Net debt and net worth
Net debt was eliminated in 2005‑06, falling from a peak of 18.5 per cent of GDP in 1995‑96. Since Budget, the forecast level of net debt for 2007‑08 has improved from -$12.0 billion to -$16.1 billion (-1.4 per cent of GDP). The improvement largely reflects the higher underlying cash surplus.
As a result of the elimination of net debt, the Government is expected to earn net interest receipts of $0.8 billion in 2007‑08. Prior to 2007‑08 the Government made annual net interest payments, which peaked at $8.4 billion in 1996‑97.
Net worth measures the value of all government assets less liabilities. It therefore represents the government's contribution to national wealth. Net worth includes many items not included in net debt, such as the superannuation liability currently valued at around $107 billion. As the broadest measure of the government's financial position, net worth is a key indicator of fiscal sustainability. A strong net worth position improves the government's ability to meet the fiscal consequences of an ageing population.
Net worth is expected to be $17.2 billion (1.5 per cent of GDP) in 2007‑08, compared with the Budget estimate of -$0.6 billion. Over the forward estimates net worth is projected to improve further.
The improvement in net worth for 2007‑08 since Budget reflects a stronger than anticipated improvement in the net operating surplus of $5.3 billion. The net worth position for 2007‑08 also includes an opening balance adjustment of $8.3 billion due to a change in accounting for education expenses (see Box 2 in Attachment E for additional information). Historical net worth has also been revised, showing that net worth has been positive since 2006‑07. Previously, net worth was projected to become positive in 2008‑09.
Table 14: 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 sale of the Government's holding in Telstra. The net debt estimates in 2007‑08 assumes that the Future Fund will increasingly be invested in equities, which are not included in the calculation of net debt.