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Statement 6: Debt Statement, Assets and Liabilities (continued)

Debt Statement

The Debt Statement provides information on estimated and projected Government net debt, current and projected debt on issue and details of climate spending and the extent to which this spending has contributed to debt.

Commonwealth Government Securities issuance

The Government finances its activities either through receipts or borrowing. When receipts fall short of payments, the Government borrows by issuing CGS to investors.

The Australian Office of Financial Management (AOFM) is responsible for issuing CGS and the management of the Government's financing activities. The AOFM currently issues three types of securities:

Treasury Bonds: medium- to long-term securities with a fixed annual rate of interest payable every six months;

Treasury Indexed Bonds (TIBs): medium- to long-term securities for which the capital value of the security is adjusted for movements in the consumer price index (CPI). Interest on TIBs is paid quarterly, at a fixed rate, on the adjusted capital value; and

Treasury Notes: short-term securities generally maturing within six months of issuance. The volume of Treasury Notes on issue will vary over the course of the year, depending on the size and profile of the within-year funding flows.

All new CGS issuance is undertaken in Australian dollars. There is a very small amount of foreign currency denominated debt securities on issue remaining from issuance undertaken before 1988. Most of these securities mature in March 2017.

Within these three broad categories of CGS, issuance is undertaken into a limited number of maturities (known as lines). Each of these lines has a fixed maturity date (the date on which the Government repays the principal it has borrowed) and, for Treasury Bonds and TIBs, a coupon rate (the annual fixed interest rate paid on the security).

Concentrating CGS issuance into a limited number of lines (rather than issuing securities with a specific time value, such as 10 years) ensures each line is sufficiently large that it can easily be traded in the secondary market. Strong liquidity in the secondary market is attractive to investors, promotes demand for CGS, and assists in lowering borrowing costs.

The AOFM exercises operational independence in the execution of its duties. Its announced issuance program for each year is therefore determined on the basis of maturing CGS, net new issuance required to fund the Budget, and other operational considerations.

Operational considerations often mean that the annual issuance program may not be equivalent to the financing task for a particular year. For example, the AOFM may decide there is merit in partially pre-funding the following year's financing task. Alternatively, the AOFM might choose to smooth issuance across several financial years in order to minimise changes in CGS supply from one financial year to the next.

In recent years, the AOFM has taken the opportunity to lengthen the CGS yield curve. This has provided for a lower risk profile of maturing debt and has been achieved during a period when borrowing costs have been low by historical standards.

At times when CGS issuance is not required to finance the government's activities, successive governments have continued to issue CGS for policy purposes, such as to maintain a liquid CGS market.

The Government remains committed to a well-functioning and liquid CGS market. In particular, the Government will focus on ensuring a market of sufficient size to maintain liquidity across the longer yield curve and that supports the Treasury Bond futures market.

A well-functioning and liquid CGS market supports the development of a corporate bond market by providing a risk-free benchmark; it also provides a low-risk investment vehicle.

Estimates and projections of key debt aggregates

The level of current and projected Government debt on issue is commonly expressed in one of two ways: gross or net debt.

Gross debt measures the face value of CGS on issue at a point in time. While gross debt is measured in face value terms, estimates and projections of CGS on issue are published in both face value and market value terms in this Statement.

The face value of CGS on issue is the amount that the Government pays back to investors at maturity, independent of fluctuations in market prices.1 The total face value of CGS on issue changes when new securities are issued, or when securities are repurchased or reach maturity.

The market value of CGS represents the value of securities as traded on the secondary market, which changes continuously with movements in market prices. Consistent with external reporting standards the market value of CGS on issue is reported on the Australian Government general government sector balance sheet.

Net debt is equal to the sum of deposits held, government securities (at market value), loans and other borrowing, minus the sum of cash and deposits, advances paid and investments, loans and placements. As net debt incorporates both selected financial assets and liabilities at their fair value, it provides a broader measure of the financial obligations of the Commonwealth than gross debt.

