Statement 9: Budget Financial Statements
Notes to the financial statements
Note 1: External reporting standards and accounting policies
The Charter of Budget Honesty Act 1998 (the Charter) requires that the budget be based on external reporting standards and that departures from applicable external reporting standards be identified.
The major external standards used for budget reporting purposes are:
- the Australian Bureau of Statistics' (ABS) accrual Government Finance Statistics (GFS) publication, Australian System of Government Finance Statistics: Concepts, Sources and Methods, cat no. 5514.0, which in turn is based on the International Monetary Fund (IMF) accrual GFS framework; and
- Australian Accounting Standards (AAS), being Whole of Government and General Government Sector Financial Reporting (AASB 1049) and other applicable Australian Equivalents to International Financial Reporting Standards (AEIFRS).
As required by the Charter, the financial statements have been prepared on an accrual basis that complies with both ABS GFS and AAS, except for departures disclosed at Note 2.
A more detailed description of the AAS and GFS frameworks, in addition to definitions of key terms used in these frameworks, can be found in Appendix A. Table A2 in Appendix A explains the key differences between the two frameworks. Detailed accounting policies, as required by AAS, are disclosed in the annual consolidated financial statements.
Budget reporting focuses on the general government sector (GGS). The GGS provides public services that are mainly non‑market in nature and for the collective consumption of the community, or involve the transfer or redistribution of income. These services are largely financed through taxes and other compulsory levies, user charging and external funding. This sector comprises all government departments, offices and some other bodies. In preparing financial statements for the GGS all material transactions and balances between entities within the GGS have been eliminated. A list of entities within the GGS, as well as entities within and a description of the public non‑financial corporations (PNFC) sector and public financial corporations (PFC) sector, are disclosed in Table A1 in Appendix A.
The Government's key fiscal aggregates are based on ABS GFS concepts and definitions, including the ABS GFS cash surplus/deficit and the derivation of the underlying cash balance and net financial worth. AASB 1049 requires the disclosure of other ABS GFS fiscal aggregates, including net operating balance, net lending/borrowing (fiscal balance) and net worth. In addition to these ABS GFS aggregates the Accrual Uniform Presentation Framework (UPF) requires net debt, net financial worth and net financial liabilities.
Explanations of variations in fiscal balance, revenue, expenses, net capital investment, cash flows, net debt and net worth since the February 2009 Updated Economic and Fiscal Outlook (UEFO) are disclosed in Statement 3.
Details of the Australian Government's GGS contingent liabilities are disclosed in Statement 8.
Measurement of the public sector superannuation liability
The nominal value of the Australian Government's public sector superannuation liability is anticipated to grow from $118 billion in 2008‑09 to $162 billion in 2020.
The valuation of the liability is based on a range of actuarial assumptions regarding the incidence, timing and amount of the future benefits. These assumptions are determined by actuaries and applied in calculating the long‑term costs of the Australian Government's defined benefit superannuation schemes that will be charged to the Consolidated Revenue Fund (CRF). The most recent actuarial investigations were conducted based on membership data as at 30 June 2008 and the results are contained in the Long‑Term Cost Reports (LTCRs) prepared for these schemes.
The discount rate is used to value the nominal amounts of the future superannuation liability to today's dollars. For the purpose of preparing its budget forecasts, the Australian Government uses the rate applied by the actuaries in preparing the relevant LTCRs. This estimate reflects the approximate cost to the Australian Government if the scheme had to be funded via borrowings. As in previous years, the long‑term assumption is 6 per cent per annum (nominal).
Due to the global economic and financial crisis, current yields on Commonwealth Government bonds have dropped substantially since 30 June 2008. However, as the nature of the superannuation liability is long term, the actuarially determined discount rate of 6 per cent as per the LTCR has been used for valuing the long‑term cost of the unfunded superannuation liability.
