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Statement of Responsibility
On the basis of the economic and fiscal information available to it, the Treasury has used
its best professional judgement in supplying the Minister of Finance with this Economic
and Fiscal Update. The Update incorporates the fiscal and economic implications both of
Government decisions and other circumstances as at 3 December 2013 that were
communicated to me by the Minister of Finance in accordance with the requirements of
the Public Finance Act 1989 and of other economic and fiscal information available to the
Treasury as at 3 December 2013. This Update does not incorporate any decisions,
circumstances, or statements that the Minister of Finance has determined, in accordance
with the Public Finance Act 1989, should not be incorporated in this Update.
Gabriel Makhlouf
Secretary to the Treasury
9 December 2013
To enable the Treasury to prepare this Economic and Fiscal Update I have ensured the
Secretary to the Treasury has been advised, in accordance with the requirements of the
Public Finance Act 1989, of all Government decisions and other circumstances as at
3 December 2013 of which I was aware and that had material economic or fiscal
implications.
I accept responsibility for the integrity of the disclosures contained in the Update and
responsibility for the consistency and completeness of the Update information with the
requirements of Fiscal Responsibility in the Public Finance Act 1989.
Hon Bill English
Minister of Finance
9 December 2013
B.6 | 1
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Executive Summary
 The economic expansion is becoming increasingly embedded, with growth becoming
more broad-based although still dominated by domestic demand.
 Growth in the second half of 2013 appears to have been stronger than expected at
Budget time with real gross domestic product (GDP) estimated to be growing at around
a 3% annualised pace. Real GDP growth is expected to be 3.6% in the 2015 March
year, but eases to around 2% in
Figure 1 – Real GDP and private final demand*
the last two years of the forecast
Annual average % change
10
period. Over the five years to
Forecast
8
March 2018, real GDP growth
6
averages 2.6%, a little above the
4
Treasury’s estimate of potential
growth over this period.
2
0
 A stronger economy sees the
-2
underlying fiscal position improve
-4
faster than in the Budget Update,
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Years ended 31 March
although developments outside the
Private final demand
Real GDP
core Crown see the overall total
Sources: Statistics New Zealand, the Treasury
Crown operating balance before
*Private final demand comprises private consumption,
gains and losses (OBEGAL) being
residential and market investment spending
little changed this year and next.
OBEGAL is forecast to move from
a deficit of $4.4 billion last year to a small surplus of $0.1 billion in the year ending June
2015, and to $5.6 billion in the year ending June 2018.
 Government net core Crown debt peaks a year earlier and at a lower level than
previously forecast at $64.5 billion in the year ending June 2016.
 The main influences on the outlook for the economy are broadly similar to those in the
Budget Update.
 The Canterbury rebuild remains a key driver of demand, along with a high terms of
trade and strengthening labour market conditions supporting income growth and
associated household and firm spending. Credit growth is increasing but overall
remains moderate.
 Higher-than-expected net migration and household wealth inflows are also contributing
to near term demand, as are stimulatory monetary policy settings, although all are
forecast to diminish in importance over the forecast period. Private spending growth is
forecast to accelerate to over 5% in the year ahead.
 The Half Year Update sees a continuation of low government spending growth. This,
together with some recovery in effective tax rates sees fiscal policy exerting a
restraining influence on demand and interest rates, notwithstanding planned reductions
in Accident Compensation Corporation (ACC) levies in the June 2015 and 2016 years.
 The global backdrop for these forecasts is for steady, but uneven, economic growth
with the possibility of further economic and financial market turbulence. It is likely to be
some time yet before the major advanced economies begin to “normalise” monetary
and fiscal conditions, contributing to an elevated New Zealand dollar in the meantime.
2 | B.6
 EXECUTIVE SUMMARY 
 The exchange rate is assumed to remain high for much of the forecast period, acting
as a drag on export and import-competing sectors but spreading the income gains from
the high terms of trade to the broader economy. Growth in imports, partly associated
with strong investment growth, means net exports make a negative contribution to GDP
growth over the first three years of the forecast period.
 In sum, the economy is expected to be operating at, or above capacity over most of the
forecast period, leading to some increase in price pressures and the current account
deficit. The unemployment rate is forecast to decline to below 5%, annual Consumers
Price Index (CPI) inflation to move back to around the middle of the 1% to 3% target
band and the current account deficit to increase to around 6.5% of GDP.
 Higher inflation will lead to an eventual withdrawal of macroeconomic stimulus. Short-term
interest rates are expected to begin increasing next year and to rise gradually thereafter.
 Fiscal policy restraint and the high exchange rate imply interest rates are lower than
otherwise would be the case. The recent application of macro prudential tools also assists
monetary policy over the short term. In the absence of these downward forces, the size of
the Canterbury rebuild would likely force interest rates to rise earlier and by more.
 The estimated size of the
Christchurch rebuild is unchanged
from the Budget Update at
$40 billion, although the precise
timing of activity remains a key
uncertainty. The Government’s
fiscal costs are currently assessed
to be $14.9 billion.
Figure 2 – OBEGAL, core Crown residual cash
and core Crown net debt
$billions
80
$billions
15
Forecast
10
70
5
60
0
50
-5
40
-10
30
 Core Crown operating cash flows
-20
also return to surplus in the year
-25
ending June 2015, but when
2000
2002
2004
2006
2008
2010
2012
Years ended 30 June
combined with net capital
Core Crown residual cash
OBEGAL
spending, core Crown residual
cash does not return to surplus
Source: The Treasury
until the year ending June 2017
(both a year earlier than in the Budget Update).
-15
20
10
0
2014
2016
2018
Net debt (RHS)
 There is a mix of upside and downside risks, including the size and pace of the
Canterbury rebuild, the extent of the turnaround in net migration currently underway,
the path of the terms of trade, the path and pass-through of the exchange rate and the
saving behaviour of households, particularly in light of current house price increases.
 Global risks, although more even than in recent years, remain skewed to the downside,
which if crystallised, would act to accentuate the domestic orientation of forecast growth.
 We see a risk of a more cyclical path for the economy, with stronger domestic demand
driven growth in the short to medium term, necessitating a stronger macro policy
response and eventual slowing in growth.
 The Half Year Update contains two alternative scenarios to illustrate some of the risks
to the main forecasts. One scenario maps out a more pronounced domestic demand
driven cycle while the other shows the impact of weaker Asian trading partner growth.
B.6 | 3
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
 In addition to the fiscal impact of changes to economic activity, the Government is
exposed to other fiscal risks. For example, the Crown’s financial position is susceptible
to market risk with regards to movements in market variables such as interest rates,
exchange rates and equity prices. There are also a number of contingent liabilities and
fiscal risks outlined in the Specific Fiscal Risk chapter.
Table 1 – Summary of the Treasury’s main economic and fiscal forecasts
2013
Actual
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Economic growth1
2.7
2.7
3.6
2.7
2.0
2.2
Unemployment rate2
6.2
5.8
5.6
5.4
5.2
4.7
0.9
1.4
2.4
2.4
2.3
2.2
-4.5
-4.2
-5.5
-6.3
-6.5
-6.4
Total Crown OBEGAL5
-2.1
-1.0
0.0
0.7
1.2
2.1
Net debt6
26.2
26.3
26.5
25.8
24.4
22.3
Economic (March years, %)
CPI
inflation3
Current account
balance4
Fiscal (June years, % of
GDP)
Notes:
1
2
3
4
5
6
Real production GDP, annual average percentage change
Percent of labour force, March quarter, seasonally adjusted
Annual percentage change
% of GDP
Total Crown operating balance before gains and losses (OBEGAL)
Net core Crown debt excluding the New Zealand Superannuation Fund (NZS Fund) and
advances
Sources: Statistics New Zealand, the Treasury
Finalisation Dates for the Update
4 | B.6
Economic data
11 November
Economic forecasts
11 November
Tax revenue forecasts
18 November
Fiscal forecasts
3 December
Specific fiscal risks
3 December
Text finalised
11 December
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Economic Outlook
Overview
The near-term outlook for the New Zealand economy is robust, with an increasingly
embedded and broad-based pick-up in activity anticipated following a drought-affected
first half of 2013. Real GDP growth is expected to exceed its potential rate over the
coming years, peaking at 3.6% in the March 2015 year, before easing to a more moderate
rate of around 2.0% towards the end of the forecast period.
Growth outlook reflects net influence of supportive and constraining factors
The growth outlook continues to reflect Figure 1.1 – Real GDP growth
the net impact of a number of large
Annual average % change
8
supporting and constraining forces.
The Canterbury rebuild remains a key
6
factor on the supportive side, along
4
with a high terms of trade, stimulatory
2
monetary policy settings and rising
0
incomes on the back of a
-2
strengthening labour market.
Forecast
-4
Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
The supportive influences on the
Quarterly
Budget Update 2013
Half Year Update 2013
domestic economy are set against a
backdrop of familiar constraining
Sources: Statistics New Zealand, the Treasury
factors. These include the forecast
reduction in the fiscal deficit, which will continue to lean against demand, an elevated
exchange rate that will remain a near-term headwind for growth in the export sector, and a
steady, but uneven, outlook for global economic growth.
The main influences on the outlook for the economy are broadly similar to those in the
Budget Update. However, higher-than-expected net migration inflows over the year to
date contribute to stronger near-term demand growth, and add to the supply potential of
the economy further out.
Domestic demand pressures building in the near term...
The Canterbury rebuild is expected to provide significant impetus to demand over the
forecast horizon and beyond, chiefly through additional residential and business
investment, but also through related consumption spending on consumer durables.
The merchandise terms of trade are forecast to remain elevated and close to historic
highs across most of the forecast period, supported by rising demand for New Zealand’s
commodity exports. This is a key driver of income growth and nominal GDP growth.
An additional inflow of approximately 26,000 net migrants compared to the Budget
Update will boost the productive capacity of the economy over time, but will add to
demand pressures in the near term – particularly in the housing market in Auckland.
Households are assumed to be broadly comfortable with the amount of debt reduction
undertaken over recent years (as a share of income). That said, households are expected
4 | B.6
 FORECAST FINANCIAL STATEMENTS 
to remain cautious in their spending decisions, with increases in consumption coming from
rises in income, rather than from running down assets or increasing debt.
...against a backdrop of familiar offsetting factors
Ongoing steps to reduce the fiscal deficit will remain a constraining factor on demand over
the coming years, but will free up resources enabling additional activity elsewhere, such
as the Canterbury rebuild. The reduction in the deficit will also allow interest rates and the
exchange rate to remain lower than they would otherwise be.
The elevated New Zealand dollar will constrain activity in exchange rate-sensitive parts of
the economy over the coming years, including the non-commodity and service export
sectors, but will also support investment and consumption by making imported goods
cheaper. The assumed decline in the exchange rate is expected to begin to stimulate
activity in the external sector towards the end of the forecast period.
The near-term outlook for trading partner growth is slightly weaker than forecast in the
Budget Update, primarily owing to slower growth in the Australian economy as mining
investment moderates. Although the medium-term outlook for this growth is relatively
benign, there are risks arising from the diverging trends in the global economy.
Interest rates expected to begin to rise next year
With the economy set for a period of above-potential growth, increasing price pressures
are expected to see the Reserve Bank begin to increase the Official Cash Rate (OCR) in
the first half of 2014. The forecast track for short-term interest rates in the Half Year
Update is broadly similar to that in the Budget Update, but is around 30 basis points lower
than it would have been in the first half of the forecast period if loan-to-value (LVR)
lending restrictions had not been implemented.
Having been the subject of a range of revisions since the Budget Update, the annual
current account deficit is expected to narrow further in the near term, before widening to
6.4% of GDP in the March 2018 quarter.
B.6 | 5
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Table 1.1 – Economic forecasts1
(Annual average % change,
March years)
2013
Actual
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Private consumption
2.3
3.7
2.8
2.8
1.9
1.6
Public consumption
0.4
0.1
0.4
0.7
0.6
0.7
Total consumption
1.9
2.9
2.3
2.4
1.6
1.4
19.1
16.7
25.5
16.4
3.7
0.6
6.2
11.7
8.1
3.1
0.7
1.0
-12.2
15.2
-3.7
2.4
2.4
2.4
7.1
14.6
12.1
6.2
1.7
1.1
-0.4
0.2
-0.2
-0.1
0.0
0.1
Gross national expenditure
2.3
5.7
4.4
3.3
1.6
1.3
Exports
3.0
-2.2
2.4
1.9
2.9
3.0
Imports
0.7
7.3
5.1
4.3
2.1
0.8
GDP (expenditure measure)
2.9
2.4
3.4
2.5
2.0
2.2
GDP (production measure)
2.7
2.7
3.6
2.7
2.0
2.2
Real GDP per capita
2.0
1.6
2.2
1.6
1.0
1.2
Residential investment
Market investment
Non-market investment
Total investment
Stock change
2
Nominal GDP (expenditure measure)
2.4
6.5
4.9
5.2
4.0
3.7
-0.5
3.9
1.5
2.6
2.0
1.5
-0.9
-0.2
0.9
0.5
0.0
0.0
Employment
0.3
2.0
2.6
1.4
1.0
1.3
Unemployment rate4
6.2
5.8
5.6
5.4
5.2
4.7
67.9
68.5
68.9
68.7
68.5
68.5
2.1
2.7
3.1
3.2
3.4
3.4
GDP deflator
Output gap (% deviation, March
quarter)3
Participation rate
Nominal wages
CPI inflation
5
6
7
0.9
1.4
2.4
2.4
2.3
2.2
-6.1
10.6
-0.9
1.6
0.3
0.0
$billion
-9.5
-9.5
-13.0
-15.7
-16.7
-17.2
% of GDP
-4.5
-4.2
-5.5
-6.3
-6.5
-6.4
-71.8
-70.6
-72.8
-75.5
-79.0
-82.6
75.9
77.0
75.3
73.9
70.0
65.3
2.7
2.7
3.6
4.4
4.9
5.2
3.7
4.8
4.9
5.1
5.2
5.2
Terms of trade8
Current account balance
Net international investment position
% of GDP
TWI
9
90-day bank bill rate
10-year bond rate9
Notes:
9
1 Forecasts finalised 11 November 2013.
2
Contribution to GDP growth.
3
Estimated as the percentage difference between actual real GDP and potential real GDP.
4
Percent of the labour force, March quarter, seasonally adjusted.
5 Percent of the working-age population, March quarter, seasonally adjusted.
6
Quarterly Employment Survey, average ordinary-time hourly earnings, annual percentage
change.
7
Annual percentage change.
8 System of National Accounts (SNA) and merchandise basis, annual average percentage change.
9 Average for the March quarter.
Longer time series for these variables are provided on page 129.
6 | B.6
 FORECAST FINANCIAL STATEMENTS 
Economic Outlook
Economy set for period of above-potential growth in the near term...
The near-term outlook for the New Zealand economy is robust, with an increasingly
embedded and broad-based pick-up in activity anticipated following a drought-affected
first half of 2013. The Canterbury rebuild is showing signs of gaining momentum, the
labour market is strengthening and monetary conditions remain stimulatory. Strong
external demand for New Zealand’s commodity exports, particularly dairy, has
underpinned a rebound in the terms of trade to near-record highs and domestic demand
has received further support from a marked turnaround in net migration inflows since the
start of the year.
Overall, real GDP growth is forecast to accelerate above its potential rate in the coming
years, peaking at 3.6% in the March 2015 year. This will result in an increase in price
pressures and will necessitate withdrawal of monetary policy stimulus in the first half of
2014. There is likely to be some variation in growth and activity at a regional level.
...followed by a moderation in the later years
Real GDP growth is expected to moderate to a more sustainable pace later in the forecast
period, in line with the Treasury’s estimate that potential growth will average around 2.4%
over the forecast period. This reflects the Treasury’s assessment of growth in the labour
force and productivity in the longer run.1
The assumed depreciation in the New Zealand dollar is forecast to begin to stimulate
activity in the exchange rate-sensitive parts of the economy, such as the services and
non-commodity export sectors, towards the end of the forecast period.
Outlook reflects net impact of large influencing factors
The growth outlook for the New Zealand economy reflects the net influence of a number
of large supportive and constraining forces.
Many of the supportive factors that are expected to influence domestic activity over the
forecast period do so in a similar manner, and to a similar extent, as forecast at the
Budget Update. These include the impetus from the Canterbury rebuild, stimulatory
monetary policy settings and a strengthening labour market.
Overall, however, the net impact of the supportive influences on demand in the near term
is slightly stronger than forecast at the Budget Update, including a larger-than-expected
turnaround in net migration flows reflecting the recent weaker performance of the
Australian economy. We judge the balance of risks to the central forecast to be balanced,
but explore alternative economic scenarios in the Risks and Scenarios chapter.
Canterbury rebuild remains a key influence across the forecast period...
The Canterbury rebuild is expected to provide significant impetus to demand over the
forecast horizon and beyond, chiefly through additional residential and business
investment, supported by higher private consumption, particularly of consumer durables.
1
See the note, Potential Output in the 2012 Half Year Update, published as part of the 2012 Half Year
Economic and Fiscal Update, for background information (available on the Treasury website).
B.6 | 7
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Estimating the level of investment activity associated with the Canterbury rebuild is
inherently difficult and subject to much uncertainty. The Treasury’s estimate of the total
level of investment that relates to the Canterbury rebuild is similar to that in the Budget
Update at around $40 billion. Approximately half of this total investment is forecast to have
taken place by the end of the forecast period in mid-2018.
...underpinning strong growth in residential investment...
After a soft patch in the middle of the year, a surge in building consents in the Canterbury
region in the September quarter suggests that residential rebuild activity is about to
increase significantly. Annual real residential investment growth is forecast to accelerate
to a peak of around 26% in the March
2
2015 year. This peak in growth occurs Figure 1.2 – Real residential investment
Number
% of real GDP (annual)
slightly later and at a lower level than
7
35,000
Forecast
forecast in the Budget Update, but the
30,000
6
broad picture is similar in level terms.
25,000
Over two-thirds of the residential
5
rebuild is expected to be completed by
20,000
4
the end of the forecast period in 2018.
15,000
3
10,000
While the Canterbury rebuild is
expected to provide a large proportion
2
5,000
Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
of the impetus for the surge in
Quarterly
Real residential investment
Exc. Canterbury rebuild
residential investment over the forecast
New dwelling consents (RHS, annual total)
period, activity in other parts of the
Sources: Statistics New Zealand, the Treasury
country is also expected to rise
significantly, particularly in the Auckland region. The drivers of the underlying growth include a
catch-up for past population growth, expected future population increases (including through
migration), rising household income, and low, albeit rising, interest rates. Figure 1.2 shows the
share of real residential investment with and without the Canterbury rebuild. Including rebuildrelated activity, residential investment is forecast to peak at around 6% of real GDP – in line
with the share reached in the early-2000s.
Rapidly rising house prices, particularly in the Auckland region, are expected to
encourage an increase in new home building, although this will take time. The
implementation of LVR lending restrictions by the Reserve Bank makes it less certain how
the supply and demand dynamics in the housing market will play out. Higher-thanexpected net migration inflows mean that annual house price inflation is forecast to be
stronger in the near term than in the Budget Update. However, the impact from migration
is offset to some extent by the LVR lending restrictions, which are expected to impose a
modest dampening effect on house price inflation in the near term. Annual house price
inflation is forecast to peak at around 10% in the December 2013 quarter, before
moderating to 2.4% towards the end of the forecast period.
The forecast track for short-term interest rates in the Half Year Update is broadly similar to
that in the Budget Update, but is around 30 basis points lower in the first half of the
forecast period than it would have been if LVR restrictions had not been implemented
(consistent with the Reserve Bank’s estimates).
2
Note that the “Excluding Canterbury rebuild” line is only illustrative and should not be interpreted as an
alternative forecast of what would have occurred in the absence of the Canterbury earthquakes.
8 | B.6
 FORECAST FINANCIAL STATEMENTS 
...as well as market investment
The current environment of low interest rates, strong business confidence and an elevated
exchange rate (which makes imported capital goods cheaper) is also expected to drive a
sharp increase in market investment in the near term. The Canterbury rebuild is expected
to contribute to an increase in market investment as well. Later in the forecast period,
higher interest rates and a lower exchange rate are expected to see market investment
growth moderate.
Robust outlook for private consumption...
The large increase in residential
investment over the forecast period is
also expected to provide significant
impetus to private consumption in the
form of related and additional
spending on consumer durables.
Private consumption growth is
expected to accelerate to 3.7% in the
March 2014 year – its fastest pace
since the end of 2007 – as consumer
confidence remains elevated and real
incomes are boosted by the current
subdued inflation environment.
Figure 1.3 – Private consumption and house
prices
Annual average % change
8
Annual average % change
Forecast
24
18
6
12
4
6
2
0
0
-6
-2
-12
-4
-18
Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
Quarterly
Private consumption
Real house prices (RHS)
Sources: Statistics New Zealand, QV, the Treasury
The pace of private consumption
growth is expected to slow later in the
forecast period as real income and house price growth slow, and interest rates rise
(Figure 1.3).
B.6 | 9
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Migration and Regional Activity
One of the main differences between the Half Year Update and the Budget Update forecasts
is the more pronounced turnaround in net permanent and long-term migration flows. After
registering a net outflow of migrants throughout 2012, the annual net flow of migrants moved
into positive territory in January 2013, and has since climbed to a three-year high of 17,500
in the year ended October 2013.
Net migration flows often exhibit large cycles as arrivals and departures move in different
directions at the same time. In a reflection of the recent divergence in performance between
the New Zealand and Australian economies, fewer migrant departures, mostly to Australia,
account for around two-thirds of the
turnaround in net migration flows since Figure 1.4 – Net migration
the start of 2013. Moreover, just over People (annual total)
half of the increase in arrivals since the 50,000
Forecast
start of the year was accounted for by 40,000
arrivals from Australia, two-thirds of 30,000
whom were returning New Zealanders. 20,000
All told, the Half Year Update 10,000
0
incorporates an additional net inflow of
around 26,000 migrants over the -10,000
forecast period compared with the -20,000
Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
Budget Update, mainly in the next two
Quarterly
Budget
Update
2013
Half Year Update 2013
years (Figure 1.4).
Sources: Statistics New Zealand, the Treasury
Additional migrants will add to the
economy’s supply potential over time...
Additional people in New Zealand will flow through to an increase in the labour force, and
add to the underlying productive capacity of the economy. An additional inflow of migrants
may also help to relieve regional pressures and bottlenecks in the labour market –
particularly arising out of the ongoing Canterbury rebuild.
...but will add to demand pressures in the near term
However, it will take time for the full supply impetus to be felt and, in the meantime, higher
net migration inflows will exacerbate near-term demand pressures. With the economy
already operating close to capacity, any additional demand impetus will complicate the task
for the Reserve Bank of setting monetary policy in the near term.
Moreover, the concentrated nature of the demand associated with higher net migration will
also contribute to sustained upward pressure on house prices, particularly in the Auckland
region. While aggregate annual house price growth in the Half Year Update is forecast to
peak at a slower pace than in the previous housing cycle in the early-to-mid-2000s, the
aggregate picture masks significant variation at a regional level.
Overall, to the extent that stronger near-term demand pressures elicit a more aggressive
tightening of monetary policy, the wider risk is of a more pronounced economic cycle than in
the central forecast. The Risks and Scenarios chapter contains an alternative scenario in
which the net migration inflow is greater than in the Half Year Update’s main forecast.
10 | B.6
 FORECAST FINANCIAL STATEMENTS 
...supported by the historically-high terms of trade...
The positive outlook for the terms of
Figure 1.5 – Merchandise terms of trade (SNA)
trade is another strongly supportive
and ANZ commodity price index
Annual % change
factor in the Half Year Update
Annual % change
20
40
Forecast
forecasts. This will continue to
15
30
underpin incomes and nominal GDP
10
20
over the forecast period. The near5
10
term rebound in the merchandise
0
0
terms of trade reflects sustained high
-5
-10
dairy prices as well as support from
forestry and meat during the middle of -10
-20
the year. In keeping with commodity
-15
-30
Mar-89 Mar-92 Mar-95 Mar-98 Mar-01 Mar-04 Mar-07 Mar-10 Mar-13 Mar-16
price indicators, the merchandise
Quarterly
Merchandise terms of trade (SNA)
terms of trade are expected to be
ANZ Commodity Price Index (RHS, adv. 1q, quarterly average)
around 15% higher in the December
Sources: Statistics New Zealand, ANZ, the Treasury
2013 quarter than in the same period a
year ago (Figure 1.5). Dairy prices are expected to fall back as global supply increases.
The timing is uncertain and global supply remains constrained, but the Half Year Update
forecasts assume a drop in dairy prices, and a corresponding modest correction in the
terms of trade, during the first half of 2014.
Overall, though, the terms of trade are expected to remain near record highs over the
medium term, at a similar level seen in the Budget Update, supported by structural factors
including rising demand for New Zealand’s commodity exports, particularly from China.
...and a strengthening labour market
Having shown signs of improvement
Figure 1.6 – Unemployment rate and
over the past year, the labour market is participation rate
expected to strengthen further over the
% of working-age population
% of labour force
8
70
forecast period, with the unemployment
Forecast
rate falling gradually and employment
7
69
continuing to increase. The Canterbury
6
68
rebuild will be a large contributor to the
5
67
strengthening in the near term, along
4
66
with rising activity in the Auckland
region. (See the Migration and
3
65
Regional Activity box.) Nominal wage
2
64
Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
growth is expected to be solid
Quarterly
Unemployment rate
Participation rate (RHS)
throughout the forecast period, with
annual growth remaining broadly in the
Sources: Statistics New Zealand, the Treasury
range of 2.5% to 3.5%. This is
consistent with moderate real wage growth of around 1% per year on average over the
forecast period.
The labour force participation rate is expected to increase over the coming years as
stronger employment conditions encourage more workers to enter the labour force.
Ongoing welfare reform is expected to strengthen job-search incentives and have an
additional positive influence on labour force participation. The participation rate is
expected to moderate slightly towards the end of the forecast period reflecting the effect of
an ageing population.
B.6 | 11
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
However, consumers expected to remain cautious...
As outlined in the Budget Update, developments in household net worth, partly driven by
house price movements and reduced uncertainty about future growth, underpin our
assumption that households are broadly comfortable with the amount of debt reduction
undertaken over recent years (as a share of income). That said, households are expected to
remain cautious in their spending decisions in the coming years, with increases in
consumption coming from rises in income, rather than from running down assets or
increasing debt further.
All told, household saving as a percentage of household disposable income is expected to
remain broadly flat over the forecast period, as it has been for the past few years.3 This
represents a shift in behaviour from the mid-2000s and its continuation will be an
important factor influencing demand in the economy.
...and there is a backdrop of familiar constraining factors, including fiscal restraint...
The supportive influences on the domestic economy are set against a familiar backdrop of
factors that will constrain growth, including continued steps to reduce the fiscal deficit, an
elevated exchange rate and a steady, but uneven, outlook for global economic growth.
Ongoing steps to reduce the fiscal deficit will remain a constraining factor on demand over
the coming years. The combined impact of fiscal decisions in the 2013 and previous
Budgets will see real government consumption rise only modestly over the forecast
period, averaging growth of just 0.5%
Figure 1.7 – Real government consumption
per year compared to around 4% over
Annual average % change
% of real GDP (annual)
8
20
much of the 2000s (Figure 1.7). As a
Forecast
proportion of real GDP, government
6
19
consumption declines over the period
4
18
towards the past decade’s low of
2
17
16.0%. A lower share of government
0
16
spending in the economy will free up
resources enabling additional activity
-2
15
elsewhere, such as the Canterbury
-4
14
Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
rebuild. In doing so it also allows
Quarterly
interest rates and the exchange rate to
Growth
Share of GDP (RHS)
remain lower than they would
Sources: Statistics New Zealand, the Treasury
otherwise be.
...an elevated exchange rate...
An elevated exchange rate will also continue to present a near-term headwind to growth in
parts of the external sector, particularly for non-commodity exporters and import-competing
firms. Having weakened during the middle of the year on the back of market expectations of
a “tapering” of quantitative easing in the US, the trade-weighted index (TWI) climbed back
close to its record highs in the September quarter. The New Zealand dollar has gained
particularly strongly against its Australian counterpart, with the cross rate currently near a
five-year high.
3
Note that the historical time-series of the net household saving rate was revised higher in the annual
National Accounts for the year ended March 2013, which were released after the finalisation of the Half
Year Update forecasts. See Revisions in the 2013 Annual National Accounts box for further details.
12 | B.6
 FORECAST FINANCIAL STATEMENTS 
An elevated exchange rate makes New Zealand a more expensive destination for tourists
and foreign students, and is expected to constrain growth of services and non-commodity
goods exports in the near term. Given that many of New Zealand’s commodity exports are
priced in US dollars, an elevated exchange rate also dampens New Zealand dollar export
receipts from commodity exports, but spreads income gains to the broader economy.
Over the longer term, goods and services export volumes are expected to grow more
strongly, driven in large part by an assumed depreciation in the New Zealand dollar. Both
goods and services volumes are also expected to rise as global demand picks up, generating
additional demand for New Zealand’s goods and services. A weaker New Zealand dollar will
boost New Zealand dollar receipts for commodity exports too, but will also increase import
prices. As mentioned before, demand for dairy and other commodity exports is likely to
continue to benefit from links with fast-growing Asian markets over the long term.
...and steady, but uneven, global growth
The near-term outlook for trading partner growth is slightly weaker than forecast in the
Budget Update, primarily owing to slower growth in the Australian economy as mining
investment moderates, and a weaker outlook for emerging economies including China.
The outlook over the rest of the forecast period is broadly similar to that in the Budget
Update, with growth of around 3.8% per year.
Table 1.2 – Trading partner growth (calendar years)
2013
weights
2012
Actual
2013
Forecast
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Australia
27%
3.7
2.5
2.6
3.0
3.0
3.0
3.0
China
17%
7.8
7.6
7.4
7.3
7.1
7.0
7.0
United States
11%
2.8
1.7
2.6
2.5
2.5
2.5
2.5
Japan
9%
2.0
1.9
1.5
1.1
1.0
1.0
1.0
Euro area
8%
-0.6
-0.5
0.8
1.2
1.3
1.4
1.5
United Kingdom
4%
0.1
1.3
1.9
1.8
2.0
2.0
2.0
Canada
2%
1.7
1.6
2.2
2.4
2.5
2.5
2.5
23%
3.8
3.8
4.4
4.8
4.9
4.9
4.9
100%
3.6
3.2
3.6
3.8
3.8
3.8
3.9
TPG - Consensus (November
2013)
3.6
3.3
3.7
3.9
4.0
3.9
3.9
TPG - IMF WEO (October 2013)
3.6
3.2
3.7
3.8
3.9
4.0
4.0
TPG - The Treasury (2013
Budget Update)
3.5
3.4
3.8
3.8
3.8
3.9
-
Other Asia*
Trading Partner Growth (TPG)
*
South Korea, Taiwan, Hong Kong, Singapore, Malaysia, Indonesia, Thailand, Philippines, India
Sources: IMF, Haver Analytics, Consensus Economics, the Treasury
The factors behind the weaker near-term trading partner growth – particularly the gradual
rebalancing of Australian GDP growth away from investment towards consumption,
residential investment and exports – are unlikely to result in significant direct negative
implications for New Zealand exporters. Ongoing income growth and increased demand
for protein in Asian economies, particularly China, are also expected to underpin strong
demand for New Zealand’s commodity exports over the medium term.
However, the global economy continues to face significant challenges, and diverging trends
pose risks to the relatively benign medium-term outlook for trading partner growth. The
major developed economies are showing signs of more sustainable growth – particularly the
US, Japan and the UK – while growth in emerging market economies (including some of
New Zealand’s trading partners in Asia) is slowing as a result of both structural and cyclical
factors. As the developed economies begin to withdraw monetary stimulus, emerging
B.6 | 13
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
market economies that have benefited from the loose global monetary conditions may come
under pressure as capital inflows are reversed. Meanwhile, a combination of rapid credit
growth and inflated property values poses risks to financial stability in China. The risks to
the global outlook are explored in more detail in the Risks and Scenarios chapter.
Forecast widening in current account deficit reflects composition of growth
The current account has been
Figure 1.8 – Current account balance
subject to a range of historical
% of GDP (annual)
4
revisions since the Budget
Forecast
2
Update, most recently in the
0
annual set of National Accounts
-2
for the year ended March 2013,
-4
which were released after the
-6
Half Year Update forecasts were
-8
finalised. Estimates of the current
-10
account deficit from 2000
Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
Quarterly
onwards are now on average
Current account balance
Income and transfers balance
Services balance
Goods balance
1.1% of GDP narrower than
previously recorded. (See
Sources: Statistics New Zealand, the Treasury
Revisions in the 2013 Annual
National Accounts box for further details.)
The annual current account deficit is expected to narrow further in the near term on the
back of a narrower income deficit and a wider goods surplus than in the Budget Update.
The wider goods surplus is mainly attributable to the dairy sector, in which prices have
remained higher than expected, and also production has recovered more quickly than
expected from last summer’s drought.
The annual current account deficit is forecast to widen from 2014 onwards to 6.4% of
GDP in the March 2018 quarter. This is expected to be driven by a widening in the income
balance as business profits and international interest rates pick up.
The goods balance is expected to register a small deficit in 2015, primarily owing to
increased goods imports associated with the expected pick-up in investment. The balance
is expected to recover in the final years of the forecast period as investment growth slows
and the assumed weakening in the exchange rate makes New Zealand’s non-commodity
exports more attractive overseas.
The services deficit is forecast to widen towards the end of the forecast period as the
assumed fall in the exchange rate feeds through into increased services import prices (an
example of the so-called “J-curve” effect). However, over time, a weaker exchange rate
will make New Zealand a more attractive destination for tourists and also make service
imports less attractive. As a result, the services deficit would be expected to narrow
outside the forecast period, contributing to a narrower current account deficit.
Revisions in the 2013 Annual National Accounts
The annual National Accounts for the year ended March 2013 were released after the Half
Year Update forecasts were prepared and finalised. The National Accounts provide
information on national income, consumption, investment and saving by the different sectors
of the economy. Overall, the level of nominal (expenditure) GDP in the March 2013 year was
around $600 million higher than previously indicated by the quarterly GDP releases. This
14 | B.6
 FORECAST FINANCIAL STATEMENTS 
mainly reflected upward revisions to investment, with revised estimates for Canterbury
making a significant contribution on the residential side.
As previously signalled by Statistics New Zealand, the release incorporated a range of
historical revisions to the current account as well, stemming mainly from updated estimates
of spending by foreign visitors in New Zealand. Exports of services are now 1.2% of GDP
higher on average from 2000 onwards than previously estimated. This increase was partly
offset by higher goods imports, which were revised up by 0.3% of GDP on average from
2004 onwards on account of a new estimate for goods imports valued under $1,000 – a
known area of undercoverage. Accordingly, the current account deficit is now on average
1.1% of GDP narrower than was reported in the 2012 National Accounts (Figure 1.9). The
largest positive impacts were in 2002 and 2004, when the current account deficit is now 1.5
percentage points of GDP narrower than was previously estimated. The peak current
account deficit reached in 2006 was revised narrower too, to 7.9% of GDP compared to
8.7% of GDP previously. When incorporated into the quarterly data, these changes are likely
to lead to a narrower current account deficit than that presented in the Half Year Update.
