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Part 4: Developments in the Consolidated Non‑Financial Public Sector

Introduction

This Part provides a perspective on the financial position of all levels of government in Australia.

It discusses trends in key fiscal indicators including the net operating balance, fiscal balance, cash balance and net debt, at the Commonwealth level, State level, and the consolidated level, which includes Local Government.

This Part focuses on trends in the non‑financial public sector (NFPS) which comprises the general government sector and the public non‑financial corporations (PNFC) sector.1 The general government sector provides non‑market goods and services such as policing, health and education. The PNFC sector comprises government controlled corporations engaged in providing market goods such as electricity and public transport, but not financial services.

For further information on the fiscal indicators and the institutional structure of the public sectors see Budget Paper No. 1, Budget Strategy and Outlook 2016‑17, Statement 9: Australian Government Budget Financial Statements.

State estimates in this Part come from the most recent publicly available State financial reports. Victoria's estimates are based on its 2016‑17 Budget, while the remaining jurisdictions' estimates are drawn from their 2015‑16 mid‑year financial reports. Aggregate State data are only available to 2018‑19, so references to the forward estimates in this Part relate to the period 2016‑17 to 2018‑19.

Additional data tables can be found in Appendix C (available online).

Net operating balance

The net operating balance measures, in accrual terms, the gap between recurrent expenses and revenue for a given period. This is the headline budget measure used by most States to provide an indication of the medium term sustainability of the existing level of government services. The Commonwealth does not use net operating balance as a headline fiscal indicator.

In aggregate, the States are expecting the general government sector to record a net operating surplus of 0.3 per cent of GDP in 2016‑17, remaining steady over the forward estimates.

In aggregate, on average across the forward estimates, the States are expecting revenue as a proportion of GDP to be 14.2 per cent, which is slightly below the pre‑Global Financial Crisis 10 year average of 14.3 per cent of GDP.

The Commonwealth is expecting the general government sector to record a net operating deficit of 2.0 per cent of GDP in 2016‑17, improving to a deficit of 0.3 per cent of GDP in 2018‑19.

As shown in Chart 4.1, the consolidated general government sector is expected to record a net operating deficit of 1.6 per cent of GDP in 2016‑17, improving to a surplus of 0.2 per cent of GDP in 2018‑19.

Chart 4.1: Consolidated net operating balance by sector(a)

This chart shows the consolidated net operating balance by sector as a per cent of GDP from 2002‑03 to 2018-19. Data for the public non-financial corporations sector and non-financial public sector are not available beyond 2016‑17. The non-financial public sector recorded net operating surpluses between 2002‑03 and 2007‑08. Since 2008‑09 the non-financial public sector has recorded net operating deficits. The consolidated general government sector is expected to remain in deficit in 2016‑17 and 2017‑18 before returning to surplus in 2018-19.

(a) Data for the PNFC sector (and therefore NFPS) are not available beyond 2016‑17.

X Value General Government PNFC NFPS
2002-03 1.31 0.25 1.56
2003-04 1.67 0.39 2.06
2004-05 2.25 0.34 2.59
2005-06 2.94 -0.05 2.90
2006-07 2.75 0.27 3.03
2007-08 2.64 0.18 2.82
2008-09 -1.81 0.02 -1.80
2009-10 -3.10 0.24 -2.87
2010-11 -2.60 -0.10 -2.71
2011-12 -2.45 -0.02 -2.47
2012-13 -1.55 -0.19 -1.75
2013-14 -2.12 -0.20 -2.32
2014-15 -1.90 0.23 -1.98
2015-16 -1.78 -0.14 -2.18
2016-17 -1.55 -0.22 -1.99
2017-18 -0.36
2018-19 0.24

Fiscal and cash balances

A fiscal surplus indicates that a government is saving more than enough to finance all of its investment spending and is therefore not contributing directly to the current account deficit. A fiscal deficit indicates that a government needs to borrow or liquidate financial assets in order to fund its capital and/or recurrent expenditures.

