Government Finance Statistics, Australia

COVID-19 impacted a range of Government Finance Statistics series in the September quarter 2020. Key policies and conceptual determinations are discussed in the article Economic measurement during COVID-19: Selected issues in the Economic Accounts. Further ABS data measuring the impact of COVID-19 can be found via abs.gov.au/covid19.

Commonwealth subsidy expenses for June quarter 2020 have been revised due to updated timing calculations used by the ABS. Timing differences in recording of these subsidies will result in a divergence between the Commonwealth Government financial reporting and ABS published macroeconomic statistics.

One spotlight article is included in this release:

• Spotlight: Classifying COVID-19 policy interventions in macroeconomic statistics, which examines key COVID-19 policies affecting September quarter 2020 and compares the classifications to stimulus policies during the Global Financial Crisis.

The following Australian Accounting Standards Board (AASB) standard changes have been introduced in government financial reporting for periods from 1 July 2019 onwards, leading to increased divergence in certain circumstances between economic statistics publications and government financial reporting:

• Leases (AASB 16): The standard removes the distinction between operating and finance leases on the lessee side of financial reporting. The conceptual distinction between operating and finance leases still remains in economic statistics. GFS outputs are consistent with the historical treatment. 
• Revenue recognition (AASB 15 & 1058): The standard requires revenue to be recognised when performance obligations are met in certain circumstances. In GFS the change primarily affects grant revenue received by state and territory governments from the Commonwealth. Recognition of grant revenue in GFS remains consistent with the historical treatment which is based on when jurisdictions have access to the funding as reported by the Commonwealth.
• Service Concession Arrangements (AASB 1059): The standard impacts ownership of non-financial assets. It applies a control concept to determine non-financial asset ownership. Non-financial asset ownership in GFS is determined based off a risk-reward concept consistent with the historical treatment which has been maintained in economic statistics. 

In December 2015, the Commonwealth Government released the 2015-16 Mid-Year Economic and Fiscal Outlook (MYEFO) which included a reclassification of visa application charges (VAC). In MYEFO these charges are now treated as taxation revenue rather than sales of goods and services. This reclassification has been applied to the Government Finance Statistics (GFS), with no impact on total GFS revenue or the GFS net operating balance. The National Accounts statistics will maintain coherence with previously published data and classify this transaction as sales of goods and services. These treatments will remain in place until a review of the treatment of VAC across macroeconomic statistics has been completed.

Total General Government net operating balance was -$93.6 billion, a fall of $9.8 billion from the June quarter estimate of -$83.8 billion.
The Commonwealth government was the major contributor to the fall, decreasing $19.7 billion from the June quarter estimate of -$68.5 billion, reflecting a number of new and ongoing economic support packages provided to businesses, employees, and households in response to the COVID-19 pandemic.
Through the year, total General Government net operating balance fell $80.2 billion, with the Commonwealth government net operating balance decreasing by $73.4 billion.

Total state and local general government net operating balance increased to -$6.6 billion, from the June quarter estimate of -$13.9 billion. This $7.3 billion improvement partially offsets the fall in the Commonwealth government net operating balance. The majority of state and local governments showed an improved net operating balance compared to last quarter. 
Western Australia is the only state to return to a positive net operating balance, and show an improvement through the year since September 2019, due in part to strong revenues from royalties and an increased GST allocation.
Through the year, total State and local general government net operating balance fell $7.0 billion, with Victoria recording the most significant fall followed by New South Wales and Queensland, reflecting a continuation of increased spending on subsidies and health services since the beginning of the COVID-19 pandemic. 

Total expenditure fell 0.5% from June quarter 2020 to $253.0 billion, driven by a slight reduction in COVID-19 related subsidies and partially offset by increased payments related to the Medicare and Pharmaceutical Benefits Schemes. Through the year growth remained strong at 42.6%, reflecting a continuation of significant economic support programs such as JobKeeper, Boosting cash flow for employers, the Coronavirus Supplement and other COVID-19 related payments.
Total revenue decreased 6.5% from June quarter 2020 and fell 2.8% through the year to $159.4 billion, primarily as a result of lower taxation. This through the year fall has shown a modest recovery relative to the 11.1% fall observed in June quarter 2020. 

Taxation revenue recorded a 1.2% fall through the year, improving on the 8.1% through the year fall recorded in June quarter 2020.

Total Commonwealth government taxation revenue remained flat through the year at 0.0% (down $9 million). Weakened domestic economic activity and global trade drove the declines in taxation such as company income tax (down 3.8% or $830 million) and excises on petroleum products (down 10.2% or $549 million).
This weakness was offset by through the year growth in personal income tax (up 12.3% or $4.3 billion) and GST (up 1.3% or $206 million). The through the year increase in personal income tax is largely driven by a weaker September quarter 2019, where a new tax relief policy lead to a higher volume of income tax refunds paid out early in the 2019-20 financial year. The modest through the year GST growth is due to a recovery in consumer spending as COVID-19 restrictions eased across most jurisdictions in the September quarter 2020.

