
Finity Consulting Pty Limited have prepared the independent actuarial estimate of the AMI claims liability as at 30 June 2011. The actuary is satisfied with the nature, sufficiency and accuracy of the data used to determine the outstanding claims liability.
Actual | |
---|---|
30 June 2011 $m |
|
The AMI liability comprises: |
|
AMI outstanding claims liability | 1,985 |
AMI unearned premium liability | 97 |
AMI unearned premium liability deficiency | - |
Total AMI liability | 2,082 |
By type |
|
Property damage claims in relation to Canterbury earthquakes | 1,937 |
Other insurance liabilities | 145 |
Total AMI liability | 2,082 |
Analysis of Outstanding AMI Claims Liability |
|
Undiscounted outstanding claims liability | 1,846 |
Discount adjustment | (95) |
Risk margin | 234 |
Total outstanding AMI claims liability | 1,985 |
Expected future claims payments - central estimate | 1,715 |
Claims handling expenses | 36 |
Outstanding claims liability before risk margin | 1,751 |
Risk margin | 234 |
Total outstanding AMI claims liability | 1,985 |
Movement in Outstanding AMI Claims Liability |
|
Opening balance | - |
Claims liability acquired through business combination | 1,928 |
Claims incurred for the year - Canterbury earthquakes | 95 |
Claims incurred for the year - other | 42 |
Claims paid out in the year | (80) |
Discount rate unwind | - |
Experience adjustments (actuarial gains and losses): | |
- actual and assumed claim experience | - |
- change in discount rate | - |
- change in inflation rate | - |
- change in other economic assumptions | - |
Other movements | - |
Closing outstanding AMI claims liability | 1,985 |
Actual | |
---|---|
30 June 2011 $m |
|
Movement in AMI Unearned Premium Liability |
|
Opening balance | - |
Claims liability acquired through business combination | 96 |
Earning of premiums previously deferred | 43 |
Deferral of premiums on current year contracts | (42) |
Other | - |
Closing AMI unearned premium liability | 97 |
Analysis of AMI unearned premium liability deficiency |
|
Unearned premium liability | - |
Central estimate of discounted cash flows for future claims | - |
Central estimate of discounted future reinsurance recoveries | - |
Risk margin | - |
Present value of expected cash flows for future claims | - |
Total AMI unearned premium liability deficiency | - |
Key Assumptions#
The valuation of the outstanding claims liability is based on detailed assumptions about the number of properties damaged, the mix and cost of rebuilds, repairs, and cash settlements, and the amount of damage which will be covered by EQC. In addition, the key assumptions made regarding future economic conditions are as follows:
(i) Average weighted term to settlement
Expected payment patterns have been used to determine the outstanding claims liability. The payment patterns adopted have been set based on the Actuary's best estimate of when the payments are likely to be made.
(ii) Inflation
The actuarial models adopted allows for any inflationary impact which is likely to affect future claims payments. A 6% inflation assumption has been made relating to building costs in Canterbury.
(iii) Discount rate
Where applicable, claims and recoveries have been discounted using a risk-free rate based on New Zealand government bonds and the payment profile of the underlying recovery payments.
(iv) Risk margin
The risk margin was determined at a line of business level, allowing for the uncertainty of the outstanding claims estimate for each line of business. Uncertainty was analysed for each portfolio, taking into account past volatility in general insurance claims, actuarial model and parameter error, and diversification between the lines of business. The risk margin is intended to achieve at least a 75% probability of adequacy for the outstanding claims.
30 June 2011 |
|
---|---|
Summary of assumptions |
|
Average weighted term to settlement from reporting date | |
Earthquake related claims | 2.6 years |
Non-earthquake related claims | 0.4 years |
Inflation (earthquake related claims) | |
Building costs | 6.0% |
Other cover types | 3.0% |
Risk-free discount rate | 2.74% to 4.58% |
Weighted average risk margin | |
Earthquake related claims | 14.1% |
Non-earthquake related claims | 9.0% |
Probability of adequacy of liability | 75.0% |
Risk margin for liability adequacy test | 9.0% |
Probability of adequacy of liability to cover unearned premiums | 75.0% |
Sensitivity Analysis#
The value of the AMI claims liability is sensitive to underlying assumptions such as the discount rate, claims handling expense rate, and the risk margin.
If the assumptions described above were to change in isolation, this would impact the measurement of the AMI claims liability as per the table below:
Change | Impact on liability Actual |
|
---|---|---|
30 June 2011 $m |
||
Sensitivity of assumptions | ||
Inflation (earthquake related claims) | +1% | 27 |
-1% | (26) | |
Risk-free discount rate | +1% | (14) |
-1% | 14 | |
Weighted average risk margin Earthquake related claims | +1% | 15 |
-1% | (15) |
Note 26: Retirement Plan Liabilities#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
8,817 | 9,268 | Government Superannuation Fund (GSF) | 10,152 | 9,936 |
4 | 3 | Other funds | 4 | 4 |
8,821 | 9,271 | Total retirement plan liabilities | 10,156 | 9,940 |
By source |
||||
8,819 | 9,269 | Core Crown | 10,154 | 9,938 |
1 | 1 | Crown entities | 1 | 1 |
1 | 1 | State-owned enterprises | 1 | 1 |
- | - | Inter-segment eliminations | - | - |
8,821 | 9,271 | Total retirement plan liabilities | 10,156 | 9,940 |
The Government operates a defined benefit superannuation plan for qualifying employees who are members of the Government Superannuation Fund (GSF). The members' entitlements are defined in the Government Superannuation Fund Act 1956. Contributing members make regular payments to GSF and in return, on retirement, receive a defined level of income. GSF is closed to employees who were not members at 1 July 1992.
The GSF obligation has been calculated by the Government Actuary as at 30 June 2011. A Projected Unit Credit Method, based on balance-date membership data, is used for the valuation. This method requires the benefits payable from the GSF in respect of past service to be estimated and then discounted back to the valuation date.
