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Source: MIL-OSI Submissions

Source: New Zealand Treasury Issue date: Thursday, 18 February 2021

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
$m

December

2020
HYEFU 2020

Forecast1
$m

Variance2
HYEFU 2020 $m
Variance HYEFU 2020 % June

2021
HYEFU 2020

Forecast3
$m

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%
Favourable variances against forecast have a positive sign and unfavourable variances against forecast have a negative sign.
Using HYEFU 2020 forecast GDP for the year ending 30 June 2021 of $323,897 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.

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.

MIL OSI