New Zealand’s financial position looks stronger than expected

But the impact of Covid-19 still visible says the Treasury

Struan Little, Deputy Chief Executive, The Treasury (Photo for Stuff by Penny Towns)

Staff Reporter
Auckland, February 18, 2021

The Operating Balance Before Gains and Losses (OBEGAL) of the Crown showed a deficit of $4 billon as at the end of December 31, 2021, a position that is stronger than forecast earlier in the year, according to the figures for Half Year Economic and Fiscal Update (HYEFU) released today.

Treasury Deputy Chief Executive Struan Little said that the net core Crown Debt stood at $104.5 billion, accounting for 32.6% of the Gross Domestic Product (GDP).

The GDP for the year ended September 30, 2020 now stands at $320,746 million, according to Statistics New Zealand.

Mr Little said that favourable variances against forecast have a positive sign and unfavourable variances against forecast have a negative sign.

“Net core Crown debt excluding student loans and other advances. Net debt may fluctuate during the year largely reflecting the timing of tax receipts. Gross sovereign-issued debt excluding settlement cash and Reserve Bank bills,” he said.

Tax Revenue rises

The Core Crown tax revenue was $45.3 billion, $0.8 billion above the HYEFU forecast. This was largely due to GST revenue ($0.6 billion or 5.5% above forecast) owing to the continued strength of domestic spending. Source deductions revenue was also above forecast, by $0.5 billion or 2.6%, owing to a change in the revenue recognition point for PAYE (as returns are received earlier) along with stronger than expected labour market data as employment and average hourly earnings were higher than forecast.

Mr Little said this was partially offset by customs and excise duties being $0.4 billion (11.3%) below forecast driven by lower demand for tobacco products which resulted tobacco duty being $0.4 billion (32.3%) lower than forecast.

Core Crown Expenses fall

Core Crown expenses at $52.3 billion were $0.4 billion below the forecast. The variance was mainly due to social security and welfare, which was $0.3 billion lower than forecast along with education spending which was $0.2 billion below forecast.

OBEGAL was a deficit of $4.0 billion, $1.1 billion better than the deficit forecast, mainly owing to the core Crown results discussed above.

Operating Balance Surplus

When total gains and losses are added to the OBEGAL result, the operating balance (excluding minority interests) was a surplus of $3.2 billion and was greater than forecast by $11.9 billion. The volatility in this variance reflects movements in external factors such as market conditions, discount rates and CPI inflation assumptions).

The key drivers of the net gains and losses were as follows:

Net gains on financial instruments: $4.8 billion higher than forecast primarily as a result of returns on the Crown’s investment portfolios (New Zealand Superannuation Fund and ACC), as current market returns are higher than those forecast (which used the lower long run rate of return assumptions).

Net gains on non-financial instruments: $5.9 billion higher than forecast primarily as a result of the ACC insurance liability revaluation being $6.3 billion better than forecast. This largely reflects changes in discount rates and CPI assumptions, which are used to value future claims cash flows into present value dollars.

The impact of the inflation and discount rate movements are significant due to the long-term nature of this liability, stretching out over 50 years.

Core Crown residual cash was a deficit of $17.6 billion, $1.7 billion lower than the deficit forecast mainly due to the cashflow impacts of the core Crown operating results.

Net core Crown debt was $104.5 billion (32.6% of GDP) at the end of December 2020, $1.5 billion less than forecast mainly owing to the core Crown residual cash variance of $1.7 billion partially offset by changes in the valuations of financial assets and liabilities.

Net worth attributable to the Crown at $112.6 billion, was $11.6 billion (11.5%) higher than forecast, which primarily reflects the favourable operating balance discussed earlier.

The above Report has been sponsored by

Booking.com

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