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Part 1: Australian Government Budget Outcome

Overview

In 2002-03, the Australian Government general government sector recorded an underlying cash surplus of $7.5 billion, $3.6 billion higher than estimated at the time of the 2003-04 Budget. The 2002-03 accrual fiscal balance was a surplus of $6.0 billion, $4.5 billion higher than estimated at the time of the 2003-04 Budget.

Table 1: Australian Government general government sector budget aggregates^(a)

(a) All estimates are based on Government Finance Statistics (GFS) standards, but with goods and services tax (GST) revenue collected on behalf of the States and Territories netted off revenue and expenses.

In relation to revenue, total cash receipts were around $2.2 billion higher than expected at the 2003-04 Budget. This was predominantly due to higher than expected tax receipts from companies, indicating stronger company profits than anticipated at Budget. Total accrual revenue was $3.2 billion above the 2003-04 Budget estimates. The higher revenue outcome relative to cash was primarily driven by revenue recognised but not yet paid in relation to other individuals.

With respect to expenditure, total cash payments were around $1.3 billion lower than expected at the 2003-04 Budget. This largely reflects parameter variations in respect of family and community services and education programmes, along with delays in contracted health expenditure. Similarly, accrual expenses and net capital investment were $1.3 billion lower than expected at the 2003-04 Budget.

Australian Government general government sector net debt fell by $8.4 billion in 2002-03 to $29.7 billion (3.9 per cent of GDP), the lowest in 20 years. This reduction is $2.8 billion larger than expected at the 2003-04 Budget, primarily reflecting the stronger than expected underlying cash surplus.

Revenue

Total accrual revenue of $175.0 billion was $3.2 billion (1.9 per cent) higher than expected at the 2003-04 Budget. The variation reflected higher than expected revenue from companies and other individuals.

Revenue from companies in 2002-03 was $2.1 billion above the 2003-04 Budget estimate. The higher than expected outcome was largely due to stronger than anticipated profitability by early December and small June balancing companies¹.

Revenue from other individuals was $1.0 billion higher than anticipated due to an upward revision to expected collections and a reclassification of revenue provisions between other individuals and fringe benefits tax (which has been revised down).

Abstracting from companies and other individuals, revenue was broadly in line with the Budget forecast. The outcome for income tax withholding was in line with the Budget forecast. Expected revenue from the superannuation surcharge and excise was stronger but offset by lower than expected revenue from fringe benefits tax and higher than expected refunds to individuals.

Superannuation surcharge revenue was $299 million higher than forecast, largely due to a change in the accounting treatment of unfunded liabilities in defined benefit schemes.
Revenue from total excise was $207 million higher than expected, largely reflecting higher revenue from petrol ($87 million) and stronger collections of tobacco excise ($72 million), as a result of the Australian Taxation Office enforcement and compliance programmes in relation to the payment of tobacco excise.
Revenue from fringe benefits tax was $388 million below the Budget estimate, largely due to a reclassification of revenue provisions between fringe benefits tax and other individuals (which has been revised up).
Refunds were $111 million above the Budget estimate as a result of higher than expected refunds in relation to prior income years.

Table 2: Australian Government general government sector revenue
(accrual basis)

(a) Includes Medicare levy revenue of $5,000 million in 2002-03.
(b) Previously reported as Pay As You Go (Withholding) and other withholding. Other withholding, previously reported under company and other income tax, includes amounts withheld for failure to quote a Tax File Number or an Australian Business Number; interest, dividends and royalty payments to non-residents; and payments to aboriginal groups for the use of land for mineral exploration and mining.
(c) Includes the wine equalisation tax, luxury car tax and the final wholesale sales tax liability.
(d) Consistent with Government Finance Statistics (GFS) reporting standards, excludes fringe benefits tax collected from Australian Government agencies ($323 million in 2002-03).

Expenses

Total accrual expenses were $169.2 billion in 2002-03, a reduction of $1.3 billion (0.8 per cent) from the estimate provided in the 2003-04 Budget. This reduction was largely the result of:

parameter variations relating to personal benefit expenses across a range of family and community services programmes (including lower than expected expenses for the Family Tax Benefit), in total leading to lower expenses of $315 million;
a decrease in education grant expenses of $272 million, including lower than expected grants to non-government schools due to fewer than forecast enrolments, and lower than expected grants to universities, largely reflecting increases in enrolments and revisions to the student profile from that estimated in the 2003-04 Budget;
slippage in health grant expenses of $249 million, reflecting delays in the finalisation of contracts and completion of milestones by grantees across a range of health programmes, including medical research grants and integrated and co-ordinated care strategies; and
lower personal benefit expenses of $94 million largely associated with lower than anticipated take-up of interim income and farm household support under the drought assistance package.

Table 3 provides information on GFS general government expenses by function.