Not all government assets or liabilities are included in the measurement of net debt. For example, neither the Government's unfunded superannuation liability nor the equity holdings of the Future Fund are accounted for in net debt.

Estimates and projections of net debt

Table 1 contains estimates and projections of net debt to the end of the forward estimates period.

In 2016‑17, net debt is expected to be $326.0 billion, compared to $316.5 billion at the 2015‑16 MYEFO. Over the forward estimates, net debt is projected to peak at 19.2 per cent of GDP in 2017‑18. This peak is higher than expected at the 2015‑16 MYEFO, when net debt was expected to peak at 18.5 per cent of GDP in 2017‑18. Over the medium term, net debt is projected to decline to 9.1 per cent of GDP ($264 billion) in 2026-27.

Table 1: Liabilities and assets included in net debt from 2015‑16 to 2019-20
  Estimates   Projections
  2015‑16 2016‑17 2017‑18   2018‑19 2019‑20
  $m $m $m   $m $m
Liabilities included in net debt          
Deposits held 218 218 218   218 218
Government securities 476,999 549,537 594,439   614,904 628,828
Loans 16,425 15,739 15,732   15,731 15,643
Other borrowing 1,569 1,458 1,356   1,310 1,244
Total liabilities included in net debt 495,211 566,952 611,745   632,163 645,933
Assets included in net debt          
Cash and deposits 3,512 4,874 3,440   3,160 2,688
Advances paid 52,782 62,637 72,852   83,557 95,356
Investments, loans and placements 153,233 173,479 188,611   189,073 192,823
Total assets included in net debt 209,526 240,990 264,903   275,790 290,867
Net debt 285,684 325,962 346,842   356,373 355,066

Changes in net debt since the 2015‑16 MYEFO

Table 2 shows the drivers of the change in net debt between the 2015‑16 MYEFO and the 2016‑17 Budget.

Net debt is estimated to increase across the forward estimates compared with the 2015‑16 MYEFO. This increase is primarily driven by higher levels of CGS on issue owing to changes in the financing requirement, and an increase in the market value of CGS owing to lower average yields. These factors are partially offset by the higher value of investments held by the Government.

Table 2: Net debt — reconciliation from the 2015‑16 MYEFO to the 2016‑17 Budget
  2015‑16 2016‑17   2017‑18 2018-19
  $b $b   $b $b
Net debt as at 2015‑16 MYEFO ($b) 278.8 316.5   336.4 346.6
Changes in financing requirement -2.0 8.8   17.4 12.6
Impact of yields on CGS 6.6 6.9   6.6 6.0
Asset and other liability movements 2.3 -6.3   -13.5 -8.8
Cash and deposits 0.4 -1.4   0.0 0.3
Advances paid 0.4 0.7   0.3 0.2
Investments, loans and placements 1.3 -5.7   -14.0 -9.6
Other movements 0.2 0.1   0.2 0.3
Total movements in net debt from 2015‑16 MYEFO to 2016‑17 Budget 6.9 9.4   10.4 9.8
Net debt as at 2016‑17 Budget ($b) 285.7 326.0   346.8 356.4

Net debt is projected to decline over the medium term to 9.1 per cent of GDP ($264 billion) in 2026-27 (Chart 1). Net debt is projected to be 9.7 per cent of GDP ($266 billion) in 2025‑26, broadly in line with projected net debt in 2025-26 at the 2015‑16 MYEFO.

Chart 1: Net debt projected to 2026-27

Chart 1: Net debt projected to 2026-27
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
2015-16 MYEFO 16.9 18.3 18.5 18.2 17.0 14.5 12.9 11.8 10.9 10.2 9.6
2016-17 Budget 17.3 18.9 19.2 18.8 17.8 16.1 14.0 12.5 11.4 10.5 9.7 9.1

Note: A tax-to-GDP cap of 23.9 per cent is applied to these projections from 2021-22.

Source: Treasury projections

Estimates and projections of CGS on issue

Table 3 contains projections of the face value (end-of-year and within-year peak)2 and the market value (end-of-year) of CGS on issue.

