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Crown accounts reflect global financial market woes

Wednesday 5 November 2008, 3:48AM

By Michael Cullen

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The Financial Statements of the Government for the first three months of the current financial year, released by the Treasury earlier today, reflect the period of disruption and weakness in global financial markets, says Finance Minister Michael Cullen.

"The operating balance deficit of $757 million reported at 30 September was $1.7 billion lower than the Treasury had forecast for the quarter in its Pre-election Economic and Fiscal Update," Dr Cullen said.

"The main contribution to this lower operating balance came from negative performances on investment portfolios, reflecting international financial market turmoil and weakening global economic growth in the period," Dr Cullen said.

Unrealised gains and losses on investments from Crown financial institutions such as the NZ Superannuation Fund, the Earthquake Commission and the Accident Compensation Corporation do not impact on the Crown's cash position.

"Over a longer horizon, since the New Zealand Superannuation Fund began investing in late 2003 until the end of September, the rate of return on taxpayers' investment in the Fund stands at just over eight per cent on an annualised basis (8.04 per cent). That is 1.12 per cent above the rate of return that would have been achieved had the Guardians of New Zealand Superannuation instead invested solely in 90-day Treasury bills for a risk-free rate of return," Dr Cullen said.

The Treasury reported today that the Crown's OBEGAL surplus stood at $891 million at 30 September 2008, around 110 per cent higher than forecast because tax revenue was above forecast across source deductions, GST and other individuals' tax. Corporate tax, however, was close to forecast while corporate income tax assessments were lower than anticipated reflecting multinational and finance sector companies' performance being adversely affected by the current international financial environment.

The Crown's gross debt stood at 17.8 per cent of GDP at 30 September 2008. The Crown's net financial asset position, inclusive of the NZ Superannuation Fund's financial assets, was plus 5.7 per cent of GDP.

"This strong balance sheet position vindicates the government's decision not to blow the surplus in the good times. As result, New Zealand is today in a better position to weather the current global economic situation than the great majority of developed countries," Dr Cullen said.