Financial Statements of the Government of New Zealand for the Year Ended 30 June 2016

B.11 Financial Statements of the Government of New Zealand for the year ended 30 June 2016 © Crown Copyright Reserved 978-0-947519-30-8 (Print) 978-0-947519-29-2 (Online) This work is licensed under the Creative Commons Attribution 4.0 International licence. In essence, you are free to copy, distribute and adapt the work, as long as you attribute the work to the Crown and abide by the other licence terms. To view a copy of this licence, visit https://creativecommons.org/licenses/by/4.0/ Please note that no departmental or governmental emblem, logo or Coat of Arms may be used in any way which infringes any provision of the Flags, Emblems, and Names Protection Act 1981. Attribution to the Crown should be in written form and not by reproduction of any such emblem, logo or Coat of Arms. Internet The URL for this document on the Treasury’s website at October 2016 is http://www.treasury.govt.nz/government/financialstatements/yearend/jun16 The Persistent URL for this document is http://purl.oclc.org/nzt/f-1892 Contents Ministerial Statement 1 Statement of Responsibility 2 Commentary 3 Fiscal Overview 4 Introduction 6 At a Glance 6 Summary 7 Revenue 9 Expenses 11 Operating Balance 13 New Zealand Emissions Trading Scheme (NZ ETS) 14 Debt 15 Net Worth Attributable to the Crown 17 Composition of Net Worth Attributable to the Crown 17 Year End Results Compared to Budget 2016 20 Core Crown Expenses Compared to Budget 2015 22 Historical Financial Information 23 Independent Report of the Auditor-General 25 Audited Financial Statements 33 Statement of Financial Performance 34 Analysis of Expenses by Functional Classification 35 Statement of Comprehensive Revenue and Expense 36 Statement of Changes in Net Worth 36 Statement of Cash Flows 37 Statement of Financial Position 40 Statement of Segments 41 Notes to the Financial Statements 43 Note 1: Basis of Reporting 43 Note 2: Key Assumptions and Judgements 48 Note 3: Sovereign Revenue 53 Note 4: Sales of Goods and Services 54 Note 5: Interest Revenue and Dividends 54 Note 6: Other Revenue 54 Note 7: Transfer Payments and Subsidies 55 Note 8: Personnel Expenses 55 Note 9: Other Operating Expenses 56 Note 10: Interest Expenses 56 Note 11: Insurance Expenses 57 Note 12: Gains and Losses on Financial Instruments 59 Note 13: Gains and Losses on Non-Financial Instruments 59 Note 14: Receivables 60 Note 15: Marketable Securities, Deposits and Derivatives in Gain 62 Note 16: Share Investments 62 Note 17: Advances 63 Note 18: Property, Plant and Equipment 66 Financial Statements of the Government of New Zealand – B.11 i Note 19: Equity Accounted Investments 79 Note 20: Payables 80 Note 21: Borrowings 81 Note 22: Insurance Liabilities 84 Note 23: Retirement Plan Liabilities 90 Note 24: Provisions 94 Note 25: Minority Interests 96 Note 26: Capital Objectives and Fiscal Policy 97 Note 27: Commitments 100 Note 28: Contingent Liabilities and Contingent Assets 101 Note 29: Financial Instruments 110 Note 30: Related Parties 121 Note 31: Canterbury Earthquakes 122 Note 32: Events Subsequent to Balance Date 127 Note 33: Significant Accounting Policies 128 Supplementary Statements 141 Statement of Unappropriated Expenditure 141 Statement of Expenses or Capital Expenditure Incurred in Emergencies 147 Statement of Trust Money 148 Additional Financial Information 153 Fiscal Indicator Analysis 154 Core Crown Residual Cash 155 Debt 156 Information on State-owned Enterprises and Crown Entities 157 Glossary of Terms 160 ii B.11 – Financial Statements of the Government of New Zealand M inisterial S tatement The New Zealand economy continues to grow, with real GDP increasing by 3.6 per cent in the year ended 30 June 2016. Despite international turbulence and global uncertainty, New Zealand is in the unusual position of enjoying solid growth, rising employment and real wages at the same time as low inflation. The Government’s programme to build a more productive economy is also delivering dividends in terms of the Crown’s finances which have turned around markedly in recent years. In the wake of the global financial crisis and the Canterbury earthquakes, the total Crown’s annual operating balance excluding gains and losses (OBEGAL) was a deficit of $18.4 billion in the year ended 30 June 2011, equivalent to 8.9 per cent of national income. The Government’s strategy has been to restrain growth in spending while focusing on getting better results from existing spending, particularly for the most vulnerable New Zealanders. This strategy has led to an OBEGAL surplus of $1.8 billion being recorded for the year ended 30 June 2016, building on the $414 million surplus achieved last year. Core Crown tax revenue was $70.4 billion, up 5.7 per cent from the previous year with all major tax types