The Commonwealth Inscribed Stock Act 1911 (CIS Act) requires the Treasurer to issue a direction to the AOFM stipulating the maximum face value of relevant CGS that may be on issue.3 As required by the Charter of Budget Honesty Act 1998, Table 3 reports projections of CGS on issue subject to the Treasurer's Direction.

When considering these projections, it is important to note that the AOFM publishes an issuance strategy for the budget year only. Projections beyond the budget year are based on a set of technical assumptions and will vary with changes to these assumptions and budget estimates and projections.

Table 3: Estimates and projections of CGS on issue subject to the Treasurer's Direction(a)
  2015‑16 2016‑17 2017‑18 2018-19 2019‑20
  $b $b $b $b $b
Face value - end of year 425 497 542 565 581
Per cent of GDP 25.7 28.9 30.0 29.8 29.2
Face value - within-year peak(b) 437 498 542 566 593
Per cent of GDP(b) 26.5 28.9 30.0 29.9 29.8
Month of peak(b) Jun-16 Jun-17 Jun-18 Mar-19 Apr-20
Market value - end of year(c) 472 545 590 610 624
Per cent of GDP 28.6 31.7 32.6 32.2 31.4

(a) The same stock and securities that were excluded from the previous legislative limit are excluded from the current limit set by the Treasurer's Direction. These exclusions are outlined in subsection 51JA(2A) of the CIS Act.

(b) The precise within-year timing of cash receipts and payments is not known. Projected peaks of CGS on issue are therefore subject to considerable uncertainty.

(c) The Treasurer's Direction applies only to the face value of CGS on issue. This table also shows the market value of CGS that are subject to the Treasurer's Direction. These figures will differ from the estimates and projections published in Statement 9: Australian Government Budget Financial Statements Table 2: Australian Government general government sector balance sheet that refer to total CGS on issue.

Source: Australian Office of Financial Management.

The total amount of CGS on issue and the amount of CGS on issue subject to the Treasurer's Direction is reported weekly on the AOFM website.

In 2016‑17, the end-of-year face value of CGS on issue subject to the Treasurer's Direction is expected to be $497 billion, compared to $486 billion at the 2015‑16 MYEFO. The end-of year face value of CGS on issue subject to the Treasurer's Direction is expected to reach at $581 billion in 2019-20.

In 2016‑17, the face value of CGS on issue is expected to reach a within-year peak of $498 billion. Over the forward estimates, the face value of CGS on issue is projected to rise to a within-year peak of $593 billion in 2019-20.

Changes in CGS on issue since the 2015‑16 MYEFO

Table 4 shows the change in the projected end of year face value of CGS on issue between the 2015‑16 MYEFO and the 2016‑17 Budget.

Table 4: Projected CGS on issue subject to the Treasurer's Direction —reconciliation from the 2015‑16 MYEFO to the 2016‑17 Budget
  2015‑16 2016‑17   2017‑18 2018-19
  $b $b   $b $b
Total face value of CGS on issue subject to the Treasurer's Direction as at 2015‑16 MYEFO 426 486   523 549
Factors affecting the change in face value of CGS on issue from 2015‑16 MYEFO to 2016‑17 Budget(a)        
Cumulative receipts decisions -0.4 1.3   1.0 1.2
Cumulative receipts variations 7.3 9.7   13.4 16.8
Cumulative payment decisions 0.6 2.0   1.9 3.1
Cumulative payment variations -4.0 -5.6   -5.4 -8.5
Cumulative change in net investments in financial assets(b) -3.9 3.1   10.1 4.4
Other contributors -1.1 0.1   -1.8 -1.3
Total face value of CGS on issue subject to the Treasurer's Direction as at 2016‑17 Budget 425 497   542 565

(a) Cumulative impact of decisions and variations from 2015‑16 to 2018-19. Increases to payments are shown as positive, and increases to receipts are shown as negative.

(b) Change in net cash flows from investments in policy and liquidity purposes.

Note: End of year data.

