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

The Australian Government's major assets and liabilities


The Government's total stock of assets is estimated to be $465.4 billion at 30 June 2016, increasing to $509.6 billion in 2016‑17 and $593.1 billion by the end of the forward estimates.

The Government's financial assets are estimated to be $342.6 billion at 30 June 2016, increasing to $383.4 billion in 2016‑17 and $453.4 billion by the end of the forward estimates.

The Government's non‑financial assets are estimated to be $122.9 billion at 30 June 2016, increasing to $126.2 billion in 2016‑17 and $139.7 billion by the end of the forward estimates.

Future Fund

The Future Fund was established in 2006 to accumulate financial assets and invest them on behalf of the Australian Government to address the Government's unfunded superannuation liability.

The Investment Mandate for the Future Fund sets a benchmark return of at least CPI plus 4.5 per cent to 5.5 per cent per annum over the long term. The Investment Mandate gives guidance to the Future Fund Board of Guardians (the Board) in relation to its investment strategy. The Board is independently responsible for the investment decisions of the Fund. The Investment Mandate also requires the Board to take an acceptable but not excessive level of risk for the Fund, measured in terms such as the probability of losses in a particular year.

The portfolio of assets has performed well. Since the first contribution to the Future Fund on 5 May 2006, the average return has been 7.4 per cent per annum.

At 31 March 2016, the Future Fund's return for the financial year to date was 0.2 per cent. The Future Fund was valued at $117.4 billion at 31 March 2016.

The Board continues to focus on maintaining clear objectives and manages the portfolio in line with its mandate and strategy. Table 13 shows changes in the asset allocation of the Future Fund since 30 June 2015.

Table 13: Asset allocation of the Future Fund
Asset class 30 June 2015 31 March 2016
  $m $m
Australian equities 7,957 7,629
Global equities    
Developed markets 20,629 17,899
Emerging markets 11,034 8,594
Private equity 12,609 11,474
Property 6,980 8,316
Infrastructure and Timberland 8,751 8,330
Debt securities 11,467 13,314
Alternative assets 14,904 14,938
Cash 22,890 26,885
Total Future Fund assets 117,222 117,378

Note: Data may not sum due to rounding

Asset Recycling Fund

The Asset Recycling Fund (ARF) was announced in the 2014‑15 Budget. It is intended to be a dedicated vehicle for providing funding and financial incentives primarily to the States and Territories to invest in infrastructure, including under the Asset Recycling Initiative. Legislation to establish the ARF has not yet passed the Parliament.

The ARF will be seeded with $7 billion of capital from uncommitted balances of the Building Australia Fund (BAF) and Education Investment Fund (EIF). Further contributions to the Fund will be made from proceeds from the sale of Medibank Private, to be credited on 1 July 2017, and other privatisations.

Drawdowns from the ARF for payments relating to the Infrastructure Growth Package will be made from capital and net earnings. Such drawdowns will primarily fund payments to States and Territories through the Council of Australian Governments (COAG) Reform Fund, governed by the National Partnership Agreements that will include those for the Asset Recycling Initiative and Land Transport Infrastructure Projects. Pending the establishment of the ARF, the Australian Government will enable funding for infrastructure investments under the Infrastructure Growth Package by providing funding of $2.5 billion in 2016‑17 through existing appropriation mechanisms.

The ARF will be managed by the Future Fund Board of Guardians (the Board). The Treasurer and Minister for Finance will set an investment mandate for the Fund which will provide broad direction to the Board in relation to its investment strategy.

Once the ARF is established and the uncommitted balances of the BAF and EIF are transferred to the ARF, the BAF and the EIF will be abolished. Remaining committed milestone payments of the BAF and EIF will be transferred to consolidated revenue to continue to be paid based on contractual obligations under the responsibility of the relevant department.

Medical Research Future Fund

The Medical Research Future Fund (MRFF) was established on 26 August 2015 to provide additional funding for medical research and medical innovation.

The first credit to the MRFF of $1.010 billion, which represented the uncommitted balance of the Health and Hospitals Fund (HHF), occurred on 22 September 2015. The second credit of $2.139 billion, comprising savings from the Health portfolio, and residual amounts from the HHF, was transferred to the MRFF on 1 December 2015. Remaining credits to the Fund will consist of the estimated value of health function savings published in the 2014‑15 Budget including any subsequent associated Government decisions, until the capital value of the MRFF reaches $20 billion. The MRFF is expected to reach a balance of $20 billion in 2020-21.