Higher estimates of spending by foreign visitors in New Zealand reduced the amount of
activity that was previously attributed to private consumption. This flowed through to a level
shift in the household saving rate, which is now between 0.5 and 2.5 percentage points of
disposable income higher across history than was previously estimated, and increased
national saving too. As shown in Figure 1.10, the narrower current account almost entirely
reflects higher national saving across history.
The widening current account deficit in the Half Year Update forecasts reflects investment
increasing by more than saving over the forecast period, partly as a result of the Canterbury
rebuild. However, with a large proportion of the Canterbury rebuild to be paid for by overseas
insurance inflows, the investment-saving gap does not flow through fully into new borrowing.
Statistics New Zealand currently estimates a total of $18.7 billion of reinsurance claims from
all of the Canterbury earthquakes. At the end of the June 2013 quarter, a total of $10.5 billion
of these claims had been settled with overseas reinsurers, with these inflows recorded in the
financial account of the balance of payments.
Figure 1.9 – Revised current account balance
% of GDP
0
% of GDP
2.0
Figure 1.10 – Saving and investment
% of GDP
26
Forecast
24
-2
1.6
-4
1.2
-6
0.8
-8
0.4
-10
0.0
22
20
18
16
14
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Years ended 31 March
%-pt difference (RHS)
Previous
Revised
Sources: Statistics New Zealand, the Treasury
12
10
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Years ended 31 March
Gross national saving
Gross national saving (revised)
Gross national investment
Gross national investment (revised)
Sources: Statistics New Zealand, the Treasury
B.6 | 15
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Inflation expected to pick up as spare capacity is used up...
With the economy set for a period of
Figure 1.11 – Inflation
above-potential growth in the near
Annual % change
7
term, non-tradables inflation is forecast 6
Forecast
5
to accelerate to a peak of around 4%
4
in mid-2016, before easing back as
3
real GDP growth moderates towards
2
1
the end of the forecast period.
0
Tradables inflation is expected to
-1
-2
move back into positive territory over
-3
the coming years and to come under
Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
Quarterly
increased upward pressure from the
Non-tradables
Tradables
Headline CPI inflation
assumed decline in the exchange rate.
Sources: Statistics New Zealand, the Treasury
Overall, headline CPI inflation is
forecast to peak at 2.6% in late-2015
and to decline gradually thereafter, albeit remaining slightly above the 2.0% mid-point of
the target range. Increases in tobacco excises are expected to add 0.2 percentage points
to annual inflation in each of the March 2014, 2015 and 2016 quarters.
...leading to a withdrawal of monetary stimulus next year
Increasing price pressures are expected to see the Reserve Bank begin to increase the
OCR in early 2014. As mentioned earlier, the forecast track for short-term interest rates in
the Half Year Update is broadly similar to that in the Budget Update, but is around 30 basis
points lower than it would have been if LVR restrictions had not been implemented.
Nominal GDP growth expected to remain strong
Nominal GDP is particularly
important for generating forecasts
of tax revenue. The main
components of nominal income
GDP, namely compensation of
employees and business operating
surplus, are inputs for generating
forecasts of PAYE and corporate
tax revenues respectively.
Figure 1.12 – Nominal GDP and terms of trade
Annual average % change
Annual average % change
12
12
Forecast
10
8
10
8
6
4
6
2
4
0
-2
2
0
-4
-6
-8
-2
-10
Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18
Underlying growth in the volume
Quarterly
Nominal GDP
Total terms of trade (RHS)
of output, alongside strong gains
in the terms of trade and a pick-up Sources: Statistics New Zealand, the Treasury
in pricing pressures, are expected
to support nominal GDP growth in the near term. Nominal GDP is forecast to grow by
6.5% and 4.9% in the March 2014 and 2015 years respectively. Growth in nominal GDP is
expected to ease somewhat later in the forecast period, as real GDP growth moderates,
the terms of trade level off and pricing pressures are restrained by higher interest rates.
16 | B.6
 FORECAST FINANCIAL STATEMENTS 
Economic Forecast Assumptions
 Net permanent and long-term migration inflows rose to 17,500 in the year ended October
2013, although only data up to the September month (+15,200) were available when the
Half Year Update forecasts were finalised. Net migrant inflows are forecast to rise to
26,300 in the June 2014 year before returning to the long-run assumption of 12,000 per
year by the second half of 2016.
 The non-accelerating inflation rate of unemployment (NAIRU) is assumed to be around
4.5% by 2018.
 Average hours worked per week are assumed to be around 33 (near their current level).
 Economy-wide labour productivity growth is assumed to average around 1.1% per year
between the years ending March 2014 and March 2018.
 Investment associated with the rebuild from the Canterbury earthquakes is assumed to
be around $40 billion in 2011 prices (rounded to the nearest $5 billion), spread across
residential property ($18 billion), commercial ($9 billion), and infrastructure and social
assets ($11 billion). Around $18 billion of the total is forecast to be undertaken within the
forecast period to June 2018.
 WTI oil prices are assumed to fall from around US$106 per barrel in the September 2013
quarter to around US$82 in the March 2018 quarter, in line with the latest oil futures prices.
 Ninety-day interest rates are assumed to increase from the first half of 2014 to 5.2% in
the March 2018 quarter. Ten-year interest rates are also assumed to rise gradually from
their current levels, reaching 5.2% by the March 2018 quarter.
 The TWI is assumed to remain around 75 until mid-2015 before falling to around 64 in the
June 2018 quarter.
 Tobacco excise increases add 0.2 percentage points to annual inflation in each of the
March quarters 2014, 2015 and 2016.
 The reductions to ACC levy rates will reduce contributions by households and employers by
$387 million in the 2014/15 levy year rising to around $1 billion in the following levy year.
B.6 | 17
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Fiscal Outlook
Overview
 The Crown’s fiscal position is broadly unchanged from the Budget Update in the first
two years of the forecast but has strengthened in the medium term.
 With stronger economic growth expected, core Crown tax revenue is forecast to grow
more rapidly, while expenses remain relatively stable.
 The operating deficit narrows in the current year and a surplus of $86 million is forecast
in 2014/15. By 2017/18, the surplus is expected to reach $5.6 billion. These surpluses
help fund the Government’s capital spending and enable the repayment of debt.
 Net core Crown debt starts to fall in nominal terms as residual cash returns to surplus
in 2016/17, a year earlier than previously expected.
 The improved cash position, coupled with a lower starting base in 2012/13, means net
core Crown debt falls as a share of GDP to stand at 22.3% by 2017/18.
 The Government Share Offer programme is expected to conclude in the current year
with proceeds between $4.6 billion and $5.0 billion now expected to be available for the
Future Investment Fund.
 The Crown’s balance sheet continues to strengthen as operating surpluses are
expected to steadily increase.
Table 2.1 – Fiscal indicators
Year ended 30 June
2013
Actual
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
(4.4)
(5.7)
55.8
68.1
(2.3)
(4.1)
60.0
69.2
0.1
(3.5)
63.3
72.2
1.7
(1.2)
64.5
77.0
3.1
1.2
63.4
83.4
5.6
3.1
60.4
92.4
(2.1)
(2.7)
26.2
32.0
(1.0)
(1.8)
26.3
30.4
0.0
(1.5)
26.5
30.2
0.7
(0.5)
25.8
30.8
1.2
0.5
24.4
32.0
2.1
1.2
22.3
34.2
$billions
Total Crown OBEGAL1
Core Crown residual cash
Net core Crown debt2
Net worth attributable to the Crown
% of GDP
Total Crown OBEGAL1
Core Crown residual cash
Net core Crown debt2
Net worth attributable to the Crown
Notes:
1
2
Operating balance before gains and losses
Net core Crown debt excluding the New Zealand Superannuation Fund (NZS Fund) and advances
Source: The Treasury
Overall, growth in the economy, and continued management of spending levels, is
expected to result in the Crown returning to surplus, starting to reduce debt and rebuild
the Crown’s net worth.
In preparing these fiscal forecasts, key assumptions have been made in relation to the
performance of the economy, and managing new spending within Budget allowances. As
with all assumptions, there is inherent uncertainty and a change in any one of these could
negatively or positively impact the Crown’s forecast surpluses and net debt position. The
Risks and Scenarios chapter and the Specific Fiscal Risks chapter outline the key risks to
the Crown achieving these forecasts.
18 | B.6
 FORECAST FINANCIAL STATEMENTS 
Core Crown tax revenue increases in each year of the forecasts and by 2017/18 is
expected to be $19.2 billion higher compared to 2012/13, reflecting the forecast growth in
nominal GDP, as discussed in the Economic Outlook chapter.
While core Crown operating expenses are expected to increase by $8.7 billion over the
next five years, they fall to just under 30% of GDP by the end of the forecast period.
These forecasts shows the Government is expected to achieve its fiscal objective of a
return to surplus in 2014/15. While a surplus of $86 million is forecast in 2014/15, beyond
2014/15 surpluses are expected to increase by between $1.5 and $2.5 billion each year.
With net debt finishing in a stronger position at 30 June 2013 and a strengthening in the
residual cash balance since the Budget Update, the net debt track is lower on average by
2.4% of GDP each year. Net debt falls to 22.3% by 2017/18 in line with the Government’s
medium-term target of net debt brought back to a level no higher than 20% of GDP by
2020. In nominal terms, net debt starts decreasing from 2016/17 as cash surpluses are
forecast to return for the first time since 2007/08.
Table 2.2 – Reconciliation between OBEGAL and net debt
Year ending 30 June
$billions
2013
Actual
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
64.1
68.5
72.3
76.7
80.9
84.9
(70.3)
(72.2)
(73.2)
(75.5)
(77.8)
(79.0)
1.8
1.4
1.0
0.5
-
(0.3)
Total Crown OBEGAL
(4.4)
(2.3)
0.1
1.7
3.1
5.6
Net retained surpluses of SOEs, CEs and
NZS Fund
(1.2)
(1.4)
(1.0)
(0.4)
-
0.2
1.1
1.4
1.5
2.0
2.3
1.0
Net core Crown cash flow from
operations
(4.5)
(2.3)
0.6
3.3
5.4
6.8
Net purchase of physical assets
(1.2)
(2.2)
(1.8)
(1.3)
(1.4)
(1.2)
Advances and capital injections
(1.7)
(1.9)
(2.3)
(2.4)
(1.8)
(1.6)
-
(0.2)
(0.6)
(0.8)
(1.0)
(0.9)
Core Crown revenue
Core Crown expenses
Net surpluses/(deficits) of SOEs and CEs
Non-cash items and working capital
movements
Forecast for future new capital spending
Proceeds from Government share offers
1.7
2.5
0.6
Core Crown residual cash balance
(5.7)
(4.1)
(3.5)
(1.2)
-
Opening net debt
-
-
1.2
3.1
50.7
55.8
60.0
63.3
64.5
63.4
Core Crown residual cash deficit/(surplus)
5.7
4.1
3.5
1.2
(1.2)
(3.1)
Valuation changes in financial instruments
(0.6)
0.1
(0.2)
-
0.1
0.1
Closing net debt
As a percentage of GDP
55.8
60.0
63.3
64.5
63.4
60.4
26.2%
26.3%
26.5%
25.8%
24.4%
22.3%
Source: The Treasury
Core Crown Tax Revenue
Tax revenue grows by around 5.8% per annum on average over the forecast period...
Figure 2.1 – Core Crown tax revenue
B.6 | 19
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Core Crown tax revenue is forecast to
rise in each year of the forecast
period, with the 2017/18 forecast being
$77.9 billion, which is $19.2 billion
higher than in 2012/13. These annual
increases also see forecast tax
revenue increasing relative to nominal
GDP, reaching 28.8% by the end of
the forecast period (Figure 2.1).
% of GDP
$billions
90
45
Forecast
80
40
70
35
60
30
50
25
40
20
30
% growth
15
20
15
10
Forecast
10
5
10
0
0
2004
2006
2008
2010
2012
2014
2016
Year ended 30 June
Core Crown tax revenue ($b)
% of GDP
2018
5
Most of the 5.8% average annual
growth in tax revenue forecasts comes Source:
The Treasury
0
from growth in the economy with
-5
nominal GDP forecast to grow at 4.9% on average
over the forecast period. Tax revenue
growth slows a little towards the end of
-10
Figure
2.2
– Core
Crown
tax
revenue
growth
2004
2006
2008
2010
2012
2014
2016
2018
the forecast period as nominal GDP
Year ended 30 June
growth slows (refer Figure 2.2). The
Tax revenue growth
remainder of the forecast tax growth
largely relates to increased residential
investment, largely owing to the
Canterbury rebuild, and the progressive
nature of PAYE tax.
All tax types are expected to increase
across the forecast period, with
particular strength in tax from
employees (PAYE) and goods and
services tax (GST), as shown in
Table 2.3.
Source: The Treasury
Employment earnings growth (forecast at just below the GDP growth rate) combined with
the progressive nature of the personal tax scale add $7.3 billion to source deductions over
the forecast period with the average PAYE growth rate of 5.8% per annum.
The level of residential investment is forecast to grow at an average rate of 16% per
annum over the forecast period, largely as a result of rebuilding in Canterbury. This
increase in investment is expected to boost GST by $1.7 billion by 2017/18.
These forecasts also see an expected rise in 90-day bank bill interest rates from 2.6% on
average in 2012/13 to 5.2% by 2017/18, with flow-on increases to tax on interest earned
on residents’ savings (RWT).
20 | B.6
 FORECAST FINANCIAL STATEMENTS 
Table 2.3 – Reconciliation of movement in core Crown tax revenue over the forecast
period
Year ending 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Total
Employees' compensation
1.2
1.1
1.1
1.2
1.3
5.9
Entrepreneurial income
0.4
0.2
0.3
0.2
0.2
1.3
Corporate profits
0.8
0.7
0.6
0.2
0.2
2.5
Private consumption
0.9
0.9
0.9
0.8
0.7
4.2
Residential investment
0.4
0.6
0.4
0.2
0.1
1.7
(0.1)
0.1
0.3
0.2
0.2
0.7
0.2
0.3
0.3
0.3
0.3
1.4
-
(0.1)
0.4
0.5
0.7
1.5
3.8
3.8
4.3
3.6
3.7
19.2
Plus: previous year's tax base
58.7
62.5
66.3
70.6
74.2
58.7
Core Crown tax revenue
62.5
66.3
70.6
74.2
77.9
77.9
27.4%
27.7%
28.2%
28.5%
28.8%
Movement in core Crown tax
owing to:
Interest rates
Fiscal drag1
Timing and other factors
Total movement in core Crown tax
revenue
Note: 1
Fiscal drag is the additional tax revenue generated from source deductions as an individual’s
average tax rate increases as their income increases.
Source: The Treasury
...and is higher than the Budget Update
Compared to the Budget Update, tax
revenue forecasts have been revised
up by $0.1 billion in 2013/14 rising to
$1.4 billion by 2016/17.
Figure 2.3 – Movement in core Crown tax
revenue since the Budget Update
$billions
1.6
1.4
1.2
The bulk of the upwards revision
1.0
0.8
occurs beyond 2014/15 (refer Figure
0.6
2.3), with the largest increases from
0.4
individuals' taxation and GST. A
0.2
stronger labour market, with higher
0.0
-0.2
wages and salaries, is expected to
-0.4
increase PAYE relative to the Budget
2014
2015
2016
2017
Year ended 30 June
Update, with the change further
Individuals
Corporate
GST
Other
Total net change
boosted by fiscal drag. Net other
Source: The Treasury
persons’ tax also increases as a result
of higher forecast profits for
unincorporated businesses. Increased employee compensation and profitability lead to
higher consumption, boosting GST growth.
Although corporate tax is expected to increase over the forecast period in nominal terms
as business profitability improves, annual growth is broadly similar to that forecast at the
Budget Update.
B.6 | 21
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Core Crown Expenses
Growth in core Crown expenses is subdued over the forecast period...
Core Crown expenses are forecast to
increase in nominal terms by
$8.7 billion in total over the forecast
period (Figure 2.4). The growth in
core Crown expenses is expected to
be at a slower rate than economic
growth, so as a result they fall from
33.1% in 2012/13 to 29.2% of GDP by
2017/18, in line with the Government’s
target of reducing expenses to around
30% of GDP.
Nominal growth in core Crown
expenses is largely attributable to new
spending for future Budgets, social
assistance spending and finance costs
as shown in Figure 2.5.
Figure 2.4 – Core Crown expenses
$billions
% of GDP
90
45
Forecast
80
40
70
35
60
30
50
25
40
20
30
15
20
10
10
5
0
0
2004
2006
2008
2010
2012
2014
Year ended 30 June
Core Crown expenses ($b)
2016
2018
% of GDP
Source: The Treasury
Figure 2.5 – Increase in core Crown expenses
$billions
Net $8.7b
12
Net $7.5b
10
The forecast includes new spending to
be allocated in future budgets of
around $1.0 billion for the next four
budgets. Including the impact of
spending decisions from Budget 2013,
budget allocations are forecast to
increase core Crown expenses by
$5.1 billion by the end of the forecast
period.
Net $5.2b
8
Net $2.9b
6
Net $1.9b
4
2
0
-2
2014
2015
2016
2017
2018
Year ended 30 June
Budget 2013 decisions
Future allowances (operating)
Social assistance
Earthquake
Finance costs
Other
Source: The Treasury
Social assistance spending is
expected to increase by $3.7 billion
across the forecast period.
New Zealand Superannuation
payments (the most significant across
different social assistance payments)
grow by $3.3 billion over the forecast
period as payments are indexed to
inflation and recipient numbers
increase on average by 25,000 over
the next five years (Figure 2.6). The
rest of the increase in social
assistance spending is owing to
indexation, with recipient numbers
staying relatively stable for other
benefit types.
Figure 2.6 – Social assistance spending
$billions
Thousands
800
25
20
700
15
600
10
500
5
400
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Year ended 30 June
NZ Superannuation
Other benefits
NZ Super beneficiaries
Source: The Treasury
Finance costs increase by $0.7 billion over the forecast period as gross debt continues to
increase and interest rates are forecast to rise.
22 | B.6
 FORECAST FINANCIAL STATEMENTS 
Partially offsetting this higher expenditure, the Crown’s earthquake costs reduce over the
forecast period as the most significant expenses have already been recognised in
previous years (refer to box on page 30 for details of the profile of earthquake expenses).
...but expenses are marginally higher than the Budget Update by the end of the
forecast period
Initially expenses are slightly
lower than forecast at the Budget
Update, but by the end of the
forecast period expenses are
around $0.6 billion higher than
previously expected (refer Figure
2.7).
Figure 2.7 – Changes in core Crown expenses
since Budget 2013
$billions
80
78
76
74
The strength in economic
conditions and impacts from
72
welfare reform have reduced
unemployment-related benefit
70
2014
2015
2016
2017
recipient numbers and therefore
Year ended 30 June
Budget Update 2013
Half Year Update 2013
social assistance expenses
compared to the Budget Update. Source: The Treasury
However, by the end of the
forecast period this trend reverses owing to the impact of a higher inflation track and
increases in income-related rents. Refer Table 2.4 in the Operating Balance section
below for changes to benefit expenses since the Budget Update.
Costs associated with the Government Superannuation Fund (GSF) are also forecast to
increase above the level forecast in Budget Update. Larger impacts are expected in the
last few years of the forecast owing to increases in discount rates causing the interest
unwind of the GSF liability to also increase.
In addition to these expenses, some increases (eg, Emissions Trading Scheme expenses)
also have a corresponding increase in core Crown revenue and therefore are OBEGAL
neutral to the Crown.
B.6 | 23
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Operating Balance
The Crown is forecast to return to surplus in 2014/15…
Increases in core Crown tax revenue and slowing expenditure growth reflect an improved
outlook across the forecast period with the Crown’s OBEGAL forecast to return to a
surplus of $86 million in 2014/15. This stronger outlook is largely driven by economic
factors impacting on tax revenue combined with the continuing programme of fiscal
constraint. There are risks to achieving a surplus in 2014/15 and later years should these
factors not play out as forecast. Refer to the Risks and Scenarios and Specific Fiscal
Risks chapters for further discussion of risks that may impact the Crown’s operating
balance.
OBEGAL is a total Crown measure, of
which the core Crown shows the
greatest growth over the forecast
period. In 2013/14 the core Crown
has an OBEGAL deficit of $3.7 billion
which turns around to contribute a
$5.9 billion surplus to OBEGAL by
2017/18.
Figure 2.8 – Components of OBEGAL by sector
$billions
8
6
Forecast
4
2
0
-2
-4
-6
Both the State-owned Enterprise
(SOE) and Crown entity (CE) sectors’
-8
2013
2014
2015
2016
2017
2018
contribution to OBEGAL in the future
Year ended 30 June
Core Crown
Crown Entity
SOE
OBEGAL
have been significantly changed.
Source: The Treasury
Together they contribute $2.0 billion to
the OBEGAL surplus in 2013/14 falling to $0.4 billion by the end of the forecasts.
Figure 2.8 shows the composition of OBEGAL from the different sectors of the
Government. The CE sector’s contribution is expected to fall significantly owing to a
reduction in ACC levy rates while the SOE sector’s contribution falls owing to the
Government’s Share Offer programme. Refer to separate section on pages 36 to 41 for
further discussion of this programme.
While reductions in ACC levies were included in the Budget Update, reductions are higher
in these forecasts. Reductions in ACC levies of $300 million in 2014/15 increasing to
$1 billion a year from 2015/16 were announced at the time of the Budget Update. Since
that time specific levy rate reductions for the relevant levy years have now been factored
into the forecasts and Cabinet has increased the 2014/15 reduction to $387 million. As a
result, the reduction in income has increased in 2014/15 and the timing of the OBEGAL
impact for the expected second round of reductions has been revised.
Refer Table 2.4 for a summary of the key changes to the forecasts from the Budget
Update that impact on OBEGAL.
24 | B.6
 FORECAST FINANCIAL STATEMENTS 
Table 2.4 – Changes in OBEGAL since Budget 2013
Year ending 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
(2.0)
0.1
0.8
2.6
Tax revenue
0.1
0.2
0.9
1.4
Benefit expense
0.1
0.2
0.1
(0.1)
-
(0.1)
(0.1)
(0.1)
NZS Fund and ACC interest
(0.1)
(0.2)
(0.2)
(0.2)
SOE results
(0.1)
(0.3)
(0.2)
(0.1)
ACC levy and insurance expense
(0.1)
-
0.4
(0.3)
Other changes
(0.2)
0.2
-
(0.1)
Total changes since Budget Update
(0.3)
-
0.9
0.5
OBEGAL – Half Year Update
(2.3)
0.1
1.7
3.1
OBEGAL – 2013 Budget Update
Changes in forecasts:
GSF expenses
income
Source: The Treasury
ACC and NZS Fund’s interest income has also decreased since Budget Update largely
owing to a reduction in the expected level of interest earning assets held by ACC and NZS
Fund since Budget 2013.
SOE profits have also declined across
the forecast period since Budget
Update largely owing to foregone
profits from the Government’s share
programme (refer to Government
Share Offer Programme section on
pages 36 to 41).
Figure 2.9 – OBEGAL and CAB
% of GDP
10
Forecast
5
0
-5
The underlying nature of OBEGAL can
be seen using the cyclically adjusted
-10
balance (CAB). This measure adjusts
2004
2006
2008
2010
2012
2014
2016
2018
Year ended 30 June
for the state of the economic cycle and
OBEGAL
OBEGAL excluding earthquake
CAB
significant one-off expenses. Figure
Source: The Treasury
2.9 shows CAB tracking close to
OBEGAL in recent years, indicating
that the operating deficits between 2009 and 2013 have been largely structural. The
projected size of the economy reduced following the recession, implying a smaller tax
base while, in contrast, expenses continued to grow. In this forecast, tax revenue is
forecast to grow more rapidly than expenses (which remain relatively stable), seeing CAB
move to surplus in 2015/164 a year later than OBEGAL.
...with OBEGAL surpluses beyond 2014/15 enabling debt to be repaid
Surpluses are achieved in 2014/15 and continue to increase over the forecast period to a
level that translates to being sufficient to fund the Government’s capital spending and
allows for the reduction of debt.
4
For more details, see the Additional Information on the Treasury website
www.treasury.govt.nz/budget/forecasts/hyefu2013.
B.6 | 25
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Current strength in equity markets lifts the operating balance…
When gains and losses are included,
Figure 2.10 – Components of operating balance
$billions
$billions
the total Crown operating balance is
15
10
Forecast
forecast to be in surplus across the
9
forecast period with steady growth
10
8
7
each year of the forecasts (Figure
5
6
2.10). The current year’s surplus is a
5
result of gains expected to be made by
0
4
Crown financial institutions (CFIs),
3
-5
2
largely ACC and NZS Fund, and
1
reflects strong global equity returns
-10
0
(for example, by 30 September 2013
2013
2014
2015
2016
2017
2018
Year ended 30 June
NZS Fund had made year-to-date
Gains and losses
OBEGAL
Operating balance
gains of $1.0 billion). While the
Source: The Treasury
current year reflects strong market
growth, the forecast gains in future years assume a long-term rate of return, resulting in
more subdued growth in these years. These gains play a part in increasing the
Government’s financial assets, and the Crown’s net worth (discussed on page 33).
...and valuations of long-term liabilities contribute to an improved result in 2013/14
In addition, updated long-term liability valuations for ACC (at 30 June 2013 and updated
for movements in discount rates to 30 September) and GSF (at 30 September) have also
led to significant actuarial gains in the 2013/14 year which also contribute to the Crown’s
operating balance.
Given the size of the balance sheet, market movements can have a significant impact on
the operating balance. Refer to page 35 for further discussion of the impact of these
valuations on the Crown’s operating balance.
Cost to the Crown of Canterbury Earthquakes
The Government continues to make significant contributions to the rebuild of Canterbury
which is one of its four key priorities. Latest estimates for the total cost to the Crown are at
$14.9 billion to the end of the forecast period (slightly lower than the $15.2 billion in the
Budget Update). While some costs have reduced, others have increased.
An updated estimate of costs to the Crown show that core Crown costs have reduced since
the Budget Update primarily owing to a cost sharing agreement entered into with the
Christchurch City Council (CCC) and an updated red zone valuation. However, increases in
estimates of Crown entity capital investment in Canterbury (primarily investment in state
housing stock) partially offset these reductions.
In June 2013 the Crown negotiated a cost sharing agreement with CCC to contribute up to
$1.8 billion for the repair costs of local infrastructure (mainly water and roads). This
agreement has increased certainty around the Crown’s estimate of local infrastructure costs,
reducing them from the $2.4 billion estimate at Budget Update to $1.8 billion.
Table 2.5 outlines the latest estimates of the net impact of the earthquake included in these
forecasts, the operating/capital split and the expected cash profile of earthquake costs.
26 | B.6
 FORECAST FINANCIAL STATEMENTS 
Table 2.5 – Net earthquake expenses (operating and capital)
Year ending 30 June
$millions
Local infrastructure
Crown assets1
Land zoning
Christchurch central city rebuild2
Welfare support
Southern Response support package
Other costs
Core Crown Canterbury earthquake recovery costs
EQC (net of reinsurance proceeds)
Other SOE and CEs
Total Crown
Operating and Capital expenses
Operating expenditure (OBEGAL)
Capital expenditure
Total Crown
Total cash payments3
Notes:
1 Crown assets includes capital expenditure on Canterbury hospitals, schools, Tertiary Education Institutions
and the justice and emergency services precinct.
2 Central city rebuild costs are net of expected recoveries.
3 Some expenses are non-cash (eg, asset write-offs and impairments) and therefore do not have a cash
element to them.
Source: The Treasury
The Specific Fiscal Risks chapter includes discussion on the risks associated with the
Canterbury earthquakes (eg, many of the business cases and project costings for Anchor
projects in the central city are yet to be finalised).
While the expenses are largely recognised up front and indicate the Crown’s obligation, the
cash profile reflects the expected timing of payments to settle these obligations. As with the
expenses, risks also remain regarding the timing of these cash payments.
Net Debt
Net debt peaks as a share of GDP in 2014/15...
Figure 2.11 – Net debt
B.6 | 27
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
When compared to the Budget
Update, net debt levels have reduced
to be on average 2.4 percentage
points of GDP lower than previously
forecast. This reduction in net debt is
owing to a stronger starting position at
30 June 2013 and an improved cash
flow over the forecast period.
$billions
% of GDP
35
70
Forecast
60
30
50
25
40
20
30
15
20
10
10
5
0
0
2004
2006
2008
2010
2012
2014
2016
2018
Similar to the operating surplus, core
Year ended 30 June
5
Crown operating cash flows also
Net debt ($b)
% GDP
return to surplus in 2014/15. However, Source: The Treasury
once capital cash flows are included,
residual cash remains in deficit two further years, reaching surplus of $1.2 billion in 2016/17,
one year earlier than forecast in the Budget Update. By 2017/18, core Crown residual cash
is expected to increase to a cash surplus of $3.1 billion.
Deficits are funded by an increase in net debt (through additional borrowing or a reduction
in financial assets) while surpluses reduce net debt. In nominal terms, net debt is
expected to peak on an annual basis in 2015/16 at $64.5 billion, but once residual cash
surpluses are forecast, debt is expected to reduce.
Net debt as a share of GDP peaks in 2014/15 at 26.5% (a year earlier than in nominal
terms). By 2017/18 net debt is expected to be 22.3% of GDP (Figure 2.11) in line with the
Government’s medium-term target of net debt brought back to a level no higher than 20%
of GDP by 2020.
...with residual cash deficits mostly funded by issuing government bonds
Residual cash surpluses are reached earlier than previously forecast, largely owing to
stronger tax receipts and a decline in cash payments. The lower proceeds from the
Government Share Offer programme partially offset this increase.
Over the forecast period there is a cash shortfall of $4.4 billion. In order to fund this
shortfall along with bond maturities, the bond programme is expected to raise funds of
$33.6 billion over the forecast period. Over the forecast period, $26.1 billion of existing
debt will be repaid, providing net cash proceeds of $7.5 billion (Table 2.6). The excess
cash proceeds raised from the bond programme will be invested in financial assets and
used to meet future debt maturities.
As the Crown’s fiscal position is stronger at the start of the forecast period than was
previously forecast, the bond programme to 2016/17 is $4.0 billion lower than forecast in
Budget 2013. The higher-than-forecast starting cash position has allowed for a
$2.0 billion reduction in the current year’s bond programme as well as the beginning of a
buy-back programme to help manage cash flows around the record-large bond maturity in
April 2015. A buy-back programme of the April 2015 bond is scheduled to commence in
the second half of the 2013/14 fiscal year. Up to $3.0 billion is forecast to be repurchased
by 30 June 2014, subject to market conditions.
5
Net debt and residual cash indicators are measured on a core Crown basis. Residual cash includes both
operating and capital activity. This differs from OBEGAL, which is measured at a total Crown level and
includes operating activity only.
28 | B.6
 FORECAST FINANCIAL STATEMENTS 
Table 2.6 – Net increase in government bonds
Year ending 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
5-year
Total
8.0
7.0
7.0
6.0
6.0
34.0
8.0
7.1
6.7
5.9
5.9
33.6
(3.1)
(7.8)
(1.8)
-
(11.9)
(24.6)
Net proceeds from market bonds
4.9
(0.7)
4.9
5.9
(6.0)
9.0
Repayment of non-market bonds
(0.8)
(0.7)
-
-
-
(1.5)
Net repayment of non-market bonds
(0.8)
(0.7)
-
-
-
(1.5)
4.1
(1.4)
4.9
5.9
(6.0)
7.5
Face value of government bonds issued
(market)
Cash proceeds from government bond
issue
Cash proceeds from issue of market bonds
Repayment of market bonds
Net cash proceeds from bond issuance
Source: The Treasury
B.6 | 29
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Total Crown Balance Sheet
Operating balance surpluses result in increasing net worth...
Net worth attributable to the Crown
increased in 2012/13 for the first time
since the global financial crisis and the
Canterbury earthquakes. At its height,
net worth attributable to the Crown
peaked at $105.1 billion in 2007/08.
Figure 2.12 – Net worth attributable to the
Crown
% of GDP
$billions
120
60
Forecast
100
50
80
40
60
Net worth attributable to the Crown is
forecast to continue strengthening in
40
nominal terms, largely owing to
20
forecast operating balance surpluses
0
(of which just under half is attributable
2004
2006
2008
2010
2012
2014
2016
2018
Year ended 30 June
to gains on the Crown’s investment
Net worth attributable to the Crown
%GDP
portfolio), and grow to $69.2 billion by
Source: The Treasury
the end of the current year. Net worth
is expected to grow another $23.2
billion to stand at $92.4 billion by 2017/18, as shown in Figure 2.12. As a share of GDP
this is 34.2%, still well below the peak of 56.6% of GDP in 2007/08.
30
20
10
0
...with assets increasing $35.5 billion over the forecast period...
Assets are forecast to increase by
$35.5 billion, with the growth over the
forecast period made up of
investments in additional assets of
$78.4 billion partially offset by
reductions (largely depreciation) of
$42.9 billion.
Figure 2.13 – Total Crown assets
$billions
300
Forecast
250
200
150
100
The largest asset growth over the
50
forecast period is in the financial
assets portfolio (Figure 2.13). This
0
2013
2014
reflects investment growth in CFIs
Financial
such as NZS Fund and ACC, with
much of this growth recognised as
Source: The Treasury
gains in the Crown’s operating balance
with some growth in the asset base from reinvestment.
2015
2016
Year ended 30 June
Commercial
2017
2018
Social
Commercial assets increase $9.5 billion over the forecast period, largely owing to
continued growth in the Kiwibank mortgage assets (that grow as their deposits from
customers grow) and as SOEs increase their investment in physical assets.
The social asset portfolio (eg, schools, hospitals and social housing) increases by
$10.9 billion by the end of the forecast period as a result of new capital spending (funded
by the Future Investment Fund, as detailed in the Government Share Offer Programme
section on pages 36 to 41), and as existing assets are replaced.
Figure 2.14 – Total Crown borrowings
30 | B.6
 FORECAST FINANCIAL STATEMENTS 
...while liabilities increase at a slower
rate
The Crown’s liabilities are expected to
increase by $7.2 billion over the
forecast period, largely driven by
increased borrowing. Borrowings are
forecast to increase $12.2 billion to
$112.3 billion by 2017/18.
$billions
140
Forecast
120
100
80
60
40
20
0
2013
2014
2015
2016
2017
2018
As shown in Figure 2.14, borrowing is
Year ended 30 June
Financial
Commercial
Social
mostly held in the financial liability
portfolio (by the Treasury’s Debt
Source: The Treasury
Management Office, and the Reserve
Bank). Borrowings in this portfolio increase $2.5 billion over the forecast period to meet
the Crown’s cash deficits (refer to pages 31 to 32 for discussion of the bond programme).
The remainder of borrowing is in the commercial portfolio, and is largely made up of
Kiwibank deposits, which grow in line with the bank’s mortgage assets.
Partially offsetting the growth in
Figure 2.15 – Total Crown liabilities
borrowings are reductions in liabilities
$billions
as a result of settling obligations related 200
Forecast
180
to the Canterbury earthquakes. The
160
Crown’s earthquake-related insurance
140
liabilities held in the financial portfolio
120
100
(EQC and Southern Response) are
80
forecast to decrease $8.4 billion over
60
the five-year forecast period as all
40
claims are expected to be settled by
20
0
2017/18.
2013
2014
2015
2016
2017
2018
Year ended 30 June
The Crown’s balance sheet is
sensitive to market movements...
Financial
Commercial
Social
Source: The Treasury
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. Table 2.7 shows an example 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.
