Formats and related files
Contents#
Browse section/chapter | Download/Page range |
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Ministerial Statement#Statement of Responsibility#Commentary#
Independent Report of the Auditor-General# |
fsgnz-year-jun13.pdf (2,842 KB) pp. (2),ii,1–184 |
fsgnz-year-jun13-1.pdf (1,872 KB) pp. (2),ii,1–24 | |
Audited Financial Statements# |
fsgnz-year-jun13-2.pdf (846 KB) pp. 29–164 |
Supplementary Statements#
Additional Financial Information#
Glossary of Terms# |
fsgnz-year-jun13-3.pdf (187 KB) pp. 165–184 |
Data and Charts - Commentary#
|
fsgnz-year-jun13.xls (473 KB) |
A Snapshot of the 2013 Financial Statements of the Government (Part 1)#
The New Zealand Government:
- 2,500 entities
- $86.6 billion revenue
- $91.0 billion expenditure
- $4.4 billion operating deficit
- $244.4 billion assets
- $174.4 billion liabilities.
The economy continued to grow
The size of the nominal economy increased 2.1% over the year, driven by an increase in consumer spending and a large increase in investment, particularly residential building.
Annual average % change in GDP
Facts and figures – June Year
- $212.7 billion nominal GDP (up 2.1%)
- 1,360,700 average full time employees 22,275 more)
- $27.42 average hourly rate (up 2.4%)
- 6.7% average unemployment 0.1% higher)
- 0.8% inflation (2.2% in 2012)
Where does the Government's money come from?
- 67% of revenue was from collection of tax ($3.5 billion more than last year)
- 84% of sales of goods and services from SOEs (eg, NZ Post, Meridian Energy, KiwiRail)
- 14% was from other sources (eg, ACC, EQC, and fire service levies)
Total revenue $86.6 billion
- $3.1 billion increase from last year
- Represents 40.7% of GDP
- Core Crown tax revenue was $58.7 billion
Who pays income tax, and how much?
- Next year 3.4 million New Zealanders are expected to pay tax of $26.4 billion – an average of $7,765 each
Your tax dollar - where was it spent?
- $70.3 billion core Crown expenses
- 55% of all spending on welfare, education and health
- 23% of all spending by SOEs and Crown entities
Crown expenses
Total Crown expenses were $1.7 billion less than last year as insurance expenses and one-off impairments were higher in 2012.
The peak in 2011 was a result of large Canterbury earthquake costs, which are detailed on the next page.
Your dollar provided...
$49.7 billion on welfare, health, education
Social welfare
$10.2 billion to provide 612,000 superannuitants with income support and $4.7 billion to 323,000 people receiving the unemployment, sickness, invalids, and domestic purpose benefits.
Health
$11.7 billion of funding to hospitals, which helped provide over 52,000 nurses, 14,000 doctors and 158,000 elective surgeries.
Education
$12.5 billion helped to fund over 200,000 enrolments in early childhood education and over 750,000 school students.
$11.5 billion so far to rebuild Canterbury
- $11.5 billion total cost so far, $9.1 billion of that was recorded in 2011, $1.9 billion last year and $0.5 billion this year
- 70% are the claims costs of EQC, with 423,273 building claims received and approximately $4.4 million paid out per da
- 7,493 red zone properties with over 85% now settled
A Snapshot of the 2013 Financial Statements of the Government (Part 2)#
Government spending exceeded income
Operating balance before gains and losses (OBEGAL)
$4.4 billion deficit
- Second successive year that the deficit halved
- Deficit was $18.4 billion in 2011 and $9.2 billion in 2012
- Recovery of OBEGAL reflects the recovery in the economy
- Next surplus forecast for 2014/15 (one more year in deficit)
OBEGAL deficit → Capital Spending → Cash deficit → Net Debt
Core Crown net debt
$55.8 billion core Crown net debt
- $5.1 billion increase from last year as the Crown continued to run a cash deficit
What does the Government owe?
- $100.1 billion
of borrowings, the same as last year. While $15.5 billion of government bonds were issued (at a rate of $304 million per week) $15.4 billion of maturing debt was repaid. Overall net cash from borrowing was $0.1 billion - $37.7 billion
of insurance liabilities, $3.5 billion less than last year, with all the main insurers having lower amounts outstanding this year
Total Crown liabilities
- $6.1 billion less than last year
Total Crown liabilities fell from last year, mostly due to falls in the estimated future cost of the long-term obligations for ACC claims and the Government Superannuation Fund (GSF)
What does the Government own?
Total Crown assets
- $109.8 billion
of property, plant and equipment (PPE) 55%, or $60 billion, was land and buildings - $106.8 billion
of financial assets with 47% held in New Zealand and 16% in both the USA and Europe - $27.8 billion
of other assets, including inventory and intangible assets
Ministerial Statement#
The Crown's finances continued to strengthen in the year under review reflecting prudent management of the balance sheet and of operating expenses in a steadily expanding economy.
The total Crown's operating deficit before gains and losses (OBEGAL) halved for the second consecutive year to $4.4 billion, or to 2.1 per cent of GDP in the 12 months to June 30. This was considerably stronger result than the $7.9 billion deficit forecast by Treasury in Budget 2012 at the start of the financial year. It compares with deficits of $9.2 billion and $18.4 billion in the two preceding fiscal years.
Core Crown expenses were $3.4 billion lower than Budget 2012 forecasts, at $70.3 billion (33.1 per cent of GDP). This partly reflects the Government's focus on reducing costs while improving the services New Zealanders receive by consistently examining how public services are delivered. Careful management permitted the Government to target extra spending into areas of priority: Core Crown operating spending on social security was up 3.2 per cent to $22.7 billion; Health was up 2.4 per cent to $14.5 billion, education was up 7.3 per cent to $12.5 billion and law and order spending to make our communities safer were up 1.6 per cent to $3.5 billion.
Mirroring positive economic activity, tax revenue of $58.7 billion was 6.5 per cent higher than a year earlier and equal to 27.6 per cent of GDP. The corporate tax take was strong, indicating underlying strength in company profitability likely due, at least in part, to firms’ increased investment returns.
Crown expenses (net of reinsurance) relating to rebuilding Canterbury totalled $0.5 billion this year, building on $11 billion over the previous two years. The total expected cost to the Crown was this year revised up to $15 billion. Although it will be some time off before we will know the final costs of some rebuild projects, we have recently received increased assurance on final costs associated with repairing horizontal infrastructure after a cost-sharing agreement being reached with Christchurch City Council.
The New Zealand Superannuation Fund booked an annual return of over 25 per cent and that performance, together with those of other investment funds, contributed to the operating balance inclusive of gains and losses moving into surplus this year ($6.9 billion). This was $21.8 billion better than the previous year, and $12.6 billion better than Treasury forecast at the start of the year. This underscores how volatile investment returns can be, tracking swings in international market conditions beyond the control of New Zealand.
The surplus, along with a rise in the value of the Crown's property assets, strengthened the Crown's net worth position for the first time in five years. Net worth attributable to the Crown, at $68.1 billion, reflected assets of $244.4 billion (up 1.7 per cent) and liabilities of $174.4 billion (down 3.4 per cent). Milestones during the year included the sale of a minority shareholding in Mighty River Power, which freed up $1.7 billion for higher priority investments. The Government's share offer programme continues to be rolled out and will free up further capital from the balance sheet to spend on public assets, including schools and hospitals.
In the year to 30 June, the Crown's residual cash deficit nearly halved to $5.7 billion. Funding this deficit was reflected in an increase in net core Crown debt which stood at 26.3 per cent of GDP.
The Crown is on target to record an OBEGAL surplus in 2014/15. It will be another two years, when annual surpluses reach levels sufficient to meet all priority capital investments, before the Crown can begin to pay down debt. The Government is committed to easing the burden of debt-serving costs of future generations, which is why it is targeting net core Crown debt to stand no higher than 20 per cent of GDP in 2020.
Hon Bill English
Minister of Finance
30 September 2013
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 2013
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 2013 and its operations for the year ended on that date.
Hon Bill English
Minister of Finance
30 September 2013
Commentary#
- Fiscal Overview
Introduction#
These financial statements[1] contain the audited results for the financial year ended 30 June 2013. The results are compared against previous years and against two sets of forecasts for the 2012/13 year:
- Budget 12 refers to the 2012 Budget Economic and Fiscal Update, and
- Budget 13 refers to the 2013 Budget Economic and Fiscal Update.
This commentary should be read in conjunction with the financial statements on pages 30 to 172.
Notes
- [1]The financial statements of the Government of New Zealand refer to both core Crown and total Crown results. Core Crown is comprised of Ministers, Departments, Offices of Parliament, the NZS Fund and the Reserve Bank of New Zealand. Total Crown is comprised of the core Crown, State-owned enterprises and Crown entities.
At a Glance#
Year ended 30 June $million |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Actual 2012 |
Actual 2013 |
Forecast 30 June 2013 |
|
---|---|---|---|---|---|---|---|
Budget 12 | Budget 13 | ||||||
Core Crown tax revenue | 54,681 | 50,744 | 51,557 | 55,081 | 58,651 | 58,251 | 58,286 |
Core Crown expenses | 64,002 | 64,013 | 70,450 | 69,076 | 70,306 | 73,732 | 71,649 |
Operating balance before gains and losses (OBEGAL) | (3,893) | (6,315) | (18,396) | (9,240) | (4,414) | (7,897) | (6,285) |
Operating balance | (10,505) | (4,509) | (13,360) | (14,897) | 6,925 | (5,699) | 1,918 |
Residual cash | (8,639) | (9,000) | (13,343) | (10,644) | (5,742) | (9,671) | (7,750) |
Gross debt | 43,356 | 53,591 | 72,420 | 79,635 | 77,984 | 79,972 | 78,636 |
Net debt | 17,119 | 26,738 | 40,128 | 50,671 | 55,835 | 61,265 | 57,945 |
Net worth attributable to the Crown | 99,068 | 94,586 | 80,579 | 59,348 | 68,071 | 64,560 | 61,476 |
Headlines: #
- Tax revenue up $3.6 billion from a year earlier (page 10).
- Core Crown expenses were $1.2 billion higher than the year before (page 12).
- OBEGAL deficit more than halved from 2012 to be $4.4 billion (page 15).
- Partial sale of equity in Mighty River Power raised proceeds of $1.7 billion (page 9).
- Strong investment returns of $6.2 billion (page 16).
- Long-term liabilities for ACC and GSF decreased $2.8 billion (page 21).
- Net debt up $5.2 billion to 26.3% of GDP (page 17).
- Total net worth attributable to the Crown rose for the first time since the global financial crisis (page 19).
Summary#
The operating balance before gains and losses (OBEGAL) deficit more than halved from a year earlier, from $9.2 billion, to $4.4 billion #
The continued narrowing of the OBEGAL deficit was a result of further growth in the nominal economy (leading to a higher tax take) and lower expenditure (with Canterbury rebuild costs declining and last year's KiwiRail impairment not repeated).
Excluding the impact of the Canterbury rebuild, the adjusted OBEGAL deficit was $3.9 billion this year; which was $3.4 billion lower than the comparative figure for the previous year (a $7.3 billion deficit).
- Figure 1 - OBEGAL
- Source: The Treasury
The New Zealand economy continued to grow and helped increase the tax take...#
The size of the nominal economy grew by 2.1% for the year, driven by an increase in consumer spending and a large increase in investment, particularly residential building. The labour market was fairly steady throughout the year, although employees worked more hours and earned higher wages.
The increase in economic activity, growth in employment, and the impacts of policy changes led to core Crown tax revenue being $3.6 billion higher than a year earlier, with all major tax types improving, and reach its highest level (at $58.7 billion). As a share of the economy, core Crown tax revenue was 27.6% of GDP compared with the peak of 31.2% of GDP in 2006.
- Figure 2 - Core Crown revenue and expenses
- Source: The Treasury
...while core Crown expenses remained relatively flat... #
As a share of the economy, core Crown expenses were steady at 33.1% of GDP (the same as in 2012).
In nominal terms, core Crown expenses increased $1.2 billion (or 1.8%) to be $70.3 billion for the year to 30 June, and were at relatively similar levels for the past two years.
The two largest drivers of growth in core Crown expenditure were higher costs related to student loans (as loan repayments are now expected to be recovered over a longer period) and an increase in the number of recipients of NZ Superannuation (as the New Zealand population ages).
These increases were partially offset by lower expenses in relation to the rebuild in Canterbury. It is important to note that while the Canterbury rebuild continues, a lot of the expected costs were recognised in previous years, so these naturally decrease over time. In addition, as the rebuild gains momentum the nature of costs change, capital costs (which are not included in core Crown expenses) will start to increase as building in Canterbury gets underway.
...and one-off expenses meant that total Crown expenses were less than last year #
Expenses outside the core Crown (predominantly those of SOEs and Crown entities) were $20.7 billion ($2.9 billion less than the year before). The fall in expenses was largely owing to lower earthquake related insurance expenses (in EQC and Southern Response) as claims costs were updated to reflect the latest information, and impairments being at more regular levels this year compared to the one-off large impairment of KiwiRail assets in 2012.
Net debt continues to grow...#
With the Crown recording an OBEGAL deficit, and continued capital spending, the resulting cash deficit meant that net debt continued to rise. With increases every year since 2008, the highest level of net debt was seen this year, at $55.8 billion (26.3% of GDP). However, the rate of growth of net debt has slowed in recent years as cash deficits have become smaller; at $5.7 billion, the residual cash deficit was $4.9 billion less than the year before. In addition, this year's cash deficit was smaller than prior years owing to the proceeds of $1.7 billion from the partial sale of shares in Mighty River Power.
- Figure 3 - Net debt
- Source: The Treasury
...while investment gains led to an operating surplus... #
The Crown recorded its first operating balance surplus since 2008, as net gains of $11.3 billion meant that once added to the OBEGAL deficit, the surplus was $6.9 billion.
Most of the gains this year were a result of strength in global equities, which meant that the NZS Fund and ACC recorded large gains on their investment portfolios ($4.4 billion and $1.8 billion respectively). In addition, favourable movements in the discount rate meant that actuarial gains totalling $3.6 billion were recorded on the valuations of the long-term liabilities for ACC claims and GSF pensions.
- Figure 4 - Operating balance
- Source: The Treasury
...and an increase in the Crown's net worth#
With an operating surplus, the Crown's net worth increased for the first time since the global financial crisis. At $68.1 billion, the net worth attributable to the Crown was $8.7 billion higher than the previous year and stood equivalent to 32.0% of GDP (3.5% higher than last year).
Making up the change in net worth was an increase in total assets of $4.1 billion and a fall in liabilities of $6.1 billion. The higher asset values were largely the result of strong equity markets, which led to an uplift in financial assets, while the fall in liabilities was mostly made up of lower obligations for insurance (ACC, EQC and Southern Response) and superannuation (GSF). These liabilities fell as claims were paid out, latest valuations reduced estimated future costs and discount rates rose, which meant that the discounted value of the future cash flows was less.
- Figure 5 - Net worth
- Source: The Treasury
Partial Sale of Shares in Mighty River Power #
The Crown sold part of its shareholding in Mighty River Power (MRP) in May. MRP was the first SOE to be floated as part of the partial share sales programme announced by the Government in Budget 2012. Overall, the Crown received $1.69 billion from the sale of 48.2% of its ownership.
$m | |
---|---|
Net assets at time of sale | 3,052 |
Crown interest (51.8%) | 1,581 |
Minority interest (48.2%) | 1,471 |
Proceeds from sale | |
Gross proceeds | 1,685 |
Direct costs of share sale | (22) |
Net Cash proceeds | 1,663 |
Loyalty bonus shares | (25) |
Net proceeds after bonus shares issued | 1,638 |
Amount sold to minority interests | (1,471) |
Gain on partial sale | 167 |
Source: The Treasury (as at 14 May 2013)
What was sold?
The Crown owned 100% of the shares in MRP prior to the partial sale, with the value of MRPs net assets being $3,052 million at the time of sale. In selling 48.2% of its shares, the Crown effectively sold that portion of its interest in MRP to other parties; equating to $1,471 million, but it did not relinquish control of the Company. The portion of shares that are now owned outside the Crown is referred to as the non-controlling “minority interest” in MRP.
What did the Crown receive?
As shown in Table 2, the Crown received $1,685 million from the sale of these shares. Once the cost of the sales ($22 million) and the estimated cost of the bonus share issue (explained further below) are deducted, the net proceeds from sale were $1,638 million. When these proceeds are compared to the interest in the net assets sold, the Crown made a gain on the partial sale of $167 million.
What is the cost of the loyalty bonus shares?
Those New Zealand investors who purchased shares in the initial float of MRP will be eligible to receive up to 200 shares (one for every 25 shares purchased) if they hold those shares for two years. The bonus issue is a cost to the Crown because a portion of its assets are being given away for no compensation. The maximum cost of issuing these bonus shares was estimated at approximately $25 million.
How is the Crown's interest in MRP reflected in the financial statements?
The Crown continues to own more than 50% of MRP and therefore retains control of the Company and must continue to report 100% of the assets, liabilities, revenue and expenses in its financial statements. However, now that some of those net assets are owned by others, the Government needs to show the portion of MRP that can be attributed to the Crown and reflect that the residual is attributable to minority interests. In the financial statements this is presented through separate lines (in each of the operating statement and balance sheet) to reduce from the total operating balance and net worth the amount that is attributable to minority interests.
Why does the total Crown investment change?
As well as the Crown selling 48.2% of MRP, a number of Crown financial institutions (CFIs) have invested in the Company as part of their normal investment activity. Once the holding of the CFIs (3.8%) was added to the shares retained by the Crown, the total Crown ownership at 30 June 2013 increased to 55.0%. The Crown will continue to hold over 50% of shares, however, the CFIs shareholding will vary depending upon their investment strategies.
At 30 June 2013 MRP's net assets were $3,182 million, which meant that the total Crown ownership (including CFIs) was $1,749 million and the minority interest was $1,431 million.
Revenue#
Year ended 30 June $million |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Actual 2012 |
Actual 2013 |
Forecast 30 June 2013 |
|
---|---|---|---|---|---|---|---|
Budget 12 | Budget 13 | ||||||
Core Crown tax revenue | 54,681 | 50,744 | 51,557 | 55,081 | 58,651 | 58,251 | 58,286 |
Core Crown other revenue | 4,801 | 5,472 | 5,993 | 5,484 | 5,498 | 5,940 | 5,523 |
Core Crown revenue | 59,482 | 56,216 | 57,550 | 60,565 | 64,149 | 64,191 | 63,809 |
Crown entities, SOEs and eliminations | 20,024 | 18,509 | 24,013 | 22,918 | 22,506 | 22,112 | 22,654 |
Total Crown revenue | 79,506 | 74,725 | 81,563 | 83,483 | 86,655 | 86,303 | 86,463 |
% of GDP | |||||||
Core Crown tax revenue | 29.5% | 26.5% | 25.7% | 26.4% | 27.6% | 26.7% | 27.3% |
Core Crown other revenue | 2.6% | 2.9% | 3.0% | 2.6% | 2.6% | 2.7% | 2.6% |
Core Crown revenue | 32.1% | 29.3% | 28.7% | 29.1% | 30.2% | 29.5% | 29.8% |
Crown entities, SOEs and eliminations | 10.8% | 9.7% | 12.0% | 11.0% | 10.6% | 10.1% | 10.6% |
Total Crown revenue | 42.9% | 39.0% | 40.7% | 40.1% | 40.7% | 39.6% | 40.4% |
Total Crown revenue was $86.6 billion, an increase of $3.2 billion from a year earlier. While tax revenue was $3.6 billion higher than in 2012 this was partially offset by a fall in the earthquake related revenue of Crown entities.
Core Crown Tax Revenue #
In nominal terms, core Crown tax revenue increased $3.6 billion to reach its highest nominal level ever. As a share of the economy, tax revenue increased to 27.6% of GDP, but remains below the levels seen before the global financial crisis (Figure 6).
- Figure 6 - Core Crown tax revenue
- Source: The Treasury
All major tax types contributed to the increase in tax over the year, as detailed in Table 4, with four tax types making up most of the increase:
- Source deductions: $1.1 billion higher than last year owing to a stronger labour market. More people were employed (0.7% higher than 2012), and wages were higher (2.1% above the same time a year earlier), which directly resulted in increased tax from source deductions. Also, as taxpayers' earnings increase, their average tax rate increases owing to the progressive nature of the personal income tax scale (often referred to as fiscal drag). In addition, the tax exemptions related to KiwiSaver contributions were removed during the year, increasing the tax take.
- Other individuals[2]: $1.1 billion (or 36.8%) higher than a year earlier, largely owing to growth in taxable income over the past year and boosted by the base broadening measures from Budget 2010 (eg, removing the depreciation exemption on buildings). While the tax policy changes took effect in the 2011/12 tax year, for many taxpayers the financial impact first occurred within the current financial year. In addition, strength in equity markets is likely to have led to higher income from investments.
- GST: $0.6 billion stronger as both private consumption and residential investment increased (up 2.8% and 23% respectively).
- Corporate tax: $0.5 billion higher than the year before, mainly owing to growth in current-year taxable profits of firms and an increase in investment returns.
- Compared to forecast in Budget 2013, core Crown tax revenue was $0.4 billion (0.6%) above, with the largest differences being in corporate tax and GST.
- Corporate tax was $0.5 billion above Budget 2013 forecast mainly owing to higher-than-expected current-year taxable profits, mostly concentrated within a few sectors of the economy.
- GST was $0.2 billion lower than forecast mainly because both private consumption and residential investment were slightly weaker than forecast.
2012 core Crown tax revenue | 55.1 |
---|---|
Source deductions | 1.1 |
Other individuals | 1.1 |
GST | 0.6 |
Corporate tax | 0.5 |
Other movements | 0.3 |
2013 core Crown tax revenue | 58.7 |
- Figure 7 - Core Crown tax revenue against Budget 2013
- Source: The Treasury
Other Revenue#
Other revenue includes other fees and levies (eg, ACC levies), revenue from operations of Crown entities (CEs) and State-owned enterprises (SOEs), interest income and dividend income.
Core Crown other revenue was steady at $5.5 billion while the SOE and CE sectors recorded revenue of $22.5 billion, $0.4 billion lower than a year earlier (Figure 8).
- Figure 8 - Other revenue
- Source: The Treasury
Most of the reduction in revenue ($0.6 billion) was attributable to a fall in EQC's reinsurance revenue. The reduction was a result of a revised estimate in the outstanding receivable from reinsurers, taking into account the latest information at 30 June 2013. There were corresponding reductions in the insurance expense (detailed on the next page) that more than offset the reduction in revenue, meaning that overall the EQC operating balance was better than last year.
Notes
- [2]This tax type includes tax paid by sole traders, partnerships and trusts
Expenses#
Year ended 30 June $ million |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Actual 2012 |
Actual 2013 |
Forecast 30 June 2013 |
|
---|---|---|---|---|---|---|---|
Budget 12 | Budget 13 | ||||||
Social security and welfare | 19,382 | 21,185 | 22,005 | 22,028 | 22,741 | 23,239 | 22,893 |
Health | 12,368 | 13,128 | 13,753 | 14,160 | 14,498 | 14,745 | 14,526 |
Education | 11,455 | 11,724 | 11,650 | 11,654 | 12,504 | 12,387 | 12,355 |
Core government services | 5,293 | 2,974 | 5,563 | 5,428 | 4,294 | 6,537 | 5,572 |
Law and order | 3,089 | 3,191 | 3,382 | 3,403 | 3,456 | 3,558 | 3,511 |
Other core Crown expenses | 12,415 | 11,811 | 14,097 | 12,403 | 12,813 | 13,266 | 12,792 |
Core Crown expenses | 64,002 | 64,013 | 70,450 | 69,076 | 70,306 | 73,732 | 71,649 |
Crown entities, SOEs and eliminations | 19,397 | 17,027 | 29,509 | 23,647 | 20,701 | 20,378 | 21,089 |
Total Crown expenses | 83,399 | 81,040 | 99,959 | 92,723 | 91,007 | 94,110 | 92,738 |
% of GDP | |||||||
Social security and welfare | 10.4% | 11.0% | 11.0% | 10.6% | 10.7% | 10.7% | 10.7% |
Health | 6.7% | 6.8% | 6.9% | 6.8% | 6.8% | 6.8% | 6.8% |
Education | 6.2% | 6.1% | 5.8% | 5.6% | 5.9% | 5.7% | 5.8% |
Core government services | 2.9% | 1.6% | 2.8% | 2.6% | 2.0% | 3.0% | 2.6% |
Law and order | 1.7% | 1.7% | 1.7% | 1.6% | 1.6% | 1.6% | 1.6% |
Other core Crown expenses | 6.7% | 6.2% | 7.0% | 6.0% | 6.0% | 6.1% | 6.0% |
Core Crown expenses | 34.5% | 33.4% | 35.2% | 33.1% | 33.1% | 33.8% | 33.5% |
Crown entities, SOEs and eliminations | 10.5% | 8.9% | 14.7% | 11.3% | 9.7% | 9.4% | 9.9% |
Total Crown expenses | 45.0% | 42.3% | 49.9% | 44.5% | 42.8% | 43.2% | 43.4% |
Total Crown expenses decreased for the second successive year, to be $91.0 billion this year, $1.7 billion less than the year earlier. The decreases were owing to a large one-off impairment of KiwiRail assets last year and a fall in earthquake costs.
Core Crown Expenses#
While total Crown expenses fell, core Crown expenses were $1.2 billion higher than a year earlier. Despite the nominal expenditure increase, as a share of the economy core Crown expenses were the same as last year at 33.1% of GDP (Figure 9).
- Figure 9 - Core Crown expenses
- Source: The Treasury
Table 6 shows the largest contributors to the nominal increase in core Crown expenses over the year, with three key areas contributing to the increase:
- Education expenses made up most of the increase as they were $0.9 billion higher than in 2012, with the majority being related to impairments of the student loan receivables ($0.8 billion). The impairments were higher because of one-off improvements last year and updated assumptions about student incomes, which meant that repayments are now expected to be slightly slower than previously estimated. The remainder of the increase was a result of funding allocations to Education in the 2012 Budget.
- Spending on benefits increased $0.7 billion, mostly a result of an increase in recipients of New Zealand Superannuation, from 585,000 to 613,000, as the population ages.
- Expenses related to weathertight homes were impacted by a one-off $400 million decrease in 2012, which was not repeated this year. Overall, the remaining provision is $123 million (refer to note 27 of the financial statements for further details).
