Paul Helm, Chief Government Accountant

The interim Financial Statements of the Government of New Zealand for the eight months ended 28 February 2021 (the financial statements) were released by the Treasury today.

The February 2021 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).

The results show the impacts of the COVID-19 pandemic are still visible however, with an operating balance before gains and losses (OBEGAL) deficit of $4.5 billion and continued higher levels of net core Crown debt of $103.3 billion (32.6% of GDP).

Core Crown tax revenue for the eight months to February 2021 was $2.3 billion (3.9%) above the HYEFU 2020 forecast owing to:

• GST, corporate tax and source deduction revenue were all ahead of forecast by $0.9 billion (5.8%), $0.9 billion (11.6%) and $0.5 billion (1.9%) respectively. These positive variances to forecast reflect an improvement in economic conditions, in particular stronger domestic spending, higher profitability and better labour market conditions than forecast.
• Partially offsetting the above increases, customs and excise duties were $0.2 billion (5.3%) below forecast driven by lower demand for tobacco products resulting in tobacco duty being $0.3 billion (22.6%) lower than forecast.

Core Crown expenses at $68.9 billion were $0.5 billion below forecast. This was mainly owing to lower than forecast social security and welfare spending, including higher than expected repayments of the COVID-19 Wage Subsidy.

The OBEGAL deficit of $4.5 billion, was $3.7 billion smaller than the forecast deficit of $8.2 billion. This variance was primarily driven by the core Crown results discussed above. When total gains and losses are added to the OBEGAL result, the operating balance was a $9.8 billion surplus, $22.0 billion better than the forecast $12.2 billion deficit. The improvement in the operating balance primarily related to:

• A valuation gain of $9.2 billion on ACC’s insurance liability compared to the $4.2 billion of losses forecast. This $13.4 billion improvement was largely a result of changes to the discount rates and CPI assumptions used to revalue this liability at 28 February 2021.
• NZSF and ACC reporting significant positive variances in financial instruments and investments, totalling $5.3 billion.

The core Crown residual cash deficit of $15.2 billion was $4.6 billion smaller than the deficit forecast. This was largely owing to tax receipts being $1.7 billion higher than expected (see previous discussion) and operating payments being $0.9 billion lower than forecast, consistent with the variance in core Crown expenses discussed above. Core Crown capital payments were around $1.9 billion lower than forecast, largely owing to lower than anticipated uptake of advances of the Funding for Lending Programme.

Net core Crown debt was $103.3 billion (32.6% of GDP) at 28 February 2021, $4.4 billion lower than forecast primarily owing to the favourable core Crown residual cash variance discussed above.

Net worth attributable to the Crown at $120.5 billion was $23.0 billion higher than forecast. This variance was primarily owing to the favourable operating balance variance of $22.0 billion and the revaluation of defined benefit retirement plan schemes being $1.4 billion higher than forecast.

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