1301.0 - Year Book Australia, 2002  
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Contents >> Government Finance >> A guide to accrual-based Government Finance Statistics



Starting with the financial year 1998-99, the ABS implemented accrual-based government finance statistics (GFS), replacing the previous predominantly cash-based GFS. The presentation format of the statistical tables has been changed and new analytical balances are derived. This article describes the main elements of these changes.


The Australian system of GFS is designed to provide statistical information on Australian public sector entities (i.e. general government (GG), public non-financial corporations (PNFCs) and public financial corporations (PFCs)) classified in a uniform and systematic way. The system is based on international standards in the System of National Accounts 1993 (SNA93) and the draft accrual version of the International Monetary Fund's A Manual on Government Finance Statistics.

For the various components of the Australian public sector, GFS shows:

  • a consolidated operating statement containing details of transactions in GFS revenues, GFS expenses and the net acquisition of non-financial assets, which focuses on the economic impact and sustainability of the totality of the various jurisdictions' fiscal programs;
  • a consolidated statement of stocks and flows of the Commonwealth and each State/Territory Government individually, and local governments in aggregate in each State and the Northern Territory, which can be used as indicators of their comparative standing; and
  • the roles of the different levels of government in undertaking and financing their fiscal programs.
    GFS reflects the needs of fiscal analysts and other technical users who may be interested in an analysis of government operations. Such operations tend to be different from those of the market-oriented sectors of the economy - the taxation and regulatory functions of general government for example. GFS enable policy makers and analysts to assess the financial operations and the financial position of the public sector for either a specific government, or a specific sector, or a particular set of transactions.

    Understanding the GFS financial statements

    The GFS conceptual framework is divided into a number of separate statements, each of which is designed to draw out analytical aggregates or balances of particular economic significance (these balances are discussed in the next section) and which, taken together, provide for a thorough understanding of the financial positions of jurisdictions individually and collectively. These statements are the Operating Statement, Statement of Stocks and Flows, Balance Sheet and the Cash Flow Statement. An outline of the structure of these statements follows.

    Operating Statement

    The Operating Statement (table 27.1) presents details of transactions in GFS revenues, GFS expenses and the net acquisition of non-financial assets for an accounting period. GFS revenues are broadly defined as transactions that increase net worth and GFS expenses as transactions that decrease net worth. Net acquisition of non-financial assets equals gross fixed capital formation, less depreciation, plus changes in inventories and plus other transactions in non-financial assets.



    GFS Revenues
    GFS Expenses
    GFS Net Operating Balance(b)
    Net acquisition of non-financial assets
    GFS Net Lending(+)/Borrowing(-)(c)

    (a) Transactions only (excludes Revaluations and Other Changes in Volume of Assets). Transactions are changes to stocks that come about as a result of mutually agreed interactions between institutional units. Certain 'internal transactions' which do not involve interaction between units (e.g. depreciation) are also included in recognition of the fact that an institutional unit can act simultaneously in two capacities of economic interest.
    (b) Conceptually equivalent to Australian System of National Accounts (ASNA) Net Savings plus Capital Transfers, but in practice a reconciliation to the ASNA measure will be required to account for some differences in methodology and valuation used in the Australian GFS.
    (c) Conceptually equivalent to ASNA Net Lending/Borrowing, but in practice this measure will differ due to the different treatment and valuation of some component items.

    Statement of Stocks and Flows

    The Statement of Stocks and Flows (table 27.2) shows the opening balances of assets and liabilities, the related flows during the reporting period and the closing balances at the end of an accounting period. The preferred valuation basis for all stocks and flows is current market prices, but where these are not observable a proxy indicator such as net present value is acceptable. Furthermore, assets or liabilities not regularly measured at current values are revalued just prior to their disposal and the revaluation recorded in the Statement of Stocks and Flows.

    Assets represent instruments or entities over which ownership rights are enforced by institutional units and from which economic benefits may be derived by holding them, or using them, over a period of time. Liabilities represent obligations of institutional units to provide economic value to other institutional units. The classification of liabilities and financial assets needs to be symmetrical for consolidation purposes. This means that shares and other contributed capital of market entities such as PNFCs and PFCs are treated as if they were liabilities of these entities.