increasing, reflecting the growth in the economy over the year. Core Crown expenses grew at a somewhat slower pace, up 2.2 per cent to $73.9 billion bringing expenses to 29.4 per cent of GDP, below the Government’s long-term fiscal objective of 30 per cent. This is the first time since 2006 that core Crown expenses have been below 30.0 per cent of GDP. In line with the positive OBEGAL result, the residual cash position improved to a deficit of $1.3 billion, down from $1.8 billion last year. As a result, while net debt rose in dollar terms, it fell as a percentage of GDP to 24.6 per cent, down from 25.1 per cent last year and 25.5 per cent in 2014. The size of the Crown’s balance sheet grew over the year, with assets growing by $13.5 billion to $292.7 billion driven mainly by increases in social sector assets. Total Crown liabilities were $197.2 billion, an increase of $10.2 billion from the previous year. Net worth attributable to the Crown, which is a key measure of balance sheet strength, increased by $2.9 billion to $89.4 billion. Changes in the Crown’s balance sheet can also have a significant impact on operating results. For example, net losses of $5.7 billion in the year to 30 June 2012 were followed by net gains of $11.3 billion the following year. In year ended 30 June 2016 net losses were $7.2 billion which led to an operating deficit (including gains and losses) of $5.4 billion. On the asset side, volatility of markets following the Brexit referendum and a strengthening New Zealand dollar adversely affected investment returns. On the liability side, the Government’s long term liabilities (ACC claims liability and Government Superannuation Fund retirement plan) are particularly sensitive to changes in the risk-free discount rate used to value long-dated cash flows in present day dollars. Reductions in the discount rate (reflecting persistently low interest rates) led to valuation losses of $7.1 billion. The Government will continue to focus on responsible fiscal management and repaying debt while investing in public services to get better results for New Zealanders, meet its net capital requirements and improve infrastructure. Hon Bill English Minister of Finance 30 September 2016 Financial Statements of the Government of New Zealand – B.11 1 Statement o f Responsibility These financial statements have been prepared by the Treasury in accordance with the provisions of the Public Finance Act 1989. The financial statements comply with New Zealand generally accepted accounting practice and with Public Benefit Entity Accounting Standards (PBE standards) for the public sector. The Treasury is responsible for establishing and maintaining a system of internal control designed to provide reasonable assurance that the transactions recorded are within statutory authority and properly record the use of all public financial resources by the Crown. To the best of my knowledge, this system of internal control has operated adequately throughout the reporting period. Gabriel Makhlouf Secretary to the Treasury 30 September 2016 I accept responsibility for the integrity of these financial statements, the information they contain and their compliance with the Public Finance Act 1989. In my opinion, these financial statements fairly reflect the financial position of the Crown as at 30 June 2016 and its operations for the year ended on that date. Hon Bill English Minister of Finance 30 September 2016 2 B.11 – Financial Statements of the Government of New Zealand Commentary on the Financial Statements COMMENTARY Financial Statements of the Government of New Zealand – B.11 3 Commentary Commentary Fiscal Overview Operating Operating Operating Debt revenue expenses Manage net debt within a balance STRATEGY FISCAL range of 0% to 20% Ensure sufficient To control the growth in Deliver operating balances of GDP operating revenue to government spending sufficient to meet the meet the operating so that core Crown Government’s net capital balance objective expenses are below requirements, including 30% of GDP contributions to the FISCAL STRATEGY STRATEGY FISCAL NZS Fund, and ensure consistency with the debt objective Total Crown Moving from total Crown accrual Core Crown The difference between total Crown revenue and expenses gives us the operating balance before gains and losses (OBEGAL) measure to core Crown cash measure Movement in net debt $1.8b OBEGAL + $98.2b – minority interests $0.5b $4.6b ($1.3b) $95.9b $1.8b $1.5b Total Crown Total expenses Non-residual Capital Residual cash OBEGAL revenue (excluding minority interests) cash items items deficit FINANCIAL RESULTS FINANCIAL ($7.5b) $0.3b $1.2b $0.3b $60.6b SOE and CE Gains and losses Net surpluses from Non-cash expenses SOE, CE and Physical Opening net debt $22.0b associates and JV’s (eg, depreciation)

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