Amounts recognised in the statement of financial position in respect of GSF are as follows:
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Net GSF Obligation |
||
Present value of defined benefit obligation | 13,311 | 12,881 |
Fair value of plan assets | (3,159) | (2,945) |
Present value of unfunded defined benefit obligation | 10,152 | 9,936 |
Present value of defined benefit obligation |
||
Opening defined benefit obligation | 12,881 | 11,792 |
Expected current service cost | 111 | 122 |
Expected unwind of discount rate | 448 | 447 |
Actuarial losses/(gains) | 733 | 1,348 |
Benefits paid | (863) | (826) |
Other | 1 | (2) |
Closing defined benefit obligation | 13,311 | 12,881 |
Fair value of plan assets |
||
Opening fair value of plan assets | 2,945 | 2,804 |
Expected return on plan assets | 177 | 168 |
Actuarial gains/(losses) | 159 | 117 |
Funding of benefits paid by Government | 663 | 611 |
Contributions from other entities | 23 | 13 |
Contributions from members | 54 | 60 |
Benefits paid | (863) | (826) |
Other | 1 | (2) |
Closing fair value of plan assets | 3,159 | 2,945 |
Amounts recognised in the statement of financial performance in respect of GSF are as follows:
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Personnel Expenses |
||||
Expected current service cost | 111 | 122 | ||
Expected unwind of discount rate on GSF obligation | 448 | 447 | ||
Expected return on plan assets | (177) | (168) | ||
Contributions from members and funding employers | (77) | (73) | ||
Past service cost | - | - | ||
357 | 281 | Total included in personnel expenses | 305 | 328 |
Net (Gains)/Losses on Non-Financial Instruments |
||||
- | (287) | Actuarial losses recognised in the year | 574 | 1,231 |
357 | (6) | Total GSF expense | 879 | 1,559 |
The Government expects to make a contribution of $679 million to GSF in the year ended 30 June 2012.
In addition to its obligations to past and present employees, because GSF is liable for income tax, the Crown will be required to make additional contributions equivalent to the tax on future investment income.
The principal assumptions used for the purposes of the GSF actuarial valuations are as follows:
Actual | ||
---|---|---|
30 June 2011 % |
30 June 2010 % |
|
Summary of assumptions |
||
For following year |
||
Discount rate | 2.84% | 3.48% |
Expected return on plan assets | 6.00% | 6.00% |
Expected rate of salary increases | 3.00% | 3.00% |
Expected rate of inflation | 3.00% | 5.90% |
Beyond next year |
||
Discount rates between 2 and 16 years | 3.81% to 6.24% | 4.45% to 6.21% |
Discount rate from 17 years onwards | 6.00% | 6.00% |
Expected return on plan assets | 6.00% | 6.00% |
Expected rate of salary increases | 3.00% | 3.00% |
Expected rate of inflation from 2 to 15 years | 2.50% | 2.40% to 2.50% |
Expected rate of inflation from 16 years onwards | 2.50% | 2.50% |
The 2011 valuation includes an adjustment for improvements in mortality assumptions. This assumption is calculated at 0.25% of total past service liability and results in an increase in the GSF obligation of $325 million and a corresponding increase in actuarial losses.
Note 26: Retirement Plan Liabilities (continued)#
The major categories of GSF plan assets at 30 June are as follows:
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Equity instruments | 1,587 | 1,551 |
Other debt instruments | 707 | 776 |
Property | 150 | 168 |
Other | 715 | 450 |
Fair value of plan assets | 3,159 | 2,945 |
The expected rate of return on the plan assets of 6.00% (2010: 6.00%) has been calculated by taking the expected long term returns from each asset class, reduced by tax and investment expenses (using the current rates of tax and investment expenses).
The actual return on plan assets for the year ended 30 June 2011 was 11.63%, or $336 million (2010: 10.42% or $285 million).
Sensitivity Analysis#
The present value of the GSF obligation is sensitive to underlying assumptions such as the discount rate, inflation rates and expected salary increases. These assumptions are closely linked. For example, a change to the discount rate may have implications on the inflation rate used. Therefore, when calculating the present value of pension payments it is unlikely that an assumption will change in isolation.
If the discount rate was to change in isolation, this would impact the measurement of GSF obligation as per the table below:
Change | Impact on obligation Actual |
||
---|---|---|---|
30 June 2011 $m |
30 June 2010 $m |
||
Sensitivity of assumptions |
|||
Discount rate | + 1% | (1,236) | (1,243) |
- 1% | 1,480 | 1,492 |
The plan's assets are exposed to share price risks arising from its holding of equity instruments. Equity instruments are reported at fair value. Movements in share prices therefore directly translate into movements in the value of the share investment portfolio.
The sensitivity analysis below has been determined based on GSF's exposure to share price risks at the reporting date.
Impact on operating balance Actual |
Impact on net worth Actual |
|||
---|---|---|---|---|
Change in share prices | 30 June 2011 $m |
30 June 2010 $m |
30 June 2011 $m |
30 June 2010 $m |
Strengthen/weaken by 10% | 159 | 155 | 159 | 155 |
The plan's sensitivity to share prices has not changed significantly from the previous year.
Historical Analysis#
Actual gains and losses comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred in the year) and the effects of changes in actuarial assumptions on valuation date. The history of the present value of the unfunded defined benefit obligation and experience adjustments is as follows:
Actual | ||||
---|---|---|---|---|
30 June 2011 $m |
30 June 2010 $m |
30 June 2009 $m |
30 June 2008 $m |
|
Present value of defined benefit obligation | 13,311 | 12,881 | 11,792 | 11,831 |
Fair value of plan assets | (3,159) | (2,945) | (2,804) | (3,574) |
Present value of unfunded defined benefit obligation | 10,152 | 9,936 | 8,988 | 8,257 |
Experience adjustment - increase/(decrease) in plan liabilities | 388 | 286 | 79 | 164 |
Experience adjustment - increase/(decrease) in plan assets | 159 | 117 | (806) | (479) |
Total experience adjustments | (229) | (169) | (885) | (643) |
Changes in actuarial assumptions | (345) | (1,062) | 190 | (455) |
Actuarial (losses)/gains recognised in the year | (574) | (1,231) | (695) | (1,098) |
Undiscounted defined benefit obligation
The reported GSF defined benefit obligation of $13,311 million (2010: $12,881 million) represents the net present value of estimated cash flows associated with this obligation. The following table represents the timing of future undiscounted cash flows for entitlements to 30 June 2011. These estimated cash flows include the effects of assumed future inflation.
30 June 2011 $m |
30 June 2010 $m |
|
---|---|---|
No later than 1 year | 866 | 841 |
Later than 1 year and no later than 2 years | 875 | 878 |
Later than 2 years and no later than 5 years | 2,655 | 2,646 |
Later than 5 years and no later than 10 years | 4,489 | 4,464 |
Later than 10 years and no later than 15 years | 4,371 | 4,392 |
Later than 15 years and no later than 20 years | 4,001 | 4,066 |
Later than 20 years and no later than 25 years | 3,400 | 3,510 |
Later than 25 years and no later than 30 years | 2,607 | 2,742 |
Later than 30 years and no later than 35 years | 1,804 | 1,935 |
Later than 35 years and no later than 40 years | 1,121 | 1,230 |
Later than 40 years and no later than 45 years | 620 | 699 |
Later than 45 years and no later than 50 years | 298 | 349 |
Undiscounted defined benefit obligation | 27,107 | 27,752 |
After 50 years there is expected to be a reducing level of cash for a further 20 years totalling approximately $168 million (2010: $211 million).