The total face value of CGS on issue is projected to rise to $640 billion by 2026-27. The face value of CGS on issue is projected to rise to $629 billion by 2025-26, around $18 billion lower than the $647 billion projected at the 2015‑16 MYEFO (Chart 2), driven by lower assumed yields across the medium term.

Further details on the changes to the underlying cash balance since the 2015‑16 MYEFO can be found in Statement 3: Fiscal Strategy and Outlook.

Chart 2: Face value of CGS on issue projected to 2026-27

Chart 2: Face value of CGS on issue projected to 2026-27
X Values 2015-16 MYEFO ($bn) 2016-17 Budget ($bn)
2015-16 428.8 427
2016-17 488.7 499.2
2017-18 525.6 544.8
2018-19 551.8 567.6
2019-20 580 583.6
2020-21 588.4 592
2021-22 594.9 596.3
2022-23 605.2 606
2023-24 616 611.6
2024-25 629 619.4
2025-26 646.5 629.3
2026-27 - 640.2

Breakdown of CGS currently on issue

Table 5 provides a breakdown of the CGS on issue by type of security as at 26 April 2016.

Table 5: Breakdown of current Commonwealth Government Securities on issue
  On issue as at 26 April 2016
  Face value
$m
Market value
$m
Treasury Bonds (a) 389,587 425,282
Treasury Indexed Bonds (a) 27,116 35,367
Treasury Notes (a) 4,000 3,981
Total CGS subject to Treasurer's Direction(a)(b) 420,703 464,629
Other stock and securities 2,484 4,709
Total CGS on issue 423,187 469,338

(a) The Treasurer's Direction applies only to the face value of CGS on issue. This table also shows the market value of CGS that are subject to the Treasurer's Direction.

(b) The same stock and securities that were excluded from the previous legislative limit are excluded from the current limit set by the Treasurer's Direction. These exclusions, outlined in subsection 51JA(2A) of the CIS Act, are: stock and securities issued in relation to money borrowed under the Loan (Temporary Revenue Deficits) Act 1953; stock and securities loaned by the Treasurer under a securities lending arrangement under section 5BA of the Loans Securities Act 1919, or held by or on behalf of the Treasurer for the purpose of such an arrangement; stock and securities invested under subsection 58 of the Public Governance, Performance and Accountability Act 2013; and stock and securities on issue as at the start of 13 July 2008, other than Treasury Fixed Coupon Bonds.

Source: Australian Office of Financial Management

Treasury Bonds

Table 6 lists Treasury Bonds currently on issue, as well as the annual interest rate (the coupon) and the timing of coupon payments. As at 26 April 2016, there were 22 Treasury Bond lines on issue, with a weighted average term to maturity of around 6.6 years and the longest maturity extending to June 2039.

Since late 2010‑11, the AOFM has incrementally lengthened the CGS yield curve while the cost of borrowing has been low by historical standards. This increases the average maturity and duration profile of the AOFM's debt portfolio, thereby lowering variability in future debt servicing costs and reducing refinancing risk.

