Hon Dr Michael Cullen

Minister of Finance

6 March 2008

Crown accounts reflect market fall
Media Statement

The Financial Statements of the Government for the seven months to January 31, released by Treasury, reflect weakness in international financial markets and investor concern about the United States economy, says Finance Minister Michael Cullen.

As reported, the headline operating balance in the seven-month period was in deficit by $394 million, $4.2 billion below forecast.

That primarily reflected $2.5 billion lower-than-forecast returns on the financial asset portfolios of the NZ Superannuation Fund, the Accident Compensation Corp. and the Earthquake Commission. The second biggest negative contributor to the accounts was a $1 billion more-than-forecast loss on the re-valuation of the ACC claims’ liability.

“Today’s figures are a timely reminder, if anyone needed a reminder, of the strong need for governments to maintain prudent fiscal policy in small, open trading economies such as our own. We know from our history that international shocks can, and do, negatively impact on our economy from time to time.

“During this period of heightened international uncertainty about the outlook for the U. S, economy, the benefit of the Labour-led government’s consistent and strong management of the Crown’s accounts is, I hope, now more apparent to all New Zealanders.

“Strong fiscal management is our record during the good times - when we invested strong surpluses heavily into building-up financial assets, and building-up the infrastructure of the nation, for the benefit of current and future generations.

“Our commitment to consistent and strong fiscal management remains our strategy during the uncertain international economic times that we are now entering into,”
Dr Cullen said.

“The Labour-led government’s fiscal strategy aims to maintain gross Crown debt at around 20 per cent of gross domestic product over the medium-term and to maintain the OBEGAL balance at a sufficient level to meet the government’s annual NZ Superannuation Fund contributions.

“Today’s Crown accounts are consistent with the government’s fiscal strategy,” he said.

The accounts indicate that the NZ Superannuation Fund’s operating balance was in deficit by $910.8 million at the end of the seven-month period and Dr Cullen said taxpayers need to be aware that the Fund is a significant component of the Crown balance sheet that will continue to grow in size. The NZ Superannuation Fund’s returns for the seven months to the end of January were minus 6.18 per cent. However, over a longer-horizon, since the Superannuation Fund began investing in late-2003 until the end of January, the rate of return on taxpayers’ investment in the Superannuation Fund stands at just over 11 per cent on an annualised basis (11.03 per cent). That is 4.4 per cent above the rate of return that would have been achieved had the Guardians of the Fund instead invested solely in 90-day Treasury bills.

ENDS

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