Note 27: Provisions#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
By type |
||||
2,516 | 2,896 | Provision for employee entitlements | 3,050 | 2,836 |
722 | 928 | Provision for ETS credits | 612 | 74 |
- | - | Provision for future retail deposit guarantee scheme payments | - | 748 |
883 | 965 | Provision for National Provident Fund guarantee | 983 | 1,007 |
- | - | Provision for Canterbury Red Zone support package | 1,039 | - |
- | 697 | Provision for weathertight services financial assistance package | 567 | - |
1,034 | 3,349 | Other provisions1 | 1,335 | 1,319 |
5,155 | 8,835 | Total provisions | 7,586 | 5,984 |
By source |
||||
2,788 | 6,258 | Core Crown | 5,351 | 3,424 |
1,563 | 1,698 | Crown entities | 1,770 | 1,695 |
862 | 952 | State-owned enterprises | 1,028 | 925 |
(58) | (73) | Inter-segment eliminations | (563) | (60) |
5,155 | 8,835 | Total provisions | 7,586 | 5,984 |
By maturity |
||||
2,165 | 2,850 | Expected to be settled within one year | 4,656 | 2,741 |
2,990 | 5,985 | Expected to be outstanding for more than one year | 2,930 | 3,243 |
5,155 | 8,835 | Total provisions | 7,586 | 5,984 |
1. The Budget 2011 forecast of $3,349 million included an unspecified provision of $1,565 million to cover potential costs in relation to the Canterbury earthquakes.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Provision for employee entitlements |
||
Opening provision | 2,836 | 2,580 |
Additional provisions recognised | 1,733 | 1,872 |
Provision used during the period | (1,464) | (1,387) |
Reversal of previous provision | (64) | (228) |
Unwind of discount rate | 9 | (1) |
Effect of changes in discount rate | - | - |
Closing provision | 3,050 | 2,836 |
The provision for employee entitlements represents annual leave, accrued long service leave and retiring leave, and sick leave entitlements accrued by employees. Probability assumptions about continued future service affecting entitlements accrued as at reporting date have been made using previous employment data. For entitlements that vest over a period exceeding one year discount rates between 3% and 6% have been used.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Provision for ETS credits |
||
Opening provision | 74 | 17 |
New provision recognised during the period (ETS expenses) | 860 | 80 |
Provision used during the period (ETS revenue) | (322) | (23) |
Reversal of previous provision | - | - |
Closing provision | 612 | 74 |
The Emissions Trading Scheme (ETS) was established to encourage a reduction in New Zealand's greenhouse gas emissions. The ETS creates a limited number of tradable units (the NZ Unit) which the Government can allocate freely. The allocation of NZ Units creates a provision (and an expense if allocated for free). The provision is reduced, and revenue recognised, as NZ Units are surrendered to the Crown by emitters. Emitters can also use international Kyoto units to settle their emission obligation, which might occur where obligations exceed the number of allocated NZ Units. In the ETS transition period to the end of 2012, emitters can also use the NZ$25 price option to settle their emission obligation.
Until the end of 2012, the Government's net position regarding its climate change obligations will be determined by the net Kyoto position and the provisions for ETS credits. After 2012, the net position will depend on any future international climate change commitments.
The carbon price used to calculate the ETS provision is based on the estimated current carbon price of €11.63. The carbon price in New Zealand dollars equates to $NZ20.28 (2010: $NZ18.94), using the 30 June 2011 exchange rate of €0.5734 =$NZ1 (30 June 2010: €0.5677 = $NZ1, and a carbon price of €10.75 per unit).
The carbon price for the ETS provision has been determined by the Ministry for the Environment based on international market transactions that have occurred in the certified emission reduction (CER) markets. Currently, the CER market has been determined to be the most relevant market to use for determining the carbon price for NZ Units and the calculation of the provision for ETS credits, then the market for Kyoto assigned amount units (AAUs). As the market for NZ Units develops the basis for determining this carbon price will be reviewed.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Provision for future retail deposit guarantee scheme payments | ||
Opening provision | 748 | 831 |
New provision recognised during the period | - | - |
Provision used during the period | (746) | (47) |
Reversal of previous provision | (2) | (36) |
Unwind of discount rate and effect of changes in discount rate | - | - |
Closing provision | - | 748 |
The provision for future retail deposit guarantee scheme payments was eliminated during the year as payments were made to depositors of entities that defaulted during the year.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Provision for National Provident Fund guarantee |
||
Opening provision | 1,007 | 954 |
Additional provisions recognised | - | 28 |
Provision used during the period | (75) | (77) |
Reversal of previous provision | (22) | (6) |
Unwind of discount rate and effect of changes in discount rate | 73 | 108 |
Closing provision | 983 | 1,007 |
The Government has guaranteed superannuation schemes managed by the National Provident Fund (NPF) (refer to note 32 for details of the guarantee). Included in the provision is the NPF's DBP Annuitants Scheme unfunded liability position of $981 million (2010: $1,003 million), represented by a gross estimated pension obligation of $1,020 million (2010: $1,053 million) with net investment assets valued at $39 million (2010: $50 million).
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Provision for Canterbury Red Zone support package |
||
Opening provision | - | - |
Additional provisions recognised | 1,039 | - |
Provision used during the period | - | - |
Reversal of previous provision | - | - |
Unwind of discount rate and effect of changes in discount rate | - | - |
Closing provision | 1,039 | - |
Net provision |
||
Provision for Red Zone properties | 1,039 | - |
Estimated insurance proceeds from Red Zone Properties | 386 | - |
Net provision for Red Zone properties | 653 | - |
Melville Jessup Weaver has prepared an independent actuarial valuation of both the estimated cost of purchasing the red zone properties and the estimated insurance proceeds from those properties as at 30 June 2011 using quantity surveying data and aggregate information regarding the level of land damage in the red zone. The actuary is satisfied with the nature, sufficiency and accuracy of the data used to determine these valuations.
Note 27: Provisions (continued)#
Key Assumptions#
The key assumptions and the methodology applied in the valuation of the red zone valuations are as follows:
(i) Option choice
The valuation has assumed that homeowners will choose option B (purchase land only) if the expected total damage is greater than 80% of the improvement value of the property.
(ii) Price of purchase
The price the Government has to pay to purchase properties under option A and B are the 2007 capital value rating and land value rating issued by the Christchurch City Council. An allowance has been made for subsequent improvements to properties since 2007.
(iii) Insurance recoveries
Insurance recoveries are based on current insurance policy settings (including coverage and excess limits). Individual policies may differ between insurers. Therefore a number of policies were reviewed to establish “typical” policy settings. Assumptions have also been made regarding the proportion of damage to red zone properties.
(iv) Discount rate
Due to the short term nature of the liabilities the impact of discounting is not generally material. Where applicable, claims and recoveries have been discounted using a risk-free rate based on New Zealand Government bonds and the payment profile of the underlying cash flows.
