Australian Loan Council Allocation

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

• the estimated non-financial public sector underlying cash deficit/surplus (made up from the general government and public non-financial corporations sector balances);
• 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.

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

In March 2006, the Australian Government nominated, and the Loan Council endorsed, a Loan Council Allocation surplus of $36,010 million. In the 2006-07 Budget, the Australian Government estimated a Loan Council Allocation surplus of $37,944 million.

Since Budget the estimated net cash flows from investments in financial assets for policy purposes has been revised downwards. This change mainly reflects the 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 2006-07 Loan Council Allocation Budget estimate and nomination assumed that the Government's entire shareholding in Telstra would be sold in 2006-07. Consequently, the Government expects to exceed the tolerance limit of 2 per cent of non-financial public sector receipts that applies between its Loan Council Allocation Budget estimate and the outcome. Tolerance limits recognise that Loan Council Allocations are nominated at an early stage of the Budget process and may change as a result of policy and parameter changes.

Table B11 presents a revised estimate for the Australian Government's 2006-07 Loan Council Allocation of a $19,673 million surplus.

Table B11: Australian Government Loan Council Allocation for 2006-07

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 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 requirement of Telstra.