For budget reporting purposes, which extends beyond the current financial year, this long‑term rate remains appropriate as it does not introduce significant volatility into future calculations of the superannuation liability. Due to uncertainty around future interest rate movements, maintaining the discount rate determined by the actuaries provides for a better understanding of fiscal strategy targets linked to net financial worth and assists in the useability and understandability of the Government's financial statements.
For annual (actual) reporting purposes, Australian Accounting Standards require the discount rate for valuing the unfunded superannuation liability to be determined by reference to market yields on long term government bonds as at the reporting date. This is the approach that the Australian Government follows in preparing its Consolidated Financial Statements and Final Budget Outcome.
Sensitivity of estimates to changes in the discount rate
If current spot market yields were used to discount the nominal value of the future unfunded superannuation benefits, then this would result in a substantial change to the recognised value of the liability. Based on the (nominal) spot rate of 4.82 per cent for the 10‑year government bond on 5 May 2009, the present value of the liability would increase by approximately $23 billion in 2008‑09 if this rate applied at 30 June 2009.
Note 2: Departures from external reporting standards
The Charter requires that departures from applicable external reporting standards be identified. The budget financial statements depart from the external reporting standards as follows.
General government sector
Departures from ABS GFS
ABS GFS requires that provisions for bad and doubtful debts be excluded from the balance sheet. This treatment has not been adopted in the budget financial statements or in any reconciliation notes because excluding such provisions would overstate the value of Australian Government assets in the balance sheet. The budget financial statements currently adopt the AAS treatment for provisions for bad and doubtful debts.
ABS GFS treats coins on issue as a liability and no revenue is recognised. The ABS GFS treatment of circulating coins as a liability has not been adopted in the budget financial statements or in any reconciliation notes. Instead, the budget financial statements adopt the AAS treatment for circulating coins. Under this treatment seigniorage revenue is recognised upon the issue of coins and no liability is recorded.
Under ABS GFS prepayments are classified as financial assets. In accordance with AAS, prepayments have been classified as non‑financial assets in the budget financial statements. This is a classification difference that impacts on net financial worth.
ABS GFS currently requires Special Drawing Rights (SDRs) liabilities to be recorded as a contingent liability. The treatment of SDRs as a contingent liability has not been adopted in the budget financial statements or any reconciliation notes. The budget financial statements currently record SDRs as a liability. This is consistent with AAS, and also represents an early adoption of the ABS' proposed revisions to GFS from September 2009 in line with revised international standards (refer ABS cat. no. 5310.0.55.001 Information Paper: Introduction of revised international standards in ABS economic statistics in 2009).
Currently, ABS GFS requires defence weapons platforms to be expensed. The financial statements currently record defence weapons platforms as a capital investment. This is consistent with AAS, and also represents an early adoption of the ABS' proposed revisions to GFS from September 2009 in line with revised international standards (refer ABS cat. no. 5310.0.55.001 Information Paper: Introduction of revised international standards in ABS economic statistics in 2009).
Under ABS GFS, concessional loans are recognised at their nominal value, that is, they are not discounted to fair (market) value as there is not considered to be a secondary market. This treatment has not been adopted for the financial statements. Consistent with AAS, loans issued at below market interest rates or with long repayment periods are recorded at fair value (by discounting them by market interest rates). The difference between the nominal value and the fair value of the loan is recorded as an expense. Over the life of the loan the interest earned is recognised at market rates.
Departures from AASB 1049
AAS requires the advances paid to the International Development Association and Asian Development Fund to be recognised at fair value. Under ABS GFS these advances are recorded at nominal value. The ABS GFS treatment is adopted in the financial statements.
AASB 1049 requires the disclosure of the operating result and its derivation on the face of the operating statement. This aggregate is not used by the Australian Government (and is not required by the UPF). It has been disclosed in Note 13 rather than on the face of the operating statement.
AASB 1049 requires disaggregated information, by ABS GFS function, for expenses and total assets to be disclosed where they are reliably attributable. ABS GFS does not require such information. In accordance with ABS GFS, disaggregated information for expenses and net acquisition of non‑financial assets is disclosed in Statement 6.