Sensitivity Analysis#
The net provision for red zone properties is most sensitive to the assumption regarding the choice of option A or option B. The table below illustrates the impact if the expected current assumption threshold (80%) is changed:
Change | Impact on net obligation Actual |
|
---|---|---|
30 June 2011 $m |
||
Sensitivity of assumptions |
||
Damage threshold | + 10% | 12 |
- 10% | (20) |
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Provision for weathertight services financial assistance package |
||
Opening provision | - | - |
Additional provisions recognised | 567 | - |
Provision used during the period | - | - |
Reversal of previous provision | - | - |
Unwind of discount rate and effect of changes in discount rate | - | - |
Closing provision | 567 | - |
This provision represents the Government's obligation to contribute 25% of agreed repair costs to eligible owners of leaky homes under the Weathertight services financial assistance package.
Description of weathertight services financial assistance package (FAP)#
The FAP offers qualifying homeowners a share of the agreed actual repair cost of repairing leaky homes. The Government and the Territorial Authority (if the Territorial Authority is participating in the FAP) each pay 25% of the agreed repair cost and the homeowner pays the remaining 50%. Under the FAP the homeowner agrees not to sue contributing Territorial Authorities and the government, although homeowners can still pursue other liable parties such as builders, developers and manufacturers of defective products.
The FAP scheme became available to homeowners from 29 July 2011 and eligible homeowners must lodge claims with the Department of Building and Housing prior to 29 July 2016. The 10 year limitation on lodging a weathertight claim means that over time the forecast eligible claims will reduce.
Key Assumptions#
Due to the early stage of the claims process for this support package, there is considerably uncertainty attached to this provision and what the ultimate cost of the Government's contribution will be under the FAP. Because there are no claims as at the reporting date under the FAP, actuarial analysis of experience has not been possible. Therefore the Department of Building and Housing management have estimated the provision applying three critical assumptions; the number of eligible homes, the take-up rate, and the cost of repair.
The most critical assumption in estimating the Governments obligations under the FAP is the number of weathertightness failures in New Zealand, from which a forecast of eligible claims can be derived, recognising the requirement that houses must have been built or altered (if the alterations leak) within 10 years of the date of lodging a claim.
In 2009, a report prepared by PriceWaterhouseCoopers (PwC) estimated the total number and economic costs of weathertightness failures in New Zealand. The total estimated failures were in the range of 22,000 to 89,000, with experts agreeing on a consensus of approximately 42,000 failures, which is the number of eligible homes used in calculating the provision.
The second most critical assumption is the take-up rate for the scheme. In the absence of historical data or sufficiently comparable programmes that may be used as a proxy, a take-up rate of 70% was estimated. This rate is higher than several territorial authorities and takes the following into consideration:
- the level of awareness of the scheme and certainty over eligibility rules providing an effective resolution to the cost of the weathertightness issue
- the certainty the scheme offers over the total amount owners can expect to receive fairly quickly to get their homes repaired
- the wide consultation with stakeholders in designing the scheme to obtain support and acceptance of it
- the desire of owners to avoid the legal and evidential costs, time delays and stress of dispute resolution or litigation
- the recognition by owners that damaged homes tend to deteriorate, with wider damage and higher repair costs.
The third critical assumption is the assumed cost of repair per eligible homes at $241,474. The 2009 PwC report estimated the typical cost (repair cost and transaction cost) for three categories of weathertightness failure (maintenance, targeted repair and full repair). The estimate of costs was prepared using data sourced from Weathertight Homes Resolution Service claims, North Island territorial authorities, a property manager and Home Owners and Buyers Association of New Zealand. A weighted average of the cost of the typical cost of repair has been used, updated for inflation and excluding the legal costs assumed in PwC’s report.
Sensitivity Analysis#
The sensitivity of the provision for FAP against the three critical assumptions described above is further described below:
Change | Impact on Provision |
|
---|---|---|
30 June 2011 $m |
||
Sensitivity of assumptions |
||
Number of eligible houses | +1,000 | 49.7 |
-1,000 | (49.7) | |
Take-up rates | +10% | 78.8 |
-20%1 | (148.2) | |
Repair costs | +10% | 56.7 |
-10% | (56.7) |
1. This assumption ie, 50% has been applied by several territorial authorities in making a provision for their share of costs.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Other provisions |
||
Opening provision | 1,319 | 1,171 |
Additional provisions recognised | 294 | 524 |
Provision used during the period | (33) | (385) |
Reversal of previous provision | (261) | (14) |
Unwind of discount rate and effect of changes in discount rate | 16 | 23 |
Closing provision | 1,335 | 1,319 |
Note 28: Net Worth#
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
26,983 | 21,720 | Taxpayer funds | 18,726 | 31,087 |
62,086 | 63,600 | Property, plant and equipment revaluation reserve | 62,152 | 63,593 |
62 | 63 | Investment revaluation reserve | 58 | 59 |
(186) | (219) | Cash flow hedge reserve | (310) | (143) |
24 | (47) | Foreign currency translation reserve | (47) | (10) |
447 | 402 | Net worth attributable to minority interest in Air New Zealand | 308 | 402 |
89,416 | 85,519 | Total net worth | 80,887 | 94,988 |
Taxpayer Funds |
||||
34,027 | 31,087 | Opening taxpayers funds | 31,087 | 36,382 |
(7,067) | (9,437) | Operating balance excluding minority interest | (13,360) | (4,509) |
24 | 62 | Transfers from/(to) property, plant and equipment revaluation reserve | 460 | (785) |
(1) | 8 | Other movements | 1 | (1) |
26,983 | 21,720 | Closing taxpayers funds | 18,188 | 31,087 |
Property, Plant and Equipment Revaluation Reserve |
||||
62,110 | 63,593 | Opening revaluation reserve | 63,593 | 62,612 |
- | 69 | Net revaluations | (443) | 196 |
(24) | (62) | Transfers from/(to) taxpayer funds | (460) | 785 |
62,086 | 63,600 | Closing revaluation reserve | 62,690 | 63,593 |
The property, plant and equipment revaluation reserve arises on the revaluation of physical assets. Where revalued property, plant or equipment is sold, the portion of the property, plant and equipment revaluation reserve that relates to that asset, and is effectively realised, is transferred to taxpayer funds.
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Investment Revaluation Reserve |
||||
61 | 59 | Opening investment revaluation reserve | 59 | 56 |
1 | 4 | Increase arising on revaluation of available-for-sale financial assets | (1) | 1 |
- | - | Cumulative (gain)/loss transferred to the statement of financial performance on sale of available-for-sale financial assets | - | 2 |
62 | 63 | Closing investment revaluation reserve | 58 | 59 |
The investment revaluation reserve arises on the revaluation of available-for-sale financial assets. Where a revalued financial asset is sold, the portion of the reserve that relates to that financial asset, and is effectively realised, is recognised in the statement of financial performance. Where a revalued financial asset is impaired, the portion of the reserve that relates to that financial asset is recognised in the statement of financial performance.