As the fiscal balance includes capital transfers and investment in non‑financial assets, which are not included in the net operating balance, the difference between the fiscal balance and the net operating balance is the effect of investment in non‑financial assets, including infrastructure.

The fiscal balance of the Commonwealth general government sector is expected to remain in deficit over the forward estimates, however the 2016‑17 deficit of 2.2 per cent of GDP is expected to decrease in both 2017‑18 and 2018‑19.

Aggregate State net capital investment is forecast to decline from 0.8 per cent of GDP in 2016‑17 to 0.4 per cent of GDP in 2018‑19. As a result of this decline in net capital investment and steady net operating balances over the forward estimates, the aggregate State fiscal balance is expected to improve from a deficit of 0.5 per cent of GDP in 2016‑17 to a deficit of 0.1 per cent of GDP in 2018‑19.

As shown in Chart 4.2, at the consolidated level the general government sector fiscal balance is expected to remain in deficit across the forward estimates, although the deficit is expected to narrow from 3.1 per cent of GDP in 2016‑17 to 1.0 per cent of GDP by 2018‑19. A fiscal deficit of 1.3 per cent of GDP is expected in the PNFC sector for 2016‑17, contributing to an NFPS deficit of 4.6 per cent of GDP in 2016‑17.

Chart 4.2: Consolidated fiscal balance by sector(a)

This chart shows the consolidated fiscal balance by sector as a per cent of GDP from 2002‑03 to 2018-19. Data for the public non-financial corporations sector and non-financial public sector are not available beyond 2016‑17. The non-financial public sector recorded fiscal surpluses between 2002‑03 and 2007‑08. Since 2008‑09 the non-financial public sector has recorded fiscal deficits and is projected to remain in deficit in 2016‑17.  The general government sector follows a similar pattern to the non-financial public sector, with deficits shrinking over the forward estimates.

(a) Data for the PNFC sector (and therefore the NFPS) are not available beyond 2016‑17.

X Value General Government PNFC NFPS
2002-03 0.79 -0.07 0.73
2003-04 1.10 -0.01 1.14
2004-05 1.53 -0.28 1.26
2005-06 1.91 -0.98 0.95
2006-07 1.54 -0.78 0.76
2007-08 1.32 -1.11 0.21
2008-09 -3.49 -1.58 -5.08
2009-10 -5.51 -1.18 -6.73
2010-11 -4.64 -1.12 -5.77
2011-12 -4.19 -0.89 -5.07
2012-13 -2.81 -1.09 -3.92
2013-14 -3.47 -0.88 -4.37
2014-15 -3.03 -0.31 -3.64
2015-16 -3.16 -0.90 -4.30
2016-17 -3.09 -1.28 -4.58
2017-18 -1.61
2018-19 -1.00

The cash balance is the equivalent of a fiscal balance measured on a non‑accrual basis, capturing payments and receipts as they occur. It therefore reflects the extent to which cash is available to a government.

The underlying cash balance of the Commonwealth general government sector is expected to remain in deficit over the forward estimates, with a deficit of 2.2 per cent of GDP in 2016‑17 improving to a deficit of 0.8 per cent of GDP in 2018‑19. At the State level, the 2016‑17 cash balance is expected to be a deficit of 0.4 per cent of GDP, improving to 0.2 per cent of GDP in 2018‑19.

As shown in Chart 4.3, the consolidated general government sector cash balance is expected to be a deficit of 2.9 per cent of GDP in 2016‑17, before improving to a deficit of 1.3 per cent of GDP in 2018‑19. A cash deficit of 0.9 per cent of GDP is also expected in the PNFC sector in 2016‑17, contributing to an NFPS deficit of 3.6 per cent of GDP in 2016‑17.

Chart 4.3: Consolidated cash balance by sector(a)

This chart shows the consolidated cash balance by sector as a per cent of GDP from 2002‑03 to 2018-19.  Data for the public non-financial corporations sector and non-financial public sector are not available beyond 2016‑17. The non-financial public sector recorded cash surpluses between 2002‑03 and 2007‑08, but deficits since 2008‑09 are estimated to continue into 2016‑17. The general government sector follows a similar pattern with deficits declining over the forward estimates, while the public non-financial corporations sector has been in deficit since 2004‑05 and is expected to remain in deficit in 2016‑17.

