Part 1: Australian Government Budget Outcome

Overview

In 2003-04, the Australian Government general government sector recorded an underlying cash surplus of $8.0 billion, or 1.0 per cent of gross domestic product (GDP). This was $3.5 billion higher than estimated at the time of the 2004-05 Budget. The 2003-04 accrual fiscal balance was a surplus of $5.6 billion (0.7 per cent of GDP), $2.6 billion higher than estimated at the 2004-05 Budget.

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

1. 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.

Total cash receipts were around $1.8 billion higher than expected at the 2004-05 Budget. This largely reflects higher than expected tax collections from other individuals. Total accrual revenue was $1.4 billion higher than the 2004-05 Budget estimate, largely reflecting higher than expected tax revenue from individuals partly offset by lower than expected company tax revenue.

Total cash payments were around $1.7 billion lower than expected at the 2004-05 Budget. This was partly due to slippage in a range of health grant programmes, along with a slower take-up of newly listed drugs under the Pharmaceutical Benefits Scheme. Total accrual expenses were $1.9 billion lower than expected at the 2004-05 Budget, while total accrual net capital investment was $0.7 billion higher than expected at the 2004-05 Budget.

Australian Government general government sector net debt fell by $6.2 billion in 2003-04 to $23.4 billion. At 2.9 per cent of GDP this is the lowest in 26 years. This reduction is $2.6 billion greater than estimated at the 2004-05 Budget, largely reflecting the stronger than expected underlying cash surplus.

Revenue

Total accrual revenue in 2003-04 of $187.6 billion was $1.4 billion (0.7 per cent) higher than expected at the 2004-05 Budget. The variation largely reflects higher than expected tax revenue from other individuals partly offset by lower than expected company tax revenue.

• Revenue from other individuals was $1.2 billion (6.3 per cent) higher than anticipated due to stronger than expected profitability for unincorporated small businesses.
• Revenue from income tax withholding was $225 million (0.2 per cent) above the Budget estimate, reflecting ongoing strength in employment.
• Revenue from companies was $973 million (2.6 per cent) below the Budget estimate. The lower than expected outcome largely reflected a smaller build-up in company tax receivables¹ than anticipated.
• Other tax revenue was $304 million (27 per cent) higher than expected, largely due to recognising the Universal Services Levy notionally paid by Telstra of $166 million. This was fully offset by a corresponding increase in expenses representing the notional return of funds to Telstra for meeting universal service obligations.

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

1. Includes Medicare levy revenue of $5,560 million in 2003-04.
2. Consistent with GFS reporting standards, excludes fringe benefits tax collected from Australian Government agencies ($365 million in 2003-04).

Expenses

Total accrual expenses were $181.2 billion in 2003-04, a reduction of $1.9 billion (1.0 per cent) from the estimate provided in the 2004-05 Budget. This reduction was largely the result of:

• a decrease in expenses of $788 million due to the reclassification by the Department of Defence of some supplier expenses to inventory purchases in net capital investment, with no net impact on the fiscal balance;
• slippage in grant expenses of $373 million across a range of health programmes, due to lower than expected achievement of grant conditions upon which payments are based, including Indigenous and Aged Care capital grants, Co-ordinated Care Trials and medical research grants;
• lower personal benefits expenses of $244 million, primarily attributable to a slower take-up of newly listed drugs under the Pharmaceutical Benefits Scheme;
• lower expenses of $127 million due to suspended National Competition Policy Payments not being released to states and territories in 2003-04, pending further assessment and recommendations by the National Competition Council and subsequent Australian Government consideration of such recommendations; and
• lower expenses for Natural Disaster Relief Assistance of $88 million due to lower than forecast demand from some states, in part due to slippage in infrastructure claims.

Table 3 provides information on Government Finance Statistics (GFS) general government sector expenses by function.

Table 3: Australian Government general government sector expenses by function

1. Asset sale related expenses are treated as a component of the contingency reserve.

Net capital investment

Total net capital investment for 2003-04 was $724 million, which is $706 million higher than the estimate provided in the 2004-05 Budget. This variation relates primarily to the reclassification by the Department of Defence of some inventory purchases incorrectly classified as supplier expenses in the Budget, partially offset by a delay in receiving vaccines and anti-viral medication purchased in 2003-04.

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

Cash flows

The 2003-04 underlying cash surplus was $8.0 billion, $3.5 billion higher than estimated at the 2004-05 Budget. The higher than anticipated outcome was the result of higher cash receipts of $1.8 billion and lower cash payments of $1.7 billion.

Total Australian Government general government sector cash receipts of $187.0 billion were $1.8 billion (0.9 per cent) higher than estimated at the 2004-05 Budget. The total cash receipts outcome is lower than the total accrual revenue outcome reflecting tax revenue recognised, but not received, in relation to other individuals, income tax withholding, companies and customs.

The positive variation in the cash tax receipts outcome primarily reflects higher than expected receipts from other individuals.

• Receipts from other individuals were $1.0 billion (5.5 per cent) above the 2004-05 Budget estimate, reflecting stronger than expected profitability for small unincorporated businesses.

Total Australian Government general government sector cash payments were $178.9 billion in 2003-04, $1.7 billion (0.9 per cent) lower than estimated at the 2004-05 Budget. Many of the differences in expenses and net capital investment from Budget were also reflected in similar cash differences and are explained by the expense and net capital investment variations described earlier in this Part. The greater decrease in cash payments relative to expenses and net capital investment largely reflects:

• changes in accounting treatments requiring the recognition of higher expenses of $130 million for the superannuation guarantee charge and $166 million for Telstra Universal Service Obligation subsidies which did not impact on cash payments; and
• lower than expected military superannuation cash payments of $105 million, primarily due to lower than forecast retirement rates which did not impact on expenses.