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Cash Flow Hedge Reserve |
||||
(190) | (143) | Opening cash flow hedge reserve | (143) | 18 |
5 | (52) | Transfer into reserve | (279) | (96) |
(1) | (16) | Transfer to the statement of financial performance | 17 | (62) |
- | (8) | Transfer to initial carrying value of hedged item | 95 | (3) |
(186) | (219) | Closing cash flow hedge reserve | (310) | (143) |
The cash flow hedge reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain or loss on the hedge is recognised in the statement of financial performance when the hedged transaction impacts the statement of financial performance, or is included as a basis adjustment to the non-financial hedged item, consistent with the applicable accounting policy.
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Foreign currency translation reserve |
||||
24 | (10) | Opening foreign currency translation reserve | (10) | - |
- | (37) | Arising from translation of foreign operations | (37) | (10) |
24 | (47) | Closing foreign currency translation reserve | (47) | (10) |
The foreign currency translation reserve holds foreign exchange gains and losses arising from translating monetary items that form part of the net investment in a foreign operation into New Zealand dollars.
It also includes foreign exchange gains and losses associated with translating non-monetary assets into New Zealand dollars if revaluations of those assets are reflected in another reserve rather than in the statement of financial performance.
Forecast 30 June 2011 |
Actual | |||
---|---|---|---|---|
Budget 10 $m |
Budget 11 $m |
30 June 2011 $m |
30 June 2010 $m |
|
Net Worth Attributable to Minority Interest in Air New Zealand |
||||
447 | 402 | Opening minority interest | 402 | 447 |
- | - | Operating balance attributable to minority interests | (101) | (17) |
- | - | Transactions with minority interest | (20) | (11) |
- | - | Other movements | 27 | (17) |
447 | 402 | Closing minority interest | 308 | 402 |
Minority interest represent the interests of minority holders of Air New Zealand shares. Transactions with
minority interests include dividend payments and dividend reinvestments.
Note 29: Capital Objectives and Fiscal Policy#
The Government's fiscal policy is pursued in accordance with the principles of responsible fiscal management set out in the Public Finance Act 1989:
- reducing total debt to prudent levels so as to provide a buffer against factors that may impact adversely on the level of total debt in the future by ensuring that, until those levels have been achieved, total operating expenses in each financial year are less than total operating revenues in the same financial year
- once prudent levels of total debt have been achieved, maintaining those levels by ensuring that, on average, over a reasonable period of time, total operating expenses do not exceed total operating revenues
- achieving and maintaining levels of total net worth that provide a buffer against factors that may impact adversely on total net worth in the future
- managing prudently the fiscal risks facing the Government, and
- pursuing policies that are consistent with a reasonable degree of predictability about the level and stability of tax rates for future years.
Consistent with these principles, the Government seeks to strengthen its fiscal position to help manage future spending demands, particularly those arising from an ageing population by maintaining debt at prudent levels and accumulating assets through the NZS Fund.
The Government's fiscal strategy can be expressed through its long term objectives and short term intentions for fiscal policy.
Further information on the Government's fiscal strategy can be found in the Fiscal Strategy Report published with the Government's budget.
Fiscal Strategy Report 2010 | Fiscal Strategy Report 2011 |
---|---|
DebtManage total debt at prudent levels. Over the short to medium term it is prudent to allow an increase in debt to deal with the current economic and fiscal shock. However, we need to ensure that this increase is eventually reversed and that we return to a level of debt that can act as a buffer against future shocks. We will do this by ensuring that net debt remains consistently below 40% of GDP, and is then brought back to a level no higher than 20% of GDP by the early 2020s. We will work towards achieving this earlier as conditions permit. |
DebtManage total debt at prudent levels. Over the short to medium term it is prudent to allow an increase in debt to deal with the current economic and fiscal shock. However, we need to ensure that this increase is eventually reversed and that we return to a level of debt that can act as a buffer against future shocks. We will do this by ensuring that net debt remains consistently below 35% of GDP, and is then brought back to a level no higher than 20% of GDP by the early 2020s. We will work towards achieving this earlier as conditions permit. |
Operating balanceReturn to an operating surplus sufficient to meet the Government's net capital requirements, including contributions to the New Zealand Superannuation Fund, and ensure consistency with the debt objective. |
Operating balanceReturn to an operating surplus sufficient to meet the Government's net capital requirements, including contributions to the New Zealand Superannuation Fund, and ensure consistency with the debt objective. |
Operating expensesReduce the growth in government spending to ensure operating expenses are consistent with the operating balance objective. |
Operating expensesTo meet the operating balance objective, the Government will control the growth in government spending so that over time, core Crown expenses are reduced to around 30% of GDP. |
Operating revenuesEnsure sufficient operating revenue to meet the operating balance objective. |
Operating revenuesEnsure sufficient operating revenue to meet the operating balance objective. |
Net worthEnsure net worth remains at a level sufficient to act as a buffer to economic shocks. Over the medium term, net worth will continue to fall as the impact of the global financial crisis unfolds. Consistent with the debt and operating balance objectives, we will start building up net worth ahead of the demographic change expected in the mid-2020s. |
Net worthEnsure net worth remains at a level sufficient to act as a buffer to economic shocks. Over the medium term, net worth will continue to fall as the impact of the global financial crisis unfolds. Consistent with the debt and operating balance objectives, we will start building up net worth ahead of the demographic change expected in the mid-2020s. |
Fiscal Strategy Report 2010 | Fiscal Strategy Report 2011 | Fiscal Position 20111 |
---|---|---|
DebtGross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 35.3% of GDP in 2013/14. Core Crown net debt (excluding NZS Fund and advances) is forecast to be 26.5% in 2013/14. |
DebtGross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 37.2% of GDP in 2014/15. Core Crown net debt (excluding NZS Fund and advances) is forecast to be 29.6% in 2014/15. |
DebtGross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) at 30 June 2011 was 38.6% of GDP (2010: 31.1%). Core Crown net debt (excluding NZS Fund and advances) at 30 June 2011 was 20.0% of GDP (2010: 14.1%). |
Operating balanceBased on the operating allowance for the 2010 Budget, the operating deficit is forecast to be 3.5% of GDP in 2010/11. The operating deficit is forecast to be 0.3% of GDP in 2013/14. This decrease is consistent with the long-term objective for the operating balance. |
Operating balanceBased on the operating allowance for the 2011 Budget, the operating deficit is forecast to be 3.5% of GDP in 2011/12. The operating balance is forecast to be 1.9% of GDP in 2014/15. This is consistent with the long-term objective for the operating balance. The operating deficit (before gains and losses) is expected to be 4.7% in 2011/12. |
