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1301.0 - Year Book Australia, 2001  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 25/01/2001   
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ACCRUAL-BASED GOVERNMENT FINANCE STATISTICS

The Australian system for producing GFS was changed during 1999-2000 because of the adoption of accrual accounting by governments and the revision of international statistical standards. As a result, a new conceptual framework was introduced, in the form of an integrated statement of stocks and flows, in place of the old cash-based framework. This new framework allows 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.

The new framework is divided into a number of separate statements (Operating Statement, Statement of Stocks and Flows, Balance Sheet, and Cash Flow Statement), each of which focuses on analytical aggregates or balances of particular interest to users of GFS.

The following statements are presented in this chapter for the total public and general government sectors for all Australian governments combined, and for the State and local government levels:

  • the Operating Statement;
  • the Cash Flow Statement; and
  • the Balance Sheet.

The remainder of this article discusses the accrual-based analytical measures highlighted in these statements, the classifications used in the compilation of GFS and the main differences between the former cash-based and the new accrual-based GFS.


ANALYTICAL MEASURES

The accrual GFS analytical balances are set out below.

Net Operating Balance (NOB)

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 concept of 'Net savings plus capital transfers' in the Australian System of National Accounts (ASNA).

When a government's NOB is positive, it indicates that surplus funds have been generated from current operations and these have resulted in an increase in that government's Net Worth. 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, such as an economic cycle, is indicative of the on-going 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(-) (NLB)

GFS NLB 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'. 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 utilising the financial resources of other sectors in the domestic economy or overseas (i.e. it is borrowing). In this way 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 (NW)

GFS NW is defined as assets less liabilities less shares and other contributed capital. For the general government (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 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

    plus Net cash flows from investments in non-financial assets
    less Distributions paid
    less Acquisitions of assets acquired under finance leases and similar arrangements
    equals Surplus(+)/Deficit(-)
The Surplus(+)/Deficit(-) measure described here is conceptually the same as the Deficit(+)/Surplus(-) used in the former cash-based GFS system; 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 equivalent 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, by running down its financial assets, or by drawing on the cash reserves of the domestic economy, or by borrowing from overseas.


GOVERNMENT FINANCE STATISTICS CLASSIFICATIONS

The adoption of the new GFS conceptual framework also required changes to the main classifications used in the compilation of GFS. These changes are outlined below:
  • Economic Type Framework. This is the main classification of stocks and flows. It is structured as an input classification, unlike the previous output-oriented classification which focused on outlays, revenues and financing transactions. The new classification resembles a set of financial accounting statements with additional sections to cater for the reconciliation of accounting net operating results with cash flows from operating activities, and the capture of 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 similar to the previous Taxes, Fees and Fines Classification except that the fees and fines group has been removed (as recommended by SNA93) and reclassified as user charges (in the case of fees) and as other current revenue (in the case of fines). A category for the goods and services tax (GST) has also been added.
  • Source/Destination Classification. The previous Source/Destination Classification has been expanded to include categories for resident private sector institutional units (private non-financial and financial corporations, households, non-profit institutions serving households) and non-resident institutional units.
  • Institutional Sector Classification. The previous Institutional Sector Classification has been expanded to incorporate public sector financial corporations.
  • Type of Assets Classification. This new classification replaces the former Fixed Asset Classification. The Type of Assets 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.


Relationship of GFS measures to other information

The ABS publishes in Government Finance Statistics (5512.0) reconciliations between GFS, ASNA and AAS31 measures to both explain the differences between them to users and maintain user confidence in the data produced by each system. GFS and ASNA are aimed at macroeconomic analysis, while AAS31 - which is the accounting standard used by governments - is aimed at producing general purpose financial statements on a similar basis to those of private sector entities in order to provide an overview of government performance, financial position, and financing and investing activities.


MAIN DIFFERENCES BETWEEN CASH-BASED AND ACCRUAL-BASED GOVERNMENT FINANCE STATISTICS

27.1 MAIN DIFFERENCES BETWEEN CASH-BASED AND ACCRUAL-BASED GFS

Cash-based GFS Accrual-based GFS Main differences

GENERAL GOVERNMENT

Outlays and revenues compiled on a cash basis Revenues and expenses compiled on an accrual basis Change in accounting basis from cash to accrual
Deficit(+)/Surplus(-) compiled on a cash basis Surplus(+)/Deficit(-) compiled on a cash basis from the cash flow statement Change in sign convention
Partial balance sheet (selected financial assets and liabilities) Full balance sheetChange to full balance sheet (includes non-financial assets)

PUBLIC NON-FINANCIAL CORPORATIONS

Outlays and revenues compiled on an accrual basis Revenues and expenses compiled on an accrual basis No change in the accounting basis of revenues and expenses
Deficit(+)/Surplus(-) compiled on an approximate cash basisSurplus(+)/Deficit(-) compiled on a cash basis from the cash flow statementChange from an approximate cash basis to a cash basis. Change in sign convention
Partial balance sheet (selected financial assets and liabilities) Full balance sheetChange to full balance sheet (includes non-financial assets)

PUBLIC FINANCIAL CORPORATIONS

Outlays and revenues compiled on an accrual basis Revenues and expenses compiled on an accrual basis No change in the accounting basis of revenues and expenses
Deficit(+)/Surplus(-) compiled on an approximate cash basisSurplus(+)/Deficit(-) compiled on a cash basis from the cash flow statementChange from an approximate cash basis to a cash basis. Change in sign convention
Partial balance sheet (selected financial assets and liabilities) Full balance sheetChange to full balance sheet (includes non-financial assets)



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