AASB 1049 requires AAS measurement of items to be disclosed on the face of the financial statements with reconciliation to the ABS GFS measurement of items, where different, in notes to the financial statements. Reconciliation notes have not been included as they would effectively create two measures of the same aggregate.
AASB 1049 requires major variances between original budget estimates and outcomes to be explained in the financial statements. Explanations of major variances for the 2008‑09 year from the 2008‑09 Budget to the 2008‑09 MYEFO are discussed in Part 4 of the MYEFO. All policy decisions taken between the 2008‑09 Budget and the 2008‑09 MYEFO are disclosed in Appendix A of the MYEFO. Explanations of major variances for the 2008‑09 year from the 2008‑09 MYEFO to the February 2009 UEFO are disclosed in Part 4 of the UEFO, with policy decisions taken during this period disclosed in Appendix A of the document. Explanations of variations since February 2009 UEFO are disclosed in Statement 3 of this document, with all decisions taken since UEFO disclosed in Budget Paper No. 2.
Public non‑financial corporations (PNFC) and total non‑financial public sectors (NFPS)
AASB 1049 defines net worth for the PNFC and NFPS sectors as total assets less total liabilities, however ABS GFS defines net worth as total assets less total liabilities less shares and contributed capital (which is equal to zero for the PNFC sector). Similarly, AASB1049 defines net financial worth for these sectors as financial assets less total liabilities, whereas under ABS GFS it is equal to financial assets less total liabilities less shares and contributed capital. The AASB 1049 treatment has been adopted in the PNFC and NFPS sector financial statements.
The financial statements for the PNFC and NFPS sectors comply with the UPF but do not include all the line item disclosures required by AASB 1049. Disaggregated outcome notes for the PNFC sector will be disclosed in the consolidated financial statements.
Note 3: Taxation revenue by type
- Includes Medicare levy revenue of $8,630 million.
- Other excisable beverages are those not exceeding 10 per cent by volume of alcohol.
Note 3(a): Taxation revenue by source
Note 4: Sales of goods and services revenue
Note 5: Interest and dividend income
Note 6: Other sources of non‑taxation revenue
Note 7: Employee and superannuation expense
Note 8: Depreciation and amortisation expense
Note 9: Payment for supply of goods and services
Note 10: Interest expense
Note 11: Current and capital grants expense
Note 12: Personal benefit payments
Note 13: Operating result and comprehensive result (total change in net
worth)
- Reflects an increase in the superannuation liability mainly due to a difference in the discount rate used and change in demographics.
- Operating result under AEIFRS accounting standards.
- Other economic flows not included in the AEIFRS accounting standards operating result.
Note 14: Advances paid and receivables
Note 15: Investments, loans and placements
Note 16: Total non‑financial assets
Note 17: Loans
Note 18: Employee and superannuation liabilities
Note 19: Provisions and payables
Note 20: Reconciliation of cash
Note 20(a): Consolidated Revenue Fund
The estimated and projected cash balances reflected in the balance sheet for the Australian Government GGS (Table 2) include the reported cash balances controlled and administered by Australian Government agencies subject to the Financial Management and Accountability Act 1997, and the reported cash balances controlled and administered by entities subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act), that implement public policy through the provision of primarily non‑market services.
Revenues or monies raised by the Executive Government automatically form part of the Consolidated Revenue Fund by force of section 81 of the Australian Constitution. For practical purposes, total Australian Government GGS cash, less cash controlled and administered by CAC Act entities, plus special public monies, represents the Consolidated Revenue Fund referred to in section 81 of the Australian Constitution. On this basis, the balance of the Consolidated Revenue Fund is shown below.
Further information on the Consolidated Revenue Fund is included in Budget Paper No. 4, Agency Resourcing 2009‑10.
If www.budget.gov.au responds slowly or you are having trouble downloading a document, try one of the Budget Website Mirrors
Note: Where possible, Budget documents are available in HTML and for downloading in Portable Document Format(PDF). If you require further information on any of the tables or charts on this website, please contact The Treasury.