B.6 | 31
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Table 2.7 – Financial instruments sensitivities
Financial assets
Impact on operating
balance1
%change
Interest rates
$millions
+1
(532)
-1
Share prices
NZD exchange rate
592
+10
1,681
-10
(1,681)
+10
(1,029)
-10
1,160
1 Using 30 June 2013 sensitivities
Source: The Treasury
Financial assets are the largest asset group on the Crown’s balance sheet and have
increased significantly in recent years. CFIs (eg, NZS Fund 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.
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
(their 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. Table 2.8
shows the impact that a 1% change in inflation and discount rates would have on the
operating balance.
Table 2.8 – Long-term liability sensitivities
Impact on operating
balance1
Discount rate
Inflation rate
$millions
+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
33
(33)
(19)
43
EQC outstanding claims
1 Using 30 June 2013 sensitivities
Source: The Treasury
...and judgements and estimates also impact on the balance sheet...
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 include: ACC
rehabilitation costs, earthquake-related insurance liabilities and student wage growth.
...while other risks still remain
In addition to those items on the balance sheet there are a number of liabilities (and
assets) that may arise in the future but are not yet included; either because they are
dependent on an uncertain future event occurring (eg, outcome of litigation) or the liability
cannot be measured reliably. If these contingent liabilities crystallise, there will be
32 | B.6
 FORECAST FINANCIAL STATEMENTS 
associated costs with a negative impact on the operating balance. Refer to page 75 for a
list of the contingent liabilities that the Crown was exposed to at 31 October 2013. Refer
also to the Risks and Scenarios chapter for further discussion on balance sheet risks.
B.6 | 33
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Government Share Offer Programme
At the time of the Budget Update, no transactions in the Government Share Offer
programme had been completed. Since that time minority shareholdings in Mighty River
Power, Meridian Energy and Air New Zealand have been sold and the Government has
indicated that the sale of up to 49% of the shares in Genesis Energy will follow in the first
half of calendar 2014. At the time the assumptions for this Half Year Update were
finalised, the proceeds from the Crown reducing its shareholding in Air New Zealand were
not known.
Table 2.9 – Progress to date (core Crown)
Gain/(loss)
Gross
Net
on
proceeds
proceeds1
disposal
$millions
$millions
% sold
$millions
1,685
1,638
48.20
167
Meridian Energy
1,883
1,829
Note: 1 Net of direct costs and present value discounting.
48.98
(422)
Mighty River Power
Source: The Treasury
As a result of the progress to date (Table 2.9), two key assumptions underpinning the
forecast fiscal impact of the programme have been updated in this current Half Year
Update:
 Total proceeds are now expected to be within an estimated range of $4.6 billion to
$5.0 billion, which is based on actual proceeds from the Mighty River Power and
Meridian transactions and estimated proceeds from the Genesis Energy and
Air New Zealand transactions. The Half Year Update forecasts assume the mid-point
of this range of $4.8 billion. The previous $6 billion assumption was a mid-point
estimate of a range of potential outcomes across the entire Government Share Offer
programme. These outcomes have now narrowed considerably since the Budget
Update. This section includes discussion on the changes in the estimate in proceeds
over time.
 Given the Government’s announcement regarding the timing of the Genesis Energy
share offer, all proceeds from the programme are now expected to be received by
2014/15. The Budget Update did not forecast the timing of individual share offers,
none of which had been completed by that point, and so assumed proceeds were
spread evenly across the four years 2012/13 to 2015/16.
The fiscal impacts of these changes in assumptions are that, while net debt will decrease
sooner than previously forecast, that reduction will be smaller as proceeds have been reestimated. In addition, while the proceeds are received earlier (and so the estimated
finance cost savings occur earlier), dividends and profits are also foregone earlier than
previously forecast as the Government’s share of the companies is reduced.
34 | B.6
 FORECAST FINANCIAL STATEMENTS 
Table 2.10 – Estimated profile of gross cash proceeds
Year ending 30 June
$millions
2013
Actual
2014
Forecast
2015
Forecast
1,690
2,490
620
Cash/Debt impact
Forecast cash proceeds
Source: The Treasury
This estimated profile is based on the mid-point of the estimated range of $4.6 billion to
$5.0 billion, which was set before the proceeds from the Crown reducing its shareholding
in Air New Zealand were known.
Table 2.11 – Estimated fiscal impact of the Government Share Offer programme
Note
$billions
Actual to date
and forecast
Cash/Debt impact
Forecast cash proceeds
$4.8 billion
Forecast foregone dividends
1
$321 million p.a.
Estimated finance cost savings
1
$219 million p.a.
Reduction in net debt
$4.2 billion by 2017/18
Accrual impact
Forecast foregone profits
1
$327 million p.a.
Estimated finance cost savings
1
$219 million p.a.
Net decrease in OBEGAL
Loss on disposal recorded in
taxpayers' funds
1
$108 million p.a.
2
$383 million
Notes:
1 Based on an average of the fiscal forecasts subsequent to the programme being completed.
2 Based on the mid-point estimated cash proceeds, the published gain from the Mighty River Power sale and loss from the
Meridian Energy sale, and the published net asset position of Air New Zealand and Genesis Energy at 30 June 2013.
Source: The Treasury
The final fiscal impact of the Government Share Offer programme remains uncertain and
dependent on a number of factors, including market conditions.
The figures in Table 2.11 are based on the current profit and dividend forecasts supplied
by the companies, and forecast interest rates on government debt. This means the
figures are a static estimate, at the current time, of the fiscal impact of the Government
Share Offer programme.
The figures do not account for uncertainty and risks, and in particular the commercial risks
around the estimated profits and dividends from the companies, and risks around future
interest rates on government debt. The risks in relation to Mighty River Power and
Meridian Energy were explained in the offer documents for these companies. Because of
uncertainty and risk, a commercial entity would usually forecast profits that are greater
than the Government’s cost of borrowing. Whether forecast profits are actually delivered
will depend on actual company performance.
B.6 | 35
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Previous Economic and Fiscal Updates have disclosed annual estimated fiscal impacts of
the Government Share Offer programme, as well as a five-year total. It is no longer
possible to give annual figures, as the progress in the programme to date means that
providing the latest annual estimates could allow forecast profits and dividends for
individual companies in the programme to be calculated. Individual company forecasts
are commercially sensitive, and may be “inside information” in relation to the Securities
Markets Act 1988. Forecast profits and dividends are supplied to the Treasury by the
companies under a confidentiality deed, under which the Treasury has agreed to preserve
the confidentiality of this information, and to comply with the provisions of the Securities
Markets Act 1988.
Given this, only totals or averages have been disclosed, consistent with section 26V of the
Public Finance Act 1989. Future disclosures of the impacts of the Government Share
Offer programme will follow the same approach.
Future Investment Fund
In Budget 2012 the Future Investment Fund (FIF) was established to allocate the
estimated proceeds from the Government Share Offer programme, rather than issuing
debt. So far, $2.1 billion of this fund has been allocated. A large portion of this allocation
is expected to be spent on the Canterbury rebuild as well as investments in schools,
hospitals, technology and irrigation.
Table 2.12 – Analysis of Future Investment Fund
$billions
Forecast cash proceeds
Total
Fund
4.8
Allocated in Budget 2012
(0.5)
Allocated in Budget 2013
Commitments against future
budgets
(1.4)
To be allocated
(0.2)
2.7
Source: The Treasury
With the proceeds from the Government Share Offer programme now expected to be
between $4.6 billion and $5.0 billion, the amount remaining to be allocated over the life of
the FIF has declined since the Budget Update. However, based on current forecasts, the
Government does not need to alter the current FIF spending profile as the current profile
still ensures the FIF funds all new capital expenditure through to Budget 2016.
36 | B.6
 FORECAST FINANCIAL STATEMENTS 
Changes to Estimate of Proceeds
Original Estimate
In the Supplement to the 2010 Investment Statement of the Government of New Zealand
in May 20116 the Treasury estimated that the Government Share Offer programme was
likely to result in gross sales in the order of $5 billion to $7 billion (Table 2.13). In part,
that assessment was based on independent estimates of the commercial values of the
companies at that time, along with Air New Zealand’s share price.
Table 2.13 – May 2011 estimated gross sales
Estimated
Low
High
commercial
estimate
estimate
value
Mighty River Power
1.35
1.87
3.70
Meridian Energy
2.29
3.18
6.30
Air New Zealand
0.16
0.29
1.20
Genesis Energy
0.58
0.81
1.60
Solid Energy
0.62
0.86
1.70
Total
5.00
7.00
$billions
Source: The Treasury
The estimated commercial values are for 100% of the companies. The figures for Mighty
River Power, Meridian Energy, Genesis Energy and Solid Energy were based on the most
recent independent commercial valuations of these companies by Macquarie Research,
First NZ Capital and Forsyth Barr. The figure for Air New Zealand was based on its share
price at the time. These valuation reports are available at:
www.comu.govt.nz/publications/information-releases/valuation-reports/2010/
Solid Energy is no longer in a position to be part of the Government Share Offer
programme in the near future. Excluding Solid Energy from the May 2011 estimate of
proceeds gives a revised range of $4.38 billion to $6.14 billion. The Treasury’s estimate
of proceeds, $4.6 billion to $5.0 billion, is within this range.
Other factors that have affected the estimated proceeds from the programme include:
 falls in the share prices of comparable New Zealand electricity companies, reflecting a
range of influences, and
 the revised contract between Meridian Energy and New Zealand Aluminium Smelters
Limited (NZAS) which, according to Meridian Energy, reduced the value of its net
assets by $476 million.
6
www.treasury.govt.nz/budget/2011/supp2010is
B.6 | 37
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
2013 Budget Update
The exclusion of Solid Energy from the programme was the only new information
available at the time the fiscal forecasts for the Budget Update were finalised. The
$6 billion figure used in previous fiscal forecasts was still within the revised range
excluding Solid Energy, although it was towards the top of that revised range.
At that point the share offer for Mighty River Power had not been completed, and so none
of the commercial valuations implicit in the $5 billion to $7 billion range had been tested by
the market. At the top end of the price range in the offer document, proceeds from Mighty
River Power would have been around $1.9 billion, which was above the top end of the
estimated range that was part of the $5 billion to $7 billion range.
The Treasury therefore concluded that the Budget Update should retain the $6 billion midpoint estimate of proceeds.
Actual proceeds
Table 2.14 – Actual proceeds to date
May 2011
Low
estimate
High
estimate
Actual
gross
proceeds
Mighty River Power
1.35
1.87
1.69
Meridian Energy
2.29
3.18
1.88
Air New Zealand
0.16
0.29
0.36
Total
3.80
5.34
3.93
$billions
Source: The Treasury
Total gross proceeds for the three transactions completed to date, at $3.93 billion, are
towards the bottom of the May 2011 estimate. For the individual transactions:
 actual proceeds for the Mighty River Power share offer were slightly above the
mid-point of the estimated range from May 2011
 actual proceeds for Meridian Energy were below the estimated range from May 2011,
but proceeds were affected by the falls in the share prices of comparable New Zealand
electricity companies, and the revised contract between Meridian Energy and NZAS,
and
 actual proceeds for the Air New Zealand transaction were above the May 2011
estimated range, as a result of the significant increase in Air New Zealand’s share price
since then.
38 | B.6
 FORECAST FINANCIAL STATEMENTS 
Accounting for minority interests
The treatment of the programme in the fiscal forecasts reflects that the Government
retains the majority ownership and control of the companies. There is therefore no “sale
of assets” reported in the consolidated financial statements. The revenue and expenses,
assets and liabilities of these companies will continue to be fully consolidated by the
Crown.
The key change to the financial statements is the disclosure of the non-controlling interest
(often referred to as the “minority interest”) of the profits and equity in those companies.
The loss on disposal is calculated as the difference in the book value of the net assets
sold and the cash proceeds. This loss is shown as a transfer within the equity section of
the balance sheet as it is considered a transaction between owners. There is therefore no
loss shown in the statement of financial performance.
Foregone profits represent the portion of profits that would have been recognised by the
Government prior to the sale but are now attributable to the minority interests. Forecast
foregone profits reduce the Government’s OBEGAL. The actual change in the OBEGAL
will depend on the actual profits the company generates, which may be different from
what is currently forecast.
These profits are different from foregone dividends (although dividends are often a subset
of profits), which represent dividend payments by the companies that will now be paid to
minority interests. As dividends are a cash receipt, forecast foregone dividends increase
the Government’s net debt. Again, the actual change in net debt will depend on actual
dividends paid by the companies.
Proceeds from the programme decrease net debt. This impact on the Government’s debt
has flow-on impacts to finance costs. Overall, the programme is expected to decrease net
debt by $4.2 billion by the end of the forecast period. This decrease serves to reduce
finance costs for the Government.
B.6 | 39
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Fiscal Forecast Assumptions
The fiscal forecasts are based on assumptions and judgements developed from the best
information available on 3 December 2013, when the forecasts were finalised. Actual
events are likely to differ from these assumptions and judgements. Furthermore,
uncertainty around the forecast assumptions and judgements increases over the forecast
period. The Canterbury earthquakes add further uncertainty to the economic and fiscal
forecasts.
The fiscal forecasts are prepared on the basis of underlying economic forecasts. Such
forecasts are critical for determining revenue and expense estimates. For example:
 A nominal GDP forecast is needed in order to forecast tax revenue.
 A forecast of CPI inflation is needed because social assistance benefits are generally
indexed to inflation.
 Forecasts of interest rates are needed to forecast finance costs, interest income and
discount rates.
A summary of the key economic forecasts that are particularly relevant to the fiscal
forecasts is provided in Table 2.15 below (on a June-year-end basis to align with the
Government’s balance date).
Table 2.15 – Summary of key economic forecasts used in fiscal forecasts
2013
Actual
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2.6
3.0
3.4
2.4
1.9
2.2
212,721
227,793
239,172
250,494
260,334
270,295
CPI (ann avg % chg)
0.8
1.4
2.0
2.5
2.3
2.3
Govt 10-year bonds (ann avg, %)
3.6
4.7
4.9
5.1
5.2
5.2
5-year bonds (ann avg, %)
2.9
4.3
4.6
4.9
5.1
5.2
90-day bill rate (ann avg, %)
2.6
2.7
3.4
4.3
4.8
5.2
Unemployment rate (ann avg, %)
6.6
5.9
5.6
5.4
5.2
4.8
Employment (ann avg % chg)
0.4
2.6
2.2
1.3
1.0
1.4
Year ended 30 June
Real GDP1 (ann avg % chg)
Nominal
Notes:
2
GDP2
1
($m)
Production measure.
Expenditure measure.
Source: The Treasury
40 | B.6
 FORECAST FINANCIAL STATEMENTS 
In addition, there are a number of other key assumptions that are critical in the preparation
of the fiscal forecasts.
Government
decisions
Incorporate government decisions and other circumstances known to the
Government up to 3 December 2013.
Tax revenue
Tax policy changes enacted and announced by the Government will take
place as planned and will affect tax revenue and receipts as calculated and
agreed between Inland Revenue and the Treasury.
Earthquake costs Expenditure (accrual measure) is forecast based on estimates on when key
decisions will be taken. The timing of cash payments is based on estimates
of when actual spending will take place. Refer to page 30 for further
discussion.
Operating
allowance
Net $1.0 billion from Budget 2014 growing at a rate of 2.0% per annum for
subsequent Budgets.
Provision for new
capital spending
$1.0 billion in Budget 2014 and $0.9 billion in Budgets 2015 and 2016, then
growing at a rate of 2% per annum for subsequent Budgets. For further
details, see note 8 of the Forecast Financial Statements.
Government
share offers
Sale programme is forecast to conclude in 2013/14.
Finance cost on
new bond
issuances
Based on the 5-year rate from the main economic forecasts and adjusted for
differing maturity.
Top-down
adjustment
A top-down adjustment is made to compensate for departments that tend to
forecast upper spending limits (appropriations) rather than best estimates.
Net sale proceeds of $4.8 billion (based on a mid-point estimate of between
$4.6 billion and $5.0 billion).
Top-down adjustment to operating and capital are as follows:
Year ending 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Operating
1.4
0.5
0.3
0.3
0.3
Capital
0.5
0.1
0.2
0.1
0.1
The adjustment will be higher at the front end of the forecast period as
departments’ appropriations (and therefore expenses) tend to be higher in
these years, reflecting the flexibility departments have around transferring
underspends to later years.
Borrowing
requirements
Forecast cash deficits will be met by reducing financial assets and issuing
debt.
Property, plant
and equipment
For the purposes of the forecast financial statements, no revaluations of
property, plant and equipment are projected beyond the current year.
Valuations as recorded for the 2013 annual financial statements and any
additional valuations that have occurred up to 30 September 2013 are
included in these forecasts.
B.6 | 41
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Student loans
The carrying value of student loans is based on a valuation model adapted
to reflect current student loans policy. As such, the carrying value over the
forecast period is sensitive to changes in a number of underlying
assumptions, including future income levels, repayment behaviour and
macroeconomic factors such as inflation and discount rates used to
determine the effective interest rate for new borrowers. Any change in these
assumptions would affect the present fiscal forecast.
Investment rate
of returns
Incorporate the actual results to 30 September 2013. Beyond this time,
gains on financial instruments are based on long-term benchmark rates of
return for each portfolio.
GSF and ACC
liabilities
The GSF and ACC liabilities included in these forecasts have been valued
as at 30 September 2013 and 30 June 2013 respectively. The ACC liability
has also been adjusted for the 30 September 2013 discount rate. Both
liabilities are valued by projecting future cash payments, and discounting them
to present value. These valuations rely on historical data to predict future
trends and use economic assumptions such as inflation and discount rates.
Any change in actual payments or economic assumptions would affect the
present fiscal forecast. For example, if the discount rate decreases, the value
of the liabilities would increase.
GSF’s assets are offset against the gross liability and have been updated to
reflect market values. The value of assets over the forecast period reflects
long-run rate of return assumptions appropriate to the forecast portfolio mix.
ACC levies
The forecast includes a $387 million reduction in ACC levies for the 2014/15
levy year rising to $1.0 billion in the following levy year.
NZS Fund
contributions
No contribution is assumed in the forecast period.
Year ending 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Required contribution
2.1
2.2
2.2
2.1
2.0
-
-
-
-
-
Actual contribution
The underlying assumptions in calculating the required contribution in each
year are the previous year’s NZS Fund balance and projected series, over
the ensuing 40 years of nominal GDP, net (after-tax) New Zealand
superannuation expenses and the Government 5-year bond rate. The latter
is used in calculating the Fund’s expected long-run after-tax annual return.
Over the forecast years all Fund variables, apart from the capital
contributions, are provided by the NZS Fund itself.
Refer to the Treasury’s website for the NZS Fund model.
42 | B.6
 FORECAST FINANCIAL STATEMENTS 
Risks and Scenarios
Overview
 This chapter outlines the general economic and fiscal risks associated with the major
assumptions underpinning the main forecast. Risks associated with the main forecast
of the Half Year Update are evenly balanced, with upside risks to the domestic outlook
having increased relative to recent Economic and Fiscal Updates, while risks associated
with a negative global shock remain.
 Domestically, risks with potentially the largest impact on the New Zealand economy
relate to the speed of the Canterbury rebuild and its interaction with the wider
economy, the extent to which demand is boosted by population growth via higher net
migration inflows and the degree of caution displayed by consumers.
 Major advanced economies continue to undergo significant adjustments to reduce
government debt, while the effects of monetary easing remain uncertain. Emerging
economies are at risk from a rise in global interest rates once the US begins tapering
its quantitative easing programme, which could have negative implications for
New Zealand’s economy through both financial channels and the terms of trade.
 Two scenarios are presented that represent just two possible ways the New Zealand
economy could deviate from the main forecast. Scenario one is based on a stronger
domestically driven, cyclical pick-up in GDP growth, in part driven by higher external
net migration. This scenario results in nominal GDP being $20.7 billion higher over the
forecast period. In scenario two, a slowing of growth in emerging Asia negatively
impacts New Zealand’s terms of trade and lowers nominal GDP by $12.5 billion over
the forecast period. If these economic risks or any significant deviations from the main
forecast were to eventuate they would impact on the Government’s fiscal performance
and position.
 In addition to risks associated with the economy, the Crown is also subject to
expenditure and balance sheet risks. In particular, volatility in market prices such as
interest rates can have a significant impact on the Crown’s fiscal position.
Introduction
The first part of this chapter outlines the key risks to the economic outlook. These risks mainly
relate to the key judgements associated with the main forecast. In the second part of the
chapter, two scenarios are presented that represent just two possible ways the New Zealand
economy could deviate from the main forecast. The chapter then focuses on the established
channels between the risks facing the economy and the Crown’s fiscal position.
Economic Risks
Risks to the forecasts are relatively balanced
As in the Budget Update, risks around the main forecasts are fairly evenly balanced, with
upside risks to the domestic outlook having increased relative to recent Economic and
Fiscal Updates, while risks associated with a negative global shock remain.
B.6 | 43
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
There are a large number of ways in which events could turn out different from forecast.
The risks with potentially the largest impact on the New Zealand economy relate to the
speed of the Canterbury rebuild and its interaction with the wider economy, the extent to
which demand is boosted by population growth via higher net migration inflows and
consumer behaviour. Global economic developments, including shocks as the world
economy undergoes an extended period of transition, could lead to more rapid adjustments
for the prices of some of our main commodity exports and therefore affect the path of the
terms of trade.
All of these factors are likely to have a significant role in influencing the size and dynamics of
the current economic cycle. Other key judgements made in the forecasts include the level and
flow-through of the exchange rate, the current amount of spare capacity in the economy and
monetary policy developments.
The earthquake rebuild remains a significant area of uncertainty...
There is considerable uncertainty associated with the timing and magnitude of the
Canterbury earthquake rebuild. Key determinants of the speed of the rebuild include
insurance settlements and the capacity and capability of the construction sector. If the
rebuild were to progress more slowly than expected, residential and non-residential
construction and employment could all be weaker than in the main forecast. The overall
size of the rebuild will also be influenced by the extent to which private firms ultimately
decide to reinvest insurance proceeds within the Canterbury region.
Another risk to the forecasts is how much the Canterbury rebuild crowds out activity in
other parts of the economy. Even with inward migration and the importation of capital
goods, New Zealand has limited construction capacity and consequently it is likely that
some rebuild activity will crowd out other activity elsewhere. Implicitly this means that
activity outside Canterbury at the peak of the building cycle is likely to be a lower share of
GDP relative to previous construction upturns. If the pace and level of the Canterbury
rebuild is more sluggish, there will be less displacement of activity in the rest of the
country and less competition for construction resources, resulting in less upward pressure
on prices.
...as does the strength of the current net migration cycle...
Despite large upward revisions to the net migration assumption since the Budget Update,
there is the possibility that weaker activity in Australia and other developed economies
sees even stronger net inflows into New Zealand. The impact on the economy will be
influenced by the skills of migrants and the areas where they settle (or remain in the case
of New Zealanders who choose not to leave for abroad). For example, appropriately
skilled migrant inflows into Canterbury could mitigate some of the risks related to the
Canterbury rebuild, albeit adding to accommodation pressures in the near term. However,
a large proportion of the population gains from higher net migration will likely place
additional pressure on the housing market in other parts of the country, such as Auckland,
contributing to stronger domestic demand, which then flows through to the wider economy
through multiplier effects.
…while households could be less cautious, resulting in greater cyclical volatility
If households exercise less spending restraint than is anticipated in the main forecasts,
consumption may rise faster than disposable income, with the shortfall being funded by
rising debt, resulting in a negative saving rate over the forecast period. While this would
be positive for GDP growth in the near term, owing to a boost to private consumption, it
44 | B.6
 FORECAST FINANCIAL STATEMENTS 
may require a sharper adjustment in the medium term as households become more
indebted and need to repair their balance sheets. Elevated debt levels also expose
household balance sheets to sharp corrections in house prices.
The Alternative Scenarios section explores the risk of a more protracted and larger net
migration cycle and more willingness on the part of households to spend, all resulting in a
more cyclical pick-up across the economy.
Global downside risks persist…
Global risks continue in the background and remain skewed to the downside as major
advanced economies continue to undergo significant adjustments to reduce government
debt, and in addition the effects of monetary easing and its subsequent withdrawal remain
uncertain. Some emerging Asian economies, which are significant for New Zealand’s
trading partner growth, could also experience weaker growth once global monetary
stimulus is withdrawn, particularly in the US.
...with elevated debt levels requiring ongoing adjustment
European countries remain highly indebted, but the probability that the crisis will worsen
significantly has subsided over the past year owing to actions taken by the European
Central Bank and some pick-up in euro area growth. Nevertheless, there remains
considerable ongoing risk of further flare-ups, which would further dampen growth in the
region and trigger financial market turmoil if an event was significant enough. Peripheral
countries in the euro area continue to struggle with austerity measures which,
compounded by poor competitiveness, create the potential for political instability.
The US must also undergo significant adjustment to reduce high government debt.
Following on from events in October when the debt ceiling was raised temporarily to
prevent a default on interest payments for US Treasury debt, there is a risk that
brinkmanship continues to create heightened uncertainty concerning a permanent
increase in the debt ceiling. This could lead to significant volatility in global financial
markets which rely heavily on US Treasury bills and bonds as collateral.
More sustained growth and therefore reduced need for monetary stimulus...
Well anchored inflation expectations and existing spare capacity mean Japan, the US and
the UK are still undertaking significant quantitative easing programmes to stimulate their
economies through the purchase of financial assets. However, the US economy has
recently shown signs of more sustainable growth and markets are expecting a tapering of
quantitative easing in early 2014, although the US remains vulnerable if the removal of
stimulus proves to be premature. Japan has implemented additional fiscal stimulus and
structural reforms to kick-start growth. However, whether this will translate into sustainable
growth over the medium term remains uncertain, particularly following a prolonged period
of economic malaise.
…could expose fragilities elsewhere...
A rise in global bond rates once the US tapers its quantitative easing programme could
leave some emerging economies significantly exposed given their currently high levels of
debt. This could be exacerbated by losses in the banking sector in those emerging
economies if the rapid growth in credit in recent years was facilitated by easy lending
standards. An increase in US bond rates, combined with a weaker economic outlook in
B.6 | 45
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
emerging market economies, could also lead to an outflow of foreign capital, putting
downward pressure on exchange rates and raising inflation.
Of New Zealand’s emerging Asia trading partners, Indonesia and India are the most
vulnerable, as neither is currently running a current account surplus. The risk of a severe
event similar to the Asian financial crisis in 1997 appears less likely now given that most
Asian economies have floating exchange rates, hold larger foreign exchange reserves
and have less foreign currency-denominated external debt.
…while risks for New Zealand’s key trading partners remain…
Of more significance to New Zealand are the risks to the growth outlook for China, which
is our second largest trading partner after Australia. The property investment and
construction boom in China following the global financial crisis led to a build-up of poorquality debt, especially in the local government sector. The risk of a sharp correction in
house prices remains, and could expose a high level of bad debts in the banking sector
and may cause credit conditions to tighten even further.
China is aiming to rebalance its economy away from export- and investment-led growth
towards consumption. Rebalancing could lead to lower growth in the short term,
particularly if the transition is disorderly, while faster progress to this goal would benefit
New Zealand as it is a major supplier of food products to Chinese households. Weaker
growth in China would also negatively impact on activity in emerging Asia, particularly
amongst commodity producers, given their reliance on Chinese demand and tightly-linked
supply chains.
One of the main risks associated with New Zealand’s largest trading partner, Australia, is
the transition of growth from investment to domestic demand and exports. It will take some
time for the exports associated with this investment to come online, requiring increased
residential and non-mining business investment to replace high levels of mining investment
and maintain Australia’s recent strength in economic growth. Australia is also exposed to a
slowdown in China and emerging market economies which would reduce the demand for
hard commodities.
…which, if they eventuate, would adversely impact on the New Zealand economy
Weaker growth in our trading partners could result in weaker demand for New Zealand’s
exports and commodity prices may fall. This would affect domestic incomes, confidence
and asset prices as households behave more cautiously owing to higher risk aversion.
The result of these developments would be lower private consumption, while more caution
on the part of firms would decrease business investment growth and new hiring. The
higher level of uncertainty faced by financial market participants could flow through to
reduced availability, and a higher cost, of credit for New Zealand. However, in contrast to
other developed countries, there is still scope for the Reserve Bank to provide liquidity as
needed and lower the base interest rate (or slow increases) to mitigate the impact of
higher funding costs on the interest rates faced by households and businesses.
Other risks surround key judgements...
Economic relationships are complex and developments are subject to inherent
uncertainty, particularly the evolution of the exchange rate. There is a risk that the
exchange rate remains supported for longer owing to the stronger domestic outlook,
prolonged monetary stimulus in advanced economies and ongoing gains in global
commodity prices for key New Zealand exports. A higher exchange rate would decrease
46 | B.6
 FORECAST FINANCIAL STATEMENTS 
tradables inflation, as imported goods would become less expensive, and encourage
consumption of imported products. On the other hand, exporters and import-competing
businesses would become less competitive, hindering manufacturing and services exports
and production of import substitutes for the domestic market.
Another area of uncertainty is the current amount of spare capacity in the economy (the
output gap) and its relationship with inflation. If the output gap is currently more negative,
because potential GDP is higher than we have assumed in the main forecast, then there
is greater scope for an increase in real GDP with less domestically generated inflation.
Alternatively, if the strength of inflationary pressures were to surprise, perhaps owing to a
stronger spill-over of rebuild costs from Canterbury into the wider economy, the response
of monetary policy may be greater than anticipated. While implemented for macroprudential reasons, the effectiveness of the recent loan-to-value restrictions in moderating
house price growth is another area of uncertainty.
…including the perennial risks associated with the weather
Pasture conditions have improved since last summer and the impact of the drought on
real GDP was broadly in line with estimates outlined in the Budget Update. In the near
term, the agricultural sector is expected to bounce back strongly from the drought,
although this is dependent on the assumption that pasture conditions remain favourable in
coming quarters. Feed prices and availability amongst New Zealand’s international
competitors will also influence global supply and have a strong bearing on commodity
prices and therefore the path of New Zealand’s merchandise terms of trade.
Alternative Scenarios
The following scenarios show how the economy might evolve if some of the key judgements
in the main forecast are altered (Table 3.1). The scenarios are only illustrative in that they
are two of a large number of possible examples, and do not represent upper or lower
bounds for the forecasts, with more extreme paths possible. They represent what are
assessed to be key risks to the Half Year Update forecast and illustrate the impact of
relatively small changes in the assumptions on key economic and fiscal variables. Although
not the most likely outcome, there is a realistic prospect that these scenarios could occur.
Table 3.1 – Summary of key economic and fiscal variables for main forecast and
scenarios
March years
Real GDP (annual average %
change)
Main forecast
Stronger cyclical growth
Slower emerging Asia growth
Unemployment rate1
Main forecast
Stronger cyclical growth
Slower emerging Asia growth
Nominal GDP (annual average %
change)
Main forecast
Stronger cyclical growth
2013
Actual
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2.7
2.7
2.7
2.7
3.2
2.7
3.6
4.4
3.4
2.7
2.8
2.5
2.0
1.6
1.8
2.2
1.8
2.0
6.2
6.2
5.8
5.7
5.6
5.3
5.4
5.1
5.2
4.9
4.7
4.6
6.2
5.8
5.8
5.7
5.4
5.0
2.4
2.4
6.5
6.9
4.9
6.1
5.2
5.7
4.0
3.9
3.7
3.6
B.6 | 47
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Slower emerging Asia growth
Current account balance (% of
GDP)
Main forecast
Stronger cyclical growth
Slower emerging Asia growth
90-day bank bill rate2
Main forecast
Stronger cyclical growth
Slower emerging Asia growth
Total Crown OBEGAL (% of GDP)³
Main forecast
Stronger cyclical growth
Slower emerging Asia growth
Core Crown net debt (% of GDP)³
Main forecast
Stronger cyclical growth
Slower emerging Asia growth
Notes:
1
March quarter, seasonally adjusted.
2
March quarter average.
3
June years.
2.4
6.5
4.1
5.0
3.8
3.4
-4.5
-4.5
-4.5
-4.2
-4.2
-4.2
-5.5
-5.8
-6.4
-6.3
-7.2
-7.2
-6.5
-7.5
-7.1
-6.4
-7.2
-7.1
2.7
2.7
2.7
2.7
2.9
2.7
3.6
4.7
3.3
4.4
5.8
3.7
4.9
6.0
4.5
5.2
6.1
5.0
-2.1
-2.1
-2.1
-1.0
-0.8
-1.0
0.0
0.6
-0.2
0.7
1.6
0.3
1.2
2.2
0.7
2.1
3.0
1.5
26.2
26.2
26.2
26.3
25.9
26.4
26.5
25.2
26.9
25.8
23.5
26.6
24.4
21.2
25.7
22.3
18.4
24.3
Sources: Statistics New Zealand, the Treasury, Reserve Bank
Scenario One – Stronger Cyclical Growth
A more cyclical pick-up in domestic growth…
Scenario one is based on a stronger domestically driven, cyclical pick-up in GDP growth,
in part driven by higher external net migration which raises domestic demand and spills
over to wider confidence amongst firms. In this scenario it is assumed that the peak and
duration of the net migration cycle is greater than in the main forecast and reaches 33,000
in the year to September 2014, only 10,000 below the peak in the early 2000s. This
results in an addition of 16,000 people to the population over the forecast period
(Figure 3.1) and follows from a relatively more attractive New Zealand economy and
outlook compared to other developed countries, particularly Australia. Within this, the
arrival of international migrants to assist in the Canterbury rebuild is greater, particularly
from the UK and Ireland, as well as Asia.
An increase in the number of international arrivals adds to demand for housing,
particularly in the Auckland and Canterbury regions where job opportunities are more
abundant and the pressure on the existing housing stock is already high. Stronger
competition for existing homes leads to higher house price inflation relative to the main
forecast. As a result, annual house price inflation peaks at about 15% in 2014, compared
with around 10% in 2013 in the main forecast.
Figure 3.1 – Annual net external migration Figure 3.2 – Private consumption growth
48 | B.6
 FORECAST FINANCIAL STATEMENTS 
000s
Annual average % change
50
7
Forecasts
40
Forecasts
6
5
30
4
20
3
2
10
1
0
0
-1
-10
-2
-20
Mar-01 Dec-02 Sep-04 Jun-06 Mar-08 Dec-09 Sep-11 Jun-13 Mar-15 Dec-16
-3
Mar-01 Dec-02 Sep-04 Jun-06 Mar-08 Dec-09 Sep-11 Jun-13 Mar-15 Dec-16
Quarterly
Scenario one
Half Year Update 2013
Sources: Statistics New Zealand, the Treasury
Quarterly
Scenario one
Half Year Update 2013
Sources: Statistics New Zealand, the Treasury
...with private consumption and investment growing more strongly...
Faster house price growth leads households to resume mortgage equity withdrawal to
finance consumption, and the relationship seen between house prices and consumption
over the 2000s reasserts itself. Annual real private consumption growth averages 4.5% in
this scenario over 2014 and 2015 compared to 3.0% in the main forecast, although growth
is slower beyond 2016 (Figure 3.2). Additional demand for the existing housing stock also
provides further support for residential investment which is already forecast to reach a
similar peak (as a percent of GDP) as in the previous housing boom. The lift in domestic
demand spills over to business confidence, resulting in increased market investment and
hiring. Employment growth is therefore higher, which contributes to a lower unemployment
rate over the forecast period.