Year ended 30 June | |
---|---|
2012 core Crown expenses | 69.1 |
Education | 0.9 |
New Zealand Superannuation | 0.7 |
Weathertight homes | 0.4 |
Earthquake costs | (0.9) |
Other | 0.1 |
2013 core Crown expenses | 70.3 |
Source: The Treasury
The increases in expenses were partially offset by reductions of $0.9 billion in earthquake expenses. While spending will continue for many years, a number of costs have already been estimated and included in previous years. Also, as time goes on the recovery moves towards rebuild, with the type of spending moving from operating to capital. Further details about the spending on the Canterbury earthquake recovery this year and analysis against budgeted figures is provided on the following page.
Compared to Budget #
When compared to Budget 2013, core Crown expenses were $1.3 billion lower than expected.
The largest area contributing to the lower than forecast result was spending on core Government services, which was largely associated with the earthquake costs. Explanations of these differences are detailed on the next page.
Welfare spending was the next largest difference to forecast, spread across a number of benefit types. The main driver for the difference was that the take-up of tax credits relating to working for families and KiwiSaver was less than expected ($42 million).
- Figure 10 - Core Crown expenses compared to Budget 13
- Source: The Treasury
SOE and Crown Entity Expenses #
At $20.7 billion, expenses outside the core Crown were $2.9 billion lower than in 2012. There were two main reasons for the fall:
- The earthquake-related insurance expenses of EQC and Southern Response were $1.8 billion lower than in 2012 (at negative $0.1 billion). The reduction in the expenses reflect that two years from the Canterbury earthquakes the estimates for outstanding insurance claims are becoming more certain and have led to a reduction in the estimated outstanding claims cost.
- KiwiRail restructured its operations during 2012, which resulted in one-off impairments of the network assets, with $1.4 billion of that being an expense. In the latest year, the network assets were only impaired by a further $0.2 billion, a reduction of $1.2 billion.
Canterbury Earthquake Recovery#
Year ending 30 June $million |
Total | Actual 2011 |
Actual 2012 |
Actual 2013 |
Forecast 2013 |
Difference to forecast |
---|---|---|---|---|---|---|
Local Infrastructure | 1,407 | 195 | 729 | 483 | 1,164 | (681) |
Land zoning | 903 | 653 | 258 | (8) | 189 | (197) |
Southern Response support package | 458 | 355 | 156 | (53) | (49) | (4) |
Christchurch central city rebuild | 115 | - | - | 115 | 187 | (72) |
Other earthquake costs | 783 | 390 | 149 | 244 | 295 | (51) |
Canterbury earthquake recovery costs | 3,666 | 1,593 | 1,292 | 781 | 1,786 | (1,005) |
EQC (net of reinsurance proceeds) | 8,026 | 7,471 | 662 | (107) | (164) | 57 |
Other Crown Entities | (217) | 23 | (41) | (199) | 40 | (239) |
Total Crown net earthquake costs | 11,475 | 9,087 | 1,913 | 475 | 1,662 | (1,187) |
Operating expenses | 11,253 | 9,087 | 1,900 | 266 | 1,395 | (1,129) |
Capital expenditure | 222 | - | 13 | 209 | 267 | (58) |
Total Crown net earthquake costs | 11,475 | 9,087 | 1,913 | 475 | 1,662 | (1,187) |
This year the net cost (including both operating and capital spending) of the Canterbury earthquakes was $0.5 billion, $1.4 billion lower than the previous year, and $1.2 billion lower than expected in Budget 13 (Table 7). These results bring the total net costs to date to $11.5 billion. It is important to note that this is not an estimate of full costs; more costs will be incurred as the rebuild progresses and as further policy decisions are made.
Operating expenses
The largest expense this year was in relation to the estimate of repair costs of local infrastructure (mainly water and roads), which increased $0.5 billion as estimates of the Crown's obligation became more certain. In June the Crown negotiated a cost sharing agreement with the Christchurch City Council to contribute up to $1.8 billion for these costs. With $1.4 billion spent so far, a further $0.4 billion is yet to be incurred.
Capital expenses
In total, $0.2 billion of costs were capitalised during 2013, including:
- $0.1 billion that related to the Crown acquiring land that will be used to develop the Anchor Projects (eg, the Avon River Precinct) as part of the rebuild of Christchurch. As business cases for these projects are finalised and approved, construction will begin and further costs will be incurred.
- $0.1 billion of refurbishment costs for tertiary institutes, hospitals, the state housing stock and schools.
As noted earlier, capital costs will start to increase as the work in Christchurch moves into the rebuild stage.
Compared to Budget
The $0.5 billion of costs incurred this year was $1.2 billion lower than forecast in Budget 13 with costs of infrastructure, land zoning and the central city rebuild all being less than expected:
- Local infrastructure costs were lower than forecast as the cost sharing agreement was finalised after the Budget was released and the Crown's agreed share was lower than previously expected.
- Land zoning was $0.2 billion lower than forecast as updated information was received on settlements during the year providing additional clarity over the cost of outstanding offers.
- There was $0.1 billion less spent on acquisitions of land in the CBD for anchor projects, largely a result of delays in planned purchases. These acquisitions will still happen, but in later years.
Risk to cost estimates
Risks remain that the Canterbury earthquake costs are higher than expected in future years, for example the Crown could contribute more to the rebuild than currently agreed if the Council's actual costs exceed current estimates. Note 30 in the financial statements includes more detail about the costs this year and provides detailed information about the judgements and uncertainties involved in the cost estimations.
Operating Balance#
Year ended 30 June $million |
Actual 2009 | Actual 2010 | Actual 2011 | Actual 2012 | Actual 2013 |
Forecast 30 June 2013 |
|
---|---|---|---|---|---|---|---|
Budget 12 | Budget 13 | ||||||
Total Crown OBEGAL | (3,893) | (6,315) | (18,396) | (9,240) | (4,414) | (7,897) | (6,285) |
Gains and losses: | |||||||
ACC actuarial gain/(loss) | (4,491) | 410 | 996 | (2,942) | 2,369 | - | 1,047 |
GSF actuarial gain/(loss) | (695) | (1,231) | (574) | (3,896) | 1,251 | - | 918 |
ETS/Kyoto net position | 768 | (15) | 47 | 350 | 103 | - | 212 |
Investment portfolios: | |||||||
NZS Fund | (3,495) | 1,750 | 3,518 | (204) | 4,374 | 1,327 | 3,431 |
ACC | (181) | 745 | 961 | 944 | 1,796 | 264 | 2,526 |
Earthquake Commission | (349) | 37 | 109 | (53) | 1 | - | - |
Other gains/(losses)[3] | 1,831 | 110 | (21) | 144 | 1,445 | 607 | 69 |
Total Crown gains/(losses) | (6,612) | 1,806 | 5,036 | (5,657) | 11,339 | 2,198 | 8,203 |
Total Crown operating balance | (10,505) | (4,509) | (13,360) | (14,897) | 6,925 | (5,699) | 1,918 |
% of GDP | |||||||
Total Crown OBEGAL | (2.1)% | (3.3)% | (9.2)% | (4.4)% | (2.1)% | (3.6)% | (2.9)% |
Total Crown gains/(losses) | (3.6)% | 0.9% | 2.5% | (2.7)% | 5.3% | 1.0% | 3.8% |
Total Crown Operating balance | (5.7)% | (2.4)% | (6.7)% | (7.1)% | 3.3% | (2.6)% | 0.9% |
OBEGAL#
The OBEGAL deficit more than halved compared to the year earlier, $4.4 billion compared to $9.2 billion in 2012 (Table 8). The improved result was owing to higher revenue and lower expenditure at the total Crown level (as discussed in earlier sections). When compared to Budget 2013 the OBEGAL deficit was $1.9 billion smaller than expected owing to the favourable variances in both revenue and expenses.
Operating Balance #
Adding the Crown's net gains of $11.3 billion to the OBEGAL deficit, the operating balance was a surplus of $6.9 billion ($21.8 billion higher than 2012).
Much of the improvement in the operating balance was owing to gains on the investment portfolios of the NZS Fund and ACC ($6.2 billion) and favourable changes in discount rates leading to actuarial gains ($3.6 billion). This contrasts to the year before when equity markets were more subdued and discounts rates decreased, resulting in losses of $5.7 billion.
The large change since last year highlights the volatile nature of the operating balance. For more details about the sensitivities to the operating balance, refer to the box on page 22.
- Figure 11 - Operating balance
- Source: The Treasury
Investment gains of $6.2 billion: The NZS Fund recorded $4.4 billion of the total Crown net gains. Their investment portfolio earned strong returns as global equity markets rose, as did the value of their private market assets (notably Z Energy). Overall, the Fund returned a record 25.83% for the 12 months to June (1.21% last year) and now has pre-tax assets of approximately $23 billion ($19 billion in 2012).
Actuarial gains of $3.6 billion: Changes in the discount rate and improvements in experience resulted in large actuarial gains on the long-term liabilities for ACC insurance and GSF pensions. The short term discount rates increased, and offset the impact of a reduction in the long-term rate (from 6.0% to 5.5%) reflecting the low interest rate environment of recent years and the view that, on balance, it is expected that forward looking interest rates will continue this trend. Overall, changes in discount rates resulted in gains of $1.7 billion ($0.9 billion for ACC and $0.8 billion for GSF). In addition, recent data shows that actual claims costs are proving to be less expensive than previously thought, resulting in a $1.2 billion reduction in the ACC insurance liability.
Notes
- [3]Other gains and losses includes the net surplus from associates and joint ventures and operating balances from minority interests.
Debt#
Year ended 30 June | Actual 2009 | Actual 2010 | Actual 2011 | Actual 2012 | Actual 2013 |
Forecast 30 June 2013 |
|
---|---|---|---|---|---|---|---|
Budget 12 | Budget 13 | ||||||
Net debt ($m) | 17,119 | 26,738 | 40,128 | 50,671 | 55,835 | 61,265 | 57,945 |
Net debt (% GDP) | 9.2% | 13.9% | 20.0% | 24.3% | 26.3% | 28.1% | 27.1% |
Gross debt ($m) | 43,356 | 53,591 | 72,420 | 79,635 | 77,984 | 79,972 | 78,636 |
Gross debt (% GDP) | 23.4% | 27.9% | 36.2% | 38.2% | 36.7% | 36.7% | 36.8% |
Net Debt#
Net debt increases when the Crown is running cash deficits and it declines when there are 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.
Net debt increased by $5.2 billion this year, as the Crown continued to run a residual cash deficit. As a share of the economy, net debt was 26.3% of GDP (a 2.0% increase from last year).
- Figure 12 - Net debt
- Source: The Treasury
Residual Cash#
The residual cash deficit was $5.7 billion, $4.9 billion less than last year. Table 10 summarises the contributors to the reduction in the residual cash deficit over the year.
Year ended 30 June ($billion) | |
---|---|
2012 core Crown residual cash | (10.6) |
Increase in tax receipts | 3.6 |
Proceeds from sale of MRP | 1.7 |
Decreases in advances | 0.7 |
Increase in operating payments | (0.4) |
Higher interest payments | (0.4) |
Other movements | (0.3) |
2013 core Crown residual cash | (5.7) |
Source: The Treasury
- Tax receipts were $3.6 billion higher than last year, which was in line with the improvement in core Crown tax revenue as discussed on page 10.
- The Crown received $1.7 billion from the partial sale of MRP, lowering the cash deficit. Refer to the box on page 9 for further discussion about the share sales.
- Advances were $0.7 billion lower than last year as more loans were issued in 2012.
- Operating and interest payments were $0.8 billion more than last year, which is largely in line with the increase in core Crown expenses ($1.2 billion) as mentioned on page 12. The increase in cash payments tends to be lower than the expenditure increase owing to the fact that some expenses do not result in cash payments at the same time, and some expenses do not have operating cash payments at all (eg, depreciation).
The fiscal overview, on pages 4 and 5, summarises the link from the operating balance (a total Crown measure of total revenue less total expenses, including gains and losses) to net debt (a core Crown measure of debt).
Gross Debt#
While net debt increased this year, gross debt, which reflects the total borrowings of the core Crown, was $1.7 billion lower than a year earlier at $78.0 billion (Figure 13). As a percentage of GDP gross debt fell from 38.2% to 36.7%.
This decline in gross debt was largely mirrored by a decrease in financial assets (mostly held by the Reserve Bank and NZDMO), which meant that overall there was minimal impact to net debt (as discussed on the previous page).
- Figure 13 - Gross debt
- Source: The Treasury
The fall in gross debt was a result of movements in the following items:
- $1.1 billion fall in debt instruments issued by the Crown. While the Crown continued to issue government bonds, it also repaid maturing debt and reduced its treasury bills during the year.
- $0.9 billion decrease in other financial liabilities, which was largely due to a reduction in cash collateral deposits from trade counterparties. These deposits fluctuate with the level of derivative asset positions (the higher the asset, the more collateral that is required).
Partially offsetting these decreases was a $0.3 billion increase in the Reserve Bank's derivative liabilities. These liabilities are largely foreign exchange instrumentsused as a means of either investing funds overseas or funding a portion of the Bank’s foreign reserves portfolios. The decline in value was a result of the volatility in foreign exchange rates between the issue date and 30 June. However, the increase in these liabilities was largely offset by corresponding increases in foreign currency denominated assets.
Crown's Borrowing Programme#
The debt programme (Table 11) during 2012/13 returned net cash proceeds from the market of $0.1 billion. While the Crown continued to undertake a large ($14 billion face value) bond programme, the majority of proceeds were used to fund maturing debt. In total, debt issuance raised $15.5 billion, with $10.0 billion to fund maturing market government bonds and $5.4 billion to reduce outstanding Treasury Bills; a change in the programme that was signalled in Budget 2012.
Overall, once the non-market cash-flows (debt issued directly to agencies within the Crown) were included, net cash payments from borrowing were $0.3 billion.
Year ended 30 June $million |
Actual 2009 | Actual 2010 | Actual 2011 | Actual 2012 | Actual 2013 | Forecast 30 June 2013 |
|
---|---|---|---|---|---|---|---|
Budget 12 | Budget 13 | ||||||
Issue of government bonds | 5,775 | 12,424 | 19,468 | 15,146 | 15,458 | 14,122 | 15,554 |
Repayment of government bonds | (2,750) | (4,197) | - | (7,602) | (9,982) | (9,982) | (9,982) |
Net issue/(repayment) of short-term borrowing[6] | 5,782 | 636 | (422) | 2,139 | (5,404) | (3,701) | (5,553) |
Total market debt cash flows | 8,807 | 8,863 | 19,046 | 9,683 | 72 | 439 | 19 |
Issue of government bonds | 541 | 799 | 270 | - | - | - | - |
Repayment of government bonds | (515) | (656) | (803) | (1,501) | (499) | (499) | (499) |
Net issue/(repayment) of short-term borrowing | (150) | 170 | (125) | 430 | 100 | - | - |
Total non-market debt cash flows | (124) | 313 | (658) | (1,071) | (399) | (499) | (499) |
Total debt programme cash flows | 8,683 | 9,176 | 18,388 | 8,612 | (327) | (60) | (480) |
Net Worth Attributable to the Crown#
Year ended 30 June $million |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Actual 2012 |
Actual 2013 |
Forecast 30 June 2013 |
|
---|---|---|---|---|---|---|---|
Budget 12 | Budget 13 | ||||||
Opening net worth | 105,132 | 99,068 | 94,586 | 80,579 | 59,348 | 70,303 | 59,348 |
Operating balance | (10,505) | (4,509) | (13,360) | (14,897) | 6,925 | (5,699) | 1,918 |
Property, plant and equipment revaluations | 4,235 | 196 | (443) | (6,461) | 1,367 | - | (29) |
Other movements in reserves | 206 | (169) | (204) | 127 | 431 | (44) | 239 |
Closing net worth | 99,068 | 94,586 | 80,579 | 59,348 | 68,071 | 64,560 | 61,476 |
Net worth attributable to the Crown was $68.1 billion as at 30 June 2013, an increase of $8.7 billion from a year earlier, and is the first time since 2008 that net worth has increased in nominal terms. As a share of the economy net worth was 32.0% of GDP, which was 3.5% higher than a year earlier. The growth in net worth helps to rebuild the Crown's buffer against future shocks; however, this level remains significantly below the peak of $105.1 billion in 2008 (or 56.6% of GDP).
- Figure 14 - Net worth attributable to the Crown
- Source: The Treasury
The main reason for the improvement in the Crown's net worth, as shown in Table 12, was the operating balance surplus, with the gains on financial assets and reductions in long-term liabilities being the key drivers of the surplus (as discussed on pages 15 and 16). In addition, revaluation uplifts of the Crown's property, plant and equipment helped contribute to the higher net worth position.
Despite the increase in net worth, the composition of the balance sheet remains similar to previous years (Table 13). The most notable change is the decrease in “other liabilities”, largely being the fall in insurance and pension obligations. Later this year, the Treasury will publish the 2013 Investment Statement of the Government of New Zealand, which is a reporting requirement mandated by a recent amendment to thePublic Finance Act. The statement will delve into the composition of the assets and liabilities on the Crown's balance sheet, identifying risks and opportunities to further strengthen performance and manage risks.
The other notable change from last year is the increase in minority interests, which reflects the amount of the Crown's net worth that is attributable to external parties. In this past the minority interests largely related to external shareholders of Air New Zealand; however, minority interests have increased significantly with the partial sale of shares in Mighty River Power this year. For further information on the partial sale, refer to the box on page 9, and note 35 in the financial statements (pages 162 and 163).
Year ended 30 June $million |
Actual 2009 |
Actual 2010 |
Actual 2011 |
Actual 2012 |
Actual 2013 |
Forecast 30 June 2013 |
|
---|---|---|---|---|---|---|---|
Budget 12 | Budget 13 | ||||||
Property, plant and equipment | 110,135 | 113,330 | 114,854 | 108,584 | 109,833 | 121,335 | 109,334 |
Financial assets and sovereign receivables | 93,359 | 95,971 | 115,362 | 116,178 | 118,779 | 107,071 | 116,121 |
Other assets | 13,657 | 14,054 | 14,999 | 15,556 | 15,804 | 15,881 | 15,230 |
Total assets | 217,151 | 223,355 | 245,215 | 240,318 | 244,416 | 244,287 | 240,685 |
Borrowings | 61,953 | 69,733 | 90,245 | 100,534 | 100,087 | 103,207 | 100,780 |
Other liabilities | 55,683 | 58,634 | 74,083 | 80,004 | 74,318 | 74,872 | 76,635 |
Total liabilities | 117,636 | 128,367 | 164,328 | 180,538 | 174,405 | 178,079 | 177,415 |
Net worth | 99,515 | 94,988 | 80,887 | 59,780 | 70,011 | 66,208 | 63,270 |
Minority interests | (447) | (402) | (308) | (432) | (1,940) | (1,648) | (1,794) |
Net worth attributable to the Crown | 99,068 | 94,586 | 80,579 | 59,348 | 68,071 | 64,560 | 61,476 |
Assets#
Total Crown assets were $244.4 billion as at 30 June 2013 (Figure 15), a $4.1 billion increase over the year with the growth largely in financial assets ($2.6 billion) and property, plant and equipment ($1.2 billion).
- Figure 15 - Total Crown assets
- Source: The Treasury
The increase in financial assetswas driven by the strong equity market returns, which increased fair values of investment assets. Refer to page 16 for discussion about the investment gains this year (largely from the NZS Fund).
Values of property, plant and equipmentwere higher than last year as revaluations of the assets to market rates had positive impacts. While most assets are revalued, the largest uplift related to the state housing portfolio ($1.2 billion), largely reflecting the strength of the property market in Auckland.
Solid Energy#
Subsequent to balance date Solid Energy reached an agreement that addresses the Company's current solvency and liquidity issues. The agreement for the capital restructure includes:
- A restructuring of the bulk of its bank debt facilities, including renegotiation of covenant requirements,
- An exchange of certain portions of bank debt and Medium Term Note facilities for $75 million of Redeemable Preference Shares,
- Issuing $25 million of additional Redeemable Preference Shares to the Crown for cash,
- A new flexible working capital secured facility of $50 million to be provided by the Crown,
- A land mortgage secured facility of up to $50 million to be provided by the Crown, and
- A stand-by facility of up to $30 million in the event the Company is unable to discharge certain obligations.
The key terms of the capital restructure were agreed by 30 September 2013, however final settlement and documentation was not completed and is expected to be finalised during October 2013.
As a result of this agreement, the financial position of the Company has been reported in these financial statements on a going concern basis and the assets have been valued, where appropriate, based on their value-in-use rather than disposal value.
Challenges, however, remain for the Company, given the scale of restructure required and its inherent exposure to the USD coal price and USD/NZD exchange rate. The capital restructure is yet to be implemented and there remain certain risks, including that the agreement may be subject to dispute. Any further deterioration in the Company's financial position, or amendments to the current agreement, may adversely impact the Crown as it is unlikely to recover the carrying value of the assets in the event the Company is unable to continue trading.
Liabilities#
Total Crown liabilities were $174.4 billion as at 30 June 2013, a decrease of $6.1 billion (3.4%) from the previous year (Figure 16).
- Figure 16 - Total Crown liabilities
- Source: The Treasury
Borrowings remained at a similar level to last year, at around $100 billion. Core Crown gross debt made up a significant portion of this ($78.0 billion) and are generally the key driver for growth in total Crown borrowing; refer to page 18 for a discussion of the Crown's gross debt and the borrowing programme. Outside of the core Crown, the most significant borrowings are the deposits held by Kiwibank ($12.1 billion). These increased this year by $0.6 billion, which allowed the bank to issue more lending to customers.
ACC's insurance liability decreased this year from $30.6 billion to $29.4 billion, related in part to favourable claims experience and changes in discount rates (as discussed on page 16).
Other liabilities were $45.0 billion at 30 June 2013, compared to $49.4 billion at the end of last year.
The decrease of $4.4 billion was largely owing to two items:
- earthquake related insurance liabilities of EQC and Southern Response were $2.0 billion and $0.3 billion lower respectively as claims were paid out. In addition, the estimated future costs were reduced to reflect greater certainty about the cost of future claims (as discussed on page 13).
- retirement plan obligations for the Government Superannuation Fund were $1.6 billion lower than the year earlier largely owing to the increase in the short-term discount rate (as discussed on page 16). In addition, the plan assets (which are held by the Fund to offset the future obligations) increased this year as global equity markets provided strong returns.
Sensitivities and Risks to the Crown Balance Sheet#
Many of the assets and liabilities on the Crown's balance sheet are measured at “fair value” in order to disclose current estimates of what the Crown owns and owes. Fair value can be derived in a number of ways, traditionally based on market prices, but where these are not available, values can be best estimates based on certain assumptions. While the measurement at fair value is seen as the most appropriate value of these items, it can be volatile, resulting in fluctuations in the value of the assets and liabilities with changes in the underlying assumptions. Below is a summary of some of the key sensitivities to the valuation of the Crown's major assets and liabilities and the impact these can have on the operating balance (but usually no impact to OBEGAL).
Financial assets Impact on operating balance |
%change | $million |
---|---|---|
Interest rates | + 1 % | (532) |
- 1 % | 592 | |
Share prices | + 10 % | 1,681 |
- 10 % | (1,681) | |
NZD exchange rate | + 10 % | (1,029) |
- 10 % | 1,160 |
Source: The Treasury
Interest rates, share prices and exchange rates
Financial assets are the largest asset type on the Crown's balance sheet and have increased significantly in recent years (an increase of $90 billion in the last ten years, to be $119 billion in 2013). Crown Financial Institutions (eg, NZSF and ACC) hold investments to make financial returns, and those asset values are dependent on market prices, interest rates and exchange rates, which can all be volatile. Table 14 shows the sensitivity of the operating balance to changes in these variables.
Discount rates and inflation rates
Impact on operating balance $million |
Discount rate | Inflation rate | ||
---|---|---|---|---|
+ 1 % | - 1 % | + 1 % | - 1 % | |
ACC outstanding claims | 3,628 | (4,823) | (4,966) | 3,788 |
GSF retirement liability | 1,587 | (1,927) | (1,508)* | 1,831* |
EQC outstanding claims | 33 | (33) | (19) | 43 |
SRESL outstanding claims | 19 | (19) | (29) | 28 |
Source: The Treasury
*Estimated as at 30 June 2013
The Crown has a number of significant long-term liabilities which are actuarially valued based on estimated future cash flows over 50 years into the future. As part of the actuarial valuation, inflation rates are used to help estimate future cash flows while discount rates are used to obtain the value of those future cash flows in today's dollars (its present value). Changes in these assumptions can have significant impacts on the valuation because the cash flows are so large and over such long periods (eg, ACC's cash flows of $75 billion are discounted to $27 billion). Table 15 shows the impact that a 1% change in inflation and discount rates would have on the operating balance.
Changes in other estimates
Outside of market factors, valuations are subject to a number of judgements and estimates. In general, as time goes on, better information becomes available and initial estimates are updated to reflect current information. Some examples of this, as discussed earlier, include:
- The valuation of ACC claims: better information about future costs and rehabilitation rates led to a $1.2 billion reduction in the claims liability (page 16).
- The cost of the weathertight homes financial assistance package: claims experience reduced initial estimates of costs by $400 million last year (page 13).
- Earthquake related insurance liabilities: reassessments of future claim costs led to a $1.8 billion fall in expenses of EQC and Southern Response this year (page 13).
- Student loan receivables: assumptions around the expectations of student incomes and repayment rates effect the speed the Crown will recoup these loans, with changes being reported as an expense (page 12).
Other risks to the balance sheet
In addition to those items on balance sheet there are a number of liabilities that may arise in the future but are not yet included; either because they're dependent on an uncertain future event occurring (eg, outcome of litigation) or the liability cannot yet be measured reliably. If these contingencies crystallise, there will be associated costs with a negative impact on the operating balance. Refer to note 32 for a list of the contingent liabilities that the Crown was exposed to at 30 June 2013.
