Economy – Interim Financial Statements of the Government of New Zealand for the four months ended 31 October 2020

Source: MIL-OSI Submissions

The financial statements are compared against forecasts included in the 2020 Pre-election Economic and Fiscal Update (PREFU 2020) published on 16 September 2020.

The October results show the on-going impacts of the COVID-19 pandemic with an increase in operating balance deficit to $8.8 billion and in net core Crown debt to $97.0 billion. However, both the operating balance deficit and net core Crown debt are better than forecast by $1.9 billion and $3.1 billion respectively.

Core Crown tax revenue was $29.9 billion, $2.9 billion above the PREFU 2020 forecast. GST revenue was $8.3 billion, $1.6 billion above forecast and was mainly owing to stronger domestic spending than was forecast. Source deduction revenue was $12.3 billion, $0.7 billion above forecast, as salary and wage income for the period has held up better than expected. In addition, corporate tax revenue was $4.1 billion, $0.3 billion above forecast, mainly due to higher than forecast provisional tax revenue indicating that the 2020 income tax year was not as adversely affected by COVID-19 as expected.

Core Crown expenses were $35.7 billion, $1.6 billion below forecast, mainly owing to the Wage Subsidy Scheme which was below forecast by $1.4 billion.

The operating balance before gains and losses (OBEGAL) was a deficit of $3.8 billion and $4.8 billion less than the deficit forecast, mainly owing to the core Crown revenue and expenditure results.

When total gains and losses are added to the OBEGAL result, the operating balance (excluding minority interests) was a $8.8 billion deficit and $1.9 billion less than the deficit forecast.

Losses on non-financial instruments were $3.8 billion above forecast, largely due to losses on the ACC claims liability as a result of lower discount rates (used to value all outstanding claims in today’s dollars). This variance was partly offset by gains on financial instruments being $1.5 billion above forecast, mainly owing to favourable changes in market prices.

Core Crown residual cash was a deficit of $9.9 billion, $4.0 billion lower than the deficit forecast. This was mainly due to the cashflow impacts of the core Crown operating results.

Net core Crown debt was $97.0 billion (31.5% of GDP), $3.1 billion less than forecast, mainly owing to the core Crown residual cash variance discussed above.

Total borrowings at $159.9 billion were $29.1 billion below forecast, primarily owing to decreased bank settlement deposits held with the Reserve Bank ($38.0 billion below forecast), partly offset by above forecast Government bonds ($7.8 billion) mainly due to the May 2028 bond syndication ($4.1 billion) occurring in October that was forecast in November. There are three principal factors for the reduction in the settlement cash:

the Crown had a higher cash balance at the Reserve Bank than was forecast. As a result, the third-party settlement cash balances were correspondingly lower
market liquidity is being managed through different measures by the Reserve Bank with much lower injections of settlement cash using foreign exchange swaps, and
lower than forecast use of Reserve Bank facilities such as the Term Loan Facility.

The reduction in settlement deposits resulted in a corresponding reduction in marketable securities or other financial instruments. Therefore, both assets and liabilities are lower than forecast.

Net worth attributable to the Crown at $100.5 billion, was $1.0 billion higher than forecast. This is largely due to operating balance deficit being lower than forecast partly offset by Government Superannuation Fund revaluation loss of $0.9 billion.

Key indicators for the four months ended 31 October 2020 compared to PREFU 2020

	Year to date				Full Year
	October 2020 Actual1 $m	October 2020 PREFU 2020 Forecast1 $m	Variance2 PREFU 2020 $m	Variance PREFU 2020 %	June 2021 PREFU 2020 Forecast3 $m
Core Crown
Core Crown tax revenue	29,869	26,926	2,943	10.9	84,660
Core Crown revenue	32,162	29,260	2,902	9.9	91,300
Core Crown expenses	35,682	37,291	1,609	4.3	119,458
Core Crown residual cash	(9,896)	(13,931)	4,035	29.0	(40,971)
Net core Crown debt4	96,958	100,094	3,136	3.1	130,195
as a percentage of GDP	31.5%	32.5%			43.0%
Gross debt5	109,495	101,722	(7,773)	(7.6)	93,791
as a percentage of GDP	35.5%	33.0%			31.0%
Total Crown
Operating balance before gains and losses	(3,818)	(8,578)	4,760	55.5	(31,695)
Operating balance (excluding minority interests)	(8,780)	(10,689)	1,909	17.9	(35,260)
Total borrowings	159,929	188,993	29,064	15.4	210,268
Net worth attributable to the Crown	100,473	99,511	962	1.0	75,038
as a percentage of GDP	32.6%	32.3%			24.8%

Using the most recently published GDP (for the year ended 30 June 2020) of $308,276 million (Source: Statistics NZ).

Favourable variances against forecast have a positive sign and unfavourable variances against forecast have a negative sign.

Using PREFU 2020 forecast GDP for the year ending 30 June 2021 of $302,875 million (Source: The Treasury).

Net core Crown debt excluding student loans and other advances. Net debt may fluctuate during the year largely reflecting the timing of tax receipts.

Gross sovereign-issued debt excluding settlement cash and Reserve Bank bills.

MIL OSI