In the near term, the demand-driven pick-up in actual GDP sees the output gap close
earlier, resulting in faster growth in domestically generated inflation. Although the influx of
overseas migrants contributes to an increase in potential GDP over the forecast by lifting the
working-age population, the output gap is more positive owing to the stronger pick-up in
actual GDP. The output gap peaks at 1.9% of potential GDP over the medium term as
opposed to 0.9% in the main forecast, but is still much narrower than the cycle in the mid2000s.
Higher inflation and inflation expectations in the near term see the Reserve Bank react by
tightening monetary policy sooner and more aggressively over the cycle to maintain price
stability. The 90-day bank bill rate reaches 6.0% by March 2017, around 100 basis points
higher than the main forecast, which could see floating mortgage rates rise to around 8%.
Higher interest rates act to temper private consumption and investment growth and, as a
result, real GDP growth beyond 2016 is weaker relative to the main forecast.
...but domestic and external imbalances become greater
As the higher consumption is partly financed by borrowing against the increased value of
housing, rather than higher incomes, the household saving rate is significantly lower than
in the main forecast. The household saving rate reaches a low of -3.6% of household
disposable income in the March 2017 year compared to the main forecast where it is 0.1%
in 2017. This negative saving rate, along with higher interest rates at the end of the
forecast period, drives lower consumption growth relative to the main forecast in 2017 and
2018. It is likely that further adjustment to household balance sheets will be required
sometime beyond the forecast period, which would continue to constrain future
consumption growth.
B.6 | 49
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
The annual current account deficit is wider and reaches 7.2% of GDP in March 2018, versus
6.4% in the main forecast. This is because some of the increased consumption and
investment is met from imported goods and services. The higher interest rate track also
means the exchange rate remains elevated for longer, which encourages more imports and
constrains services exports, further contributing to a wider current account deficit.
GDP and tax revenue increases...
Stronger private consumption and residential investment, along with greater price
pressure, result in nominal GDP being a cumulative $20.7 billion higher over the forecast
period. The increased activity drives a stronger labour market in the early years of the
forecast period, with the unemployment rate falling to 5.1% in March 2016, 0.3 percentage
points lower than in the main forecasts.
Core Crown tax revenue is a cumulative $8.6 billion higher over the forecast period as a
result of the higher nominal GDP. Higher nominal consumption and residential investment
boost GST revenue by $2.1 billion over the forecast period. The stronger labour market and
increased competition for workers push up wages and salaries, boosting source deductions
revenue by a cumulative $1.8 billion. The stronger economic activity allows firms to increase
their margins, boosting profitability and increasing corporate tax by $1.9 billion out to June
2018. Higher short-term interest rates, needed to control rising inflation, boost tax on
interest by $1.8 billion.
Core Crown expenses are slightly
Figure 3.3 – Operating balance (before gains
lower than in the main forecast owing
and losses)
to a fall in debt servicing costs and, to
% of GDP
6
a lesser extent, a reduction in welfare
Forecasts
4
payments. The decrease in welfare
2
payments is driven by a lower number
0
of recipients receiving unemployment-2
related benefits, reflecting the stronger
-4
labour market. In this scenario,
-6
OBEGAL records a larger surplus of
-8
0.6% of GDP in the June 2015 year,
-10
2007
2009
2011
2013
2015
2017
the same year surplus is achieved in
Years ended 30 June
Scenario one
Scenario two
Half Year Update 2013
the main forecast (Figure 3.3). Net
Source: The Treasury
core Crown debt as a percentage of
GDP peaks at 25.9% in the June 2014
year, compared to 26.5% in the June 2015 year in the main forecast and falls away more
quickly, dropping below 20% by June 2018 (Figure 3.6).
...but fiscal policy assumed to be restrained
While OBEGAL records a larger surplus in 2015 in this scenario, discretionary fiscal policy
is unchanged relative to the main forecast and is restrained compared to the mid-2000s
cycle. The subdued growth in government spending in the main forecast maximises the
prospect of a subsequent “soft-landing” for the economy as well as minimising external
vulnerabilities. If the extra income received by the Government was used to increase
spending it would add to the cycle by increasing domestic demand, contributing to price
pressures, which could then necessitate tighter monetary policy. This may support the
exchange rate remaining higher for longer, which could result in greater imbalances such
as an even larger current account deficit.
50 | B.6
 FORECAST FINANCIAL STATEMENTS 
Scenario Two – Slower Growth in Emerging Asia
Increases in global interest rates trigger slower growth in emerging Asia…
Scenario two is based on a slowing of growth in emerging Asia, which would negatively
impact New Zealand’s terms of trade as demand for soft commodities falls. It is assumed
that earlier and faster-than-expected tapering of asset purchases in the US leads to a
tightening of credit conditions in emerging Asia, excluding China. Tighter credit conditions
in the region constrain business investment, while household disposable income falls as
servicing costs on outstanding household debt rise, limiting household spending growth.
…while domestic imbalances partially unravel in China...
Slower growth in China is triggered by relatively disorderly corrections in domestic
financial and real estate markets. Specifically, these events could arise from a reduction in
infrastructure investment as local government debt mounts to unsustainable levels, a
sharp correction in the overheated housing market which results in a tightening of credit
conditions and/or large-scale defaults in the informal banking sector. It should be noted
that this scenario characterises a disorderly rebalancing event as opposed to a significant
financial market failure that would have more severe implications, but is considered to be
unlikely. Weaker Chinese demand for commodities produced in the rest of emerging Asia
compounds the impact of the initial slowdown in the region. In addition, growth in our
largest trading partner, Australia, slows as demand for hard commodities from emerging
Asia falls in the face of weaker growth.
…resulting in weaker growth in our trading partners...
Overall, the shock lowers trading partner growth between 2014 and 2016 relative to the
main forecasts (Figure 3.4). The weaker-than-assumed activity in emerging Asia
(including China) flows through to New Zealand in the form of lower prices for key
commodity exports, particularly dairy, meat and forestry products, resulting in a larger
drop in the merchandise terms of trade in the near term (Figure 3.5). As in the main
forecast, the assumed global supply response to previously strong demand still occurs in
this scenario, adding to the downward pressure on prices for key commodity exports. The
terms of trade in this scenario remain at a lower level over the medium term, albeit one
that is still high by historical standards, which reduces incomes and results in more
cautious household spending over the forecast period. In this scenario, private
consumption growth averages around 2.4% annually, compared with 2.6% in the main
forecast. Risk aversion is heightened for firms, leading to lower business investment as
they are less willing to commit to expenditure in a more uncertain environment.
In the main forecast we assume that the labour market continues to improve as increasing
employment contributes to a gradual decline in unemployment. In scenario two, a weaker
pick-up in domestic activity and more caution on the part of businesses result in subdued
employment and the unemployment rate recovers to a lesser extent. The assumption of a
weaker labour market sees the unemployment rate fall to 5.0% by March 2018, compared
to 4.7% in the main forecast. This results in more spare capacity in the economy and less
domestically generated inflation.
B.6 | 51
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Figure 3.4 – Trading partner growth
Figure 3.5 – Merchandise terms of trade (SNA)
Annual average % change
Index
6
1,300
Forecasts
5
1,250
4
1,200
3
1,150
2
1,100
1
1,050
0
1,000
-1
2001
2003
2005
2007
2009
2011
2013
2015
2017
950
Mar-06
Forecasts
Mar-08
Mar-10
Calendar year
Scenario two
Half Year Update 2013
Sources: Haver Analytics, the Treasury
Mar-12
Mar-14
Mar-16
Mar-18
Quarterly
Scenario two
Half Year Update 2013
Sources: Statistics New Zealand, the Treasury
…causing weaker nominal GDP…
Weaker domestic activity, combined with lower terms of trade and CPI inflation, reduces
nominal GDP by $12.5 billion over the forecast period compared to the main forecast. The
lower terms of trade in this scenario weaken the goods trade balance over the forecast
period which, along with the lower nominal GDP, increases the current account deficit as
a percentage of GDP relative to the main forecast. The current account balance reaches a
deficit of 7.1% of GDP by March 2018, compared to 6.4% in the main forecast.
…as well as lower tax revenue and operating balance
Core Crown tax revenue is a cumulative $3.9 billion lower over the forecast period in this
scenario, largely owing to nominal GDP being $12.5 billion lower over the forecast period.
The weaker labour market and less inflationary pressure lower worker incomes, which
reduces source deductions revenue by $1.3 billion over the forecast period. The economy’s
weaker nominal activity means that business profitability is reduced, resulting in corporate
taxes being a cumulative $1.0 billion lower. Resident withholding tax is $0.7 billion lower over
the forecast period with interest rates increasing less than in the central forecast as inflation
is closer to the mid-point of the target band. Weaker nominal consumption and residential
investment reduces GST revenue by a cumulative $0.4 billion over the forecast period.
Core Crown expenses are slightly
Figure 3.6 – Net core Crown debt
higher than in the main forecast,
% of GDP
30
driven by an increase in debt servicing
Forecasts
25
costs. Welfare payments are broadly
similar to the main forecast as the
20
higher number of recipients receiving
15
unemployment-related benefits is
10
largely offset by lower indexation
5
adjustments to payment rates of many
benefits and superannuation. This
0
2007
2009
2011
2013
2015
2017
reflects both lower inflation and wage
Years ended 30 June
Scenario one
Scenario two
Half Year Update 2013
growth. In this scenario, the return to
surplus of OBEGAL is delayed by one Source: The Treasury
year until the June 2016 year (Figure
3.3). As a consequence, net core Crown debt as a proportion of GDP is higher at the end
of the forecast period (June 2018), falling to 24.3% compared to 22.3% in the main
forecast (Figure 3.6).
52 | B.6
 FORECAST FINANCIAL STATEMENTS 
General Fiscal Risks
The remainder of this chapter focuses on the links between the risks to the performance
of the economy and the Crown’s fiscal position. For more on fiscal risks, see the Specific
Fiscal Risks chapter on page 61.
Fiscal Sensitivities
Table 3.2 provides some rules of thumb on the sensitivities of the fiscal position to small
changes in specific variables. For example, if, for some reason, nominal GDP growth is
one percentage point faster than we have forecast each year up to June 2018, tax
revenue would be expected to be around $4.0 billion (1.5% of GDP) higher than forecast
in the June 2018 year as a result. The sensitivities are broadly symmetric and if nominal
GDP growth is one percentage point slower each year than we expect, tax revenue would
be around $3.9 billion lower than forecast in the June 2018 year. However, these figures
can be influenced by the composition of growth as different types of activity have different
effective tax rates.
A different interest rate path than that forecast would also impact on the fiscal position. A
one percentage point lower interest rate would result in interest income on funds managed
by the Treasury’s New Zealand Debt Management Office (NZDMO) being $178 million
lower in the June 2018 year. This would be more than offset by interest expenses being
$384 million lower in the June 2018 year.
Table 3.2 – Fiscal sensitivity analysis
Year ending 30 June
($millions unless stated)
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
620
0.3
1,335
0.6
2,150
0.9
3,035
1.2
4,015
1.5
270
0.1
125
0.1
570
0.2
290
0.1
910
0.4
475
0.2
1,285
0.5
670
0.3
1,725
0.6
875
0.3
Interest income1
(70)
(89)
(85)
(161)
(178)
(% of GDP)
(0.0)
(0.0)
(0.0)
(0.1)
(0.1)
Interest expenses1
(% of GDP)
(4)
(0.0)
(134)
(0.1)
(244)
(0.1)
(341)
(0.1)
(384)
(0.1)
Overall operating balance
(66)
45
159
180
206
(0.0)
0.0
0.1
0.1
0.1
1% higher nominal GDP growth per annum on
Tax revenue
(% of GDP)
Tax revenue impact of a 1% increase in growth
of
Wages and salaries
(% of GDP)
Taxable business profits
(% of GDP)
Impact of 1% point lower interest rates on
(% of GDP)
Note:
1
Funds managed by the Treasury’s NZDMO only.
Source: The Treasury
B.6 | 53
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Revenue Risks
One of the major sources of risk to the fiscal position arises from the inherent uncertainty
about future tax revenue. The amount of tax revenue that the Government receives in a
given year is closely linked to the performance of the economy. Figure 3.7 plots the main tax
revenue forecast, along with confidence intervals around those forecasts based on the
Treasury’s historical tax forecast errors and the assumption of an even balance of risks
around the central forecast.7 The outermost shaded area captures the range +/- $7.8 billion
in the June 2018 year within which actual tax outturns fall 80% of the time.8
The tax revenue forecasts from the two scenarios are also shown in Figure 3.7. The
2008/09 global financial crisis showed that exogenous shocks can have severe impacts
on government revenue. Further adverse weather conditions or a global downturn would
have a negative impact on the Government’s fiscal position. Should any of the
uncertainties outlined in the Economic Risks section eventuate differently from the main
forecast, government revenue would likely be different from forecast, with scenarios one
and two being examples of possible outcomes.
Figure 3.7 – Core Crown tax revenue uncertainty
$billions
90
85
80
75
70
65
60
55
50
45
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Years ended 30 June
10-90 percentiles
20-80 percentiles
30-70 percentiles
40-60 percentiles
Scenario one
Scenario two
Actual and forecast
Source: The Treasury
7
A full summary of the methodology and critical assumptions is included in New Zealand Treasury
Working Paper 10/08. Standard deviation assumptions used for 0-, 1-, 2- and 3-year ahead forecasts
are 0.9%, 3.2%, 5.3% and 6.6% of the actual result, respectively.
8
Previous Treasury analysis showed that a shock that has a significant and persistent impact on economic
growth can result in tax revenues significantly beyond the outermost shaded area. See Fookes, C (2011),
“Modelling shocks to New Zealand’s fiscal position”, New Zealand Treasury Working Paper 11/02.
54 | B.6
 FORECAST FINANCIAL STATEMENTS 
Based on average historical forecast errors and an even balance of risks, Figure 3.7
suggests that tax revenue over the forecast period would be stronger than scenario one
approximately 30% of the time and weaker than scenario two approximately 40% of the time.
There is also uncertainty around government revenue arising from the performance of
SOEs and the path of interest rates as outlined in the Fiscal Sensitivities section.
Expenditure Risks
One-off and unexpected expenditure shocks can have a large impact on the Crown’s
operating balance in the year that they occur. Persistent errors in forecasting the cost of
various programmes (ie, policies that cost more than the Government allows for) can also
have substantial ongoing effects on the fiscal position.
There is also considerable uncertainty regarding the effect of the performance of the
economy on Crown expenditures. This uncertainty largely relates to the operation of the
so-called automatic stabilisers. For example, if the economy performs better (worse) than
expected in a given year, official expenditures on social programmes may be lower
(higher) than planned.
Meanwhile, the destructive seismic events of recent years have underlined the inherent
exposure of the Crown’s fiscal position to exogenous shocks. The Government’s fiscal
position would be impacted if another catastrophic earthquake were to occur or if the
costs associated with the recent events exceed the updated estimates.
The ageing population also presents risks to the medium-term fiscal position, particularly
to the extent that demographic forecasts may prove to be too low or high. An ageing
population requires increased government expenditure, particularly for health and
superannuation spending.
Balance Sheet Risks
In addition to risks around revenue and expenditure, the Crown’s financial position is
exposed to risks to its balance sheet. While some are unavoidable, the Crown’s general
approach is to identify, avoid or mitigate these risks where practicable. For more
information on balance sheet risks, see the Fiscal Outlook chapter on pages 34 to 35.
The largest source of balance sheet risk is volatility in asset and liability values owing to
movements in market variables such as interest rates, exchange rates and equity prices.
This may result in an operating balance impact. Of the Crown’s aggregate financial risk,
roughly a third is estimated to be attributed to this “market risk”.9 Three areas of the
balance sheet are particularly susceptible:
 Financial assets held by the CFIs are sensitive to financial-market volatility. CFIs
diversify their portfolios across a range of financial assets to manage exposures to
specific market risks. The Crown Ownership Monitoring Unit (COMU) estimates a 10%
fall (rise) in world share markets would lead to a 4% to 5% fall (rise) in the value of the
Crown’s financial portfolio.
9
Irwin, T and Parkyn, O (2009), “Improving the management of the Crown’s exposure to risk”,
New Zealand Treasury Working Paper 09/06.
B.6 | 55
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
 Insurance and retirement liabilities and provisions are prone to market volatility through
their actuarial valuations, which are sensitive to assumptions about variables such as
interest and inflation rates, and risk margins.
 Physical assets such as land, buildings, state highways and military equipment are
susceptible to valuation movements through changes in property market conditions,
interest rates and changes in the costs of construction. This will affect the recorded
value of physical Crown assets.
Business risks, relating to the broader commercial environment, may also affect the
Crown’s balance sheet. A number of entities owned by the Crown, including commercial
and social entities, have their financial performance and valuations impacted by these
external factors.
Funding Risks
The New Zealand Crown remains in the top-20 rated sovereigns globally, with the top Aaa
foreign-currency rating from Moody’s and AA foreign-currency ratings from Standard &
Poor’s and Fitch. The outlook is stable across all three agencies.
The downside risks identified by the rating agencies are broadly in line with the risks
identified earlier in the chapter. In the case of an increase in global risk-aversion and in
the absence of a marked improvement in the external position, New Zealand may be more
likely to face a degree of funding pressure in the future. All things being equal, any further
deterioration in the ratings outlook could serve to raise debt-servicing costs for the Crown.
On the other hand, additional downward pressure on borrowing rates is possible if
diversification flows, particularly away from Europe, continue in the future.
The Crown is also susceptible to “liquidity risk” with respect to its ability to raise cash to
meet its obligations. This risk, however, is relatively small given ongoing management of
the core Crown’s liquidity position by the Treasury’s DMO, as well as the Government’s
commitment to maintaining prudent debt levels.
56 | B.6
 FORECAST FINANCIAL STATEMENTS 
Specific Fiscal Risks
The Statement of Specific Fiscal Risks is required by the Public Finance Act 1989 to set
out, to the fullest extent possible, all government decisions and other circumstances
known to the Government at the date of the finalisation of the fiscal forecasts that may
have a material effect on the fiscal and economic outlook, but are not certain enough in
timing or amount to include in the fiscal forecasts. Although the process for disclosure of
specific fiscal risks involves a number of parties, including government departments, the
Treasury and the Minister of Finance, there remains a possibility that not every risk is
identified. Disclosure of known risks is also subject to specific requirements and
materiality thresholds, which are described after the Statement of Specific Fiscal Risks.
Overview
Specific fiscal risks can be positive or negative and can affect revenue or spending. The
links between external events and spending are indirect because new policies that change
spending and revenue usually require a decision by the Government and approval from
Parliament. The approach taken in this chapter is to disclose those potential policy
decisions and key areas of uncertainty that may have a material effect on the fiscal
outlook.
The Government generally sets aside allowances of new funding for future Budgets to
manage uncertainty and cost pressures. These allowances are included in the fiscal
forecasts. Current fiscal management policy is for future policy decisions affecting
expenses or capital expenditure to be met through reprioritisation or from within existing
provisions included in the fiscal forecasts. Future policy decisions are risks to the fiscal
forecasts only to the extent that they cannot be managed from within:
 existing baselines or Budget allowances for operating expenditure, or
 the existing Crown balance sheet for capital expenditure, including the Future
Investment Fund.
Notwithstanding this, known material policy risks are identified as specific fiscal risks,
even though the Government has more control in managing such risks through
reprioritisation, the existing Crown balance sheet and the Budget allowances. This is
done to ensure a prudent approach to the disclosure of risks, improve transparency and
not pre-judge future decisions by governments.
The specific fiscal risks are categorised into:
 Potential policy decisions affecting revenue: For example, changes to tax policy or
ACC levies could reduce or increase government income.
 Potential policy decisions affecting expenses (expected to be funded from
reprioritisation or Budget allowances): Costs of policy proposals could increase or
decrease expenses depending on decisions taken, and they are risks to the fiscal
forecasts only to the extent that they cannot be managed within existing baselines or
Budget allowances.
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2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
 Potential capital decisions (expected to be funded from the existing Crown
balance sheet, including the Future Investment Fund): Capital investment
decisions are risks to the fiscal forecasts only to the extent that they cannot be
managed within the existing Crown balance sheet, including the Future Investment
Fund.
 Matters dependent on external factors: The Crown’s liability for costs is sometimes
dependent on external factors such as the outcome of negotiations or international
obligations.
A range of generic risks to the fiscal forecasts are not recognised as specific fiscal risks:
 The most significant economic risks have been identified in Chapter 3.
 Business risks and volatility in the returns from the Crown’s investments relating to the
broader economic and commercial environment.
 General cost pressures, such as those associated with demographic changes (eg, an
ageing population).
 Potential risks from changes in demand for government services or transfer payments
owing to underlying structural factors (such as changes in demand for Jobseeker
Support).
 The costs of future individual natural disasters, and other major events, as they usually
occur infrequently and their occurrence, nature and timing cannot be predicted. Once
a disaster does occur, a number of choices arise about how to respond and when
potential liabilities are recognised (eg, through setting aside an allocation of funding for
the disaster). Specific risks are disclosed at this point based on the range of possible
responses.
The final part of the chapter contains a current list of contingent liabilities and contingent
assets. Contingent liabilities are costs that the Crown will have to face if a particular event
occurs or are present liabilities that are unable to be measured. Typically, contingent
liabilities consist of guarantees and indemnities, legal disputes and claims on uncalled
capital. The largest quantified contingent liabilities are to international financial
organisations and mostly relate to uncalled capital and promissory notes. Contingent
assets are possible assets that have arisen from past events but the value of the asset, or
whether it will eventuate, will not be confirmed until a particular event occurs.
58 | B.6
 FORECAST FINANCIAL STATEMENTS 
Statement of Specific Fiscal Risks
Summary Table
The matters listed below are disclosed as specific fiscal risks because they meet the rules
for disclosure outlined after this Statement. Full descriptions of the risks listed below are
set out in the next section. Where quantification is possible, this is included in the
description of the risk.
Specific fiscal risks as at 3 December 2013
Status10
Potential policy decisions affecting revenue
ACC – Levies
Unchanged
ACC – Funding Policy Review
Unchanged
Revenue – Income-sharing Tax Credits
Unchanged
Services Funded by Third Parties
Unchanged
Potential policy decisions affecting expenses (expected to be funded from reprioritisation
or Budget allowances)
ACC – Work-related Gradual Process Disease and Infection
Unchanged
Budget Operating Initiatives
New
Canterbury Earthquake Recovery – Christchurch City Council/Crown Cost Sharing Changed
Canterbury Earthquake Recovery – Christchurch Central Recovery Plan
Changed
Canterbury Earthquake Recovery – Residential Red Zone
Changed
Communications – Ultra-Fast Broadband Initiative
New
Defence Force – Mid-point Rebalancing Review
Changed
Environment – Post-2012 International Climate Change Obligations
Changed
Government Response to Wai 262
Unchanged
Housing – Reform of Social Housing
Unchanged
Revenue – KiwiSaver Auto-enrolment
Unchanged
Revenue – Transformation and Technology Renewal
Changed
Social Development – Vulnerable Children White Paper
Unchanged
Social Development – Welfare Reform Costs
Unchanged
Social Development – Welfare Reform Forecast Benefit Savings
Unchanged
State Sector Employment Agreements
Unchanged
Potential capital decisions (expected to be funded from the existing Crown balance sheet,
including the Future Investment Fund)
Departmental Capital Intentions
Unchanged
Earthquake Strengthening for Crown-owned Buildings
Unchanged
Finance – Crown Overseas Properties
Changed
Justice – Christchurch Justice and Emergency Services Precinct
Changed
Primary Industries – Investment in Water Infrastructure
Unchanged
Transport – Auckland Transport Projects
New
Transport – Support for KiwiRail
Changed
10 Unchanged – risks that have not materially changed since the previous Economic and Fiscal Update.
Changed – risks that have changed substantively from the previous Economic and Fiscal Update.
New – risks that have not been disclosed in the previous Economic and Fiscal Update.
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2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Specific fiscal risks as at 3 December 2013
Matters dependent on external factors
ACC – Non-earners’ Account
Canterbury Earthquake Recovery – Residential Red Zone
Communications – Potential Impairment in Value of Broadband Investment
Defence Force – Potential Rationalisation, Revaluation and Disposal of NZDF
Assets
Energy – Crown Revenue from Petroleum Royalties
Environment – Post 2012 International Climate Change Negotiations
Finance – EQC
Finance – Goodwill on Acquisition
Finance – Government Commitments to International Financial Institutions
Finance – Sale of Part of the Crown’s Shareholding in Certain Companies
Finance – Southern Response Earthquake Services Support
Health – Litigation in the Disability Support and Aged Care Areas
Housing – Divestment of Housing
Revenue – Cash Held in Tax Pools
Treaty Negotiations – Treaty Settlement Forecasts
Treaty Negotiations – Relativity Clause
Status10
Unchanged
Changed
Unchanged
Unchanged
Unchanged
Changed
Changed
Unchanged
Unchanged
Changed
Unchanged
Changed
Unchanged
Unchanged
Unchanged
Unchanged
Potential Policy Decisions Affecting Revenue
ACC – Levies (Unchanged)
Levy rates for the Work, Earners’ and Motor Vehicle accounts are set by Cabinet following
a public consultation process. Claims experience, ACC performance and economic
assumptions (particularly discount rates) can impact insurance expenditure, both in the
current year and the estimated future liability. If any of these factors differ from what is
forecast the revenue collected may be more or less than required to cover the costs of
claims, resulting in unplanned savings or costs which could have a corresponding impact
on the operating balance.
ACC – Funding Policy Review (Unchanged)
The Government is undertaking a review of ACC’s funding policy. Adopting a lower
funding target band midpoint would result in a reduction in levies and reduce Crown
revenue and Crown assets, with a flow-on impact to the operating balance.
Revenue – Income-sharing Tax Credits (Unchanged)
The Government has introduced legislation to establish an income-sharing tax credit. If
passed as introduced, the legislation will allow couples with children under the age of 18 to
pool their earnings for income tax purposes if they meet certain criteria. If implemented, the
changes could reduce tax revenue by $500 million a year once the scheme is fully
operational. The Finance and Expenditure Committee has recommended that the
significant fiscal cost of the package be addressed before the Bill proceeds further.
Services Funded by Third Parties (Unchanged)
A wide range of government services are funded through third party fees and charges.
Demand for these services can vary with a direct impact on revenue received. There is a
risk the Government may need to provide additional funding if revenue collected is lower
than the total costs of providing the services. There is also a risk that changes will be
required to the way government services are delivered, which could result in costs to the
Crown.
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Potential Policy Decisions Affecting Expenses (Expected to be Funded from
Reprioritisation or Budget Allowances)
ACC – Work-related Gradual Process Disease and Infection (Unchanged)
Under current legislation, the Government incurs an obligation for Work-related Gradual
Process Disease and Infection claims when the claim is made, and an expense is
recognised at this point. The liability for commercial accident and sickness insurance
contracts would usually be recognised when exposure to conditions that will give rise to a
claim occurs. An amendment to legislation would be required to recognise claims at the
same time as for commercial contracts. There are currently no plans to make such a
change. An initial adjustment to the liability, and an expense of about $650 million would
need to be reported if such an amendment were to be made.
Budget Operating Initiatives (New)
The Government is yet to make decisions on any potential package of new operating
initiatives for the upcoming Budget. New operating initiatives represent a risk to the forecasts
only to the extent they cannot be managed through reprioritisation or from within the existing
Budget allowance for new operating spending in the forecasts. The Government’s stated
intention is that all new operating initiatives will be managed through these mechanisms.
Canterbury Earthquake Recovery – Christchurch City Council/Crown Cost Sharing
(Changed)
The Crown is partially funding the recovery of local infrastructure in Canterbury as set out
in the cost sharing agreement with the Christchurch City Council. The agreement
includes a review clause. The review is to be completed by 1 December 2014. As a
result, the Crown’s contribution could differ from that included in the fiscal forecasts.
Canterbury Earthquake Recovery – Christchurch Central Recovery Plan (Changed)
The Crown is partially funding the construction of Anchor Projects as part of the
Christchurch Central Recovery Plan as set out in the cost sharing agreement with the
Christchurch City Council. The extent of funding will vary from project to project,
depending on final project costs. Business cases for the development of Anchor Projects
are in their early stages. Project costing for construction of the Anchor Projects will
become increasingly clear during the business case process and the subsequent
procurement phase. An estimate of the cost has been included in the fiscal forecasts but
the Crown’s eventual contribution may differ.
Communications – Ultra-Fast Broadband Initiative (New)
The Government has expressed support for Crown Fibre Holdings to enter into
discussions with Chorus Limited to help manage potential issues for Chorus in delivering
the Ultra Fast Broadband Initiative. Depending on their nature, the outcomes of those
discussions could give rise to a fiscal risk. The Government’s expectation is that any
options arising from the discussions will remain within the current funding envelope.
Defence Force – Mid-point Rebalancing Review (Changed)
The New Zealand Defence Force (NZDF) savings and reform programme will be on-going
and integrated into normal business practice from 2014/15. The Government is yet to
make final decisions on future funding for NZDF. However, funding increases may be
approved for NZDF within the forecast period.
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Government Response to Wai 262 (Unchanged)
The Waitangi Tribunal’s report on the Wai 262 claim focuses on the protection of Māori
culture and identity, with a particular focus on mātauranga Māori and associated taonga.
The Tribunal’s recommendations are directed towards a number of government agencies
individually, as groups and across sectors. The Government has yet to respond to the
Tribunal’s report and recommendations.
Housing – Reform of Social Housing (Unchanged)
The Government has decided to change the policy settings for social housing. This
includes growing third party providers of social housing, increasing the effectiveness of
financial assistance, and Housing New Zealand Corporation focusing on providing social
housing to those with the greatest housing need. Some decisions have been announced
and included in the fiscal forecasts but other plans for implementation remain under
development, and may require reprioritisation or additional funding.
Revenue – KiwiSaver Auto-enrolment (Unchanged)
The Government has announced its intention to consult on the design of a one-off
KiwiSaver auto-enrolment exercise to increase the number of KiwiSaver members. The
Government will proceed with a one-off KiwiSaver enrolment exercise only when it is
confident that such a step poses no significant risks to returning to, and maintaining, an
operating surplus. An auto-enrolment exercise is likely to entail a one-off cost for kickstart payments to new members and ongoing additional costs for the Member Tax Credit.
Depending on the timing, design features and take-up rate, these costs could be in the
order of $350 million to $550 million over the first four years after auto-enrolment takes
place, and are expected to be funded out of the operating allowance.
Revenue – Transformation and Technology Renewal (Changed)
The Government is exploring options that will fundamentally change the way Inland
Revenue manages its processes and data. Any changes could impact tax revenue
collections and may have material costs to implement. Inland Revenue has commenced
the development of a detailed business cases for Stage 1: Enabling secure digital
services. The business cases will inform the Government’s decision-making for the first
stage of transformation and may require significant reprioritisation or new funding.
Social Development – Vulnerable Children White Paper (Unchanged)
The Government has begun to implement proposals to better identify and provide
assistance to vulnerable children. Future costs of the proposals are currently being
developed with a focus in the first instance on costs for the 2014/15 year. There are likely
to be multi-year impacts on Votes Education, Health, Justice and Social Development. To
the extent that these cannot be funded from reprioritisation, additional funding from the
allowance may be required.
Social Development – Welfare Reform Costs (Unchanged)
The Government has agreed to a package of changes to the benefit system. The extent
of any additional costs of implementing welfare reform, such as implementing the
Investment Approach, remain uncertain.
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Social Development – Welfare Reform Forecast Benefit Savings (Unchanged)
A conservative estimate of the likely benefits from Welfare Reform has been included in
the fiscal forecasts. The actual impact may differ owing to behavioural factors and the
complexity in implementing the reforms, with a corresponding impact on benefit
expenditure.
State Sector Employment Agreements (Unchanged)
A number of large collective agreements are due to be negotiated in the short-to-medium
term. As well as direct fiscal implications from any changes to remuneration, the
renegotiation of these agreements can have flow-on effects to remuneration in other
sectors. The Government has signalled an expectation of restraint given its current fiscal
stance and an expectation that agreements will be managed with the current fiscal
forecasts.
Potential Capital Decisions (Expected to be Funded from the Existing Crown
Balance Sheet, Including the Future Investment Fund)
Departmental Capital Intentions (Unchanged)
The Government requires 16 capital-intensive agencies or sectors to identify their capital
spending intentions over the next 10 years based on current policy settings and certain
demographic and inflation assumptions. The Government expects that these intentions will
be managed back through a range of measures such as prioritisation, changes to asset
utilisation, alternative methods of service delivery and changes to policy settings.
Departmental capital intentions are risks to the fiscal forecasts only to the extent that they
cannot be managed through existing balance sheets, including the Future Investment Fund.
Earthquake Strengthening for Crown-owned Buildings (Unchanged)
There is a possibility that the Crown will incur costs for earthquake strengthening some of
its buildings that may not meet modern building standards. The Government is currently
undertaking a stocktake of Crown-owned earthquake-prone buildings. The likelihood,
timing and fiscal impact of any earthquake strengthening are uncertain.
Finance – Crown Overseas Properties (Changed)
The Government holds New Zealand House in London on a long-term lease from the
Crown Estate (UK). Depending on the Government’s future intentions for this building, an
upgrade may be required. A rough-order cost estimate for this upgrade is $100 million
over the period from 2014/15 to 2016/17.
Justice – Christchurch Justice and Emergency Services Precinct (Unchanged)
The Government has included the development of a Justice and Emergency Services
Precinct in the fiscal forecasts, and there is a risk that the spending profile differs from this.
Primary Industries – Investment in Water Infrastructure (Unchanged)
In addition to $80 million provided in 2013/14, the Government will consider providing up
to $320 million in future Budgets to Crown Irrigation Investments Limited as schemes
reach the “investment-ready” stage.
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2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Transport – Auckland Transport Projects (New)
The Government has signalled its intention to accelerate transport projects in the
Auckland Council’s Auckland Plan, including a number of state highway projects,
Auckland Manukau Eastern Transport Initiatives, the East-West Link and support for the
City Rail Link and a second Waitemata Harbour Crossing. The Government is yet to
consider the most appropriate timing, phasing of and funding for these initiatives.
Transport – Support for KiwiRail (Changed)
KiwiRail has signalled its intention to seek additional Crown funding over the next four
years as it continues to:
 work towards its objective of becoming a commercially viable network
 undertake earthquake strengthening work on some of its buildings, and
 repair damage to operational facilities in Christchurch following the earthquakes.
KiwiRail has also signalled that it may require additional funding following the breakdown
of the Aratere ferry. The Government has not considered how it would respond to such a
request.
Matters Dependent on External Factors
ACC – Non-earners’ Account (Unchanged)
Funding for the Non-earners’ Account is agreed as part of the annual Budget process.
Claims’ experience, ACC’s financial performance and economic assumptions (particularly
discount rates) can impact insurance expenditure, both in the current year and the
estimated future liability. If any of these factors differ from what is forecast the amount
required to cover the costs of non-earners’ claims for that year may be more or less than
the agreed level of funding, resulting in unplanned savings or costs to the Crown.
Canterbury Earthquake Recovery – Residential Red Zone (Changed)
Some recoveries from the EQC and private insurers remain outstanding and there is a risk
that final recoveries may be greater or less than forecast. In addition, potential costs
associated with the future use of residential red zone are uncertain. The future value may
change depending on any future alternate uses of the land.