Historical Financial Information#
Year ended 30 June $ million |
2003 Actual |
2004 Actual |
2005 Actual |
2006 Actual |
2007 Actual |
2008 Actual |
2009 Actual |
2010 Actual |
2011 Actual |
2012 Actual |
2013 Actual |
---|---|---|---|---|---|---|---|---|---|---|---|
Statement of financial performance | |||||||||||
Core Crown tax revenue | 40,518 | 43,358 | 47,468 | 50,973 | 53,477 | 56,747 | 54,681 | 50,744 | 51,557 | 55,081 | 58,651 |
Core Crown other revenue | 2,922 | 2,861 | 3,577 | 4,762 | 4,734 | 5,072 | 4,801 | 5,472 | 5,993 | 5,484 | 5,498 |
Core Crown revenue | 43,440 | 46,219 | 51,045 | 55,735 | 58,211 | 61,819 | 59,482 | 56,216 | 57,550 | 60,565 | 64,149 |
Crown entities, SOE revenue and eliminations | 13,170 | 13,051 | 14,322 | 15,690 | 16,378 | 19,660 | 20,024 | 18,509 | 24,013 | 22,918 | 22,506 |
Total Crown revenue | 56,611 | 59,271 | 65,367 | 71,425 | 74,589 | 81,479 | 79,506 | 74,725 | 81,563 | 83,483 | 86,655 |
Social security and welfare | 13,907 | 14,252 | 14,682 | 15,598 | 16,768 | 17,877 | 19,382 | 21,185 | 22,005 | 22,028 | 22,741 |
Health | 7,501 | 8,111 | 8,813 | 9,547 | 10,355 | 11,297 | 12,368 | 13,128 | 13,753 | 14,160 | 14,498 |
Education | 7,016 | 7,585 | 7,930 | 9,914 | 9,269 | 9,551 | 11,455 | 11,724 | 11,650 | 11,654 | 12,504 |
Core government services | 2,130 | 2,091 | 2,567 | 2,507 | 4,817 | 3,371 | 5,293 | 2,974 | 5,563 | 5,428 | 4,294 |
Other core Crown expenses | 9,343 | 9,843 | 10,903 | 11,754 | 12,795 | 14,901 | 15,504 | 15,002 | 17,479 | 15,806 | 16,269 |
Core Crown expenses | 39,897 | 41,882 | 44,895 | 49,320 | 54,004 | 56,997 | 64,002 | 64,013 | 70,450 | 69,076 | 70,306 |
Crown entities, SOE expenses and eliminations | 12,347 | 11,816 | 13,397 | 15,015 | 14,725 | 18,845 | 19,397 | 17,027 | 29,509 | 23,647 | 20,701 |
Total Crown expenses | 52,245 | 53,698 | 58,292 | 64,334 | 68,729 | 75,842 | 83,399 | 81,040 | 99,959 | 92,723 | 91,007 |
OBEGAL | 4,366 | 5,573 | 7,075 | 7,091 | 5,860 | 5,637 | (3,893) | (6,315) | (18,396) | (9,240) | (4,414) |
Gains/(losses) | (2,745) | 1,736 | (1,144) | 2,451 | 2,162 | (3,253) | (6,612) | 1,806 | 5,036 | (5,657) | 11,339 |
Operating balance | 1,621 | 7,309 | 5,931 | 9,542 | 8,022 | 2,384 | (10,505) | (4,509) | (13,360) | (14,897) | 6,925 |
Statement of financial position | |||||||||||
Property, plant and equipment | 52,667 | 57,940 | 67,494 | 89,141 | 95,598 | 103,329 | 110,135 | 113,330 | 114,854 | 108,584 | 109,833 |
Financial assets | 27,799 | 32,654 | 42,005 | 66,396 | 73,718 | 85,063 | 93,359 | 95,971 | 115,362 | 116,178 | 118,779 |
Other assets | 18,461 | 18,756 | 19,714 | 9,503 | 11,031 | 12,443 | 13,657 | 14,054 | 14,999 | 15,556 | 15,804 |
Total assets | 98,927 | 109,351 | 129,212 | 165,040 | 180,347 | 200,835 | 217,151 | 223,355 | 245,215 | 240,318 | 244,416 |
Borrowings | 39,327 | 37,720 | 37,728 | 40,027 | 41,898 | 46,110 | 61,953 | 69,733 | 90,245 | 100,534 | 100,087 |
Other liabilities | 31,588 | 32,036 | 37,243 | 41,042 | 41,622 | 49,211 | 55,683 | 58,634 | 74,083 | 80,004 | 74,318 |
Total liabilities | 70,915 | 69,756 | 74,972 | 81,069 | 83,520 | 95,321 | 117,636 | 128,367 | 164,328 | 180,538 | 174,405 |
Minority interests | 94 | 139 | 215 | 293 | 369 | 382 | 447 | 402 | 308 | 432 | 1,940 |
Net worth attributable to the Crown | 27,918 | 39,456 | 54,025 | 83,678 | 96,458 | 105,132 | 99,068 | 94,586 | 80,579 | 59,348 | 68,071 |
Debt Indicators | |||||||||||
Net debt | 24,531 | 23,858 | 19,879 | 16,163 | 13,380 | 10,258 | 17,119 | 26,738 | 40,128 | 50,671 | 55,835 |
Gross debt | 36,617 | 36,017 | 35,478 | 33,903 | 30,647 | 31,390 | 43,356 | 53,591 | 72,420 | 79,635 | 77,984 |
Year ended 30 June as % of GDP |
2003 Actual |
2004 Actual |
2005 Actual |
2006 Actual |
2007 Actual |
2008 Actual |
2009 Actual |
2010 Actual |
2011 Actual |
2012 Actual |
2013 Actual |
---|---|---|---|---|---|---|---|---|---|---|---|
Nominal GDP (revised) | 135,673 | 146,350 | 155,381 | 163,291 | 173,288 | 185,729 | 185,476 | 191,745 | 200,294 | 208,394 | 212,701 |
Statement of financial performance | |||||||||||
Core Crown tax revenue | 29.9% | 29.6% | 30.5% | 31.2% | 30.9% | 30.6% | 29.5% | 26.5% | 25.7% | 26.4% | 27.6% |
Core Crown other revenue | 2.2% | 2.0% | 2.3% | 2.9% | 2.7% | 2.7% | 2.6% | 2.9% | 3.0% | 2.6% | 2.6% |
Core Crown revenue | 32.0% | 31.6% | 32.9% | 34.1% | 33.6% | 33.3% | 32.1% | 29.3% | 28.7% | 29.1% | 30.2% |
Crown entities, SOE and elimination revenue | 9.7% | 8.9% | 9.2% | 9.6% | 9.5% | 10.6% | 10.8% | 9.7% | 12.0% | 11.0% | 10.6% |
Total Crown revenue | 41.7% | 40.5% | 42.1% | 43.7% | 43.0% | 43.9% | 42.9% | 39.0% | 40.7% | 40.1% | 40.7% |
Social security and welfare | 10.3% | 9.7% | 9.4% | 9.6% | 9.7% | 9.6% | 10.4% | 11.0% | 11.0% | 10.6% | 10.7% |
Health | 5.5% | 5.5% | 5.7% | 5.8% | 6.0% | 6.1% | 6.7% | 6.8% | 6.9% | 6.8% | 6.8% |
Education | 5.2% | 5.2% | 5.1% | 6.1% | 5.3% | 5.1% | 6.2% | 6.1% | 5.8% | 5.6% | 5.9% |
Core government services | 1.6% | 1.4% | 1.7% | 1.5% | 2.8% | 1.8% | 2.9% | 1.6% | 2.8% | 2.6% | 2.0% |
Other core Crown expenses | 6.9% | 6.7% | 7.0% | 7.2% | 7.4% | 8.0% | 8.4% | 7.8% | 8.7% | 7.6% | 7.6% |
Core Crown expenses | 29.4% | 28.6% | 28.9% | 30.2% | 31.2% | 30.7% | 34.5% | 33.4% | 35.2% | 33.1% | 33.1% |
Crown entities, SOE and elimination expenses | 9.1% | 8.1% | 8.6% | 9.2% | 8.5% | 10.1% | 10.5% | 8.9% | 14.7% | 11.3% | 9.7% |
Total Crown expenses | 38.5% | 36.7% | 37.5% | 39.4% | 39.7% | 40.8% | 45.0% | 42.3% | 49.9% | 44.5% | 42.8% |
OBEGAL | 3.2% | 3.8% | 4.6% | 4.3% | 3.4% | 3.0% | -2.1% | -3.3% | -9.2% | -4.4% | -2.1% |
Gains/(losses) | -2.0% | 1.2% | -0.7% | 1.5% | 1.2% | -1.8% | -3.6% | 0.9% | 2.5% | -2.7% | 5.3% |
Operating balance | 1.2% | 5.0% | 3.8% | 5.8% | 4.6% | 1.3% | -5.7% | -2.4% | -6.7% | -7.1% | 3.3% |
Statement of financial position | |||||||||||
Property, plant and equipment | 38.8% | 39.6% | 43.4% | 54.6% | 55.2% | 55.6% | 59.4% | 59.1% | 57.3% | 52.1% | 51.6% |
Financial assets and sovereign receivables | 20.5% | 22.3% | 27.0% | 40.7% | 42.5% | 45.8% | 50.3% | 50.1% | 57.6% | 55.7% | 55.8% |
Other assets | 13.6% | 12.8% | 12.7% | 5.8% | 6.4% | 6.7% | 7.4% | 7.3% | 7.5% | 7.5% | 7.4% |
Total assets | 72.9% | 74.7% | 83.2% | 101.1% | 104.1% | 108.1% | 117.1% | 116.5% | 122.4% | 115.3% | 114.9% |
Borrowings | 29.0% | 25.8% | 24.3% | 24.5% | 24.2% | 24.8% | 33.4% | 36.4% | 45.1% | 48.2% | 47.1% |
Other liabilities | 23.3% | 21.9% | 24.0% | 25.1% | 24.0% | 26.5% | 30.0% | 30.6% | 37.0% | 38.4% | 34.9% |
Total liabilities | 52.3% | 47.7% | 48.3% | 49.6% | 48.2% | 51.3% | 63.4% | 66.9% | 82.0% | 86.6% | 82.0% |
Minority interests | 0.1% | 0.1% | 0.1% | 0.2% | 0.2% | 0.2% | 0.2% | 0.2% | 0.2% | 0.2% | 0.9% |
Net worth attributable to the Crown | 20.6% | 27.0% | 34.8% | 51.2% | 55.7% | 56.6% | 53.4% | 49.3% | 40.2% | 28.5% | 32.0% |
Debt Indicators | |||||||||||
Net debt | 18.1% | 16.3% | 12.8% | 9.9% | 7.7% | 5.5% | 9.2% | 13.9% | 20.0% | 24.3% | 26.3% |
Gross debt | 27.0% | 24.6% | 22.8% | 20.8% | 17.7% | 16.9% | 23.4% | 27.9% | 36.2% | 38.2% | 36.7% |
Independent Report of the Auditor-General#
To the Readers of the Financial Statements of the Government of New Zealand for the Year Ended 30 June 2013#
I have audited the financial statements of the Government of New Zealand (the Government) for the year ended 30 June 2013 using my staff, resources and appointed auditors and their staff.
The financial statements of the Government on pages 30 to 172 comprise:
- The annual financial statements that include the statement of financial position as at 30 June 2013, 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 on pages 30 to 172:
- comply with generally accepted accounting practice in New Zealand; and
- fairly reflect the Government's:
- financial position as at 30 June 2013;
- financial performance and cash flows for the year ended on that date; and
- borrowings as at 30 June 2013, and unappropriated expenditure, expenses or capital expenditure incurred in emergencies, and trust monies managed by the Government, for the year ended on that date.
My audit was completed on 30 September 2013. 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 in my judgement are likely to influence readers' 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. Also, I did not evaluate the security and controls over electronic publication of the financial statements of the Government.
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 for the Government that:
- comply with generally accepted accounting practice in New Zealand; and
- 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 Treasury is also responsible for the publication of the financial statements of the Government, whether in printed or electronic form.
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 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
While carrying out this audit, my appointed auditors and their staff followed my independence requirements, which incorporate the independence requirements of the External Reporting Board.
As an Officer of Parliament, I am constitutionally and operationally independent of the Government and in exercising my 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
Matters Relating to the Electronic Presentation of the Audited Financial Statements
This audit report relates to the Financial Statements of the Government of New Zealand for the year ended 30 June 2013 included on the Treasury's web site. The Secretary to the Treasury is responsible for the maintenance and integrity of the Treasury's web site. We have not been engaged to report on the integrity of the Treasury's web site. We accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.
The audit report refers only to the financial statements named above. It does not provide an opinion on any other information which may have been hyperlinked to or from the financial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited financial statements and related audit report dated 30 September 2013 to confirm the information included in the audited financial statements presented on this web site.
Legislation in New Zealand governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Audited Financial Statements#
Statement of Financial Performance for the year ended 30 June 2013#
Forecast 30 June 2013 |
Note | Actual | |||
---|---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
||
Revenue | |||||
57,663 | 57,839 | Taxation revenue | 2 | 58,134 | 54,665 |
5,446 | 5,126 | Other sovereign revenue | 2 | 5,172 | 5,130 |
63,109 | 62,965 | Total sovereign revenue | 63,306 | 59,795 | |
16,337 | 16,809 | Sales of goods and services | 3 | 16,713 | 16,785 |
3,376 | 3,051 | Interest revenue and dividends | 4 | 2,939 | 2,763 |
3,481 | 3,638 | Other revenue | 5 | 3,697 | 4,140 |
23,194 | 23,498 | Total revenue earned through operations | 23,349 | 23,688 | |
86,303 | 86,463 | Total revenue (excluding gains) | 86,655 | 83,483 | |
Expenses | |||||
23,218 | 22,918 | Transfer payments and subsidies | 6 | 22,708 | 22,354 |
19,676 | 20,156 | Personnel expenses | 7 | 19,935 | 19,475 |
4,687 | 4,858 | Depreciation and amortisation | 8 | 4,812 | 6,350 |
38,929 | 37,628 | Other operating expenses | 9 | 36,163 | 35,678 |
4,663 | 4,301 | Interest expenses | 10 | 4,358 | 4,290 |
3,289 | 3,165 | Insurance expenses | 11 | 3,031 | 4,576 |
348 | 42 | Forecast new operating spending | - | - | |
(700) | (330) | Top-down expense adjustment | - | - | |
94,110 | 92,738 | Total expenses (excluding losses) | 91,007 | 92,723 | |
(90) | (10) | Minority interests share of operating balance before gains/losses | 28 | (62) | - |
(7,897) | (6,285) | Operating balance before gains/(losses) | (4,414) | (9,240) | |
1,735 | 5,859 | Net gains/(losses) on financial instruments | 12 | 7,270 | 692 |
201 | 2,088 | Net gains/(losses) on non-financial instruments | 13 | 3,706 | (6,526) |
1,936 | 7,947 | Total gains/(losses) | 10,976 | (5,834) | |
262 | 256 | Net surplus from associates and joint ventures | 395 | 233 | |
- | - | Minority interests share of net gains/losses | 28 | (32) | (56) |
(5,699) | 1,918 | Operating balance (excluding minority interest) | 6,925 | (14,897) | |
Consisting of: | |||||
(5,609) | 1,928 | Operating balance (including minority interest) | 7,019 | (14,841) | |
90 | 10 | Minority interests share of operating balance | 94 | 56 | |
(5,699) | 1,918 | Operating balance (excluding minority interest) | 6,925 | (14,897) |
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 2013#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Total Crown expenses | ||||
26,912 | 26,439 | Social security and welfare | 26,268 | 25,457 |
340 | 287 | GSF pension expenses | 286 | 197 |
14,013 | 13,978 | Health | 13,856 | 13,650 |
13,158 | 13,112 | Education | 13,366 | 12,401 |
6,233 | 5,300 | Core government services | 3,960 | 5,057 |
3,779 | 3,732 | Law and order | 3,670 | 3,592 |
1,973 | 1,780 | Defence | 1,766 | 1,693 |
8,723 | 9,123 | Transport and communications | 9,052 | 10,237 |
8,321 | 8,647 | Economic and industrial services | 8,375 | 10,441 |
2,315 | 2,475 | Heritage, culture and recreation | 2,351 | 2,412 |
1,738 | 1,641 | Primary services | 1,579 | 1,479 |
1,090 | 1,037 | Housing and community development | 989 | 608 |
713 | 517 | Environmental Protection | 528 | 784 |
491 | 657 | Other | 603 | 425 |
4,663 | 4,301 | Finance costs | 4,358 | 4,290 |
348 | 42 | Forecast new operating spending | - | - |
(700) | (330) | Top-down expense adjustment | - | - |
94,110 | 92,738 | Total Crown expenses (excluding losses) | 91,007 | 92,723 |
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 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Core Crown expenses | ||||
23,239 | 22,893 | Social security and welfare | 22,741 | 22,028 |
329 | 278 | GSF pension expenses | 278 | 192 |
14,745 | 14,526 | Health | 14,498 | 14,160 |
12,387 | 12,355 | Education | 12,504 | 11,654 |
6,537 | 5,572 | Core government services | 4,294 | 5,428 |
3,558 | 3,511 | Law and order | 3,456 | 3,403 |
2,016 | 1,822 | Defence | 1,804 | 1,736 |
2,174 | 2,352 | Transport and communications | 2,255 | 2,232 |
2,134 | 2,052 | Economic and industrial services | 1,978 | 2,157 |
883 | 842 | Heritage, culture and recreation | 804 | 901 |
819 | 684 | Primary services | 659 | 635 |
304 | 317 | Housing and community development[1] | 283 | (149) |
702 | 519 | Environmental Protection | 530 | 763 |
491 | 657 | Other | 603 | 425 |
3,766 | 3,557 | Finance costs | 3,619 | 3,511 |
348 | 42 | Forecast new operating spending | - | - |
(700) | (330) | Top-down expense adjustment | - | - |
73,732 | 71,649 | Total core Crown expenses (excluding losses) | 70,306 | 69,076 |
The accompanying notes (including accounting policies) are an integral part of these statements.
Notes
- [1] Housing and community development expenses for the year ended 30 June 2012 include a reversal of $408 million in relation to the weathertight services financial assistance package.
Statement of Comprehensive Income
for the year ended 30 June 2013#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
(5,609) | 1,928 | Operating balance (including minority interest) | 7,019 | (14,841) |
Other comprehensive income | ||||
- | (29) | Revaluation of physical assets | 1,367 | (6,461) |
- | - | Share of associates revaluation of physical assets | - | - |
(3) | 74 | Net change in hedging instruments entered into for cash flow hedges | 280 | 143 |
55 | 4 | Foreign currency translation differences for foreign operations | - | (2) |
10 | 5 | Valuation gains/(losses) on investments available for sale taken to reserves | 36 | 13 |
2 | (19) | Other movements | 7 | 1 |
64 | 35 | Total other comprehensive income | 1,690 | (6,306) |
(5,545) | 1,963 | Total comprehensive income | 8,709 | (21,147) |
Attributable to: | ||||
90 | 10 | - minority interests | 153 | 84 |
(5,635) | 1,953 | - the Crown | 8,556 | (21,231) |
(5,545) | 1,963 | Total comprehensive income | 8,709 | (21,147) |
The accompanying notes (including accounting policies) are an integral part of these statements.
Statement of Cash Flows
for the year ended 30 June 2013#
Forecast 30 June 2013 |
Note | Actual | |||
---|---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
||
Cash Flows From Operations | |||||
Cash was provided from | |||||
56,856 | 56,738 | Taxation receipts | 2 | 56,413 | 53,582 |
4,729 | 4,758 | Other sovereign receipts | 2 | 4,806 | 4,890 |
16,369 | 16,926 | Sales of goods and services | 16,651 | 16,812 | |
3,106 | 2,821 | Interest and dividend receipts | 2,694 | 2,603 | |
7,172 | 5,773 | Other operating receipts | 5,933 | 4,395 | |
88,232 | 87,016 | Total cash provided from operations | 86,497 | 82,282 | |
Cash was disbursed to | |||||
23,284 | 22,937 | Transfer payments and subsidies | 22,780 | 22,840 | |
62,535 | 60,608 | Personnel and operating payments | 58,450 | 59,107 | |
4,797 | 4,366 | Interest payments | 4,369 | 3,954 | |
348 | 42 | Forecast new operating spending | - | - | |
(700) | (330) | Top-down expense adjustment | - | - | |
90,264 | 87,623 | Total cash disbursed to operations | 85,599 | 85,901 | |
(2,032) | (607) | Net cash flows from operations | 898 | (3,619) | |
Cash Flows From Investing Activities | |||||
Cash was provided from | |||||
649 | 426 | Sale of physical assets | 525 | 596 | |
83,088 | 82,157 | Sale of shares and other securities | 75,722 | 61,477 | |
- | 4 | Sale of intangible assets | 7 | 1 | |
1,341 | 1,496 | Repayment of advances | 1,603 | 1,845 | |
1,500 | 1,500 | Government share offer in MRP | 35 | 1,547 | - |
33 | 241 | Sale of investments in associates | 287 | 181 | |
86,611 | 85,824 | Total cash provided from investing activities | 79,691 | 64,100 | |
Cash was disbursed to | |||||
7,688 | 6,349 | Purchase of physical assets | 5,694 | 6,362 | |
75,608 | 73,176 | Purchase of shares and other securities | 69,380 | 61,053 | |
515 | 548 | Purchase of intangible assets | 588 | 568 | |
3,181 | 2,701 | Advances made | 3,008 | 3,129 | |
23 | 17 | Acquisition of investments in associates | 7 | 296 | |
194 | 2 | Forecast for new capital spending | - | - | |
(100) | (280) | Top-down capital adjustment | - | - | |
87,109 | 82,513 | Total cash disbursed to investing activities | 78,677 | 71,408 | |
(498) | 3,311 | Net cash flows from investing activities | 1,014 | (7,308) | |
(2,530) | 2,704 | Net cash flows from operating and investing activities | 1,912 | (10,927) |
The accompanying notes (including accounting policies) are an integral part of these statements.
Statement of Cash Flows (continued) for the year ended 30 June 2013#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
(2,530) | 2,704 | Net cash flows from operating and investing activities | 1,912 | (10,927) |
Cash Flows From Financing Activities | ||||
Cash was provided from | ||||
144 | 264 | Issue of circulating currency | 234 | 203 |
14,122 | 15,554 | Issue of Government bonds | 15,458 | 15,155 |
182 | 547 | Issue of foreign currency borrowings | 447 | 1,004 |
5,691 | 9,074 | Issue of other New Zealand dollar borrowings | 10,278 | 14,196 |
20,139 | 25,439 | Total cash provided from financing activities | 26,417 | 30,558 |
Cash was disbursed to | ||||
10,201 | 9,982 | Repayment of Government bonds | 9,982 | 7,601 |
805 | 2,874 | Repayment of foreign currency borrowings | 3,373 | 7,426 |
7,125 | 9,337 | Repayment of other New Zealand dollar borrowings | 10,912 | 3,843 |
50 | - | Dividends paid to minority interests | 20 | 7 |
18,181 | 22,193 | Total cash disbursed to financing activities | 24,287 | 18,877 |
1,958 | 3,246 | Net cash flows from financing activities | 2,130 | 11,681 |
(572) | 5,950 | Net movement in cash | 4,042 | 754 |
14,899 | 10,686 | Opening cash balance | 10,686 | 9,801 |
- | (144) | Foreign-exchange gains/(losses) on opening cash | 196 | 131 |
14,327 | 16,492 | Closing cash balance | 14,924 | 10,686 |
The accompanying notes (including accounting policies) are an integral part of these statements.
Statement of Cash Flows (continued)
for the year ended 30 June 2013#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Reconciliation Between the Net Cash Flows from Operations and the Operating Balance |
||||
(2,032) | (607) | Net Cash Flows from Operations | 898 | (3,619) |
Items included in the operating balance but not in net cash flows from operations |
||||
Gains/(losses) | ||||
1,735 | 5,859 | Net gains/(losses) on financial instruments | 7,270 | 692 |
201 | 2,088 | Net gains/(losses) on non-financial instruments | 3,706 | (6,526) |
1,936 | 7,947 | Total gains/(losses) | 10,976 | (5,834) |
Other Non-cash Items in Operating Balance | ||||
(4,687) | (4,858) | Depreciation and amortisation | (4,812) | (6,350) |
(748) | (751) | Write-down on initial recognition of financial assets | (684) | (850) |
181 | 15 | Impairment of financial assets (excl receivables) | (497) | 248 |
405 | 395 | Non-cash movement in defined benefit retirement plan liabilities | 385 | 512 |
2,985 | 1,222 | Non-cash movement in insurance liabilities | 1,106 | 1,070 |
262 | 258 | Other | 299 | 232 |
(1,602) | (3,719) | Total other non-cash items in operating balance | (4,203) | (5,138) |
Movements in Working Capital | ||||
(3,767) | (1,381) | Increase/(decrease) in receivables | (1,302) | (242) |
404 | 295 | Increase/(decrease) in accrued interest | 257 | (175) |
59 | 14 | Increase/(decrease) in inventories | (94) | (74) |
(44) | 64 | Increase/(decrease) in prepayments | 32 | 32 |
32 | 132 | Decrease/(increase) in deferred revenue | (2) | (38) |
(685) | (827) | Decrease/(increase) in payables/provisions | 363 | 191 |
(4,001) | (1,703) | Total movements in working capital | (746) | (306) |
(5,699) | 1,918 | Operating balance | 6,925 | (14,897) |
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 2013#
Forecast Total Net Worth |
Note | Actual | |||||
---|---|---|---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
Taxpayer funds $m |
Reserves $m |
Minority interest $m |
Total net worth $m |
||
80,887 | 80,887 | Net worth at 30 June 2011 | 18,188 | 62,391 | 308 | 80,887 | |
(10,642) | (14,841) | Operating balance | (14,897) | - | 56 | (14,841) | |
(47) | (6,461) | Net revaluations | - | (6,461) | - | (6,461) | |
58 | 80 | Transfers to/(from) reserves | 228 | (148) | - | 80 | |
83 | (Gains)/losses transferred to the statement of financial performance |
- | 55 | 28 | 83 | ||
47 | (8) | Other movements | 1 | (9) | - | (8) | |
(10,584) | (21,147) | Total comprehensive income | (14,668) | (6,563) | 84 | (21,147) | |
- | 40 | Transactions with minority interests | - | - | 40 | 40 | |
70,303 | 59,780 | Net worth at 30 June 2012 | 3,520 | 55,828 | 432 | 59,780 | |
(5,609) | 1,928 | Operating Balance | 6,925 | - | 94 | 7,019 | |
- | (29) | Net revaluations | - | 1,335 | 32 | 1,367 | |
(1) | 55 | Transfers to/(from) reserves | 250 | (17) | 27 | 260 | |
- | (4) | (Gains)/losses transferred to the statement of financial performance |
- | (10) | - | (10) | |
65 | 13 | Other movements | - | 73 | - | 73 | |
(5,545) | 1,963 | Total comprehensive income | 7,175 | 1,381 | 153 | 8,709 | |
200 | 175 | Gain on Government share offers | 167 | - | - | 167 | |
1,300 | 1,325 | Increase in minority interest from Government share offers |
- | - | 1,371 | 1,371 | |
(50) | 27 | Transactions with minority interests | - | - | (16) | (16) | |
66,208 | 63,270 | Net worth at 30 June 2013 | 28 | 10,862 | 57,209 | 1,940 | 70,011 |
The accompanying notes (including accounting policies) are an integral part of these statements.
