Finance Minister English says soaring prison population as big a risk as world interest rates

Friday 11th November 2016

Finance Minister Bill English says the government’s whole balance sheet of nearly $300 billion of assets is almost as exposed to changes in the forecast of prisoner numbers as it is to world interest rates.

Speaking at the annual meeting of the International Forum of Sovereign Wealth Funds being hosted in Auckland yesterday, English said the understanding of risk in the public sector has been very “undercooked”.

When looking at the sensitivity of on-going operating expenses and capital investment risk, the exploding prison roll in Australasia was a key concern, he said.

“Our inability to forecast that is a significant fiscal risk, more significant than what might feasibly happen to world interest rates as the significance of the election of Donald Trump or any other disturbance you could think of,” he said.

English some said states of Australia were suffering 20 percent growth in prisoner numbers and it was a very expensive, capital intensive business.

In New Zealand, government figures show prisoner numbers totalling 9,798 in September 2016, compared to 8,978 the same month the prior year, and 8,705 in 2014. Half of those sentenced were Maori which represent only 15 percent of the country’s total population.

Media reports in June said the soaring prison population growth meant the government had to earmark a further $41 million above its baseline funding to expand prisons to fit more inmates and total spending on prison services is nearly $1 billion a year.

The increase follows stricter sentencing on domestic violence offences and repeat offenders with drug and alcohol dependencies along with tougher bail laws introduced in 2013.

The government is easily the largest investor in New Zealand and its balance sheet is by far the biggest concentration of assets in the country.

English said it had been working hard to develop its depth of understanding of risk across that wide range of assets which include it “unfortunately” owning one in every 16 houses in Auckland.

“That’s something we’re setting about fixing,” he said.

The way the balance sheet is managed can have a big impact on fiscal balances and the economy’s productivity but creating good processes is difficult to create in an environment where “capital is free stuff that falls out of the sky – that’s how it looks to your average public servant as they chew through billions”, he said.

BusinessDesk.co.nz

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