Communications – Potential Impairment in Value of Broadband Investment
(Unchanged)
The Government has set aside $1.345 billion to progressively capitalise Crown Fibre
Holdings so that it can invest with private partners in a new network delivering ‘ultra-fast’
broadband services. Given the contracts entered into, the extent of the recovery of this
investment is particularly dependent on the number of connections made to the network.
The fiscal forecasts include a provision for this impairment, but the final amount of the
impairment may vary from this provision.
Defence Force – Potential Rationalisation, Revaluation and Disposal of NZDF Assets
(Unchanged)
The Government is considering the potential to dispose of a number of NZDF assets, including
the Seasprite helicopters and Unimog trucks. Depending on market conditions, the timing of
disposal and sale price received could have an impact on the Government’s overall financial
64 | B.6
 FORECAST FINANCIAL STATEMENTS 
position. NZDF is also completing analysis of inventory that is surplus to requirements and is
over and above the existing provision for obsolescence. The existing provision is also being
reviewed to ensure that all items comprising the provision are still relevant.
Energy – Crown Revenue from Petroleum Royalties (Unchanged)
The Crown Revenue from Petroleum Royalties is very dependent upon extraction rates,
the USD value per barrel and the USD/NZD exchange rate. Movements up or down in
either of these variables could result in a significant decrease or increase in the Crown
revenue. The overall impact for the Crown could be positive or negative.
Environment – Post-2012 International Climate Change Obligations (Changed)
The Government has adopted an unconditional target to reduce emissions by 5% by 2020
relative to its 1990 levels. Its conditional commitments are subject to international
negotiations and agreements. Currently no rights or obligations are included in the fiscal
forecasts for either conditional or unconditional post-2012 obligations. These could have
significant fiscal implications that will need to be recognised when the commitments are
considered to be binding and the Government has no discretion to avoid the liabilities.
Finance – EQC (Changed)
The net financial position of EQC, and the size of any requirement for additional Crown
funding, remains uncertain. The key driver of this uncertainty is EQC’s outstanding claims
liability – the actuarial estimate of EQC’s outstanding claims liability is highly uncertain
and sensitive to assumptions; for example, construction demand surge, land damage
estimates, legal challenges, reinsurance recoveries and the profile of claims settlement.
The magnitude of the net outstanding cost claims is large, so small percentage changes in
the liability can have a material impact on the fiscal forecasts.
Finance – Goodwill on Acquisition (Unchanged)
As at 30 June 2013, the Government had goodwill on acquisition of a number of subentities totalling $655 million. Under New Zealand accounting standards (NZIAS 36),
such goodwill items are required to be assessed annually for impairment. If there is any
indication that the goodwill may be impaired, the recoverable amount of the cash
generating units to which the goodwill is allocated is required to be estimated. If the
recoverable amount is less than the carrying amount of those units, the units and the
goodwill allocated to them are regarded as impaired and the Government is required to
recognise impairment losses in the operating statement. Such assessments will be
conducted at the end of the financial year, and the fiscal forecasts currently make no
allowance for such impairment losses.
Finance – Government Commitments to International Financial Institutions
(Unchanged)
The forecast level of government commitments to international financial institutions is
subject to change, depending on the Government’s response to any changed financial
plans on the part of these institutions. The risk government commitments to the
International Monetary Fund being called has increased in recent years.
Finance – Sale of Part of the Crown’s Shareholding in Certain Companies (Changed)
The Government has sold part of the Crown’s shareholding in Air New Zealand, Mighty
River Power and Meridian Energy. It is proposing to sell part of the Crown’s shareholding
in Genesis Energy. The fiscal forecasts include an estimate of the cash proceeds from
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2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
the sale of part of the Crown’s shareholding in these companies, the dividends and profits
from these companies that will be paid or are attributable to minority shareholders rather
than to the Crown, and the estimated finance cost savings. There is still some uncertainty
over the final amount and timing of any cash proceeds, foregone profits, flow-on effects
for the Crown and any implementation costs are uncertain, and these may differ from what
has been assumed in the fiscal forecasts.
Finance – Southern Response Earthquake Services Support (Unchanged)
The ultimate cost to the Crown of settling earthquake claims remains subject to significant
uncertainty. Out-year forecasts assume that the actual cost to settle claims will align with
the actuary’s central estimate of the claims provision. There is a risk that the actual cost
could vary from this estimate.
Health – Litigation in the Disability Support and Aged Care Areas (Changed)
Several cases and funding claims in the disability support and aged care sectors may
involve significant costs to the Crown relating to interpretation of the Minimum Wage Act
1983, the Equal Pay Act 1972 and the Government’s policy of paying certain family
members through its Funded Care Policy. Changes to the existing policy could require
additional funding.
Housing – Divestment of Housing (Unchanged)
The Government may undertake divestment or redevelopment of some housing property.
Property sales are subject to market conditions and therefore there is an inherent level of
uncertainty about the return to the Crown associated with any divestment and/or
development.
Revenue – Cash Held in Tax Pools (Unchanged)
Funds held in tax pools are recognised as a Crown asset. There is a risk that funds held
in these pools, over and above a taxpayer’s provisional tax liability, may be withdrawn,
resulting in a reduction in the Crown’s available cash reserves.
Treaty Negotiations – Treaty Settlement Forecasts (Unchanged)
The fiscal forecasts include provision for the cost of future Treaty settlements. Given
settlements are finalised through negotiations, there is a risk that the timing and amount of
the settlements could differ from the profile included in the fiscal forecasts.
Treaty Negotiations – Relativity Clause (Unchanged)
The Deeds of Settlement negotiated with Waikato-Tainui and Ngāi Tahu include a
relativity mechanism. Now that the total redress amount for all historical Treaty
settlements exceeds $1 billion in 1994 present-value terms, the mechanism provides that
the Crown is liable to make payments to maintain the real value of Ngāi Tahu and
Waikato-Tainui’s settlements as a proportion of all Treaty settlements. The agreed
relativity proportions are 17% for Waikato-Tainui and approximately 16% for Ngāi Tahu.
There is a risk that the timing and amount of the expense for the relativity payments may
differ from that included in the fiscal forecasts. There is also uncertainty on how various
disputes concerning the interpretation of the mechanism will be resolved.
Risks Removed Since the 2013 Budget Update
The following risks have been removed since the 2013 Budget Update:
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Expired risks
Reason
Health – Payment of Family Caregivers
Merged with Litigation in the Disability Support
and Aged Care Areas risk
Finance – New Zealand Aluminium Smelters
Included in fiscal forecasts
Finance – Solid Energy
No longer material
Criteria and Rules for Inclusion in the Fiscal Forecasts or Disclosure as Specific
Fiscal Risks
The Public Finance Act 1989 requires that the Statement of Specific Fiscal Risks sets out
all government decisions, contingent liabilities or contractual obligations known to the
Government and subject to specific requirements that may have a material effect on the
economic or fiscal outlook.11
The criteria and rules set out below are used to determine if government decisions or
other circumstances should be incorporated into the fiscal forecasts, disclosed as specific
fiscal risks or, in some circumstances, excluded from disclosure.
Criteria for Including Matters in the Fiscal Forecasts
Matters are incorporated into the fiscal forecasts provided they meet the following criteria:
 The matter can be quantified for particular years with reasonable certainty.
 A decision has been taken, or a decision has not yet been taken but it is reasonably
probable12 the matter will be approved, or it is reasonably probable the situation will
occur.
Additionally, any other matters may be incorporated into the forecasts if the Secretary to
the Treasury considers, using their best professional judgement, that the matters may
have a material effect on the fiscal and economic outlook and are certain enough to
include in the fiscal forecasts.
Rules for the Disclosure of Specific Fiscal Risks
Matters are disclosed as specific fiscal risks if:
 the likely impact is more than $100 million over five years, and either
 a decision has not yet been taken but it is reasonably possible (but not probable) that
the matter will be approved or the situation will occur, or
13
 it is reasonably probable that the matter will be approved or the situation will occur, but
the matter cannot be quantified or assigned to particular years with reasonable certainty.
11 The Statement of Specific Fiscal Risks is a requirement set out in sections 26Q and 26U of the Public
Finance Act 1989.
12 For these purposes ‘reasonably probable’ is taken to mean that the matter is more likely than not to be
approved within the forecast period (by considering, for example, whether there is a better than 50%
chance of the matter occurring or being approved).
13 For these purposes ‘reasonably possible’ is taken to mean that the matter might be approved within the
forecast period (by considering, for example, whether there is a 20% to 50% chance of the matter
occurring or being approved).
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2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Additionally, any other matters may be disclosed as specific fiscal risks if the Secretary to
the Treasury considers, using their best professional judgement, that the matters may
have a material effect (more than $100 million over five years) on the fiscal and economic
outlook but are not certain enough to include in the fiscal forecasts.
Exclusions from Disclosure
Matters are excluded from disclosure as specific fiscal risks if they fail to meet the
materiality criterion (ie, are less than $100 million over five years), or if they are unlikely14
to be approved or occur within the forecasting period.
Additionally, the Minister of Finance may determine that a matter be included in the fiscal
forecasts or a specific fiscal risk not be disclosed, if such disclosure would be likely to:
 prejudice the substantial economic interests of New Zealand
 prejudice the security or defence of New Zealand or international relations of the
Government
 compromise the Crown in a material way in negotiation, litigation or commercial
activity, or
 result in a material loss of value to the Crown.
If possible, the Minister of Finance should avoid withholding the matter either by making a
decision on it before the forecasts are finalised, or by disclosing it without quantifying the
risk.
14 For these purposes ‘unlikely’ is taken to mean that the matter will probably not be approved within the
forecast period (by considering, for example, whether there is a less than 20% chance of the matter
occurring or being approved).
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 FORECAST FINANCIAL STATEMENTS 
Contingent Liabilities and Contingent Assets
Contingent liabilities are possible costs that have arisen from past events, but the amount
of the liability, or whether it will eventuate, will not be confirmed until a particular event
occurs or present liabilities that are unable to be measured with sufficient reliability to be
recorded in the financial statements (unquantifiable liabilities).
Typically, contingent liabilities consist of guarantees and indemnities, uncalled capital and
legal disputes and claims. The contingent liabilities facing the Crown are a mixture of
operating and balance sheet risks, and they can vary greatly in magnitude and likelihood
of realisation.
In general, if a contingent liability were realised, or the amount becomes sufficiently
reliable to record as a liability, it would reduce the operating balance and net worth and
increase net debt. In the case of contingencies for uncalled capital, the negative impact
would be restricted to net debt because the cost would be offset by the acquisition of
capital.
Where contingent liabilities have arisen as a consequence of legal action being taken
against the Crown, the amount shown is the amount claimed and thus the maximum
potential cost. It does not represent either an admission that the claim is valid or an
estimation of the amount of any award against the Crown.
Contingent assets are possible assets that have arisen from past events but the amount
of the asset, or whether it will eventuate, will not be confirmed until a particular event
occurs.
Only contingent liabilities and contingent assets involving amounts of over $100 million
are separately disclosed. Quantifiable contingencies less than $100 million are included
in the “other quantifiable” total.
Some contingencies of the Crown are not able to be quantified. We have disclosed all
unquantifiable contingent liabilities and unquantifiable contingent assets that are not
expected to be remote.15
Contingent liabilities have been stated as at 31 October 2013, being the latest set of
reported contingent liabilities.
15 Remote is defined as being an item with less than a 10% chance of occurring.
B.6 | 69
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Quantifiable Contingent Liabilities and Contingent Assets
Guarantees and indemnities
Status16
($ millions)
Contingent liabilities
Other guarantees and indemnities
Unchanged
178
178
Uncalled capital
Asian Development Bank
Unchanged
2,881
International Monetary Fund – promissory notes
Unchanged
1,092
International Bank for Reconstruction and Development
Unchanged
995
International Monetary Fund – arrangements to borrow
Unchanged
1,013
Other uncalled capital
Unchanged
25
6,006
Legal proceedings and disputes
Tax disputes
Unchanged
607
Other legal proceedings and disputes
Unchanged
65
672
Other quantifiable contingent liabilities
Unclaimed monies administered by the Department of
Inland Revenue
Unchanged
Transpower New Zealand Limited
Unchanged
156
Other quantifiable contingent liabilities
Unchanged
184
104
444
Total quantifiable contingent liabilities
7,300
Contingent assets
Tax disputes
Unchanged
169
Other quantifiable contingent assets
Unchanged
84
Total quantifiable contingent assets
253
16 Status of contingent liabilities or assets when compared to the Financial Statements of the Government of
New Zealand for the year ended 30 June 2013.
70 | B.6
 FORECAST FINANCIAL STATEMENTS 
Unquantifiable Contingent Liabilities and Contingent Assets
Guarantees and indemnities
Status
Contingent liabilities
Air New Zealand
Unchanged
Contact Energy Limited
Unchanged
Earthquake Commission (EQC)
Unchanged
Genesis Power Limited
Unchanged
Housing New Zealand Corporation
Unchanged
Justices of the Peace, Community Magistrates and Disputes Tribunal
Referees
Unchanged
Maui Contracts
Unchanged
Maui Partners
Unchanged
Meridian Energy Limited
New
New Zealand Aluminium Smelter and Comalco
Unchanged
New Zealand Local Authorities
Unchanged
New Zealand Railways Corporation
Unchanged
Persons exercising investigating powers
Unchanged
Synfuels-Waitara Outfall Indemnity
Unchanged
Westpac New Zealand Limited
Unchanged
Legal claims and proceedings
Accident Compensation Corporation (ACC) litigations
Unchanged
Air New Zealand litigation
Unchanged
Television New Zealand
Unchanged
Treaty of Waitangi claims
Unchanged
Ministry of Education litigation
Unchanged
Other unquantifiable contingent liabilities
Criminal Proceeds (Recovery) Act 2009
Unchanged
Environmental liabilities
Unchanged
Treaty of Waitangi claims – settlement relativity payments
Unchanged
B.6 | 71
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Description of Contingent Liabilities
Quantifiable contingent liabilities over $100 million
Uncalled capital
As part of the Crown’s commitment to a multilateral approach to ensure global financial
and economic stability, New Zealand, as a member country of these organisations,
contributes capital by subscribing to shares in certain institutions.
The capital (when called) is typically used to raise additional funding for loans to member
countries, or in the case of the quota contributions, to directly finance lending to members.
For New Zealand and other donor countries, capital contributions comprise both “paid in”
capital and “callable capital or promissory notes.”
The Crown’s uncalled capital subscriptions are as follows:
Uncalled capital
31 October 2013
$millions
30 June 2013
$millions
Asian Development Bank
2,881
2,992
International Monetary Fund – promissory notes
1,092
1,163
995
1,056
1,013
1,052
25
23
International Bank for Reconstruction and Development
International Monetary Fund – arrangements to borrow
Other
Legal proceedings and disputes
Tax in dispute – assessed
When a taxpayer disagrees with an amended assessment issued following the dispute
process, the taxpayer may challenge that decision by filing proceedings with the Taxation
Review Authority or the High Court. The contingent liability represents the maximum
liability the Inland Revenue has in respect of these cases.
$607 million at 31 October 2013 ($641 million at 30 June 2013)
Other quantifiable contingent liabilities
Unclaimed monies
Under the Unclaimed Money Act 1971, entities (eg, financial institutions, insurance
companies) hand over money not claimed after six years to Inland Revenue. The funds
are repaid to the entitled owner on proof of identification.
$104 million at 31 October 2013 ($101 million at 30 June 2013)
Transpower New Zealand Limited
Transpower has a contingent liability relating to excess capital expenditure on the North
Island Grid Upgrade Project (NIGU).The NIGU spend exceeds the amount initially
approved in 2006. The methodology for approvals subsequently changed in 2012, which
increases the potential size of the excess capital expenditure. If the excess expenditure is
not approved by the Commerce Commission it cannot be recovered from customers.
NIGU is operational and a submission for the excess expenditure has been made.
72 | B.6
 FORECAST FINANCIAL STATEMENTS 
The excess is $156 million at 31 October 2013 ($156 million at 30 June 2013)
Unquantifiable contingent liabilities
This part of the Statement provides details of those contingent liabilities of the Crown that
are not quantified, excluding those that are considered remote, reported by the following
categories:
a) Indemnities
b) Legal claims and proceedings, and
c) Other unquantifiable contingent liabilities.
a)
Indemnities
Indemnities are legally binding promises where the Crown undertakes to accept the risk of
loss or damage that another party may suffer or to hold the other party harmless against
loss caused by a specific stated event.
A number of these indemnities are provided to organisations within the Crown’s control. If
these indemnities were to crystallise, the Crown would compensate the individual entity
for the loss and there would likely be an adverse impact on core Crown expenses and
core Crown net debt.
B.6 | 73
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Party
indemnified
Instrument of
indemnification
Actions indemnified
Air New Zealand
Deed of indemnity issued
24 September 2001.
Claims arising from acts of war and
terrorism that cannot be met from
insurance, up to a limit of US$1 billion in
respect of any one claim.
Contact Energy
Limited
The Crown and Contact
Energy signed a number
of documents to settle in
full Contact's outstanding
land rights and
geothermal asset rights at
Wairakei.
The documents contained two reciprocal
indemnities between the Crown and
Contact to address the risk of certain
losses to the respective parties' assets
arising from the negligence or fault of the
other party.
Earthquake
Commission
(EQC)
Section 16 of the
Earthquake Commission
Act 1993.
Any deficiency in EQC’s assets to cover
the Commission’s financial liabilities. In the
event of a major natural disaster the Crown
may be called upon to meet any financial
shortfall incurred by the EQC.
EQC expects to have the necessary
financing to meet its liabilities as they fall
due over the next 12 months, hence a call
on its Crown guarantee is not expected for
the coming year.
In the event that EQC cannot meet its
obligations, however, the Crown would
need to finance any shortfall and the
Crown’s net debt position would increase
as a result. This support arrangement is
discussed earlier in this chapter as a
specific fiscal risk.
Genesis Power
Limited
Housing New
Zealand Limited
(HNZL)
Deed between Genesis
Power Limited and the
Crown.
The agreement sees the Crown
compensate Genesis in the event that it
has less gas than it requires for the longterm supply of gas to cover Huntly Power
station’s minimum needs.
Genesis acquisition of
Tekapo A & B power
stations.
Indemnity against any damage to bed of
lakes and rivers subject to operating
easements.
The Crown has provided a
warranty in respect of title to
the assets transferred to
HNZL.
The Crown indemnified HNZL against:
 any breach of the warranty provided, and
 any third party claims that are a result of
acts or omissions prior to 1 November
1992.
The Crown also indemnified the directors
and officers of HNZL against any liability
consequent upon the assets not complying
with statutory requirements, provided it is
taking steps to rectify any non-compliance.
74 | B.6
 FORECAST FINANCIAL STATEMENTS 
Party
indemnified
Instrument of
indemnification
Actions indemnified
Justices of the
Peace,
Community
Magistrates and
Disputes Tribunal
Referees
Section 197 of the Summary
Proceedings Act 1957.
Damages or costs awarded against them
as a result of them exceeding their
jurisdiction, provided a High Court Judge
certifies that they have exceeded their
jurisdiction in good faith and ought to be
indemnified.
Maui Contracts
Contracts in respect of which
the Crown purchases gas
from Maui Mining companies
and sells gas downstream to
Contact Energy Limited,
Vector Gas Limited and
Methanex Waitara Valley
Limited.
The contracts provide for invoices to be reopened in certain circumstances within two
years of their issue date as a result of
revisions to indices. These revisions may
result in the Crown refunding monies or
receiving monies from those parties.
Maui Partners
Confidentiality agreements
with the Maui Partners in
relation to the provision of
gas reserves information.
Any losses arising from a breach of the
deed.
Meridian Energy
Limited Initial
Public Offering
The Minister of Finance
signed a number of
indemnities in October 2013.
The Crown has indemnified Meridian
Energy Limited’s directors and a number of
external advisors against losses that they
may suffer as a result of any claims
brought against them in relation to the
Meridian Energy Limited partial share sale.
New Zealand
Aluminium
Smelter and
Comalco
The Minister of Finance
signed indemnities in
November 2003 and
February 2004 in respect of
aluminium dross currently
stored at another site in
Invercargill.
The indemnity relates to costs incurred in
removing the dross and disposing of it at
another site if required to do so by an
appropriate authority.
New Zealand
Local Authorities
Section 9 of the Civil
Defence Emergency
Management Act 2002.
The Guide to the National Civil Defence
Emergency Management Plan (“the
Guide”) states that with the approval of the
Minister, the Government will reimburse
local authorities, in whole or in part, for
certain types of response and recovery
costs incurred as a result of a local or
national emergency. The Guide is
approved and issued by the Director of
Civil Defence Emergency Management.
Section 58 of the Disputes
Tribunal Act 1988.
Civil Defence Emergency
Management Plan.
New Zealand
Railways
Corporation
The Minister of Finance
signed the indemnity on
1 September 2004.
The directors of New Zealand Railways
Corporation against all liabilities in
connection with the Corporation taking
ownership and/or responsibility for the
national rail network and any associated
assets and liabilities.
Section 10 of the Finance
Act 1990.
Guarantees all loan and swap obligations
of the New Zealand Railways Corporation.
B.6 | 75
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Party
indemnified
Instrument of
indemnification
Actions indemnified
Persons
exercising
investigating
powers
Section 63 of the
Corporations (Investigation
and Management) Act 1989.
Indemnifies the Financial Markets Authority
(formerly Securities Commission), the
Registrar of Companies, every statutory
manager of a corporation, every member of
an advisory committee appointed under the
Act and persons appointed pursuant to
sections 17 to 19 of the Act (to exercise
powers of inspection and investigation).
The indemnity applies to the exercise, or
omission to exercise, of any powers under
the Act, unless the exercise of the power or
the omission is shown to be in bad faith.
Synfuels-Waitara
Outfall Indemnity
1990 sale of the Synfuels
plant and operations to New
Zealand Liquid Fuels
Investment Limited (NZLFI).
The Crown transferred to NZLFI the benefit
and obligation of a Deed of Indemnity
between the Crown and Borthwick-CWS
Limited (and subsequent owners) in
respect of the Waitara effluent transfer line
which was laid across the Waitara meat
processing plant site. The Crown has the
benefit of a counter indemnity from NZLFI
which has since been transferred to
Methanex Motunui Limited.
Westpac
New Zealand
Limited
The Domestic Transaction
Banking Services Master
Agreement with Westpac
Banking Corporation
(Westpac’s rights and
obligations under this
agreement were vested in
Westpac New Zealand
Limited under the Westpac
New Zealand Act 2006),
dated 30 November 2004.
The Crown has indemnified Westpac:
Supplier Payments Service –
New Zealand Government
Master Agreement dated
23 June 2010.
The Crown has indemnified Westpac
New Zealand Limited against certain costs,
damages and losses to third parties
resulting from unauthorised, forged or
fraudulent payment instructions (excluding
costs, damages and losses arising from
Westpac’s wilful default, negligence or
breach of the agreement or other
applicable legal obligation.
 in relation to letters of credit issued on
behalf of the Crown, and
 for costs and expenses incurred by
reason of third party claims against
Westpac relating to indirect instructions,
direct debits, third party cheques,
departmental credit card merchant
agreements, use of online banking
products and Inland Revenue
processing arrangements.
Legal claims and proceedings
There are numerous legal actions that have been brought against the Crown. However,
in the majority of these actions it is considered a remote possibility that the Crown would
lose the case, or if the Crown were to lose it would be unlikely to have greater impact
than a $20 million impact. Based on these factors, not all legal actions are individually
disclosed. The claims that are disclosed individually, while they cannot be quantified,
have the potential to exceed $20 million in costs.
Accident Compensation Corporation (ACC) litigations
76 | B.6
 FORECAST FINANCIAL STATEMENTS 
There are a number of actions involving ACC in existence, arising from the statutory
review and appeal process, and in the main coming from challenges to operational
decisions made by ACC. Given the nature of these proceedings and uncertainty as to
their outcomes, attempting to quantify the financial effect would be unrealistic, so no
estimate has been made.
Air New Zealand litigation
Air New Zealand is currently named in class actions. Two (one in Australia and the other
in the United States) make allegations against more than 30 airlines, of anti competitive
conduct in relation to pricing in the air cargo business. A class action in the United States
alleges that Air New Zealand together with many other airlines conspired in respect of
fares and surcharges on trans-Pacific routes. All class actions are being defended. The
allegations made in relation to the air cargo business are also the subject of proceedings
by the Australian Competition and Consumer Commission. A defended hearing in the
Federal Court concluded in May 2013 and a decision is awaited. In the event that the
Court determines that Air New Zealand had breached Australian laws, the company would
have potential liability for pecuniary penalties.
Television New Zealand (TVNZ)
In the normal course of business various legal claims have been made against TVNZ.
Given the stage of proceedings and uncertainty as to the outcomes of the claims, no
estimate of the financial effect can be made and no provision for any potential liability has
been made in the financial statements.
Treaty of Waitangi claims
Under the Treaty of Waitangi Act 1975, any Māori may lodge claims relating to land or
actions counter to the principles of the Treaty with the Waitangi Tribunal. Where the
Tribunal finds a claim is well founded, it may recommend to the Crown that action be
taken to compensate those affected. The Tribunal can make recommendations that are
binding on the Crown with respect to land which has been transferred by the Crown to an
SOE or tertiary institution, or is subject to the Crown Forest Assets Act 1989.
On occasion, Māori claimants pursue the resolution of particular claims against the Crown
through higher courts. There are currently two such actions against the Crown being heard
at the Court of Appeal and the Supreme Court. Failure to successfully defend such actions
may result in a liability for historical Treaty grievances in excess of that currently anticipated.
Ministry of Education litigation
Post Primary Teachers Association and several teachers have lodged a claim in the High
Court alleging breach of statutory duty in respect of the Novopay system failures. The
Ministry is defending this claim.
Other unquantifiable contingent liabilities
Criminal Proceeds (Recovery) Act 2009
B.6 | 77
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
The Ministry of Justice is responsible for administering the Criminal Proceeds (Recovery)
Act 2009. The Act requires the Crown to give an undertaking as to damages or costs in
relation to asset restraining orders. In the event that the Crown is found liable, payment
may be required. The timing and amount of any possible payments required are not
able to be estimated at this time.
Environmental liabilities
Under common law and various statutes, the Crown may have responsibility to remedy
adverse effects on the environment arising from Crown activities. Departments
managing significant Crown properties have implemented systems to identify, monitor
and assess potential contaminated sites.
Any contaminated sites for which costs can be reliably measured have been included in
the statement of financial position as provisions.
Treaty of Waitangi claims – settlement relativity payments
The Deeds of Settlement negotiated with Waikato-Tainui and Ngāi-Tahu include a
relativity mechanism. The mechanism provides that, where the total redress amount for
all historical Treaty settlements exceeds $1 billion in 1994 present-value terms, the
Crown is liable to make payments to maintain the real value of Waikato-Tainui’s and
Ngāi Tahu’s settlements as a proportion of all Treaty settlements. The agreed relativity
proportions are 17% for Waikato-Tainui and approximately 16% for Ngāi Tahu.
The relativity mechanism has now been triggered and in future years additional costs
may be incurred in accordance with the relativity mechanism as Treaty settlements are
reached. However, the final amount payable to settle this matter cannot be quantified
yet owing to uncertainty around when current and future negotiations will be settled and
the value of these settlements when reached. There is also uncertainty on how various
disputes concerning the interpretation of the mechanism will be resolved.
Description of Contingent Assets
Quantifiable contingent assets over $100 million
Tax disputes – non assessed
A contingent asset is recognised when Inland Revenue has advised, or was about to
advise, a taxpayer of a proposed adjustment to their tax assessment. The taxpayer has
the right to dispute this adjustment and a disputes resolution process can be entered into.
The contingent asset is based on the likely outcome of the disputes process based on
experience and similar prior cases.
$169 million at 31 October 2013 ($169 million at 30 June 2013)
78 | B.6
 FORECAST FINANCIAL STATEMENTS 
Forecast Financial Statements
These forecasts have been prepared in accordance with the Public Finance Act 1989.
They are based on the accounting policies and assumptions that follow. As with all such
assumptions, there is a degree of uncertainty surrounding them. This uncertainty
increases as the forecast horizon extends. The Risks and Scenarios and Specific Fiscal
Risks chapters discuss the risks to the fiscal forecast in more detail.
The forecasts have been prepared in accordance with the Statement of Responsibility and
reflect the judgements and information known at the time they were prepared. They
reflect all government decisions and circumstances communicated to 3 December 2013.
The finalisation dates and key assumptions that underpin the preparation of the Forecast
Financial Statements are outlined on pages 42 to 44.
B.6 | 79
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Statement of Accounting Policies
Significant Accounting Policies
These Forecast Financial Statements have been prepared in accordance with the
accounting policies that are expected to be used in the comparable audited actual
financial statements of the Government.
These Forecast Financial Statements comply with generally accepted accounting practice
(GAAP) as required by the Public Finance Act 1989 and have been prepared in
accordance with Financial Reporting Standard 42: Prospective Financial Statements.
All forecasts use the accrual basis of accounting. Forecasts have been prepared for the
consolidated financial statements of the government reporting entity, which includes all
entities controlled by the Government (as defined by applicable financial reporting
standards).
The specific accounting policies are included within the 2013 Half Year Economic and
Fiscal Update Additional Information document which can be found on the Treasury’s
website at www.treasury.govt.nz/budget/forecasts/hyefu2013.
Changes in Accounting Policies
All policies have been applied on a consistent basis during the forecast period. There
have been no changes in accounting policies during the period.
Forecast Policies
These Forecast Financial Statements have been prepared on the basis of the Treasury’s
best professional judgement. Actual financial results for the periods covered are likely to
vary from the information presented in these forecasts. Factors that may lead to a
material difference between information in these Forecast Financial Statements and the
actual reported results in future years are set out in the Specific Fiscal Risks chapter on
pages 61 to 83.
Key forecast assumptions used are set out on pages 42 to 44.
80 | B.6
 FORECAST FINANCIAL STATEMENTS 
Government Reporting Entity as at
3 December 2013
These Forecast Financial Statements are for the government reporting entity as specified in Part 3
of the Public Finance Act 1989. This comprises Ministers of the Crown and the following entities:
Core Crown
Departments
Canterbury Earthquake Recovery Authority
Crown Law Office
Department of Conservation
Department of Corrections
Department of Internal Affairs
Department of the Prime Minister and Cabinet
Education Review Office
Government Communications Security Bureau
Inland Revenue Department
Land Information New Zealand
Ministry for Culture and Heritage
Ministry for Primary Industries
Ministry for the Environment
Ministry of Business, Innovation and Employment
Ministry of Defence
Ministry of Education
Ministry of Foreign Affairs and Trade
Ministry of Health
Ministry of Justice
Ministry of Māori Development
Ministry of Pacific Island Affairs
Ministry of Social Development
Ministry of Transport
Ministry of Women’s Affairs
New Zealand Customs Service
New Zealand Defence Force
New Zealand Police
New Zealand Security Intelligence Service
Office of the Clerk of the House of Representatives
Parliamentary Counsel Office
Parliamentary Service
Serious Fraud Office
State Services Commission
Statistics New Zealand
The Treasury
Offices of Parliament
Controller and Auditor-General
The Ombudsmen
Parliamentary Commissioner for the Environment
B.6 | 81
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Others
New Zealand Superannuation Fund
Reserve Bank of New Zealand
State-owned enterprises
Airways Corporation of New Zealand Limited
Animal Control Products Limited
AsureQuality Limited
Electricity Corporation of New Zealand Limited
Genesis Energy Limited
Kiwirail Holdings Limited
Kordia Group Limited
Landcorp Farming Limited
Learning Media Limited
Meteorological Service of New Zealand Limited
New Zealand Post Limited
New Zealand Railways Corporation
Quotable Value Limited
Solid Energy New Zealand Limited
Transpower New Zealand Limited
Mixed ownership model companies (Public Finance Act schedule 5 companies)
Mighty River Power Limited
Meridian Energy Limited
Others
Air New Zealand Limited
Crown entities
Accident Compensation Corporation
Arts Council of New Zealand Toi Aotearoa
Broadcasting Commission
Broadcasting Standards Authority
Callaghan Innovation
Careers New Zealand
Children’s Commissioner
Civil Aviation Authority of New Zealand
Commerce Commission
Crown Irrigation Investments Limited
Crown Research Institutes (7)
District Health Boards (20)
Drug Free Sport New Zealand
Earthquake Commission
Education New Zealand
Electoral Commission
Electricity Authority
Energy Efficiency and Conservation Authority
82 | B.6
 FORECAST FINANCIAL STATEMENTS 
Environmental Protection Authority
External Reporting Board
Families Commission
Financial Markets Authority
Government Superannuation Fund Authority
Guardians of New Zealand Superannuation
Health and Disability Commissioner
Health Promotion Agency
Health Quality and Safety Commission
Health Research Council of New Zealand
Housing New Zealand Corporation
Human Rights Commission
Independent Police Conduct Authority
Law Commission
Maritime New Zealand
Museum of New Zealand Te Papa Tongarewa Board
New Zealand Antarctic Institute
New Zealand Artificial Limb Board
New Zealand Blood Service
New Zealand Film Commission
New Zealand Fire Service Commission
New Zealand Historic Places Trust (Pouhere Taonga)
New Zealand Lotteries Commission
New Zealand Productivity Commission
New Zealand Qualifications Authority
New Zealand Symphony Orchestra
New Zealand Teachers Council
New Zealand Tourism Board
New Zealand Trade and Enterprise
New Zealand Transport Agency
New Zealand Venture Investment Fund Limited
New Zealand Walking Access Commission
Office of Film and Literature Classification
Pharmaceutical Management Agency
Privacy Commissioner
Public Trust
Radio New Zealand Limited
Real Estate Agents Authority
Retirement Commissioner
School Boards of Trustees (2,453)
Social Workers Registration Board
Sport and Recreation New Zealand
Standards Council
Takeovers Panel
Te Reo Whakapuaki Irirangi (Māori Broadcasting Funding Agency)
Te Taura Whiri i te Reo Māori (Māori Language Commission)
Television New Zealand Limited
Tertiary Education Commission
Tertiary education institutions (29)
Testing Laboratory Registration Council
Transport Accident Investigation Commission
B.6 | 83
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Organisations listed in schedule 4 of the Public Finance Act 1989
Agricultural and Marketing Research and Development Trust
Asia New Zealand Foundation
Fish and Game Councils (12)
Game Animal Council
Leadership Development Centre Trust
Māori Trustee
National Pacific Radio Trust
New Zealand Fish and Game Council
New Zealand Game Bird Habitat Trust Board
New Zealand Government Property Corporation
New Zealand Lottery Grants Board
Ngai Tahu Ancillary Claims Trust
Pacific Co-operation Foundation
Pacific Island Business Development Trust
Reserves Boards (21)
Te Ariki Trust
Non-listed companies in which the Crown is majority or sole shareholder (Public
Finance Act schedule 4A companies)
Crown Asset Management Limited
Crown Fibre Holdings Limited
Fairway Resolution Limited
Health Benefits Limited
The Network for Learning Limited
Research and Education Advanced Network New Zealand Limited
Southern Response Earthquake Services Limited
Tāmaki Redevelopment Company Limited
Subsidiaries of SOEs, Crown entities and other Government entities are consolidated by their parents and not
listed separately in this table.