Statement of Financial Position
as at 30 June 2013#
Forecast 30 June 2013 |
Note | Actual | |||
---|---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
||
Assets | |||||
14,327 | 16,492 | Cash and cash equivalents | 14,924 | 10,686 | |
16,799 | 19,189 | Receivables | 14 | 19,883 | 20,956 |
36,197 | 40,392 | Marketable securities, deposits and derivatives in gain | 15 | 44,000 | 48,385 |
15,853 | 16,616 | Share investments | 16 | 17,359 | 14,385 |
23,895 | 23,432 | Advances | 17 | 22,613 | 21,766 |
1,360 | 1,248 | Inventory | 18 | 1,140 | 1,234 |
2,051 | 2,064 | Other assets | 19 | 2,295 | 2,134 |
121,335 | 109,334 | Property, plant & equipment | 20 | 109,833 | 108,584 |
9,967 | 9,509 | Equity accounted investments | 21 | 9,593 | 9,483 |
2,571 | 2,687 | Intangible assets and goodwill | 22 | 2,776 | 2,705 |
282 | 2 | Forecast for new capital spending | - | - | |
(350) | (280) | Top-down capital adjustment | - | - | |
244,287 | 240,685 | Total assets | 244,416 | 240,318 | |
Liabilities | |||||
4,704 | 4,756 | Issued currency | 4,691 | 4,457 | |
13,503 | 11,822 | Payables | 23 | 11,160 | 11,604 |
1,399 | 1,579 | Deferred revenue | 1,714 | 1,712 | |
103,207 | 100,780 | Borrowings | 24 | 100,087 | 100,534 |
36,919 | 38,917 | Insurance liabilities | 25 | 37,712 | 41,186 |
11,481 | 12,227 | Retirement plan liabilities | 26 | 11,903 | 13,539 |
6,866 | 7,334 | Provisions | 27 | 7,138 | 7,506 |
178,079 | 177,415 | Total liabilities | 174,405 | 180,538 | |
66,208 | 63,270 | Total assets less total liabilities | 70,011 | 59,780 | |
Net Worth | |||||
2,144 | 5,601 | Taxpayer funds | 10,862 | 3,520 | |
62,550 | 55,965 | Property, plant and equipment revaluation reserve | 57,068 | 56,001 | |
(134) | (90) | Other reserves | 141 | (173) | |
64,560 | 61,476 | Total net worth attributable to the Crown | 68,071 | 59,348 | |
1,648 | 1,794 | Net worth attributable to minority interests | 1,940 | 432 | |
66,208 | 63,270 | Total net worth | 28 | 70,011 | 59,780 |
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 2013 $m |
Estimated Actuals 2013 $m |
Actual 2013 $m |
Estimated Actuals 2013 $m |
Actual 2013 $m |
Estimated Actuals 2013 $m |
Actual 2013 $m |
Estimated Actuals 2013 $m |
Actual 2013 $m |
Estimated Actuals 2013 $m |
|
Revenue |
||||||||||
Taxation revenue | 58,651 | 58,286 | - | - | - | - | (517) | (447) | 58,134 | 57,839 |
Other sovereign revenue | 1,133 | 1,085 | 5,295 | 5,307 | - | - | (1,256) | (1,266) | 5,172 | 5,126 |
Revenue from core Crown funding | - | - | 24,096 | 24,341 | - | - | (24,096) | (24,341) | - | - |
Sales of goods and services | 1,461 | 1,456 | 1,856 | 1,873 | 14,102 | 14,170 | (706) | (690) | 16,713 | 16,809 |
Interest revenue and dividends | 2,104 | 2,196 | 1,270 | 1,204 | 856 | 822 | (1,291) | (1,171) | 2,939 | 3,051 |
Other revenue | 800 | 786 | 2,547 | 2,146 | 978 | 1,135 | (628) | (429) | 3,697 | 3,638 |
Total Revenue (excluding gains) | 64,149 | 63,809 | 35,064 | 34,871 | 15,936 | 16,127 | (28,494) | (28,344) | 86,655 | 86,463 |
Expenses |
||||||||||
Transfer payments and subsidies | 22,709 | 22,917 | - | - | - | - | (1) | 1 | 22,708 | 22,918 |
Personnel expenses | 6,037 | 6,071 | 10,966 | 11,148 | 2,949 | 2,947 | (17) | (10) | 19,935 | 20,156 |
Other operating expenses | 37,940 | 39,392 | 21,660 | 21,806 | 11,555 | 11,674 | (27,149) | (27,221) | 44,006 | 45,651 |
Interest expenses | 3,620 | 3,557 | 235 | 236 | 1,248 | 1,152 | (745) | (644) | 4,358 | 4,301 |
Forecast new operating spending and top down adjustment | - | (288) | - | - | - | - | - | - | - | (288) |
Total Expenses (excluding losses) | 70,306 | 71,649 | 32,861 | 33,190 | 15,752 | 15,773 | (27,912) | (27,874) | 91,007 | 92,738 |
Operating balance before gains/(losses) attributable to minority interests | - | - | 10 | - | (75) | (10) | 3 | - | (62) | (10) |
Operating Balance before gains/(losses) | (6,157) | (7,840) | 2,213 | 1,681 | 109 | 344 | (579) | (470) | (4,414) | (6,285) |
Gains/(losses) and other items | 6,528 | 5,140 | 3,664 | 2,626 | 505 | 112 | 642 | 325 | 11,339 | 8,203 |
Operating Balance | 371 | (2,700) | 5,877 | 4,307 | 614 | 456 | 63 | (145) | 6,925 |
![]() |
Assets |
||||||||||
Financial assets | 75,111 | 71,616 | 41,297 | 42,107 | 20,058 | 20,685 | (17,687) | (18,287) | 118,779 | 116,121 |
Property, plant and equipment | 29,507 | 29,561 | 51,823 | 50,714 | 28,503 | 29,058 | - | - | 109,833 | 109,334 |
Investments in associates, CEs and SOEs | 32,611 | 32,635 | 8,151 | 8,134 | 187 | 216 | (31,356) | (31,476) | 9,593 | 9,509 |
Other assets | 2,646 | 2,627 | 1,133 | 913 | 2,463 | 2,499 | (31) | (40) | 6,211 | 5,999 |
Forecast adjustments | - | (278) | - | - | - | - | - | - | - | (278) |
Total Assets | 139,875 | 136,161 | 102,404 | 101,868 | 51,211 | 52,458 | (49,074) | (49,803) | 244,416 | 240,685 |
Liabilities |
||||||||||
Borrowings | 84,870 | 85,309 | 5,251 | 5,156 | 24,839 | 25,884 | (14,873) | (15,569) | 100,087 | 100,780 |
Other liabilities | 29,392 | 28,882 | 45,261 | 47,351 | 7,226 | 7,556 | (7,561) | (7,154) | 74,318 | 76,635 |
Total Liabilities | 114,262 | 114,191 | 50,512 | 52,507 | 32,065 | 33,440 | (22,434) | (22,723) | 174,405 | 177,415 |
Net Worth | 25,613 | 21,970 | 51,892 | 49,361 | 19,146 | 19,018 | (26,640) | (27,080) | 70,011 | 63,270 |
Cost of Acquisition of Physical Assets | 1,112 | 1,560 | 2,314 | 2,328 | 2,281 | 2,462 | (13) | (1) | 5,694 | 6,349 |
Core Crown | Crown entities | State-owned enterprises | Inter-segment eliminations | Total Crown | ||||||
---|---|---|---|---|---|---|---|---|---|---|
Actual 2013 $m |
Actual 2012 $m |
Actual 2013 $m |
Actual 2012 $m |
Actual 2013 $m |
Actual 2012 $m |
Actual 2013 $m |
Actual 2012 $m |
Actual 2013 $m |
Actual 2012 $m |
|
Revenue |
||||||||||
Taxation revenue | 58,651 | 55,081 | - | - | - | - | (517) | (416) | 58,134 | 54,665 |
Other sovereign revenue | 1,133 | 935 | 5,295 | 5,384 | - | - | (1,256) | (1,189) | 5,172 | 5,130 |
Revenue from core Crown funding | - | - | 24,096 | 23,590 | - | - | (24,096) | (23,590) | - | - |
Sales of goods and services | 1,461 | 1,448 | 1,856 | 1,817 | 14,102 | 14,230 | (706) | (710) | 16,713 | 16,785 |
Interest revenue and dividends | 2,104 | 1,795 | 1,270 | 1,181 | 856 | 858 | (1,291) | (1,071) | 2,939 | 2,763 |
Other revenue | 800 | 1,306 | 2,547 | 2,499 | 978 | 943 | (628) | (608) | 3,697 | 4,140 |
Total Revenue (excluding gains) | 64,149 | 60,565 | 35,064 | 34,471 | 15,936 | 16,031 | (28,494) | (27,584) | 86,655 | 83,483 |
Expenses |
||||||||||
Transfer payments and subsidies | 22,709 | 22,367 | - | - | - | - | (1) | (13) | 22,708 | 22,354 |
Personnel expenses | 6,037 | 5,915 | 10,966 | 10,754 | 2,949 | 2,819 | (17) | (13) | 19,935 | 19,475 |
Other operating expenses | 37,940 | 37,283 | 21,660 | 22,220 | 11,555 | 13,537 | (27,149) | (26,436) | 44,006 | 46,604 |
Interest expenses | 3,620 | 3,511 | 235 | 246 | 1,248 | 1,268 | (745) | (735) | 4,358 | 4,290 |
Total Expenses (excluding losses) | 70,306 | 69,076 | 32,861 | 33,220 | 15,752 | 17,624 | (27,912) | (27,197) | 91,007 | 92,723 |
Operating balance before gains/(losses) attributable to minority interests | - | - | 10 | - | (75) | - | 3 | - | (62) | - |
Operating Balance before gains/(losses) | (6,157) | (8,511) | 2,213 | 1,251 | 109 | (1,593) | (579) | (387) | (4,414) | (9,240) |
Gains/(losses) and other items | 6,528 | (3,160) | 3,664 | (1,892) | 505 | 170 | 642 | (775) | 11,339 | (5,657) |
Operating Balance | 371 | (11,671) | 5,877 | (641) | 614 | (1,423) | 63 | (1,162) | 6,925 | (14,897) |
Assets |
||||||||||
Financial assets | 75,111 | 74,981 | 41,297 | 40,075 | 20,058 | 19,186 | (17,687) | (18,064) | 118,779 | 116,178 |
Property, plant and equipment | 29,507 | 29,377 | 51,823 | 49,939 | 28,503 | 29,268 | - | - | 109,833 | 108,584 |
Investments in associates, CEs and SOEs | 32,611 | 31,308 | 8,151 | 7,982 | 187 | 340 | (31,356) | (30,147) | 9,593 | 9,483 |
Other assets | 2,646 | 2,743 | 1,133 | 905 | 2,463 | 2,463 | (31) | (38) | 6,211 | 6,073 |
Total Assets | 139,875 | 138,409 | 102,404 | 98,901 | 51,211 | 51,257 | (49,074) | (48,249) | 244,416 | 240,318 |
Liabilities |
||||||||||
Borrowings | 84,870 | 84,510 | 5,251 | 5,325 | 24,839 | 25,374 | (14,873) | (14,675) | 100,087 | 100,534 |
Other liabilities | 29,392 | 30,528 | 45,261 | 49,357 | 7,226 | 7,281 | (7,561) | (7,162) | 74,318 | 80,004 |
Total Liabilities | 114,262 | 115,038 | 50,512 | 54,682 | 32,065 | 32,655 | (22,434) | (21,837) | 174,405 | 180,538 |
Net Worth | 25,613 | 23,371 | 51,892 | 44,219 | 19,146 | 18,602 | (26,640) | (26,412) | 70,011 | 59,780 |
Cost of Acquisition of Physical Assets | 1,112 | 1,219 | 2,314 | 2,136 | 2,281 | 3,007 | (13) | - | 5,694 | 6,362 |
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 2013.
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 estimation of the claims and provisions arising from the Canterbury earthquakes.
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
From 1 July 2011 no NZ IFRS or amendments to existing NZ IFRS applicable to public benefit entities have been issued as a consequence of recent decisions on the new Accounting Standards Framework. The Government has adopted all NZ IFRSs and Interpretations applicable to public benefit entities issued prior to that date, with the exception of NZ IFRS 9: Financial Instruments,approved in 2010.
NZ IFRS 9 becomes effective for annual reporting periods commencing on or after 1 January 2015. Under the proposed new accounting framework for public sector entities, the proposed accounting standard for recognition and measurement of financial instruments is based on IPSAS 29: Financial Instruments: Recognition and Disclosure. The Crown has not early adopted NZ IFRS 9 to reduce the risk of unnecessary accounting changes through this period.
The New Zealand Accounting Standards Board has issued a new suite of accounting standards (called Public Sector PBE Accounting Standards) that will apply to the Financial Statements of Government for the financial year beginning 1 July 2014. At the broad level the impact of moving from NZ IFRS to PBE Standards is not expected to be significant as there is a strong degree of convergence between IFRS and IPSAS, and therefore between the current NZ IFRS and the proposed Public Sector PBE Accounting Standards.
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 | Other entities |
---|---|
|
|
|
|
|
|
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.
Tax revenue is recognised when a taxable event has occurred and the tax revenue can be reliably measured. The taxable event is defined as follows:
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 assessed income is earned during the taxation period |
Terminal tax | Assessment filed date |
Goods and services tax (GST) | When the purchase or sale of taxable goods and services occurs during the taxation period |
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 |
The New Zealand tax system is predicated on self-assessment where taxpayers are expected to understand the tax laws and comply with them. Inland Revenue has implemented systems and controls (eg, performing audits of taxpayer records) in order to detect and correct situations where taxpayers are not complying with the various acts it administers.
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.
Note 1: Summary of Accounting Policies (continued)#
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 or 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 | All 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 or loss |
Marketable securities | Generally designated as fair value through profit or loss |
Long-term deposits | Generally designated as loans and receivables |
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 expense policy). Loans and receivables issued with duration 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 or 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 bonds | 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 at amortised cost |
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 or 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 adoption, 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.
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.
Note 1: Summary of Accounting Policies (continued)#
Property, Plant and Equipment (PPE)#
Items of PPE 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 PPE. 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 PPE 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 PPE 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. Land associated with the rail network and state highways is valued using an opportunity cost based on adjacent use, as an approximation to fair value. 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 basis for the valuation is 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. |
Rail network |
Rail infrastructure used for freight services (freight only and dual use lines required for freight operations) are recorded at fair value less depreciation and impairment losses accumulated since the assets were last revalued. Rail infrastructure not required for freight operations and used for metro services are recorded on a depreciated replacement cost basis less depreciation and impairment losses accumulated since the assets were last revalued. |
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. Of these, non-land assets are recorded at fair value 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 PPE that are revalued, are revalued at least every five years or whenever the carrying amount differs materially to fair value.
Items of PPE 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 PPE is recorded at its optimised depreciated replacement cost, this cost is based on the estimated present cost of constructing the existing item of PPE by the most appropriate method of construction, less allowances for physical deterioration and optimisation for obsolescence and relevant surplus capacity. Where an item of PPE 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 PPE 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 PPE 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. The major exception relates to service concession assets resulting from public private partnership arrangements where the liability incurred, and therefore the associated interest costs, are directly attributable to the service concession asset.
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 PPE, less any estimated residual value, over its remaining useful life.
Typically, the estimated useful lives of different classes of PPE are as follows:
Class of PPE | Estimated useful lives |
---|---|
Buildings | 25 to 60 years |
Specialist military equipment (SME) | 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 SME) | 10 to 20 years |
Electricity distribution network | 2 to 80 years |
Electricity generation assets | 25 to 100 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 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 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.
Non-current Assets Held for Sale and Discontinued Operations#
Non-current assets held for sale, 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 held for sale, 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 PPE.
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.
Note 1: Summary of Accounting Policies (continued)#
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 liabilities for long-term employee entitlements (those over 12 months) are 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 or loss.
Reinsurance
Premiums paid to reinsurers are recognised as reinsurance expenses in the statement of financial performance. Premiums are measured 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 general insurance contracts cover a period of up to 12 months, therefore, are amortised within one 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 are those where the lessor substantially retains the risks and rewards of ownership. Expenditure incurred in relation to these leases is 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 to be incurred on contracts that have been entered into at balance date. The minimum future payments committed at balance date is disclosed in the notes to the financial statements.
Commitments are classified as
- capital commitments: aggregate amount of capital expenditure contracted for but not recognised as paid or provided for at balance date, and
- lease commitments: non-cancellable operating leases with a lease term exceeding one year.
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).
Interest commitments on debts, commitments for funding, and commitments relating to employment contracts are not disclosed.
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.
Last year accounting policies were changed to align with NZ GAAP requirements, and therefore exclude “other” operating commitments (including non-lease executor contracts (eg, cleaning) and funding commitments) from disclosure. Some operating commitments continued to be included in lease commitments and therefore comparatives have been restated accordingly.
There is a new functional classification for Environmental Protection expenditure included in this year's financial statements to better align with international comparisons for this expense categorisation. As a result, comparatives were restated.
Comparatives referred to as Budget 12 were forecasts published in the 2012 Budget Economic and Fiscal Update while Budget 13 were forecasts published in the 2013 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, Public Finance Act 1989 schedule 5 companies and for the purposes of these statements also includes Air New Zealand Limited. 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 Organisation 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: Sovereign Revenue (Accrual)#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Direct Income Tax Revenue (accrual) |
||||
Individuals |
||||
22,563 | 22,387 | Source deductions | 22,330 | 21,237 |
4,386 | 5,026 | Other persons | 5,210 | 4,232 |
(1,567) | (1,473) | Refunds | (1,644) | (1,736) |
458 | 460 | Fringe benefit tax | 480 | 462 |
25,840 | 26,400 | Total individuals | 26,376 | 24,195 |
Corporate Tax |
||||
8,301 | 8,372 | Gross companies tax | 8,747 | 8,310 |
(279) | (197) | Refunds | (151) | (202) |
455 | 448 | Non-resident withholding tax | 420 | 500 |
- | - | Foreign-source dividend withholding payments | 2 | 4 |
8,477 | 8,623 | Total corporate tax | 9,018 | 8,612 |
Other Direct Income Tax |
||||
1,673 | 1,602 | Resident withholding tax on interest income | 1,631 | 1,679 |
375 | 394 | Resident withholding tax on dividend income | 516 | 292 |
2,048 | 1,996 | Total other direct income tax | 2,147 | 1,971 |
36,365 | 37,019 | Total direct income tax | 37,541 | 34,778 |
Indirect Income Tax Revenue (accrual) |
||||
Goods and Services Tax |
||||
26,795 | 25,490 | Gross goods and services tax | 25,125 | 25,199 |
(11,052) | (10,085) | Refunds | (9,920) | (10,627) |
15,743 | 15,405 | Total goods and services tax | 15,205 | 14,572 |
Other Indirect Taxation |
||||
1,152 | 1,062 | Road user charges | 1,066 | 1,045 |
939 | 878 | Petroleum fuels excise - domestic production | 855 | 847 |
698 | 656 | Alcohol excise - domestic production | 663 | 656 |
223 | 288 | Tobacco excise - domestic production | 281 | 244 |
626 | 611 | Petroleum fuels excise - imports1 | 674 | 631 |
249 | 258 | Alcohol excise - imports1 | 250 | 241 |
983 | 986 | Tobacco excise - imports1 | 954 | 993 |
179 | 182 | Other customs duty | 178 | 173 |
231 | 225 | Gaming duties | 214 | 216 |
170 | 178 | Motor vehicle fees | 174 | 175 |
69 | 55 | Approved issuer levy and cheque duty | 45 | 58 |
36 | 36 | Energy resources levies | 34 | 36 |
5,555 | 5,415 | Total other indirect taxation | 5,388 | 5,315 |
21,298 | 20,820 | Total indirect taxation | 20,593 | 19,887 |
57,663 | 57,839 | Total taxation revenue | 58,134 | 54,665 |
Other Sovereign Revenue (accrual) |
||||
3,395 | 3,409 | ACC levies | 3,437 | 3,695 |
313 | 333 | Fire service levies | 331 | 326 |
240 | 240 | EQC levies | 242 | 107 |
660 | 647 | Child support | 590 | 311 |
178 | 173 | Court fines | 168 | 176 |
660 | 324 | Other miscellaneous items | 404 | 515 |
5,446 | 5,126 | Total other sovereign revenue | 5,172 | 5,130 |
63,109 | 62,965 | Total sovereign revenue | 63,306 | 59,795 |
Note 2: Sovereign Receipts (Cash)
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Direct Income Tax Receipts (cash) |
||||
Individuals |
||||
22,450 | 22,240 | Source deductions | 22,188 | 21,010 |
5,062 | 5,278 | Other persons | 5,194 | 4,720 |
(2,493) | (2,252) | Refunds | (2,251) | (2,468) |
457 | 458 | Fringe benefit tax | 465 | 458 |
25,476 | 25,724 | Total individuals | 25,596 | 23,720 |
Corporate Tax |
||||
8,737 | 8,754 | Gross companies tax | 8,665 | 8,792 |
(756) | (667) | Refunds | (597) | (814) |
454 | 448 | Non-resident withholding tax | 451 | 434 |
- | - | Foreign-source dividend withholding payments | 1 | 4 |
8,435 | 8,535 | Total corporate tax | 8,520 | 8,416 |
Other Direct Income Tax |
||||
1,672 | 1,601 | Resident withholding tax on interest income | 1,635 | 1,699 |
375 | 394 | Resident withholding tax on dividend income | 516 | 290 |
2,047 | 1,995 | Total direct other income tax | 2,151 | 1,989 |
35,958 | 36,254 | Total direct income tax | 36,267 | 34,125 |
Indirect Tax Receipts (cash) |
||||
Goods and Services Tax |
||||
25,895 | 24,855 | Gross goods and services tax | 24,539 | 24,574 |
(10,552) | (9,785) | Refunds | (9,783) | (10,435) |
15,343 | 15,070 | Total goods and services tax | 14,756 | 14,139 |
Other Indirect Taxation |
||||
1,152 | 1,062 | Road user charges | 1,064 | 1,048 |
939 | 878 | Petroleum fuels excise - domestic production | 865 | 845 |
698 | 656 | Alcohol excise - domestic production | 666 | 654 |
223 | 288 | Tobacco excise - domestic production | 287 | 238 |
2,037 | 2,037 | Customs duty | 2,035 | 2,057 |
231 | 224 | Gaming duties | 216 | 216 |
170 | 178 | Motor vehicle fees | 179 | 169 |
69 | 55 | Approved issuer levy and cheque duty | 44 | 55 |
36 | 36 | Energy resources levies | 34 | 36 |
5,555 | 5,414 | Total other indirect taxation | 5,390 | 5,318 |
20,898 | 20,484 | Total indirect taxation | 20,146 | 19,457 |
56,856 | 56,738 | Total tax receipts collected | 56,413 | 53,582 |
Other Sovereign Receipts (cash) |
||||
3,413 | 3,427 | ACC levies | 3,524 | 3,693 |
313 | 333 | Fire service levies | 331 | 326 |
270 | 276 | EQC levies | 274 | 134 |
225 | 241 | Child support | 230 | 243 |
144 | 161 | Court fines | 159 | 157 |
364 | 320 | Other miscellaneous items | 288 | 337 |
4,729 | 4,758 | Total other sovereign receipts | 4,806 | 4,890 |
61,585 | 61,496 | Total sovereign receipts | 61,219 | 58,472 |
Note 3: Sales of Goods and Services#
Forecast 30 June 2013 | Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
8,847 | 8,866 | Sales of goods | 8,536 | 9,110 |
7,461 | 7,914 | Rendering of services | 8,148 | 7,604 |
29 | 29 | Deposit guarantee schemes - guarantee fees | 29 | 71 |
16,337 | 16,809 | Total sales of goods and services | 16,713 | 16,785 |
By source |
||||
1,379 | 1,456 | Core Crown | 1,461 | 1,448 |
14,553 | 15,111 | Crown entities | 15,102 | 14,657 |
13,857 | 14,170 | State-owned enterprises | 14,102 | 14,230 |
(13,452) | (13,928) | Inter-segment eliminations | (13,952) | (13,550) |
16,337 | 16,809 | Total sales of goods and services | 16,713 | 16,785 |
Note 4: Interest Revenue and Dividends#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
601 | 581 | Student loans (interest unwind) | 590 | 526 |
1,083 | 1,028 | Other financial assets classified as amortised cost or available for sale | 1,073 | 994 |
15 | 30 | Financial assets classified as held for trading | 48 | 36 |
1,186 | 878 | Financial assets classified as fair value through profit and loss | 671 | 737 |
2,885 | 2,517 | Total interest revenue | 2,382 | 2,293 |
491 | 534 | Dividends | 557 | 470 |
3,376 | 3,051 | Total interest revenue and dividends | 2,939 | 2,763 |
By source |
||||
2,397 | 2,196 | Core Crown | 2,104 | 1,795 |
1,123 | 1,204 | Crown entities | 1,270 | 1,181 |
905 | 822 | State-owned enterprises | 856 | 858 |
(1,049) | (1,171) | Inter-segment eliminations | (1,291) | (1,071) |
3,376 | 3,051 | Total interest revenue and dividends | 2,939 | 2,763 |
Included in total interest revenue above is interest on impaired financial assets of: |
||||
Impaired student loans | 590 | 526 | ||
Impaired other financial assets classified as amortised cost or available for sale | 1 | 1 | ||
Total interest revenue on impaired financial assets | 591 | 527 |
Note 5: Other Revenue#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
1,171 | 1,186 | Rental income | 1,175 | 1,129 |
383 | 386 | Sale of royalties | 421 | 379 |
64 | 57 | EQC insurance claim on reinsurers | (127) | 391 |
1,863 | 2,009 | Other revenue | 2,228 | 2,241 |
3,481 | 3,638 | Total other revenue | 3,697 | 4,140 |
EQC anticipates that a significant proportion of the cost of damage relating to the Canterbury earthquake sequence will be recovered from reinsurers (which is recorded as reinsurance receivables). At 30 June 2013, actuarial valuation of the reinsurance recoverable was reduced resulting in a reversal of income in the current year. Further information on insurance expenses and underwriting results can be found in note 11.
