2014 Investment Statement: Managing the Crown’s B l Balance Sheet Sh t
Contents Contents I t Introduction d ti O Overarching themes hi th Ri ht Right assets t Managed risks Fiscal sustainability Areas of focus
Introduction Introduction St t t Statutory requirement i t Opportunity for the Treasury O t it f th T Th The 2014 Statement 2014 St t t Directional not prescriptive
Overarching themes Overarching themes Th The Crown balance sheet is very large C b l h t i l Crucial to service delivery C i l t i d li Ownership should not be undertaken lightly but O hi h ld t b d t k li htl b t done well Flexibility crucial to cope with future challenges
Overarching themes (continued) Overarching themes (continued) A strong Crown balance sheet helps economic A t C b l h t h l i growth Good balance sheet management underpins livings standards livings standards To improve balance sheet management requires To improve balance sheet management requires better information Role for the centre
PART 2 PART 2 – The Balance Sheet The Balance Sheet by Numbers y
So what do we have? So what do we have? A Assets – what we own: t h t – $110 billion – property, plant & equipment – $61 billion – investments $ – $17 billion – tax receivables & student loans Liabilities – what we owe: – $100 billion – borrowings – $38 billion – insurance liabilities – $12 billion – retirement obligations
Assets are growing Assets are growing... 300 150% Assets Assets % GDP 250 125% 200 100% billion GDP % G $ b 150 75% 100 100 50% 50% 50 25% 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Figure 3.2
... and liabilities have too recently. and liabilities have too recently 60 150% Netcore Crown debt Net core Crown debt %GDP 50 125% 40 100% billion GDP % G $ b 30 75% 20 50% 10 25% 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Figure 3.3
Net worth attributable to the Crown Net worth attributable to the Crown 300 250 200 150 150 100 50 $ billion n - (50) (100) (150) Assets (200) ( ) Liabilities Liabilities Net worth attributable to the Crown (250) 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Fi Figure 3.4 3 4
Functional classification Functional classification 150 Assets 100 50 illion - $ bi (50) (100) Liabilities (150) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Social Financial Commercial Figure 3.1
Financial assets to drive rise in net worth to 2018 120 100 100 80 on $ billio 60 40 20 Net Worth 2013 Social Financial Commercial Net Worth 2018 Figure 3.5
Long term financial assets projections Long-term financial assets projections 800 50% ACC NZSF 700 45% GDP % (RHS) 600 600 40% 40% 500 35% ion DP 400 400 30% 30% $ bill % G 300 25% 200 200 20% 20% 100 15% 10% 10% 12/13 14/15 16/17 18/19 20/21 22/23 24/25 26/27 28/29 30/31 32/33 34/35 36/37 38/39 40/41 42/43 44/45 46/47 48/49 50/51 52/53 54/55 56/57 58/59 Figure 2.3
Balance Sheet Performance “Right Assets”
Measuring performance Measuring performance Vit l t Vital to effective asset management and ff ti t t d decision making. Measures fall under 3 broad areas: – Capacity – Capability C bilit – Financial Performance
Social Asset Reporting Framework Social Asset Reporting Framework Figure 4.1
No “One Size Fits All” solution No One Size Fits All solution State Highways Schools Age: Not as applicable Average Age Condition: Smoothness 10-year cost assessment Skid resistance Rutting Rutting Utilisation: Vehicle kilometres Children per classroom Functionality: Functionality: Road safety Road safety Modern Learning Modern Learning Environment M Measures should not be used in isolation h ld t b d i i l ti
So how well do we do? So how well do we do? I t Internationally – world leader in ti ll ld l d i transparency for public sector reporting Makes it difficult to benchmark Measures are largely input based Measures are largely input based But we can still draw some conclusions
Good understanding of asset age Good understanding of asset age 50% State Houses State Houses Courts 45% Schools 40% Police Stations 35% 30% 25% 20% 15% 10% 5% 0% 0% 0-10 11-20 21-30 31-40 41-50 51+ Asset Age (Years)
Implications of age Implications of age Lik l t Likely to have higher maintenance costs h hi h i t t May require additional capital expenditure M i dditi l it l dit M May no longer be fit for purpose l b fit f Could be an obsolescence risk
...and asset condition and asset condition Figure 4.5 – Road condition to standard Figure 4.25 – Land under sustained control 100% 3.0 99% ork meeting standard es of land sustained 2.5 98% 97% 2.0 96% 95% 95% Percentage of netwo 1.5 Million hectar 94% 1.0 93% 92% 0.5 Smooth ride 91% Possums Rutting Goats Skid resistance Deer 90% Weeds 2009 9 2010 0 1 2011 2 2012 3 2013 2009 2010 2011 2012 2013 Figure 4.33 – Estate asset condition (Defence) Figure 4.39 – Hospital condition by region 60% 60% Northern Region Living accomodation Midland Region Non-working accomodation Central Region Specialised facilities Southern Region 50% 50% 50% 50% T Training facilites i i f ilit Percentage of building type Working accomodation 40% Percentage of assets 40% 30% 30% 20% 20% P 10% 10% As new Above average Average Poor Major failure/Beyond Very good Good Average Poor Very poor economic repair 21
Implications of condition Implications of condition C Condition drives maintenance spend... diti d i i t d ...and capital expenditure d it l dit Assist in making decisions on: A i t i ki d i i • Rationalisation • Replacement • Maintaining Main focus of facilities management.