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

1. Cash flows are derived from the accrual GFS framework excluding GST.
2. Equivalent to cash receipts from the sale of non-financial assets in the GFS cash flow statement.
3. Equivalent to cash payments for purchases of new and second-hand non-financial assets in the GFS cash flow statement.
4. The acquisition of assets under finance leases decreases the underlying cash balance. The disposal of assets previously held under finance leases increases the underlying cash balance.
5. Under the cash budgeting framework, these cash flows were referred to as ‘net advances’.

The 2003-04 headline cash balance was a surplus of $7.6 billion, $3.6 billion higher than estimated at the 2004-05 Budget, primarily due to the higher than expected underlying cash surplus outcome.

Net debt and net worth

In 2003-04, the level of Australian Government net debt continued to fall from a peak of 19.1 per cent of GDP in 1995-96 to 2.9 per cent of GDP in 2003-04. Since 1996-97, net debt has fallen by $72.9 billion. The fall in net debt was $2.6 billion greater than estimated at the 2004-05 Budget, largely reflecting the higher than expected underlying cash surplus outcome.

Net interest payments in 2003-04 were in line with expectations at the 2004-05 Budget. Having peaked at $8.4 billion in 1996-97, net interest payments have declined to $3.0 billion in 2003-04, representing annual savings in interest payments of $5.5 billion.

Australian Government general government sector net worth increased from −$51.3 billion in 2002-03 to −$37.8 billion at the end of 2003-04. This improvement largely reflects the effect of a net operating balance surplus of $6.3 billion; an increase in the market value of the Government’s shareholding in Telstra due to a rise in the share price over the year to 30 June 2004 ($4.1 billion); a fall in the market valuation of debt liabilities due to movements in interest rates ($1.7 billion); and a revaluation to fair value of the National Gallery of Australia’s collections ($1.3 billion).

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

1. 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.
2. 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) Government Finance Statistics (GFS) publication, Australian System of Government Finance Statistics: Concepts, Sources and Methods Cat. No. 5514.0, which in turn is based on the International Monetary Fund (IMF) accrual GFS framework; and
• Australian Accounting Standards (AAS), including AAS 31 Financial Reporting by Governments.

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 and territories, which is a departure from ABS GFS and AAS. However, 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 Table A2 of Appendix A.

ABS GFS 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 AAS financial statements currently record IMF Special Drawing Rights (SDRs) as a liability. This is consistent with AAS. The GFS statements also record SDRs as a liability. However, in accordance with the IMF’s GFS manual, IMF SDRs are not treated as a liability in ABS GFS although they are treated this way in other IMF documentation. In view of these differences, the current approach will remain in place pending further consultation with the ABS and IMF, and developments in train to harmonise GFS and AAS.

Similarly, the GFS financial statements currently adopt the AAS treatment for circulating coins. Under this treatment revenue is recognised upon the issue of coins and no liability is recorded, as there is no legal obligation requiring coins on issue to be repurchased by the Australian Government. However, in ABS GFS, coins on issue are treated as a liability and no revenue is recognised. The current accounting treatment will remain in place pending further consultation with the ABS and IMF, and developments in train to harmonise GFS and AAS.

ABS GFS 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. The treatment of these inventories as capital or expenses has the same impact on the underlying cash and fiscal balances.

In relation to the recognition of taxation revenue, the preferred basis of recognition and measurement under both GFS and AAS is at the time the underlying activity giving rise to the tax liability occurs. However, in order to ensure the reporting of reliable GFS and AAS 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 Taxation Office or the Australian Customs Service. This alternative method is permitted under both GFS and AAS when there is an inability to reliably measure taxation revenues at the time the underlying transactions or events occur. 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 divergences discussed in Attachment A.

Table 7: Australian Government general government sector operating statement

1. The term fiscal balance is not used by the ABS.

 

Table 8: Australian Government general government sector balance sheet

1. The 2003-04 equity and net worth outcomes include the Telstra shareholding valued at the closing share price on 30 June 2004.
2. Heritage and cultural assets were previously included in plant, equipment and infrastructure.
3. Net worth is calculated as total assets minus total liabilities.
4. 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 9: Australian Government general government sector cash flow statement^(a)

1. A positive number denotes a cash inflow; a negative sign denotes a cash outflow.
2. The acquisition of assets under finance leases decreases the underlying cash balance. The disposal of assets previously held under finance leases increases the underlying cash balance.

 

Table 10: Australian Government general government sector statement of other economic flows (reconciliation of net worth)

1. Includes the initial recognition of a provision for asbestos disease related claims. At the time of the 2002-03 Final Budget Outcome a reliable actuarial measure was not available. Following an actuarial review, a provision for asbestos related claims was included in the audited 2002-03 Consolidated Financial Statements. This liability has now been back-dated to 2002-03.
2. The 2003-04 Equity and Net worth outcomes include the Telstra shareholding valued at the closing share price on 30 June 2004.
3. 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. The adjustment to remove defence weapons has now been reallocated to net write-down of assets, assets recognised for the first time and other economic revaluations.
4. Includes the initial recognition of a $944 million provision for claims under the Dairy Structural Adjustment Fund for which a reliable measure is now available. The historical series will be amended at a future date after consultation with the ABS of the appropriate treatment of this liability.
5. Largely reflects revaluation of assets and liabilities.

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¹ Tax receivables arise where tax liabilities are recognised by the Australian Taxation Office in one period, but the taxpayer is not expected to pay the liability until a later period.