The Financial Markets Authority (FMA) emerged as a big winner in last week’s budget with an almost 40 per cent bump up in its operational allocation.
However, more than 70 per cent of the FMA’s $36 million government allowance will be funded out of a forecast $25.78 million levy on the industry it polices. Last year the FMA had to scrape by with about $26 million of which $17.4 million (about 66 per cent) came via industry levies.
“The [$9.8 million] increase in this appropriation for 2017/18 is the result of a policy decision to reflect an appropriate level of funding for the Financial Markets Authority (FMA) and the proportion which should be met by the FMA levy,” budget documents reveal.
By function the FMA has set aside just under half of its spending money for licensing ($15.8 million) followed by analysis and engagement ($12.1 million) and enforcement ($8 million), up from $11.3 million, $8.9 million, and $6 million, respectively, over the 2016/17 financial year.
In his first budget, Finance Minister, Steven Joyce, also chucked in a further $4 million to FMA coffers comprising the regular $2 million top-up to the regulator’s litigation fund and the balance (rolled over from the previous year’s unspent allocation) to buy a new IT toy.
“This appropriation is intended to achieve an intelligence-led risk-based financial markets regulatory approach through investment in a new intelligence and knowledge system,” the budget document says.
Elsewhere, the Commission for Financial Capability (CFFC) – which is understood to be considering a rebrand – received a small increase in its annual budget to just over $7.5 million, $670,000 more than the 2016/17 amount.
But Joyce also handed the CFFC a further $10.2 million to spend over the next four years on improving financial literacy in schools with $1.64 million allocated for the 2017/18 fiscal period.
“This increase is partially offset by a one-off transfer of $900,000 in 2016/17 only from Policy Advice – Economic Development to fund the Māori financial capability programme,” the budget paper says.
“Meanwhile, the NZ Superannuation Fund has seen its operating cost allocation jump by $200,000 in the latest budget, rising to $728,000 from $528,000 last year. The approximately $4 billion Government Superannuation Fund (GSF), which helps defray the cost of a long tail state employee pensions, has received $38 million for the 2017/18 year compared to $35 million in the previous annual period.
The government books show the GSF unfunded liability should go up by $538.5 million over the 2017/18 period, compared to an annual increase of $524 million during the previous fiscal year.
According to the latest published valuation, the GSF reported an unfunded liability of just under $8.9 billion.
KiwiSaver, notably free of government tinkering in the Joyce budget, remains a relatively stable item in the annual accounts with $798 million set aside to fund the sole remaining incentive – the annual member tax credit (MTC). Last year the government spent $768 million on MTCs, well under the $793 million budget.
At the same time, the NZ sovereign bond market looks set to face diminishing supply over the next five years with forecast net issuance projected to fall by $6.2 billion at the end of that period.
While the NZ Debt Management Office (NZDMO) has slated an average annual bond issuance of $7 billion until 2021, its repurchase program will see net government debt shrink from the current 28 per cent of GDP to 20.4 per cent after five years.
“Subject to market conditions, a new 20 April 2029 nominal bond is expected to be launched, via syndication, before 31 December 2017,” the budget paper says.
“Inflation-indexed bond issuance is expected to be around $1.0 billion of the $7.0 billion 2017/18 domestic bond programme.”