Most of the changes to GFS which were discussed in a previous Information Paper titled Developments in Government Finance Statistics (Cat. no. 5516.0), released in February 1997, were implemented in the old cash-based statistics. These changes included the reclassification of central borrowing authorities from the general government sector to the public financial corporations sector, the extension of the scope of GFS to include other public financial corporations, the reclassification of public sector universities from each jurisdiction’s general government sector to the multi-jurisdiction general government sector, and the treatment of state/territory tax-equivalent payments and receipts.
The most fundamental change (the adoption of an accrual accounting basis for recording general government finances) will be implemented in the next issue of Government Financial Estimates (Cat. no. 5501.0), to be released on 3 April 2000.
The major changes to GFS resulting from the adoption of accrual accounting principles are summarised below.
NEW CONCEPTUAL FRAMEWORK
The new conceptual framework is in the form of an integrated statement of stocks and flows which is derived from the System of National Accounts 1993 (SNA93). This differs significantly from the old cash-based framework which focused on selected stocks and flows. The new framework facilitates a more comprehensive assessment of the economic impact of government activity and the sustainability of fiscal policy. It also provides an improved basis for monitoring efficiency in the allocation and use of government resources. A number of new analytical balances will be compiled, as described below.
New analytical balances
The new analytical balances are the Net Operating Balance (NOB), GFS Net Lending(+)/Borrowing(–), GFS Net Worth, Increase in GFS Net Worth, and the Surplus(+)/Deficit(–).
Net Operating Balance is calculated as GFS revenues minus GFS expenses; it is equivalent to the Increase in Net Worth arising from transactions as defined in chapter 3.
Net Lending/Borrowing is derived by subtracting the net acquisition of non-financial assets (gross fixed capital formation less depreciation plus changes in inventories and other transactions in non-financial assets) from GFS Net Operating Balance. A positive result reflects a net lending position and a negative result reflects a net borrowing position. Net Worth, a stock measure, is the difference between assets (financial and non-financial) and liabilities plus shares and other contributed capital, while Increase in Net Worth is the difference between Net Worth at the end of the current period less Net Worth at the end of the previous period. Increase in Net Worth (due to transactions) is also equal to the Net Operating Balance.
Surplus(+)/Deficit(–) is similar in concept to the previous cash-based measure but uses a different sign convention, i.e. a positive sign now indicates a surplus. It is also no longer directly comparable to the old measure because of changes in some juridictions’ methodologies and data sources. The Surplus(+)/Deficit(–) is derived as the net cash flows from operating activities and investments in non-financial assets less distributions paid and acquisitions of assets under finance leases.
The adoption of a new conceptual framework has required changes to most of the classifications used in the compilation of GFS. These changes are outlined below:
- Economic Type Framework (ETF) — This is the main classification of stocks and flows. It is structured as an input classification, unlike the previous classification which was output oriented and focused on outlays, revenues and financing transactions. The new ETF resembles a set of financial accounting statements with sections for the operating statement, cash flow statement and balance sheet. In addition, there are sections to cater for the reconciliation of accounting net operating result with cash flows from operating activities and to capture items such as acquisitions of assets under finance leases, intra-unit transfers, and revaluations and other changes in the volume of assets.
- Taxes Classification — The new Taxes Classification is virtually the same as the previous Taxes, Fees and Fines Classification except that the fees and fines group has been removed because, as recommended by the SNA93, they are now classified as user charges (in the case of fees) and as other current revenue (in the case of fines). As from 1 July 2000, a new classification category for the Goods and Services Tax (GST) will be introduced. Appendix 1 outlines the ABS treatment of GST revenues in GFS as a tax of the Commonwealth Government.
- Source/Destination Classification — The new Source/Destination Classification has been expanded and now includes categories for resident private sector institutional units (private non-financial and financial corporations, households, non-profit institutions serving households (NPISHs)) and non-resident institutional units.
- Institutional Sector Classification — The previous Institutional Sector Classification has been expanded to incorporate public sector financial corporations.
- Type of Asset Classification — This is a new classification which replaces the former Fixed Asset Classification. The Type of Asset Classification incorporates the SNA93 distinction between produced (tangible and intangible) and non-produced (tangible and intangible) assets.
- Government Purpose Classification — The Government Purpose Classification remains unchanged.
Break in GFS time series
The ABS’s original strategy was to bridge between the previous predominantly cash-based GFS series and the new accrual series by presenting the historical series from 1961-62 on an approximate accrual basis. This series was to have been based on the cash statistics with some adjustments to general government data mainly relating to depreciation provisions, accrued superannuation expenses and other accrual adjustment items where possible. Because of concerns about the quality of the derived series, and after consultation with the Treasuries of all jurisdictions, the ABS has decided not to release the derived historical series. The accrual GFS time series will therefore begin in respect of data for 1998-99.
To compile an accrual historical or back series the ABS could, with the collaboration of Treasuries, source the data from the AAS 31 (Australian Accounting Standard 31: Financial Reporting by Governments) financial statements which a number of jurisdictions have released for varying time periods prior to 1998-99. The ABS has indicated to Treasuries that provided they supply their available accrual unit level data coded using GFS classifications and provided the relevant jurisdictions and the ABS are satisfied with the quality of the resultant series, it will be prepared to make these available as ‘official’ ABS series.
Integration of FALS
The Financial Assets and Liabilities (FALS) collection presented data on selected financial assets and liabilities of Australian governments. This partial balance sheet collection has been discontinued as it now forms a subset of the full GFS balance sheet that will be collected for the accrual GFS. However, in order to provide a measure of continuity in the switch-over to accrual GFS, the Net Debt information will still be available and the series will continue to be published for the time being.
The GFS consolidation methodology will remain largely unchanged. However, with the implementation of accrual GFS many more items will be subject to consolidation.
RECONCILIATIONS BETWEEN GFS, ASNA AND AAS 31
A number of items are treated differently under GFS, ASNA and AAS 31. GFS and ASNA are frameworks designed to facilitate macro-economic analysis, while the public sector accounting standards are aimed at producing general purpose financial statements on a similar basis to private sector entities to provide an overview of government performance, financial position, and financing and investing activities. The differences in objectives between GFS and ASNA on the one hand and AAS 31 on the other can result in significant differences between corresponding analytical balances such as the net operating balance (or result) and net lending/borrowing. The ABS intends to prepare reconciliations between GFS, ASNA and accounting measures to both explain the differences between them to users and to maintain user confidence in the data produced by each system.