Table 6: Treasury Bonds on issue
Coupon
Per cent
Maturity On issue as at 26 April 2016
$m
Timing of interest payments(a)
4.75 15-Jun-16 15,900 Twice yearly 15 Jun 15 Dec
6.00 15-Feb-17 21,096 Twice yearly 15 Feb 15 Aug
4.25 21-Jul-17 18,900 Twice yearly 21 Jul 21 Jan
5.50 21-Jan-18 20,500 Twice yearly 21 Jan 21 Jul
3.25 21-Oct-18 18,100 Twice yearly 21 Oct 21 Apr
5.25 15-Mar-19 22,947 Twice yearly 15 Mar 15 Sep
2.75 21-Oct-19 20,700 Twice yearly 21 Oct 21 Apr
4.50 15-Apr-20 23,397 Twice yearly 15 Apr 15 Oct
1.75 21-Nov-20 12,600 Twice yearly 21 Nov 21 May
5.75 15-May-21 22,299 Twice yearly 15 May 15 Nov
5.75 15-Jul-22 21,400 Twice yearly 15 Jul 15 Jan
5.50 21-Apr-23 21,300 Twice yearly 21 Apr 21 Oct
2.75 21-Apr-24 24,700 Twice yearly 21 Apr 21 Oct
3.25 21-Apr-25 26,100 Twice yearly 21 Apr 21 Oct
4.25 21-Apr-26 27,500 Twice yearly 21 Apr 21 Oct
4.75 21-Apr-27 23,700 Twice yearly 21 Apr 21 Oct
2.75 21-Nov-27 8,500 Twice yearly 21 Nov 21 May
3.25 21-Apr-29 11,500 Twice yearly 21 Apr 21 Oct
4.50 21-Apr-33 10,400 Twice yearly 21 Apr 21 Oct
2.75 21-Jun-35 5,550 Twice yearly 21 Jun 21 Dec
3.75 21-Apr-37 8,500 Twice yearly 21 Apr 21 Oct
3.25 21-Jun-39 4,000 Twice yearly 21 Jun 21 Dec

(a) Where the timing of an interest payment falls on a non-business day, the payment will occur on the following business day.

Source: Australian Office of Financial Management.

Treasury Indexed Bonds

Table 7 lists Treasury Indexed Bonds currently on issue, as well as the annual interest rate (the coupon) and the timing of coupon payments. As at 26 April 2016, there were seven TIB lines on issue, with a weighted average term to maturity of around 9.3 years and the longest maturity extending to August 2040.

Table 7: Treasury Indexed Bonds on issue
Coupon
Per cent
Maturity On issue as at 26 April 2016
$m
Timing of interest payments(a)
1.00 21-Nov-18 5,089 Quarterly 21 Nov 21 Feb 21 May 21 Aug
4.00 20-Aug-20 5,114 Quarterly 20 Aug 20 Nov 20 Feb 20 May
1.25 21-Feb-22 4,940 Quarterly 21 Feb 21 May 21 Aug 21 Nov
3.00 20-Sep-25 6,393 Quarterly 20 Sep 20 Dec 20 Mar 20 Jun
2.50 20-Sep-30 3,443 Quarterly 20 Sep 20 Dec 20 Mar 20 Jun
2.00 21-Aug-35 3,050 Quarterly 21 Aug 21 Nov 21 Feb 21 May
1.25 21-Aug-40 1,550 Quarterly 21 Aug 21 Nov 21 Feb 21 May

(a) Where the timing of an interest payment falls on a non-business day, the payment will occur on the following business day.

Source: Australian Office of Financial Management.

Treasury Notes

The face value of Treasury Notes on issue as at 26 April 2016 was $4 billion. Table 8 lists the Treasury Notes currently on issue. Treasury Notes do not pay a coupon, but they are issued at a discount — the face value received at maturity is higher than the price paid at issuance.

Table 8: Treasury Notes on issue
Maturity On issue as at 26 April 2016
$m
Timing of interest payments(a)
3-Jun-16 1,500 At maturity 3 June
29-Jul-16 500 At maturity 29 Jul
26-Aug-16 2,000 At maturity 26 Aug

Non‑resident holdings of CGS on issue

The sale of CGS is not restricted to Australian residents. As at the December quarter 2015, 63.5 per cent of total CGS on issue was held by non-residents of Australia (Chart 3). The proportion of CGS held by non-residents rose significantly between 2009 and 2012. The proportion has fallen from historically high levels in 2012 but remains elevated.

CGS yields remain relatively attractive against a backdrop of low government bond yields globally. Along with strong investor confidence in the Australian sovereign debt market, this has contributed to CGS yields falling to historically low levels in recent years.