Operating balanceThe operating deficit was 6.7% of GDP for the year ended 30 June 2011 (2010: 2.4%). |
ExpensesTotal Crown expenses are forecast to be 42.4% of GDP in 2013/14. Core Crown expenses are forecast to be 32.4% of GDP in 2013/14. This assumes a new operating allowance of $1.1 billion per annum for the 2010 Budget growing at 2% for Budgets thereafter (GST exclusive). |
ExpensesTotal Crown expenses are forecast to be 40.5% of GDP in 2014/15. Core Crown expenses are forecast to be 31.3% of GDP in 2014/15. This assumes a new operating allowance of $0.8 billion per annum for Budgets 2012 and 2013, then returning to $1.19 billion, growing at 2% for Budgets thereafter (GST exclusive). |
ExpensesTotal Crown expenses were 49.9% of GDP for the year ended 30 June 2011 (2010: 42.8%). Core Crown expenses were 35.2% GDP for the year ended 30 June 2011 (2010: 33.8%). |
RevenuesTotal Crown revenues are forecast to be 41.1% of GDP in 2013/14. Core Crown revenues are forecast to be 30.7% of GDP in 2013/14. Core Crown tax revenues are forecast to be 27.5% of GDP in 2013/14. |
RevenuesTotal Crown revenues are forecast to be 41.0% of GDP in 2014/15. Core Crown revenues are forecast to be 31.0% of GDP in 2014/15. Core Crown tax revenues are forecast to be 27.8% of GDP in 2014/15. |
RevenuesTotal Crown revenues were 40.7% of GDP for the year ended 30 June 2011 (2010: 39.5%). Core Crown revenues were 28.7% of GDP for the year ended 30 June 2011 (2010: 29.7%). Core Crown tax revenues were 25.7% of GDP for the year ended 30 June 2011 (2010: 26.8%). |
Net worthTotal Crown net worth is forecast to be 34.8% of GDP in 2013/14. Core Crown net worth is forecast to be 10.7% of GDP in 2013/14. |
Net worthTotal Crown net worth is forecast to be 34.1% of GDP in 2014/15. Core Crown net worth is forecast to be 7.9% of GDP in 2014/15. |
Net worthTotal Crown net worth was 40.4% of GDP as at 30 June 2011 (2010: 50.2%). Core Crown net worth was 17.4% of GDP as at 30 June 2011 (2010: 23.6%). |
1. Comparative GDP percentages have been updated to reflect restated Statistics New Zealand nominal GDP.
Note 30: Canterbury Earthquakes#
The Canterbury region experienced two major earthquakes during the reporting period, on 4 September 2010 and 22 February 2011 (of magnitudes 7.1 and 6.3 respectively) in addition to a number of aftershocks (including two significant earthquakes on 13 June 2011).
These consolidated financial statements report both revenue and expenses in relation to these earthquakes. These fiscal impacts have been estimated based on the information available at the time these financial statements were produced. The largest and most complex valuations have been carried out by independent professional actuaries and represent a best estimate of the costs to date. However the final costs of the Canterbury earthquakes will not be certain for some time and these estimates may differ from those final costs. As a result, information on key assumptions (along with the sensitivity of those assumptions) has been included in the relevant notes to these financial statements (eg, insurance liabilities).
Amounts recognised in the statement of financial performance in respect of the earthquakes are:
Actual | ||
---|---|---|
Note | 30 June 2011 $m |
|
Statement of Financial Performance |
||
Revenue |
||
Other revenue - EQC insurance claim on reinsurers | a | 4,185 |
Other earthquake related revenue | 329 | |
Total earthquake related revenue (excluding gains) | 4,514 | |
Expenses |
||
Insurance expenses - EQC insurance expenses | a | 11,656 |
Other operating expenses - Canterbury Red Zone support package | b | 653 |
Other operating expenses - AMI support package | c | 335 |
Insurance expenses - AMI insurance expenses | c | 95 |
Other operating expenses - Share of local authorities' expenses | d | 133 |
Other earthquake related expenses | 729 | |
Total earthquake related expenses (excluding losses) | 13,601 | |
Operating balance before gains/(losses) | (9,087) |
These results do not represent the total expense to the Government of the earthquakes. There are still a number of costs that are to be determined (eg, the Government's share of repairs to essential infrastructure). In addition, there are still a number of significant policy decisions to be made regarding the earthquakes. These decisions will likely have fiscal costs in a future period (eg, offers in respect to the purchase of residential properties currently classified in the Orange and White Zones).
The costs outlined in this note do not include the impact on tax or other revenues as a result of the earthquakes. The estimates are based on current government policy and do not include costs that the Government has not yet committed to, whether or not they are under active consideration, but which may yet arise in association with the earthquakes.
Details of the significant costs are included below. In addition, the Government has also announced or incurred other expenses such as wage subsidies, temporary accommodation, community and trauma support, and other support assistance. There has also been some damage to central government assets such as hospitals, schools, state housing and state highways.
The Government's contribution to repairing local roads damaged by the earthquakes is expected to be funded from the National Land Transport Fund (the “NLTF”). As a result, the costs associated with the repair of local roads will be recognised when claims are made to the fund and accepted by the New Zealand Transport Agency. The NLTF is funded primarily by the collection of road user charges, fuel excise duties, and registration fees.
The most significant “other” expense is in relation to welfare support packages which totalled $363 million for the year.
Note a - Earthquake Commission (EQC) Costs#
EQC covers damage to residential property caused by earthquake, landslip, tsunami, volcanic eruption, hydrothermal activity, storm or flood (land only), and fire following any of these events.
Residential property generally consists of dwellings (up to $100,000 + GST), contents (up to $20,000 + GST), and the land under and immediately around the dwelling, main access ways, and retaining walls (within certain limits).
EQC's obligation (and reinsurance recoveries) in relation to the earthquakes has been valued by an independent actuary (Melville Jessup Weaver). The Canterbury earthquakes have resulted in a higher than usual level of uncertainty in determining EQC's obligation in respect of past events. The key sources of this uncertainty are:
- the impact of multiple events on EQC coverage and reinsurance coverage
- severe land damage and a complex land claims environment from both an engineering and legal perspective
- the relatively early stage of claims development, including the most recent large earthquake event on 13 June 2011, and
- the potential for building cost inflation (“demand surge inflation”) to exceed expectations.
Consequently, at this stage of claims development, there is a high degree of unavoidable uncertainty regarding future claims costs and related reinsurance recoveries. Over time, as assessments are completed and claims settled, the reasonableness of the valuation and its assumptions can be tested against the emerging claims experience and the level of uncertainty will reduce.
The key areas of estimation risk relates to claims that have been incurred but not reported or claims where the estimates are considered insufficient. The volatility of these claims is partially mitigated by the maximum settlement amounts for dwellings and contents. However, claims in relation to residential land are not subject to a monetary limit and are therefore subject to greater volatility.
On 2 September the High Court issued a declaratory judgement regarding the application of the Earthquake Commission Act (1993) in situations where full cover has been reinstated after an earthquake. The estimated financial impact of this judgement has been reflected in these financial statements.