Net earnings on MRFF capital for a given financial year will be available for drawdown the following financial year. Payments met from drawdowns will be determined through the annual budget process. The capital of the Fund will be preserved in perpetuity.

The MRFF is managed by the Future Fund Board of Guardians (the Board). The Treasurer and Minister for Finance have set an investment mandate for the Fund which provides broad direction to the Board in relation to its investment strategy.

The HHF was abolished on 29 October 2015. Remaining committed milestone payments of the HHF have been transferred to consolidated revenue to continue to be paid based on contractual obligations under the responsibility of the Department of Health.

DisabilityCare Australia Fund

The DisabilityCare Australia Fund (DCAF) was established on 1 July 2014 to assist the Commonwealth and the State and Territory governments with spending directly related to the National Disability Insurance Scheme (NDIS). This is consistent with the commitment by governments to roll out the NDIS across Australia.

The DCAF is funded by revenue raised from the increase in the Medicare levy of half a percentage point to 2 per cent that was implemented on 1 July 2014. As at 3 May 2016 the DCAF has received credits totalling $5.9 billion.

The investments of the DCAF are managed by the Future Fund Board of Guardians (the Board). The Treasurer and Minister for Finance have set an Investment Mandate for the DCAF which came into effect from 1 July 2014 and provides guidance to the Board in relation to its investment strategy for the Fund. The DCAF Investment Mandate sets a benchmark return on the Fund of the Australian three month bank bill swap rate plus 0.3 per cent per annum calculated on a rolling 12 month basis (net of fees). In achieving its objectives, the Board must invest in such a way as to minimise the probability of capital losses over a 12 month horizon.

A fixed amount of the money flowing into the DCAF each year is set aside (commencing from 2014‑15) for the State and Territory governments consistent with the DisabilityCare Australia Fund Act 2013. In 2016‑17, this fixed amount is $884 million, which was indexed by 3.5 per cent from the previous financial year. This amount will continue to be indexed annually by 3.5 per cent until 2023-24.

The State and Territory governments will be able to draw down from the DCAF when they meet key conditions such as agreement to fully roll out the NDIS and milestones relating to the participation of people with significant and permanent disability in the scheme. The balance of the DCAF, after taking into account allocations to the states and territories, will be available to the Commonwealth to assist with meeting the Commonwealth's contribution to the NDIS.

Residential mortgage backed securities

During the global financial crisis, the previous Government directed the Australian Office of Financial Management (AOFM) to invest in AAA-rated residential mortgage backed securities (RMBS) to support competition from smaller lenders in residential mortgage and small business lending markets. Between 2008 and 2012 the AOFM purchased around $15.5 billion in high-quality RMBS.

In May 2015 the Government announced its intention to progressively sell down the Commonwealth's holdings of RMBS through a regular competitive auction process, subject to market conditions. Monthly auctions were conducted from June 2015 to October 2015, resulting in total sales of $458 million in amortised face value terms. As at the end of April 2016, the Government's RMBS portfolio was valued at $2.9 billion in amortised face value terms.

To achieve value for money for the Commonwealth, the Treasurer's Direction gave the AOFM the discretion to not proceed with a sale where an acceptable price could not be achieved. Against a background of heightened global volatility, in November 2015 the AOFM exercised its discretion to suspend, until further notice, the regular auction process. In the absence of any further sales, the amortised face value outstanding of the RMBS portfolio is expected to be less than $100 million by around the end of 2020.

National Broadband Network

The National Broadband Network (NBN) will deliver fast, affordable broadband to all Australians. The Government has instructed NBN Co Limited (nbn) to complete the NBN using a multi‑technology mix (including fibre to the premises, fibre to the node, hybrid fibre coaxial cable, and wireless and satellite technologies), to ensure the NBN is delivered as soon as possible and at least cost to taxpayers.

The Government will provide $8.8 billion in equity to nbn in 2016‑17, including $0.4 billion moved from 2015‑16. The Government's equity contributions are capped at $29.5 billion.

Higher Education Loan Programme

The Higher Education Loan Programme (HELP) comprises concessional loans to students that enable them to defer payment of fees for diploma level and above courses, which are paid back once the loan recipient is earning an income above a certain level.

The fair value of HELP is estimated to be $37.1 billion at 30 June 2016, which is $0.2 billion lower than estimated in the 2015‑16 MYEFO. The fair value represents the total accumulated HELP debt adjusted to take account of bad and doubtful debts (amounts not expected to be repaid); and deferral costs (the difference between the present value of repayments and the present value of repayments had a risk-free interest rate been applied, noting that HELP debts are indexed to inflation). The fair value of HELP is projected to grow to $60.2 billion in 2018-19, which is $1.5 billion lower than estimated in the 2015‑16 MYEFO. It is projected to reach $69.2 billion by the end of the forward estimates.