Chart 3: Non‑resident holdings of Commonwealth Government Securities

Chart 3: Non‑resident holdings of Commonwealth Government Securities
$b $b %
Resident holdings Non-resident holdings (market value) Total CGS (market value) Proportion of total CGS
Jun-03 42.4 22.5 64.9 34.7
Sep-03 36.2 22.5 58.7 38.4
Dec-03 33.9 24.3 58.2 41.7
Mar-04 32.7 26.5 59.2 44.7
Jun-04 32.2 28.0 60.2 46.5
Sep-04 30.6 27.4 58.0 47.2
Dec-04 29.1 29.7 58.8 50.6
Mar-05 28.1 31.9 60.0 53.2
Jun-05 27.8 34.4 62.1 55.3
Sep-05 22.8 34.4 57.3 60.2
Dec-05 25.5 33.6 59.0 56.8
Mar-06 27.4 31.8 59.1 53.7
Jun-06 26.3 32.6 58.9 55.3
Sep-06 25.5 35.0 60.6 57.9
Dec-06 23.3 32.0 55.3 57.8
Mar-07 26.3 30.3 56.6 53.5
Jun-07 23.9 32.6 56.5 57.7
Sep-07 24.4 34.4 58.8 58.6
Dec-07 17.6 39.2 56.9 69.0
Mar-08 20.8 37.6 58.4 64.4
Jun-08 22.5 35.9 58.4 61.4
Sep-08 22.6 37.2 59.9 62.2
Dec-08 23.1 44.2 67.4 65.7
Mar-09 34.1 46.4 80.5 57.6
Jun-09 55.4 51.9 107.3 48.4
Sep-09 46.0 65.2 111.3 58.6
Dec-09 50.6 72.8 123.4 59.0
Mar-10 47.9 90.4 138.3 65.4
Jun-10 52.4 105.0 157.4 66.7
Sep-10 54.9 117.1 172.0 68.1
Dec-10 55.9 125.8 181.7 69.2
Mar-11 60.1 132.9 193.0 68.9
Jun-11 60.7 141.0 201.7 69.9
Sep-11 64.2 164.5 228.7 71.9
Dec-11 64.8 185.0 249.8 74.1
Mar-12 63.3 197.9 261.2 75.8
Jun-12 65.3 204.4 269.8 75.8
Sep-12 82.0 205.5 287.5 71.5
Dec-12 91.5 204.3 295.8 69.1
Mar-13 96.0 203.4 299.3 67.9
Jun-13 89.3 196.4 285.7 68.8
Sep-13 99.0 209.3 308.3 67.9
Dec-13 104.5 216.5 321.0 67.5
Mar-14 111.4 226.0 337.5 67.0
Jun-14 112.3 238.9 351.3 68.0
Sep-14 126.4 246.9 373.4 66.1
Dec-14 135.1 260.6 395.7 65.9
Mar-15 144.0 276.7 420.7 65.8
Jun-15 142.6 267.3 409.9 65.2
Sep-15 161.4 281.8 443.2 63.6
Dec-15 161.5 280.6 442.1 63.5

Note: Data refers to the market value of holdings.

Source: ABS Catalogue Number 5203.0 and the Australian Office of Financial Management.

Interest on CGS

The interest costs related to CGS are presented in these statements in both cash and accrual accounting terms. The difference between the cash interest payments and accrual interest expense generally relates to the timing of when the interest cost is recognised.

  • Interest payments are recognised in the period when they are paid during the life of the security.
  • Interest expense is recognised in the period in which an expense is incurred during the life of the security, rather than when they are actually paid.

Estimates of the interest payments and interest expense of CGS on issue include the cost of CGS already on issue and future CGS issuance. The cost of:

  • CGS already on issue uses the actual interest rates incurred at the time of issuance; and
  • the expected future issuance of CGS is based on the prevailing market rates across the yield curve at the time of a budget estimates update.

The assumed market yields at the 2016‑17 Budget result in a weighted average cost of borrowing of around 2.5 per cent for future issuance of Treasury Bonds in the forward estimates period, compared with around 2.7 per cent at the 2015‑16 MYEFO. Chart 4 shows the yield curve assumptions underpinning the 2015‑16 MYEFO and 2016‑17 Budget.

