Annual Report 2010-11: Notes to non-departmental schedules

Note 1: Statement of accounting policies

Reporting entity

These non-departmental schedules and statements present financial information on public funds managed by the Ministry on behalf of Crown.

The Ministry’s responsibility is to manage the revenue, expenditure, assets and liabilities on behalf of the Crown. The non-departmental balances are consolidated into the Crown financial statements. For a full understanding of the Crown’s financial position and the results of its operations and cash flows for the year, reference should be made to the consolidated audited Crown financial statements for the year ended 30 June 2011.

The schedules in respect of the activities administered by the Ministry on behalf of the Crown comprise:

• collection of indirect tax revenues
• payment of refunds on claims received
• joint venture airports

The schedules and statements have been prepared pursuant to section 35 of the Public Finance Act 1989.

Basis of preparation

The non-departmental schedules and statements have been prepared in accordance with the government’s accounting policies as set out in the Financial Statements of the Government, and in accordance with the relevant Treasury instructions and Treasury circulars.

Measurement and recognition rules applied in the preparation of these non-departmental schedules and statements are consistent with New Zealand generally accepted accounting practice as appropriate for a public benefit entity.

The accounting policies set out below have been applied consistently to all years presented in these schedules and statements. The following particular accounting policies have been applied:

Significant accounting policies

Budget figures

The budget figures are consistent with the financial information in the Main Estimates. In addition, these schedules and statements also present the updated budget information from the Supplementary Estimates.

Revenue

Revenues from road user charges, motor vehicle licensing fees and tolling revenue are recognised when payment for the charge or fee is made.

Debtors and other receivables

Debtors and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate, less impairment changes.

Impairment of a receivable is established when there is objective evidence that the Crown will not be able to collect amounts due according to the original terms of the receivable. Indicators that the debtor is impaired include the significant financial difficulties of the debtor, the probability that the debtor will enter into bankruptcy, and any default in payments. The amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the schedule of non-departmental expenses. When a debtor is not collectible, it is written off against the allowance account for debtors. Overdue receivables that are renegotiated are reclassified as current (not past due).

Investments in joint venture airports

Investments represent the Crown's investment in joint venture airports. Investments in the joint venture airports are accounted using the equity method, consolidating the post acquisition net asset increase or decrease into these non-departmental schedules.

Creditors and other payables

Creditors and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method.

Financial instruments

Crown: Vote Transport is party to financial instruments as part of its normal operations. These financial instruments include cash and bank balances, accounts receivable and accounts payable. Revenue and expenses in relation to all financial instruments are recognised in the schedule of non-departmental revenue and receipts and the schedule of non-departmental expenses. All financial instruments are recognised in the schedule of non-departmental assets and the schedule of non-departmental liabilities.

Goods and services tax (GST)

All items in the financial statements, including appropriation statements, are stated exclusive of GST, except for receivables and payables, which are stated on a GST-inclusive basis. In accordance with Treasury Instructions, GST is returned on revenue received on behalf of the Crown, where applicable. However, an input tax deduction is not claimed on non-departmental expenditure. Instead, the amount of GST applicable to non-departmental expenditure is recognised as a separate expense and eliminated against GST revenue on consolidation of the Financial Statements of the Government.

Commitments

Future expenses and liabilities to be incurred on non-cancellable contracts that have been entered into at balance date are disclosed as commitments to the extent that they are equally unperformed obligations.

Contingent liabilities

Contingent liabilities are disclosed at the point at which the contingency is evident.

Changes in accounting policies

The accounting policies have been applied consistently to all years presented in these schedules and statements.

Note 2: Indirect taxation

Actual 2009/10 $000		Actual 2010/11 $000	Main Estimates 2010/11 $000	Supplementary Estimates 2010/11 $000
171,295	Motor vehicle registration fees	171,529	174,548	168,987
909,900	Road user charges	1,015,779	955,402	995,446
1,081,195	Sub-total	1,187,308	1,129,950	1,164,433
(32,515)	Fuel excise duty refunds	(35,636)	(38,312)	(34,750)
1,048,680	Total indirect taxation	1,151,672	1,091,638	1,129,683

Note 3: Other 'sovereign power' revenue

Actual 2009/10 $000		Actual 2010/11 $000	Main Estimates 2010/11 $000	Supplementary Estimates 2010/11 $000
88	Infringement fees	1,340	100	100
88	Total other 'sovereign power' revenue	1,340	100	100

During 2010/11, the Crown began to receive revenue from infringment penalties ($1.2 million) from the Northern Gateway toll road. This revenue was not budgeted due to the uncertainty about its level.