The Government has announced, in this Budget, that it will delay the implementation of the higher education reforms announced in the 2014‑15 Budget and the 2014‑15 MYEFO by an additional year to undertake further consultation. Higher education funding arrangements for 2017 will remain in line with currently legislated arrangements. The Government will also not proceed with the deregulation of university fees announced in the 2014‑15 Budget. These changes are driving the lower HELP projections in this Budget compared to those estimated at MYEFO.

The Government is currently undertaking consultation on a redesign of the VET FEE-HELP scheme, following the release of a discussion paper on 29 April 2016. A redesigned VET FEE-HELP scheme is aimed at improving the integrity and sustainability of the scheme.

Clean Energy Finance Corporation

The Clean Energy Finance Corporation (CEFC) was established as a Commonwealth Authority in August 2012 through the Clean Energy Finance Corporation Act 2012 (CEFC Act).

The CEFC Act provides the CEFC with $10 billion over five years to invest in renewable energy, low emissions technology and energy efficiency projects.

Investment decisions are made by an independent board consistent with the CEFC Act and the CEFC's investment mandate.

On 23 March 2016, the Government announced that it would retain the CEFC.


The Government's total liabilities are estimated to be $730.4 billion at 30 June 2016, increasing to $810.6 billion in 2016‑17 and $909.2 billion by the end of the forward estimates.

The Government's major liabilities are CGS on issue and public sector employee superannuation liabilities. For further information on CGS on issue, see the Debt Statement.

Public sector employee superannuation liabilities

Public sector employee superannuation entitlements relating to past and present civilian employees and military personnel are a financial liability on the Government's balance sheet. The Government's superannuation liability is estimated to be around $169 billion at 30 June 2016 and approximately $263 billion at 30 June 2050.

The Australian Government has never fully funded its superannuation liabilities in relation to defined benefit schemes. For civilian employees, the major defined benefit schemes are the Commonwealth Sector Superannuation Scheme (CSS) and the Public Sector Superannuation Scheme (PSS). These schemes were closed to new members in 1990 and 2005 respectively. The Public Sector Superannuation accumulation plan (PSSap) was introduced on 1 July 2005 and provides fully funded accumulation benefits for new civilian employees from that date.

For military personnel, the defined benefit schemes are the Defence Force Retirement and Death Benefits Scheme (DFRDB), the Defence Forces Retirement Benefits Scheme (DFRB) and the Military Superannuation and Benefits Scheme (MSBS). The DFRDB and DFRB are closed to new members. MSBS will be closed to new members from 1 July 2016. A new military superannuation accumulation scheme, ADF Super, will commence on 1 July 2016. ADF Super is accompanied by a statutory death and disability arrangement ADF cover.

While there will not be any civilian or military defined benefit schemes available to new members from 1 July 2016, the value of the Government's unfunded superannuation liability is projected to continue growing (in nominal terms) into the immediate future — although it is projected to decrease as a proportion of GDP — and is forecast to reach $195 billion by the end of the forward estimates. The increase in the liability partly results from the time value of money which recognises future benefits being closer to maturity each year. It also results from the accruing entitlements to current members of the civilian and military defined benefit schemes, and members covered by the statutory death and disability arrangement ADF cover.

An actuarially determined discount rate is used to estimate the present value of future unfunded superannuation benefits. The long term nature of the unfunded superannuation liability requires the use of a discount rate that best matches the duration of the liability. The value recorded on the balance sheet is highly sensitive to the discount rate used. The use of a long term discount rate for budget purposes avoids the volatility that would occur by using current market yields on government bonds which continually change. Consistent with the latest Long Term Cost Reports for the civilian and military schemes, the discount rate currently applied is 6 per cent per annum. This rate is in the context of a long term assumed rate of CPI inflation of 2.5 per cent per annum.

Civilian defined benefit schemes

Lower salary growth assumptions in the short term, as determined by the scheme actuary, is the major driver in the decrease in the civilian schemes liability in 2015‑16 by $3.6 billion compared to projections in the 2015‑16 Budget.

As the superannuation liability is included in the Government's net worth and net financial worth aggregates, revaluations of the liability have an impact on these aggregates (see Statement 9: Australian Government Budget Financial Statements for further information about budget aggregation).