Note 6: Transfer Payments and Subsidies#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Social Assistance Grants |
||||
10,243 | 10,235 | New Zealand superannuation | 10,235 | 9,584 |
2,113 | 2,047 | Family tax credit | 2,018 | 2,082 |
1,820 | 1,738 | Domestic purposes benefit | 1,738 | 1,811 |
1,321 | 1,329 | Invalids benefit | 1,330 | 1,325 |
1,243 | 1,178 | Accommodation assistance | 1,177 | 1,195 |
881 | 806 | Unemployment benefit | 812 | 883 |
781 | 782 | Sickness benefit | 782 | 775 |
595 | 572 | Other working for families tax credits | 544 | 567 |
602 | 592 | Student allowances | 596 | 644 |
626 | 637 | Income related rents | 611 | 580 |
366 | 385 | Disability allowances | 384 | 401 |
1,440 | 1,377 | Other social assistance benefits | 1,321 | 1,309 |
22,031 | 21,678 | Total social assistance grants | 21,548 | 21,156 |
Subsidies |
||||
688 | 738 | KiwiSaver subsidies | 723 | 688 |
Other transfer payments |
||||
499 | 502 | Official development assistance | 437 | 510 |
23,218 | 22,918 | Total transfer payments and subsidies | 22,708 | 22,354 |
Note 7: Personnel Expenses#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
18,423 | 18,925 | Salaries and wages | 18,921 | 18,330 |
337 | 300 | Costs incurred on GSF and other defined benefit plans | 290 | 198 |
309 | 282 | Costs incurred on defined contribution plans (e.g. Kiwisaver) | 386 | 452 |
607 | 649 | Other personnel expenses | 338 | 495 |
19,676 | 20,156 | Total personnel expenses | 19,935 | 19,475 |
By source |
||||
6,003 | 6,071 | Core Crown | 6,037 | 5,915 |
10,897 | 11,148 | Crown entities | 10,966 | 10,754 |
2,786 | 2,947 | State-owned enterprises | 2,949 | 2,819 |
(10) | (10) | Inter-segment eliminations | (17) | (13) |
19,676 | 20,156 | Total personnel expenses | 19,935 | 19,475 |
Key management personnel compensation |
||||
Salaries and other short-term employee benefits | 9 | 8 | ||
Post-employment benefits | - | 1 | ||
Other long-term benefits | - | - | ||
Termination benefits | - | - | ||
9 | 9 |
Key management personnel are the 28 Ministers of the Crown who are members of the Executive Council (including the Prime Minister).
The Remuneration Authority sets remuneration levels for members of the Executive. The Authority takes into account other benefits available to members of the Executive as set out in the Executive Travel, Accommodation, Attendance, and Communication Services Determination (No 2) 2009 (the " Determination"). The Determination was determined by the Minister Responsible for Ministerial Services. Members of Parliament, including Members of the Executive, have access to other non-cash entitlements as determined by the Speaker of the House of Representatives. Details of these entitlements (e.g. travel discounts) can be found on the New Zealand Parliament website (www.parliament.nz).
Note 8: Depreciation and Amortisation#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Depreciation expense |
||||
1,178 | 1,155 | Buildings | 1,150 | 1,174 |
413 | 412 | State highways | 449 | 432 |
413 | 488 | Electricity generation assets | 431 | 388 |
197 | 176 | Electricity distribution network | 152 | 137 |
306 | 278 | Specialist military equipment | 272 | 237 |
227 | 213 | Aircraft (excluding military) | 213 | 153 |
221 | 198 | Rail network | 14 | 223 |
19 | 19 | Specified cultural and heritage assets | 24 | 27 |
1,096 | 1,322 | Other plant and equipment | 992 | 1,032 |
4,070 | 4,261 | Total depreciation expense | 3,697 | 3,803 |
617 | 595 | Amortisation and impairment of non-financial assets1 | 1,115 | 2,547 |
4,687 | 4,858 | Total depreciation and amortisation | 4,812 | 6,350 |
1. The previous year comparator includes an impairment expense of $1.4 billion in relation to the Rail Network (refer note 20).
Note 9: Other Operating Expenses#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
4,540 | 4,532 | Donations and ex-gratia payments | 4,451 | 3,682 |
1,125 | 1,124 | Rental and leasing costs | 1,117 | 1,109 |
1,883 | 1,766 | Impairment of financial assets | 1,755 | 1,004 |
748 | 751 | Write-down on initial recognition of financial assets | 684 | 850 |
488 | 516 | Lottery prize payments | 515 | 529 |
227 | 227 | Inventory expenses | 565 | 474 |
- | - | Impairment of inventory | 12 | 24 |
- | 40 | Bonus share offer expense (refer to note 35) | 25 | - |
6 | 5 | Fees paid to audit firms (refer below) | 1 | 5 |
29,912 | 28,667 | Other operating expenses | 27,038 | 28,001 |
38,929 | 37,628 | Total other operating expenses | 36,163 | 35,678 |
By source |
||||
39,542 | 37,972 | Core Crown | 36,565 | 35,876 |
16,442 | 17,067 | Crown entities | 17,065 | 16,321 |
9,605 | 9,784 | State-owned enterprises | 9,689 | 9,802 |
(26,660) | (27,195) | Inter-segment eliminations | (27,156) | (26,321) |
38,929 | 37,628 | Total other operating expenses | 36,163 | 35,678 |
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.
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 2013 $m |
30 June 2012 $m |
|
Audit and related expenses |
||
Auditor-General fees for the audit of financial statements1 | 38 | 35 |
Auditor-General fees for assurance and related services | 1 | 1 |
Fees for other services | - | - |
39 | 36 | |
Inter-segment eliminations | (39) | (36) |
Total audit and related expenses | - | - |
Fees for other work2 |
||
Fees for assurance and related services | 1 | 2 |
Fees for tax services | - | 1 |
Fees for other services | - | 2 |
Fees paid to audit firms | 1 | 5 |
- 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.
- 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 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
3,423 | 3,829 | Financial liabilities classified as amortised cost | 4,014 | 3,785 |
6 | 6 | Financial liabilities classified as held for trading | 5 | 34 |
1,181 | 420 | Financial liabilities classified as fair value through profit and loss | 293 | 404 |
53 | 46 | Interest unwind on provisions | 46 | 67 |
4,663 | 4,301 | Total interest expenses | 4,358 | 4,290 |
By source |
||||
3,766 | 3,557 | Core Crown | 3,620 | 3,511 |
247 | 236 | Crown entities | 235 | 246 |
1,254 | 1,152 | State-owned enterprises | 1,248 | 1,268 |
(604) | (644) | Inter-segment eliminations | (745) | (735) |
4,663 | 4,301 | Total interest expenses | 4,358 | 4,290 |
Note 11: Insurance Expenses#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By entity |
||||
3,300 | 3,136 | Accident Compensation Corporation (ACC) | 3,133 | 3,010 |
71 | 74 | Earthquake Commission (EQC) | (103) | 1,073 |
(93) | (58) | Southern Response | (22) | 586 |
11 | 37 | Other | 19 | 20 |
- | (24) | Inter-segment eliminations | 4 | (113) |
3,289 | 3,165 | Total insurance expenses | 3,031 | 4,576 |
By type |
||||
Property damage claims in relation to Canterbury earthquakes | (227) | 1,612 | ||
Personal accident and injury claims | 3,133 | 3,010 | ||
Other insurance expenses | 125 | (46) | ||
Total insurance expenses | 3,031 | 4,576 |
Insurance expenses include costs associated with insurance claims arising from the Canterbury earthquakes. Note 30 contains further discussion on total costs of the earthquakes to the Crown.
At 30 June 2013 the total amount paid or payable for damage incurred in relation to Canterbury earthquakes was reassessed and is now expected to be lower than previously expected. This reduction is recognised as a credit in the claims expense. The discount on prior year claims payable was also recalculated to take into account changes in interest rates, payment patterns, and the reduced period to settlement.
The remainder of the note provides additional information on the insurance expenses for ACC, EQC, and Southern Response.
An analysis of the insurance liabilities is provided in note 25.
Actual | ||
---|---|---|
Analysis of ACC insurance expense |
30 June 2013 $m |
30 June 2012 $m |
By type |
||
Claims expense | 1,122 | 6,186 |
Movement in unexpired risk liability | (27) | 68 |
Other underwriting expenses | 86 | 99 |
Total ACC claims and other expenses | 1,181 | 6,353 |
Less expenses reported elsewhere in the statement of financial performance | ||
Actuarial gain/(loss) | 2,369 | (2,942) |
Operating costs relating to claims | (417) | (401) |
Total ACC insurance expenses (excluding gains/(losses) and operations) | 3,133 | 3,010 |
Given the uncertainty over insurance claims, it is likely that the final cost will be different from the original liability established. Net claims incurred in the table below 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.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
ACC Claims Incurred |
||
Current year net ACC claims incurred |
||
Gross claims incurred and related expenses - undiscounted | 7,071 | 7,130 |
Discount and discount movement | (4,149) | (4,144) |
Total current year net claims incurred | 2,922 | 2,986 |
Previous years' net ACC claims incurred |
||
Reassessment of gross claims and expenses - undiscounted | (2,817) | (6,789) |
Discount and discount movement | 1,017 | 9,989 |
Total previous years' net claims incurred | (1,800) | 3,200 |
ACC claims expense | 1,122 | 6,186 |
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).
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Net ACC Underwriting Result |
||
Premium revenue (refer to note 2) | 3,437 | 3,695 |
Recoveries revenue (including reinsurance recovery) | - | - |
ACC underwriting revenue | 3,437 | 3,695 |
Less claims and other expenses | (1,181) | (6,353) |
Net ACC underwriting surplus/(deficit) | 2,256 | (2,658) |
ACC operating cash flows associated with the underwriting result are: |
||
Cash receipts | 3,524 | 3,693 |
Cash payments | (3,072) | (3,059) |
Net ACC operating cash flows | 452 | 634 |
Actual | ||
---|---|---|
Analysis of EQC insurance expense |
30 June 2013 $m |
30 June 2012 $m |
By type |
||
Claims expense | (167) | 1,193 |
Movement in unexpired risk liability | (68) | (192) |
Other underwriting expenses | 132 | 72 |
Total EQC claims and other expenses | (103) | 1,073 |
Net EQC Underwriting Result |
||
Premium revenue | 242 | 107 |
Recoveries revenue (including reinsurance recovery) | (127) | 391 |
EQC underwriting revenue | 115 | 498 |
Less claims and other expenses | (103) | 1,073 |
Net EQC underwriting surplus/(deficit) | 218 | (575) |
EQC operating cash flows associated with the underwriting result are: |
||
Cash receipts | 274 | 134 |
Cash payments | (1,923) | (2,890) |
Net EQC operating cash flows | (1,649) | (2,756) |
EQC Claims Incurred |
||
Current year net EQC claims incurred |
||
Gross claims incurred and related expenses - undiscounted | 37 | 719 |
Discount and discount movement | - | (17) |
Total current year net claims incurred | 37 | 702 |
Previous years' net EQC claims incurred |
||
Reassessment of gross claims and expenses - undiscounted | (349) | (147) |
Discount and discount movement | 145 | 638 |
Total previous years' net claims incurred | (204) | 491 |
EQC claims expense | (167) | 1,193 |
Actual | ||
---|---|---|
Analysis of Southern Response insurance expense |
30 June 2013 $m |
30 June 2012 $m |
By type |
||
Claims expense | 2 | 609 |
Movement in unexpired risk liability | - | - |
Total Southern Response claims and other expenses | 2 | 609 |
less operating costs relating to claims | (24) | (23) |
Total Southern Response insurance expenses (excluding operations) | (22) | 586 |
Net Southern Response Underwriting Result |
||
Premium revenue | - | 248 |
Recoveries revenue (including reinsurance recovery) | 27 | - |
Southern Response underwriting revenue | 27 | 248 |
Less claims and other expenses | 2 | 609 |
Net Southern Response underwriting surplus/(deficit) | 25 | (361) |
Southern Response operating cash flows associated with the underwriting result are: |
||
Cash receipts | 452 | 526 |
Cash payments | (294) | (540) |
Net Southern Response operating cash flows | 158 | (14) |
Southern Response Earthquake Services ("Southern Response") manages claims related to the Canterbury earthquakes incurred by AMI Insurance.
Note 12: Gains and Losses on Financial Instruments#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
- | 11 | Foreign exchange gains on financial assets measured at amortised cost | 448 | 40 |
(15) | (12) | Foreign exchange losses on financial assets measured at amortised cost | (13) | (86) |
7 | 1 | Change in fair value of financial assets classified as held for trading | 38 | (6) |
- | (3) | Gain/(loss) on disposal of financial assets measured at amortised cost | 224 | 79 |
735 | 1,129 | Change in fair value of financial assets classified as fair value through profit and loss | 2,651 | 469 |
727 | 1,126 | Net gains/(losses) on financial assets | 3,348 | 496 |
7 | - | Foreign exchange gain on financial liabilities measured at amortised cost | 8 | 1 |
(4) | 58 | Foreign exchange loss on financial liabilities measured at amortised cost | (14) | (55) |
- | - | Change in fair value of financial liabilities classified as held for trading | - | - |
(5) | (5) | Gain/(loss) on disposal of financial liabilities measured at amortised cost | 55 | (4) |
80 | 164 | Change in fair value of financial liabilities classified as fair value through profit and loss | 175 | (362) |
78 | 217 | Net gains/(losses) on financial liabilities | 224 | (420) |
930 | 4,516 | Net gain/(loss) on derivatives | 3,698 | 616 |
1,735 | 5,859 | Net gains/(losses) on financial instruments | 7,270 | 692 |
By source |
||||
1,685 | 3,944 | Core Crown | 5,081 | 526 |
288 | 1,529 | Crown entities | 1,192 | 930 |
(46) | 61 | State-owned enterprises | 354 | 9 |
(192) | 325 | Inter-segment eliminations | 643 | (773) |
1,735 | 5,859 | Net gains/(losses) on financial instruments | 7,270 | 692 |
Note 13: Gains and Losses on Non-Financial Instruments#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
- | 1,047 | Actuarial gains/(losses) on ACC outstanding claims | 2,369 | (2,942) |
- | 918 | Actuarial gains/(losses) on GSF liability | 1,251 | (3,896) |
- | 212 | Foreign exchange gains/(losses) | 101 | 329 |
8 | - | Other gains/(losses) on non-financial liabilities | 1 | (124) |
(12) | (74) | Gains/(losses) on disposal or revaluation of property, plant and equipment | (24) | (77) |
206 | (10) | Gains/(losses) on agricultural assets | (46) | 120 |
- | (2) | Gains/(losses) on intangible assets | (2) | (26) |
(1) | (3) | Other gains/(losses) on non-financial assets | 56 | 90 |
201 | 2,088 | Net gains/(losses) on non-financial instruments | 3,706 | (6,526) |
By source |
||||
7 | 1,121 | Core Crown | 1,298 | (3,790) |
(11) | 967 | Crown entities | 2,309 | (2,955) |
205 | (1) | State-owned enterprises | 100 | 220 |
- | 1 | Inter-segment eliminations | (1) | (1) |
201 | 2,088 | Net gains/(losses) on non-financial instruments | 3,706 | (6,526) |
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 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
6,974 | 7,323 | Tax receivables | 8,184 | 7,257 |
3,290 | 3,874 | Levies, fines and penalty receivables | 3,183 | 3,267 |
456 | 502 | Social benefit receivables | 515 | 502 |
10,720 | 11,699 | Sovereign receivables | 11,882 | 11,026 |
29 | 29 | Recoverable from Deposit Guarantee Scheme receiverships | 39 | 270 |
6,050 | 7,461 | Trade and other receivables | 7,962 | 9,660 |
16,799 | 19,189 | Total receivables | 19,883 | 20,956 |
By maturity |
||||
13,951 | 15,029 | Expected to be realised within one year | 15,742 | 15,173 |
2,848 | 4,160 | Expected to be outstanding for more than one year | 4,141 | 5,783 |
16,799 | 19,189 | Total receivables | 19,883 | 20,956 |
By source |
||||
9,357 | 10,360 | Core Crown | 11,924 | 10,974 |
6,146 | 8,664 | Crown entities | 8,369 | 10,011 |
2,791 | 2,311 | State-owned enterprises | 2,037 | 2,154 |
(1,495) | (2,146) | Inter-segment eliminations | (2,447) | (2,183) |
16,799 | 19,189 | Total receivables | 19,883 | 20,956 |
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 2013 $m |
30 June 2012 $m |
|
Tax Receivables |
||
Gross tax receivable | 12,565 | 11,666 |
Impairment of tax receivables | (4,381) | (4,409) |
Total tax receivables | 8,184 | 7,257 |
Gross Tax Receivable |
||
Current | 7,223 | 6,262 |
Past due | 5,342 | 5,404 |
Total gross tax receivable | 12,565 | 11,666 |
% past due | 42% | 46% |
Impairment of Tax Receivables |
||
Opening balance | 4,409 | 4,144 |
Impairment losses recognised during the year | 897 | 1,114 |
Amounts written off as uncollectible | (925) | (849) |
Closing balance | 4,381 | 4,409 |
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 2013 $m |
30 June 2012 $m |
|
The estimated recoverable amount of this portfolio and key assumptions underpinning the valuation are: | ||
Net recoverable amount of tax receivables (current) | 7,185 | 6,242 |
Net recoverable amount of tax receivables (past due) | 999 | 1,015 |
Discount rate | 5.10% | 5.60% |
Impact on recoverable amount of a 2% increase in discount rate | (20) | (18) |
Impact on recoverable amount of a 2% decrease in discount rate | 21 | 20 |
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 (e.g. 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 2013 $m |
30 June 2012 $m |
|
Ageing of Tax Receivables Past Due (Gross) | ||
Less than six months | 904 | 884 |
Between six months and one year | 363 | 453 |
Between one year and two years | 788 | 899 |
Greater than two years | 3,287 | 3,168 |
Tax receivables past due | 5,342 | 5,404 |
The carrying amount of tax receivables provides a reasonable approximation of their fair value.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Levies, Fines and Penalty Receivables |
||
Gross ACC levy receivables | 3,027 | 3,072 |
Gross other levies, fines and penalty receivables | 2,515 | 2,286 |
Total gross levies, fines and penalty receivables | 5,542 | 5,358 |
Impairment of ACC levy receivables | (118) | (122) |
Impairment of other levies, fines and penalty receivables | (2,241) | (1,969) |
Total impairment of receivables | (2,359) | (2,091) |
Total levies, fines and penalty receivables | 3,183 | 3,267 |
Impairment of ACC Levy Receivables |
||
Opening balance | 122 | 79 |
Impairment losses recognised during the year | (2) | 14 |
Amounts written off as uncollectible | (2) | - |
Impairment losses reversed | - | 29 |
Closing balance | 118 | 122 |
Collective impairment allowance | 118 | 122 |
Individual impairment allowance | - | - |
Impairment of ACC Levy Receivables | 118 | 122 |
Impairment of other Levies, Fines and Penalty Receivables |
||
Opening balance | 1,969 | 1,937 |
Impairment losses recognised during the year | 363 | 145 |
Amounts written off as uncollectible | - | - |
Impairment losses reversed | (91) | (113) |
Closing balance | 2,241 | 1,969 |
Collective impairment allowance | 2,241 | 1,969 |
Individual impairment allowance | - | - |
Impairment of other Levies, Fines and Penalty Receivables | 2,241 | 1,969 |
Ageing of Levies, Fines and Penalty Receivables Past Due But Not Impaired |
||
Less than six months | - | - |
Between six months and one year | - | - |
Greater than one year | - | - |
Total levies, fines and penalty receivables past due but not impaired | - | - |
The ACC levy receivables are short term, so their carrying amount provides a reasonable approximation of their fair value. Of the other levies, fines and penalties receivables, the majority is in the debtor portfolio administered by the Ministry of Justice (i.e. court fines, associated court fees and enforcement fees) with a net book value of $175 million (2012: $213 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 2013 $m |
30 June 2012 $m |
|
Social Benefit Receivables |
||
Gross social benefit receivables | 1,178 | 1,130 |
Impairment of social benefit receivables | (663) | (628) |
Total social benefit receivables | 515 | 502 |
Impairment of Social Benefit Receivables |
||
Opening balance | 628 | 570 |
Impairment losses recognised during the year | 79 | 69 |
Amounts written off as uncollectible | (44) | (11) |
Closing balance | 663 | 628 |
Collective impairment allowance | 663 | 628 |
Individual impairment allowance | - | - |
Impairment of Social Benefit Receivables | 663 | 628 |
Ageing of Social Benefit Receivables Past Due But Not Impaired |
||
Less than six months | 30 | 70 |
Between six months and one year | 67 | 28 |
Greater than one year | - | - |
Total social benefit receivables past due but not impaired | 97 | 98 |
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 $502 million (2012: $490 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 2013 $m |
30 June 2012 $m |
|
---|---|---|
Recoverable from Deposit Guarantee Scheme receiverships |
||
Opening balance of recoveries expected from receiverships | 270 | 739 |
Recoveries expected from entities defaulting during the year | - | |
Revision of expected recoveries | 8 | 90 |
Transfer of assets from receivershipsinto Crown Asset Management Limited | (38) | (92) |
Revaluation gains on assets transferred | 14 | - |
Payments received from receivers | (215) | (467) |
Closing balance | 39 | 270 |
Total payments to depositors under the Guarantee scheme | - | 34 |
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 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.
In addition to Retail Deposit Guarantee Scheme, the Government operated an opt-in wholesale scheme from November 2008 to April 2010. As at 30 June 2013, 13 guarantee certificates remained in place (value of $3.47 billion). No provision is made for losses under this scheme as the probability of loss is considered remote.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Trade and Other Receivables |
||
Gross trade and other receivables | 8,050 | 9,753 |
Impairment of trade and other receivables | (88) | (93) |
Total trade and other receivables | 7,962 | 9,660 |
Impairment of Trade and Other Receivables |
||
Opening balance | 93 | 82 |
Impairment losses recognised during the year | 7 | 20 |
Amounts written off as uncollectible | (14) | (14) |
Impairment losses reversed | 2 | 5 |
Closing balance | 88 | 93 |
Collective impairment allowance | 64 | 69 |
Individual impairment allowance | 24 | 24 |
Impairment of Trade and Other Receivables | 88 | 93 |
Ageing of Trade and Other Receivables Past Due But Not Impaired |
||
Less than six months | 180 | 248 |
Between six months and one year | 17 | 5 |
Greater than one year | 2 | 2 |
Total trade and other receivables past due but not impaired | 199 | 255 |
Trade and other receivables include $3,135 million relating to reinsurance receivables in Southern Response and EQC (2012: $5,003 million). The rest of the trade and other receivables are short term, with $2,214 million (2012: $4,273 million) expected to be settled in the next year. Their carrying amount provides a reasonable approximation of their fair value.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Reinsurance receivable |
||
Opening balance | 5,003 | 5,381 |
Reinsurance recognised/reassessed during the year | (100) | 407 |
Reinsurance acquired through business combination | - | - |
Reinsurance received during the year | (1,768) | (785) |
Closing balance | 3,135 | 5,003 |
Credit risk associated with reinsurance receivables is managed by ensuring the risk is spread across a number of different reinsurers with appropriate credit ratings.
Note 15: Marketable securities, deposits and derivatives in gain#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
28,027 | 31,391 | Marketable securities | 34,346 | 38,682 |
1,697 | 2,013 | Long term deposits | 3,588 | 2,422 |
4,028 | 4,797 | Derivatives in gain | 3,775 | 5,032 |
2,445 | 2,191 | IMF financial assets | 2,291 | 2,249 |
36,197 | 40,392 | Total marketable securities, deposits and derivatives in gain | 44,000 | 48,385 |
By maturity |
||||
21,583 | 27,037 | Expected to be realised within one year | 26,833 | 34,451 |
14,614 | 13,355 | Expected to be held for more than one year | 17,167 | 13,934 |
36,197 | 40,392 | Total marketable securities, deposits and derivatives in gain | 44,000 | 48,385 |
By source |
||||
24,378 | 29,091 | Core Crown | 31,056 | 37,330 |
19,197 | 19,580 | Crown entities | 20,045 | 18,713 |
2,633 | 2,916 | State-owned enterprises | 2,586 | 2,607 |
(10,011) | (11,195) | Inter-segment eliminations | (9,687) | (10,265) |
36,197 | 40,392 | Total marketable securities, deposits and derivatives in gain | 44,000 | 48,385 |
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 discount 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.
Further information on the management of risks associated with these financial assets is provided in note 33.
Note 16: Share Investments#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By maturity |
||||
7,375 | 6,701 | Expected to be realised within one year | 7,651 | 6,388 |
8,478 | 9,915 | Expected to be held for more than one year | 9,708 | 7,997 |
15,853 | 16,616 | Total share investments | 17,359 | 14,385 |
By source |
||||
7,370 | 6,650 | Core Crown | 7,665 | 6,341 |
8,461 | 9,671 | Crown entities | 9,496 | 7,806 |
57 | 322 | State-owned enterprises | 342 | 264 |
(35) | (27) | Inter-segment eliminations | (144) | (26) |
15,853 | 16,616 | Total share investments | 17,359 | 14,385 |
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 purchase.
Further information on the management of risks associated with these financial assets is provided in note 33.
Note 17: Advances#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
8,781 | 8,528 | Student loans | 8,288 | 8,291 |
13,830 | 13,261 | Kiwibank mortgages | 13,202 | 12,445 |
1,284 | 1,643 | Other advances | 1,123 | 1,030 |
23,895 | 23,432 | Total advances | 22,613 | 21,766 |
By source |
||||
14,211 | 13,704 | Core Crown | 13,419 | 13,580 |
280 | 131 | Crown entities | 248 | 325 |
14,273 | 14,203 | State-owned enterprises | 13,499 | 12,765 |
(4,869) | (4,606) | Inter-segment eliminations | (4,553) | (4,904) |
23,895 | 23,432 | Total advances | 22,613 | 21,766 |
Further information on the management of risks associated with these financial assets is provided in note 33.
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Student Loans |
||||
13,840 | 13,512 | Nominal value | 13,562 | 12,969 |
(5,059) | (4,984) | Write-down on initial recognition and impairment | (5,274) | (4,678) |
8,781 | 8,528 | Total student loans | 8,288 | 8,291 |
Gross carrying value | 9,723 | 9,242 | ||
Impairment of student loans | (1,435) | (951) | ||
Total student loans | 8,288 | 8,291 | ||
By maturity |
||||
Expected to be repaid within one year | 1,049 | 930 | ||
Expected to be outstanding for more than one year | 7,239 | 7,361 | ||
Total student loans | 8,288 | 8,291 | ||
Movement During the Year |
||||
8,238 | 8,291 | Opening balance | 8,291 | 7,460 |
1,644 | 1,553 | New lending (excluding fees) | 1,470 | 1,586 |
12 | 12 | New lending - establishment fee | 11 | 11 |
(651) | (528) | Initial write-down to fair value | (536) | (701) |
(953) | (1,149) | Repayments made during the year | (1,054) | (877) |
601 | 581 | Interest unwind | 590 | 526 |
(110) | (232) | Impairment losses (recognised)/reversed during the year | (484) | 286 |
- | - | Other movements | - | - |
8,781 | 8,528 | Closing balance student loans | 8,288 | 8,291 |
Impairment of Student Loans |
||||
Opening balance | 951 | 1,237 | ||
Impairment losses recognised during the year | 484 | - | ||
Amounts written off as uncollectible | - | - | ||
Impairment losses reversed | - | (286) | ||
Closing balance | 1,435 | 951 |
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 2013 |
30 June 2012 |
|
Significant assumptions behind the carrying value are: | ||
Effective interest rate - weighted average | 7.1% | 7.2% |
Interest rate applied to loans for overseas borrowers | 5.1%-6.2% | 4.6%-6.7% |
CPI | 1.4%-2.5% | 1.8%-2.5% |
Future salary inflation | 2.2%-3.5% | 3.2%-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 2013. It is determined by discounting the cash flows at an appropriate discount rate.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Fair value of the student loan portfolio | 8,298 | 8,527 |
Impact on fair value of a 1% increase in discount rate | (423) | (396) |
Impact on fair value of a 1% decrease in discount rate | 471 | 432 |
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 2013. At that date the fair value was calculated on a discount rate of 7.1% (2012: 6.6%) whereas a weighted average effective interest rate of 7.1% (2012: 7.2%) was used for the carrying value.
