2014 Investment Statement: Managing the Crowns B l Balance Sheet - - PowerPoint PPT Presentation

2014 Investment Statement:

Managing the Crown’s B l Sh t Balance Sheet

Contents Contents

I t d ti Introduction O hi th Overarching themes Ri ht t Right assets Managed risks Fiscal sustainability Areas of focus

Introduction Introduction

St t t i t Statutory requirement O t it f th T Opportunity for the Treasury Th 2014 St t t The 2014 Statement Directional not prescriptive

Overarching themes Overarching themes

Th C b l h t i l The Crown balance sheet is very large C i l t i d li Crucial to service delivery O hi h ld t b d t k li htl b t Ownership should not be undertaken lightly but done well Flexibility crucial to cope with future challenges

Overarching themes (continued) Overarching themes (continued)

A t C b l h t h l i A strong Crown balance sheet helps economic 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 The Balance Sheet PART 2 – The Balance Sheet by Numbers y

So what do we have? So what do we have?

A t h t Assets – what we own:

– $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...

150%

300 Assets

125%

250 Assets % GDP

100%

200

GDP billion

50% 75%

100 150

% G $ b

25% 50%

50 100 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Figure 3.2

and liabilities have too recently ... and liabilities have too recently.

150%

60 Netcore Crown debt

125%

50 Net core Crown debt %GDP

100%

40

GDP billion

50% 75%

20 30

% G $ b

25%

10 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

300 150 200 250 50 100 150 n (50)

• $ billion

(200) (150) (100) Assets Liabilities (250) ( ) 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Liabilities Net worth attributable to the Crown

Fi 3 4 Figure 3.4

Functional classification Functional classification

150 Assets 100

• 50

illion

(50)

$ bi

(100) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (150) Social Financial Commercial Liabilities

Figure 3.1

Financial assets to drive rise in net worth to 2018

100 120 80 100

• n

60 $ billio 20 40 Net Worth 2013 Social Financial Commercial Net Worth 2018

Figure 3.5

Long term financial assets projections Long-term financial assets projections

40% 45% 50% 600 700 800 ACC NZSF GDP % (RHS) 30% 35% 40% 400 500 600 DP ion 20% 25% 30% 200 300 400 % G $ bill 10% 15% 20% 100 200 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

“Right Assets”

Balance Sheet Performance

Measuring performance Measuring performance

Vit l t ff ti t t d Vital to effective asset management and decision making. Measures fall under 3 broad areas:

– Capacity C bilit – Capability – 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 Skid resistance Rutting 10-year cost assessment Rutting Utilisation: Vehicle kilometres Children per classroom Functionality: Road safety Modern Learning Functionality: Road safety Modern Learning Environment

M h ld t b d i i l ti Measures should not be used in isolation

So how well do we do? So how well do we do?

I t ti ll ld l d i Internationally – world leader in 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 40% 45% State Houses Courts Schools Police Stations 25% 30% 35% 15% 20% 0% 5% 10% 0% 0-10 11-20 21-30 31-40 41-50 51+

Asset Age (Years)

Implications of age Implications of age

Lik l t h hi h i t t Likely to have higher maintenance costs M i dditi l it l dit May require additional capital expenditure M l b fit f May no longer be fit for purpose Could be an obsolescence risk

and asset condition

Figure 4.5 – Road condition to standard Figure 4.25 – Land under sustained control

...and asset condition

• rk meeting standard

Figure 4.33 – Estate asset condition (Defence) Figure 4.39 – Hospital condition by region

21

Implications of condition Implications of condition

C diti d i i t d Condition drives maintenance spend... d it l dit ...and capital expenditure A i t i ki d i i Assist in making decisions on:

• Rationalisation
• Replacement
• Maintaining

Main focus of facilities management.

Reasonable understanding of utilisation

Figure 4.13 – Property vacancy Figure 4.6 – VKT:Centre-lane index (State Highways)

Reasonable understanding of utilisation

Figure 4.17 Classroom utilisation Figure 4.44 – Prison capacity

23

Implications of utilisation Implications of utilisation

Utili ti fl t d d l Utilisation reflects demand vs supply A i t b ild b ild l d i i Assists build, rebuild, or close decisions D i d t di f b ff Drives understanding of buffers Indicator of value for money

Weaker on functionality & fit for purpose

Figure 4.19 – Meeting modern learning environment Figure 4.26 – Visitor assets meeting service standard

Weaker on functionality & fit for purpose

Figure 4.12 – Property configuration relative to need (Social Housing) Figure 4.31 – Operational preparedness

Importance of functionality/fit for purpose Importance of functionality/fit for purpose

Lik l t id th l t li k t t Likely to provide the closest link to outcomes. Will b ff t d b f t Will be affected by many factors H ldi th i ht t i iti l t t d Holding the right assets is critical to meet needs... ...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 Managing Risks & Part 3 – Managing Risks & Sustainability

Managed risks Managed risks

Ri k i t d li f t Risk impacts on delivery of government

• bjectives

Mitigating risk so it does not eventuate Resilience if risks crystallise

What we found What we found

E i ti t ll k ll Existing arrangements generally work well B t t i But room to improve Fi i l t h ll Financial assets pose new challenges

Fiscal sustainability Fiscal sustainability

Th fi i f th C d t b The financing of the Crown needs to be sustainable Significant financial buffers necessary Maintaining prudent debt has wider balance sheet implications implications Saving to fund non debt liabilities (SAYGO) Saving to fund non-debt liabilities (SAYGO)

What we found What we found

R b ildi th d bt b ff i i it Rebuilding the debt buffer is a priority now R ld b t d Reserves could be augmented SAYGO th h f d i lik l t b d bl SAYGO through funds is likely to be durable

Areas of focus Areas of focus

IS hi hli ht d 11 A f f IS highlighted 11 Areas of focus C t i d 4 h di Categorise under 4 headings:

• Right Assets

M d Ri k

• Managed Risks
• Fiscal Sustainability
• General

Right Assets Right Assets

I i t t d i i ki Improve investment decision making Support asset management practice Explore how capital can be recycled Further develop and utilise metrics

Managed Risks Managed Risks

B ild b tt d t di f t C Build a better understanding of aggregate Crown risk Investigate whether efficiencies can be achieved Continue policy to manage contingent and implicit liabilities liabilities

Fiscal Sustainability Fiscal Sustainability

C ti f t th i b ff Continue focus on strengthening buffers I ti t t f ti f d Investigate arrangements for contingency funds and reserves

General General

C id f ifi f t t Consider use of specific performance targets D l h i f b tt i f ti Develop mechanism for better information collection to support decision making

Questions? Questions?