Note 4: Other operational revenue

Actual 2009/10 $000		Actual 2010/11 $000	Main Estimates 2010/11 $000	Supplementary Estimates 2010/11 $000
6,057	Tolling fees from the Northern Gateway toll road (note 11)	6,150	4,000	5,803
44,734	Motor vehicle registration administration fees	46,751	45,838	45,327
13,772	Road user charges administration fees	14,176	14,728	15,137
11,264	Motor vehicle registration recoveries	8,997	10,500	10,500
75,827	Total other operational revenue	76,074	75,066	76,767

Note 5: Non-departmental output classes

Actual 2009/10 $000		Actual 2010/11 $000	Main Estimates 2010/11 $000	Supplementary Estimates 2010/11 $000
1,972,573	This expense item is equal to the appropriations for non-departmental output classes listed in the statement of non-departmental expenditure and appropriations	1,803,962	1,820,384	1,813,186
1,972,573	Total non-departmental output classes	1,803,962	1,820,384	1,813,186

Note 6: Purchase or development of capital assets

Actual 2009/10 $000		Actual 2010/11 $000	Main Estimates 2010/11 $000	Supplementary Estimates 2010/11 $000
693,200	This expenditure is for the construction of, and improvement to, the State highway network including pavement rehabilitation and seal widening	760,659	719,181	760,659
693,200	Total purchase or development of capital assets	760,659	719,181	760,659

Note 7: Other expenses to be incurred by the Crown

Actual 2009/10 $000		Actual 2010/11 $000	Main Estimates 2010/11 $000	Supplementary Estimates 2010/11 $000
178,580	Auckland rail development MYA	171,578	217,758	183,155
19,627	Enhanced public transport concessions for SuperGold card holders	20,735	17,300	21,865
743	International memberships	743	743	743
-	Metro rail networks costs	21,139	7,046	21,139
38,376	Metro rail rolling stock and infrastructure (Wellington)	102,182	177,000	139,624
3,270	New Zealand Railways Corporation public policy projects	3,270	3,270	3,270
30,923	Rail network and rolling stock upgrade MYA	70,761	65,726	70,761
500	Railway safety	500	500	500
76,572	Wellington rail development MYA	17,170	25,742	17,170
348,591	Total other expenses to be incurred by the Crown	408,078	515,085	458,227

Note 8: Write back of National Land Transport Fund balance

At the end of each year, the Crown usually holds a balance due to the National Land Transport Fund (the NLTF). In the years to 30 June 2008, the balance was reflected in the Crown financial statements as owed to the NLTF and the movement in the balance was reflected in the schedule of non-departmental expenses. This was a requirement of the previous Land Transport Management Act. This Act was amended from 1 August 2008 and the balance was no longer required to be reflected. In the year to 30 June 2009, the Vote Transport Crown financial statements did not update the balance for the movement in the NLTF and so the balance has remained at $55.8 million as at 30 June 2008. A corresponding debtor is held in the books of the NZTA which administers the NLTF. At 30 June 2010, it was agreed that both sides should remove the balance from their books as it is no longer required. Thus the adjustment is fiscally neutral to the Crown once the Crown consolidation has taken place.

Note 9: Receivables and advances

Actual 2009/10 $000		Actual 2010/11 $000	Main Estimates 2010/11 $000	Supplementary Estimates 2010/11 $000
40,074	Motor vehicle registration fees	43,685	65,054	40,074
221	Prepayments	12,106	292	221
12,006	Road user charge revenue	12,687	10,364	12,006
1,450	Tolling revenue	1,461	-	-
-	Infringement revenue	548	-	-
53,751	Sub-total	70,487	75,710	52,301
(8,406)	Provision for doubtful debts	(7,171)	(28,547)	(14,406)
45,345	Total receivables and advances	63,316	47,163	37,895

Except for motor vehicle fees and road user charges the carrying value of receivables and advances approximates their fair value. No debtor is past due, and the Ministry has assessed that no provision for impairment is required at 30 June 2011 (30 June 2010: $nil).

