5331.0 - Balance of Payments and International Investment Position, Australia, Concepts, Sources and Methods, 1998  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 22/09/1998   
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Contents >> Chapter 10. Capital account >> Capital transfers

Concept

10.2. The concept of and requirement for transfers entries in the balance of payments were discussed in paragraph 9.1. Capital transfers are those entries required to offset transactions recorded for forgiveness of a liability by a creditor, the provision of cash when linked to a change in ownership of fixed assets, or the transfer in kind of ownership of a fixed asset without a quid pro quo, i.e. where no specific recompense in the form of goods, services, income or financial items is provided in exchange. Unlike current transfers, they are not directly related to the processes of production and consumption.

Classification

10.3. Capital transfers are primarily classified to two institutional sectors, general government and other. Within the general government sector, capital transfers are further classified to the standard components: debt forgiveness and other transfers. For other sectors, the standard components are migrants’ transfers, debt forgiveness and other. Table 10.2 shows the standard components of the capital account.


10.2 CAPITAL ACCOUNT: STANDARD COMPONENTS
Capital Transfers
General Government
Debt forgiveness (debit only)
Other (debit only)
Other sectors
Migrants' transfers
Debt forgiveness
Other
Acquisition/disposal of non-produced non-financial assets

Debt forgiveness

10.4. Debt forgiveness refers to a financial liability of a debtor which is formally cancelled (through a contractual arrangement) by the creditor. The balance of payments reflects a reduction in the liability in the financial account of the debtor, offset by a capital transfer. This treatment is only applicable to debt that is formally forgiven and needs to be clearly distinguished from debt which is written off by the creditor due to the fact that the creditor is unlikely to be able to enforce the collection of the liability. The latter is treated not as a capital transfer, but as an other volume adjustment in the level of debt outstanding in international investment position statistics. To date, there have been no significant Australian examples of debt forgiveness, and so this component is shown with nil entries.

Migrants’ transfers

10.5. Migrants’ transfers constitute, for Australia, the most significant component of the capital account. Migrants are defined as individuals (other than students, medical patients or diplomatic, military or similar personnel stationed abroad) who move to a new country and are expected to stay there for at least one year. In principle, migrants’ transfers include all the net worth of the migrant in his or her former persona as a non-resident (immigrant) or resident (emigrant). Net worth includes household and personal effects, movable capital equipment, funds transferred by the migrant at the time of change of residency, and the ownership of real estate and investments, less any financial liabilities. Transfers of personal effects and equipment should be recorded as imports of goods by the economy receiving the immigrant, with an offset in migrants’ transfers. Generally the amounts involved in migrants’ transfers of goods are not large, and no attempt has been made to measure these in the goods account of the Australian balance of payments, so that no offsetting capital transfers entries are required. Funds transferred and other assets and liabilities should be recorded, by the economy receiving the immigrant, as an increase in financial assets (or reduction in liabilities) offset by a migrant’s transfer. Generally, however, only the cash transactions are captured in the financial account, and therefore capital transfers have so far only been required to offset this element of migrants’ funds.

10.6. Australia’s immigration program recognises a number of categories of immigrants. From an economic viewpoint, one of the most significant is the Business Skills Category, for which the department of Immigration and Multicultural Affairs identifies the numbers of immigrants each month and the value of funds (including the value of goods) that will be transferred by them. Data for other inward migrants and outward migrants are based on the numbers of migrants entering and leaving Australia, together with estimates of the average cash funds from the Survey of Foreign Unrequited Transfers (SOFUT) which measures cash funds transferred to and from Australia by migrants. More comprehensive data on inward migrant transfers are being measured by the Department of Immigration and Multicultural Affairs’ Longitudinal Survey of Immigrant Arrivals. This survey is being investigated as a possible source for estimating inward migrants’ transfers.

Other transfers

10.7. Other transfers include, in the general government sector, investment grants in cash or kind made by the Australian Government to non-residents (other transfers debit). These include the direct provision of roads, buildings and other structures, transport equipment, machinery, other equipment, or finance to cover the costs of acquiring such assets. In practice only those grants which are clearly dedicated to specific projects, such as buildings or other structures, are included in capital transfers, and it is possible that some funds which may finance fixed investment are included in current transfers. As Australia is not a recipient of foreign aid, similar data are not estimated on the credit side. While other transfers conceptually include capital taxes (inheritance taxes, death duties and gift taxes) levied by foreign governments on the values of assets, in practice these items are not significant and no estimates are included in Australia’s capital account statistics. In practice, the amounts may be included indistinguishably in current transfers debits, or on a net basis in current transfers credits. Compensation payments by governments to non-residents, for extensive damages to capital assets (oil spills, explosions and other) not covered by insurance policies, would also be included here if such transactions occurred.

10.8. Other non-government transfers include large donations by households, non-profit organisations and enterprises as legacies or gifts (to universities, laboratories, etc.) to finance gross fixed capital formation. Also included are compensation payments for extensive damage to capital assets not covered by insurance. In practice, such transfers are not large for Australia, and data sources do not separately identify these transactions from current transfers of cash. Therefore, no amount is shown separately for them in Australia’s balance of payments statistics.

Valuation and time of recording

10.9. In concept, the valuation and the time of recording of capital transfers in the balance of payments are the same as for current transfers (see paragraphs 9.8 to 9.10). Data on the Australian Government’s foreign aid program come from the Government Ledgers, which record cash payments and therefore do not necessarily reflect the accrual principle that capital transfers are recorded in the same period as the transactions they offset. This may give rise to some minor asymmetry.

10.10. Migrants’ transfers should be recorded at the time of migration. As indicated in paragraph 10.6, this item measures migrants’ transfers credits from the Business Skills Category data (60 percent of migrants’ transfers credits), and for both other migrants’ transfers credits (40 per cent) and all of migrants’ transfers debits, from the numbers of migrants and estimates of average migrants’ transfers based on the SOFUT data. Data from the Business Skills Category measure funds which the migrant actually transfers into Australia both before their arrival and during the first three years following migration. Funds transfer intentions, together with historical information on the realisation of transfer intentions, are used for preliminary estimates of the funds transferred until survey data are available. This timing basis best matches the concept of migrants’ transfers, but does not fully coincide with the transfer of those funds as measured in the financial account; this may give rise to some asymmetry in the balance of payments. As the SOFUT data reflect the time of transfer of funds, no asymmetry is reflected in data recorded in the balance of payments, but the funds transfer may not fully coincide with the migrant’s change of residency.






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