Commentary: Before the election, parties should state whether they support a reduction in the Crown Settlement Account balance, which has run well above the Treasury buffer, say Associate Professor Trent Smith, from the Department of Economics, Master of Business candidate Jett Groshinski, and Politics PhD candidate Morgan Edwards.
Treasury says it needs $10 billion in the Government’s main bank account. It had $25.61 billion at the end of September. It averaged $27.8 billion a day from 2021. That is $15.61b more than what is required. Treasury says it is holding cash ahead of a $16b bond repayment due in April 2027. But our daily data shows the account has not fallen below $14b at any point since the start of 2021, and has averaged more than $25b since 2024.
Why it is held so far above the target has never been publicly explained.
Treasury’s own review of its policy acknowledges a responsibility not to hold more money in this account than necessary.
We first became aware of the extent of these idle funds as part of ongoing research at the University of Otago. Our analysis is based primarily on Official Information Act requests, alongside other reliable sources.
The account in question is called the Crown Settlement Account, or CSA. It sits at the Reserve Bank. Tax and money raised by selling government bonds flow in. Money flows out to government departments, which pay for things like superannuation and benefits. Bonds that fall due are repaid from it too.
Treasury keeps a cushion so the Government can still pay its bills if borrowing is disrupted. It calls this the liquidity buffer. It currently sits at $10b with a $5b “overdraft facility”.
The Government has needed more cash than it took in every year since 2019/20, about $115b in the six years to 2025, so the cash above the buffer is excess debt issuance. Using that cash in place of new bonds would not change the Government’s net debt, and it is not new money to spend. What it would cut is the interest bill: by roughly $260 million to $340m a year at current rates.
Before the pandemic in 2020, the account held significantly less. Amid the uncertainties about emergency public health spending, Treasury lifted its buffer target from $2b to $15b in 2021.
By mid-2021, after a surge of borrowing, the Crown Settlement Account held over $40b in cash. Treasury said it would aim to bring that down to the new target by around mid-2023. At the end of June 2023, the account still held $21.12b. Treasury cut the target to $10b in 2025. But the buffer is a target. The account holds far more, at great expense, and without public justification.
What using it would save
Treasury pays interest on the bonds it issues. On October 15 2026 the interest rate on five-year government bonds was 4.40 percent. Issuing fewer bonds is not entirely free: the cash would sit with the banks instead, and the Reserve Bank pays them the Official Cash Rate, now 2.75 percent. Treasury and the Reserve Bank are both part of the Crown, so the real saving is the gap between the two rates. On $15.61b, that is about $260m a year. Measured against 10-year bonds it is about $340m a year.
What the saving could buy
If the cash replaces bonds the Government would have sold, it saves about $260m a year, every year. Each year, that could fund about 50 new hospital beds, at the new Dunedin hospital’s cost of about $5.4m a bed, or at least 340 state homes at up to $760,000 each. Or it could pay for about 2,000 nurses, at an average total pay of about $126,000 including overtime and allowances, or about 750 senior doctors, at an average total package of $343,500.
Why overdraft is the wrong word
What would happen if government spending wore through the buffer? Think of a household that keeps a cushion in its bank account for bills. If it runs short and asks for a bigger overdraft, the bank can decline. The Government is different. If Parliament authorises spending, the payment must be made, which is why its facility exists. For the Government, overdraft just means the account has dipped below zero for a short time, often because tax or bond money hasn’t arrived yet.
During the pandemic, Treasury asked the Reserve Bank to temporarily raise the limit from $5b to $10b, with immediate effect. Documents released under the Official Information Act show this. The same documents show the account has been overdrawn on 272 days since 1997. A 2014 Treasury paper, also released under the Act, says the Reserve Bank was very comfortable with the facility being used to smooth cash flows.
It is time to retire the word. The facility covers short gaps before money arrives, so it is better called a timing-of-payments facility.
How we compare
The United States aims to hold about a week of payments in reserve. Australia holds at least A$30b, around four weeks of net spending. New Zealand’s buffer is built to cover four to six weeks without the bond market. New Zealand has never been shut out of the bond market.
Treasury itself says that even at $10b, our buffer is large compared with other OECD countries. Yet it treats that buffer as a minimum, and the account has averaged about $25b this year, two and a half times the buffer. Australia found the same problem. An independent review for its Treasury this year, led by former Reserve Bank of Australia deputy governor Guy Debelle, called Australia’s four-week buffer conservative. It found the cash balance “generally is well above the announced buffer”, operating “as a floor rather than a buffer”, and said balances should be kept “in close proximity to the desired buffer”. Australia’s Treasury accepted all of the review’s recommendations.
What the parties have promised
Both main parties have promised to keep spending in check. Labour would hold core Crown spending at about 33 percent of GDP, and National would bring it down towards 30 percent of GDP. Spending is forecast at 32.2 percent of GDP this year, so National would have to cut. Interest on debt counts as part of that spending, meaning every dollar saved on interest is a dollar that can go to services without breaking either party’s limit. Interest is also an expense in both parties’ targets for returning to surplus. Using the cash in place of new bonds would save about $260m a year on both counts.
What should change
None of this is a case for a thin buffer, or for pinning the account to an exact number. Holding extra cash ahead of a large bond repayment is sensible. What needs explaining is why the Crown Settlement Account has sat so far above the buffer for so long, including in the months straight after repayments.
Our Treasury’s own review acknowledges a responsibility to manage the CSA balance prudently, without holding excess funds. We want it to follow the approach recommended in Australia: keep the account close to the buffer rather than treating the buffer as a floor, and explain publicly whenever it runs well above it, and why.
Before the election, the parties should state whether they support a reduction in the Crown Settlement Account balance.
This article was first published on Newsroom, 4 November, 2026