Attachment A: Australian Loan Council Allocation

Under Loan Council arrangements, every year the Australian Government and each State and Territory government nominate a Loan Council Allocation (LCA). A jurisdiction's Loan Council Allocation incorporates:

• the estimated non-financial public sector GFS cash surplus/deficit (made up from the balances of the general government and public non-financial corporations sectors);
• net cash flows from investments in financial assets for policy purposes; and
• memorandum items, which involve transactions that are not formally borrowings but nevertheless have many of the characteristics of borrowings.

LCA nominations are considered by the Loan Council, having regard to each jurisdiction's fiscal position and infrastructure requirements, as well as the macroeconomic implications of the aggregate figure.

As set out in Table 26, the Australian Government's 2006-07 LCA final budget outcome is a $25,360 million surplus. This compares with the Australian Government's 2006-07 LCA Budget estimate of a $37,944 million surplus.

A tolerance limit of 2 per cent of non-financial public sector receipts applies between the LCA Budget estimate and the outcome. Tolerance limits recognise that LCAs are nominated at an early stage of the Budget process and may change as a result of policy and parameter changes. The Australian Government's 2006-07 LCA outcome exceeds the 2 per cent tolerance limit. This change mainly reflects the Australian Government's decision in August 2006 to sell a portion of its holding of Telstra shares and to allow investors to pay for their shares in two instalments, with the final instalment due in 2007-08. The Australian Government's 2006-07 LCA Budget estimate assumed that the Government's entire shareholding in Telstra would be sold in 2006-07.

Table 26: Australian Government Loan Council Allocation

1. Such transactions involve the transfer or exchange of a financial asset and are not included within the cash deficit/surplus. However, the cash flow from investments in financial assets for policy purposes has implications for a government's call on financial markets.
2. For the Australian Government, memorandum items comprise the change in the net present value (NPV) of operating leases (with NPV greater than $5 million), over-funding of superannuation and an adjustment to exclude the net financing requirements of Telstra from the Loan Council Allocation.