Statement 8: Trends in Public Sector Finances
Part III: Cash surplus
This section examines trends in Commonwealth and State/local cash measures of receipts, payments and cash surplus.
Data
Data are sourced from the ABS 2000-01 Government Finance Statistics (Cat. No. 5512.0) and jurisdictions' 2001-02 mid-year reports. For those jurisdictions that have moved to accrual budget reporting, cash surplus data from their cash flow statements are used. For these jurisdictions, cash receipts are proxied by receipts from operating activities and sales of non-financial assets, and payments are proxied by payments for operating activities, purchases of non-financial assets and acquisitions of assets under finance leases.
Following changes to the Australian National Accounts standards, the general government surplus measures in this Statement, from 1998-99, incorporate net payments by the Commonwealth general government sector in respect of accumulated PNFC superannuation liabilities. Payments prior to 1998-99 do not incorporate these payments.
Trends in total non-financial public sector
The general government sector comprises the majority of the non-financial public sector. The PNFC sector tends to be more important at the State/local level where most PNFCs are concentrated.
Chart 1 shows movements in the consolidated non-financial public sector surplus as a share of GDP, and the relative contributions of the general government and PNFC sectors. Data for the consolidated PNFCs and non-financial public sector are only available to 2001-02, while general government data is available to 2004-05.
Chart 1 illustrates that the non-financial public sector was generally in a deficit position during the late 1980s and most of the 1990s. The deficit peaked at 4.4 per cent of GDP in 1992-93 before moving into a surplus position in 1997-98. The deficit in 1998-99 is the result of one-off increases in State funding of superannuation liabilities.
Chart 1 also shows the declining importance of PNFCs to the non-financial public sector surplus, with the privatisation of government businesses since the late 1980s. The consolidated PNFC sector is close to balance in 2000-01 but is expected to move into deficit in 2001-02 (the latest year for which data is currently available for this sector).
Chart 1: Consolidated non-financial public
sector
cash surplus by sector
Chart 2 disaggregates by level of government the sectoral surpluses presented in Chart 1. It shows the large contribution of past Commonwealth general government cash deficits to the non-financial public sector cash deficit. It also illustrates the improvement in the Commonwealth general government sector balance since 1992-93.
Chart 2 also shows that the State/local general government sector fell into deficit in 1998-99, primarily because several jurisdictions took steps to fund previously unfunded superannuation liabilities in the year.
Chart 2: Cash surplus by sector and level of government
A: General government
B: Public non-financial corporations
C: Non-financial public sector
Trends in general government sector
Due to its size, the general government sector is the appropriate focus for an assessment of public sector receipts and payments. It is also the sector through which governments primarily affect the level of private sector activity.
Chart 3 shows trends in general government cash receipts and payments at the Commonwealth and State/local levels to 2001-02. Panel A shows the counter cyclical relationship between Commonwealth receipts and cash payments. During economic downturns, such as in the early 1990s, transfer payments rise and taxation receipts fall, with the reverse happening during periods of strong economic growth. However, during the cyclical upturn following the early 1990s, Commonwealth payments were maintained at a high level of GDP while the low inflation environment depressed the growth in receipts, resulting in significant deficits.
As shown in Panel A of Chart 2, the Commonwealth general government sector has been in surplus from 1997-98, however a minor cash deficit of 0.2 per cent of GDP is expected in 2001-02. Commonwealth receipts and payments estimates in Chart 3 are net of GST revenue, and show a decline in 2000-01 with the introduction of The New Tax System.
State/local governments predominantly provide payments in the form of services (such as health and education) rather than income support, and are less sensitive to the economic cycle than Commonwealth finances. Panel A of Chart 2 shows the sustained improvement in State/local general government balances over the period 1991-92 to 1996-97, from a deficit of 1.0 per cent of GDP to a cash surplus of 0.6 per cent of GDP. As shown in Panel B of Chart 3, this improvement largely reflected payments' restraint, helped by lower debt servicing charges, with State/local receipts broadly stable as a share of GDP.
In 1998-99 the State/local general government sector recorded a cash deficit of 0.4 per cent of GDP. This reflected the allocation by New South Wales and Victoria of an additional $3.3 billion and $2.6 billion, respectively, to meeting their unfunded superannuation liabilities. These augmented superannuation contributions increased the States' levels of current expenditure (and thus decreased their budget surpluses for the year) by a corresponding amount.
The State/local general government sector is expected to be in surplus in 2001-02.
Chart 3: General government receipts and payments by level of government
A: Commonwealth
B: State/local
C: Consolidated general government(a)
(a) Consolidated government includes Commonwealth and State/local governments and universities.
Trends in public non-financial corporations
The PNFC sector is an important provider of economic infrastructure and contributes significant revenue to the general government sector, mainly in the form of dividends. State/local governments account for the majority of total PNFC sector payments, reflecting State responsibility for infrastructure and service provision in areas such as electricity, gas, water and public transport.
During the 1980s the PNFC sector incurred significant deficits, with associated growth in debt levels and interest costs. However, since the late 1980s, there has been greater emphasis on PNFC operating efficiency, profitability and market orientation and governments have re-evaluated the appropriateness of continued public ownership of many business enterprises.
PNFC privatisations over the last decade have occurred in two main sectors - electricity and gas (such as Victoria's and South Australia's electricity assets), and transport and communications (such as the partial sale of Telstra). Proceeds of asset sales have largely been used to reduce, or contain the growth of, government net debt, resulting in ongoing savings in public debt interest.
As shown in Chart 1 of this Statement, the PNFC sector has maintained a cash surplus position through much of the 1990s. Following small surpluses in 1999-2000 and 2000-01, the sector is projected to return to deficit in 2001-02, mainly due to relatively large deficits in the New South Wales and Queensland PNFC sectors.
