Statement 7: Asset and Liability Management
The Australian Government balance sheet provides information on the Government’s assets and liabilities and provides an indication of the sustainability of government finances. Maintaining a strong balance sheet ensures the Government has the capacity and flexibility to deal with longer term fiscal pressures.
The balance sheet presents the Government’s assets and liabilities, which contribute to the calculation of net debt and net worth. A detailed balance sheet for the Australian Government general government sector is provided in Appendix B of Statement 2 (Table B2).
Net debt and net worth
As a result of ten years of strong economic management, net debt was eliminated in April 2006 after falling from a peak of $95.8 billion (18.5 per cent of GDP) in 1995-96.
Net debt is expected to fall further below zero in 2006-07 and over the forward years. This means a build up in selected financial assets, reflecting continued budget surpluses and the assumption that the full sale of Telstra is achieved in 2006-07 (Chart 1).
Chart 1: Australian Government general government sector net debt
and Treasury bonds on issue
Source: Data are from ABS cat. no. 5501.0, Australian Government Final Budget Outcomes and Treasury estimates.
Australia's net debt position compares favourably to other industrialised countries. The ratio of Australia's total general government sector net debt to GDP is among the lowest in the OECD and is considerably less than in the United Kingdom, Japan and the United States (see Statement 1).
Net debt is a sub-set of the Government's broader financial portfolio. It includes financial liabilities such as government securities and other loans and borrowing and financial assets such as cash, deposits and other investments. Net debt is a common measure of the strength of a government's fiscal position and performance.
Net worth is a broader measure of the Government's overall financial position which incorporates the Government's non-financial assets, such as land and other fixed assets, as well as certain financial assets and liabilities not included in net debt, most notably accrued employee superannuation liabilities.
Australian Government general government sector net worth is expected to strengthen over the forward estimates with the establishment of the Future Fund. It is projected that by 2008-09 the Australian Government will have positive net worth (Chart 2).
Chart 2: Australian Government general government net worth
Source: Data are from ABS cat. no. 5501.0, Australian Government Final Budget Outcomes and Treasury estimates.
The improvement in net worth is primarily driven by growth in budget surpluses, higher returns on investments in the Future Fund and increases in loans provided by the Higher Education Loans Program (HELP). These factors significantly outweigh growth in the Government's unfunded superannuation liability (Chart 3).
Chart 3: Contributions to net worth over the forward estimates
- Budget surpluses are assumed to reflect term deposits at the Reserve Bank of Australia.
- The transfer of seed capital and Telstra sale proceeds are excluded as they are financing transactions that do not impact on net worth.
Source: Treasury estimates.
The positive outlook for net worth and net debt means the Government is well placed to deal with future emerging fiscal pressures.