Treasury Warns of Declining Crown Balance Sheet Without Policy Changes

The New Zealand Treasury has issued a stark warning regarding the future of the Crown’s balance sheet, indicating that without significant policy adjustments, its financial strength is likely to decline. According to the 2025 Investment Statement, the Crown’s liabilities are projected to rise by 33 percent by 2029, reaching a total of $504 billion. This increase in debt is primarily driven by investment spending and operating deficits.

As of June 2024, the Crown’s assets amounted to $571 billion, while liabilities stood at $380 billion. The Treasury anticipates that liabilities will grow at a faster rate compared to assets, with net worth expected to decrease by 10 percent to $172 billion.

The balance sheet consists of three main portfolios. The ‘social’ portfolio, which encompasses sectors such as transport, housing, education, and health, holds $314 billion in assets across 141 entities. The ‘commercial’ portfolio, which includes strategic entities like Air New Zealand, contains $99 billion in assets. In contrast, the ‘financial’ portfolio, which features the Reserve Bank and Superannuation Fund, holds $158 billion in assets but is burdened with $280 billion in liabilities, accounting for 74 percent of the total.

The Treasury highlights concerns about ageing assets within the social portfolio that are becoming less effective. Additionally, entities in the commercial portfolio often do not meet performance expectations, while the financial portfolio is exposed to varying risks associated with its assets and liabilities. Over the past decade, the size of the balance sheet has more than doubled, but the Treasury projects a slower growth rate for both assets and liabilities in the coming ten years.

Since the previous investment statement in 2022, assets have surged by 30 percent, equating to $132 billion, largely driven by inflationary pressures affecting physical asset valuations. Conversely, liabilities have increased by 35 percent or $98 billion to cover investment and operational costs.

Iain Rennie, the Treasury Secretary, emphasized the evolving demands on public services and investments, stating, “The Investment Statement shows we need to improve our asset management – to get more value from existing investments, ensure we’re investing in the right assets, and improve our risk management and understanding.”

To sustain New Zealand’s credit rating and prepare for potential economic shocks, the Treasury has proposed procedural changes to balance sheet management. These include enhancing decision-making processes, adopting consistent long-term planning across various agencies, and improving the quality of information related to assets, liabilities, and risks.

Furthermore, the Treasury advocates for better asset management practices. It notes that some assets are underperforming and poorly maintained, lacking adequate information. The report suggests instituting regular asset reviews, clarifying the purpose of government ownership for each commercial entity, and implementing a formal capital recycling programme. This initiative would allow the government to reallocate or reinvest capital from existing assets into new projects that align with policy objectives, thereby avoiding the increased operational costs associated with retaining underperforming assets.

The statement also highlights the potential for improved management of fiscal risks by centralizing oversight of the balance sheet and conducting stress tests to evaluate resilience against economic fluctuations.

As the Treasury navigates these challenges, the focus remains on ensuring that New Zealand’s financial framework is robust enough to meet future demands while maintaining fiscal responsibility.