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Part I: Commonwealth Budget Outcome
Overview
In 1999-2000, the Commonwealth general government sector recorded its largest ever budget surplus, in both cash and accrual terms. This is the third consecutive underlying cash surplus.
- The fiscal balance for 1999-2000 was a surplus of $13.5 billion (2.1 per cent of GDP), $3.8 billion higher than the estimate provided in the 2000-01 Budget.
- The underlying cash balance for 1999-2000 was a surplus of $12.7 billion (2.0 per cent of GDP), an increase of $4.9 billion on the estimate provided in the 2000-01 Budget. The underlying cash surplus for 1999-2000 was $8.5 billion higher than the $4.2 billion surplus recorded in 1998-99.
- Net debt fell by $17.5 billion in 1999-2000 to $53.1 billion (8.4 per cent of GDP). This was a $3.2 billion larger reduction than anticipated at the 2000-01 Budget.
Stronger than expected taxation revenue and lower expenses both contributed to the higher than anticipated surplus in 1999-2000. However, while some growth in the tax base contributed to the higher outcome, most of the additional improvement in the budget surplus, relative to expectations for that year at the 2000-01 Budget, was due to one-off events or shifts in the timing of revenues and expenses.
Table 1 provides a summary of the major fiscal aggregates for 1999-2000, as well as a comparison with 1998-99 outcomes and the estimates published in the 1999-2000 and 2000-01 Budgets.
(a) Adjusted for classification and accounting policy changes to be on a consistent basis with the 2000-01 Budget estimates and the outcome data. Therefore the figures shown are different to those originally published in the 1999-2000 Budget.
Revenue
Total revenue in 1999-2000 was $166.6 billion, around $2.0 billion (1.2 per cent) higher than the revised estimate of $164.7 billion provided in the 2000-01 Budget.
The tax revenue outcome for 1999-2000 was $152.6 billion, around $2.0 billion (1.3 per cent) higher than estimated at the 2000-01 Budget. This was primarily due to greater than expected revenue from companies and other individuals.
Companies tax revenue for 1999-2000 was around $1.1 billion (4.9 per cent) higher than the 2000-01 Budget estimate. This reflected, in part, stronger than expected company profit growth and the non-payment of a large refund that was anticipated at Budget. There is also evidence of some companies engaging in tax planning activities, possibly resulting in some revenue being brought forward from 2000-01.
Other individuals tax revenue for 1999-2000 was around $0.7 billion (5.3 per cent) higher than the 2000-01 Budget estimate. This reflected slightly stronger than expected provisional income growth, a record number of June lodgements, and increased audit activity by the Australian Taxation Office (ATO), particularly in the area of aggressive tax planning schemes.1
Abstracting from companies and other individuals, tax revenue was around $0.1 billion (0.1 per cent) higher than the 2000-01 Budget estimate. Non-tax revenue in 1999-2000 was $14.0 billion, in line with the 2000-01 Budget forecast.
Expenses
Total expenses were $153.2 billion in 1999-2000, approximately $2.0 billion lower than estimated at the 2000-01 Budget. This outcome reflects lower than anticipated spending by a number of agencies and across several functions. It includes expenditure that has slipped from 1999-2000 to 2000-01, as well as some other one-off factors. Expenditure on demand-driven programmes (such as personal benefits payments) was largely as forecast at the 2000-01 Budget.
Major areas where expenses were lower than anticipated at the 2000-01 Budget include:
- Lower than anticipated Defence training costs ($0.6 billion), including inventory consumption, with major training exercises cancelled due to the deployment to East Timor. Defence employee expenses were also less than anticipated ($0.1 billion), due to lower than expected military and civilian recruitment.
- Lower expenses on the Job Network ($0.1 billion) due to providers taking longer than estimated to claim payment from the Commonwealth.
- Delays in programmes including the Regional Telecommunications Infrastructure Fund, Federation Fund (predominantly the Australian Centre for Moving Image) and untimed local calls ($0.2 billion).
- Rescheduling of expenses on rail upgrades and transport-related Federation Fund projects such as the Darwin to Alice Springs Rail and Murray River Bridges projects from 1999-2000 to 2000-01 ($0.1 billion).