84 | B.6
 FORECAST FINANCIAL STATEMENTS 
Forecast Financial Statements
Forecast Statement of Financial Performance
for the years ending 30 June
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
58,134
5,172
61,773
5,296
61,969
5,276
65,703
5,070
69,938
4,665
7
63,306
16,713
2,939
3,697
67,069
17,080
3,588
3,867
67,245
16,592
3,378
3,767
70,773
17,516
3,679
3,799
74,603
18,149
4,011
3,988
7
1
23,349
24,535
23,737
24,994
26,148
2
86,655
91,604
90,982
95,767
100,751
10
22,708
19,935
4,812
36,163
4,358
3,031
-
23,485
20,172
4,640
37,748
4,516
3,215
461
(600)
23,338
20,246
4,666
38,350
4,418
3,439
220
(1,375)
23,817
20,384
4,841
37,681
4,695
3,657
1,106
(500)
24,566
20,746
4,925
37,941
5,027
4,068
2,104
(300)
2
2
Total expenses (excluding losses)
91,007
93,637
93,302
95,681
99,077
10
Minority interest share of operating balance
before gains/losses1
Operating balance before gains/(losses)
Net gains/(losses) on financial instruments
Net gains/(losses) on non-financial instruments
(62)
(4,414)
7,270
3,706
(2,033)
1,748
443
(2,320)
2,234
1,486
86
2,206
535
1,674
2,347
499
10,976
2,191
3,720
2,741
2,846
Net surplus from associates and joint ventures
395
200
239
253
254
Minority interest share of net gains/losses 1
(32)
-
-
-
-
6,925
358
1,639
3,080
4,774
For
Note
Revenue
Taxation revenue
Other sovereign revenue
Total revenue levied through the Crown's
sovereign power
Sales of goods and services
Interest revenue and dividends
Other revenue
Total revenue earned through the Crown's
operations
1
1
2
Total revenue (excluding gains)
Expenses
Transfer payments and subsidies
Personnel expenses
Depreciation and amortisation
Other operating expenses
Interest expenses
Insurance expenses
Forecast new operating spending
Top-down expense adjustment
3
4
5
5
6
7
8
8
9
10
Total gains/(losses)
Operating balance
11
3
1. Foregone profits from the Government Share Offer programme are not separately disclosed. Refer to pages
36 to 41 for further details.
The accompanying notes and accounting policies are an integral part of these Statements.
Forecast Statement of Financial Performance (continued) – Functional Expense
Analysis
for the years ending 30 June
2014
2013
Previous
2014
2015
2016
201
Actual
Budget
Forecast
Forecast
Forecast
Forecas
$m
$m
$m
$m
$m
B.6 | 85
$m
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Total Crown expenses
By functional classification
Social security and welfare
GSF pension expenses
Health
Education
Core government services
Law and order
Defence
Transport and communications
Economic and industrial services
Primary services
Heritage, culture and recreation
Housing and community development
Environmental protection
Other
Finance costs
Forecast new operating spending
Top-down expense adjustment
26,268
286
13,856
13,366
3,960
3,670
1,766
9,052
8,375
1,579
2,351
989
528
603
4,358
-
27,510
283
14,433
13,180
4,341
3,804
1,893
9,036
8,098
1,892
2,532
1,057
473
728
4,516
461
(600)
27,305
291
14,464
13,369
4,755
3,820
1,852
9,285
8,096
1,838
2,398
1,157
603
806
4,418
220
(1,375)
27,889
377
14,335
13,456
4,126
3,672
1,839
9,737
8,554
1,777
2,358
1,197
514
549
4,695
1,106
(500)
28,784
460
14,318
13,524
4,226
3,741
1,889
9,917
8,843
1,753
2,417
1,213
515
646
5,027
2,104
(300)
30,00
51
14,28
13,62
4,19
3,72
1,79
10,10
9,11
1,75
2,47
1,21
50
76
5,47
3,16
(300
Total Crown expenses excluding losses
91,007
93,637
93,302
95,681
99,077
102,42
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 SOEs.
2014
2013
Previous
2014
2015
2016
201
Actual
Budget
Forecast
Forecast
Forecast
Forecas
$m
$m
$m
$m
$m
By functional classification
Social security and welfare
GSF pension expenses
Health
Education
Core government services
Law and order
Defence
Transport and communications
Economic and industrial services
Primary services
Heritage, culture and recreation
Housing and community development
Environmental protection
Other
Finance costs
Forecast new operating spending
Top-down expense adjustment
22,741
278
14,498
12,504
4,294
3,456
1,804
2,255
1,978
659
804
283
530
603
3,619
-
23,595
274
14,950
12,389
4,637
3,561
1,933
2,162
2,152
818
854
335
496
728
3,622
461
(600)
23,246
282
14,997
12,558
5,067
3,630
1,901
2,285
2,226
816
882
434
602
806
3,604
220
(1,375)
23,729
369
14,924
12,669
4,470
3,471
1,887
2,247
2,155
726
816
324
512
549
3,743
1,106
(500)
24,244
452
14,953
12,785
4,581
3,516
1,938
2,173
2,168
696
803
265
513
646
3,949
2,104
(300)
25,12
50
14,93
12,83
4,55
3,48
1,84
2,24
2,19
67
80
20
50
76
4,28
3,16
(300
Total core Crown expenses excluding losses
70,306
72,367
72,181
73,197
75,486
77,81
$m
Core Crown expenses
The accompanying notes and accounting policies are an integral part of these Statements.
86 | B.6
 FORECAST FINANCIAL STATEMENTS 
Forecast Statement of Comprehensive Income
for the years ending 30 June
2014
2013
Previous
2014
2015
2016
2017
Actual
Budget
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
Operating balance (including minority interest)
Other comprehensive income
7,019
358
1,639
3,080
4,774
6,330
Revaluation of physical assets
Net change in hedging instruments entered into for
cash flow hedges
Foreign currency translation differences for foreign
operations
Valuation gains/(losses) on investments available for
sale taken to reserves
Other movements
Total other comprehensive income
1,367
-
(74)
-
-
-
280
(21)
41
(16)
6
9
-
39
(6)
1
-
-
36
8
(2)
9
12
13
7
1,690
(38)
(12)
46
5
3
(3)
6
24
9
31
Total comprehensive income
8,709
346
1,644
3,077
4,798
6,361
Attributable to:
- minority interest
- the Crown
153
8,556
346
1,644
3,077
4,798
6,361
Total comprehensive income
8,709
346
1,644
3,077
4,798
6,361
Forecast Statement of Changes in Net Worth
for the years ending 30 June
2014
Opening net worth
Operating balance (excluding minority interest)
Net revaluations
Transfers to/(from) reserves
(Gains)/losses transferred to the Statement of Financial
Performance
Other movements
Comprehensive income attributable to the Crown
Gain/(loss) on Government share offers
Increase in minority interest from Government share
offers
Transactions with minority interest
Closing net worth
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
59,780
63,270
70,011
74,895
78,009
7,019
1,367
260
358
(59)
1,639
(74)
86
3,080
14
4,774
11
(10)
-
(1)
(2)
1
73
47
(6)
(15)
12
8,709
346
1,644
3,077
4,798
167
175
(550)
-
-
1,371
1,325
3,676
25
-
(16)
66
114
12
40
70,011
65,182
74,895
78,009
82,847
The accompanying notes and accounting policies are an integral part of these Statements.
Forecast Statement of Cash Flows
for the years ending 30 June
B.6 | 87
Fo
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
2014
2013
Previous
2014
2015
2016
20
Actual
Budget
Forecast
Forecast
Forecast
Foreca
$m
$m
$m
$m
$m
$
Cash was provided from
Taxation receipts
Other sovereign receipts
Sales of goods and services
Interest and dividend receipts
Other operating receipts
56,413
4,806
16,651
2,694
5,933
60,695
4,747
17,175
3,175
5,443
61,139
4,831
16,476
3,112
6,565
64,923
4,579
17,505
3,456
4,387
68,977
4,153
18,127
3,761
4,062
72,5
4,2
18,6
4,4
3,8
Total cash provided from operations
86,497
91,235
92,123
94,850
99,080
103,7
Transfer payments and subsidies
Personnel and operating payments
Interest payments
Forecast new operating spending
Top-down expense adjustment
22,780
58,450
4,369
-
23,877
62,742
4,629
461
(600)
23,787
63,974
4,395
220
(1,375)
23,947
61,513
4,661
1,106
(500)
24,557
60,277
4,739
2,104
(300)
25,4
60,3
5,1
3,1
(30
Total cash disbursed to operations
85,599
91,109
91,001
90,727
91,377
93,8
898
126
1,122
4,123
7,703
9,8
(5,169)
6,342
(581)
(1,405)
280
1,547
-
(7,234)
(5,221)
(516)
(2,029)
65
1,500
(503)
50
(7,423)
(5,284)
(563)
(2,085)
27
2,490
(206)
450
(6,487)
2,428
(465)
(1,877)
(19)
620
(567)
175
(6,077)
(5,798)
(408)
(1,602)
47
(816)
175
(5,48
(8,99
(41
(1,46
1,014
(13,888)
(12,594)
(6,192)
(14,479)
(17,09
1,912
(13,762)
(11,472)
(2,069)
(6,776)
(7,22
234
141
246
148
153
1
5,476
10,245
4,947
(753)
4,924
5,8
(2,926)
(519)
170
(751)
(605)
(634)
2,647
1,698
2,739
2,005
1,0
(20)
2,130
12,514
7,061
1,383
6,477
7,1
Net movement in cash
4,042
(1,248)
(4,411)
(686)
(299)
(11
Opening cash balance
10,686
16,492
14,924
10,221
9,535
9,2
Cash flows from operations
Cash was disbursed to
Net cash flows from operations
Cash flows from investing activities
Cash was provided from/(disbursed to)
Net purchase of physical assets
Net purchase of shares and other securities
Net purchase of intangible assets
Net repayment/(issues) of advances
Net acquisition of investments in associates
Government share offer programme
Forecast new capital spending
Top-down capital adjustment
Net cash flows from investing activities
Net cash flows from operating and
investing activities
Cash flows from financing activities
Cash was provided from/(disbursed to)
Issues of circulating currency
stock1
Net issue/(repayment) of government
Net issue/(repayment) of foreign-currency
borrowings
Net issue/(repayment) of other New Zealand dollar
borrowings
Dividends paid to minority interests
Net cash flows from financing activities
Foreign-exchange gains/(losses) on opening cash
Closing cash balance
196
-
(292)
-
-
14,924
15,244
10,221
9,535
9,236
1. Further information on the proceeds and repayments of government stock ("domestic bonds") is available in note 22.
88 | B.6
(95
1
9,1
 FORECAST FINANCIAL STATEMENTS 
The accompanying notes and accounting policies are an integral part of these Statements.
Forecast Statement of Cash Flows (continued)
for the years ending 30 June
2014
2013
Previous
2014
2015
2016
2017
Actual
Budget
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
898
126
1,122
4,123
7,703
9,875
7,270
1,748
2,234
2,206
2,347
2,494
3,706
10,976
443
2,191
1,486
3,720
535
2,741
499
2,846
478
2,972
(4,812)
(4,640)
(4,666)
(4,841)
(4,925)
(5,016)
(684)
(723)
(785)
(789)
(807)
(828)
(497)
23
(130)
(138)
(141)
(145)
385
1,106
299
(4,203)
461
2,517
321
(2,041)
484
2,956
387
(1,754)
379
1,686
564
(3,139)
309
(258)
572
(5,250)
267
(1,422)
580
(6,564)
(1,302)
257
(94)
32
(2)
363
(1,119)
526
73
(29)
26
605
(1,166)
243
8
(2)
19
(551)
(987)
190
40
(36)
(38)
186
277
(39)
108
3
(7)
(867)
441
(46)
(29)
3
(6)
(316)
Reconciliation between the net cash
flows from operations and the operating
balance
Net cash flows from operations
Items included in the operating balance but
not in net cash flows from operations
Gains/(losses)
Net gains/(losses) on financial instruments
Net gains/(losses) on non-financial
instruments
Total gains/(losses)
Other non-cash items in operating
balance
Depreciation and amortisation
Write-down on initial recognition of financial
assets
Impairment on financial assets (excl.
receivables)
Decrease/(increase) in defined benefit
retirement plan liabilities
Decrease/(increase) in insurance liabilities
Other
Total other non-cash Items
Movements in working capital
Increase/(decrease) in receivables
Increase/(decrease) in accrued interest
Increase/(decrease) in inventories
Increase/(decrease) in prepayments
Decrease/(increase) in deferred revenue
Decrease/(increase) in payables/provisions
Total movements in working capital
(746)
82
(1,449)
(645)
(525)
47
Operating balance
6,925
358
1,639
3,080
4,774
6,330
The accompanying notes and accounting policies are an integral part of these Statements.
B.6 | 89
F
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Forecast Statement of Financial Position
as at 30 June
2014
2013
Previous
2014
2015
2016
2017
Actual
Budget
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
12
12
14,924
19,883
15,244
18,070
10,221
18,968
9,535
17,909
9,236
18,191
9,117
18,642
12
44,000
44,713
44,522
40,429
45,246
53,732
12
12
14
17,359
22,613
1,140
2,295
109,833
18,176
25,312
1,321
2,061
112,627
21,289
24,359
1,148
2,268
113,277
23,044
26,268
1,189
2,366
115,464
24,747
28,188
1,296
2,404
117,316
26,511
29,780
1,267
2,385
118,833
15
8
8
9,593
2,776
-
9,642
2,837
505
(330)
9,876
2,878
206
(450)
10,130
2,872
773
(625)
10,331
2,829
1,589
(800)
10,478
2,788
2,539
(925)
244,416
250,178
248,562
249,354
260,573
275,147
4,691
11,160
1,714
100,087
37,712
11,903
7,138
4,897
12,360
1,553
112,201
35,902
11,766
6,317
4,936
11,955
1,695
104,354
33,430
10,880
6,417
5,084
12,103
1,733
104,608
31,140
10,501
6,176
5,237
13,238
1,740
110,532
30,848
10,192
5,939
5,394
13,971
1,746
117,271
31,738
9,925
5,866
174,405
184,996
173,667
171,345
177,726
185,911
70,011
65,182
74,895
78,009
82,847
89,236
10,862
6,230
12,080
15,339
20,388
26,926
57,068
55,831
56,911
56,760
56,491
56,292
141
(64)
174
143
161
183
68,071
61,997
69,165
72,242
77,040
83,401
Note
Assets
Cash and cash equivalents
Receivables
Marketable securities, deposits and
derivatives in gain
Share investments
Advances
Inventory
Other assets
Property, plant and equipment
investments1
Equity accounted
Intangible assets and goodwill
Forecast for new capital spending
Top-down capital adjustment
Total assets
Liabilities
Issued currency
Payables
Deferred revenue
Borrowings
Insurance liabilities
Retirement plan liabilities
Provisions
17
18
19
20
Total liabilities
Total assets less total liabilities
Net worth
Taxpayers' funds
Property, plant and equipment
revaluation reserve
Other reserves
Total net worth attributable to the
Crown
Net worth attributable to minority
interest
Total net worth
21
1,940
3,185
5,730
5,767
5,807
5,835
70,011
65,182
74,895
78,009
82,847
89,236
1. Tertiary education institutions constitute most equity accounted investments.
The accompanying notes and accounting policies are an integral part of these Statements.
Forecast Statement of Borrowings
as at 30 June
90 | B.6
 FORECAST FINANCIAL STATEMENTS 
2014
2013
Previous
2014
2015
2016
2
Actual
Budget
Forecast
Forecast
Forecast
Forec
$m
$m
$m
$m
$m
57,377
4,084
199
7,575
3,188
1,454
26,210
68,469
3,541
204
7,183
1,854
1,475
29,475
60,456
3,470
196
7,094
2,187
1,535
29,416
58,726
3,494
196
7,094
1,914
1,680
31,504
63,128
3,361
196
7,094
1,673
1,639
33,441
68,
3,
100,087
112,201
104,354
104,608
110,532
117,
75,684
24,403
84,580
27,621
77,526
26,828
75,818
28,790
79,851
30,681
85,
32,
100,087
112,201
104,354
104,608
110,532
117,
84,873
94,504
87,571
85,691
90,329
96,
(587)
(1,027)
(449)
(573)
(713)
(7
84,286
93,477
87,122
85,118
89,616
95,
Less core Crown financial assets3
62,984
65,786
63,660
60,708
66,516
75,
Net core Crown debt
21,302
27,691
23,462
24,410
23,100
19,
13,126
14,375
13,785
14,574
15,264
15,
34,428
42,066
37,247
38,984
38,364
35,
21,407
22,699
22,736
24,320
26,184
28,
55,835
64,765
59,983
63,304
64,548
63,
84,286
(7,902)
93,477
(7,391)
87,122
(7,094)
85,118
(7,094)
89,616
(7,094)
95,
(7,0
1,600
1,600
1,600
1,600
1,600
1,
77,984
87,686
81,628
79,624
84,122
89,
Borrowings
Government bonds
Treasury bills
Government retail stock
Settlement deposits with Reserve Bank
Derivatives in loss
Finance lease liabilities
Other borrowings
Total borrowings
Total sovereign-guaranteed debt
Total non-sovereign-guaranteed debt
Total borrowings
7,
1,
1,
34,
Net debt:
Core Crown borrowings1
Add back NZS Fund holdings of sovereign-issued
debt and NZS Fund borrowings
Gross sovereign-issued
debt2
Core Crown advances
Net core Crown debt (incl. NZS Fund)
4
Add back NZS Fund holdings of core Crown financial
assets and NZS Fund financial assets5
Net core Crown debt (excl. NZS Fund and
advances)6
Gross debt:
Gross sovereign-issued debt2
Less Reserve Bank settlement cash and bank bills
Add back changes to DMO borrowing owing to
settlement cash7
Gross sovereign-issued debt excluding Reserve
Bank settlement cash and bank bills4
Notes on borrowings
Total borrowings can be split into sovereign-guaranteed and non-sovereign-guaranteed
debt. This split reflects the fact that borrowings by SOEs and Crown entities are not
explicitly guaranteed by the Crown. No debt of SOEs and Crown entities is currently
guaranteed by the Crown.
1. Core Crown borrowings in this instance include unsettled purchases of securities
(classified as accounts payable in the Statement of Financial Position).
2. Gross sovereign-issued debt (GSID) represents debt issued by the sovereign (the core
Crown) and includes any government stock held by the other Crown reporting entities.
3. Core Crown financial assets exclude receivables.
B.6 | 91
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
4. Net core Crown debt represents GSID less financial assets. This can provide
information about the sustainability of the Government's accounts, and is used by some
international agencies when determining the creditworthiness of a country.
5. Adding back the NZS Fund assets provides the financial liabilities less financial assets
of the core Crown, excluding those assets set aside to meet part of the future cost of New
Zealand Superannuation.
6. Net core Crown debt (excluding NZS Fund and advances) excludes financial assets
which are held for public policy rather than treasury management purposes.
7. The Reserve Bank has used $1.6 billion of settlement cash to purchase reserves that
were to have been funded by the NZDMO borrowing. Therefore, the impact of settlement
cash on GSID is adjusted by this amount.
The accompanying notes and accounting policies are an integral part of these Statements.
Statement of Actual Commitments
as at 31 October 2013
As at
As at
31 Oct
30 June
2013
2013
$m
$m
438
716
5,377
760
169
549
717
5,478
790
169
Total capital commitments
Operating commitments
Non-cancellable accommodation
leases
Other non-cancellable leases
Tertiary education institutions
7,460
7,703
2,694
2,792
2,620
466
2,735
466
Total operating commitments
5,780
5,993
Total commitments
Total commitments by segment
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
13,240
13,696
3,881
5,283
5,062
(986)
4,226
5,296
5,078
(904)
Total commitments
13,240
13,696
Capital commitments
Specialist military equipment
Land and buildings
Other property, plant and equipment
Other capital commitments
Tertiary education institutions
Statement of Actual Contingent Liabilities and Assets
as at 31 October 2013
92 | B.6
 FORECAST FINANCIAL STATEMENTS 
As at
As at
31 Oct
30 June
2013
2013
$m
$m
178
6,006
672
444
225
6,286
707
432
Total quantifiable contingent liabilities
Total quantifiable contingent liabilities by
segment
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
7,300
7,650
6,983
53
264
-
7,350
35
265
-
Total quantifiable contingent liabilities
Quantifiable contingent assets by segment
Core Crown
Crown entities
State-owned enterprises
7,300
7,650
228
4
21
245
4
21
253
270
Quantifiable contingent liabilities
Guarantees and indemnities
Uncalled capital
Legal proceedings and disputes
Other contingent liabilities
Total quantifiable contingent assets
The accompanying notes and accounting policies are an integral part of these Statements.
B.6 | 93
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Notes to the Forecast Financial Statements
NOTE 1: Sovereign Revenue (Accrual)
2014
2013
Previous
2014
2015
2016
2017
Actual
Budget
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
Source deductions
Other persons
Refunds
Fringe benefit tax
22,330
5,210
(1,644)
480
23,709
5,083
(1,488)
477
23,825
5,263
(1,465)
480
25,134
5,525
(1,491)
502
26,491
5,798
(1,524)
522
27,950
6,061
(1,527)
544
Total individuals
26,376
27,781
28,103
29,670
31,287
33,028
Corporate tax
Gross companies tax
Refunds
Non-resident withholding tax
Foreign-source dividend w/holding payments
8,747
(151)
420
2
9,240
(197)
447
-
9,197
(193)
394
2
9,681
(205)
459
2
10,271
(219)
521
2
10,453
(230)
559
2
Total corporate tax
9,018
9,490
9,400
9,937
10,575
10,784
Resident w/holding tax on interest income
Resident w/holding tax on dividend income
1,631
516
1,671
607
1,673
460
1,905
492
2,419
520
2,879
530
Total other direct income tax
2,147
2,278
2,133
2,397
2,939
3,409
37,541
39,549
39,636
42,004
44,801
47,221
Gross goods and services tax
Refunds
25,125
(9,920)
27,220
(10,695)
27,298
(10,700)
29,041
(11,357)
30,800
(11,989)
32,847
(13,121)
Total goods and services tax
15,205
16,525
16,598
17,684
18,811
19,726
1,066
855
663
281
1,164
931
678
277
1,155
938
655
294
1,250
995
680
298
1,346
1,055
711
305
1,412
1,084
743
318
674
250
659
267
680
246
721
255
764
267
785
278
954
178
214
174
45
34
1,043
172
223
187
62
36
1,107
168
208
183
65
36
1,156
160
208
191
65
36
1,221
151
209
196
65
36
1,272
144
209
200
65
36
5,388
5,699
5,735
6,015
6,326
6,546
Total indirect taxation
20,593
22,224
22,333
23,699
25,137
26,272
Total taxation revenue
58,134
61,773
61,969
65,703
69,938
73,493
3,437
331
242
3,465
338
269
3,444
338
268
3,125
341
271
2,808
351
274
2,724
361
276
Taxation revenue (accrual)
Individuals
Other direct income tax
Total direct income tax
Goods and services tax
Other indirect taxation
Road user charges
Petroleum fuels excise – domestic production
Alcohol excise – domestic production
Tobacco excise – domestic production
Petroleum fuels excise – imports1
imports1
Alcohol excise –
Tobacco excise – imports1
Other customs duty
Gaming duties
Motor vehicle fees
Approved issuer levy and cheque duty
Energy resources levies
Total other indirect taxation
Other sovereign revenue (accrual)
ACC levies
Fire Service levies
EQC levies
94 | B.6
 FORECAST FINANCIAL STATEMENTS 
Child support
Court fines
Other miscellaneous items
Total other sovereign revenue
Total sovereign revenue
590
168
404
729
173
322
608
173
445
664
173
496
527
173
532
565
173
534
5,172
5,296
5,276
5,070
4,665
4,633
63,306
67,069
67,245
70,773
74,603
78,126
2017
1. Customs excise-equivalent duty.
NOTE 1 (continued): Sovereign Receipts (Cash)
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
Source deductions
Other persons
Refunds
Fringe benefit tax
22,188
5,194
(2,251)
465
23,584
5,549
(2,222)
476
23,715
5,667
(2,084)
478
25,003
5,764
(2,005)
500
26,354
6,046
(2,067)
520
27,812
6,348
(2,140
542
Total individuals
25,596
27,387
27,776
29,262
30,853
32,562
Corporate tax
Gross companies tax
Refunds
Non-resident withholding tax
Foreign-source dividend w/holding payments
8,665
(597)
451
1
9,495
(766)
446
-
9,516
(641)
392
2
10,119
(681)
457
2
10,613
(728)
519
2
10,887
(768
557
2
Total corporate tax
8,520
9,175
9,269
9,897
10,406
10,678
Resident w/holding tax on interest income
Resident w/holding tax on dividend income
1,635
516
1,670
607
1,672
460
1,904
492
2,417
520
2,877
530
Total other direct income tax
2,151
2,277
2,132
2,396
2,937
3,407
36,267
38,839
39,177
41,555
44,196
46,647
Gross goods and services tax
Refunds
24,539
(9,783)
26,352
(10,195)
26,428
(10,200)
28,210
(10,857)
29,944
(11,489)
31,968
(12,621
Total goods and services tax
14,756
16,157
16,228
17,353
18,455
19,347
Road user charges
Petroleum fuels excise – domestic production
Alcohol excise – domestic production
Tobacco excise – domestic production
Customs duty
Gaming duties
Motor vehicle fees
Approved issuer levy and cheque duty
Energy resources levies
1,064
865
666
287
2,035
216
179
44
34
1,164
931
678
277
2,141
223
187
62
36
1,155
938
655
294
2,201
206
183
66
36
1,250
995
680
298
2,292
208
191
65
36
1,346
1,055
711
305
2,403
209
196
65
36
1,412
1,084
743
318
2,479
209
200
65
36
Total other indirect taxation
5,390
5,699
5,734
6,015
6,326
6,546
Total indirect taxation
20,146
21,856
21,962
23,368
24,781
25,893
Total taxation receipts
56,413
60,695
61,139
64,923
68,977
72,540
Forecas
Taxation receipts (cash)
Individuals
Other direct income tax
Total direct income tax
Goods and services tax
Other indirect taxation
Other sovereign receipts (cash)
B.6 | 95
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
ACC levies
Fire Service levies
EQC levies
Child support
Court fines
Other miscellaneous items
3,524
331
274
230
159
288
3,438
338
267
237
148
319
3,423
338
271
237
148
414
3,151
341
270
248
137
432
2,695
351
273
259
137
438
2,747
361
276
270
137
439
Total other sovereign receipts
4,806
4,747
4,831
4,579
4,153
4,230
61,219
65,442
65,970
69,502
73,130
76,770
2013
Previous
2014
2015
2016
2017
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
By type
Interest revenue
Dividends
2,382
557
3,006
582
2,689
689
2,989
690
3,267
744
3,887
789
Total interest revenue and dividends
2,939
3,588
3,378
3,679
4,011
4,676
2,104
1,270
856
(1,291)
2,639
1,242
878
(1,171)
2,501
1,187
873
(1,183)
2,427
1,254
1,018
(1,020)
2,615
1,307
1,172
(1,083)
3,158
1,364
1,305
(1,151
2,939
3,588
3,378
3,679
4,011
4,676
Total sovereign receipts
NOTE 2: Interest revenue and dividends
2014
By source
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
Total interest revenue and dividends
Forecas
NOTE 3: Transfer payments and subsidies
2014
2013
Previous
2014
2015
2016
2017
Actual
Budget
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
New Zealand Superannuation
Jobseeker Support and Emergency Benefit
Supported Living Payment
Sole Parent Support
Domestic Purposes Benefit
Invalid's Benefit
Sickness Benefit
Unemployment Benefit
Family tax credit
Other working for families tax credits
Accommodation Assistance
Income related rents
Disability assistance
Student allowances
Other social assistance benefits
10,235
1,738
1,330
782
812
2,018
575
1,177
611
384
596
1,290
10,894
1,773
1,392
1,288
67
53
32
29
2,038
539
1,191
662
380
574
1,316
10,890
1,697
1,416
1,233
63
52
29
29
1,966
547
1,156
670
379
548
1,295
11,506
1,703
1,484
1,272
1,934
522
1,165
712
377
536
1,327
12,155
1,685
1,491
1,296
1,910
512
1,174
768
378
538
1,338
12,816
1,696
1,508
1,328
1,979
507
1,188
823
379
544
1,341
Total social assistance grants
21,548
22,228
21,970
22,538
23,245
24,109
723
748
795
759
774
812
Subsidies
KiwiSaver subsidies
96 | B.6
 FORECAST FINANCIAL STATEMENTS 
Other transfer payments
Official development assistance
Total transfer payments and subsidies
437
509
573
520
547
547
22,708
23,485
23,338
23,817
24,566
25,468
From 15 July 2013 the benefit categories Domestic Purposes Benefit, Invalid's Benefit,
Unemployment and Emergency Benefit and Sickness Benefit, as well as Widow's Benefit,
were replaced by new benefit categories. These categories are Jobseeker Support and
Emergency Benefit, Supported Living Payment and Sole Parent Support.
NOTE 4: Personnel expenses
2014
2013
Previous
2014
2015
2016
2017
Actual
Budget
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
By source
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
6,037
10,966
2,949
(17)
6,066
11,198
2,919
(11)
6,155
11,190
2,908
(7)
6,102
11,320
2,969
(7)
6,253
11,449
3,051
(7)
6,371
11,585
3,086
(8
Total personnel expenses
19,935
20,172
20,246
20,384
20,746
21,034
NOTE 5: Depreciation, amortisation and other operating expenses
2014
By source
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
Total depreciation, amortisation and other
operating expenses
2013
Previous
2014
2015
2016
2017
Actual
Budget
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
37,940
18,648
11,540
(27,153)
39,472
19,100
11,219
(27,403)
40,233
19,439
11,086
(27,742)
38,926
19,435
11,937
(27,776)
38,908
19,524
12,411
(27,977)
38,827
19,612
12,826
(28,074
40,975
42,388
43,016
42,522
42,866
43,191
NOTE 6: Interest expenses
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
By type
Interest on financial liabilities
Interest unwind on provisions
4,312
46
4,465
51
4,371
47
4,653
42
4,983
44
5,425
48
Total interest expenses
4,358
4,516
4,418
4,695
5,027
5,473
By source
Core Crown
Crown entities
3,620
235
3,622
239
3,604
221
3,743
228
3,949
227
4,280
241
B.6 | 97
2017
Forecas
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
State-owned enterprises
Inter-segment eliminations
1,248
(745)
1,279
(624)
1,198
(605)
1,300
(576)
1,415
(564)
1,550
(598
Total interest expenses
4,358
4,516
4,418
4,695
5,027
5,473
NOTE 7: Insurance expenses
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
2017
$m
$m
$m
$m
$m
$m
By entity
ACC
EQC
Southern Response
Other (incl. inter-segment eliminations)
3,133
(103)
(22)
23
3,315
(19)
(95)
14
3,457
(38)
6
14
3,545
172
(72)
12
3,885
213
(43)
13
4,204
219
(39
11
Total insurance expenses
3,031
3,215
3,439
3,657
4,068
4,395
Forecas
NOTE 8: Forecast new spending and top-down expense adjustment
2014
Previous
2014
2015
2016
2017
2018
Budget
Forecast
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
Forecast new operating spending
Unallocated contingencies
Forecast new spending for Budget 2014
Forecast new spending for Budget 2015
Forecast new spending for Budget 2016
Forecast new spending for Budget 2017
461
-
220
-
146
960
-
125
959
1,020
-
142
965
1,020
1,040
-
58
936
1,020
1,040
1,061
Total forecast new operating spending
461
220
1,106
2,104
3,167
4,115
(600)
(1,375)
(500)
(300)
(300)
(300)
Operating top-down adjustment
Unallocated contingencies represent expenses included in Budget 2013 and previous
Budgets that have yet to be allocated. Forecast new spending indicates the expected
spending increases from future Budgets. The Budget 2014 allowance of $1 billion has
been reduced to absorb Vote Education forecast changes which will be managed within
Education's Budget 2014 allocation or through reprioritisation.
Post-
Forecast new capital spending (annual)
Unallocated contingencies
Forecast new spending for Budget 2014
Forecast new spending for Budget 2015
Forecast new spending for Budget 2016
Forecast new spending for Budget 2017
98 | B.6
2014
2015
2016
2017
2018
2018
Forecast
Forecast
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
$m
140
66
-
161
306
100
-
166
250
300
100
-
100
200
250
300
100
250
250
300
250
518
 FORECAST FINANCIAL STATEMENTS 
Forecast new spending for Budget 2018
Total forecast new capital spending
Forecast new capital spending (cumulative)
Capital top-down adjustment (cumulative)
-
-
-
-
100
836
206
567
816
950
900
1,604
206
(450)
773
(625)
1,589
(800)
2,539
(925)
3,439
(1,050)
Unallocated contingencies represent capital spending from Budget 2013 and previous
Budgets that have yet to be allocated. Forecast new spending indicates the expected
capital spending increases from future Budgets, which will be mostly funded from the
Future Investment Fund.