Chart 4: Yield curve assumptions from 2015‑16 to 2019-20

Underlying data not for publication


Source: Australian Office of Financial Management

The Government's interest payments and expense over the forward estimates mostly relate to the cost of servicing the stock of CGS on issue, and are expected to increase over the forward estimates as a result of the projected rise in CGS on issue.

The Government's total interest payments in 2016‑17 are estimated to be $15.9 billion, of which $15.5 billion relates to CGS on issue (Table 9).

Table 9: Interest payments, interest receipts and net interest payment(a)
  2015‑16 2016‑17 2017‑18 2018-19 2019‑20
  $m $m $m $m $m
Interest payments on CGS 14,450 15,529 16,402 17,608 18,001
Per cent of GDP 0.9 0.9 0.9 0.9 0.9
Interest payments 14,822 15,903 16,826 18,054 18,463
Per cent of GDP 0.9 0.9 0.9 1.0 0.9
Interest receipts 2,842 3,262 3,470 3,829 4,248
Per cent of GDP 0.2 0.2 0.2 0.2 0.2
Net interest payments(b) 11,980 12,642 13,356 14,224 14,215
Per cent of GDP 0.7 0.7 0.7 0.8 0.7

(a) Interest payments and receipts are a cash measure, with the relevant amount recognised in the period in which the interest payment is made or interest is received.

(b) Net interest payments are equal to the difference between interest payments and interest receipts.

The Government's total interest expense in 2016‑17 is estimated to be $18.7 billion, of which $16.6 billion relates to CGS on issue. Table 10 shows the Government's estimated interest expense, interest expense on CGS, interest income and net interest expense over the forward estimates.

Table 10: Interest expense, interest income and net interest expense(a)
  2015‑16 2016‑17 2017‑18   2018-19 2019-20
  $m $m $m   $m $m
Interest expense on CGS 15,360 16,643 17,626   18,345 18,683
Per cent of GDP 0.9 1.0 1.0   1.0 0.9
Interest expense 16,774 18,725 19,764   20,539 20,818
Per cent of GDP 1.0 1.1 1.1   1.1 1.0
Interest income 3,506 4,280 4,841   5,775 6,825
Per cent of GDP 0.2 0.2 0.3   0.3 0.3
Net interest expense 13,268 14,445 14,923   14,764 13,993
Per cent of GDP 0.8 0.8 0.8   0.8 0.7

(a) Interest expense is an accrual measure, with the relevant amount recognised in the period in which the expense is incurred, but not necessarily paid.

Climate spending

The Government's climate spending is shown on an aggregated basis in Table 11.

Table 11: Climate spending from 2015‑16 to 2019-20
  2015‑16 2016‑17 2017‑18 2018-19 2019‑20
  $b $b $b $b $b
Climate spending(a) 0.75 1.30 1.20 1.30 1.25

(a) Spending in this table is on a headline cash balance basis; that is, payments and net cash flows from investments in financial assets for policy purposes, as well as estimated interest receipts associated with Clean Energy Finance Corporation investments.

The key components of climate spending are:

  • the Emissions Reduction Fund, which will provide incentives to support abatement activities across the economy; and
  • the Clean Energy Finance Corporation which invests in renewable energy, energy efficiency and low emissions technologies.

Estimates of climate spending have been updated to include the Government's decision to retain the Clean Energy Finance Corporation and the Australian Renewable Energy Agency.

Impact of climate spending on debt

Climate spending may be financed through either receipts or debt. This statement takes the approach of assuming that the proportion of climate spending being financed through new debt (as opposed to receipts) is equivalent to climate spending as a proportion of total spending. This is shown in Table 12.

Table 12: Impact on debt — climate spending as a proportion of total spending
  2015‑16 2016‑17 2017‑18 2018-19 2019‑20
Climate spending ($b) (a) 0.75 1.30 1.20 1.30 1.25
Total spending ($b) (b) 440 465 472 494 515
Climate spending (per cent of total spending) 0.2 0.3 0.3 0.3 0.2
Change in face value of CGS from previous year ($b) (c) 58.5 71.9 45.6 22.9 16.0
Contribution to change in face value of CGS from climate spending ($b) 0.10 0.20 0.12 0.06 0.04

(a) The calculation of climate spending in this table is on a headline cash balance basis; that is, payments and net cash flows from investments in financial assets for policy purposes, as well as estimated interest receipts associated with the Clean Energy Finance.

