Liability management
The major liabilities on the Australian Government's balance sheet are the superannuation liability for public sector employees and government debt securities. In 2007-08, these liabilities are estimated to comprise more than three quarters of total Australian Government liabilities.
Public sector employee superannuation liabilities
Public sector employee superannuation entitlements relating to past and present public sector employees constitute the largest financial liability on the Government's balance sheet. This liability is currently valued at around $103 billion and is estimated to grow to around $148 billion by 2020.
The Australian Government has never fully funded its superannuation liabilities. However, in 1990 and 2005 the Australian Government closed the main civilian superannuation schemes to new members. From 1 July 2005, the Government introduced the Public Sector Superannuation Accumulation Plan which provides fully-funded accumulation benefits for new civilian employees. Funding employee superannuation entitlements as they accrue contributes to improved net worth over the medium term. Further, the Government also successfully negotiated the extinguishment of its superannuation liability for Telstra and Australia Post in 2004, and its superannuation liability for former Tasmanian and South Australian State Rail employees in 2006. These initiatives are expected to reduce future calls on the budget at a time when significant intergenerational pressures are likely to emerge.
Despite these reforms the existing superannuation liability is expected to continue to grow, largely due to growth in the military superannuation schemes and continued growth of entitlements accruing to existing members of the closed civilian schemes. (Chart 4).
Chart 4: Public sector superannuation liability(a)
- The Public Sector Superannuation Scheme and the Commonwealth Superannuation Scheme (the main civilian schemes) and Military superannuation schemes form the dominant part of the Government's total unfunded superannuation liability.
- Includes the Military Superannuation and Benefits Scheme and the Defence Force Retirement and Death Benefits Scheme.
Source: Department of Finance and Administration and Australian Government Actuary.
The value of the unfunded superannuation liability has increased since the 2006-07 Budget. This primarily reflects differences between the actuarial assumptions used and the actual experience of both the civilian and military superannuation schemes.
Government securities — issuance in 2006-07 and 2007-08
In line with the review of the Commonwealth Government Securities market in 2002-03, the Government will continue to issue debt, despite a strong fiscal position, in order to maintain liquid and efficient Treasury Bond and Treasury Bond futures markets.
Accordingly, the volume and timing of Treasury Bond issuance takes account of the need to have an appropriate range of Treasury Bonds available for inclusion in Treasury Bond futures baskets. The programme maintains a pattern where new 5-year and 13-year Treasury Bonds are launched in alternate years, with total issuance over two years of around $5 billion in each line.
In 2006-07 one new stock was launched — the April 2012 Treasury Bond. Issuance into this bond line is expected to reach $2.9 billion in the period remaining to 30 June 2007. Issuance in 2006-07 was also directed at building up the March 2019 bond line. A further $2.4 billion was issued in this bond line bringing the total volume on issue for this line to its $5 billion target.
In 2007-08, there will be $2.1 billion of issuance of the April 2012 Treasury Bond, bringing the total volume on issue for this bond line to $5.0 billion. In addition, it is planned to issue a new May 2021 Treasury Bond to support the operation of the 10-year Treasury Bond futures contract. It is planned to issue $3.0 billion of this bond during 2007-08. The remaining issuance necessary to bring this bond line up to $5.0 billion will be undertaken in the first half of 2008-09.
Total Treasury Bond issuance during 2007-08 will be $5.1 billion, while scheduled maturities during this period, net of Australian Government holdings, are $2.9 billion. As a result, the total stock of Treasury Bonds on issue, net of Australian Government holdings, will be around $49.4 billion as at 30 June 2008 (Chart 5).
Chart 5: Treasury Bonds outstanding
expected at 30 June 2008(a)
- Treasury Bonds on issue are net of Australian Government holdings.
Source: Australian Office of Financial Management and Treasury estimates.