Table 3: Australian Government general government sector expenses by function

(a) This table reflects the corrigendum numbers issued on 27 May 2003 due to a misclassification between expense functions in the 2003-04 Budget. The misclassification affected the Health, Social security and welfare, and Fuel and energy functions in this table, but did not affect the aggregate budget figures.
(b) Asset sale related expenses are treated as a component of the Contingency reserve.

Net capital investment

Total net capital investment for 2002-03 was -$219 million, which is broadly in line with the estimate provided in the 2003-04 Budget. A large downward movement in defence inventories was offset by an increase in the purchase of defence non-financial assets.

Table 4: Australian Government general government sector net capital investment by function

Cash flows

The 2002-03 underlying cash balance was a surplus of $7.5 billion, $3.6 billion higher than estimated at the 2003-04 Budget. The higher than anticipated outcome was the result of greater operating cash receipts of $2.2 billion and lower operating cash payments of $2.0 billion, which was partly offset by higher capital payments of $0.6 billion.

Table 5: Summary of Australian Government general government sector cash flows^(a)

(a) Cash flows are derived from the accrual GFS framework excluding GST.
(b) Equivalent to cash receipts from the sale of non-financial assets in the GFS cash flow statement.
(c) Equivalent to cash payments for purchases of new and second-hand non-financial assets in the GFS cash flow statement.
(d) The acquisition of assets under finance leases reduces the underlying cash balance. The disposal of assets previously held under finance leases improves the underlying cash balance.
(e) Under the cash budgeting framework, these cash flows were referred to as net advances.

Total Australian Government general government sector cash receipts were $176.1 billion in 2002-03, $2.2 billion (1.3 per cent) higher than estimated at the 2003-04 Budget.² In comparison, total accrual revenue was $3.2 billion (1.9 per cent) higher than estimated at the 2003-04 Budget. The higher revenue outcome relative to cash was primarily driven by revenue recognised but not yet paid in relation to revenue from other individuals.

The variation from the cash receipts outcome mainly reflects stronger than anticipated tax receipts from companies of $1.6 billion.

Income tax withholding was broadly in line with Budget expectations, with final collections only $164 million higher than expected.
Receipts from other individuals were $156 million higher than expected.
Receipts from superannuation contributions and earnings were $155 million higher than expected.
Excise was $153 million higher than expected.

Total Australian Government general government sector cash payments were $168.7 billion in 2002-03, $1.3 billion (0.8 per cent) lower than estimated at the 2003-04 Budget. In the main, the differences in accrual expenses since the 2003-04 Budget were also reflected in similar cash payment differences and are largely explained by the expense variations described earlier in this Part.

The 2002-03 headline cash balance was a surplus of $7.3 billion, $3.6 billion higher than estimated at the 2003-04 Budget, primarily due to the higher than expected underlying cash surplus outcome.

Net debt and net worth

The level of Australian Government general government sector net debt has continued to fall, from a peak of 19.1 per cent of GDP in 1995-96 to 3.9 per cent of GDP at the end of 2002-03. Since 1996-97, net debt has been reduced by $66.6 billion. The fall in net debt in 2002-03 was $2.8 billion greater than expected at the 2003-04 Budget, primarily reflecting the higher than expected cash surplus outcome.

Net interest payments in 2002-03 were in line with expectations at the 2003-04 Budget. Having peaked at $8.4 billion in 1996-97, net interest payments have declined to $3.6 billion in 2002-03, representing annual savings in interest payments of around $5 billion.

Over 2002-03, Australian Government general government sector net worth declined from -$47.6 billion to -$50.4 billion. This decline largely reflects an upward revision of the civilian superannuation liabilities following an actuarial review ($4.6 billion), a reduction in the Telstra share price over the year to 30 June 2003 ($2.3 billion) and recording, for the first time, net university superannuation liabilities following the introduction of a new Australian Accounting Standard ($2.3 billion). However, the Australian Government has no legal obligation to meet this latter liability. These reductions were partly offset by the net operating surplus for 2002-03 ($5.8 billion).

Table 6: Australian Government general government sector net worth, net debt and net interest payments

(a) Net debt equals the sum of deposits held, advances received, government securities, loans and other borrowings, minus the sum of cash and deposits, advances paid, and investments, loans and placements.
(b) Australian Government cash interest payments less cash interest receipts.

Attachment A

Reporting standards

The Charter of Budget Honesty Act 1998 requires that the Final Budget Outcome be based on external reporting standards, and that departures from applicable external reporting standards be identified.

The major external standards used for Final Budget Outcome reporting purposes are the Australian Bureau of Statistics (ABS) accrual Government Finance Statistics (GFS) framework and Australian Accounting Standards (AAS), including Australian Accounting Standard No. 31 Financial Reporting by Governments (AAS31).

Departures from external reporting standards

Final Budget Outcome tables, with the exception of tables in Part 2, do not include goods and services tax (GST) collections and equivalent payments to the States. Under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, all GST receipts are appropriated to the States and Territories and thus are not available for expenditure by the Australian Government. Because the Australian Taxation Office collects GST as an agent for the States and Territories, GST receipts are not shown as Australian Government revenue. Estimates of GST receipts are provided in Note 15 of Part 3.

