NZ Government Accounts

[Recaster]

Hope this is the right place to post this as the government has debt on the NZDX.

Had a look at 30 June financial statements for 2021 and 2020:

https://recastinvestor.substack.com/p/basic-analysis-new-zealand-government

[Ferg]

That is interesting reading thank you Recaster. Thanks also for putting in the time and effort.

People are worried about Government debt, in particular it's size and how it will be repaid. Traditionally stats such as debt versus GDP are quoted but I'm guessing GDP is not one of the financial figures disclosed...? If not, could we come up with some other measures like we would use for a business? For example, debt as a % of equity, debt as as % of total assets, debt versus income etc. Do they disclose how much debt is core, versus SOE versus crown entities? Not that I am asking you to do this next part but I would be curious to see how those sort of numbers have changed over the years/decades.

Good stuff!

[winner69]

govt debt to gdp over the years looks like this

https://tradingeconomics.com/new-zealand/government-debt-to-gdp

[Ferg]

Thanks winner - check out the "forecast" tab on that graph with the 50 year option. Ouch.

[Muse]

Thanks winner - check out the "forecast" tab on that graph with the 50 year option. Ouch.

if you are interested you can poke around and play with treasury's long term fiscal forecast model as well

https://www.treasury.govt.nz/system/files/2021-09/ltfm-htm-sep21.xlsx

[winner69]

Thanks winner - check out the "forecast" tab on that graph with the 50 year option. Ouch.

That's what big fat fiscal envelopes ... all that spare cash to spend with no regard to how it will be paid back

[winner69]

if you are interested you can poke around and play with treasury's long term fiscal forecast model as well

https://www.treasury.govt.nz/system/files/2021-09/ltfm-htm-sep21.xlsx

Amazing turn around in productivity next few years --- GDP/hours worked

Row 13 Economic Forecasts Tab


interesting how a lot of forecasts tend to revert to long term average

[Recaster]

That is interesting reading thank you Recaster. Thanks also for putting in the time and effort.

People are worried about Government debt, in particular it's size and how it will be repaid. Traditionally stats such as debt versus GDP are quoted but I'm guessing GDP is not one of the financial figures disclosed...? If not, could we come up with some other measures like we would use for a business? For example, debt as a % of equity, debt as as % of total assets, debt versus income etc. Do they disclose how much debt is core, versus SOE versus crown entities? Not that I am asking you to do this next part but I would be curious to see how those sort of numbers have changed over the years/decades.

Good stuff!

Thanks. Good suggestions too. Cheers.

[Dassets]

It has been a while since I looked at the Govt accounts so I will do this from memory. Recaster, it is interesting that you are undertaking this sort of work, I am assuming some sort of financial statement analysis which then you draw some observations. With respect to the govt accounts I think you need to read some of the notes that went with it. Your observations may be very different. The bulk of the asset lifts were from mark to market gains in NZ Superannuation and ACC's portfolio, and secondly some reval of hard assets. The issue with these gains is none of it accessible. They are either in purpose defined assets or assets that cannot be sold. OBEGAL is a better measure for what is really going on, it cuts revals out. That would make the accounts much more concerning when you look at the debt load. Also look at the CA/CL, 25% or something like that. Tax is a factor but still this is scary and makes you wonder how the govt prioritises payments. The other critical thing missing is there is nothing indicating committed spending, sort of like lease obligations but tougher. That would make the liquidity headroom look super grim. Then you really have to adjust for things like Mercury etc. It looks like the government has been raising debt flat out and holding it in financial assets where it will be spend that is the obligations won't fall but the assets will fall relative (cause it doesn't go into (extra)infrastructure but on non-asset type spending). So I get a completely different picture of the accounts compared to your conclusions. You really have to understand the beast and what you are trying to analyse. BTW discount rates is where all the action will be across companies over the next 12 months. IMO.

[Recaster]

Thanks Dassets. I really didn't know what I was getting into with this. Pages and pages of notes to the financial statements which I really didn't get in to.

First attempt at analysing a government :-(.

To do it properly is a big project I now realise.

I get all that you are saying except the point about Mercury. Could you elaborate on that? Mercury would be consolidated at 51.15% ownership?

Also could you give an example of a financial asset which will fall in value while the debt remains the same?

I'll have another look at it with respect to the points you have made.

OBEGAL was a new one on me but it seems a better metric I agree.

Rising discount rates will certainly trim the froth off companies.

Thanks for taking the time to look at it. Cheers.

[Dassets]

No sweat, answered in a jumbled way. I haven't checked re the consolidated status. I recall there are a bunch of rules for govt around definitions eg SOEs have a special status. I am not sure on things like AIR etc on classification. It is a minor point. Also be aware that govt accounts do not comply with IFRS(pretty sure). The debt isn't linked to the financial asset. And lastly discount rates for govt do some other things too! With ACC(and defined benefit stuff like some pensions in and out of govt) higher discount rates are actually better. It is an actuary thing. Technically whatever assets they hold to meet liabilities generally making better returns because they tend to be bond/debt heavy, so higher rates(assuming whatever triggered higher disc rate is i rate related) better cash returns over lifetime of book.

[Panda-NZ-]

Interest is very low which needs to be factored in.

Plus we are paying it to ourselves given the RBNZ owns much of our "debt" (..or assets?).

[Panda-NZ-]

Then you have inflation of course eroding it by 6% this year alone.

[Muse]

Thanks Dassets. I really didn't know what I was getting into with this. Pages and pages of notes to the financial statements which I really didn't get in to.

First attempt at analysing a government :-(.

To do it properly is a big project I now realise.

I get all that you are saying except the point about Mercury. Could you elaborate on that? Mercury would be consolidated at 51.15% ownership?

Also could you give an example of a financial asset which will fall in value while the debt remains the same?

I'll have another look at it with respect to the points you have made.

OBEGAL was a new one on me but it seems a better metric I agree.

Rising discount rates will certainly trim the froth off companies.

Thanks for taking the time to look at it. Cheers.

haha - I know what you mean recaster

sometimes I think something looks interesting and I start popping numbers into a spreadsheet wanting to do a back of the envelope calc. Next minute I've spent hours in a spreadsheet wishing I hadn't started in the first place. got more than a few unfinished workbooks where I got ground down and semi gave up

[Recaster]

Yep, I know that feeling lol.

Just pottering away on the NZ Govt at the moment. Found what the commitments are (thanks Dassets) so will integrate those and some more stuff as I get it done :-). Cheers.