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.
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Kiwibank Mortgages |
||||
By maturity |
||||
1,245 | 1,103 | Expected to be repaid within one year | 1,071 | 1,036 |
12,585 | 12,158 | Expected to be outstanding for more than one year | 12,131 | 11,409 |
13,830 | 13,261 | Total Kiwibank mortgages | 13,202 | 12,445 |
Impairment of Kiwibank Mortgages |
||||
Opening balance | 91 | 87 | ||
Impairment losses recognised on mortgages | 18 | 45 | ||
Amounts written off as uncollectible | (26) | (31) | ||
Impairment losses reversed | (11) | (10) | ||
Closing balance | 72 | 91 | ||
Collective impairment allowance | 44 | 50 | ||
Individual impairment allowance | 28 | 41 | ||
Impairment of Kiwibank Mortgages | 72 | 91 | ||
Ageing of Kiwibank Mortgages Past Due But Not Impaired |
||||
Less than six months | 183 | 202 | ||
Between six months and one year | - | - | ||
Greater than one year | - | - | ||
Total Kiwibank mortgages past due but not impaired | 183 | 202 |
Kiwibank mortgages are measured at amortised cost. This amortisation is based on a discounted cash flow model with reference to market interest rates, prepayment rates and estimated credit losses. The fair value of Kiwibank mortgages is $13,210 million (2012: $12,497 million).
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. The fair value of the collateral provided is sufficient to ensure that the Crown will recover the entire amount owing over the life of the mortgage and there is reasonable assurance that collection efforts will result in payment of the amounts due in a timely manner.
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Other Advances |
||||
By maturity |
||||
550 | 567 | Expected to be repaid within one year | 391 | 480 |
734 | 1,076 | Expected to be outstanding for more than one year | 732 | 550 |
1,284 | 1,643 | Total other advances | 1,123 | 1,030 |
Impairment of Other Advances |
||||
Opening balance | 148 | 190 | ||
Impairment losses recognised during the year | 10 | 39 | ||
Amounts written off as uncollectible | (6) | (80) | ||
Impairment losses reversed | (2) | (1) | ||
Closing balance | 150 | 148 | ||
Collective impairment allowance | 146 | 140 | ||
Individual impairment allowance | 4 | 8 | ||
Impairment of Other Advances | 150 | 148 | ||
Ageing of Other Advances Past Due But Not Impaired |
||||
Less than six months | 9 | 7 | ||
Between six months and one year | - | - | ||
Greater than one year | 2 | - | ||
Total other advances past due but not impaired | 11 | 7 | ||
Measurement Basis for Other Advances |
||||
923 | 612 | Other advances measured at amortised cost | 791 | 790 |
361 | 1,031 | Other advances measured at fair value | 332 | 240 |
1,284 | 1,643 | Total other advances | 1,123 | 1,030 |
The NZS Fund, NZDMO, Public Trust and a number of SOEs 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 (i.e. changes to credit risk on these assets) and broader market sentiment changes.
In addition to these advances, the Government has entered into commitments to provide advances through two facilities. The Crown has agreed to make available to the Auckland Council, a loan facility to enable the Council to develop the Auckland metro rail network. The loan facility amount is $500 million of which $330 million is undrawn as at 30 June 2013.
The Crown has also agreed to make available to the New Zealand Local Government Funding Agency (NZLGFA) a New Zealand dollar revolving credit facility for 10 years (to February 2022). This facility is only to be utilised to meet exceptional and temporary liquidity shortfalls affecting the NZLGFA. The facility is for $400 million with the possibility for this to be increased to $1 billion by February 2015. As at 30 June 2013 the facility had not been utilised.
Note 18: Inventory#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
Inventories held for sale | 105 | 102 | ||
Military inventories | 311 | 293 | ||
Other consumables | 724 | 839 | ||
1,360 | 1,248 | Total inventory | 1,140 | 1,234 |
By maturity |
||||
1,071 | 1,011 | Expected to be sold or consumed within one year | 783 | 952 |
289 | 237 | Expected to be sold or consumed after one year | 357 | 282 |
1,360 | 1,248 | Total inventory | 1,140 | 1,234 |
By source |
||||
441 | 378 | Core Crown | 382 | 399 |
163 | 166 | Crown entities | 165 | 183 |
756 | 704 | State-owned enterprises | 593 | 652 |
- | - | Inter-segment eliminations | - | - |
1,360 | 1,248 | Total inventory | 1,140 | 1,234 |
Note 19: Other Assets#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
449 | 563 | Prepayments | 531 | 499 |
55 | 73 | Investment property | 201 | 58 |
780 | 638 | Biological assets | 583 | 640 |
368 | 361 | Investment in supranational organisations | 368 | 367 |
399 | 429 | Other | 612 | 570 |
2,051 | 2,064 | Total other assets | 2,295 | 2,134 |
By maturity |
||||
886 | 1,069 | Expected to be realised within one year | 1,188 | 1,086 |
1,165 | 995 | Expected to be held for more than one year | 1,107 | 1,048 |
2,051 | 2,064 | Total other assets | 2,295 | 2,134 |
By source |
||||
1,265 | 1,171 | Core Crown | 1,222 | 1,233 |
164 | 244 | Crown entities | 394 | 228 |
660 | 682 | State-owned enterprises | 708 | 713 |
(38) | (33) | Inter-segment eliminations | (29) | (40) |
2,051 | 2,064 | Total other assets | 2,295 | 2,134 |
Note 20: Property, Plant and Equipment#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Net Carrying Value |
||||
By class of asset |
||||
35,551 | 34,021 | Land | 34,453 | 33,626 |
25,528 | 25,015 | Buildings | 25,784 | 25,046 |
19,120 | 17,989 | State highways | 17,930 | 17,546 |
15,348 | 13,911 | Electricity generation assets | 13,555 | 14,400 |
3,835 | 3,989 | Electricity distribution network | 3,865 | 3,476 |
3,346 | 3,196 | Specialist military equipment | 3,094 | 3,220 |
2,506 | 2,481 | Specified cultural and heritage assets | 2,617 | 2,592 |
2,222 | 2,240 | Aircraft (excluding military) | 2,296 | 2,250 |
7,614 | 866 | Rail network1 | 1,035 | 856 |
6,265 | 5,626 | Other plant and equipment | 5,204 | 5,572 |
121,335 | 109,334 | Total property, plant and equipment | 109,833 | 108,584 |
By source |
||||
30,140 | 29,561 | Core Crown | 29,507 | 29,377 |
51,182 | 50,715 | Crown entities | 51,823 | 49,939 |
40,013 | 29,058 | State-owned enterprises | 28,503 | 29,268 |
- | - | Inter-segment eliminations | - | - |
121,335 | 109,334 | Total property, plant and equipment | 109,833 | 108,584 |
By holding |
||||
1,610 | 1,828 | Leasehold | 1,858 | 1,833 |
119,725 | 107,506 | Freehold | 107,975 | 106,751 |
121,335 | 109,334 | Total property, plant and equipment | 109,833 | 108,584 |
Property, plant and equipment pledged to secure borrowing | 1,743 | 1,680 |
Property, plant and equipment pledged to secure borrowing is owned by State-owned enterprises. Under Section 55 of the Public Finance Act 1989, borrowing by the Crown is 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.
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 in the Land category.
As a consequence of the financial difficulties experienced with the deterioration in its market conditions, the assets of Solid Energy, primarily its mining assets and plant and equipment have been impaired by $190 million during the year to 30 June 2013.
- In the previous financial year (2011/12) the valuation methodology for the rail network (excluding metro only assets) changed from optimised depreciated replacement cost to fair value based on recoverable amount resulting in a significant impairment.
Total | Land | Buildings | State highways | Electricity generation assets | Electricity distribution network | Specialist military equipment | Specified cultural and heritage assets | Aircraft (excluding military) | Rail network | Other plant and equipment | |
---|---|---|---|---|---|---|---|---|---|---|---|
For the year ended 30 June 2013 |
$m | $m | $m | $m | $m | $m | $m | $m | $m | $m | $m |
Gross carrying amount |
|||||||||||
Opening balance 1 July 2012 | 121,717 | 33,626 | 27,551 | 17,546 | 14,714 | 4,453 | 4,153 | 3,036 | 2,266 | 860 | 13,512 |
Additions | 5,779 | 465 | 1,220 | 1,010 | 609 | 657 | 201 | 128 | 175 | 434 | 880 |
Disposals | (1,471) | (420) | (228) | - | (17) | (180) | (20) | (9) | (20) | (1) | (576) |
Net revaluations | (2,047) | 942 | (204) | (626) | (893) | - | (1,241) | 43 | (72) | - | 4 |
Other1 | (1,182) | (160) | (62) | - | (802) | - | 1 | (125) | (37) | (18) | 21 |
Total gross carrying amount | 122,796 | 34,453 | 28,277 | 17,930 | 13,611 | 4,930 | 3,094 | 3,073 | 2,312 | 1,275 | 13,841 |
Accumulated Depreciation and Impairment |
|||||||||||
Opening balance 1 July 2012 | 13,133 | - | 2,505 | - | 314 | 977 | 933 | 398 | 16 | 4 | 7,986 |
Eliminated on disposal | (659) | - | (101) | - | (3) | (48) | (30) | (6) | (14) | - | (457) |
Eliminated on revaluation | (3,587) | - | (1,125) | (449) | (650) | - | (1,203) | 9 | (169) | - | - |
Impairment losses charged to operating balance | 473 | - | - | - | 19 | - | - | - | - | 222 | 232 |
Depreciation expense | 3,697 | - | 1,150 | 449 | 431 | 152 | 272 | 24 | 213 | 14 | 992 |
Other | (94) | - | 64 | - | (55) | (16) | 28 | 31 | (30) | - | (116) |
Total accumulated depreciation | 12,963 | - | 2,493 | - | 56 | 1,065 | - | 456 | 16 | 240 | 8,637 |
Carrying value as at 30 June 2013 | 109,833 | 34,453 | 25,784 | 17,930 | 13,555 | 3,865 | 3,094 | 2,617 | 2,296 | 1,035 | 5,204 |
By holding |
|||||||||||
Leasehold | 1,858 | - | 228 | - | 2 | - | - | - | 1,590 | - | 38 |
Freehold | 107,975 | 34,453 | 25,556 | 17,930 | 13,553 | 3,865 | 3,094 | 2,617 | 706 | 1,035 | 5,166 |
109,833 | 34,453 | 25,784 | 17,930 | 13,555 | 3,865 | 3,094 | 2,617 | 2,296 | 1,035 | 5,204 |
- "Other" gross carrying movements include a $623 million reduction in electricity generation assets, relating to costs associated with a wind farm in Macarthur (Australia). The reduction arose from construction costs that were previously capitalised being converted to a finance lease. Subsequently, on 28 June 2013, Meridian disposed of its entire interest in the wind farm.
Total | Land | Buildings | State highways | Electricity generation assets | Electricity distribution network | Specialist military equipment | Specified cultural and heritage assets | Aircraft (excluding military) | Rail network | Other plant and equipment | |
---|---|---|---|---|---|---|---|---|---|---|---|
For the year ended 30 June 2012 | $m | $m | $m | $m | $m | $m | $m | $m | $m | $m | $m |
Gross carrying amount |
|||||||||||
Opening balance 1 July 2011 | 126,601 | 36,022 | 26,652 | 16,802 | 14,455 | 3,547 | 4,038 | 2,954 | 1,821 | 7,508 | 12,802 |
Additions | 6,514 | 152 | 1,337 | 1,123 | 344 | 927 | 110 | 38 | 611 | 269 | 1,603 |
Disposals | (941) | (209) | (109) | 1 | (8) | (13) | (8) | (8) | (20) | - | (567) |
Net revaluations | (9,793) | (2,168) | (303) | (380) | 54 | - | (12) | 47 | (116) | (6,915) | - |
Other | (664) | (171) | (26) | - | (131) | (8) | 25 | 5 | (30) | (2) | (326) |
Total gross carrying amount | 121,717 | 33,626 | 27,551 | 17,546 | 14,714 | 4,453 | 4,153 | 3,036 | 2,266 | 860 | 13,512 |
Accumulated Depreciation and Impairment |
|||||||||||
Opening balance 1 July 2011 | 11,747 | - | 2,113 | - | 16 | 857 | 707 | 420 | 16 | 408 | 7,210 |
Eliminated on disposal | (634) | - | (28) | - | - | (17) | (6) | (6) | (15) | - | (562) |
Eliminated on revaluation | (3,415) | - | (717) | (432) | (116) | - | (1) | 2 | (120) | (2,031) | - |
Impairment losses charged to operating balance | 1,884 | - | 1 | - | 29 | - | - | - | - | 1,409 | 445 |
Depreciation expense | 3,803 | - | 1,174 | 432 | 388 | 137 | 237 | 27 | 153 | 223 | 1,032 |
Other | (252) | - | (38) | - | (3) | - | (4) | 1 | (18) | (5) | (185) |
Total accumulated depreciation | 13,133 | - | 2,505 | - | 314 | 977 | 933 | 444 | 16 | 4 | 7,940 |
Carrying value as at 30 June 2012 | 108,584 | 33,626 | 25,046 | 17,546 | 14,400 | 3,476 | 3,220 | 2,592 | 2,250 | 856 | 5,572 |
By holding |
|||||||||||
Leasehold | 1,833 | - | 263 | - | - | - | - | - | 1,518 | - | 52 |
Freehold | 106,751 | 33,626 | 24,783 | 17,546 | 14,400 | 3,476 | 3,220 | 2,592 | 732 | 856 | 5,520 |
108,584 | 33,626 | 25,046 | 17,546 | 14,400 | 3,476 | 3,220 | 2,592 | 2,250 | 856 | 5,572 |
Note 20: Property, Plant and Equipment (continued)#
Revaluation details #
Revaluations are carried out for a number of classes of property, plant and equipment as detailed in the accounting policies on pages 47-48. Information about the significant valuations within each of the revalued classes of assets is provided below.
Land and buildings
Independent valuations of the Government's land and buildings have been performed by a number of valuers to determine their fair value. 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 optimised depreciated replacement cost (ODRC).
Land | Buildings | Total | ||||
---|---|---|---|---|---|---|
Breakdown of land and buildings (total valuation over $500m) |
30 June 2013 $m |
30 June 2012 $m |
30 June 2013 $m |
30 June 2012 $m |
30 June 2013 $m |
30 June 2012 $m |
Housing stock | 9,580 | 8,744 | 6,778 | 6,406 | 16,358 | 15,150 |
School property | 2,887 | 2,726 | 7,941 | 7,887 | 10,828 | 10,613 |
State highway corridor land | 8,003 | 8,353 | 11 | 12 | 8,014 | 8,365 |
Conservation estate | 5,364 | 5,454 | 60 | 46 | 5,424 | 5,500 |
Hospitals | 707 | 616 | 4,135 | 3,916 | 4,842 | 4,532 |
Rail network corridor land | 3,256 | 3,260 | - | - | 3,256 | 3,260 |
Defence Force land and buildings | 631 | 674 | 1,287 | 1,176 | 1,918 | 1,850 |
Prisons and Department of Corrections office buildings | 207 | 212 | 1,681 | 1,769 | 1,888 | 1,981 |
Landcorp farmland and buildings | 1,047 | 1,032 | 125 | 120 | 1,172 | 1,152 |
Ministry of Justice land and buildings | 418 | 418 | 461 | 463 | 879 | 881 |
Police stations | 168 | 168 | 537 | 503 | 705 | 671 |
Other | 2,185 | 1,969 | 2,768 | 2,748 | 4,953 | 4,717 |
Land and buildings | 34,453 | 33,626 | 25,784 | 25,046 | 60,237 | 58,672 |
Description | Valuer/Reviewer | Approach | Timing |
---|---|---|---|
Housing stock | Quotable Value NZ Limited | Valuations based on market evidence or adjusted current rating valuations. | Annual valuation with the latest completed as at 30 June 2013 |
School property | Quotable Value Limited or experienced staff (reviewed by Quotable Value Limited) | Valuations based on market evidence where possible, or ODRC. | Annual valuation with the latest completed as at 30 June 2013 |
State highway corridor land and held properties | Opus International Consultants Limited | Valued using opportunity cost based on adjacent use as an approximation to fair value. | A full valuation is completed on a rolling regional basis, with each region fully valued at least once every 3 - 5 years. The latest valuation completed as at 30 June 2013. |
Conservation estate (national parks, forest parks, conservation areas, reserves) | Property IQ rateable valuations reviewed by Logan Stone Limited | Valued based on rateable valuations where possible. Land not matched to a rateable valuation was assessed using a conservancy average per hectare rate. | Annual valuation with the latest completed as at 30 June 2013 |
Hospitals | Each District Health Board uses an independent valuer | Land values were based on market evidence while buildings were valued at ODRC. The largest DHB is Auckland DHB, which had its land and buildings valued at $799 million (2012: $761 million) by Telfer Young. | Three to five year cycle with varying valuation dates depending on each DHB |
New Zealand Rail Corporation rail corridor land | Darroch Limited | Land associated with the rail corridor was valued using an opportunity cost based on adjacent use, as an approximation to fair value. | Valuation completed with sufficient regularity to ensure that the carrying amount does not differ materially from fair value with the latest full valuation completed as at 30 June 2012. |
NZ Defence Force Land and Buildings | Beca Valuations Limited | Valued using a market based approach unless reliable market evidence was unavailable, in which case ODRC was used to calculate fair value. | Valuations completed at least once every five years with the latest being as at 30 June 2013 |
Prisons and Department of Corrections office buildings | Darroch Limited | Valued based on market evidence, except for prison buildings, which were valued at ODRC. | Three-year valuation cycle with the latest full valuation completed as at 30 June 2011 |
Landcorp farmland and associated buildings | Darroch Limited | The valuations take into account general factors that influence farm land prices and recent farm sales in the relevant regions and specific encumbrances over the land. | Annual valuation with the latest completed as at 30 June 2013 |
Ministry of Justice locations (including courtrooms) | Beca Valuations Limited | Based on market evidence where possible, or ODRC. | The valuations are performed on a rolling basis over three years. The full valuation cycle was completed on 30 June 2013 |
Police stations and national headquarters | Reviewed by Beca Valuations Limited | The internal valuation performed by experienced staff was based on market evidence where possible, or ODRC. | Three-year cycle with the latest full valuation completed as at 30 June 2013 |
Specified cultural and heritage assets
There are difficulties associated with obtaining an objective valuation for the specified cultural and heritage assets of the Government. Details of the valuations of the most significant assets within this class are discussed in the following table:
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
National Library | 849 | 846 |
Te Papa | 830 | 824 |
National Archives | 449 | 446 |
Conservation | 442 | 350 |
Parliamentary Library | 28 | 28 |
Other |
19 | 98 |
2,617 | 2,592 |
Description | Valuer/Reviewer | Approach | Timing |
---|---|---|---|
National Library collections | Internal valuation | Valued by experienced staff in accordance with guidelines released by the New Zealand Library Association. | Three-year valuation cycle with the latest full valuation completed as at 30 June 2011 |
Te Papa collections |
Archaeozoological: Foss Leach Taonga Maori International & Pacific Collections: Webbs Auckland |
All collections are valued based on market value by independent valuers. | Valuations completed at least once every three years with the latest valuations for all collections completed as at 30 June 2013 |
National archives | Dunbar Sloane |
The collection was divided into categories by format and age to associate records that could be said to have a broad commonality of value. Items were then valued based on market assessments and comparisons with other items of a similar nature. | Three year cycle with the latest full valuation completed as at 30 June 2011 |
Conservation estate assets including visitor buildings, tracks, roads, fences and infrastructure | Internal valuations reviewed by Logan Stone Limited | Revaluations use the movement in the appropriate capital goods index as supplied by Statistics New Zealand to estimate the change in asset values. | Valued at least once every five years and more often if the change since last revaluation is deemed material |
Parliament Library collection | Internal valuation | Valued by experienced staff in accordance with guidelines released by the New Zealand Library Association. ODRC was used to value current use collections while permanently retained collections were valued at estimated market value using sources such as auction records and book dealers' catalogues. | Annual valuation with the latest completed as at 30 June 2013 |
Note 20: Property, Plant and Equipment (continued)#
Other asset classes subject to revaluation #
The details of valuations for each class of property, plant and equipment are in the table below:
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
State highways[7] | 17,930 | 17,546 |
Electricity generation assets | 13,555 | 14,400 |
Specialist military equipment | 3,094 | 3,220 |
Aircraft (excluding military) | 2,296 | 2,250 |
Rail network | 1,035 | 856 |
37,910 | 38,272 |
Description | Valuer/Reviewer | Approach | Timing |
---|---|---|---|
State highways [7] Roads, bridges, culverts, tunnels, underpasses including the formation works, road structure, drainage works and traffic facilities. |
Opus International Consultants Limited | State Highways are valued using the ODRC of the existing asset database. (See below for further comments). | A full valuation is completed on a rolling regional basis, with each region fully valued at least once every 3 - 5 years. The latest valuation was completed as at 30 June 2013 |
Electricity generation assets [8] | |||
Meridian Energy: Hydro stations, wind and solar farms | Pricewaterhouse Coopers (PwC) | Based on both the capitalisation of earnings methodology, applied to Meridian as a whole, and the discounted cash flow methodology. | Valuation completed at least once every five years with the latest valuation being as at 30 June 2013 |
Mighty River Power: Hydro and Geothermal stations and gas-fired generation plants | PwC | Based on net present value of future earnings of the assets on an existing use basis excluding disposal and restoration costs. | Annual valuation with the latest completed as at 30 June 2013 |
Genesis Power: Thermal and Hydro stations and Wind farms | Internal valuation independently reviewed by PwC | Based on the net present value of future cash flows associated with the assets on an existing use basis excluding disposal and restoration costs. | Valuation completed at least once every five years with the latest valuation being as at 30 June 2013 |
Specialist military equipment | Internal valuations by subject matter experts | Valuations use a market based approach unless reliable market evidence is not available, in which case ODRC is used to calculate fair value. | Valuation completed at least once every five years with the latest valuation being as at 30 June 2013 |
Aircraft Aircraft and spare engines and flight simulators |
The Aircraft Value Analysis Company | An external valuation is obtained to ascertain indicative market values of each aircraft on a stand-alone basis. | Annual valuation with the latest completed as at 30 June 2013 |
Rail network [9] Buildings, bridges, tunnels, tracks, level crossings signals and electrification. All these assets are held on freehold basis. |
Buildings - Darroch Limited Other Rail Network Assets Ernst and Young |
Non-specialised building assets not on the rail corridor were valued based on market evidence using comparable sales. Specialised building assets and buildings on rail corridor land were valued using ODRC. Railway infrastructure used for freight services (freight only and dual use lines required for freight operations) has been valued using the recoverable amount, being scrap value less costs to sell. Railway infrastructure not required for freight operations and used for metro has been valued using ODRC reflecting the public benefit nature of these assets. |
Valuation completed with sufficient regularity to ensure that the carrying amount does not differ materially from fair value with the latest full valuation completed as at 30 June 2012 |
Additional information regarding state highways asset valuation#
There are some uncertainties about the values assigned to different components (land, formation, bridges, etc) of the state highway network. These uncertainties include whether the New Zealand Transport Agency's (NZTA's) databases have accurate quantities of remaining life and complete capture for some cost components. Some uncertainties are inherent, but those for both the quantity and costs of components can be reduced by improvements in the accuracy of the underlying databases.
The NZTA has identified a few instances where some of the quantities have been understated and some actual costs have not been included in the underlying databases, which have been relied upon by the valuer.
Additional costs associated with urban development are assessed as being the most significant part of the potential undervaluation with the remaining due to incomplete records. The additional costs associated with urban development are not currently able to be reliably measured.
NZTA has a plan to improve the accuracy of the asset databases and identify all costs able to be capitalised, which will serve to reduce the understatement of the value of the state highway network.
Any adjustments affect the Statement of Financial Position only. There is no impact on the operating balance.
Additional information regarding electricity generation assets#
There are a number of key assumptions used to value electricity generation assets. These assumptions relate to future revenue streams and expenses, as well as the discount rate used to calculate the present value of those revenues and expenses.
The following table outlines the sensitivity of the fair value of these assets to changes in two key assumptions, keeping all other valuation inputs constant.
Change |
Impact on valuation |
|
---|---|---|
Sensitivity of assumptions |
30 June 2013 $m |
|
Future wholesale electricity price | +10% | 1,810 |
-10% | (1,810) | |
Discount rate | +1% | (2,322) |
-1% | 3,861 |
Assumptions in relation to generation output also impact the valuation of the assets, but they are generally linked to the future wholesale electricity price and therefore have similar sensitivities to changes in price assumptions.
As this is the first year of disclosure for these sensitivities, no prior year comparatives have been provided.
For further information on the valuation of electricity generation assets, refer to the individual annual reports of the State-owned electricity generation companies (Genesis Energy, Meridian Energy and Mighty River Power).
Additional information regarding rail network#
Recoverable amount |
ODRC |
30 June 2013 Carrying value |
|
---|---|---|---|
$m | $m | $m | |
Network required for freight | 118 | 4,151 | 118 |
Network not required for freight (including metro) | 14 | 654 | 654 |
Total rail infrastructure | 132 | 4,805 | 772 |
Buildings | 115 | ||
Capital work in progress | 148 | ||
Rail network | 1,035 |
Recoverable amount |
ODRC |
30 June 2012 Carrying value |
|
---|---|---|---|
$m | $m | $m | |
Network required for freight | 154 | 5,035 | 154 |
Network not required for freight (including metro) | 10 | 499 | 499 |
Total rail infrastructure | 164 | 5,534 | 653 |
Buildings | 142 | ||
Capital work in progress | 61 | ||
Rail network | 856 |
The rail network comprises around 4,000 kilometres of track and is used primarily for freight transport. In addition to freight, the network is used by KiwiRail for long distance passenger transport and access is provided to two regional authorities, Greater Wellington Regional Council and Auckland Transport for metro passenger services. Some tracks are dual purpose (ie, used for both freight and metro), however there are a number of tracks which serve metro transport only (eg, the Johnsonville line). The rail infrastructure earns revenue from freight and long distance passenger charges. In addition, network access charges are collected from the two regional authorities in relation to the metro services.
