Net debt and net worth
Net debt is expected to be eliminated by the end of 2005-06 after falling from a peak of $95.8 billion (18.5 per cent of GDP) in 1995-96. Since the 2005-06 Budget, the forecast level of net debt has fallen from $6.1 billion to -$1.3 billion — reflecting a higher than anticipated final budget outcome for 2004-05 and an upward revision to the estimated surplus in 2005-06.
Over the forward years net debt is expected to fall further, primarily reflecting the assumption that the full sale of Telstra is achieved in the second half of 2006. However, the net debt projections are sensitive to the financial asset composition of the Future Fund flowing from the finalisation of an investment strategy by the Future Fund Board of Guardians.
The estimating assumption for Telstra sale proceeds is based on a historic 90 day average. This figure has no implications for future judgements on sale or on appropriate return. The estimating assumption for the sale structure is based on sale of all the Government’s shares in the second half of 2006, on a single instalment basis. The Government has not made any decision to sell, or if the sale proceeds, the structure of the sale, the nature of securities to be sold or the quantity of shares to be sold. The structure ultimately adopted may well be different depending on market circumstances and expert advice at the time. Transfer of Telstra sale proceeds to the Future Fund has also been adopted as an estimation assumption.
As a result of the lower level of net debt, net interest payments will continue to fall in 2005-06 and beyond. Having peaked at $8.4 billion in 1996-97, net interest payments are expected to decline to $2.5 billion in 2005-06.
With the budget remaining in surplus, Australian Government general government sector net worth is expected to improve to -$26.7 billion in 2005-06 compared with -$27.8 billion at the 2005-06 Budget. Net worth over the forward estimates is expected to continue to strengthen with the establishment of the Future Fund and, for the first time, is projected to become positive in 2008-09.
Table 12: Australian Government general government
sector net worth, net debt
and net interest payments
- Net debt equals the sum of deposits held, advances received, government securities, loans and other borrowing, minus the sum of cash and deposits, advances paid and investments, loans and placements.
- Includes the impact of the further sale of the Australian Government’s shareholding in Telstra and the assumption that gross receipts are transferred to the Future Fund. Pending the establishment of an investment strategy for the Fund, the estimates assume that the Future Fund earns a rate of return equal to the yield on other term deposits held by the Government.
- Australian Government cash interest payments less cash interest receipts. The 2005-06 estimates include the recognition in cash terms of the capital growth on inflation indexed bonds maturing in that year.