Source: MIL-OSI Submissions
The interim Financial Statements of the Government of New Zealand for the six months ended 31 December 2020 (the financial statements) were released by the Treasury today.
The December 2020 Interim Financial Statements of the Government show that the position and performance of the Crown continue to be stronger than forecast in the Half Year Economic and Fiscal Update (HYEFU).
However, the results show the impacts of the COVID-19 pandemic are still visible, with an operating balance before gains and losses (OBEGAL) deficit of $4.0 billion and continued higher levels of net core Crown debt of $104.5 billion (32.6% of GDP).
| Year to date | Full Year | ||||
|---|---|---|---|---|---|
| December
2020 Actual1 |
December
2020 Forecast1 |
Variance2 HYEFU 2020 $m |
Variance
HYEFU 2020 % |
June
2021 Forecast3 |
|
| Core Crown | |||||
| Core Crown tax revenue | 45,301 | 44,475 | 826 | 1.9 | 88,346 |
| Core Crown revenue | 48,559 | 47,741 | 818 | 1.7 | 94,993 |
| Core Crown expenses | 52,289 | 52,733 | 444 | 0.8 | 114,232 |
| Core Crown residual cash | (17,553) | (19,215) | 1,662 | 8.6 | (40,177) |
| Net core Crown debt4 | 104,491 | 105,998 | 1,507 | 1.4 | 128,649 |
| as a percentage of GDP | 32.6% | 33.0% | 39.7% | ||
| Gross debt5 | 105,224 | 103,714 | (1,510) | (1.5) | 91,669 |
| as a percentage of GDP | 32.8% | 32.3% | 28.3% | ||
| Total Crown | |||||
| Operating balance before gains and losses | (3,978) | (5,109) | 1,131 | 22.1 | (21,576) |
| Operating balance (excluding minority interests) | 3,185 | (8,678) | 11,863 | 136.7 | (25,639) |
| Total borrowings | 166,917 | 162,915 | (4,002) | (2.5) | 186,622 |
| Net worth attributable to the Crown | 112,590 | 100,991 | 11,599 | 11.5 | 83,881 |
| as a percentage of GDP | 35.1% | 31.5% | 25.9% | ||
Using the most recently published GDP (for the year ended 30 September 2020) of $320,746 million (Source: Statistics NZ).
Gross sovereign-issued debt excluding settlement cash and Reserve Bank bills.
Core Crown tax revenue was $45.3 billion, $0.8 billion above the HYEFU forecast. This was largely due to GST revenue ($0.6 billion or 5.5% above forecast) owing to the continued strength of domestic spending. Source deductions revenue was also above forecast, by $0.5 billion or 2.6%, owing to a change in the revenue recognition point for PAYE (as returns are received earlier) along with stronger than expected labour market data as employment and average hourly earnings were higher than forecast. This was partially offset by customs and excise duties being $0.4 billion (11.3%) below forecast driven by lower demand for tobacco products which resulted tobacco duty being $0.4 billion (32.3%) lower than forecast.
Core Crown expenses at $52.3 billion were $0.4 billion below the forecast. The variance was mainly owing to social security and welfare, which was $0.3 billion lower than forecast along with education spending which was $0.2 billion below forecast.
OBEGAL was a deficit of $4.0 billion, $1.1 billion better than the deficit forecast, mainly owing to the core Crown results discussed above.
When total gains and losses are added to the OBEGAL result, the operating balance (excluding minority interests) was a surplus of $3.2 billion and was greater than forecast by $11.9 billion. The volatility in this variance reflects movements in external factors (eg, market conditions, discount rates and CPI inflation assumptions).
The key drivers of the net gains and losses were:
Net gains on financial instruments – $4.8 billion higher than forecast primarily as a result of returns on the Crown’s investment portfolios (New Zealand Superannuation Fund and ACC), as current market returns are higher than those forecast (which used the lower long run rate of return assumptions).
Net gains on non-financial instruments – $5.9 billion higher than forecast primarily as a result of the ACC insurance liability revaluation being $6.3 billion better than forecast. This largely reflects changes in discount rates and CPI assumptions, which are used to value future claims cash flows into present value dollars. The impact of the inflation and discount rate movements are significant due to the long-term nature of this liability, stretching out over 50 years.
Core Crown residual cash was a deficit of $17.6 billion, $1.7 billion lower than the deficit forecast mainly due to the cashflow impacts of the core Crown operating results as discussed above.
Net core Crown debt was $104.5 billion (32.6% of GDP) at the end of December 2020, $1.5 billion less than forecast mainly owing to the core Crown residual cash variance of $1.7 billion partially offset by changes in the valuations of financial assets and liabilities.
Net worth attributable to the Crown at $112.6 billion, was $11.6 billion (11.5%) higher than forecast, which primarily reflects the favourable operating balance discussed earlier.
