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TREATMENT OF THE FUTURE FUND IN ABS STATISTICS
The Future Fund commenced in the June 2006 quarter and will therefore impact ABS statistics from this period.
This note outlines the proposed treatment of the Future Fund in Government Finance Statistics (GFS), the Australian National Accounts and in other statistics compiled by the Australian Bureau of Statistics.
The Future Fund
The Future Fund is established by the Future Fund Act 2006 (the Act) to accumulate financial assets as a provision to meet the Australian Government's unfunded superannuation liabilities. Transfers to the Fund will be sourced from realised cash surpluses, including a portion from previous realised surpluses, and the proceeds of future assets sales. The Fund is authorised to hold only financial assets (as defined by the ABS for GFS purposes) and all its earnings are to be re-invested.
The Future Fund consists of the Future Fund Special Account (the Fund Account) and the investments of the Future Fund. The Act also establishes the Future Fund Board of Guardians (the Board) and the Future Fund Management Agency (the Agency).
Future Fund Special Account
The Fund Account is established by Section 12 of the Act as a Special Account for the purposes of the Financial Management and Accountability Act 1997. An initial amount of $18 billion will be credited to the Fund Account. Additional amounts, as determined by the responsible Ministers, may be credited to it, so long as the additional amounts do not result in the balance exceeding the target asset level. This level represents the amount that is expected to offset, at the time of assessment, the present value of projected unfunded superannuation liabilities. The responsible Ministers may also transfer Commonwealth-owned financial assets and authorise the transfer of gifts to the Fund Account. This includes the possible transfer of some or all of the Government's remaining equity in Telstra.
Amounts will be debited from the Fund Account in accordance with its purposes. Its main purpose is to discharge unfunded superannuation liabilities of the Australian Government from the earlier of the point at which Fund assets are sufficient to offset the unfunded liabilities and 1 July 2020. The Fund Account will also pay for the remuneration of Board members, the costs associated with acquisition of financial assets, expenses relating to investments, expenses relating to the operation of bank accounts, employee-related expenses in respect of Agency staff, and other costs, expenses and obligations incurred by the Commonwealth in connection with the Board and the Agency.
Future Fund Board of Guardians
The Board is established under Section 34 of the Act. It is responsible for managing the investments of the Future Fund. It has the power to enter into contracts but does not have the power to lease land or buildings. Any real or personal property held by the Board is held for and on behalf of the Commonwealth, and any monies received by it are received for and on behalf of the Commonwealth.
The Board is a body corporate with perpetual succession and a seal. It may acquire, hold and dispose of real and personal property, and may sue and be sued in its corporate name.
The Board consists of a Chair and 6 other members. Members are to be appointed by the responsible Ministers by written instrument. A person is not eligible to become a member if they are an employee of the Commonwealth. A Board member holds a part-time office under a law of the Commonwealth.
For the purposes of the Corporations Act 2001, the Board is taken to be an exempt public authority, and an instrumentality of the Crown in right of the Commonwealth.
Future Fund Management Agency
Section 74 of the Act established the Agency. It does not have a legal identity separate from the Commonwealth. It will provide executive and administrative support for the Board and undertake all operational activities associated with the investment of Future Fund monies.
The Agency consists of the Chair and staff. The Chair, under the Minister, is responsible for managing the Agency. The staff are persons engaged under the Public Service Act 1999. The Chair and staff together will constitute a Statutory Agency for the purposes of this act. The Chair is the head of the Agency.
TREATMENT IN GOVERNMENT FINANCE STATISTICS AND OTHER ABS STATISTICS
Recognition of Institutional Units
Macro-economic statistics are compiled on the basis of institutional units. An institutional unit is an economic entity that can own assets, incur liabilities, and engage in economic activity and transactions with other entities in its own right. The entities associated with the Future Fund (the Fund Account, the Board and the Agency) are examined below to establish the institutional units that best reflect the arrangements in place.
The Fund Account will simply contain details of amounts credited to it e.g. from realised surpluses and details of amounts debited to it e.g. for the discharge of superannuation liabilities. As such, this account is not a separate institutional unit in its own right; rather, it is part of another institutional unit.