For motor vehicle fees and road user charges revenue, debts are assessed for impairment regularly and provision made for non-collectable debts as shown above.

Note 10: Investment in joint venture airports

Actual 2009/10 $000		Actual 2010/11 $000
12,875	New Plymouth	12,838
3,303	Taupo	3,368
4,964	Wanganui	4,845
427	Westport	770
357	Whakatane	435
2,524	Whangarei	2,472
24,450	Total investment in joint venture airports	24,728

The value of the investments in the airports is based on the annual financial statements of each airport for the year ending 30 June 2010 (2010: 30 June 2009). The Crown has a 50 percent interest in each airport.

Note 11: Investment in the Northern Gateway Toll Road

The Alpurt B2 roading project was completed during 2008/09 with a contribution from the Crown of $158 million. The road is now known as the Northern Gateway toll road. The charging of a toll for using the road began in February 2009. The Crown issued infrastructure bonds to fund the project and the toll revenue is intended to cover the costs of the bonds. The bonds are shown within the financial statements of the Treasury and the tolling revenue is recorded as other operational revenue (note 4).

It was agreed that a notional account would be kept of the 'cost' of the project using an estimated interest rate charged on the balance advanced. The interest charge is calculated daily, based on the outstanding balance of money advanced, plus interest, less tolling revenue received. The interest rate used is the average infrastructure bond rate, plus 15 basis points. This is 6.45 percent and this will not change in the future as all of the bonds have been issued. The project was modelled using an estimated rate of 6.4 percent. The two tables below show the project since the start and then for the current year. Further information is available at www.tollroad.govt.nz.

Since commencement of project

Actual 2009/10 $000		Actual 2010/11 $000
158,000	Funding provided for construction	158,000
27,089	Interest charged since funding first drawn	38,720
(8,372)	Tolling revenue since February 2009	(14,522)
176,717	Balance at the year end	182,198

Current Year

Actual 2009/10 $000		Actual 2010/11 $000
171,487	Balance brought forward	176,717
11,287	Interest cost for the year	11,631
(6,057)	Tolling revenue for the year	(6,150)
176,717	Balance at the year end	182,198

Note 12: Payables

Actual 2009/10 $000		Actual 2010/11 $000	Main Estimates 2010/11 $000	Supplementary Estimates 2010/11 $000
296,001	National Land Transport Fund revenue payable to the NZ Transport Agency	204,369	478,472	196,001
50	Output funding payable to Maritime New Zealand	-	-	50
20,335	Output funding payable to New Zealand Railways Corporation	27,322	-	20,335
1,741	Output funding payable to Meterological Service	1,741	1,645	1,741
11,284	GST payable	14,353	10,341	11,285
25,187	Motor vehicle registration third party collections	28,291	26,831	25,187
-	Capital funding payable to Aviation Security Service	410	-	-
7,137	Output funding payable to Greater Wellington Regional Council	-	-	7,137
-	Wanganui Airport	154	-	-
1,007	Road user charges refunds	1,232	861	1,007
362,742	Total payables	277,872	518,150	262,743

Payables are non-interest bearing and are normally settled on 30-day terms, therefore the carrying value of payables approximates their fair value.

 

Note 13: Financial instruments

The carrying amounts of financial assets and financial liabilities in each of the NZ IAS 39 categories are as follows:

Actual 2009/10 $000		Actual 2010/11 $000
	Loans and receivables
23,853	Cash and cash equivalents	22,395
45,345	Receivables and advances	63,316
69,198	Total loans and receivables	85,711
	Financial liabilities measured at amortised cost
362,742	Payables	277,872

Credit risk

Credit risk is the risk that a third party will default on its obligation, causing a loss to be incurred. Credit risk arises from debtors and deposits with banks.

Funds must be deposited with Westpac, a registered bank.

The maximum credit exposure for each class of financial instruments is represented by the total carrying amount of cash and cash equivalents and net debtors. There is no collateral held as security against these financial instruments, including those instruments that are overdue or impaired. Other than Westpac Bank, there are no significant concentrations of credit risk.