Reasonable understanding of utilisation Reasonable understanding of utilisation Figure 4.13 – Property vacancy Figure 4.6 – VKT:Centre-lane index (State Highways) 100% 120 150 95% 100 index (100 = 2003) e of properties let 125 nd time (days) 90% 80 85% 60 100 100 Percentage Turnaru VKT:Centre-lane i 80% 40 75 75% 20 Auckland Percentage Let (LHS) Waikato Turnaround Time (RHS) Wellington 70% Canterbury 2009 2010 2011 2012 2013 Rest of NZ 50 2003 3 2004 4 5 2005 6 2006 2007 7 2008 8 2009 9 2010 0 1 2011 2012 2 2013 3 Figure 4.17 Classroom utilisation Figure 4.44 – Prison capacity 120% 12,000 Reserve capacity Operating capacity (incl. Buffer) 11,500 Operating capacity 100% Actual prison population 11,000 , Classroom utilisation n 2013 Justice Sector forecast 10,500 80% Prisoner daily count 10,000 60% 9,500 9,000 40% 8,500 20% 8,000 Urban Urban Rural 7,500 0-99 100-199 200-299 300-399 400-499 500-749 750-999 1000-1249 1250-1499 1500-1749 1750-1999 2000+ 7,000 Jul 2011 Jul 2012 Jul 2013 Jul 2014 Jan 2012 Jan 2013 Jan 2014 Roll size 23
Implications of utilisation Implications of utilisation Utili Utilisation reflects demand vs supply ti fl t d d l Assists build, rebuild, or close decisions A i t b ild b ild l d i i D i Drives understanding of buffers d t di f b ff Indicator of value for money
Weaker on functionality & fit for purpose Weaker on functionality & fit for purpose Figure 4.19 – Meeting modern learning environment Figure 4.26 – Visitor assets meeting service standard 100% Pedagogy/ Curriculum Pedagogy/ Curriculum 90% 80% Environment 70% to standard Support/ Access 60% 50% Core MLE % 40% 40% 30% Moderate MLE 20% Structures (Target 95%) Primary Advance MLE 10% Huts (Target 90%) Secondary & Composite Tracks (Target 45%) 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 2013 Figure 4.12 – Property configuration relative to need Figure 4.31 – Operational preparedness (Social Housing) 800 100% Matches need 700 Overcrowded Underutilised 90% 600 80% 80% Level of capability 500 70% 400 60% 50% 300 40% 200 30% Actual Actual 100 100 Forecast 20% DLOC upper range DLOC lower range 10% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Auckland Wellington Christchurch Rest NZ
Importance of functionality/fit for purpose Importance of functionality/fit for purpose Lik l t Likely to provide the closest link to outcomes. id th l t li k t t Will be affected by many factors Will b ff t d b f t H ldi Holding the right assets is critical to meet needs... th i ht t i iti l t t d ...even where there’s no direct link to outcomes.
Financial Portfolio Financial Portfolio Measures are largely based on returns. Portfolio is expected to grow Implications for risks, and sustainability.
Commercial Portfolio Commercial Portfolio Smallest portfolio in the Balance Sheet. Covered off in the APR in significant detail.
Part 3 Part 3 – Managing Risks & Managing Risks & Sustainability
Managed risks Managed risks Ri k i Risk impacts on delivery of government t d li f t objectives Mitigating risk so it does not eventuate Resilience if risks crystallise
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