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 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.

13 The statement of stocks and flows for the Commonwealth general government sector is presented in Table 1. During 2007-08 the net worth of the Commonwealth general government sector increased by $36,109 million. This was the result of a $23,304 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 $12,805 million. There were no other volume changes in 2007-08. The key contributors to Other Economic Flows concerned revaluations of assets, notably equity (up $18,224m), land and fixed assets (up $5,137m) and investments, loans and placements (down $12,937m). The liabilities side of the statement was most influenced by an $8,328 decrease in other non-equity liabilities.

TABLE 1. COMMONWEALTH, General Government - Statement of Stocks and Flows
			Opening Stocks as at June 2007	Transactions	Revaluations	Other Volume changes	Closing Stocks as at June 2008
			$m	$m	$m	$m	$m
Assets
	Financial assets
		Cash and deposits	1 107	675	2	-	1 784
		Advances paid	27 072	1 478	-3 213	-	25 337
		Investments, loans and placements	72 602	29 303	-12 937	-	88 968
		Other non-equity assets	38 887	-	-1 667	-	37 220
		Equity	32 332	-6 586	18 224	-	43 970
		Total	172 000	24 870	410	-	197 280
	Non-financial assets
		Land and fixed assets	47 590	435	5 137	-	53 162
		Other non-financial assets	271	1 538	-1 590	-	219
		Total	47 861	2 538	3 547	-	53 381
	Total		219 861	26 843	3 957	-	250 661
Liabilities
	Deposits held		2 919	174	86	-	3 179
	Advances received		-	-	-	-	-
	Borrowing		63 571	1 786	746	-	66 103
	Unfunded superannuation and other employee entitlements		111 127	-	-2 130	-	108 997
	Other provisions		7 108	-	778	-	7 886
	Other non-equity liabilities		28 090	1 579	-8 328	-	21 341
	Total		212 816	3 540	-8 850	-	207 506
GFS Net worth			7 046	23 304	12 805	-	43 155
Net debt			-34 291	. .	. .	. .	-46 808
Net financial worth			-40 816	. .	. .	. .	-10 226
. . not applicable
- nil or rounded to zero (including null cells)

State and Local General Government - Statement of Stocks and Flows

14 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 $77,565 million during 2007-08, only $3,996 million of this increase can be attributed to transactions. The remaining $73,569 million is the result of other economic flows. The largest contributors amongst assets were land and fixed assets ($66,708 million) and equity ($18,454 million). Land and fixed assets in Queensland rose sharply due mainly to a $27,897m revaluation of their road infrastructure assets. The most significant contributor amongst liabilities was unfunded superannuation and other employee entitlements at $11,280 million.

15 In 2007-08, the net worth of local government increased by $31,889 million. Only $3,093 million of this increase can be attributed to transactions. $28,796 million of the change in net worth is the result of other economic flows, which is almost entirely driven by increases in the value of land and fixed assets ($28,287 million).

TABLE 2. STATE, General Government - Statement of Stocks and Flows
			Opening Stocks as at June 2007	Transactions	Other Economic Flows	Closing Stocks as at June 2008
			$m	$m	$m	$m
Assets
	Finanical assets
		Cash and deposits	10 258	3 651	-643	13 266
		Advances paid	6 259	-72	-90	6 097
		Investments, loans and placements	43 906	-2 902	1 467	42 471
		Other non-equity assets	21 324	139	680	22 143
		Equity	185 641	575	18 454	204 670
		Total	267 388	1 391	19 868	288 647
	Non-finanical assets
		Land and fixed assets	329 792	7 736	66 708	404 236
		Other non-financial assets	4 968	568	-3 284	2 252
		Total	334 760	8 304	63 424	406 488
	Total		602 148	9 695	83 292	695 135
Liabilities
	Deposits held		1 516	-171	100	1 445
	Advances received		3 349	-139	29	3 239
	Borrowing		27 989	4 902	506	33 397
	Unfunded superannuation and other employee entitlements		81 845	-106	11 280	93 019
	Other provisions		8 936	-	-106	8 830
	Other non-equity liabilities		17 897	1 212	-2 085	17 024
	Total		141 532	5 699	9 723	156 954
GFS Net worth			460 616	3 996	73 569	538 181
Net debt			-27 570	. .	. .	-23 754
Net financial worth			125 857	. .	. .	131 693
. . 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 2007	Transactions	Other Economic Flows	Closing Stocks as at June 2008
			$m	$m	$m	$m
Assets
	Finanical assets
		Cash and deposits	5 500	485	89	6 074
		Advances paid	5	-5	5	5
		Investments, loans and placements	6 587	-47	375	6 915
		Other non-equity assets	2 215	-170	486	2 531
		Equity	1 639	-336	-312	991
		Total	15 946	-72	641	16 515
	Non-financial assets
		Land and fixed assets	211 098	3 527	28 287	242 912
		Other non-financial assets	1 967	225	-44	2 148
		Total	213 064	3 752	28 244	245 060
	Total		229 010	3 680	28 885	261 575
Liabilities
	Deposits held		468	19	14	501
	Advances received		466	9	-58	417
	Borrowing		5 963	394	-190	6 167
	Unfunded superannuation and other employee entitlements		2 058	107	-34	2 131
	Other provisions		372	81	-69	384
	Other non-equity liabilities		2 460	-23	424	2 861
	Total		11 786	587	89	12 462
GFS Net worth			217 224	3 093	28 796	249 113
Net debt			-5 195	. .	. .	-5 909
Net financial worth			4 159	. .	. .	4 053
. . not applicable

Further information

16 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