Wellbeing Budget 2020

The Fiscal Strategy

Managing our assets and liabilities

Net worth will help cushion the impact of COVID-19

The most recent year-end results show the Crown owned $364.6 billion of assets and had $221.6 billion of liabilities as at 30 June 2019. The difference between these numbers represents the Crown's total net worth.

COVID-19 and our response to it will have a substantial impact on the Crown's total net worth attributable to the Crown. This is expected to decline across the forecast period in both dollar terms and as a per cent of GDP, falling to 8.9 per cent of GDP by 2023/24.

This is driven by an increase in total Crown liabilities owing to increased borrowing to fund our response and recovery efforts. As stated in our long-term fiscal objectives, the Government intends to return to surplus and maintain debt at prudent levels over the long run, while supporting New Zealanders' wellbeing. Returning to surplus will support rebuilding of the Crown's net worth and resilience against future shocks.

Figure 17 - Assets, liabilities and net worth

Source: The Treasury

Our investments will improve the wellbeing of New Zealanders

Budget 2020 will invest $3.6 billion of the multi-year capital allowance, in addition to the $10.4 billion allocated in Budget 2019 and the $8 billion already committed through the New Zealand Upgrade Programme. The New Zealand Upgrade Programme added $4 billion to the multi-year capital allowance and as a result $4.8 billion remains to fund future infrastructure projects.

This investment commitment will support the economy and help to build a pipeline of infrastructure projects to kickstart the recovery from COVID-19. This pipeline will give some certainty for the construction sector, enabling it to better prepare and invest in the capacity and capability needed to deliver projects on time and on budget.

We will continue to ensure that capital investment projects are delivered on time and provide the best possible benefit to New Zealanders.

Figure 18 - Net capital spending

Source: The Treasury

Our liabilities will rise to fund the COVID-19 response

Our response to COVID-19 and the deterioration in forecast tax revenue have led to an increase in funding requirements.

By June 2024, gross sovereign issued debt (GSID), which mostly consists of New Zealand Government Bonds (NZGBs), is expected to be $276.8 billion (74 per cent of GDP), compared to 2019 Half Year Update forecasts of $109.6 billion (28.2 per cent of GDP). Due to the immediate nature of the fiscal response the increase in GSID is heavily weighted towards the early part of the forecast period, with an increase of $112.7 billion by 2020/21.

In March the Reserve Bank implemented a Large Scale Asset Purchase (LSAP) programme of NZGBs, expanding the programme to include Local Government Funding Agency (LGFA) debt in April. Up to $30 billion of NZGBs and $3 billion of LGFA debt will be purchased in the secondary market over the next 12 months. This provides additional monetary stimulus and support to the NZGB and LGFA debt markets, which helps mitigate the negative financial and economic implications of the COVID-19 pandemic.

The Government has provided an indemnity to cover losses the Reserve Bank may incur as a result of operating the LSAP programme.

Contributions to the New Zealand Superannuation (NZS) Fund

The Government has made regular contributions to the NZS Fund after restarting contributions in 2017/18. These contributions are projected to increase the size of the NZS Fund to $60.4 billion by 2023/24 and will help the NZS Fund achieve its primary role of smoothing the cost of superannuation payments in the face of demographic pressures, easing the burden on future generations of taxpayers to meet the increased costs of New Zealand Superannuation.

The impact of COVID-19 on GDP means that the contributions prescribed by the legislative formula have decreased. However, due to the importance of investing now to help future generations with the cost of New Zealand Superannuation, the Government will at this stage maintain its actual contributions at the levels set out in the 2020 Budget Policy Statement. Table 8 shows the Government will contribute $10.4 billion to the NZS Fund in total over the next five years.

There is significant uncertainty in the forecast economic data used to calculate the contributions and the Government will have the opportunity to review its contributions to the NZS Fund at the 2021 Budget Policy Statement.

Table 8 - Contributions to the NZS Fund

Year ending 30 June
$ billions
2020
Forecast
2021
Forecast
2022
Forecast
2023
Forecast
2024
Forecast
NZS Fund contributions - prescribed by formula 1.5 0.4 1.6 2.2 2.4
NZS Fund contributions - 2020 Budget Update 1.5 2.1 2.4 2.0 2.3

Source: The Treasury

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