(a) Data for the PNFC sector (and therefore the NFPS) are not available beyond 2016‑17.

X Value General Government PNFC NFPS
2002-03 1.40 0.04 2.01
2003-04 1.77 0.04 1.86
2004-05 2.34 -0.23 2.10
2005-06 2.52 -0.72 1.83
2006-07 1.18 -0.88 0.50
2007-08 1.37 -1.04 0.62
2008-09 -2.81 -1.48 -4.00
2009-10 -5.41 -1.02 -6.26
2010-11 -4.21 -1.10 -5.05
2011-12 -4.28 -0.80 -4.85
2012-13 -2.77 -0.98 -3.59
2013-14 -3.87 -0.76 -4.49
2014-15 -2.66 -0.44 -2.85
2015-16 -3.00 -1.11 -3.99
2016-17 -2.93 -0.88 -3.64
2017-18 -2.03
2018-19 -1.35

Net debt

Net debt is the sum of selected financial liabilities (deposits held, advances received, government securities, loans and other borrowing) less the sum of selected financial assets (cash and deposits, advances paid, investments, loans and placements). Net debt does not include superannuation related liabilities.

As shown in Chart 4.4, consolidated general government sector net debt is expected to increase from 21.5 per cent of GDP in 2016‑17 to 22.2 per cent in 2017‑18 before declining to 22.1 per cent of GDP in 2018‑19.

Commonwealth general government sector net debt as a proportion of GDP is expected to increase from 18.9 per cent in 2016‑17 to 19.2 per cent in 2017‑18 before declining to 18.8 per cent in 2018‑19. State net debt as a proportion of GDP is expected to reach 3.5 per cent in 2018‑19. The Local Government sector is expected to continue to have negative net debt, that is, selected financial assets will exceed selected financial liabilities.

Commonwealth net debt is expected to continue to make up the bulk of consolidated net debt.

Chart 4.4: Consolidated net debt by sector
(as at end of financial year)(a)

This chart shows the consolidated net debt by sector  from 2002‑03 until 2018-19. Data for the public non-financial corporations sector and consolidated non-financial public sector are not available beyond 2016‑17. Net debt in the non-financial public sector decreased between 2002‑03 and 2006‑07 reaching a low of negative 3 per cent of GDP in 2006‑07 before increasing each year from 2007‑08 as a result of the global financial crisis. Net debt in the general government sector follows a similar pattern, but the rate of increase is forecast to ease from 2016‑17, and net debt is forecast to decrease slightly in 2018-19.

(a) Data for the PNFC sector (and therefore the NFPS) are not available beyond 2016‑17.

X Value General Government PNFC NFPS
2002-03 1.75 5.51 7.26
2003-04 -0.18 5.14 4.96
2004-05 -2.21 5.13 2.92
2005-06 -5.31 5.01 -0.30
2006-07 -7.20 4.19 -3.01
2007-08 -7.32 4.42 -2.90
2008-09 -3.54 5.73 2.19
2009-10 2.27 6.38 8.65
2010-11 5.48 6.13 11.61
2011-12 10.58 6.28 16.85
2012-13 11.79 6.83 18.62
2013-14 14.57 7.02 21.59
2014-15 16.75 6.89 23.65
2015-16 19.38 7.15 26.53
2016-17 21.52 7.56 29.08
2017-18 22.23
2018-19 22.13

The Australian Loan Council

The Australian Loan Council (Loan Council) is a Commonwealth‑State council that monitors public sector borrowing. It consists of the Prime Minister and the Premier/Chief Minister of each State. In practice, each member is represented by a nominee, usually the Treasurer of that jurisdiction, with the Commonwealth Treasurer as Chair.

Current Loan Council arrangements operate on a voluntary basis and emphasise transparency of public sector financing rather than adherence to strict borrowing limits. These arrangements are designed to enhance financial market scrutiny of public sector borrowing and facilitate informed judgments about each government's financial performance.