Total State and local government taxation revenue fell 5.8% ($1.6 billion) through the year to September quarter 2020. This mainly reflects a continuation of payroll tax waiver policies in response to the COVID-19 pandemic. In addition, continued business closures contributed to the 6.2% ($527 million) fall through the year in taxes on the provision of goods and services. This led to a reduction in gambling taxes. Offsetting this was a slight rise in stamp duties on conveyances.

All Australia public investment growth remains subdued in September quarter 2020, with growth of 2.7% ($398 million) through the year in All Australia general government (GG), offset by a slight decrease of -0.8% (-$43 million) in All Australia public non-financial corporations (PNFCs). This follows a period of strong growth in Public Investment since December quarter 2018 driven by the larger jurisdictions, most of which have observed significantly reduced growth through the year in recent quarters. Victoria is slightly offsetting this trend with three successive quarters of growth through the year driving the slight recovery at All Australia level this quarter.

Total General Government net worth was $10.1 billion, a fall of $124.8 billion from the June quarter estimate, as the increase in liabilities was greater than the increase in assets. The large incurrence of liabilities is as a result of significant amounts of debt securities issued by both Commonwealth and state governments to fund expenditure to support the economy during the COVID-19 pandemic. Through the year, General Government net worth decreased $236.7 billion.
Net financial worth was -$939.3 billion, a fall of $126.9 billion from the June quarter estimate, with the Commonwealth government contributing the majority of the fall. Net financial worth decreased by a further $286.1 billion through the year.

International travel restrictions on arrivals to Australia were introduced in March in response to the global COVID-19 pandemic. As a result, international student numbers reduced substantially and university fee revenue declined strongly.

In response, the university sector introduced a range of measures to reduce expenditure, including: scope reductions or postponement of both new and ongoing capital works; restructuring of course offerings; and a reduction in overall staffing levels. 

In September quarter 2020, the reduction in revenue stabilised due in part to increased availability of online learning facilities, while operating and capital expenditure continued to show stronger declines in growth through the year.

The COVID-19 pandemic led to the fastest and largest fiscal response to an economic event in modern Australian history, with several hundred policy interventions announced across all levels of government. To put the size of the fiscal response into historical context, expenditure on the JobKeeper wage subsidy alone totalled $70.9 billion by 30 September 2020, compared to total Commonwealth government expenditure of $57.1 billion on all stimulus policies to address the 2008 to 2009 Global Financial Crisis (GFC).

This spotlight provides a summary of the conceptual classification of key COVID-19 policies in place during the September quarter 2020. For comparative purposes classifications of key GFC policy interventions are also presented.

The ABS continue to undertake extensive consultation with stakeholders and subject matter experts to determine appropriate classifications for COVID-19 policy interventions. These classifications are based on well-established conceptual frameworks (footnote 1), which ensure consistent recording of these policies across macroeconomic statistics, particularly in relation to Government Finance Statistics (GFS) and the National Accounts (NA).

The COVID-19 policies are grouped into five broad categories (footnote 2):

• Increased healthcare and frontline services spending
• Provision of assistance to households
• Provision of assistance to corporations, unincorporated enterprises and non-profit institutions
• Relaxation of tax and non-tax revenue obligations
• Capital injections, establishment of new, or extended, lending facilities and provision of guarantees

Similar to June quarter 2020, the majority of fiscal support was targeted at healthcare spending and provision of assistance to households, businesses and non-profit institutions.

Spending on subsidies by the Commonwealth and state and territory governments remained at record levels, driven primarily by JobKeeper and the Boosting Cash Flow for Employers policies, as well as smaller targeted industry subsidies and state and territory-based cash payments to businesses.

Spending on current monetary transfers to eligible households by the Commonwealth government also remained at record levels, driven by the second round of Economic Support Payments and the temporary JobSeeker Coronavirus Supplements.

Healthcare spending continued to drive the strength in general government final consumption expenditure, reflecting ongoing COVID-19 health response expenditure on frontline staff and personal protective equipment (PPE). Expenditure on Medicare and pharmaceutical benefits also increased in the September quarter as COVID-19 testing continued and households returned to their health care providers as lockdowns eased in many states and territories.

Table 1 presents a summary of the ABS classification of the key COVID-19 policy interventions in place during September quarter (footnote 3).

The economic impact of the GFC between 2008 and 2009 led to a significant fiscal response in Australia at the time. The ABS classification of key GFC policy interventions is summarised in Table 2 below. The classifications highlight the demand-driven nature of GFC stimulus policies compared to the more diverse mix of supply and demand-driven policies in response to the COVID-19 pandemic.

Commonwealth Treasury (2009), “Australia’s Response to the Global Financial Crisis”, Speech by Dr Steven Kennedy, Treasury website, viewed at https://treasury.gov.au/speech/australias-response-to-the-global-financial-crisis 

IMF (2020), "COVID-19: How to Record Government Policy Interventions in Fiscal Statistics", Special Series on Statistical Issues in Response to COVID-19, IMF publication, viewed at https://www.imf.org/en/Publications/SPROLLs/covid19-special-notes 

This release previously used catalogue number 5519.0.55.001.