(b) The calculation of total spending in this table is on a headline cash balance basis; that is, total payments and net cash flows from investments in financial assets for policy purposes.

(c) Calculations of the change in the face value of CGS are calculated using total CGS on issue. 

Recurrent and capital spending

In the 2013‑14 MYEFO, the Government made a commitment to enhance disclosure on the proportion of the total budget4 allocated to recurrent and capital spending.

The recurrent budget includes pension and income support payments, funding in the areas of health and education (except where funding is allocated to the building of facilities), interest payments on public debt, student loans, and operating costs of the Government including payments to employees.

The capital budget comprises loans and other funding made to fund infrastructure, including transport and communications infrastructure; and purchases of defence and other non‑financial assets.

Chart 5 below presents a detailed breakdown of recurrent and capital spending for the 2016‑17 year.

Chart 5: Recurrent and capital spending as a proportion of the Budget in 2016‑17

Chart 5: Recurrent and capital spending as a proportion of the Budget in 2016-17
Total pie chart 2016-17
Other recurrent payments (excluding states andterritories) 326,764 70.3%
Capital payments and purchases 45,221 9.7%
Payments to state and territories for recurrent spending 93,152 20.0% Total recurrent 90.3%
Total spending (recurrent and capital) 465,137 Total capital 9.7%
Chart 5: Recurrent and capital spending as a proportion of the Budget in 2016-17
Capital pie chart
Defence capital 8,073 17.9%
Other capital purchases 5,481 12.1%
NBN equity payments 8,825 19.5%
Payments to states and territories for capital spending 22,842 50.5%
Total capital spending 45,221

(a) Recurrent payments excluding payments to the States and Territories include pension and income support payments, government loans, payments to government employees, payments for goods and services, and grants and subsidies not made for capital purposes.

(b) State and Territory payments include payments for general revenue assistance (including Goods and Services Tax payments) and specific purposes payments.

(c) Other capital purchases include the purchase of land and buildings, software and other facilities.

Chart 5 shows that 90.3 per cent of estimated total budget spending in 2016‑17 is recurrent, and the remaining 9.7 per cent of the budget is capital.

Of the total budget, 70.3 per cent comprises recurrent payments such as income support payments, grants and subsidies to recipients other than States and Territories, interest payments on public debt, operating costs of the Government, and student loans. Payments to states and territories to fund recurrent spending make up 20.0 per cent of the budget. This amount includes specific purpose payments to States and Territories, including in the areas of health and education, and recurrent spending by the States and Territories estimated to be funded through general revenue assistance.

Of the $45.2 billion of the capital budget, around 50.5 per cent relates to specific purpose payments to the States and Territories for capital purposes and the portion of General Revenue Assistance that is estimated to fund capital spending by the States and Territories. Equity payments to NBN Co comprise around 19.5 per cent of the capital budget and purchases of defence capital (for example, defence weapons and aircraft) comprises around 17.9 per cent. Other capital purchases such as software facilities upgrades make up around 12.1 per cent of the capital budget.


1 For TIBs, the final repayment amount paid to investors includes an additional amount owing to inflation growth over the life of the security. This amount is not included in the calculation of face value.

2 End-of-year values are estimates or projections of CGS on issue at 30 June for the particular year. The precise timing of within-year peaks of CGS on issue is not known. The timing of the within-year peak is therefore reported to the given month in the particular year.

3 On 11 December 2013, the Treasurer directed that the maximum face value of CGS that can be on issue is $500 billion.

4 Total budget is defined as all cash outflows within the underlying cash balance and headline cash balance (where identifiable). This is equal to total payments plus investments in financial assets for policy purposes (for example, loans and equity payments).