    Opening balance sheet
    Transaction flows
    Other changes in volume of assets(d)
    Closing balance sheet

    Non-financial assets
    Financial Assets
    Shares and other contributed
    GFS Net Worth
    (1) - (2) - (3)

    (a) Stocks refer to holdings of assets and liabilities, at a point in time, valued at market prices prevailing at that time.
    (b) Flows are economic events and other occurrences that cause changes in the value of stocks through the creation, transformation, exchange, transfer or extinction of value. Flows are recorded in the relevant period on an accrual basis. Thus, the stock of assets and liabilities recorded at the beginning of a period changes, as a result of flows during the period, to a new level of stocks at the end of the period. Stocks are therefore a 'point in time' concept while flows relate to a 'period of time'.
    (c) Revaluations are changes to stocks which arise as a result of price movements, including exchange rate movements. This item is combined with other changes in the volume of assets for publication purposes.
    (d) Other Changes in Volume of Assets are stock changes which are not the result of transactions or revaluations and which may be due to such things as the discovery of new assets and depletion or destruction of existing assets. This item is combined with revaluations for publication purposes.
    (e) This item is zero for the general government sector. For listed entities, it is equal to the market value of shares on issue. For unlisted entities, there is no market valuation of shares as such, so this item is set equal to assets minus liabilities.

    Balance Sheet

    The Balance Sheet (table 27.3) shows stocks of assets, liabilities and GFS Net Worth (NW) and is similar in presentation to the first and last columns of the Statement of Stocks and Flows. The Balance Sheet, however, brings together several jurisdictions' data into a single statement to provide a comparative series.

    27.3 BALANCE SHEET - At 30 June


    Financial assets
    Non-financial assets
    Shares and other contributed capital
    GFS Net Worth
    Net debt(a)
    Net financial worth(b)

    (a) Equals deposits held, advances received and borrowing less cash and deposits, advances paid, and investments, loans and placements.
    (b) Equals total financial assets less total liabilities less shares and other contributed capital.

    Cash Flow Statement

    The Cash Flow Statement (table 27.4) identifies how cash is generated and applied in a single accounting period. 'Cash' means cash on hand (notes and coins held and deposits held at call with a bank or other financial institution) and cash equivalents (highly liquid investments which are readily convertible to cash on hand at the investor's option and overdrafts considered integral to the cash management function).

    The Cash Flow Statement reflects a cash basis of recording (the other statements are on an accruals accounting basis) where the information has been derived indirectly from underlying accrued transactions and movements in balances. This, in effect, means that transactions are captured when cash is received or when cash payments are made. Cash transactions are specially identified because they allow the compilation of the cash-based Surplus(+)/Deficit(-) measure and because the management of cash is often considered an integral function of accrual accounting.



    Net cash flows from operating activities
    Net cash flows from investments in non-financial assets
    Net cash flows from investments in financial assets for policy purposes
    Net cash flows from investments in financial assets for liquidity management purposes
    Net cash flows from financing activities
    Net increase(+)/decrease(-) in cash held


    Net cash flows from operating activities
    Net cash flows from investments in non-financial assets
    Distributions paid(a)
    Acquisitions of assets under finance leases and similar arrangements

    (a) Applicable only to the public non-financial corporations (PNFC) and public financial corporations (PFC) sectors.

    Understanding the GFS analytical balances

    The 'bottom line' of each GFS financial statement is a GFS analytical balance. These balances are the GFS Net Operating Balance (NOB), GFS Net Lending(+)/Borrowing(-) (NLB), GFS NW and GFS Surplus(+)/Deficit(-). It is generally accepted that there is no single measure or balance that summarises the macroeconomic impact of a government's operation, or the viability of its financial position. Rather, the analysis of a range of measures is required to gain a comprehensive understanding of a government's finances and their economic impact.

    The following sections broadly describe how each analytical balance is calculated and what it indicates.

    GFS Net Operating Balance

    The GFS NOB is calculated as transactions in GFS revenues less transactions in GFS expenses. It measures (in accrual terms) the full cost of providing government services, including unfunded superannuation and non-cash items such as depreciation. The NOB is not affected by revaluations of existing assets, by acquisition or disposal of assets or by assets recognised in the Balance Sheet for the first time. This measure is conceptually equivalent to the ASNA concept of 'Net Savings plus Capital Transfers'.1

    When a government's NOB is positive, it indicates that surplus funds have been generated from current operations2 and these have resulted in an increase in that government's Net Worth.3 These surplus funds may be used to acquire assets and/or decrease liabilities. When a NOB is negative, it indicates that a shortfall has occurred on current operations and it has been necessary to incur liabilities and/or liquidate assets, but it does not necessarily indicate that a government is a net borrower. It can therefore be said that a government's NOB which is in an overall positive balance over a number of periods, say an economic cycle, is indicative of the ongoing sustainability of that government's operations. However, it should not be necessarily taken as an indicator of sustainability or otherwise of a government's future operations.