Note 14: Major Budget Changes

Changes were made to the non-departmental budgets in the 2010/11 Supplementary Estimates. Explanations for significant variances only are provided below.

Revenue and receipts

	Main Estimates $000	Supplementary Estimates $000	Cumulative Vote $000
Tax revenue
Motor vehicle registration	174,548	(5,561)	168,987
Road user charges	955,402	40,044	995,446
Fuel excise duty refunds	(38,312)	3,562	(34,750)
	1,091,638	38,045	1,129,683
Other operational revenue
Motor vehicle registration administration fees	45,838	(511)	45,327
Road user charges administration fees	14,728	409	15,137
Tolling fees	4,000	1,803	5,803
	64,566	1,701	66,267

The National Land Transport Fund Revenue Forecasting Group meets on a 6-monthly basis to reforecast the tax revenue that is expected for the NLTF based on the current economic forecasts. The changes reflect the result of this process. The administration revenue is also forecast as part of this.

Non-departmental expenditure and capital appropriations

	Budget Estimates $000	Supplementary Estimates $000	Cumulative Vote $000
Appropriations for non-departmental output expenses
Administration of the public transport concessions for SuperGold cardholders scheme	700	(565)	135
Motor vehicle registry	35,991	6,320	42,311
National Land Transport Programme:
Demand management and community programmes PLA	40,444	1,000	41,444
Maintenance and operation of State highways PLA	308,000	2,000	310,000
Management of the funding allocation system PLA	34,136	(3,377)	30,759
Public transport infrastructure PLA	57,000	(16,000)	41,000
Public transport services PLA	210,000	7,600	217,600
Rail and coastal freight PLA	1,000	(500)	500
Transport planning PLA	33,000	1,000	34,000
Walking and cycling facilities PLA	15,000	(2,000)	13,000
Regional development transport funding	10,000	1,000	11,000
Search and rescue and recreational boating safety activities PLA	5,409	(876)	4,533
Waikato rail funding	2,800	(2,800)	-
Non-departmental other expenses
Auckland rail development MYA	217,758	(34,603)	183,155
Enhanced public transport concessions for SuperGold cardholders	17,300	4,565	21,865
Metro rail network costs	7,046	14,093	21,139
Metro rail rolling stock and infrastructure (Wellington)	177,000	(37,376)	139,624
Rail network and rolling stock upgrade MYA	65,726	5,035	70,761
Wellington rail development MYA	25,742	(8,572)	17,170
Capital expenditure
Aviation Security Service	283	4,073	4,356
Civil Aviation Authority loan	-	4,340	4,340
Kiwirail Turnaround Plan funding	230,000	20,000	250,000
Maritime New Zealand capital expenditure PLA	-	167	167
NLTF Borrowing facility for short-term advances	-	250,000	250,000
New infrastructure for and renewal of State highways PLA	680,416	36,682	717,098
New and improved infrastructure for State highways - Crown contribution	5,065	4,796	9,861
New Zealand Railways Corporation loans	67,000	1,231	68,231
Joint venture airports - Crown contribution MYA	50	481	531

Explanations for the major changes were outlined in the 2010/11 Supplementary Estimates (pages 870 onwards). They were:

Administration of the public transport concessions for SuperGold cardholders scheme and Enhanced public transport concessions for SuperGold cardholders

The decrease in the SuperGold card administration appropriation reflects the decision by Cabinet to reduce this element of the funding and reallocate $0.5 million to the concession appropriation. Cabinet also agreed to provide additional funding of $4 million for the concessions.

Motor vehicle registry

The increase reflects the funding of $2.1 million carried forward from 2009/10 and additional funding of $4.2 million approved during the year to cover ongoing costs.

Auckland rail development MYA, Aviation security service, Joint venture airports – Crown contribution MYA, KiwiRail turnaround plan funding, Metro rail rolling stock and infrastructure (Wellington), New Zealand Railways Corporation loans, Rail network and rolling stock upgrade MYA, Regional development transport funding, Waikato rail funding, Wellington rail development MYA

The increase/decrease reflects the net of funding carried forward from 2009/10 and any funding transferred to 2011/12 so that the funding matches the expenditure profile.