- Variations in spending by the Department of Education, Training and Youth Affairs on apprenticeship initiatives, Schools Quality Outcomes, the Tasmanian Training Initiative, the Jobs Pathway, and Literacy and Numeracy Training for the Unemployed ($0.1 billion).
- The rescheduling of Department of Immigration and Multicultural Affairs expenditure from 1999-2000 to 2000-01 relating to the detention of unauthorised arrivals ($0.1 billion).
- Lower than anticipated superannuation expenses ($0.3 billion).
- Lower than anticipated Natural Heritage Trust Fund expenses, as they are not recognised until certain milestones are met ($0.1 billion).
- Lower than anticipated expenses across a number of agencies, all of which are minor variations at the individual agency level ($0.4 billion).
There were some offsets to these lower than anticipated expenses, including:
- Increases in interest expenses ($0.1 billion) related to additional repurchases of Commonwealth Government Securities by the Australian Office of Financial Management.
- Higher than expected personal benefit expenses in the Health and Aged Care Portfolio for Medicare, pharmaceutical benefits and residential care subsidies ($0.4 billion). This was partly offset by lower expenses due to delays in implementing a range of health programs including the National Illicit Drug Strategy and the Medical Research Endowment Fund ($0.2 billion).
Table 2 provides information on GFS expenses by function. The major variations since the 2000-01 Budget described above are reflected in the functional data.
This is the first time that expenses by function data have been able to be provided on a GFS basis (all previous expenses by function data have been on a AAS31 basis). Therefore, the data referring to the estimates at the 2000-01 Budget did not appear in the budget papers but have been calculated subsequently. Information on AAS31 expenses by function (and sub-function) is provided in Appendix B.
Table 2: Expenses by function - GFS basis
Capital
Net capital investment was $0.2 billion higher in 1999-2000 than estimated at the 2000-01 Budget, largely due to variations in the Defence, and Finance and Administration portfolios.
In the Defence portfolio, net capital investment was around $0.4 billion higher than estimated at the 2000-01 Budget. Higher than anticipated purchases of property, plant and equipment ($0.9 billion) were partly offset by higher than forecast proceeds from housing sales by the Defence Housing Authority ($0.1 billion) and lower than forecast investment in inventory ($0.2 billion) and other non-financial assets ($0.2 billion). Together with the $0.7 billion decrease in Defence expenses, this results in a $0.2 billion increase in the fiscal balance.
In the Finance and Administration portfolio, net capital investment was $0.3 billion lower than estimated at the 2000-01 Budget due to lower than forecast property purchases ($0.2 billion) and higher than expected proceeds from the sale of land and buildings ($0.1 billion).
Net debt and net worth
The level of Commonwealth general government net debt fell by $17.5 billion in 1999-2000 to $53.1 billion (8.4 per cent of GDP). Reflecting the higher than expected cash surplus, the 1999-2000 net debt outcome is $3.2 billion lower than was anticipated at the 2000-01 Budget. Net debt has fallen from a high of almost 20 per cent of GDP in 1995-96 to 8.4 per cent of GDP in 1999-2000, with the net reduction totaling $42.7 billion. Commonwealth general government net debt is now at its lowest level since 1991-92.
Table 3: Commonwealth general government sector net worth and net debt
(a) Net debt comprises a sub-set of liabilities (deposits held, advances received and borrowing) less a sub-set of financial assets (cash and deposits, advances paid and investments, loans and placements).
At the end of 1999-2000, Commonwealth general government GFS net worth was -$11.6 billion, $43.9 billion higher than the estimate in the 2000-01 Budget.
This improvement has largely resulted from the move to value the Commonwealth's investments in public corporations (including Telstra) at market prices in the GFS balance sheet. This change has been made to align with the ABS GFS framework. The ABS used a current market value method for Commonwealth investments in its 1998-99 issue (released in July 2000) of Government Finance Statistics (Cat. No. 5512.0). These investments were previously valued at historic cost, as allowed by Australian Accounting Standards. The valuation change has increased financial assets by $40.4 billion
Other factors that contributed to the Commonwealth's improved net worth position since the 2000-01 Budget include:
- an increase in the level of non-financial assets of $4.2 billion (mainly resulting from an upward revaluation of specialist military equipment); and
- the increase in the net operating balance of $3.9 billion, which has resulted in lower borrowings ($1.3 billion) and greater cash and deposits ($2.7 billion).