    GFS Net Lending(+)/Borrowing(-)

    GFS NLB4 is calculated as the NOB less net acquisition of non-financial assets (gross fixed capital formation less depreciation plus change in inventories plus other transactions in non-financial assets). It measures in accrual terms the gap between government savings plus net capital transfers and investment in non-financial assets. The GFS NLB is conceptually equivalent to the ASNA concept of 'Net Lending/Borrowing'.5 As such, it measures the contribution of the sector to the balance on current and capital accounts in the balance of payments.

    When NLB is positive, a government is placing financial resources at the disposal of other sectors in the domestic economy or overseas (i.e. it is lending). When NLB is negative, a government is using the financial resources of other sectors in the domestic economy or overseas (i.e. it is borrowing). Thus NLB can be viewed as a macro or global indicator of the financial impact of government operations on the rest of the economy.

    GFS Net Worth

    GFS NW is defined as assets less liabilities less shares and other contributed capital. For the GG sector, NW is simply assets less liabilities as other institutional units do not hold shares or other equity capital in this sector.

    For listed public corporations, NW is assets less liabilities less shares and other contributed capital. The shares for listed corporations are recorded at the closing values prevailing in the stock exchange market at the reference date. These corporations therefore have a NW measure determined through the valuation implicit in the stock market mechanism.

    A similar stock market valuation basis does not exist for unlisted corporations. The shares and other contributed capital for such corporations are therefore set equal to the value of assets less liabilities. This means that their NW is zero. However, in the balance sheet of the owner (i.e. the GG sector) the value of shares and other contributed capital of such entities (i.e. the difference between their assets and liabilities) is shown as an asset and therefore reflected in the NW of the owner.

    The NW at two points in time can be differenced to obtain the change in NW, which is attributable to transaction flows (i.e. the NOB) and other flows (i.e. revaluations and other changes in the volume of assets).

    The NW is an economic measure of wealth. It reflects the contribution of governments to the wealth of Australia.

    GFS Surplus(+)/Deficit(-)

    The Surplus(+)/Deficit(-) is a cash-based measure and is calculated as:
      Net cash flows from operating activities
      plusNet cash flows from investments in non-financial assets
      lessDistributions paid
      lessAcquisitions of assets acquired under finance leases and
      similar arrangements
    The Surplus(+)/Deficit(-) measure described here is conceptually the same as the Deficit(+)/Surplus(-) used in the former cash-based GFS system;6 in practice, however, the Surplus(+)/Deficit(-) in the accrual-based GFS system has been derived using different methodologies which result in a break in the time series across the two systems. The Surplus(+)/Deficit(-) is the cash-based equivalent7 of the GFS Net Lending/Borrowing described above.

    The Surplus(+)/Deficit(-) is a broad indicator of a sector's cash flow requirements. When this measure is positive (i.e. a surplus), it reflects the extent to which cash is available to government to either increase its financial assets or decrease its liabilities (assuming no revaluations and other changes occur). When this measure is negative (i.e. a deficit), it is a measure of the extent to which government requires cash, either by running down its financial assets or by drawing on the cash reserves of the domestic economy, or from overseas.


    1 In practice, a reconciliation of GFS NOB to ASNA Net Savings plus Capital Transfers will be required to account for some differences in methodology and valuation used in the Australian GFS.

    2 Includes net capital transfers, i.e. capital transfers received less capital transfers paid on an accruals basis.

    3 Price changes (referred to as revaluations) and other changes in volume of assets may also impact on government's NW.

    4 The Commonwealth budget uses the term 'Fiscal Balance' when referring to the GFS NLB.

    5 In practice, GFS NLB will differ from ASNA NLB due to the different treatment and valuation of some component items.

    6 Note that there has been a reversal of the sign convention between the two systems. A 'surplus' in the accruals-based system is presented as a positive value.

    7 Although the Surplus(+)/Deficit(-) is a cash-based measure and does not capture non-cash items such as accruing unfunded superannuation or depreciation, it does, however, include some items of a non-cash nature to avoid a large break in the continuity of this measure.

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