Search and rescue and recreational boating safety activities PLA

The decrease reflects a transfer to the departmental appropriation Search and rescue activity coordination PLA to fund activities managed by the department.

Civil Aviation Authority loan

The increase reflects the decision by Cabinet to approve a loan of $4.3 million.

NLTF borrowing facility for short-term advances

The increase reflects the decision to allow the NZTA to obtain short-term advances to allow it to manage variations between revenue inflows into the NLTF and cash outlays.

New and improved infrastructure for State highways — Crown contribution

The motor vehicle registry and the road user charges systems are funded by administration fees. Once the year is complete, any excess fees are calculated and appropriated to the NLTF using the Crown contribution appropriation. During 2010/11, the surplus fees from 2009/10 were calculated at $9.9 million, which was added to the Crown contribution appropriation. Subsequently $0.9 million was transferred to a departmental appropriation to fund improvements to the road user charges system and $4.2 million was transferred to Non-departmental output class Motor vehicle registry to cover ongoing costs.

National Land Transport Programme output expense PLA appropriations, New infrastructure for and renewal of State highways PLA, Maritime New Zealand capital expenditure PLA

There are five reasons for the changes in these appropriations which relate to how this funding is managed.

• Road tax revenue is forecast every 6 months. The State highway capital appropriation is adjusted as required as revenue increases or decreases.
• The NZTA manages the delivery of the National Land Transport Programme. Changes were made to the related appropriations to match the planned programme of expenditure for the year. Additional funding is sourced from the capital State highway appropriation as required.
• Some expenditure was transferred to 2010/11 to reflect updated expenditure profiles.
• The Maritime New Zealand capital expenditure PLA was created in 2009/10 under section 9(1) of the Land Transport Management Act 2003. Funding was provided by a fiscally neutral transfer from capital appropriation: New infrastructure for and renewal of State highways PLA.

NOTE 15: MAJOR BUDGET TO ACTUAL VARIANCES

The significant variances between actual results and the Supplementary Estimates forecasts were:

Schedule of non-departmental revenue and receipts

Actual indirect taxation was $22 million higher than forecast. This is mainly due to greater revenue from road user charges ($20 million) and motor vehicle registration fees ($2 million), as shown in note 2. These revenues are forecast on a 6-monthly basis.

Actual other ‘sovereign power’ revenue was $1 million higher due to $1 million from tolling infringement fees. This is the first year that this revenue was received, so no budget had been provided due to the uncertainty.

Schedule of non-departmental expenses

Expenditure on non-departmental output classes was $10 million below the Supplementary Estimates. The significant underspends were:

• National Land Transport Programme – public transport services PLA ($23 million)
• National Land Transport Programme – demand management and community programme PLA ($8 million)
• National Land Transport Programme – renewal of local roads PLA ($32 million)
• National Land Transport Programme – sector training and research PLA ($2.6 million)
• National Land Transport Programme – transport planning PLA ($11 million)

netted off by some significant overspends:

• National Land Transport Programme – maintenance and operation of local roads PLA ($39 million)
• National Land Transport Programme – maintenance and operation of State highways PLA ($18 million)
• National Land Transport Programme – new and improved infrastructure for local roads PLA ($9 million)
• National Land Transport Programme – public transport infrastructure PLA ($2 million)

The above variances are due to the NZTA managing the different activities within the National Land Transport Programme and responding to demand and timing differences.
Other expenses were $50 million lower than the Supplementary Estimates. This is the net result of under expenditure on the following appropriations:

• Metro rail rolling stock and infrastructure ($37 million)
• Auckland rail development ($12 million)
• enhanced public transport concessions for SuperGold cardholders ($1 million)

The rail variances relate to the timing of contracts and payments.

Schedule of non-departmental assets

Non-departmental assets were higher than forecast by $17 million. There were a number of reasons for this, but the most significant was the $26 million increase in receivables and advances due to:

• a prepayment to a third party of $12 million that was not forecast
• a lower provision for doubtful debts by $7 million
• the motor vehicle registration fee receivable being $3 million greater than forecast

Schedule of non-departmental liabilities

Payables were $15 million above forecast due to the two major creditors being higher than forecast due to the timing of payment:

• the NZTA by $8 million
• New Zealand Railways Corporation by $7 million

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