NZDF

Explanation of Output Cost Variances

(Between 2006/2007 and 2007/2008)

Departmental Outputs

Appropriations for the purchase of NZDF department outputs for the year ending 30 June 2008 include the following Cabinet-approved funding changes that were considered as New Initiatives during the 2007 Budget process:

Annual Appropriations:

  • An increase of $58.030 million in 2007/08, and outyears, being the third year funding package under the Defence Sustainability Initiative (DSI). This increase in funding will go towards, primarily, sustainment of personnel growth, future personnel growth, operating costs, depreciation impacts associated with new equipment, and continuation of the maintenance upgrade of NZDF infrastructure.
  • An increase of $1.120 million in 2007/08 in response to the Joint Working Group Report on Concerns of Viet Nam Veterans. This funding, as part of the Cabinetagreed funding package dealing with the concerns of Viet Nam Veterans, will contribute to the initiatives agreed in the MOU signed by the Crown with Ex-Vietnam Services Association and the Royal New Zealand Returned Services Association can be delivered.
  • An increase of $1.900 million in 2006/07 only to reimburse personnel in receipt of overseas allowance income newly recognised as assessable for income tax purposes.
  • An adjustment (without overall financial impact) to provide for transfers between appropriated NZDF Output Expense values to reflect changes to the Defence Costing System model.

Multi-Year Appropriations:

Refer to the MYA table [Output Expense 16: Operationally Deployed Forces].

Reasons for Change

The departmental appropriations sought by Vote Defence for 2007/08 exceed those for 2006/07 by some $128 million ($163 million if the MYA for Output Expense Operationally Deployed Forces is taken into account). The following table explains the most significant differences between NZDF Output Expenses for 2007/08 (Main Estimates) and the 2006/07 Supplementary Estimates (all figures GST Exclusive and rounded). The table takes the 2007/08 New Initiative funding (Year three DSI funding) into account.

NZDF Output Expenses
Output Expense Explanation / Comment for Expense Increase / Decrease Expense Increase or (Decrease)
$ million
Military Policy Development, Coordination and Advice

The decrease reflects the budget reduction for the one-off operating costs of the new Defence House during 2006/07.

 (1)
Naval Combat Forces The decrease mainly reflects a redistribution of personnel costs with the manning of the new protector vessels. (19)
Naval Support Forces The increase mainly reflects the increased running costs and depreciation as the new MRV (HMNZS CANTERBURY) becomes fully operational. 24
Mine Counter Measures (MCM) and MCM Diving Forces The increase reflects capital charge changes. 3
Naval Patrol Forces The increase reflects the increased personnel, maintenance and running costs, depreciation and capital charge as the new OPVs/IPVs gradually become operational in FY 2007/08. 58
Military Hydrography, and Hydrographic Data Collection and Processing for LINZ The increase reflects operating increases and cost model changes for this output. 3
Land Combat Forces The increase mainly reflects the shift of personnel, operating, depreciation and capital charge for Queen Alexandra’s Mounted Rifles (QAMR) - previously attributed to Land Combat Support Forces - and the full operational costs of the Light Armoured Vehicles (LAVs), together with their share of overhead costs. 46
Land Combat Support Forces The decrease reflects the shift of personnel, operating, depreciation and capital charge for QAMR to Land Combat Forces. (15)
Land Combat Service Support Forces The increase mainly reflects the higher depreciation costs arising from equipment attributed to this output. 5
Special Operations Forces The increase reflects a combination of capital charge, and cost model and DSI increases associated with personnel, operating and depreciation changes for this output. 4
Naval Helicopter Forces The decrease reflects mainly operating reductions for this output. (1)
Maritime Patrol Forces The decrease mainly reflects changes to the output attribution model with all costs related to RNZAF Ohakea now directed to Rotary Wing Transport Forces. (7)
Fixed Wing Transport Forces The increase reflects changes to the output attribution model for increased personnel and operating costs for the C130 Hercules and Boeing 757 aircraft. 21
Rotary Wing Transport Forces The increase reflects changes to the output attribution model with all costs related to RNZAF Ohakea now directed to Rotary Wing Transport Forces. 6
Miscellaneous Support Activities The increase reflects operating increases for this output. 1
Total Change For Annual Appropriations 128
Operationally Deployed Forces The increase reflects current apportionment of MYA funding between 2006/07 and the final year of the MYA. 35
Multi Year Appropriations - Difference 35
Total Appropriation Change 163

A breakdown of the cost changes for each of the NZDF Output Expenses in the above table is as follows:

Breakdown of Cost Changes
Output Expense
($ Million)		 Supp
Estimates
2006/07
 Capital Charge
(1)		 Project
Protector
(2)		 Operating /
Capital Swap
(3)		 Budget /
Model Changes
(4)		 DSI
Increment
(5)		 Main
Estimates
2007/08
Military Policy Development 12 -1 - - -1 1 11
Naval Combat Forces 413 11 - 3 -49 16 394
Naval Support Forces 72 4 10 1 6 3 96
MCM & MCM Diving Forces 35 3 - - - - 38
Naval Patrol Forces 28 1 19 - 35 2 85
Hydrography 12 - - - 3 - 15
Land Combat Forces 300 5 - 2 37 2 346
Land Combat Support Forces 198 -1 - 1 -18 3 183
Land Combat Service Support Forces 121 2 - 1 2 - 126
Special Operations Forces 48 2 - - 1 1 52
Naval Helicopter Forces 86 -1 - 1 -2 1 85
Maritime Patrol Forces 161 4 - - -19 8 154
Fixed Wing Transport Forces 175 -3 - - 15 9 196
Rotary Wing Transport Forces 108 4 - 1 -11 12 114
Misc Support Forces 13 - - - 1 - 14
Totals: 1,782 30 29 10 0 58 1,910

Notes:

1 The Budget 2006 decisions to meet the cost of Capital Charge attributable to earlier Capital Injections, and other minor changes.

2 The Budget 2005 decision to provide for Project Protector (new vessels for the Navy).

3 2006/07 reduction (results in comparable increase in 2007/08) achieved through depreciation savings.

4 Changes arising from budget movements and output cost model amendments.

5 Defence Sustainability Initiative (DSI) increment (2007/08) as agreed in Budget 2005.

Operating / Capital Swap

Appropriations for the year ending 30 June 2007 include approval for an Operating to Capital Swap of $10.190 million to 2007/08 funded from depreciation savings from 2006/07.

Other than some minor adjustments to better describe what some outputs deliver, no changes have been made to the NZDF Output Expense structure for 2007/08. The output specifications associated with the new vessels under Project Protector (the two Offshore Patrol Vessels and four Inshore Patrol Vessels) show forecast sea days based on the expected delivery dates of those vessels - as at 1 April 2007. Any changes to delivery dates beyond the control of the NZDF will affect the forecast sea days.

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This page was last reviewed on 23 January 2008, and is current.