The rail network infrastructure used for freight services (including dual use assets required for freight operations) is measured at fair value, reflecting the amount that could be expected to be received from a third party in an orderly transaction. Dual use assets not required for freight operations and metro only assets are reported in these financial statements at an optimised depreciated replacement cost basis, as the community benefits enabled by this investment do not provide a return at the whole-of-Government level.
Prior to the restructuring of KiwiRail as a profit-oriented entity, the total rail network infrastructure was measured on anoptimised depreciated replacement cost basis reflecting the previous focus on it as a non-cash generating asset. If the value of the rail network was still measured using that approach, then a notional depreciation amount of $194 million (2012: $223 million) could be calculated, representing an estimate of the amount of “wear-and-tear” or consumption of the network asset over the year. This estimated “wear-and-tear” compares to the total maintenance and renewal expenditure of $213 million (2012: $240 million) on the rail network during the year.
All valuations have been undertaken in accordance with the standards issued by the New Zealand Property Institute.
Note 21: Equity Accounted Investments #
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
8,301 | 8,048 | Tertiary Education Institutions | 8,060 | 7,915 |
1,666 | 1,461 | Other | 1,533 | 1,568 |
9,967 | 9,509 | Total equity accounted investments | 9,593 | 9,483 |
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 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Operating Results |
||||
2,205 | 2,193 | Revenue from Crown | 2,221 | 2,203 |
2,221 | 2,311 | Other revenue | 2,388 | 2,316 |
(4,257) | (4,371) | Expenses | (4,440) | (4,386) |
169 | 133 | Net surplus | 169 | 133 |
Net worth |
||||
Assets |
||||
1,450 | 1,355 | Financial assets | 1,392 | 1,355 |
8,199 | 8,157 | Property, plant and equipment | 8,102 | 8,024 |
323 | 307 | Other assets | 343 | 307 |
9,972 | 9,819 | Total assets | 9,837 | 9,686 |
Liabilities |
||||
228 | 238 | Borrowings | 193 | 238 |
1,443 | 1,533 | Other liabilities | 1,584 | 1,533 |
1,671 | 1,771 | Total liabilities | 1,777 | 1,771 |
8,301 | 8,048 | Net worth | 8,060 | 7,915 |
New Zealand Local Government Funding Agency (NZLGFA)#
The Government holds $5 million of the $25 million paid-up capital of NZLGFA. The investment has been classified as an equity accounted investment as, although the Government does not have direct representation on the NZLGFA Board of Directors, it may solely appoint, remove and replace one member of the Shareholders' Council, which, in turn makes recommendations to Shareholders as to the appointment, removal, re-election, replacement and remuneration of Directors. The investment value has therefore been adjusted to reflect the Crown's share of any changes in the net assets of the NZLGFA. The Government is not a guarantor of the NZLGFA and has no share of any contingent liabilities of the NZLGFA.
For the year ended 30 June 2013, NZLGFA recognised revenue of $5.7 million (2012: $10.9 million) and a surplus of $1.3 million (2012: $4.2 million deficit). NZLGFA's assets and liabilities were $2,688.2 million (2012: $943.0 million) and $2,664.8 million (2012: $922.3 million) respectively. The Crown's share of the net assets is $4.7 million (2012: $4.1 million).
Note 22: Intangible Assets and Goodwill#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
Computer software | 1,517 | 1,375 | ||
Net Kyoto position | 53 | 202 | ||
Goodwill | 655 | 746 | ||
Other intangible assets | 551 | 382 | ||
2,571 | 2,687 | Total intangible assets and goodwill | 2,776 | 2,705 |
By maturity |
||||
Expected to be sold or consumed within one year | 406 | 412 | ||
Expected to be sold or consumed after one year | 2,370 | 2,293 | ||
Total intangible assets and goodwill | 2,776 | 2,705 | ||
By source |
||||
1,294 | 1,071 | Core Crown | 1,041 | 1,112 |
472 | 504 | Crown entities | 573 | 494 |
805 | 1,112 | State-owned enterprises | 1,162 | 1,099 |
- | - | Inter-segment eliminations | - | - |
2,571 | 2,687 | Total intangible assets and goodwill | 2,776 | 2,705 |
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Computer Software |
||
Internally-Generated Computer Software |
||
Cost |
||
Opening balance | 2,558 | 2,332 |
Additions | 387 | 345 |
Disposals | (148) | (87) |
Other movements | 23 | (32) |
Total cost | 2,820 | 2,558 |
Accumulated Amortisation |
||
Opening balance | 1,696 | 1,551 |
Eliminated on disposal | (100) | (64) |
Impairment losses charged to operating balance | 22 | 28 |
Amortisation | 229 | 244 |
Other movements | (31) | (63) |
Total accumulated amortisation | 1,816 | 1,696 |
Carrying value of internally-generated computer software | 1,004 | 862 |
Purchased Computer Software |
||
Cost |
||
Opening balance | 1,645 | 1,503 |
Additions | 223 | 196 |
Disposals | (50) | (65) |
Other movements | (11) | 11 |
Total cost | 1,807 | 1,645 |
Accumulated Amortisation |
||
Opening balance | 1,132 | 1,018 |
Eliminated on disposal | (41) | (50) |
Impairment losses charged to operating balance | - | 7 |
Amortisation | 177 | 168 |
Other movements | 26 | (11) |
Total accumulated amortisation | 1,294 | 1,132 |
Carrying value of purchased computer software | 513 | 513 |
Total computer software | 1,517 | 1,375 |
Note 22: Intangible Assets and Goodwill (continued)#
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Net Kyoto Position |
||
Opening net asset | 202 | 291 |
Change in the price of carbon and foreign exchange rate | (132) | (177) |
Change in net projected emission units | (17) | 88 |
Closing net asset | 53 | 202 |
30 June 2013 Emission Units million tonnes (Mt) |
30 June 2012 Emission Units million tonnes (Mt) |
|
---|---|---|
Net Kyoto Position |
||
Kyoto target (assigned amount units) | 309.6 | 309.6 |
Less AAUs allocated to emission reducing projects | 4.5 | 4.5 |
Total commitment target | 305.1 | 305.1 |
Projected emission units |
||
Agriculture | 170.2 | 170.5 |
Energy (incl. transport) and industrial processes | 183.1 | 184.9 |
Waste | 10.1 | 10.0 |
Solvent and other product use | 0.1 | 0.2 |
Total projected emission units | 363.5 | 365.6 |
Removals via forest | 91.5 | 92.2 |
Deforestation emissions | (14.3) | (6.4) |
Less net removals via forests | 77.2 | 85.8 |
Net projected emission units | 286.3 | 279.8 |
Less net transfers of AAUs | 3.1 | 2.2 |
Add Kyoto compliant units surrendered under ETS | 48.3 | 12.3 |
Surplus units | 64.0 | 35.4 |
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 gross emissions levels or to take responsibility for the difference.
New Zealand's Kyoto Protocol compliance over the first commitment period will not be finalised until 2015 when the annual submission covering the period 2008 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 as the New Zealand Government has no specific fiscal obligation beyond the first commitment period.
The carbon price of €0.49 per unit has been used which in New Zealand dollars equates to $NZ0.82 (2012: €3.60 or $NZ5.70). The carbon price has been determined by the Ministry for the Environment based on the Secondary Certified Emission Reduction (sCER) unit price as published by Point Carbon.
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.
Within New Zealand, the Emissions Trading Scheme (ETS) will transfer a price of carbon through the economy. The outstanding balance of units allocated under the ETS is reported as a provision in note 27. The ETS provision includes the free allocation of units to foresters who have opted-in to the scheme. 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 91.5 million tonnes of credits will be generated by carbon removals via forests (2012: 92.2 million tonnes). Of this amount, 48.9 million tonnes has been allocated to foresters through the ETS as at 30 June 2013 (2012: 30.9 million tonnes). To the extent that these forests are harvested (in subsequent commitment periods), and a future international agreement is negotiated, there may 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).
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Goodwill |
||
Cost |
||
Opening balance | 985 | 707 |
Additions | 7 | 280 |
Disposals | (66) | (1) |
Other movements | (35) | (1) |
Total cost | 891 | 985 |
Accumulated Impairment |
||
Opening balance | 239 | 222 |
Eliminated on disposal | (2) | (1) |
Impairment losses charged to operating balance | 2 | 17 |
Reversals of impairment losses charged to operating balance | - | - |
Amortisation charge | - | - |
Other movements | (3) | 1 |
Total accumulated impairment | 236 | 239 |
Carrying value of goodwill | 655 | 746 |
Goodwill in relation to Air New Zealand of $258 million (2012: $258 million) has been tested for impairment at June 2013 based on a value in use discounted cash flow valuation.
A valuation was performed in June 2012 based on a value in use discounted cash flow valuation and this valuation has been relied upon for the year ended 30 June 2013. The 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 infromation. The cash flow forecasts are particularly sensitive to fluctuations in fuel prices and exchange rates are extrapolated using an average growth rate of approximately 1.5%. The cash flow projections are discounted using post-tax discount rate scenarios of 10.0-10.5%. The 2012 valuation confirmed that there was no impairment to the goodwill asset required.
Note 23: Payables#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
10,139 | 8,456 | Accounts payable | 7,616 | 8,255 |
3,364 | 3,366 | Taxes repayable | 3,544 | 3,349 |
13,503 | 11,822 | Total payables | 11,160 | 11,604 |
By maturity |
||||
12,856 | 11,231 | Expected to be settled within one year | 10,688 | 11,309 |
647 | 591 | Expected to be outstanding for more than one year | 472 | 295 |
13,503 | 11,822 | Total payables | 11,160 | 11,604 |
By source |
||||
7,367 | 6,626 | Core Crown | 7,873 | 7,139 |
6,501 | 5,922 | Crown entities | 4,996 | 5,642 |
5,523 | 5,435 | State-owned enterprises | 4,877 | 4,968 |
(5,888) | (6,161) | Inter-segment eliminations | (6,586) | (6,145) |
13,503 | 11,822 | Total payables | 11,160 | 11,604 |
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 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
57,296 | 58,713 | Government bonds | 57,377 | 53,850 |
4,700 | 3,576 | Treasury bills | 4,084 | 8,954 |
251 | 204 | Government retail stock | 199 | 229 |
6,244 | 7,183 | Settlement deposits with Reserve Bank | 7,575 | 5,917 |
2,401 | 2,035 | Derivatives in loss1 | 3,188 | 2,807 |
1,471 | 1,499 | Finance lease liabilities | 1,454 | 1,515 |
30,844 | 27,570 | Other borrowings | 26,210 | 27,262 |
103,207 | 100,780 | Total borrowings2 | 100,087 | 100,534 |
By source |
||||
85,674 | 85,309 | Core Crown | 84,870 | 84,510 |
5,257 | 5,156 | Crown entities | 5,251 | 5,325 |
27,636 | 25,884 | State-owned enterprises | 24,839 | 25,374 |
(15,360) | (15,569) | Inter-segment eliminations | (14,873) | (14,675) |
103,207 | 100,780 | Total borrowings | 100,087 | 100,534 |
By maturity |
||||
34,345 | 30,511 | Expected to be settled within one year | 30,517 | 43,195 |
68,862 | 70,269 | Expected to be outstanding for more than one year | 69,570 | 57,339 |
103,207 | 100,780 | Total borrowings | 100,087 | 100,534 |
By guarantee |
||||
76,212 | 74,924 | Sovereign-guaranteed debt3 | 75,684 | 75,701 |
26,995 | 25,856 | Non-sovereign debt | 24,403 | 24,833 |
103,207 | 100,780 | Total borrowings | 100,087 | 100,534 |
- 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.
- 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.
- 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.
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.
Further information on the management of risks associated with these financial liabilities is provided in note 33.
Government Bonds#
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Government bonds measured at amortised cost | 55,005 | 51,016 |
Government bonds measured at fair value | 2,372 | 2,834 |
Total Government bonds | 57,377 | 53,850 |
Government bonds are 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 bonds measured at amortised cost is $57,513 million (2012: $56,489 million). This valuation is based on observable market prices. The reduction in interest rates since the government bonds were issued results in a fair value greater than amortised cost.
The valuation of government bonds reported at fair value is also based on observable market prices. New Zealand's domestic currency bonds are rated Aaa by Moody's and AA+ by S&P and Fitch. In each case, the rating outlook is stable.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Government bonds measured at fair value | ||
Carrying value | 2,372 | 2,834 |
Amount payable on maturity | 2,113 | 2,446 |
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.
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 now reported at amortised cost (previously 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 generally 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 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By source |
||||
10 | 10 | Core Crown | 12 | 17 |
52 | 50 | Crown entities | 39 | 47 |
1,413 | 1,442 | State-owned enterprises | 1,403 | 1,456 |
(4) | (3) | Inter-segment eliminations | - | (5) |
1,471 | 1,499 | Total finance lease liabilities | 1,454 | 1,515 |
Undiscounted Minimum Lease Payments |
||||
No later than one year | 193 | 199 | ||
Later than one year and not later than five years | 774 | 766 | ||
Later than five years | 643 | 739 | ||
Total undiscounted minimum lease payments | 1,610 | 1,704 | ||
Present Value of Minimum Lease Payments | ||||
No later than one year | 172 | 170 | ||
Later than one year and not later than five years | 691 | 668 | ||
Later than five years | 591 | 678 | ||
Total present value of minimum lease payments | 1,454 | 1,516 | ||
Future finance charges | 156 | 188 |
Finance leases are mainly in relation to aircraft. 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 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
24,111 | 19,535 | Other borrowings measured at amortised cost | 21,534 | 22,465 |
6,733 | 8,035 | Other borrowings measured at fair value | 4,676 | 4,797 |
30,844 | 27,570 | Total other borrowings | 26,210 | 27,262 |
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 $21,458 million (2012: $22,344 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 measured 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, $4,115 million (2012: $6,560 million) is sovereign-issued debt administered by the Reserve Bank and NZDMO.
The remaining borrowings of $22,095 million (2012: $20,702 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 2013 $m |
30 June 2012 $m |
|
Other borrowings measured at fair value |
||
Carrying value | 4,676 | 4,797 |
Amount payable on maturity | 4,196 | 3,718 |
Fair value impact from changes in credit risk for the year | (42) | (9) |
Cumulative fair value impact from changes in credit risk | 165 | (146) |
Note 25: Insurance Liabilities#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By entity |
||||
30,651 | 30,767 | ACC liability | 29,446 | 30,648 |
5,210 | 7,114 | EQC property damage liability | 6,869 | 8,877 |
992 | 1,439 | Southern Response liability | 1,744 | 2,062 |
66 | 53 | Other insurance liabilities | 67 | 48 |
- | (456) | Inter-segment eliminations | (414) | (449) |
36,919 | 38,917 | Total insurance liabilities | 37,712 | 41,186 |
By component |
||||
Outstanding claims liability | 35,225 | 38,695 | ||
Unearned premium liability | 2,384 | 2,293 | ||
Unearned premium liability deficiency | 103 | 198 | ||
Other | - | - | ||
Total insurance liabilities | 37,712 | 41,186 | ||
By maturity |
||||
8,887 | 8,320 | Expected to be settled within one year | 10,103 | 8,850 |
28,032 | 30,597 | Expected to be outstanding for more than one year | 27,609 | 32,336 |
36,919 | 38,917 | Total insurance liabilities | 37,712 | 41,186 |
Assets arising from insurance obligations are: |
||||
Receivables for premiums | 2,917 | 2,898 | ||
Reinsurance claim recoveries | 3,135 | 5,003 |
Information on insurance expenses and underwriting results 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 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. There are no deferred acquisition costs (e.g. marketing costs) in respect of insurance obligations at the reporting date.
Analysis of insurance liabilities#
The remainder of the note provides a detailed analysis of the ACC, EQC and Southern Response 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 plus 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 no fault personal injury cover for all New Zealand citizens, residents and temporary visitors to New Zealand.
An independent actuarial estimate by PricewaterhouseCoopers, consulting actuaries, has been made of the future expenditure relating to accidents which occurred prior to balance date, whether or not the claims have been reported to, or accepted by, ACC. The PricewaterhouseCoopers actuarial report was signed by Mr Paul Rhodes Fellow of the Institute and Faculty of Actuaries (UK), and Mr Chris Latham, a Fellow of the Institute of Actuaries of Australia. Mr Rhodes and Mr Latham are also Fellows of the New Zealand Society of Actuaries.
The actuary is satisfied with the nature, sufficiency and accuracy of the data used to determine the outstanding claims liability.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
The ACC liability comprises: |
||
ACC outstanding claims liability | 27,162 | 28,396 |
ACC unearned premium liability | 2,242 | 2,183 |
ACC unearned premium liability deficiency | 42 | 69 |
Total ACC liability | 29,446 | 30,648 |
Analysis of Outstanding ACC Claims Liability |
||
Undiscounted outstanding claims liability | 74,809 | 73,151 |
Discount adjustment | (50,754) | (47,997) |
Risk margin | 3,107 | 3,242 |
Total outstanding ACC claims liability | 27,162 | 28,396 |
Discounted central estimate of future payments for outstanding claims | 22,384 | 23,497 |
Claims handling expenses | 1,671 | 1,657 |
Outstanding claims liability before risk margin | 24,055 | 25,154 |
Risk margin | 3,107 | 3,242 |
Total outstanding ACC claims liability | 27,162 | 28,396 |
Movement in Outstanding ACC Claims Liability |
||
Opening balance | 28,396 | 24,510 |
Claims incurred for the year | 3,421 | 3,234 |
Claims paid out in the year | (2,970) | (2,918) |
Discount rate unwind | 684 | 727 |
Experience adjustments (actuarial gains and losses): |
||
- actual and assumed claim experience | (1,195) | (1,933) |
- change in discount rate | (939) | 5,084 |
- change in inflation rate | (235) | (209) |
- change in other economic assumptions | - | - |
Other movements | - | (99) |
Closing outstanding ACC claims liability | 27,162 | 28,396 |
Movement in ACC Unearned Premium Liability |
||
Opening balance | 2,183 | 2,429 |
Earning of premiums previously deferred | (2,183) | (2,429) |
Deferral of premiums on current year contracts | 2,242 | 2,183 |
Other | - | - |
Closing ACC unearned premium liability | 2,242 | 2,183 |
Claims development historical analysis#
The following table shows the development of ACC's undiscounted claims cost estimates for the seven most recent accident years.
2007 $m |
2008 $m |
2009 $m |
2010 $m |
2011 $m |
2012 $m |
2013 $m |
2013 $m |
|
---|---|---|---|---|---|---|---|---|
Estimate of ultimate claims costs: |
||||||||
At the end of the accident year | 4,189 | 5,847 | 7,476 | 7,414 | 7,917 | 7,295 | 7,225 | |
One year later | 5,190 | 7,061 | 7,113 | 7,126 | 6,697 | 6,546 | ||
Two years later | 6,182 | 6,821 | 7,094 | 6,325 | 6,301 | |||
Three years later | 6,266 | 6,763 | 6,426 | 6,110 | ||||
Four years later | 6,552 | 6,088 | 5,965 | |||||
Five years later | 6,090 | 5,837 | ||||||
Six years later | 5,876 | |||||||
Current estimate of cumulative claim costs | 5,876 | 5,837 | 5,965 | 6,110 | 6,301 | 6,546 | 7,225 | 43,860 |
Cumulative payments | (2,014) | (2,137) | (2,039) | (1,735) | (1,633) | (1,553) | (1,157) | (12,268) |
Outstanding claims undiscounted | 3,862 | 3,700 | 3,926 | 4,375 | 4,668 | 4,993 | 6,068 | 31,592 |
Discount | (22,450) | |||||||
Claims handling costs | 1,883 | |||||||
2006 and prior claims (net present value) | 16,121 | |||||||
Short tail outstanding claims | 16 | |||||||
Total outstanding ACC claims liability | 27,162 |
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Analysis of ACC unearned premium liability deficiency |
||
Unearned premium liability | 2,242 | 2,183 |
Adjusted for unearned premium relating to residual claims and premium liabilities without deficiency | - | (339) |
Adjusted ACC unearned premium liability | 2,242 | 1,844 |
Discounted central estimate of payments for insured future claims | 1,997 | 1,636 |
Central estimate of discounted future reinsurance recoveries | - | - |
Risk margin | 287 | 277 |
Present value of expected cash flows for future accident claims | 2,284 | 1,913 |
Total ACC unearned premium liability deficiency | 42 | 69 |
In 2012, unearned premiums relating to residual claims were excluded from this calculation as they related to accidents that occurred prior to 1999. This approach was changed in 2013 to include these unearned premiums in the calculation as this is considered a better match for the liability, which also includes residual claims.
Note 25: Insurance Liabilities (continued)#
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 4.86% (2012: 4.52%) and a long term discount rate of 5.50% beyond 21 years (2012: 6.00% beyond 23 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) Rehabilitation Rate
Assumptions for rehabilitation rate were set with reference to past observed experience with allowance for expectations of the future that is 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 2013 |
30 June 2013 |
30 June 2012 |
30 June 2012 |
|
---|---|---|---|---|
Next Year |
Beyond Next Year |
Next Year |
Beyond Next Year |
|
Summary of assumptions |
||||
Average weighted term to settlement from reporting date | 15 years | 15 years | ||
11 months | 10 months | |||
Weighted average risk margin | 12.9% | 12.9% | ||
Probability of adequacy of liability | 75.0% | 75.0% | ||
Risk margin for liability adequacy test | 18.2% | 18.0% | ||
Probability of adequacy of liability to cover unearned premiums | 75.0% | 75.0% | ||
Risk-free discount rate1 | 2.7% | 3.1% to 5.5% | 2.4% | 2.5% to 6.0% |
Inflation rates (excluding superimposed inflation): | ||||
Weekly compensation | 3.0% | 3.3% to 3.5% | 3.0% | 3.3% to 3.5% |
Impairment benefits | 1.1% | 2.0% to 2.5% | 1.1% | 2.1% to 2.5% |
Social rehabilitation benefits (serious and non serious injury) | 2.2% | 2.5% to 2.7% | 2.2% | 2.5% to 2.7% |
Hospital rehabilitation benefits | 2.2% | 2.5% to 2.7% | 2.2% | 2.5% to 2.7% |
Medical costs | 2.2% | 2.5% to 2.7% | 2.2% | 2.5% to 2.7% |
Superimposed inflation: | ||||
Social rehabilitation benefits (serious injury) | 2.1% | 2.3% to 5.4% | 2.0% | 2.3% to 5.3% |
Social rehabilitation benefits (non-serious injury) | 0.0% | 2.0% to 3.8% | 3.3% | 2.0% to 3.3% |
Hospital rehabilitation benefits | 5.0% | 4.0% to 5.0% | 5.0% | 4.0% to 5.0% |
Medical costs (GP's) | 2.0% | 3.0% to 4.0% | 2.0% | 2.0% to 5.0% |
Medical costs (Radiology) | 4.3% | 5.0% to 5.8% | 4.3% | 4.3% to 6.5% |
Medical costs (Physiotherapists) | 1.7% | 2.0% to 2.3% | 1.7% | 1.7% to 2.3% |
Medical costs others (specialists) | 1.8% | 2.5% to 3.3% | 1.8% | 1.8% to 4.0% |
- The risk-free discount rate beyond 21 years is 5.5% (2012: the rate beyond 23 years was 6.0%).
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 2013 $m |
30 June 2012 $m |
||
Sensitivity of assumptions |
|||
Average weighted term to settlement from reporting date | +1 year | (820) | (855) |
-1 year | 846 | 882 | |
Risk-free discount rate | +1% | (3,628) | (3,792) |
-1% | 4,823 | 5,000 | |
Inflation rates (including superimposed inflation) | +1% | 4,966 | 5,131 |
-1% | (3,788) | (3,946) | |
Social rehabilitation benefits - superimposed inflation for non-serious injury claims | +1% | 1,028 | 1,055 |
-1% | (774) | (800) | |
Social rehabilitation benefits - superimposed inflation after four years for serious injury claims | +1% | 2,564 | 2,554 |
-1% | (1,875) | (1,883) |
Undiscounted outstanding claims liability#
The reported outstanding claims liability (before risk margin) of $24,055 million (2012: $25,154 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 2013. These estimated cash flows include the effects of assumed future inflation.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
No later than 1 year | 1,834 | 1,793 |
Later than 1 year and no later than 2 years | 1,364 | 1,366 |
Later than 2 years and no later than 5 years | 3,628 | 3,629 |
Later than 5 years and no later than 10 years | 5,769 | 5,745 |
Later than 10 years and no later than 15 years | 5,693 | 5,648 |
Later than 15 years and no later than 20 years | 5,767 | 5,695 |
Later than 20 years and no later than 25 years | 5,898 | 5,807 |
Later than 25 years and no later than 30 years | 5,981 | 5,893 |
Later than 30 years and no later than 35 years | 5,967 | 5,871 |
Later than 35 years and no later than 40 years | 5,829 | 5,738 |
Later than 40 years and no later than 45 years | 5,556 | 5,464 |
Later than 45 years and no later than 50 years | 5,142 | 5,042 |
Later than 50 years | 16,381 | 15,460 |
Undiscounted outstanding claims liability | 74,809 | 73,151 |
Note 25: Insurance Liabilities (continued)#
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.
The actuarial valuation report for 2013 was prepared by Craig Lough of Melville Jessup Weaver. Craig Lough is a Fellow of the New Zealand Society of Actuaries. Craig Lough considered that overall the information and data supplied to them was adequate and appropriate for the purposes of his valuation.