The Board is a body corporate and it may acquire, hold and dispose of real and personal property, and may sue and be sued in its corporate name. It is responsible for managing the investments of the Future Fund and has the power to enter into contracts. It is possible to view the Board as an institutional unit.
The Agency consists of the Chair and staff. It will provide executive and administrative support for the Board and undertake all operational activities associated with the investment of Future Fund monies. The Chair and the staff together constitute a Statutory Agency under the Act, but the Agency does not have a legal identity separate from the Commonwealth. There is no strong indication to suggest that the Agency is a separate institutional unit.
Section 80 of the Act stipulates that, for the purposes of the Financial Management and Accountability Act 1997, the Board and the Agency constitute a 'single agency' with the Chair being the Chief Executive of that 'single agency'. An annual report under Section 81 of the Act is an annual report of the 'single agency'. This means that for both the Board and the Agency there will be a single fraud control plan, a single audit committee, a single set of accounts and records, a single set of annual financial statements, a single set of additional financial statements if required by the Finance Minister, and auditing of the single set of annual financial statements.
As the Act requires the Agency and the Board to be viewed as a 'single agency' for the purposes of accountability, financial reporting and auditing, it is logical in this instance to recognise the 'single agency' as a separate institutional unit in economic statistics.
Classification of Institutional Units
In macro-economic statistics, institutional units are classified to one of five institutional sectors: non-financial corporations; financial corporations; general government; non-profit institutions serving households; and, households. (Corporations are units that are engaged in the provision of market goods and services.) Institutional sectors group together institutional units that undertake similar economic activities and have similar economic objectives. Moreover, institutional units are classified to the public sector if they are government units, or controlled by government units or public corporations.
The 'single agency' referred to above is considered controlled by the Commonwealth as it is created under Commonwealth government legislation and all seven members of the Board are to be appointed by responsible ministers. The 'single agency' will therefore be classified as part of the public sector for statistical purposes.
The 'single agency' will hold the financial assets of the Future Fund and manage its investments. However, it will not engage in financial intermediation nor will it provide auxiliary financial services for sale in the market. Therefore, the 'single agency' cannot be classified to the financial corporations sector. As the 'single agency' will also not be engaged in the provision of other goods and services for the market, it cannot be classified to the non-financial corporations sector. Clearly, the 'single agency' is also neither a household nor a non-profit institution serving households.
In Government Finance Statistics, the concept of an ancillary unit is used to identify a government entity that provides goods and services to other government units. It may be an internal service organisation that provides its output mainly to other government units, such as a transportation pool, a supply depot, or a building maintenance facility. The activities of such entities are consolidated with the activities of the government unit that controls it. An ancillary unit may also be a separate institutional unit that provides financial services only to general government units. Such units are classified as general government units rather than financial corporations.
The 'single agency' is in the nature of an ancillary unit discussed above. In effect, it is facilitating government investment and in so doing it is providing a service to government only. Therefore, the institutional unit that is the 'single agency' will be classified to the Commonwealth general government sector.
Treatment of Flows and Balances
As the institutional unit associated with the Future Fund is within the general government sector, any flows - including any transfer of Commonwealth-owned Telstra equity - and any balances with other Commonwealth general government units will be eliminated on consolidation, consistent with GFS procedures. Only those flows and balances with entities outside of the sector will be reflected in the statistics for the Commonwealth general government. Therefore, the flows and balances of the Future Fund with other Commonwealth general government units will not impact on the GFS surplus/deficit , net lending/borrowing or net worth measures compiled by the ABS for this sector. (For further information on consolidation, refer to Australian System of Government Finance Statistics: Concepts, Sources and Methods 2005 (ABS Catalogue Number 5514.0)).
All revenues, expenses, balances, etc of the Future Fund will be treated in the same manner as the revenues, expenses, balances, etc of other general government units. In particular, for GFS purposes, the ABS will continue to report the cash deficit/surplus as currently defined and the cash earnings of the Future Fund from investments outside of the Commonwealth general government will be included within it.
The treatment of the Future Fund adopted for the purposes of GFS will also be reflected in other associated ABS statistics, including the Australian National Accounts and financial statistics.
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