These financial statements include insurance costs (net of recoveries) of $7.5 billion for the likely costs to be incurred by EQC in settling claims for damage to residential property arising from the Canterbury earthquakes. For the year ended 30 June 2011 EQC had made cash payments of approximately $1.2 billion against this obligation.
Note 30: Canterbury Earthquakes (continued)#
Details of the calculation of EQC's claims obligation (including discussion on the sensitivity of assumptions) are provided in note 25 of these financial statements.
Note b - Canterbury Red Zone Support Package#
On 23 June 2011 the Government announced zones of land damage in Christchurch and parts of the Waimakariri district. This land has been mapped into four zones:
- Red (land repair would be prolonged and uneconomic at present)
- Orange (further assessment required)
- Green (repair/rebuild process can begin), and
- White (not yet mapped or not residential).
Land in the red zone is unlikely to be suitable for continued residential occupation for a prolonged period of time. For this reason, the Government has also announced that it is prepared to purchase insured residential land in the red zone on a voluntary basis. There are two options for purchase:
- the Crown will offer to purchase the entire property at the 2007 capital value rating valuation (less any insurance payments already made on the land and/or dwelling), and will assume all open insurance claims relating to the property other than contents, or
- the Crown will offer to purchase the land at the greater of the following (less any land payments already made), allowing the previous property owner to pursue any open insurance claims relating to the dwelling:
- 2007 land value rating valuation, or
- EQC's actual land settlement under the Earthquake Commission Act 1993.
These financial statements include expenses of $653 million (net of insurance proceeds) for the cost of the red zone support package at 30 June 2011. Given the two options available to homeowners, there is an element of uncertainty and therefore the actual amount may differ to the estimate. Details of this provision (including discussion on the sensitivity of assumptions) are provided in note 27 of these financial statements.
This provision excludes any costs associated with the demolition and removal of red zone houses, salvage income, and any future sale or use of land that will be purchased. The impact of these exclusions will depend on future decisions regarding the use of any land acquired.
Any future costs associated with the orange and white zones have not been included in these financial statements as no obligation existed at 30 June 2011. As a result, the fiscal impact of any offers to residents in these zones will be recorded in future periods.
On 18 August 2011 the Government announced it would be making offers to purchase a further 940 properties in Kaiapoi and Pines Beach north of Christchurch (previously designated in the Orange Zone). The cost of this announcement has not been included in the provision at 30 June 2011. The net cost to the Crown of this decision is estimated to be between $50 million and $75 million.
Note c - AMI Support Package#
On 7 April 2011 the Government agreed to provide a back-up financial support package for AMI Insurance to give policyholders certainty and to ensure an orderly rebuild of Christchurch after the earthquakes. The expense of $335 million recognised in the consolidated financial statements represents an estimate of portion of the support package that will not be recovered by the Crown.
The ultimate level of Crown support is dependent on the financial performance of the company, particularly in relation to the liability (and resulting reinsurance recoveries) arising from the Canterbury earthquakes. The liability in relation to the earthquakes has been valued by an independent actuary (Finity Consulting Pty Limited). Key assumptions around the valuation of the liability include the number of properties damaged, the mix and cost of rebuilds versus repairs versus cash settlements, where damage will exceed the EQC limits, future claims inflation, and the timing of claims payments.
The uncertainties regarding AMI's outstanding claims liability and related reinsurance recoveries are similar to those of EQC (with the exception of risks associated with land claims). The details of this arrangement and the insurance liability at 30 June 2011 (including discussion on the sensitivity of assumptions) are outlined in note 34 and note 25 respectively.
Note d - Share of Local Authorities' Expenses#
Under the current government policy setting, outlined in the National Civil Defence Emergency Management Plan (‘the Plan') and Guide to the National Civil Defence Emergency Management Plan (‘the Guide'), the Government is committed to a standard financial support package for the four local authorities in Canterbury (Christchurch City Council, Waimakariri District Council, Selwyn District Council and Environment Canterbury) as a result of the earthquakes. This support package will consist of both response and recovery costs.
Response costs
The Government has recorded an expense of $133 million in the current financial year for its share of response costs under the Guide. The majority of these costs relate to Christchurch City Council's response costs associated with caring for displaced people, temporary repairs to essential infrastructure and other precautionary measures to reduce immediate danger following the earthquakes.
Recovery costs
The Government's standard financial support under the Plan and Guide is to reimburse local authorities 60% of recovery repairs to essential infrastructure (waste water, storm water and fresh water) and river management systems. Recovery repairs are permanent repairs to restore the essential infrastructure to pre-emergency condition.
An estimate of these recovery costs in relation to the Government's obligation to fund their share of the Canterbury recovery costs has not been included in these financial statements. The earthquakes have resulted in an extremely rare situation where the current recovery estimate is not sufficiently reliable to be recorded as a liability at this point. The unreliability of the estimate is mainly due to the lack of reliable information in respect to:
- the amount of damage to infrastructure under the ground, and
- the basis for restoring the infrastructure, be it like-for-like, or some other method or configuration.
The current estimate from local authorities is that the Government's 60% share of permanent recovery costs may be in the range of between $348 million and $610 million. This estimate is extremely uncertain and is based on a number of local authorities' working assumptions to determine a repair bill to restore the essential infrastructure on a like-for-like basis. The majority of the recovery estimates provided relate to Christchurch City Council's and Waimakariri District Council's essential infrastructure.
A contingent liability has been included in note 32 in relation to these unquantifiable recovery costs.
Note 31: Commitments#
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Capital Commitments |
||
Specialist military equipment | 369 | 422 |
Land and buildings | 701 | 849 |
Other property, plant and equipment | 7,032 | 6,370 |
Other capital commitments | 408 | 224 |
Tertiary Education Institutions | 413 | 302 |
Total capital commitments | 8,923 | 8,167 |
Operating Commitments |
||
Non-cancellable accommodation leases | 2,909 | 2,862 |
Other non-cancellable leases | 3,171 | 3,230 |
Non-cancellable contracts for the supply of goods and services1 | 5,520 | 6,254 |
Other operating commitments2 | 7,415 | 7,634 |
Tertiary Education Institutions | 366 | 304 |
Total operating commitments | 19,381 | 20,284 |
Total commitments | 28,304 | 28,451 |
Total Commitments by Segment |
||
Core Crown | 22,129 | 20,983 |
Crown entities | 12,925 | 13,811 |
State-owned enterprises | 10,410 | 11,238 |
Inter-segment eliminations | (17,160) | (17,581) |
Total commitments | 28,304 | 28,451 |
By Term |
||
Capital Commitments |
||
One year or less | 4,659 | 4,238 |
From one year to two years | 1,297 | 1,479 |
From two to five years | 2,687 | 1,883 |
Over five years | 280 | 567 |
Capital Commitments | 8,923 | 8,167 |
Operating Commitments |
||
One year or less | 6,868 | 6,246 |
From one year to two years | 3,127 | 4,180 |
From two to five years | 5,100 | 4,788 |
Over five years | 4,286 | 5,070 |
Operating Commitments | 19,381 | 20,284 |
Total Commitments | 28,304 | 28,451 |
1. The comparative figures for 2010 include an adjustment of $3,996 million for contracts which were excluded last year.
2. The comparative figures for 2010 include a reclassification of $1,742 million between third party and inter-segment eliminations.
