TECHNICAL NOTE STATEMENT OF STOCKS AND FLOWS

 
STATEMENT OF STOCKS AND FLOWS
 
1    The international GFS standard as promulgated by the International Monetary Fund recommends that opening and closing 'stock' values be reconciled with all 'flows' occurring throughout the year. The standard is based on an analytical framework in which all changes in the values of stocks from one year to the next can be fully explained by the flows that have occurred during that year.
 
2    Institutional units hold assets (financial and non-financial) and incur liabilities (which by definition are financial). The level of these assets and liabilities at any point in time is the stock. The difference between assets and liabilities is net worth, which is a measure of the 'wealth' of units or of government. Anything which causes a change in these stocks of assets and liabilities is a flow. Flows are disaggregated into transactions and 'other economic flows'. A transaction is, for the most part, an interaction between two units by mutual agreement, whereas an 'other economic flow' is a change in the volume or value of a stock of a unit not resulting from a transaction.
 
3    By definition, the value of a stock at the end of a period is the sum of the stock at the beginning of the period and all the flows affecting that stock which took place during the period, i.e. S₁ = S₀ + F₁ ,where S₀ and S₁ represent the values of a specific stock at the beginning and end of an accounting period, and F₁ represents the net value of all flows during the period relevant to that particular stock.
 
4    Statistics on transactions giving rise to revenues and expenses are currently published as part of the GFS operating statement. Revenues are defined as transactions which increase net worth whereas expenses are transactions which decrease net worth. The difference between revenues and expenses, therefore, represents the change in net worth due to transactions. This equates to the GFS net operating balance.
 
5    Other economic flows can be further disaggregated into movements in asset/liability values resulting from price changes ('revaluations') and those resulting from volume changes ('other volume changes').
 
6    Revaluations result from changes to the value of the assets and liabilities whilst held. Revaluations can accrue to financial assets such as bonds and bills, shares and other forms of equity, as well as non-financial assets such as land and buildings.
 
7    Other volume changes refer to events that include:

• the recognition or de-recognition of assets or liabilities on the balance sheet - e.g. when resources become economically exploitable, or when an asset is no longer providing an economic benefit, and so is removed from the balance sheet.
• changes in the quantity or quality of the existing asset - these typically result from catastrophic losses through natural disasters, changes in the volume of natural assets such as fish or forest stocks, creation, discovery, cancellation or seizure of assets, or quality differences arising from events such as a change in the expected life of the asset.
• changes in the classification of assets - these usually arise when the use of an asset changes, e.g. if the use of a parcel of public land changes from recreational use to industrial use.

 
8    The net effect of all revaluations and other volume changes occurring through the year represents the change in net worth due to other economic flows.
 
9    Since the values of stocks at the end of a year must be equal to their values at the start of a year, plus all transactions and other economic flows affecting them during the year, it follows that the total change in net worth during a given year is equal to the change in net worth due to transactions, plus the change in net worth arising from other economic flows.
 
10    When working with actual reported data, it is often assumed that the difference between opening and closing net worth and the change in net worth due to transactions is attributable to the change in net worth due to other economic flows (i.e. other economic flows is effectively used as a balancing item). However, to ensure data quality it is necessary to independently collect and calculate the change in net worth due to other economic flows. In situations where the reported data do not add through, it is not necessarily the case that the data quality issue is in the other economic flows component of the framework. Where data quality is high throughout the reported data set, the three independently reported components (i.e. change in net worth as derived via the balance sheet, change in net worth due to transactions, and change in net worth due to other economic flows) will be consistent with each other.
 
11    The Commonwealth Government publishes a statement of other economic flows for the general government sector. This statement outlines all revaluations and other volume changes occurring throughout the year, which allows a full reconciliation of stocks and flows. This information allows the ABS to disaggregate other economic flows into price and volume effects. While some states also publish a statement of other economic flows, the majority currently do not. For local government, information on the components of other economic flows are also generally unavailable. Accordingly, the ABS does not have enough information on which to disaggregate other economic flows into its two components across the state and local levels of government.
 
 
Commonwealth General Government - Statement of Stocks and Flows
 
12    The statement of stocks and flows for the Commonwealth general government sector is presented in Table 1. During 2006-07 the net worth of the Commonwealth general government sector increased by $13,383 million. This was the result of a $19,279 million GFS net operating balance (which reflects the change in net worth due to transactions) combined with a change in net worth due to other economic flows of -$5,896 million. The change in other economic flows was largely the result of -$6,262 million in revaluations. The key contributors to this were revaluations in advances paid (-$4,372 million), investments, loans and placements (-$3,903 million) and unfunded superannuation and other employee entitlements ($5,144 million). In 2006-07, there was $366 million of assets recognised for the first time which contribute to the change in net worth as other volume changes.
 