NOTE 9: Gains and losses on financial instruments
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
By source
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
5,081
1,192
354
643
1,663
252
11
(178)
1,982
111
19
122
2,076
315
24
(209)
2,178
367
19
(217)
Net gains/(losses) on financial instruments
7,270
1,748
2,234
2,206
2,347
F
NOTE 10: Gains and losses on non-financial instruments
2014
By type
Actuarial gains/(losses) on GSF liability
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
1,251
-
539
-
-
Other
2,369
86
498
(55)
1,326
(379)
604
(69)
551
(52)
Net gains/(losses) on non-financial instruments
3,706
443
1,486
535
499
By source
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
1,298
2,309
100
(1)
(2)
446
(1)
-
266
1,221
(26)
25
(1)
534
(9)
11
(1)
498
(9)
11
Net gains/(losses) on non-financial instruments
3,706
443
1,486
535
499
Actuarial gains/(losses) on ACC outstanding claims
B.6 | 99
F
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
NOTE 11: Operating balance
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
By source
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
371
5,877
614
63
(2,249)
2,646
732
(771)
(1,356)
2,832
614
(451)
1,255
1,897
614
(686)
3,520
1,344
697
(787)
Total operating balance
6,925
358
1,639
3,080
4,774
F
NOTE 13: Student loans
2014
Nominal value (including accrued interest)
Opening book value
Amount borrowed in current year
Less initial write-down to fair value
Repayments made during the year
Interest unwind
(Impairment)/reversal of impairment
Other movements
Closing book value
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
13,562
8,291
1,481
(536)
(1,054)
590
(484)
-
14,144
8,528
1,632
(537)
(1,135)
600
(110)
11
14,049
8,288
1,510
(604)
(1,176)
564
(110)
12
14,486
8,484
1,562
(622)
(1,276)
574
(110)
11
14,929
8,623
1,613
(643)
(1,331)
582
(110)
12
8,288
8,989
8,484
8,623
8,746
For
1
(
NOTE 14: Property, plant and equipment
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
34,453
25,784
17,930
13,555
3,865
3,094
2,617
2,296
1,035
5,204
34,759
25,312
18,918
14,104
4,273
3,330
2,502
2,498
1,012
5,919
35,085
26,322
19,049
13,673
4,166
3,186
2,563
2,657
1,128
5,448
35,108
27,029
19,778
13,459
4,260
3,412
2,562
3,025
1,193
5,638
35,110
27,556
20,673
13,316
4,364
3,445
2,588
3,261
1,215
5,788
3
2
2
1
109,833
112,627
113,277
115,464
117,316
11
For
By class of asset
Net carrying value
Land (valuation)
Buildings (valuation)
State highways (valuation)
Electricity generation assets (valuation)
Electricity distribution network (cost)
Specialist military equipment (valuation)
Specified cultural and heritage assets (valuation)
Aircraft (excluding military) (valuation)
Rail network (valuation)
Other plant and equipment (cost)
Total property, plant and equipment
100 | B.6
 FORECAST FINANCIAL STATEMENTS 
By source
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
Total property, plant and equipment
Land breakdown by usage
Housing
State highway corridor land
Conservation land
Rail network
Schools
Commercial (SOEs) excluding Rail
Other
Total land
29,507
51,823
28,503
-
30,565
52,207
29,855
-
30,562
53,485
29,230
-
30,991
55,016
29,457
-
31,190
56,617
29,509
-
3
5
2
109,833
112,627
113,277
115,464
117,316
11
9,580
8,003
5,364
3,256
2,887
1,374
3,989
8,750
8,653
5,460
3,418
2,724
1,520
4,234
9,539
8,153
5,389
3,232
2,880
1,414
4,478
9,367
8,303
5,401
3,222
2,875
1,463
4,477
9,106
8,453
5,423
3,212
2,870
1,480
4,566
34,453
34,759
35,085
35,108
35,110
3
NOTE 14 (continued): Property, plant and equipment
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
121,717
5,779
(1,471)
(2,047)
126,589
7,830
(598)
-
122,796
7,925
(496)
12
130,262
7,011
(670)
-
136,537
6,921
(815)
-
Schedule of movements
Cost or valuation
Opening balance
Additions (refer below for further breakdown)
Disposals
Net revaluations
Other1
Total cost or valuation
Accumulated depreciation and impairment
Opening balance
Eliminated on disposal
Eliminated on revaluation
Impairment losses charged to operating balance
Depreciation expense
Other1
Total accumulated depreciation and impairment
Total property, plant and equipment
(1,182)
(56)
25
(66)
(85)
122,796
133,765
130,262
136,537
142,558
13,133
(659)
(3,587)
473
3,697
17,255
(42)
4,011
12,963
(52)
4,030
16,985
(71)
4,168
21,073
(69)
4,260
(94)
(86)
44
(9)
(22)
12,963
21,138
16,985
21,073
25,242
109,833
112,627
113,277
115,464
117,316
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
2,041
1,521
472
2,579
1,338
862
2,609
1,301
688
2,485
718
809
2,462
802
732
1. Other mainly includes transfers to/from other asset categories.
2014
Additions – by functional classification
Transport
Economic
Education
B.6 | 101
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Health
Defence
Other
Total additions to property, plant and equipment2
578
201
966
636
548
1,867
746
506
2,075
564
616
1,819
543
424
1,958
5,779
7,830
7,925
7,011
6,921
2. These additions do not include any purchases which may result from the allocation of
the forecast for new capital spending (separately disclosed in the Statement of Financial
Position).
NOTE 15: Intangible assets and goodwill
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
By type
Net Kyoto position
Goodwill
Other intangible assets
53
655
2,068
3
744
2,090
72
652
2,154
72
652
2,148
72
652
2,105
Total intangible assets and goodwill
2,776
2,837
2,878
2,872
2,829
By source
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
1,041
573
1,162
-
1,175
534
1,128
-
1,237
492
1,149
-
1,250
486
1,136
-
1,229
483
1,117
-
Total intangible assets and goodwill
2,776
2,837
2,878
2,872
2,829
For
Net Kyoto position
The New Zealand Government has committed under the Kyoto Protocol to ensuring that New Zealand's average net
emissions of greenhouse gases from 2008 to 2012 (the first commitment period of the Kyoto Protocol, or CP1) are reduced
to gross 1990 emission levels, or to take responsibility for the difference. New Zealand can meet its commitment through
emissions reductions and use of the Kyoto Protocol flexibility mechanisms such as Joint Implementation, the Clean
Development Mechanism, and offsetting increased emissions against carbon removed by forests.
To assist New Zealand in meeting its Kyoto Protocol commitments, an Emissions Trading Scheme (ETS) was established
(refer note 20). These two initiatives should be looked at together when understanding New Zealand’s international climate
change obligations.
The New Zealand Government has to settle its Kyoto obligation by the completion of the true-up period which is expected to
occur in late 2015.
The latest Net Position estimate can be found on the Ministry for the Environment's website:
www.mfe.govt.nz/issues/climate/greenhouse-gas-emissions/net-position
NOTE 16: NZS Fund
2014
Revenue
102 | B.6
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
595
777
782
742
783
Fo
 FORECAST FINANCIAL STATEMENTS 
Less current tax expense
Less other expenses
Add gains/(losses)
983
165
4,374
478
148
1,358
554
159
1,776
547
155
1,684
589
170
1,820
Operating balance
3,821
1,509
1,845
1,724
1,844
Opening net worth
Operating balance
Other movements in reserves
18,703
3,821
25
21,752
1,509
22
22,549
1,845
19
24,413
1,724
25
26,162
1,844
40
Closing net worth
22,549
23,283
24,413
26,162
28,046
Comprising:
Financial assets
Financial liabilities
Net other assets
23,419
(2,055)
1,185
23,891
(1,714)
1,106
24,899
(1,632)
1,146
26,282
(1,308)
1,188
28,010
(1,325)
1,361
Closing net worth
22,549
23,283
24,413
26,162
28,046
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
7,616
3,544
8,403
3,957
7,568
4,387
7,038
5,065
7,594
5,644
Total payables
11,160
12,360
11,955
12,103
13,238
By source
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
7,873
4,996
4,877
(6,586)
6,860
5,929
5,663
(6,092)
7,990
5,178
5,219
(6,432)
8,108
5,053
5,736
(6,794)
9,128
4,963
6,230
(7,083)
Total payables
11,160
12,360
11,955
12,103
13,238
NOTE 17: Payables
2014
By type
Accounts payable
Taxes repayable
Fo
NOTE 18: Insurance liabilities
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
By entity
ACC
EQC
Southern Response
Other (incl. inter-segment eliminations)
29,446
6,869
1,744
(347)
31,423
3,743
698
38
29,146
3,152
1,071
61
29,605
941
532
62
30,363
164
256
65
Total insurance liabilities
37,712
35,902
33,430
31,140
30,848
ACC liability
Levy reductions
The forecast includes a reduction in levy rates for the 2014/15 levy year agreed to by
Cabinet on 2nd December 2013. In addition, the forecasts include further levy reductions
B.6 | 103
Fo
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
for the 2015/16 levy year in line with what was signalled in Budget 2013. The amounts
factored in for the 2015/16 levy year are based on a best estimate of the likely outcome
which may differ from ACC's consultation document and the final outcome.
Calculation information
PwC NZ have prepared an independent actuarial estimate of the ACC outstanding claims
liability as at 30 June 2013. This estimate includes the expected future payments relating
to accidents that occurred prior to balance date (whether or not the associated claims
have been reported to, or accepted by, ACC) and also the expected future administrative
expenses of managing these claims. The assumptions underpinning this valuation form
the basis of the five-year forecast of the outstanding claims liability.
The key economic variables that impact on changes to the valuation are the long-term
Labour Cost Index (LCI), average weekly earnings and the discount rate. Discount rates
were derived from the yield curve for New Zealand Government bonds. For these
forecast statements, the claims liability has been updated for the latest discount rates as
at 30 September 2013. The equivalent single effective discount rate, taking into account
ACC's projected future cash flow patterns, is 5.19% and allows for a long-term discount
rate of 5.50% from 2035.
Other key variables in each valuation are the forecast increases in claim costs over and
above the economic variables above, and the assumed rate at which long-term claimants
will leave the scheme over the period. This assessment is largely based on scheme
history.
Presentation approach
The projected outstanding claims liability, including an adjustment to reflect projected
future actuarial releases ($466 million in 2014 and a further $604 million in 2015), is
included within total liabilities. ACC has available to it a portfolio of assets that offset the
claims liability. The assets (less cross-holdings of NZ Government stock) are included in
the asset portion of the Government's Statement of Financial Position.
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
30,648
30,767
(1,202)
656
29,446
(300)
29,146
459
29,605
758
30
1
Closing gross liability
Less net assets available to ACC
Opening net asset value
Net change
29,446
31,423
29,146
29,605
30,363
31
23,466
3,727
27,486
2,503
27,193
2,034
29,227
2,021
31,248
1,727
32
1
Closing net asset value
Net ACC reserves (net liability)
Opening reserves position
Net change
27,193
29,989
29,227
31,248
32,975
34
(7,182)
(2,253)
2,334
81
1,562
1,643
969
2
4,929
(3,281)
1,847
(2,253)
(1,434)
81
1,643
2,612
3
Gross ACC liability
Opening gross liability
Net change
Closing reserves position (net liability)
104 | B.6
Fore
 FORECAST FINANCIAL STATEMENTS 
EQC liability
Calculation information
Melville Jessup Weaver prepared an independent actuarial estimate of the EQC
outstanding claims liability at 30 June 2013 by estimating the projected ultimate claims
costs then deducting the payments made in relation to those claims on or before that date.
Each component of the claims liability was split into separate groups depending upon the
Canterbury earthquake event grouping or other “business as usual” claims. These event
groups were further split into sub-claim valuation groups being land claims, building claims
or contents claims. The assumptions underpinning the 30 June 2013 valuation form the
basis of the five-year forecast of the outstanding claims liability.
Critical assumptions used in projecting the ultimate costs include apportionment of costs
across earthquake events, the profile of claims settlement, claims inflation rate per
annum, risk margins and claims handling costs.
There is a high level of uncertainty associated with the valuation of the outstanding claims
liability, reinsurance recoveries and unexpired risk liability. Some of the key uncertainties
are: cost apportionment across events; the potential for construction cost to exceed
expectations; land damage estimates; reinsurance recoveries and profile of claims
settlement.
The actual claims outcome may differ from the one currently forecast.
Presentation approach
EQC reinsurance recoveries are included in receivables in the Statement of Financial
Position.
2014
EQC liability
Opening gross liability
Net change
Closing gross liability
Less reinsurance receivable
Opening reinsurance receivable
Net change
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
8,877
7,114
(2,008)
(3,371)
6,869
(3,717)
3,152
(2,211)
941
(777)
6,869
3,743
3,152
941
164
4,066
(1,443)
2,616
(1,238)
2,623
(1,710)
913
(621)
292
(245)
Fore
Closing reinsurance receivable
Net EQC liability
Opening net position
Net change
2,623
1,378
913
292
47
(4,811)
565
(4,498)
2,133
(4,246)
2,007
(2,239)
1,590
(649)
532
(
Closing net position (net liability)
(4,246)
(2,365)
(2,239)
(649)
(117)
(
B.6 | 105
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
NOTE 19: Retirement plan liabilities
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
Government Superannuation Fund
Other funds
11,908
11,767
10,885
10,506
10,197
(5)
(1)
(5)
(5)
(5)
Total retirement plan liabilities
11,903
11,766
10,880
10,501
10,192
Fore
9
9
The net liability of the Government Superannuation Fund (GSF) was calculated by GSF's
actuary as at 30 September 2013. The liability arises from closed schemes for past and
present public sector employees as set out in the Government Superannuation Fund Act
1956. A Projected Unit Credit method was used to calculate the liability as at 30
September 2013, based on membership data as at 30 June 2013 with adjustments for
cash flows to 30 September 2013. The funding method requires the benefits payable
from GSF in respect of past service to be calculated and then discounted back to the
valuation date.
For these Forecast Financial Statements, the net GSF liability was updated for the latest
discount rates derived from the market yield curve for New Zealand Government bonds as
at 30 September 2013.
Other principal long-term financial assumptions were an inflation rate, as measured by the
Consumers Price Index, of 1.9% for the year to 30 September 2014, 2.3% for the two
years to 30 September 2016, 2.4% for the two years to 30 September 2018 and
increasing to 2.5% for all years after that. In addition an annual salary growth rate, before
any promotional effects, of 3% (unchanged from 30 June 2013).
The 2013/14 projected decrease in the net GSF liability is $1,023 million, reflecting a
decrease in the GSF liability of $924 million and an increase in the GSF net assets of $99
million.
The decrease in the GSF liability of $924 million includes an actuarial gain between 1 July
2013 and 30 September 2013, of $512 million owing to movements in the discount rates
and changes in demographic assumptions. The remaining $412 million reduction is owing
to expected benefits paid to members (reduces the liability) offset by current service cost
and interest unwind (increases the liability).
The increase in the value of the net assets of GSF of $99 million includes a gain of $27
million reflecting the updated market value of assets at 30 September 2013. The balance
of $72 million is the total of the expected investment returns and contributions received,
offset by the benefits paid to members.
The changes in the projected net GSF liability from 2013/14 onwards reflect the net of the
expected current service cost, interest cost, investment returns and contributions.
2014
GSF liability
106 | B.6
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
Fore
 FORECAST FINANCIAL STATEMENTS 
Opening GSF liability
Net projected change
16,557
(1,267)
15,504
(395)
15,290
(924)
14,366
(332)
14,034
(266)
13
(
Closing GSF liability
Less net assets available to GSF
Opening net asset value
Investment valuation changes
Contribution and other income less pension payments
15,290
15,109
14,366
14,034
13,768
13
3,018
493
(129)
3,276
177
(111)
3,382
210
(111)
3,481
188
(141)
3,528
190
(147)
3
(
Closing net asset value
Net GSF liability
Opening unfunded liability
Net projected change
3,382
3,342
3,481
3,528
3,571
3
13,539
(1,631)
12,228
(461)
11,908
(1,023)
10,885
(379)
10,506
(309)
10
(
Closing unfunded liability
11,908
11,767
10,885
10,506
10,197
9
NOTE 20: Provisions
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
3,374
3,233
3,177
3,177
3,182
Provision for ETS credits
179
-
488
510
492
Provision for National Provident Fund guarantee
977
987
987
942
901
Provision for Canterbury Red Zone support package
222
-
-
-
-
Provision for infrastructure costs
Provision for weathertight services financial assistance
package
769
837
391
201
-
123
62
114
92
67
Other provisions
1,494
1,198
1,260
1,254
1,297
1
Total provisions
7,138
6,317
6,417
6,176
5,939
5
By source
Core Crown
Crown entities
State-owned enterprises
Inter-segment eliminations
4,492
1,979
1,151
(484)
3,905
1,907
963
(458)
3,963
1,979
972
(497)
3,730
2,012
952
(518)
3,399
2,023
969
(452)
3
2
Total provisions
7,138
6,317
6,417
6,176
5,939
5
Provision for employee entitlements
Provision for ETS credits
The Emissions Trading Scheme (ETS) was established to assist New Zealand in meeting
its international climate change obligations and to reduce New Zealand's net emissions of
greenhouse gases to below business-as-usual levels. The ETS creates a limited number
of tradable New Zealand Units (NZUs) which the Government can allocate. Emitters can
also surrender Kyoto compliant units to meet their obligations.
The allocation of NZUs creates a provision if allocated for free; the provision is reduced,
and revenue recognised, as NZUs and Kyoto compliant units are surrendered to the
Crown by emitters. The Kyoto compliant units collected through the ETS are recognised
as revenue and as part of the net Kyoto Protocol position.
The prices for NZUs and Kyoto compliant units used to calculate the ETS provision are
assumed to remain constant over the forecast period and are based on market prices
during September 2013.
B.6 | 107
Fore
3
(
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
The ETS impact on the fiscal forecast is as follows:
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
Revenue
Expenses
Gains/(losses)
16
(55)
235
5
(4)
-
32
(83)
(258)
65
(87)
-
94
(76)
-
Operating balance
196
1
(309)
(22)
18
Fore
NOTE 21: Net worth
2014
2013
Previous
2014
2015
2016
Actual
Budget
Forecast
Forecast
Forecast
$m
$m
$m
$m
$m
Taxpayers' funds
Property, plant and equipment revaluation reserve
Investment revaluation reserve
Cash flow hedge reserve
Foreign currency translation reserve
Share based payment reserve
Net worth attributable to minority interests
10,862
57,068
107
58
(49)
25
1,940
6,230
55,831
84
(142)
(6)
3,185
12,080
56,911
105
99
(55)
25
5,730
15,339
56,760
114
83
(54)
5,767
20,388
56,491
126
89
(54)
5,807
26
56
Total net worth
Taxpayers' funds
70,011
65,182
74,895
78,009
82,847
89
3,520
6,925
167
250
5,601
358
175
96
10,862
1,639
(550)
129
12,080
3,080
179
15,339
4,774
275
20
6
10,862
6,230
12,080
15,339
20,388
26
56,001
1,335
(268)
55,965
(134)
57,068
(74)
(83)
56,911
(151)
56,760
(269)
56
57,068
55,831
56,911
56,760
56,491
56
Opening taxpayers' funds
Operating balance excluding minority interest
Government share offers in SOEs
Transfers from/(to) other reserves
Closing taxpayers' funds
Fore
5
Property, plant and equipment revaluation reserve
Opening revaluation reserve
Net revaluations
Transfers from/(to) other reserves
Closing property, plant and equipment revaluation
reserve
(
NOTE 22: Core Crown residual cash
2014
Core Crown cash flows from operations
Tax receipts
Other sovereign receipts
Interest, profits and dividends
108 | B.6
2013
Previous
2014
2015
2016
2
Actual
Budget
Forecast
Forecast
Forecast
Forec
$m
$m
$m
$m
$m
57,808
651
1,553
62,056
644
1,660
62,314
728
1,604
66,028
746
1,548
70,179
763
1,654
73,
2,
 FORECAST FINANCIAL STATEMENTS 
Sale of goods and services and other receipts
Transfer payments and subsidies
Personnel and operating costs
Finance costs
Forecast for future new operating spending
Top-down expense adjustment
2,385
(22,780)
(40,412)
(3,729)
-
2,641
(23,877)
(42,800)
(3,680)
(461)
600
2,795
(23,787)
(43,446)
(3,619)
(220)
1,375
2,271
(23,948)
(41,740)
(3,736)
(1,106)
500
2,311
(24,557)
(41,510)
(3,690)
(2,104)
300
2,
(25,4
(41,3
(3,9
(3,1
Net core Crown operating cash flows
(4,524)
(3,217)
(2,256)
563
3,346
5,
Core Crown capital cash flows
Net purchase of physical assets
Net increase in advances
Net purchase of investments
Government share offer programme
Forecast for future new capital spending
Top-down capital adjustment
(1,231)
(342)
(1,308)
1,663
-
(2,560)
(990)
(1,166)
1,500
(503)
50
(2,691)
(842)
(1,021)
2,490
(206)
450
(1,997)
(941)
(1,325)
620
(567)
175
(1,522)
(841)
(1,518)
(816)
175
(1,5
(2
(1,5
Net core Crown capital cash flows
(1,218)
(3,669)
(1,820)
(4,035)
(4,522)
(4,1
Residual cash (deficit)/surplus
(5,742)
(6,886)
(4,076)
(3,472)
(1,176)
1,
The residual cash (deficit)/surplus is funded or
invested as follows:
Debt programme cash flows
Market:
Issue of government bonds
Repayment of government bonds
15,458
(9,982)
10,245
-
8,013
(3,067)
7,052
(7,805)
6,744
(1,820)
5,
Net issue/(repayment) of short-term borrowing1
(5,404)
90
(235)
160
-
(9
Total market debt cash flows
Non-market:
Issue of government bonds
Repayment of government bonds
Net issue/(repayment) of short-term borrowing
72
10,335
4,711
(593)
4,924
(499)
100
(757)
(219)
(745)
(100)
(679)
(360)
(120)
Total non-market debt cash flows
(399)
(976)
(845)
(1,039)
(120)
Total debt programme cash flows
Other borrowing cash flows
Net (repayment)/issue of other New Zealand dollar
borrowing
Net (repayment)/issue of foreign currency borrowing
(327)
9,359
3,866
(1,632)
4,804
4,494
(3,047)
724
(512)
(138)
113
1,041
(754)
724
(603)
1,447
212
(25)
287
121
5,699
234
(1,311)
(2,826)
141
-
(1,446)
246
1,435
4,669
148
-
(3,902)
153
-
(7,2
Total investing cash flows
4,622
(2,685)
235
4,817
(3,749)
(7,0
Residual cash deficit/(surplus) funding or
investing
5,742
6,886
4,076
3,472
1,176
(1,2
Total other borrowing cash flows
Investing cash flows
Other net sale/(purchase) of marketable securities
and deposits
Issues of circulating currency
Decrease/(increase) in cash
1. Short-term borrowing consists of Treasury Bills and may include Euro-Commercial Paper.
B.6 | 109
5,
5,
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Forecast Statement of Segments
Statement of Financial Performance
for the year ended 30 June 2013
Core Crown
Crown
State-Owned
Inter-segment
entities
Enterprises
eliminations
2013
2013
2013
2013
Actual
Actual
Actual
Actual
$m
$m
$m
$m
Revenue
Taxation revenue
Other sovereign revenue
Revenue from core Crown funding
Sales of goods and services
Interest revenue and dividends
Other revenue
58,651
1,133
1,461
2,104
800
5,295
24,096
1,856
1,270
2,547
268
14,001
856
811
(517)
(1,256)
(24,364)
(605)
(1,291)
(461)
Total revenue (excluding gains)
64,149
35,064
15,936
(28,494)
Expenses
Social assistance and official development
assistance
Personnel expenses
Other operating expenses
Interest expenses
Insurance expenses
Forecast for future new spending and top-down
adjustment
22,709
6,037
37,940
3,620
-
10,966
18,648
236
3,011
2,949
11,540
1,248
15
(1)
(17)
(27,153)
(746)
5
-
-
-
-
Total expenses (excluding losses)
70,306
32,861
15,752
(27,912)
-
10
(75)
3
(6,157)
6,379
2,213
3,501
109
454
(579)
642
149
-
153
10
155
(104)
(62)
62
371
5,877
614
63
Expenses by functional classification
Social security and welfare
Health
Education
Transport and communications
Other
Finance costs
Forecast for future new spending and top-down
adjustment
22,741
14,498
12,504
2,255
14,688
3,620
4,151
12,236
9,594
2,250
4,394
236
19
6,891
7,594
1,248
(624)
(12,878)
(8,751)
(2,344)
(2,569)
(746)
-
-
-
-
Total Crown expenses (excluding losses)
70,306
32,861
15,752
(27,912)
2013
Crown
State-Owned
Inter-segment
Actual
entities
Enterprises
eliminations
Operating balance before gains/(losses)
attributable to minority interests
Operating balance before gains/(losses)
Total gains/(losses)
Net surplus/(deficit) from associates and joint
ventures
Attributable to minority interest
Operating balance
T
Statement of Financial Position
as at 30 June 2013
Core Crown
$m
110 | B.6
T
2013
2013
2013
Actual
Actual
Actual
 FORECAST FINANCIAL STATEMENTS 
Assets
Cash and cash equivalents
Receivables
Other financial assets
Property, plant and equipment
Equity accounted investments
Intangible assets and goodwill
Inventory and other assets
Forecast for new capital spending and top-down
adjustment
Total assets
$m
$m
$m
11,047
11,924
52,140
29,507
32,611
1,041
1,605
2,933
8,368
29,996
51,823
8,151
573
560
1,594
2,037
16,427
28,503
187
1,162
1,301
(650)
(2,446)
(14,591)
(31,356)
(31)
-
-
-
-
139,875
102,404
51,211
(49,074)
Liabilities
Borrowings
Other liabilities
84,870
29,392
5,251
45,261
24,839
7,226
(14,873)
(7,561)
Total liabilities
114,262
50,512
32,065
(22,434)
25,613
51,892
19,146
(26,640)
Taxpayers' funds
Reserves
Net worth attributable to minority interest
8,274
15,840
1,499
24,213
27,638
41
8,382
10,192
572
(30,007)
3,539
(172)
Total net worth
25,613
51,892
19,146
(26,640)
Total assets less total liabilities
Net worth
Statement of Financial Performance
for the year ended 30 June 2014
Core Crown
Crown
State-Owned
Inter-segment
entities
Enterprises
eliminations
2014
2014
2014
2014
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
Revenue
Taxation revenue
Other sovereign revenue
Revenue from core Crown funding
Sales of goods and services
Interest revenue and dividends
Other revenue
62,491
1,156
1,453
2,501
892
5,222
24,632
1,904
1,187
2,667
181
13,826
873
948
(522)
(1,102)
(24,813)
(591)
(1,183)
(740)
Total revenue (excluding gains)
68,493
35,612
15,828
(28,951)
Expenses
Social assistance and official development
assistance
Personnel expenses
Other operating expenses
Interest expenses
Insurance expenses
Forecast for future new spending and topdown adjustment
23,338
6,155
40,233
3,604
6
11,190
19,439
221
3,428
2,908
11,086
1,198
8
(7)
(27,742)
(605)
(3)
(1,155)
-
-
-
Total expenses (excluding losses)
72,181
34,278
15,200
(28,357)
B.6 | 111
Total
Fo
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Operating balance before
gains/(losses)
Total gains/(losses)
Net surplus/(deficit) from associates and
joint ventures
Operating balance
Expenses by functional classification
Social security and welfare
Health
Education
Transport and communications
Other
Finance costs
Forecast for future new spending and topdown adjustment
Total Crown expenses (excluding
losses)
(3,688)
2,248
1,334
1,332
628
(7)
(594)
147
84
166
(7)
(4)
(1,356)
2,832
614
(451)
23,246
14,997
12,558
2,285
16,646
3,604
4,638
12,594
9,759
2,379
4,687
221
18
7,024
6,960
1,198
(579)
(13,127)
(8,966)
(2,403)
(2,677)
(605)
(1,155)
-
-
-
72,181
34,278
15,200
(28,357)
Crown
State-Owned
Inter-segment
Core Crown
entities
Enterprises
eliminations
2014
2014
2014
2014
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
7,012
12,538
56,649
30,562
33,584
1,237
1,716
2,314
5,947
30,606
53,485
8,371
492
525
1,110
2,233
18,216
29,230
205
1,149
1,213
(215)
(1,750)
(15,301)
(32,284)
(38)
Statement of Financial Position
as at 30 June 2014
Assets
Cash and cash equivalents
Receivables
Other financial assets
Property, plant and equipment
Equity accounted investments
Intangible assets and goodwill
Inventory and other assets
Forecast for new capital spending and
top-down adjustment
Total
Fo
1
(244)
-
-
-
143,054
101,740
53,356
(49,588)
2
Liabilities
Borrowings
Other liabilities
87,568
28,098
5,499
40,757
26,916
7,398
(15,629)
(6,940)
1
Total liabilities
115,666
46,256
34,314
(22,569)
1
Total assets less total liabilities
27,388
55,484
19,042
(27,019)
Net worth
Taxpayers' funds
Reserves
Net worth attributable to minority interest
9,977
15,912
1,499
27,844
27,560
80
8,229
10,166
647
(33,970)
3,447
3,504
Total net worth
27,388
55,484
19,042
(27,019)
Total assets
112 | B.6
 FORECAST FINANCIAL STATEMENTS 
Statement of Financial Performance
for the year ended 30 June 2015
Core Crown
Crown
State-Owned
Inter-segment
entities
Enterprises
eliminations
2015
2015
2015
2015
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
Revenue
Taxation revenue
Other sovereign revenue
Revenue from core Crown funding
Sales of goods and services
Interest revenue and dividends
Other revenue
66,317
1,262
1,425
2,427
866
4,992
24,751
1,977
1,254
2,537
123
14,693
1,018
973
(614)
(1,184)
(24,874)
(579)
(1,020)
(577)
Total revenue (excluding gains)
72,297
35,511
16,807
(28,848)
Expenses
Social assistance and official development
assistance
Personnel expenses
Other operating expenses
Interest expenses
Insurance expenses
Forecast for future new spending and topdown adjustment
23,818
6,102
38,926
3,743
2
11,320
19,435
228
3,646
2,969
11,937
1,300
8
(1)
(7)
(27,776)
(576)
1
606
-
-
-
Total expenses (excluding losses)
73,197
34,629
16,214
(28,359)
(900)
2,075
882
849
593
15
(489)
(198)
Operating balance before
gains/(losses)
Total gains/(losses)
Net surplus/(deficit) from associates and
joint ventures
Operating balance
Expenses by functional classification
Social security and welfare
Health
Education
Transport and communications
Other
Finance costs
Forecast for future new spending and topdown adjustment
Total Crown expenses (excluding
losses)
80
166
6
1
1,255
1,897
614
(686)
23,729
14,924
12,669
2,247
15,279
3,743
4,678
12,507
9,899
2,438
4,879
228
18
7,379
7,517
1,300
(518)
(13,096)
(9,130)
(2,327)
(2,712)
(576)
606
-
-
-
73,197
34,629
16,214
(28,359)
Crown
State-Owned
Inter-segment
Core Crown
entities
Enterprises
eliminations
Total
Fo
Statement of Financial Position
as at 30 June 2015
Assets
Cash and cash equivalents
Receivables
2015
2015
2015
2015
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
6,682
12,335
1,871
5,039
1,195
2,306
(213)
(1,771)
B.6 | 113
Total
Fo
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Other financial assets
Property, plant and equipment
Equity accounted investments
Intangible assets and goodwill
Inventory and other assets
Forecast for new capital spending and
top-down adjustment
54,025
30,991
34,874
1,250
1,762
31,197
55,016
8,563
486
534
19,962
29,457
204
1,136
1,294
(15,443)
(33,511)
(35)
1
148
-
-
-
142,067
102,706
55,554
(50,973)
2
Liabilities
Borrowings
Other liabilities
85,690
27,723
5,793
38,375
28,849
7,963
(15,724)
(7,324)
1
Total liabilities
113,413
44,168
36,812
(23,048)
1
Total assets less total liabilities
28,654
58,538
18,742
(27,925)
Net worth
Taxpayers' funds
Reserves
Net worth attributable to minority interest
11,257
15,898
1,499
31,008
27,413
117
7,946
10,149
647
(34,872)
3,443
3,504
Total net worth
28,654
58,538
18,742
(27,925)
Total assets
114 | B.6
 FORECAST FINANCIAL STATEMENTS 
Statement of Financial Performance
for the year ended 30 June 2016
Core Crown
Crown
State-Owned
Inter-segment
entities
Enterprises
eliminations
2016
2016
2016
2016
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
Revenue
Taxation revenue
Other sovereign revenue
Revenue from core Crown funding
Sales of goods and services
Interest revenue and dividends
Other revenue
70,594
1,162
1,418
2,615
959
4,747
24,896
2,048
1,307
2,570
111
15,272
1,172
1,010
(656)
(1,244)
(25,007)
(589)
(1,083)
(551)
Total revenue (excluding gains)
76,748
35,568
17,565
(29,130)
Expenses
Social assistance and official development
assistance
Personnel expenses
Other operating expenses
Interest expenses
Insurance expenses
Forecast for future new spending and topdown adjustment
24,566
6,253
38,908
3,949
6
11,449
19,524
227
4,057
3,051
12,411
1,415
8
(7)
(27,977)
(564)
(3)
1,804
-
-
-
Total expenses (excluding losses)
75,486
35,257
16,885
(28,551)
1,262
2,177
311
865
680
10
(579)
(206)
81
168
7
(2)
3,520
1,344
697
(787)
24,244
14,953
12,785
2,173
15,578
3,949
5,055
12,498
9,951
2,486
5,040
227
18
7,621
7,831
1,415
(515)
(13,133)
(9,230)
(2,363)
(2,746)
(564)
1,804
-
-
-
75,486
35,257
16,885
(28,551)
Crown
State-Owned
Inter-segment
Core Crown
entities
Enterprises
eliminations
Operating balance before
gains/(losses)
Total gains/(losses)
Net surplus/(deficit) from associates and
joint ventures
Operating balance
Expenses by functional classification
Social security and welfare
Health
Education
Transport and communications
Other
Finance costs
Forecast for future new spending and topdown adjustment
Total Crown expenses (excluding
losses)
Total
Fo
1
Statement of Financial Position
as at 30 June 2016
Assets
Cash and cash equivalents
Receivables
2016
2016
2016
2016
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
6,447
12,815
1,743
4,723
1,259
2,387
(213)
(1,734)
B.6 | 115
Total
Fo
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Other financial assets
Property, plant and equipment
Equity accounted investments
Intangible assets and goodwill
Inventory and other assets
Forecast for new capital spending and
top-down adjustment
Total assets
60,067
31,190
36,312
1,229
1,890
32,809
56,617
8,747
483
508
21,925
29,509
203
1,117
1,336
(16,620)
(34,931)
(34)
789
-
-
-
1
150,739
105,630
57,736
(53,532)
2
Liabilities
Borrowings
Other liabilities
90,329
28,228
6,363
38,003
30,743
8,510
(16,903)
(7,547)
1
Total liabilities
118,557
44,366
39,253
(24,450)
1
Total assets less total liabilities
32,182
61,264
18,483
(29,082)
Net worth
Taxpayers' funds
Reserves
Net worth attributable to minority interest
14,777
15,906
1,499
33,961
27,147
156
7,681
10,155
647
(36,031)
3,444
3,505
Total net worth
32,182
61,264
18,483
(29,082)
Crown
State-Owned
Inter-segment
Core Crown
entities
Enterprises
eliminations
2017
2017
2017
2017
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
Revenue
Taxation revenue
Other sovereign revenue
Revenue from core Crown funding
Sales of goods and services
Interest revenue and dividends
Other revenue
74,200
1,201
1,407
3,158
947
4,683
24,978
2,131
1,364
2,544
110
15,753
1,305
1,045
(707)
(1,251)
(25,088)
(598)
(1,151)
(499)
Forecast revenue reduction contingency
Total revenue (excluding gains)
80,913
35,700
18,213
(29,294)
Expenses
Social assistance and official development
assistance
Personnel expenses
Other operating expenses
Interest expenses
Insurance expenses
Forecast for future new spending and topdown adjustment
25,468
6,371
38,827
4,280
5
11,585
19,612
241
4,384
3,086
12,826
1,550
8
(8)
(28,074)
(598)
(2)
2,867
-
-
-
Total expenses (excluding losses)
77,818
35,822
17,470
(28,682)
Statement of Financial Performance
for the year ended 30 June 2017
Forgone profits from Government share
offers
Operating balance before
gains/(losses)
-
-
-
-
3,095
(122)
743
(612)
Total gains/(losses)
2,276
897
15
(216)
Net surplus/(deficit) from associates and
joint ventures
Operating balance
Expenses by functional classification
79
5,450
171
946
8
766
(4)
(832)
116 | B.6
Total
Fo
1
1
 FORECAST FINANCIAL STATEMENTS 
Social security and welfare
Health
Education
Transport and communications
Other
Finance costs
Forecast for future new spending and topdown adjustment
Total Crown expenses (excluding
losses)
25,123
14,930
12,835
2,247
15,536
4,280
5,405
12,478
10,015
2,549
5,134
241
18
7,765
8,137
1,550
(519)
(13,119)
(9,246)
(2,459)
(2,741)
(598)
2,867
-
-
-
77,818
35,822
17,470
(28,682)
Crown
State-Owned
Inter-segment
Core Crown
entities
Enterprises
eliminations
1
Statement of Financial Position
as at 30 June 2017
Assets
Cash and cash equivalents
Receivables
Other financial assets
Property, plant and equipment
Equity accounted investments
Intangible assets and goodwill
Inventory and other assets
Forecast for new capital spending and
top-down adjustment
Total assets
2017
2017
2017
2017
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
6,329
13,174
69,280
31,188
37,688
1,213
1,729
4,578
34,504
57,985
8,918
461
1,271
2,475
23,507
29,660
201
1,114
(212)
(1,585)
(17,268)
(36,329)
-
1,850
496
1,342
(36)
1,614
162,336
108,671
59,570
(55,430)
96,209
28,480
124,689
37,647
6,337
38,805
45,142
63,529
32,272
9,035
41,307
18,263
(17,547)
(7,680)
(25,227)
(30,203)
20,227
15,921
1,499
37,647
36,397
26,947
185
63,529
7,456
10,160
647
18,263
(37,154)
3,447
3,504
(30,203)
Crown
State-Owned
Inter-segment
Core Crown
entities
Enterprises
eliminations
2018
2018
2018
2018
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
77,869
1,256
-
4,782
24,995
110
(743)
(1,259)
(25,105)
Total
Fo
1
1
2
Liabilities
Borrowings
Other liabilities
Total liabilities
Total assets less total liabilities
Net worth
Taxpayers' funds
Reserves
Net worth attributable to minority interest
Total net worth
1
1
Statement of Financial Performance
for the year ended 30 June 2018
Revenue
Taxation revenue
Other sovereign revenue
Revenue from core Crown funding
B.6 | 117
Total
Fo
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Sales of goods and services
Interest revenue and dividends
Other revenue
1,411
3,527
802
2,214
1,446
2,425
16,248
1,465
1,085
(603)
(1,246)
(352)
Total revenue (excluding gains)
84,865
35,862
18,908
(29,308)
Expenses
Social assistance and official development
assistance
Personnel expenses
Other operating expenses
Interest expenses
Insurance expenses
Forecast for future new spending and topdown adjustment
26,395
6,472
37,967
4,350
5
11,723
19,491
250
4,764
3,163
13,288
1,676
9
1
(8)
(27,999)
(655)
(3)
3,815
-
-
-
Total expenses (excluding losses)
79,004
36,228
18,136
(28,664)
5,861
2,389
(366)
877
772
36
(644)
(228)
Operating balance before
gains/(losses)
Total gains/(losses)
Net surplus/(deficit) from associates and
joint ventures
Operating balance
Expenses by functional classification
Social security and welfare
Health
Education
Transport and communications
Other
Finance costs
Forecast for future new spending and topdown adjustment
Total Crown expenses (excluding
losses)
75
171
8
(1)
8,325
682
816
(873)
26,034
14,860
12,882
2,250
14,813
4,350
5,781
12,475
10,072
2,529
5,121
250
18
8,040
8,402
1,676
(529)
(13,113)
(9,262)
(2,481)
(2,624)
(655)
3,815
-
-
-
79,004
36,228
18,136
(28,664)
Crown
State-Owned
Inter-segment
Core Crown
entities
Enterprises
eliminations
2018
2018
2018
2018
Forecast
Forecast
Forecast
Forecast
$m
$m
$m
$m
6,155
13,521
68,848
30,960
39,012
1,209
1,837
1,827
4,586
36,220
59,250
9,090
439
497
1,525
2,563
25,103
29,689
203
1,113
1,341
(211)
(1,580)
(17,962)
(37,674)
(35)
1
1
1
Statement of Financial Position
as at 30 June 2018
Assets
Cash and cash equivalents
Receivables
Other financial assets
Property, plant and equipment
Equity accounted investments
Intangible assets and goodwill
Inventory and other assets
Forecast for new capital spending and
top-down adjustment
Total
Fo
1
1
2,389
-
-
-
163,931
111,909
61,537
(57,462)
2
Liabilities
Borrowings
Other liabilities
90,396
27,547
6,342
40,112
33,780
9,710
(18,236)
(7,971)
1
Total liabilities
117,943
46,454
43,490
(26,207)
1
Total assets
118 | B.6
 FORECAST FINANCIAL STATEMENTS 
Total assets less total liabilities
Net worth
Taxpayers' funds
Reserves
Net worth attributable to minority interest
Total net worth
45,988
65,455
18,047
(31,255)
28,552
15,937
1,499
38,497
7,238
(38,207)
26,750
208
10,162
647
3,448
3,504
45,988
65,455
18,047
(31,255)
B.6 | 119
Core Crown Expense Tables
($millions)
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual F
Social security and welfare
GSF pension expenses
Health
Education
Core government services
Law and order
Defence
Transport and communications
Economic and industrial services
Primary services
Heritage, culture and recreation
Housing and community development
Environmental protection
Other
Finance costs
Forecast for future new spending
Top-down expense adjustment
Core Crown expenses
19,382
655
12,368
11,455
5,293
3,089
1,757
2,663
2,960
534
586
297
416
118
2,429
..