Note 32: Contingent Liabilities and Contingent Assets#
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Quantifiable Contingent Liabilities |
||
Guarantees and indemnities | 78 | 106 |
Uncalled capital | 4,033 | 2,310 |
Legal proceedings and disputes | 331 | 414 |
Other contingent liabilities | 2,699 | 3,535 |
Total quantifiable contingent liabilities | 7,141 | 6,365 |
Total Quantifiable Contingent Liabilities by Segment |
||
Core Crown | 6,884 | 6,050 |
Crown entities | 173 | 171 |
State-owned enterprises | 84 | 144 |
Inter-segment eliminations | - | - |
Total quantifiable contingent liabilities | 7,141 | 6,365 |
Contingent liabilities are:
- costs that the Crown will have to face if a particular event occurs, or
- present liabilities that are unable to be measured with sufficient reliability to be recorded in the financial statements (unquantifiable liabilities).
Typically, contingent liabilities consist of guarantees and indemnities, legal disputes and claims, and uncalled capital. The contingent liabilities facing the Crown are a mixture of operating and balance sheet risks, and they can vary greatly in magnitude and likelihood of realisation. In general, if a contingent liability was realised, or the amount becomes sufficiently reliable to record as a liability, it would reduce the operating balance and net worth and increase gross sovereign-issued debt. However, in the case of contingencies for uncalled capital, the negative impact would be restricted to gross sovereign-issued debt.
Where contingent liabilities have arisen as a consequence of legal action being taken against the Crown, the amount shown is the amount claimed and thus the maximum potential cost. It does not represent either an admission that the claim is valid or an estimation of the amount of any award against the Crown.
Quantifiable Contingent Liabilities#
This part of the Statement provides details of those contingent liabilities of the Crown which can be quantified (remote contingent liabilities are excluded).
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Guarantees and indemnities |
||
Air New Zealand - letters of credit and performance bonds | 34 | 49 |
Cook Islands - Asian Development Bank loans | 12 | 14 |
Indemnification of receivers and managers - Terralink Limited | 10 | 10 |
Ministry of Transport - funding guarantee | 10 | 10 |
Other guarantees and indemnities | 12 | 23 |
Total guarantees and indemnities | 78 | 106 |
Guarantees and indemnities are disclosed in accordance with NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets. In addition, guarantees given under Section 65ZD of the Public Finance Act 1989 are disclosed in accordance with Section 26Q(3)(b)(i)(B) of the same Act.
Air New Zealand - Letters of credit and performance bonds
The letters of credit are primarily given in relation to passenger charges, and airport landing charges. The performance bonds are primarily given in respect to engineering contracts.
Cook Islands - Asian Development Bank (ADB) loans
Before 1992, the New Zealand Government guaranteed the Cook Islands' borrowing from the ADB. These guarantees have first call on New Zealand's Official Development Assistance.
Indemnification of receivers and managers - Terralink Limited
The Crown has issued a Deed of Receivership indemnity to the appointed receivers of Terralink Limited against claims arising from the conduct of the receivership.
Ministry of Transport - funding guarantee
The Minister of Finance has issued a guarantee of $10 million to the Transport Accident Investigation Commission. The guarantee allows the Commission to assure payment to suppliers of specialist salvage equipment in the event of the Commission initiating an urgent investigation of any future significant transport accident.
Note 32: Contingent Liabilities and Contingent Assets (continued)#
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Uncalled capital |
||
International Bank for Reconstruction and Development | 991 | 1,185 |
Asian Development Bank | 2,995 | 1,079 |
Bank for International Settlements | 23 | 26 |
European Bank for Reconstruction and Development | 12 | 12 |
Other uncalled capital | 12 | 8 |
Total uncalled capital | 4,033 | 2,310 |
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Legal proceedings and disputes |
||
Accident Compensation Corporation | - | 45 |
Tax disputes | 281 | 295 |
Kapiti West Link Road | - | 14 |
Health - legal claims | 18 | 25 |
Other legal proceedings and disputes | 32 | 35 |
Total legal proceedings and disputes | 331 | 414 |
The amounts under quantifiable contingent liabilities for legal proceedings and disputes are shown exclusive of any interest and costs that may be claimed if these cases were decided against the Crown.
Where contingent liabilities have arisen as a consequence of legal action being taken against the Crown, the amount shown is the amount claimed and thus the maximum potential cost. It does not represent either an admission that the claim is valid or an estimation of the possible amount of any award against the Crown.
Tax in dispute#
Tax in dispute represents the outstanding debt of those tax assessments raised, against which an objection has been lodged and legal action is proceeding. When a taxpayer disagrees with an assessment issued following the dispute process, the taxpayer may challenge that decision by filing proceedings with the Taxation Review Authority or the High Court.
Health - legal claims#
Claims against the Crown exist in respect of alleged negligence for issues regarding treatment and care.
Actual | ||
---|---|---|
30 June 2011 $m |
30 June 2010 $m |
|
Other contingent liabilities |
||
International finance organisations | 1,254 | 1,529 |
Kyoto protocol units | 997 | 1,590 |
New Zealand Export Credit Office | 132 | 133 |
Air New Zealand partnership | 77 | 70 |
Inland Revenue Department - unclaimed monies | 55 | 50 |
Crown Health Financing Agency | 24 | 26 |
Reserve Bank - demonetised currency | 23 | 23 |
State highway extension | - | 41 |
NZTA - Auckland City Council | 10 | - |
Other contingent liabilities | 127 | 73 |
Total other contingent liabilities | 2,699 | 3,535 |
International finance organisations#
The Crown has lodged promissory notes with the International Monetary Fund. Payment of the notes depends upon the operation of the rules of the organisation.
Kyoto protocol units#
The Government has a contingent liability relating to 74.9 million forestry credits. During the first commitment period, the Net Kyoto Position of the Crown estimates that 89.3 million tonnes of carbon credits will be generated by carbon removals via forests (2010: 89.1 million tonnes). To the extent that these forests are harvested (in subsequent commitment periods there will be an associated liability generated that will need to be repaid. The New Zealand Emission Trading Scheme transfers a portion of the potential future liability to forest owners. As at 30 June 2011, approximately 14.4 million tonnes has been transferred to forest owners in the form of New Zealand Units. The Crown's contingent liability is calculated as the remaining credits the Crown is potentially liable for (74.9 million tonnes). Using the carbon price as at 30 June 2011, this contingent liability can be measured at $997 million.