TABLE 1. COMMONWEALTH , General Government - Statement of Stocks and Flows
			Opening Stocks as at June 2006	Transactions	Revaluations	Other Volume changes	Closing Stocks as at June 2007
			$m	$m	$m	$m	$m
Assets
	Financial assets
		Cash and deposits	2 177	-822	-248	-	1 107
		Advances paid	25 502	1 505	-4 372	-	22 635
		Investments, loans and placements	47 754	26 919	-3 903	-	70 770
		Other non-equity assets	31 444	-	7 376	-	38 820
		Equity	44 186	-8 908	-1 115	-	34 163
		Total	151 063	18 694	-2 262	-	167 495
	Non-financial assets
		Land and fixed assets	45 379	1 397	453	366	47 595
		Other non-financial assets	220	811	-760	-	271
		Total	45 599	2 207	-306	366	47 866
Total			196 662	20 901	-2 567	366	215 362
Liabilities
	Deposits held		2 836	4	79	-	2 919
	Advances received		-	-	-	-	-
	Borrowing		63 415	-889	-76	-	62 450
	Unfunded superannuation and other employee entitlements		105 983	-	5 144	-	111 127
	Other provisions		6 421	-	687	-	7 108
	Other non-equity liabilities		28 193	2 508	-2 139	-	28 562
	Total		206 849	1 623	3 694	-	212 166
GFS Net worth			-10 187	19 279	-6 262	366	3 196
Net debt			-9 182	. .	. .	. .	-29 144
Net financial worth			-55 786	. .	. .	. .	-44 671
. . not applicable
- nil or rounded to zero (including null cells)

 
 
State and Local General Government - Statement of Stocks and Flows
 
13    Both the state and local tables (Table 2 and Table 3 respectively) highlight the significance of other economic flows. Though the net worth of state governments increased by $51,600 million during 2006-07, only $6,776 million of this increase can be attributed to transactions. The remainder ($44,824 million) is the result of other economic flows. The largest contributors were land and fixed assets ($26,197 million) and equity ($13,316 million). The increase in land and fixed assets in part reflects strong increases in land prices in 2006-07.
 
14    In 2006-07, the net worth of local government increased by $15,975 million. Only $3,173 million of this increase can be attributed to transactions. $12,802 million of the change in net worth is the result of other economic flows, which is mostly driven by increases in the value of land and fixed assets.
 

TABLE 2. STATE, General Government - Statement of Stocks and Flows
			Opening Stocks as at June 2006	Transactions	Other Economic Flows	Closing Stocks as at June 2007
			$m	$m	$m	$m
Assets
	Financial assets
		Cash and deposits	10 045	208	34	10 287
		Advances paid	5 296	-297	1 107	6 106
		Investments, loans and placements	46 778	-2 174	-698	43 906
		Other non-equity assets	17 754	163	3 465	21 382
		Equity	170 199	1 272	13 316	184 787
		Total	250 072	-828	17 224	266 468
	Non-financial assets
		Land and fixed assets	298 213	5 239	26 197	329 649
		Other non-financial assets	4 009	538	417	4 964
		Total	302 221	5 777	26 614	334 612
Total			552 294	4 949	43 838	601 081
Liabilities
	Deposits held		1 553	46	-5	1 594
	Advances received		3 110	-60	299	3 349
	Borrowing		25 886	912	1 144	27 942
	Unfunded superannuation and other employee entitlements		88 930	-106	-6 922	81 902
	Other provisions		9 316	-	-350	8 966
	Other non-equity liabilities		15 649	-2 618	4 847	17 878
	Total		144 444	-1 827	-986	141 631
GFS Net worth			407 850	6 776	44 824	459 450
Net debt			-31 570	. .	. .	-27 414
Net financial worth			105 628	. .	. .	124 837
. . not applicable
- nil or rounded to zero (including null cells)

 

TABLE 3. LOCAL , General Government - Statement of Stocks and Flows
			Opening Stocks as at June 2006	Transactions	Other Economic Flows	Closing Stocks as at June 2007
			$m	$m	$m	$m
Assets
	Financial assets
		Cash and deposits	4 996	115	462	5 573
		Advances paid	6	-4	3	5
		Investments, loans and placements	5 360	344	383	6 087
		Other non-equity assets	1 918	251	-12	2 157
		Equity	1 401	52	196	1 649
		Total	13 681	758	1 033	15 472
	Non-financial assets
		Land and fixed assets	195 943	2 965	11 842	210 750
		Other non-financial assets	1 508	499	-295	1 712
		Total	197 451	3 464	11 547	212 462
Total			211 133	4 222	12 579	227 934
Liabilities
	Deposits held		396	15	14	425
	Advances received		433	2	34	469
	Borrowing		5 085	378	71	5 534
	Unfunded superannuation and other employee entitlements		1 990	98	-11	2 077
	Other provisions		335	-22	82	395
	Other non-equity liabilities		2 256	578	-415	2 419
	Total		10 494	1 049	-224	11 319
GFS Net worth			200 639	3 173	12 802	216 614
Net debt			-4 449	. .	. .	-5 237
Net financial worth			3 187	. .	. .	4 152
. . not applicable

 
 
Further information
 
15    For more information on the statement of stocks and flows, refer to Table 2.1 in Australian System of Government Finance Statistics: Concepts, Sources and Methods (cat no 5514.0) and Chapter 4 of the International Monetary Fund's Government Finance Statistics Manual 2001