STATEMENT 7 - THE PUBLIC SECTOR

PART I: INTRODUCTION

Statement 7 examines trends in the finances of the Commonwealth and State/local levels of government from two perspectives - underlying deficits and the stock of outstanding liabilities. Its focus on the total public sector provides a broader context in which to consider developments in the Commonwealth budget sector.

This Statement uses the ABS' classifications of the non-financial public sector to present data both by level of government and institutional sector. The former refers to the distinction between the Commonwealth and the State/local government levels while the latter differentiates between the general government sector and the public trading enterprise (PTE) sector within each main level of government.

The general government sector, through government departments and agencies, provides public services which are mainly non-market in nature, are mainly for the collective consumption of the community, or involve the transfer or redistribution of income. These services are financed mainly through taxes and other compulsory levies, although user charging and external funding have increased in recent years.
The PTE sector consists of bodies which provide goods and services which are mainly market, non-regulatory and non-financial in nature, financed mainly through sales to the consumers of these goods and services. In general, PTEs are legally distinguishable from the governments owning them.

This classification provides a consistent framework for making comparisons across the whole public sector. For the Commonwealth, for example, the general government sector extends beyond the budget sector to include non-budget general government authorities such as the ABC.

The historical data used in this Statement have been drawn from GFS publications. Preliminary 1996-97 data and projections for the States were compiled by the Commonwealth Treasury, drawing on general government sector information provided by the States for the National Fiscal Outlook, published in March 1997, updated for recent State budgets. Projections for the Commonwealth incorporate the parameter assumptions which underlie the Commonwealth Budget forward estimates.

Consistent with the focus of the Budget Papers on the Commonwealth's underlying budget balance, this statement examines trends in the public sector underlying deficit. By so abstracting from net advances - which simply involve the transfer or exchange of a financial asset and therefore have no impact on government net lending or net worth - the underlying deficit is broadly consistent with the national accounts net lending measure. It thus provides a good estimate of the savings-investment gap for the relevant sector. For the Commonwealth general government sector, net advances mainly comprise the proceeds of equity asset sales and State debt repayments to the Commonwealth.

The underlying deficit differs from the ABS adjusted deficit measure by not excluding increases in provisions. This is to maintain consistency with the ABS national accounts treatment which excludes increases in provisions from the net lending estimates. The difference is further explained in the statistical notes at Appendix B to this Statement.

The net debt position can change without a corresponding movement in the underlying deficit. This is mainly because the proceeds of asset sales, while excluded from the underlying deficit, result in lower borrowing requirements (or repayments of previous borrowings) and therefore lower net debt.

Part II of this Statement examines trends in underlying deficits, outlays and revenue, while Part III discusses movements in the stock of public sector financial assets and liabilities, including net debt.

Appendix A outlines the size and structure of the public sector, reflecting the respective roles of the Commonwealth and State/local governments. Appendix B provides notes on the data used in this Statement. Appendix C presents data on public sector revenue, outlays and underlying deficits by institutional sector and level of government, own-purpose outlays, and net interest outlays. In line with the agreement between the Commonwealth, the States and the Territories on the uniform presentation of government financial information, Appendix D provides GFS consistent data for the Commonwealth general government, PTE and consolidated sectors. It also discusses the distinction between budget and GFS data.

BOX 1: REVISED UNIFORM PRESENTATION FRAMEWORK
In March 1997, the Australian Loan Council agreed to implement a revised uniform presentation framework for Commonwealth, State and Territory financial information.
This framework updates the May 1991 Premiers' Conference uniform presentation agreement to take account of early budgets and integrate the Loan Council and National Fiscal Outlook reports.

The primary objective of this agreement is to ensure that a common core of financial information is provided in jurisdictions' budget papers. This is achieved through presenting information on the ABS GFS basis.
The revised uniform presentation framework represents a significant improvement on existing reporting arrangements. In particular, it includes valuable enhancements such as the presentation of general government forward estimates and the publication of a mid-year report by each jurisdiction.
Under the revised framework:

Commonwealth, State and Territory governments will continue to report core financial information in their budget papers. However, these reports will be made more forward looking by including three-year forward estimates for the general government sector.

All jurisdictions will also publish a mid-year report providing updated information, including forward estimates and a revised Loan Council Allocation estimate. The mid-year update will take into account fiscal and economic developments since the commencement of the budget year. As a consequence quarterly Loan Council reporting will be discontinued.

The NFO will continue to present forward estimates for the general government sector; however, these estimates will now be based on jurisdictions' mid-year reports.
The revised framework is to be implemented in two stages. Revised Loan Council reporting arrangements will commence immediately, while the remainder of the framework will come into effect from 1998-99. A paper setting out the revised framework is available from the Commonwealth and State Treasuries.
The ABS will also continue to present annual information on government outlays, revenue and deficits for the Commonwealth, States and Territories in the GFS and Government Financial Estimates (GFE) publications (Catalogue Nos. 5512.0 and 5501.0 respectively). The GFS is usually published in April and the GFE in November of each year. Information on public sector financial assets and liabilities is published annually in ABS Cat. No. 5513.0.