EQC recognises a liability in respect of outstanding claims and assesses the adequacy of its unearned premium liability. A risk margin is applied to a central estimate to increase to 85% the likelihood that claims will be settled within this amount.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
The EQC liability comprises: |
||
EQC outstanding claims liability | 6,666 | 8,638 |
EQC unearned premium liability | 142 | 110 |
EQC unearned premium liability deficiency | 61 | 129 |
Total EQC liability | 6,869 | 8,877 |
By type |
||
Property damage claims in relation to Canterbury earthquakes | 6,634 | 8,625 |
Other insurance liabilities | 235 | 252 |
Total EQC liability | 6,869 | 8,877 |
Analysis of Outstanding EQC Insurance Liability |
||
Undiscounted outstanding claims liability | 6,340 | 8,298 |
Discount adjustment | (125) | (270) |
Risk margin | 451 | 610 |
Total outstanding EQC insurance liability | 6,666 | 8,638 |
Discounted central estimate of future payments for outstanding claims | 5,754 | 7,456 |
Claims handling expenses | 461 | 572 |
Outstanding claims liability before risk margin | 6,215 | 8,028 |
Risk margin | 451 | 610 |
Total outstanding EQC insurance liability | 6,666 | 8,638 |
Movement in Outstanding EQC Insurance Liability |
||
Opening balance | 8,638 | 10,204 |
Net claims incurred/reassessed for the year - Canterbury earthquakes | (205) | 1,163 |
Claims incurred for the year - other | 38 | 30 |
Claims paid out in the year | (1,787) | (2,807) |
Other movements | (18) | 48 |
Closing outstanding EQC insurance liability | 6,666 | 8,638 |
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Movement in EQC Unearned Premium Liability |
||
Opening balance | 110 | 46 |
Earning of premiums previously deferred | (110) | (46) |
Deferral of premiums on current year contracts | 142 | 110 |
Other | - | - |
Closing EQC unearned premium liability | 142 | 110 |
Analysis of EQC unearned premium liability deficiency |
||
Unearned premium liability | 142 | 110 |
Discounted central estimate of payments for insured future claims | 221 | 264 |
Central estimate of discounted future reinsurance recoveries | (18) | (25) |
Risk margin | - | - |
Present value of expected cash flows for future claims | 203 | 239 |
Total EQC unearned premium liability deficiency | 61 | 129 |
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 and land claims due to a demand surge in the Canterbury construction industry. 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 (of reinsurance) incurred claims models. The risk margin is expressed as a percentage of the net (of reinsurance) discounted outstanding claims liability and is intended to achieve a 85% 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 2013 |
30 June 2012 |
|
---|---|---|
Summary of assumptions |
||
Weighted average term to settlement | 0.72 years | 1.3 years |
Claims inflation rate - base | 2.5% | 2.5% |
Claims inflation rate - demand surge | 3.6% to 7.0% | 2.9% to 6.9% |
Risk-free discount rate | 2.7% to 3.6% | 2.4% to 3.3% |
Weighted average risk margin - net (of reinsurance) claims | 11.3% | 14.3% |
Weighted average risk margin - gross outstanding claims | 7.3% | 7.6% |
Claims handling expense ratio | 7.2% | 7.7% |
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:
Change |
Impact on liability Actual |
||
---|---|---|---|
30 June 2013 $m |
30 June 2012 $m |
||
Sensitivity of assumptions | |||
Weighted average term to settlement | + 0.5 years | 30 | 14 |
- 0.5 years | (18) | (35) | |
Claims inflation rate | +1% | 19 | 75 |
-1% | (43) | (75) | |
Risk-free discount rate | +1% | (33) | (75) |
-1% | 33 | 76 | |
Risk margin | +1% | 40 | 43 |
-1% | (40) | (43) | |
Claims handling expense ratio | +1% | 35 | 67 |
-1% | (34) | (78) |
Analysis of Southern Response liability#
Southern Response Earthquake Services Limited (Southern Response) holds Canterbury earthquake related claims.
Colin Brigstock and Ashish Ahluwalia of Finity Consulting Pty Limited (the Appointed Actuary) have prepared the independent actuarial estimate of the Southern Response claims liability as at 30 June 2013. Mr Brigstock and Mr Ahluwalia are Fellows of the Institute of Actuaries of Australia and the New Zealand Society of Actuaries.
The actuary is satisfied with the nature, sufficiency and accuracy of the data used to determine the outstanding claims liability.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
The Southern Response liability comprises: |
||
Southern Response outstanding claims liability | 1,744 | 2,062 |
Southern Response unearned premium liability | - | - |
Southern Response unearned premium liability deficiency | - | - |
Total Southern Response liability | 1,744 | 2,062 |
By type |
||
Property damage claims in relation to Canterbury earthquakes | 1,744 | 2,062 |
Other insurance liabilities | - | - |
Total Southern Response liability | 1,744 | 2,062 |
Analysis of Outstanding Southern Response Claims Liability |
||
Undiscounted outstanding claims liability | 1,659 | 1,874 |
Discount adjustment | (65) | (56) |
Risk margin | 150 | 244 |
Total outstanding Southern Response claims liability | 1,744 | 2,062 |
Expected future claims payments - central estimate | 1,521 | 1,729 |
Claims handling expenses | 72 | 89 |
Outstanding claims liability before risk margin | 1,593 | 1,818 |
Risk margin | 151 | 244 |
Total outstanding Southern Response claims liability | 1,744 | 2,062 |
Movement in Outstanding Southern Response Claims Liability |
||
Opening balance | 2,062 | 1,985 |
Claims liability sold through business combination | - | (189) |
Net claims incurred/reassessed for the year - Canterbury earthquakes | (22) | 449 |
Claims incurred for the year - other (discontinued operations) | - | 143 |
Claims paid out in the year | (296) | (326) |
Other movements | - | - |
Closing outstanding Southern Response claims liability | 1,744 | 2,062 |
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. An 8.6% inflation assumption (2012: 8.0%) 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 is expressed as a percentage of the gross (of reinsurance) discounted outstanding claims liability and intended to achieve a 75% probability of adequacy for the outstanding claims. There continues to be uncertainty attaching to many elements of the likely ultimate cost of the Company's earthquake related outstanding claim liabilities. In particular, there remains uncertainty around the ultimate cost of enhanced foundations for properties with damaged land and the level of future escalation on building costs.
However, relative to 30 June 2012, for a number of areas the uncertainties have now reduced. In light of this, the risk margin has been reduced to 10.0% (14.2% in 2012).
30 June 2013 |
30 June 2012 |
|
---|---|---|
Summary of assumptions |
||
Average weighted term to settlement from reporting date | ||
Earthquake related claims | 1.8 years | 1.8 years |
Inflation | ||
Building costs | 8.6% | 8.0% |
Other cover types | 3.0% | 3.0% |
Risk-free discount rate | 2.9% | 2.2% to 3.0% |
Weighted average risk margin - gross outstanding claims | 10.0% | 14.2% |
Probability of adequacy of liability | 75.0% | 75.0% |
Sensitivity Analysis#
The value of the Southern Response 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 Southern Response claims liability as per the table below:
Change |
Impact on liability Actual |
||
---|---|---|---|
30 June 2013 $m |
30 June 2012 $m |
||
Sensitivity of assumptions |
|||
Inflation | +1% | 29 | 23 |
-1% | (28) | (23) | |
Risk-free discount rate | +1% | (19) | (19) |
-1% | 19 | 20 | |
Weighted average risk margin | +1% | 15 | 17 |
-1% | (15) | (17) |
Note 26: Retirement Plan Liabilities#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
11,478 | 12,228 | Government Superannuation Fund (GSF) | 11,908 | 13,539 |
3 | (1) | Other funds | (5) | - |
11,481 | 12,227 | Total retirement plan liabilities | 11,903 | 13,539 |
By source |
||||
11,479 | 12,236 | Core Crown | 11,915 | 13,548 |
1 | 2 | Crown entities | 1 | 2 |
- | (10) | State-owned enterprises | (13) | (10) |
1 | (1) | Inter-segment eliminations | - | (1) |
11,481 | 12,227 | Total retirement plan liabilities | 11,903 | 13,539 |
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 GSF's actuary as at 30 June 2013. 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 2013 $m |
30 June 2012 $m |
|
Net GSF Obligation |
||
Present value of defined benefit obligation | 15,290 | 16,557 |
Fair value of plan assets | (3,382) | (3,018) |
Present value of unfunded defined benefit obligation | 11,908 | 13,539 |
Present value of defined benefit obligation |
||
Opening defined benefit obligation | 16,557 | 13,311 |
Expected current service cost | 112 | 92 |
Expected unwind of discount rate | 394 | 367 |
Actuarial losses/(gains) | (920) | 3,686 |
Benefits paid | (853) | (897) |
Other | - | (2) |
Closing defined benefit obligation | 15,290 | 16,557 |
Fair value of plan assets |
||
Opening fair value of plan assets | 3,018 | 3,159 |
Expected return on plan assets | 162 | 194 |
Actuarial gains/(losses) | 331 | (210) |
Funding of benefits paid by Government | 658 | 699 |
Contributions from other entities | 19 | 23 |
Contributions from members | 47 | 50 |
Benefits paid | (853) | (897) |
Other | - | - |
Closing fair value of plan assets | 3,382 | 3,018 |
Amounts recognised in the statement of financial performance in respect of GSF are as follows:
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Personnel Expenses |
||||
Expected current service cost | 112 | 92 | ||
Expected unwind of discount rate on GSF obligation | 394 | 367 | ||
Expected return on plan assets | (162) | (194) | ||
Contributions from members and funding employers | (66) | (73) | ||
Past service cost | - | - | ||
329 | 278 | Total included in personnel expenses | 278 | 192 |
Net (Gains)/Losses on Non-Financial Instruments |
||||
- | (918) | Actuarial (gains)/losses recognised in the year | (1,251) | 3,896 |
329 | (640) | Total GSF expense | (973) | 4,088 |
The Government expects to make a contribution of $750 million to GSF in the year ending 30 June 2014.
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 2013 % |
30 June 2012 % |
|
Summary of assumptions |
||
For following year |
||
Discount rate | 2.7% | 2.4% |
Expected return on plan assets | 5.5% | 6.3% |
Expected rate of salary increases | 3.0% | 3.0% |
Expected rate of inflation | 1.9% | 2.1% |
Beyond next year |
||
Discount rates between 2 and 22 years | 3.1% to 5.5% | 2.5% to 5.9% |
Discount rate from 23 years onwards | 5.5% | 6.0% |
Expected return on plan assets | 5.5% | 6.3% |
Expected rate of salary increases | 3.0% | 3.0% |
Expected rate of inflation for 2 years | 2.3% | 2.4% |
Expected rate of inflation from 2 to 4 years | 2.4% | 2.5% |
Expected rate of inflation from 4 years onwards | 2.5% | 2.5% |
The defined benefit obligation decreased in the year to 30 June 2013 by $1,267 million, mainly due to an increase in the short and medium term discount rates (up to 18 years) partially offset by a reduction in the long-term discount rate from 6% to 5.5%.
The major categories of GSF plan assets at 30 June are as follows:
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Equity instruments | 1,944 | 1,441 |
Other debt instruments | 569 | 690 |
Cash and short term investments | 215 | 139 |
Property | 14 | 137 |
Other | 640 | 611 |
Fair value of plan assets | 3,382 | 3,018 |
The expected rate of return on the plan assets of 5.50% (2012: 6.25%) 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 2013 was 16.71%, or $493 million (2012: -0.54% or-$16 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 2013 $m |
30 June 2012 $m |
||
Sensitivity of assumptions |
|||
Discount rate | + 1% | (1,587) | (1,785) |
- 1% | 1,927 | 2,175 |
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 | Impact on net worth | |||
---|---|---|---|---|
Actual | Actual | |||
Change in share prices |
30 June 2013 $m |
30 June 2012 $m |
30 June 2013 $m |
30 June 2012 $m |
Strengthen/weaken by 10% | 194 | 144 | 194 | 144 |
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 2013 $m |
30 June 2012 $m |
30 June 2011 $m |
30 June 2010 $m |
30 June 2009 $m |
|
Present value of defined benefit obligation | 15,290 | 16,557 | 13,311 | 12,881 | 11,792 |
Fair value of plan assets | (3,382) | (3,018) | (3,159) | (2,945) | (2,804) |
Present value of unfunded defined benefit obligation | 11,908 | 13,539 | 10,152 | 9,936 | 8,988 |
Experience adjustment - increase/(decrease) in plan assets | 331 | (210) | 159 | 117 | (806) |
Less experience adjustment - increase/(decrease) in plan liabilities | (90) | 28 | 388 | 286 | 79 |
Total experience adjustments - (losses)/gains | 421 | (238) | (229) | (169) | (885) |
Changes in actuarial assumptions | 830 | (3,658) | (345) | (1,062) | 190 |
Actuarial (losses)/gains recognised in the year | 1,251 | (3,896) | (574) | (1,231) | (695) |
Undiscounted defined benefit obligation#
The reported GSF defined benefit obligation of $15,290 million (2012: $16,557 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 2013. These estimated cash flows include the effects of assumed future inflation.
30 June 2013 $m |
30 June 2012 $m |
|
---|---|---|
No later than 1 year | 922 | 913 |
Later than 1 year and no later than 2 years | 915 | 910 |
Later than 2 years and no later than 5 years | 2,819 | 2,818 |
Later than 5 years and no later than 10 years | 4,863 | 4,900 |
Later than 10 years and no later than 15 years | 4,811 | 4,908 |
Later than 15 years and no later than 20 years | 4,490 | 4,634 |
Later than 20 years and no later than 25 years | 3,928 | 4,119 |
Later than 25 years and no later than 30 years | 3,188 | 3,396 |
Later than 30 years and no later than 35 years | 2,383 | 2,587 |
Later than 35 years and no later than 40 years | 1,619 | 1,799 |
Later than 40 years and no later than 45 years | 992 | 1,132 |
Later than 45 years and no later than 50 years | 534 | 631 |
Later than 50 years | 349 | 440 |
Undiscounted defined benefit obligation | 31,813 | 33,187 |
Note 27: Provisions#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
By type |
||||
3,133 | 3,286 | Provision for employee entitlements | 3,374 | 3,253 |
815 | 1 | Provision for ETS credits | 179 | 375 |
843 | 1,033 | Provision for National Provident Fund guarantee | 977 | 1,076 |
- | 462 | Provision for Canterbury Red Zone support package | 222 | 745 |
- | 1,350 | Provision for Infrastructure costs | 769 | 530 |
306 | 71 | Provision for weathertight services financial assistance package | 123 | 189 |
1,769 | 1,131 | Other provisions | 1,494 | 1,338 |
6,866 | 7,334 | Total provisions | 7,138 | 7,506 |
By source |
||||
4,529 | 4,903 | Core Crown | 4,492 | 4,965 |
1,814 | 1,884 | Crown entities | 1,979 | 1,899 |
925 | 986 | State-owned enterprises | 1,151 | 1,103 |
(402) | (439) | Inter-segment eliminations | (484) | (461) |
6,866 | 7,334 | Total provisions | 7,138 | 7,506 |
By maturity |
||||
3,784 | 3,088 | Expected to be settled within one year | 3,355 | 3,368 |
3,082 | 4,246 | Expected to be outstanding for more than one year | 3,783 | 4,138 |
6,866 | 7,334 | Total provisions | 7,138 | 7,506 |
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Provision for employee entitlements | ||
Opening provision | 3,253 | 3,050 |
Additional provisions recognised | 1,714 | 1,799 |
Provision used during the period | (1,469) | (1,518) |
Reversal of previous provision | (122) | (71) |
Unwind of discount rate | (2) | (7) |
Closing provision | 3,374 | 3,253 |
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 rising from 2.0% next year to 5.5% in later years.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Provision for ETS credits |
||
Opening provision | 375 | 612 |
New provision recognised during the period (ETS expenses) | 55 | 334 |
Provision used during the period (ETS revenue) | (16) | (64) |
(Gains)/losses on NZ Units | (235) | (507) |
Closing provision | 179 | 375 |
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.
The carbon price used to calculate the ETS provision is $NZ1.80 (30 June 2012: €3.62 or $NZ5.73).
The carbon price has been determined by the Ministry for the Environment based on the lower of the quoted NZU spot price at 30 June, and the monthly average NZU spot price as published by Point Carbon. The price methodology will continue to be reviewed as the market for NZ Units develops.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Provision for National Provident Fund guarantee |
||
Opening provision | 1,076 | 983 |
Additional provisions recognised | - | - |
Provision used during the period | (73) | (74) |
Reversal of previous provision | (16) | (12) |
Unwind of discount rate and effect of changes in discount rate | (10) | 179 |
Closing provision | 977 | 1,076 |
The Government has guaranteed superannuation schemes managed by the National Provident Fund (NPF) Included in the provision is the NPF's DBP Annuitants Scheme unfunded liability position of $977 million (2012: $1,076 million), represented by a gross estimated pension obligation of $1,011 million (2012: $1,115 million) with net investment assets valued at $34 million (2012: $39 million).
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Provision for Canterbury Red Zone support package |
||
Opening provision | 745 | 1,039 |
Additional provisions recognised | 37 | 614 |
Provision used during the period | (500) | (816) |
Reversal of previous provision | (66) | (98) |
Unwind of discount rate and effect of changes in discount rate | 6 | 6 |
Closing provision | 222 | 745 |
Net provision |
||
Provision for Red Zone properties | 222 | 745 |
Estimated insurance proceeds from Red Zone Properties | (517) | (565) |
Net (recoverable)/provision for Red Zone properties | (295) | 180 |
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 2013. The actuary is satisfied with the nature, sufficiency and accuracy of the data used to determine these valuations.
The majority of property owners within the red zone have settled prior to 30 June 2013, so the remaining provision represents:
- the estimated value of settlements that have been agreed but not yet paid; and
- the estimated value where the offer has not been accepted and therefore an estimate is required.
Note 27: Provisions (continued)#
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Provision for Water Infrastructure costs |
||
Opening provision | 530 | - |
Additional provisions recognised | 437 | 554 |
Provision used during the period | (156) | (24) |
Reversal of previous provision | - | - |
Unwind of discount rate and effect of changes in discount rate | (42) | - |
Closing provision | 769 | 530 |
The provision represents the Crown's contribution for recovery costs relating to essential three waters infrastructure (waste water, storm water and fresh water) and river management systems. The provision includes recovery costs for Christchurch City Council (CCC), Waimakariri District Council, Selwyn District Council and Environment Canterbury.
The provision has been estimated based on information provided by the Councils. For the Waimakariri District Council, Selwyn District Council and Environment Canterbury the costs are based on estimates of the work programmes provided by these Councils.
In the case of CCC, the Crown has entered into a cost sharing agreement which provides for an active management regime to be implemented and a comprehensive independent assessment (by December 2014) of the work programme to ensure service and rebuild standards are met. This assessment may result in changes to the overall estimate of the cost of the infrastructure rebuild.
The Crown is continuing to work through a process to validate claims and to agree the timing of payments to all councils for these costs. A discount rate of 3.6% has been used to determine the present value of the cash flows over the next three years.
The key risks to the estimate are that the damages to the infrastructure may be more substantial than currently estimated and work scheduling may lead to extended repair timeframes which could result in costs in addition to those covered by the cost sharing agreement.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Provision for weathertight services financial assistance package |
||
Opening provision | 189 | 567 |
Additional provisions recognised | - | 30 |
Provision used during the period | (7) | - |
Reversal of previous provision | (60) | (408) |
Unwind of discount rate and effect of changes in discount rate | 1 | - |
Closing provision | 123 | 189 |
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 (FAP).
Melville Jessup Weaver has prepared an independent actuarial valuation of the obligation as at 30 June 2013.
The provision assumes that the package will be taken up for 2,619 (2012: 3,544) dwellings.
Actual | ||
---|---|---|
30 June 2013 $m |
30 June 2012 $m |
|
Other provisions |
||
Opening provision | 1,338 | 1,335 |
Additional provisions recognised | 446 | 307 |
Provision used during the period | (245) | (286) |
Reversal of previous provision | (38) | (42) |
Unwind of discount rate and effect of changes in discount rate | (7) | 24 |
Closing provision | 1,494 | 1,338 |
Note 28: Net Worth#
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
2,144 | 5,601 | Taxpayer funds | 10,862 | 3,520 |
62,550 | 55,965 | Property, plant and equipment revaluation reserve | 57,068 | 56,001 |
79 | 76 | Investment revaluation reserve | 107 | 71 |
(279) | (121) | Cash flow hedge reserve | 58 | (195) |
66 | (45) | Foreign currency translation reserve | (49) | (49) |
- | 40 | Share based payment reserve | 25 | - |
1,648 | 1,794 | Net worth attributable to minority interests | 1,940 | 432 |
66,208 | 63,310 | Total net worth | 70,011 | 59,780 |
Taxpayer Funds |
||||
7,573 | 3,520 | Opening taxpayers funds | 3,520 | 18,188 |
(5,699) | 1,918 | Operating balance excluding minority interests | 6,925 | (14,897) |
200 | 175 | Gain on Government share offers in SOEs | 167 | - |
69 | 7 | Transfers from/(to) property, plant and equipment revaluation reserve | 268 | 228 |
1 | (19) | Other movements | (18) | 1 |
2,144 | 5,601 | Closing taxpayer funds | 10,862 | 3,520 |
Property, Plant and Equipment Revaluation Reserve |
||||
62,618 | 56,001 | Opening revaluation reserve | 56,001 | 62,690 |
- | (29) | Net revaluations | 1,335 | (6,461) |
(68) | (7) | Transfers from/(to) taxpayer funds | (268) | (228) |
62,550 | 55,965 | Closing revaluation reserve | 57,068 | 56,001 |
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 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Investment Revaluation Reserve |
||||
69 | 71 | Opening investment revaluation reserve | 71 | 58 |
10 | 4 | Increase arising on revaluation of available-for-sale financial assets | 39 | 12 |
- | 1 | Cumulative (gain)/loss transferred to the statement of financial performance on sale of available-for-sale financial assets | (3) | 1 |
79 | 76 | Closing investment revaluation reserve | 107 | 71 |
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 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Cash Flow Hedge Reserve |
||||
(276) | (195) | Opening cash flow hedge reserve | (195) | (310) |
(3) | 74 | Transfer into reserve | 278 | 80 |
- | (5) | Transfer to the statement of financial performance | (7) | 54 |
- | 5 | Transfer to initial carrying value of hedged item | (18) | (19) |
(279) | (121) | Closing cash flow hedge reserve | 58 | (195) |
The cash flow hedge reserve reports gains and losses in the value of derivatives entered into to reduce volatility in future cash flows. These gains and losses will either be used to adjust the cash flows as they occur, impacting either on the statement of financial performance if the cash flows relate to revenue or expenses, or the statement of financial position if the cash flows relate to assets or liabilities.
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Foreign currency translation reserve |
||||
11 | (49) | Opening foreign currency translation reserve | (49) | (47) |
55 | 4 | Arising from translation of foreign operations | - | (2) |
66 | (45) | Closing foreign currency translation reserve | (49) | (49) |
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 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Share based payment reserve | ||||
- | - | Opening share based payment reserve | - | - |
- | 40 | Partial share sales | 25 | - |
- | - | Lapses/Forfeitures | - | - |
- | - | Other movements | - | - |
- | 40 | Closing share based payment reserve | 25 | - |
New Zealand retail investors in the Mighty River Power share offer will receive one loyalty bonus share for every 25 shares they hold for two years from the offer, up to a maximum of 200 bonus shares. Lapses/Forfeitures relate to shareholders who were eligible to receive bonus shares having forfeited this right by selling the shares before the two year period has expired.
Forecast 30 June 2013 |
Actual | |||
---|---|---|---|---|
Budget 12 $m |
Budget 13 $m |
30 June 2013 $m |
30 June 2012 $m |
|
Net Worth Attributable to Minority Interests |
||||
308 | 432 | Opening minority interest | 432 | 308 |
90 | 10 | Operating balance attributable to minority interests | 94 | 56 |
1,300 | 1,325 | Increase in minority interest from Government share offers (refer to note 35) | 1,371 | - |
(50) | 27 | Transactions with minority interests | (16) | 40 |
Movement in reserves attributable to minority interests | 59 | - | ||
- | - | Other movements | - | 28 |
1,648 | 1,794 | Closing minority interest | 1,940 | 432 |
Consisting of interests in: |
||||
Mighty River Power | 1,431 | - | ||
Air New Zealand | 468 | 399 | ||
Crown Fibre Holdings Limited subsidiaries | 41 | 33 | ||
Other | - | - | ||
Closing minority interest | 1,940 | 432 | ||
Minority share of OBEGAL: |
||||
Mighty River Power | 4 | - | ||
Air New Zealand | 67 | - | ||
Crown Fibre Holdings Limited subsidiaries | (9) | - | ||
Other | - | - | ||
OBEGAL attributable to minority interests | 62 | - | ||
Minority share of gains and losses |
||||
Mighty River Power | 6 | - | ||
Air New Zealand | 26 | 56 | ||
Crown Fibre Holdings Limited subsidiaries | - | - | ||
Other | - | - | ||
Gains and losses attributable to minority interests | 32 | 56 | ||
Operating Balance attributable to minority interests | 94 | 56 |
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 New Zealand Superannuation Fund.
Further information on the Government's fiscal strategy can be found in the Fiscal Strategy Report published with the Government's budget.
Note that the Public Finance (Fiscal Responsibility) Amendment Act 2013 was enacted on 3 September 2013. The amendment Act introduces three new principles of responsible fiscal management:
- when formulating fiscal strategy, having regard to its interaction with the interaction between fiscal policy and monetary policy;
- when formulating fiscal strategy, having regard to its likely impact on present and future generations, and
- ensuring that the Crown's resources are managed effectively and efficiently.
The Act also amends the wording of the current principle relating to the tax system.
These new and amended principles of responsible fiscal management will apply to the Government's fiscal strategy as set out in its 2014 Fiscal Strategy Report.
The Government's fiscal strategy can be expressed through its long term objectives and short term intentions for fiscal policy.
Long Term Fiscal Intentions - Fiscal Strategy Report 2013[10]#
Debt
Manage 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 shocks.
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 per cent of GDP, and is then brought back to a level no higher than 20 per cent of GDP by 2020. We will work towards achieving this earlier as conditions permit.
Operating balance
Return 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 expenses
To meet the operating balance objective, the Government will control the growth in government spending so that, over time, core Crown expenses are reduced to below 30 per cent of GDP.
Operating revenues
Ensure sufficient operating revenue to meet the operating balance objective.
Net worth
Ensure net worth remains at a level sufficient to act as a buffer to economic shocks. Consistent with the debt and operating balance objectives, we will start building up net worth ahead of the full fiscal impact of the demographic change expected in the mid-2020s.
Fiscal Strategy Report 2012 | Fiscal Strategy Report 2013 | Fiscal Position 2013[11] |
---|---|---|
Debt Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 35.1% of GDP in 2015/16. Core Crown net debt (excluding NZS Fund and advances) is forecast to be 27.7% in 2015/16. |
Debt Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) is forecast to be 38.8 per cent of GDP in 2016/17. Net core Crown debt (excluding NZS Fund and advances) is forecast to be 27.3 per cent of GDP in 2016/17. |
Debt Gross sovereign-issued debt (including Reserve Bank settlement cash and Reserve Bank bills) at 30 June 2013 was 39.6% of GDP (2012: 40.4%). Core Crown net debt (excluding NZS Fund and advances) at 30 June 2013 was 26.3% of GDP (2012: 24.3%). |
Operating balance Based on the operating allowance for the 2012 Budget, the operating balance (before gains and losses) is forecast to be -3.6% of GDP in 2012/13. The operating balance (before gains and losses) is forecast to be 0.1% of GDP in 2014/15. This is consistent with the long-term objective for the operating balance. The operating b |