The draft ABS GFS publication (Australian System of Government Finance Statistics: Concepts, Sources and Methods Cat. No. 5514.0) requires that provisions for bad and doubtful debts be excluded from the balance sheet. This treatment has not been adopted because excluding such provisions would overstate the value of Australian Government assets in the balance sheet (and would, therefore, be inconsistent with the market valuation principle).

The AAS31 financial statements currently record International Monetary Fund (IMF) Special Drawing Rights (SDRs) as a liability. The GFS statements also record SDRs as a liability. However, IMF SDRs are not treated as a liability in the IMF accrual GFS manual released in December 2001. The current accounting treatment will remain in place pending a review of all financial relationships with international organisations prior to the 2004-05 Budget.

Similarly, the GFS financial statements currently adopt the AAS31 financial statements’ treatment for circulating coins, whereby revenue is recognised upon the issue of coins and no liability is recorded. However, in the IMF accrual GFS manual released in December 2001, coins on issue are treated as a liability and no revenue is recognised. The current accounting treatment will remain in place pending further discussions with the ABS prior to the 2004-05 Budget.

The ABS GFS publication also requires defence weapons be treated as expenses. Defence weapons inventories are recorded as capital investment rather than expenses until such inventories can be reliably identified and measured. This treatment does not affect the underlying cash or fiscal balances.

Public access communication assets, computer software and other intangibles are recorded at historic cost, as market value information, or suitable proxies for market value, are not readily observable for these items.

In order to ensure the reporting of reliable AAS and GFS budget estimates and outcomes, taxation revenue is recognised the earlier of when an assessment of a tax liability is made or cash payment is received by the Australian Tax Office or the Australian Customs Service. Accordingly, for most categories of taxation revenue, there is a short lag between the time at which the underlying economic activity giving rise to the tax liability occurs and when the revenue is recognised. Longer lags of up to a year occur for some elements of company and superannuation funds taxation.

Additional information on the reporting standards and budget concepts is provided in Appendix A.

Attachment B

Budget financial statements

The budget financial statements consist of an operating statement, balance sheet, cash flow statement and statement of other economic flows (reconciliation of net worth) for the Australian Government general government sector. The budget financial statements are based on GFS standards with the exception of the departures discussed in Attachment A.

Table B1: Australian Government general government sector operating statement

(a) The term fiscal balance is not used by the ABS.

Table B2: Australian Government general government sector balance sheet

(a) The 2002-03 Equity and Net worth outcomes include the Telstra shareholding valued at the closing share price on 30 June 2003.
(b) A separate class of assets, Heritage and cultural assets, was established for 2002-03 in the Finance Minister's Orders for the Preparation of Financial Statements. Heritage and cultural assets were previously included in Plant, equipment and infrastructure.
(c) Net worth is calculated as total assets minus total liabilities.
(d) Net debt equals the sum of deposits held, advances received, government securities, loans and other borrowings, minus the sum of cash and deposits, advances paid and investments, loans and placements.

Table B3: Australian Government general government sector cash flow statement^(a)

(a) A positive number denotes a cash inflow; a negative sign denotes a cash outflow.
(b) The acquisition of assets under finance leases reduces the underlying cash balance. The disposal of assets previously held under finance leases improves the underlying cash balance.

Table B4: Australian Government general government sector statement of other economic flows (reconciliation of net worth)

(a) Opening net worth adjustments for the 2002-03 outcome reflect the adoption of the market valuation of debt and the removal of dividends payable from the measurement of the general government sector’s equity holding in the public financial corporations sector. Following advice from the ABS, these changes have been back-dated to 1999-00.
(b) Revaluations of equity for the 2002-03 outcome reflect changes in the market valuation of commercial entities, including a change in the value of the Telstra shareholding due to a change in the closing share price between 30 June 2002 and 30 June 2003. This line also reflects any equity revaluations at the point of disposal or sale.
(c) Defence weapons are treated as expenses rather than assets under the GFS framework, hence changes in value do not contribute to net worth and are not included in other economic flows. This component represents the removal of defence weapons included in net writedowns and other movements.
(d) Includes the initial recording of a liability for net unfunded university superannuation in accordance with a new Australian Accounting Standard. However, the Australian Government has no legal obligation to meet this liability. The Australian Government and States and Territories will assess future costs and possible simplified arrangements. Negotiations on these simplified arrangements with the States and Territories are continuing. The recording of this as a liability is also being adopted for GFS.
(e) Largely reflects revaluations of Land and Buildings.

¹ See page 2 of Final Budget Outcome 2000-01 for an explanation of the role of balancing payments in company tax payment arrangements.

² Australian Government receipts on a revenue head basis are provided in Table C3.