The positive balance sheet movements have been partly offset by an increase in the Commonwealth's superannuation liability of $4.4 billion since the 2000-01 Budget. This follows a three yearly actuarial reassessment of both civilian and military superannuation schemes undertaken by the Australian Government Actuary in June 2000.
Cash flows
In 1999-2000, the underlying cash balance was a surplus of $12.7 billion, $4.9 billion higher than the estimate in the 2000-01 Budget. The higher than expected outcome is primarily the result of greater operating cash receipts and lower operating cash payments.
Table 4: Summary of Commonwealth general government sector cash flows
(a) Adjusted for classification changes to be on a basis consistent with the 2000-01 Budget estimates.
(b) Under the cash budgeting framework, these cash flows were referred to as `net advances'.
Many of the variations to accrual revenue and expenses since the 2000-01 Budget described earlier also explain the increase in net operating cash receipts. However, there are also some variations that have differing impacts upon the cash and accrual budget aggregates and these are discussed below.
Operating cash receipts
Cash receipts from operating activities were around $1.9 billion higher than the 2000-01 Budget estimate, which is in line with the accrual revenue variation of around $2.0 billion. However, there are some notable compositional differences between the cash and accrual variations in taxation revenue. In particular, a stronger companies tax outcome in cash terms was largely offset by the fact that most of the additional strength in other individuals tax revenue was in non-cash elements.
- In cash terms, company taxation receipts were around $1.8 billion higher than anticipated at the 2000-01 Budget, compared with a stronger accrual outcome of $1.1 billion. This difference is mainly explained by lower than expected take-up of the option to defer some cash payments - under the PAYG transitional arrangements - by companies with early December balancing dates. (At the 2000-01 Budget, it was expected that companies would postpone payment of the amount of company tax brought forward by the introduction of the PAYG system that they were eligible to defer. However, many early December balancing companies elected instead to pay the cash amounts early.)2
- While other individuals tax revenue was around $0.7 billion higher than expected at the 2000-01 Budget in accrual terms, in cash terms it was only $0.1 billion higher. This difference was largely due to a significant number of later lodgments and assessments in June 2000 (causing the corresponding cash payments to slip into 2000-01).
Operating cash payments
Major differences between operating cash payments and expenses since Budget include:
- a carryover from 1999-2000 into 2000-01 of $0.3 billion in cash payments associated with GST start-up assistance certificates for small business;
- lower than budgeted superannuation payments of $0.3 billion, mainly related to lower lump sum payments;
- higher expenses in the Health and Aged Care Portfolio of $0.3 billion resulted in an increase in the liability accrued at year end and as such did not translate to increased cash payments; and
- a bring forward of payments to Western Australia of $0.1 billion under the Petroleum (Submerged Lands) Act 1967 following recent changes to the Act. The greater cash payments in 1999-2000 will generate savings for the Commonwealth in future years.
Investments in non-financial assets
Net cash expenditure on non-financial assets was $2.8 billion, an increase of $0.6 billion from the 2000-01 Budget estimate (which has the effect of reducing the underlying cash balance). This was mainly due to:
- higher than anticipated investment in property, plant and equipment ($0.9 billion) by the Department of Defence as a consequence of a reallocation of spending between current and capital. Taking current and capital together, Defence cash expenditures have contributed to a $0.2 billion increase in the underlying cash balance; and
- partly offset by lower than expected property purchases ($0.2 billion) and higher proceeds from the sale of land and buildings ($0.1 billion) by the Department of Finance and Administration.
1 In particular, on 15 June 2000, the Tax Commissioner announced the release of an income tax ruling on `tax shelters' (TR 2000/8) addressing issues found in a wide variety of investment schemes including various afforestation and other primary production schemes, film and franchise schemes.
2 The new company tax payment arrangements under the PAYG system have brought company tax payments from the 2000-01 income year forward relative to the previous arrangements. This transition has caused an overlap of company tax payments in the 2000-01 financial year for most companies. However, for companies with early December balancing dates, the overlap occurred in 1999-2000. Under the PAYG transitional arrangements, companies are allowed to defer cash payment of some of the additional tax liabilities arising from the overlap over the following 2½ to 5 years.