..
64,002
21,185
328
13,128
11,724
2,974
3,191
1,814
2,345
2,806
507
630
339
651
80
2,311
..
..
64,013
22,005
305
13,753
11,650
5,563
3,382
1,809
2,281
2,542
706
741
943
1,225
479
3,066
..
..
70,450
22,028
192
14,160
11,654
5,428
3,403
1,736
2,232
2,073
648
863
(46)
769
425
3,511
..
..
69,076
22,741
278
14,498
12,504
4,294
3,456
1,804
2,255
1,978
659
804
283
530
603
3,619
..
..
70,306
Source: The Treasury
Table 6.1 – Social security and welfare expenses
($millions)
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual F
Welfare benefits (see below)
Social rehabilitation and compensation
Departmental expenses
Child support impairment
17,366
336
1,092
205
18,961
331
1,130
371
19,781
119
1,127
281
20,375
81
1,122
72
20,789
107
1,168
282
383
392
697
378
395
19,382
21,185
22,005
22,028
22,741
Other non-departmental expenses1
Social security and welfare
expenses
1. Other non-departmental expenses and other expenses include costs
associated with the Canterbury earthquakes.
Source: The Treasury
B.6 | 120
 C O R E C R OW N E X P E N S E T A B L E S 
Table 6.2 – Welfare benefit expenses
($millions)
New Zealand Superannuation
Jobseeker Support and Emergency
Benefit1
Supported living payment1
Sole parent support1
Domestic Purposes Benefit1
Invalid's Benefit1
Sickness Benefit1
Unemployment Benefit1
Family Tax Credit
Other working for families tax credits
Accommodation Assistance
Income-Related Rents
Disability Assistance
Benefits paid in Australia
Paid Parental Leave
Childcare Assistance
War Disablement Pensions
Veteran's Pension
Other benefits
Benefit expenses
2009
Actual
2010
Actual
2011
Actual
2012
Actual
7,744
8,290
8,830
9,584
10,235
..
..
..
1,530
1,260
613
586
2,062
619
989
512
390
50
143
159
125
176
408
17,366
..
..
..
1,693
1,303
710
930
2,168
628
1,154
522
411
45
154
178
137
179
459
18,961
..
..
..
1,757
1,306
743
943
2,139
616
1,197
553
409
40
154
188
135
178
593
19,781
..
..
..
1,811
1,325
775
883
2,071
599
1,195
580
401
37
158
188
128
177
463
20,375
..
..
..
1,738
1,330
782
812
2,018
575
1,177
611
384
22
165
186
0
171
583
20,789
B.6 | 121
2013
Actual F
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Source: The Treasury
Beneficiary numbers
(Thousands)
New Zealand Superannuation
Jobseeker Support and Emergency
Benefit1
Supported living payment1
Sole parent support1
Domestic Purposes Benefit1
Invalid's Benefit1
Sickness Benefit1
Unemployment Benefit1
Accommodation Supplement
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual F
522
540
561
585
612
..
..
..
101
86
50
48
267
..
..
..
110
88
58
78
312
..
..
..
114
88
60
80
320
..
..
..
114
87
60
73
311
..
..
..
109
87
60
67
305
Source: Ministry of Social Development
1. From 15 July 2013 the benefit categories Domestic Purposes Benefit, Invalid's Benefit, Unemployment and Emergency Benefit and Sickness Benefit, as well as
Widow's Benefit, were replaced by new benefit categories. These categories are Jobseeker Support and Emergency Benefit, Supported Living Payment and Sole
Parent Support.
Table 6.3 – Health expenses
($millions)
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual F
Departmental outputs
Health services purchasing (see below)
Other non-departmental outputs
Health payments to ACC
Other expenses
Health expenses
206
11,354
98
667
43
12,368
211
12,077
106
691
43
13,128
199
12,530
120
849
55
13,753
186
13,018
119
744
93
14,160
171
13,348
234
715
30
14,498
Source: The Treasury
Table 6.4 – Health services purchasing
($millions)
2009
Actual
2010
Actual
2011
Actual
2012
Actual
Payments to District Health Boards
National disability support services
Public health services purchasing
Health services purchasing
10,038
889
427
11,354
10,670
930
477
12,077
11,133
971
426
12,530
11,542
1,029
447
13,018
Source: The Treasury
122 | B.6
A
11
1
13
 C O R E C R OW N E X P E N S E T A B L E S 
Table 6.5 – Education expenses
($millions)
Early childhood education
Primary and secondary schools (see
below)
Tertiary funding (see below)
Departmental expenses
Other education expenses
Education expenses
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual F
1,030
1,184
1,340
1,355
1,436
4,936
4,564
888
37
11,455
5,157
4,465
898
20
11,724
5,354
3,991
923
42
11,650
5,443
3,795
988
73
11,654
5,590
4,370
1,039
69
12,504
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual F
142,135 152,862
159,619
165,126
Source: The Treasury
Places
Early childhood education1
174,471
1. Full-time equivalent based on 1,000 funded child hours per calendar year.
Source: Ministry of Education
Table 6.6 – Primary and secondary education expenses
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual F
($millions)
Primary
Secondary
School transport
Special needs support
Professional development
Schooling improvement
2,484
1,898
152
290
101
11
2,622
1,972
160
297
95
11
2,731
2,051
163
310
90
9
2,771
2,085
172
323
85
7
2,845
2,148
175
332
84
6
Primary and secondary education
expenses
4,936
5,157
5,354
5,443
5,590
2009
Actual
2010
Actual
2011
Actual
2012
Actual
474,630 473,431
280,062 281,095
474,149
281,999
474,821
279,554
Source: The Treasury
Number of places
Primary1
Secondary1
provided1
B.6 | 123
2013
Actual F
477,659
278,193
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
1. These are snapshots based as at 1 July for primary year levels (years 1 to 8) and 1
March for secondary year levels (years 9 to 13). These numbers include special school
rolls but exclude health camps, hospital schools and home schooling.
Source: Ministry of Education
Table 6.7 – Tertiary education expenses
($millions)
Tuition
Other tertiary funding
Student allowances
Student loans
Tertiary education expenses
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2,287
522
444
1,311
4,564
2,398
489
570
1,008
4,465
2,354
429
620
588
3,991
2,306
430
644
415
3,795
2013
Actual F
2,322
432
596
1,020
4,370
Source: The Treasury
Places
Actual delivered and estimated funded
places1
2009
Actual
2010
Actual
2011
Actual
2012
Actual
20
Actu
246,041 250,440
240,529
246,942
243,6
1. Tertiary places are the number of equivalent full time (EFT) students in: student
achievement component; adult and community education; and youth guarantee
programmes. Note that historical place numbers have been revised so may differ from
previous published EFU numbers. Place numbers are based on calendar years rather
than fiscal years.
Source: Ministry of Education
Core Crown Expense Tables (continued)
Table 6.8 – Core government service expenses
($millions)
Official development assistance
Indemnity and guarantee expenses
Departmental expenses
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual F
458
992
1,668
435
7
1,324
495
319
1,492
510
59
1,518
437
27
1,576
Non-departmental expenses1
Tax receivable write-down and
impairments
Science expenses
117
236
471
524
330
1,654
179
590
191
1,010
174
1,003
116
925
115
Other expenses1
Core government service expenses
225
5,293
191
2,974
1,602
5,563
1,698
5,428
884
4,294
124 | B.6
 C O R E C R OW N E X P E N S E T A B L E S 
1. Non-departmental expenses and other expenses include costs associated with
the Canterbury earthquakes.
Source: The Treasury
Table 6.9 – Law and order expenses
($millions)
2009
Actual
2010
Actual
2011
Actual
2012
Actual
Police
1,326
1,349
1,393
1,394
Ministry of Justice
379
372
397
440
Department of Corrections
829
903
956
988
1
NZ Customs Service
12
13
120
126
Other departments
80
102
237
103
Department expenses
2,626
2,739
3,103
3,051
Non-departmental outputs
380
399
261
315
Other expenses
83
53
18
37
Law and order expenses
3,089
3,191
3,382
3,403
1. Prior to 2010/11 the majority of NZ Customs Service expenses were classified
as core government services.
2013
Actual F
1,408
466
972
140
98
3,084
317
55
3,456
Source: The Treasury
Table 6.10 – Defence expenses
($millions)
NZDF core expenses
Other expenses
Defence expenses
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual F
1,697
60
1,757
1,747
67
1,814
1,736
73
1,809
1,678
58
1,736
2009
Actual
2010
Actual
2011
Actual
2012
Actual
1,562
83
170
320
507
21
1,778
63
58
..
418
28
1,696
65
105
..
386
29
1,744
60
62
..
305
61
1,819
40
213
..
153
30
2,663
2,345
2,281
2,232
2,255
1,747
57
1,804
Source: The Treasury
Table 6.11 – Transport and communication expenses
($millions)
New Zealand Transport Agency
Departmental outputs
Other non-departmental expenses
Asset impairments
Rail funding
Other expenses
Transport and communication
expenses
B.6 | 125
2013
Actual F
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Source: The Treasury
Table 6.12 – Economic and industrial services expenses
($millions)
Departmental outputs
Employment initiatives (see below)
Non-departmental outputs
Reserve electricity generation
KiwiSaver (includes housing deposit
subsidy)
Research and development tax credits
Other expenses
Economic and industrial services
expenses
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual
389
185
809
20
382
220
894
23
420
214
689
9
346
206
614
5
350
192
618
..
1,281
154
122
1,024
..
263
1,045
..
165
698
..
204
740
..
78
2,960
2,806
2,542
2,073
1,978
Source: The Treasury
Table 6.13 – Employment initiatives
($millions)
Training incentive allowance
Subsidised work
Employment support for the disabled
Other employment assistance schemes
Employment initiatives
2009
Actual
2010
Actual
2011
Actual
2012
Actual
30
63
88
4
185
19
109
88
4
220
11
112
87
4
214
8
106
88
4
206
2009
Actual
2010
Actual
2011
Actual
2012
Actual
364
82
..
88
534
352
123
..
32
507
354
142
167
43
706
348
134
102
64
648
2013
Actual F
7
93
89
3
192
Source: The Treasury
Table 6.14 – Primary service expenses
($millions)
Departmental expenses
Non-departmental outputs
Biological research1
Other expenses
Primary service expenses
1. Biological research was previously classified as an economic and industrial
services expense.
Source: The Treasury
126 | B.6
2013
Actual F
347
137
105
70
659
 C O R E C R OW N E X P E N S E T A B L E S 
Table 6.15 – Heritage, culture and recreation expenses
($millions)
Departmental outputs
Non-departmental outputs
Other expenses
Heritage, culture and recreation
expenses
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2013
Actual
120
422
44
115
405
110
133
455
153
172
444
247
270
442
92
586
630
741
863
804
Source: The Treasury
Table 6.16 – Housing and community development expenses
($millions)
2009
Actual
2010
Actual
2011
Actual
2012
Actual
..
29
148
112
..
30
140
122
567
31
136
105
(407)
22
98
113
(60)
5
89
117
..
8
33
14
67
37
84
44
76
56
297
339
943
(46)
283
Financial assistance package1
Housing subsidies
Departmental outputs
Other non-departmental expenses
Warm up New Zealand
Other expenses
Housing and community
development expenses
2013
Actual F
1. Financial assistance package for 2012 actual and 2013 actual includes the
impact of a revised estimate of the weathertight homes financial assistance
package provision.
Source: The Treasury
Table 6.17 – Environmental protection expenses
($millions)
Emissions Trading Scheme
Departmental outputs
Non-departmental outputs
Other expenses
Environmental protection expenses
2009
Actual
2010
Actual
2011
Actual
2012
Actual
17
306
47
46
416
80
300
231
40
651
838
301
26
60
1,225
334
342
46
47
769
Source: The Treasury
B.6 | 127
2013
Actual F
55
335
88
52
530
2013  HALF YEAR ECONOMIC AND FISCAL UPDATE 
Glossary of Terms
Accruals basis of accounting
Contingent liabilities
An accounting basis where revenue is
recognised when earned and expenses when
the obligations they relate to are incurred.
This contrasts to cash accounting, where
income is recognised when the cash is
received and expenses when cash to settle an
obligation is paid out.
Costs that the Crown will have to face if a
particular uncertain event occurs, or present
liabilities that are unable to be measured with
sufficient reliability to be recorded in the
financial statements (unquantified contingent
liabilities). Contingent liabilities typically
comprise guarantees and indemnities, legal
disputes and claims, and uncalled capital.
Appropriations
Appropriations are legal authorities granted by
Parliament to the Crown or an Office of
Parliament to use public resources. Most
appropriations are set out in Appropriation
Acts.
Baselines
The level of funding approved for any given
area of spending (eg, Vote Education). All
amounts within baselines are included in the
forecasts.
Commercial portfolio
Consists of the portfolio of companies held
with purely commercial objectives.
Core Crown
A reporting segment consisting of the Crown,
departments, Offices of Parliament, the NZS
Fund and RBNZ. For a list of all entities
included in this segment, refer to the
Government Reporting Entity (pages 87 to 89).
Core Crown expenses
The day-to-day spending (eg, public servants’
salaries, welfare benefit payments, finance
costs and maintaining national defence etc)
that does not build physical assets for the core
Crown. This is an accrual measure of
expenses and includes items such as
depreciation on physical assets.
Core Crown revenue
Consumers Price Index (CPI)
Statistics New Zealand’s official index to
measure the rate of change in prices of goods
and services purchased by households.
Consists primarily of tax revenue collected by
the Government but also includes investment
income, sales of goods and services and
other revenue of the core Crown.
Contingent assets
Corporate tax
Income that the Crown will realise if a
particular uncertain event occurs, or a present
asset is unable to be measured with sufficient
reliability to be recorded in the financial
statements (unquantified contingent assets).
Contingent assets typically comprise loans
with specific events that trigger repayment
and IRD pending assessments (where there is
a proposed adjustment to a tax assessment).
The sum of net company tax, non-resident
withholding tax (NRWT) and foreign-source
dividend withholding payments (FDWP).
128 | B.6
Current account (Balance of
Payments)
The current account records the value of
New Zealand’s transactions with the rest of
 GLOSSARY OF TERMS 
the world in goods, services, income and
transfers. The current account balance is the
sum of all current account credits less all
current account debits. When the sum of
debits is greater than the sum of credits there
is a current account deficit. The current
account balance is commonly expressed as a
percentage of nominal GDP.
Cyclically-adjusted balance
(CAB) or structural balance
An estimate of the fiscal balance (eg,
operating balance before gains and losses)
adjusted for fluctuations of actual GDP around
trend GDP. CAB provides a picture of the
underlying fiscal position and the effects of
policy decisions. Because it is based on a
number of assumptions and is sensitive to
new information, the estimate is subject to
some uncertainty.
payable) or a right to exchange a financial
asset or liability on unfavourable terms
(derivatives in loss).
Financial portfolio
Consists of the assets and liabilities held by
the Crown to finance or pre-fund government
expenditure.
Fiscal drag
The additional tax revenue generated from
source deductions as an individual’s average
tax rate increases as their income increases.
Fiscal impulse
Changes to the structure of the population
such as the age, gender or ethnic make up.
A summary measure of how changes in the
fiscal position affect aggregate demand. To
isolate discretionary changes, fiscal impulse is
calculated on a cyclically-adjusted basis and
excludes net interest payments. To better
capture the role of capital spending, the
indicator is derived from cash flow
information.
Domestic bond programme
Fiscal intentions (short-term)
The amount and timing of government bonds
expected to be issued or redeemed.
Indications of the Government’s intentions for
operating expenses, operating revenues and
the impact of its intentions on the operating
balance, debt and net worth over (at least) the
next three years. These intentions are required
under the Public Finance Act 1989 (PFA).
Demographic changes
Excise duties
A tax levied on the domestic production of
alcohol, tobacco and light petroleum products
(CNG, LPG and petrol).
Fiscal objectives (long-term)
Any asset that is cash, an equity instrument of
another entity (shares), a contractual right to
receive cash or shares (taxes receivable and
ACC levies) or a right to exchange a financial
asset or liability on favourable terms
(derivatives in gain).
The Government’s long-term goals for
operating expenses, operating revenue, the
operating balance, debt and net worth, as
required by the PFA. The objectives must be
consistent with the defined principles of
responsible fiscal management as outlined in
the PFA and must cover a period of (at least)
10 years.
Financial liabilities
Forecast new capital spending
Any liability that is a contractual obligation to
pay cash (government stock, accounts
An amount provided in the forecasts to
represent the balance sheet impact of capital
Financial assets
B.6 | 129
2013  HALF YEAR ECONOMIC AN D FISCAL UPDATE 
initiatives expected to be introduced over the
forecast period.
Gross debt (or Gross
sovereign-issued debt [GSID])
Forecast new operating
spending
Represents debt issued by the sovereign (the
core Crown) and includes government stock
held by the NZS Fund, ACC and EQC.
An amount included in the forecasts to
provide for the operating balance impact of
policy initiatives, changes to demographics
and other forecasting changes expected to
occur over the forecast period.
Gains and losses
Gains and losses typically arise from the
revaluation of assets and liabilities, such as
investments in financial assets and long-term
liabilities for ACC and GSF. These valuation
changes are reported directly as a movement
in net worth (eg, asset revaluation reserves)
or indirectly through the statement of financial
performance.
Gross domestic product (GDP)
A measure of the value of all goods and
services produced in New Zealand. Changes
in GDP measure growth or contraction in
economic activity or output. GDP can be
measured as the actual dollar value of goods
and services at today’s prices (nominal GDP),
or excluding the effects of price changes over
time (real GDP).
Gross domestic product
(expenditure)
The sum of total expenditure on final goods
and services in the economy.
GDP deflator
An index of changes in the general price level
in the economy. It is calculated as the ratio of
nominal GDP to real GDP.
Generally accepted
accounting practice (GAAP)
Gross national expenditure
(GNE)
A measure of total expenditure on final goods
and services by New Zealand residents.
Insurance liabilities
GAAP refers to the rules and assumptions
used to prepare and present financial
statements. GAAP is an independent and
objective set of rules that govern the
recognition and measurement of financial
elements, such as assets, liabilities, revenues
and expenses.
The gross obligation for the future cost of
claims incurred prior to balance date
represented in today’s dollars (present value).
The net liability is the gross liability less the
asset reserves held to meet those claims.
Government Finance Statistics
(GFS)
The amounts of transactions between
different segments (core Crown, Crown
entities and SOEs) that are eliminated to
determine total Crown results.
A statistical framework for government
reporting developed by IMF to aid
comparability of results between countries.
This differs from the GAAP framework that is
used for reporting by the Government in
New Zealand.
130 | B.6
Inter-segment eliminations
Labour force participation rate
Measures the percentage of the working-age
population in work or actively looking for and
available for work.
 GLOSSARY OF TERMS 
Labour productivity
Measures output per unit of labour input
(where labour inputs might be measured as
hours worked or the number of people
employed).
Line-by-line consolidation
A term used to refer to the general approach
to the presentation of the Crown financial
statements. It means that the individual line
items for revenues, expenses, assets and
liabilities in the financial statements of
Government include all departments, Offices
of Parliament, RBNZ, SOEs, Crown entities
and other entities controlled by the
Government.
Marketable securities
Assets held with financial institutions. These
assets are held for both cash flow and
investment purposes. Examples are bonds,
commercial papers and debentures.
Monetary conditions
Aggregate monetary conditions measure the
degree to which short-term interest rates and
the exchange rate either support or restrict
economic growth.
Monetary policy
The policies that RBNZ uses to regulate the
supply of money in New Zealand. RBNZ
implements its monetary policy decisions by
adjusting its Official Cash Rate (OCR) in an
effort to maintain stability in the rate of CPI
inflation within a defined target range.
Tightening monetary policy means raising the
OCR in order to moderate aggregate demand
pressures and reduce inflationary pressures.
Easing monetary policy has the reverse effect.
National saving
National disposable income less private and
public consumption spending. Income
excludes gains and losses on capital. Gross
saving includes depreciation.
Net core Crown cash flow
from operations
The cash impact of operating results. It is
represented by the operating balance (before
gains and losses) less retained items (eg, net
surplus of SOEs, Crown entities and NZS
Fund net revenue) less non-cash items (eg,
depreciation).
Net core Crown debt
Net core Crown debt provides information
about the sustainability of the Government’s
accounts, and is used by some international
rating agencies when determining the
creditworthiness of a country. It represents
gross debt less core Crown financial assets
(excluding advances and financial assets held
by the NZS Fund). Advances and financial
assets held by the NZS Fund are excluded as
these assets are less liquid and/or they are
made for public policy reasons rather than for
the purposes associated with government
financing.
Net international investment
position (NIIP)
Measures the net value of New Zealand’s
international assets and liabilities at a point in
time.
Net worth
Total assets less total liabilities. The change
in net worth in any given forecast year is
largely driven by the operating balance and
property, plant and equipment revaluations.
Net worth attributable to the
Crown
Represents the Crown’s share of total assets
and liabilities and excludes minority interests’
share of those assets and liabilities.
B.6 | 131
2013  HALF YEAR ECONOMIC AN D FISCAL UPDATE 
New Zealand equivalents to
International Financial
Reporting Standards (NZ
IFRS)
negotiation and management of contracts and
administration of benefits.
The reporting and measurement framework
under which these forecast financial
statements are prepared. These standards
are approved by the External Reporting Board
in New Zealand, based on requirements of the
international financial reporting standards
issued by the International Accounting
Standards Board, adjusted where appropriate
for entities that are not profit oriented.
The amount of output (eg, GDP) per unit of
input.
Operating balance
Represents OBEGAL (refer below) plus gains
and losses. The operating balance includes
gains and losses not reported directly as a
movement against net worth. The impact of
gains and losses on the operating balance
can be subject to short-term market volatility
and revaluations of long-term liabilities.
Operating balance before
gains and losses (OBEGAL)
Represents total Crown revenue less total
Crown expenses. OBEGAL can provide a
more useful measure of underlying
stewardship than the operating balance as
short-term market fluctuations are not
included in the calculation.
Output gap
The difference between actual and potential
GDP. Potential GDP is the level of output an
economy can sustain without acceleration of
inflation.
Outputs
Outputs are the goods and services
commissioned by Ministers from public, nongovernmental and private sector producers.
Outputs may include the supply of policy
advice, enforcement of regulations (such as
speed limits in transport), provision of a range
of services (in health, education, etc),
132 | B.6
Productivity
Projections
Projections relate to the period beyond the
five-year forecast period and are based on
long-run economic and fiscal assumptions.
For example, the projections assume no
economic cycle and constant long-run
interest, inflation and unemployment rates.
Residual cash
The level of money the Government has
available to repay debt or, alternatively, needs
to borrow in any given year. Residual cash is
alternatively termed “Cash available/(shortfall
to be funded)”.
Residual cash is equal to net core Crown
cash flow from operations excluding NZS
Fund activity less core Crown capital
payments (eg, purchase of assets, loans to
others).
Settlement cash
This is the amount of money deposited with
RBNZ by registered banks. It is a liquidity
mechanism used to settle wholesale
obligations between registered banks and
provides the basis for settling most of the
retail banking transactions that occur every
working day between businesses and
individuals.
Social portfolio
Consists of the assets and liabilities held
primarily to provide public services or to
protect assets for future generations.
Specific fiscal risks
All government decisions or other
circumstances known to the Government
 GLOSSARY OF TERMS 
which may have a material impact on the
fiscal and economic outlook, but are not
included in the fiscal forecasts. They are not
included in the main forecasts because their
fiscal impact cannot be reasonably quantified,
the likelihood of realisation is uncertain and/or
the timing is uncertain.
into sovereign-guaranteed debt and nonsovereign-guaranteed debt. Non-sovereignguaranteed debt represents the debt
obligations of SOEs and Crown entities that
are not explicitly guaranteed by the Crown.
System of National Accounts
(SNA)
Includes the core Crown (defined above) plus
Crown entities and SOEs as defined by the
Government Reporting Entity on pages 87 to
89.
SNA is a comprehensive, consistent and flexible
set of macroeconomic accounts which meets the
needs of government and private sector
analysts, policy-makers and decision-takers.
Total Crown
Tradable/non-tradable output
The accrual, rather than the cash (“tax
receipts”) measure of taxation. It is a measure
of tax due at a given point in time, regardless of
whether or not it has actually been paid.
There is no official definition of the tradable
sector. In this document the tradable sector is
defined as the part of the economy particularly
exposed to foreign competition. It includes
primary, manufacturing and tourism
industries. Non-tradable output is estimated
as a residual of total real GDP.
Terms of trade
Trade-weighted index (TWI)
The terms of trade measure the volume of
imports that can be funded by a fixed volume
of exports, and are calculated as the ratio of
the total export price index to the total import
price index. New Zealand’s headline terms of
trade series is derived from export and import
price indices from Statistics New Zealand’s
quarterly Overseas Trade Index release. The
Treasury forecasts the terms of trade on an
SNA-basis, using implicit export and import
price indices derived from quarterly national
accounts data.
A measure of movements in the New Zealand
dollar against the currencies of our major
trading partners. The currencies comprise the
US dollar, the Australian dollar, the Japanese
yen, the euro and the UK pound.
Tax revenue
Top-down adjustment
An adjustment to expenditure forecasts to
reflect the extent to which departments use
appropriations (upper spending limits) when
preparing their forecasts. As appropriations
apply to the core Crown only, no adjustment is
required to SOE or Crown entity forecasts.
Total borrowings
Represents the Government’s total debt
obligations to external parties and can be split
Votes
When Parliament considers legislation relating
to appropriations, the appropriations are
grouped within “Votes”. Generally, a Vote
groups similar or related appropriations
together (eg, Vote Health includes all healthrelated appropriations administered by the
Ministry of Health).
Year ended
Graphs and tables within this document use
different expressions of the timeframe. While
some tables may refer to the end of the tax
year (31 March), others will refer to the end of
the Government’s financial year (30 June).
For example, unless otherwise stated
references to 2013/14 or 2014 will mean the
end of the financial year.
B.6 | 133
2013  BUDGET ECONOMIC AND FISCAL UPDATE 
134 | B.3
Time Series of Fiscal and Economic
Indicators
Fiscal Indicators
2003
2004
2005
2006
2007
20
Actual
Actual
Actual
Actual
Actual
Ac
June Years
$ millions
Revenue and Expenses
Core Crown revenue
43,440
46,219
51,045
55,735
58,211
61
Core Crown expenses
39,897
41,882
44,895
49,320
54,003
56
Total Crown OBEGAL
4,366
5,573
7,075
7,091
5,860
5
Total Crown operating balance
Cash Position
1,621
7,309
5,931
9,542
8,023
2
Core Crown residual cash
1,217
520
3,104
2,985
2,877
2
Gross debt1
36,617
36,017
35,478
33,903
30,647
31
Gross debt incl RB settlement cash and bank bills
36,617
36,017
35,478
35,867
36,805
37
Net core Crown debt (incl NZS Fund)2
22,647
19,902
13,324
6,302
1,620
(2
Net core Crown debt2
24,531
23,858
19,879
16,163
13,380
10
28,012
39,595
54,240
83,971
96,827
105
27,918
135,710
39,456
146,348
54,025
155,361
83,678
163,224
96,531
173,214
105
185
Core Crown revenue
32.0
31.6
32.9
34.1
33.6
Core Crown expenses
29.4
28.6
28.9
30.2
31.2
Total Crown OBEGAL
3.2
3.8
4.6
4.3
3.4
Total Crown operating balance
Cash Position
1.2
5.0
3.8
5.8
4.6
Core Crown residual cash
0.9
0.4
2.0
1.8
1.7
Gross debt1
27.0
24.6
22.8
20.8
17.7
Gross debt incl RB settlement cash and bank bills
27.0
24.6
22.8
22.0
21.2
Net core Crown debt (incl NZS Fund)2
16.7
18.1
13.6
16.3
8.6
12.8
3.9
9.9
0.9
7.7
Total Crown net worth
20.6
27.1
34.9
51.4
55.9
Total net worth attributable to the Crown
20.6
27.0
34.8
51.3
55.7
Surpluses
Debt
Net Worth
Total Crown net worth
Total net worth attributable to the Crown
Nominal GDP
% GDP
Revenue and Expenses
Surpluses
Debt
Net core Crown debt2
Net Worth
1 Excludes Reserve Bank settlement cash and bank bills
2 Excludes advances
 GLOSSARY OF TERMS 
Economic Indicators
March Years
2003
2004
2005
2006
2007
2008
Annual average % change
Actual
Actual
Actual
Actual
Actual
Actual
Private consumption
4.9
6.5
4.7
4.7
2.8
3.5
Public consumption
TOTAL CONSUMPTION
0.7
4.0
5.1
6.2
4.6
4.7
4.7
4.7
3.4
2.9
4.9
3.8
Residential investment
23.6
14.7
2.3
-5.0
-2.1
1.8
Non-market investment
Market investment
TOTAL INVESTMENT
10.7
2.8
7.9
15.5
12.4
13.2
10.8
11.6
8.3
5.7
11.0
6.5
1.8
-2.9
-2.8
-8.0
10.6
7.1
Stock change (contribution to growth)
-0.1
0.3
0.3
-0.5
-1.1
1.2
GROSS NATIONAL EXPENDITURE
4.6
7.8
5.7
4.7
0.3
5.6
Exports
8.0
0.9
4.8
-0.1
3.3
3.5
Imports
6.9
12.8
12.2
4.4
-1.3
10.6
EXPENDITURE ON GDP
5.0
4.1
3.6
3.4
1.6
3.5
GDP (production measure)
4.8
4.4
3.6
3.5
2.9
2.9
- annual % change
Real GDP per capita
Nominal GDP (expenditure basis)
4.4
3.3
5.2
5.4
2.5
6.9
2.3
2.0
7.0
3.5
2.2
5.5
3.5
1.7
5.0
1.2
1.8
8.3
GDP deflator
Output gap (% deviation, March year average)
Employment
Unemployment (% March quarter s.a.)
0.2
0.4
2.8
5.0
2.6
1.0
3.0
4.3
3.3
1.2
3.6
3.9
2.0
1.6
2.8
4.0
3.4
1.9
2.2
3.9
4.6
2.8
1.7
3.8
Wages (average ordinary-time hourly, ann % change)
CPI inflation (ann % change)
Merchandise terms of trade (SNA basis)
Current account balance - $billion
2.3
2.5
-5.6
-4.0
3.5
1.5
4.4
-6.0
3.6
2.8
3.4
-9.3
5.3
3.3
-1.9
-13.8
4.6
2.5
-1.2
-13.2
4.7
3.4
8.4
-14.2
Current account balance - % of GDP
TWI (March quarter)
90-day bank bill rate (March quarter)
10-year bond rate (March quarter)
-3.0
60.6
5.8
6.0
-4.2
66.9
5.5
5.9
-6.0
69.6
6.9
6.0
-8.5
68.3
7.6
5.7
-7.8
68.8
7.8
5.9
-7.7
71.9
8.8
6.4
Data for 2014 and subsequently are forecasts. Data for 2013 and prior years are those that were available on 11
November when the forecasts were finalised.
B.3 | 5