The Loan Council considers jurisdictions' nominated borrowings for the forthcoming year, having regard to each jurisdiction's fiscal position and infrastructure requirements, as well as to the macroeconomic implications of the aggregate figure.

The Loan Council considered Loan Council Allocation (LCA) nominations for 2016‑17 in April 2016. The Loan Council approved each jurisdiction's nominated allocation. In aggregate, the nominations represent a deficit of $79.3 billion (Table 4.1). The States nominated a deficit of $24.3 billion and the Commonwealth nominated a deficit of $55.0 billion.

As part of the Loan Council arrangements, all jurisdictions are required to update their LCA to reflect their budget and provide an explanation to the Loan Council if they are likely to exceed the tolerance limit.

State 2016‑17 LCA budget updates will be available in the States' 2016‑17 budgets. The Commonwealth's 2016‑17 LCA budget update is available in Budget Paper No. 1, Budget Strategy and Outlook 2016‑17, Statement 9: Budget Financial Statements, Appendix B.

Table 4.1: Loan Council Allocation nominations for 2016-17(a)
$million NSW VIC QLD WA SA TAS ACT NT C'wlth Total
General government sector cash surplus(-)/deficit(+) -23 1,219 752 3,991 184 20 567 113 29,950  
PNFC sector cash surplus(-)/deficit(+) 6,120 842 918 1,011 124 -141 51 55 7,484  
NFPS cash surplus(-)/deficit(+)(b) 6,098 2,077 1,670 5,002 308 -121 617 168 37,434  
plus Acquisitions under finance leases and similar arrangements 1,565 496 843 79 2,820 - - - -5  
equals ABS GFS cash surplus(-)/deficit(+) 7,663 2,573 2,514 5,081 3,128 -121 617 168 37,430  
minus Net cash flows from investments in financial assets for policy purposes(c) -1,117 59 - - 305 -4 - 18 -18,922  
plus Memorandum items(d) 1,564 484 941 -581 -547 102 -35 - -1,348  
Loan Council Allocations 10,344 2,998 3,455 4,500 2,276 -15 582 150 55,004 79,293
2016‑17 tolerance limit(e) 1,750 1,217 1,202 907 384 168 111 136 8,489  

(a) LCA nominations for 2016‑17 reflect best estimates of cash surpluses/deficits. Nominations have been provided on the basis of policies announced up to, and included in, jurisdictions' mid‑year financial reports. Each jurisdiction will publish an updated LCA estimate as part of its budget documentation.

(b) The sum of the general government and PNFC sector balances may not equal the NFPS balance due to inter‑sectoral transfers.

(c) Net cash flows from investments in financial assets for policy purposes comprise net lending by governments with the aim of achieving government policy as well as net equity sales and net lending to other sectors or jurisdictions. Such transactions involve the transfer or exchange of a financial asset and are not included within the cash deficit. However, these flows have implications for a government's call on financial markets. Net cash flows from investments in financial assets for policy purposes are displayed with the same sign as reported in cash flow statements.

(d) Memorandum items are used to adjust the NFPS surplus/deficit to include certain transactions in LCAs — such as operating leases — that have many of the characteristics of public sector borrowings but do not constitute formal borrowings. They are also used, where appropriate, to deduct from the NFPS surplus/deficit certain transactions that the Loan Council has agreed should not be included in LCAs, for example, the funding of more than employers' emerging costs under public sector superannuation schemes, or borrowings by entities such as statutory marketing authorities. Where relevant, memorandum items include an amount for gross new borrowings of government home finance schemes.

(e) Tolerance limits are designed, inter alia, to accommodate changes to LCAs resulting from changes in policy. Tolerance limits apply between jurisdictions' LCA nominations and budget estimates, and again between budget estimates and outcomes. They are calculated as two per cent of NFPS cash receipts from operating activities in each jurisdiction.


1 Due to inter-sectoral transfers, NFPS does not always equal the sum of the general government and PNFC sectors.