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Statement 8: Trends in Public Sector Finances

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Cash surplus

This section reviews trends in Commonwealth and State/local cash measures of revenue, outlays and cash surplus.

Concept

The cash surplus is conceptually equivalent under a cash and an accrual framework and provides a useful indication of a government's need to call on financial markets to meet its budget obligations. Under a cash GFS framework, a government's cash surplus is calculated as revenue less outlays, adjusted for net increase in provisions. Under an accrual GFS framework, the cash surplus is calculated as net cash received from operating activities plus net cash inflow from sales and purchases of non-financial assets, adjusted for finance leases and similar arrangements.

There is more historical cash data available, hence this section provides a longer term perspective than the previous section. Due to methodological and data-source changes associated with the move to an accrual accounting framework, the surplus figures contained in the cash flow statement are not directly comparable with the surplus measures obtained under the cash GFS. In this section cash surpluses are calculated on a cash GFS basis until 1997-98 and on a accrual GFS basis for 1998-99 onwards, except where jurisdictions have yet to make the transition to accrual accounting.

Data

Data is sourced from the ABS 1997-98 Government Finance Statistics (Cat. No. 5512.0), 2000-01 Government Financial Estimates (Cat. No. 5501.0), jurisdictions' 1999-2000 budget outcomes, 2000-01 mid year reports and 2001-02 budgets where available. For those jurisdictions that have moved to accrual budget reporting, cash surplus data from their cash flow statements are used. For these jurisdictions, cash revenues are proxied by receipts from operating activities and sales of non-financial assets, and outlays are proxied by payments for operating activities and purchases of non-financial assets.

Following changes to the Australian National Accounts standards, the general government surplus measures in this statement, from 1998-99 onwards, incorporate net payments by the Commonwealth general government sector in respect of accumulated PNFC superannuation liabilities. Payments prior to 1998-99 do not incorporate these payments.

Trends in total non-financial public sector

The general government sector comprises the majority of the non-financial public sector. The PNFC sector tends to be more important at the State/local level, where most PNFCs are concentrated.

Chart 1 shows movements in the consolidated non-financial public sector surplus as a share of GDP, and the relative contributions of the general government and PNFC sectors. Data for the consolidated public non-financial corporations and non-financial public sector are only available through 2000-01, while general government data is available through 2003-04.

Chart 1 illustrates that the non-financial public sector was generally in a deficit position during the late 1980s and most of the 1990s. The deficit peaked at 4.3 per cent of GDP in 1992-93 before moving into a surplus position in 1997-98. The deficit in 1998-99 is the result of one-off increases in State funding of superannuation liabilities.

Chart 1 also shows the declining importance of PNFCs to the non-financial public sector surplus, with the privatisation of government businesses since the late 1980s.

Chart 1: Consolidated non-financial public sector cash surplus by sector

Chart 1: Consolidated non-financial public sector cash surplus by sector

Chart 2 disaggregates by level of government the sectoral surpluses presented in Chart 1. It shows the large contribution of past Commonwealth general government cash deficits to the non-financial public sector cash deficit. It also illustrates the improvement in the Commonwealth general government sector balance since 1992-93.

Chart 2: Cash surplus by sector and level of government

A: General government

Chart 2: Cash surplus by sector and level of government A: General government

B: Public non-financial corporations

Chart 2: Cash surplus by sector and level of government B: Public non-financial corporations

C: Non-financial public sector

Chart 2: Cash surplus by sector and level of government C: Non-financial public sector

Chart 2 also shows the consolidated PNFC sector is close to balance in 1999-2000, and likely to remain so in 2000-01 (the latest year for which data is currently available for this sector). The State/local general government sector fell into deficit in 1998-99, primarily because of several jurisdictions taking steps to fund previously unfunded superannuation liabilities in this year.

Trends in general government sector

Due to its size, the general government sector is the appropriate focus for an assessment of public sector revenues and outlays and is the sector through which governments primarily affect the level of private sector activity.

Chart 3 shows trends in general government cash outlays and revenue at the Commonwealth and State/local levels through 2000-01. Panel A shows the countercylical relationship between Commonwealth outlays and cash revenues. During economic downturns, such as in the early 1990s, outlays on transfer payments rise and taxation revenues fall, with the reverse happening during periods of strong economic growth. However, during the cyclical upturn following the early 1990s, Commonwealth outlays were maintained at a high level of GDP while the low inflation environment depressed the growth in revenue receipts, resulting in significant deficits.

As shown in Panel A of Chart 2, the Commonwealth general government sector has been in surplus since 1997-98, with a cash surplus of 0.3 per cent of GDP expected in 2000-01. Commonwealth outlays and revenue estimates in Chart 3 are net of GST revenue, and show a decline in 2000-01 with the introduction of The New Tax System.

State/local governments predominantly provide outlays in the form of services (such as health and education) rather than income support, and are less sensitive to the economic cycle than Commonwealth finances. Panel A of Chart 2 shows the sustained improvement in State/local general government balances over the period 1991-92 to 1996-97, from a deficit of 1.0 per cent of GDP to a cash surplus of 0.6 per cent of GDP. As shown in Panel B of Chart 3, this improvement largely reflected outlays' restraint, helped by lower debt servicing charges, with State/local revenue broadly stable as a share of GDP.

In 1998-99 the State/local general government sector recorded a cash deficit of 0.5 per cent of GDP. This reflected the allocation by New South Wales and Victoria of an additional $3.3 billion and $2.6 billion, respectively, to meeting their unfunded superannuation liabilities. These augmented superannuation contributions increased the States' levels of current expenditure (and thus decreased their budget surpluses for the year) by a corresponding amount. Without these one-off superannuation payments, the State/local general government cash balance for 1998-99 would have been a surplus of around 0.5 per cent of GDP.

The State/local general government sector is expected to be in surplus in 2000-01.

Chart 3: General government revenue and outlays by level of government

A: Commonwealth

Chart 3: General government revenue and outlays by level of government A: Commonwealth

B: State/local

Chart 3: General government revenue and outlays by level of government B: State/local

C: Consolidated general government(a)

Chart 3: General government revenue and outlays by level of government C: Consolidated general government (a)

(a) Consolidated government includes Commonwealth and State/local governments and universities.

Trends in public non-financial corporations

The PNFC sector is an important provider of economic infrastructure and contributes significant revenue to the general government sector, mainly in the form of dividends. State/local governments account for around 60 per cent of total PNFC sector outlays, reflecting State responsibility for infrastructure and service provision in areas such as electricity, gas, water and public transport.

During the 1980s the PNFC sector incurred significant deficits, with associated growth in debt levels and interest costs. However, since the late 1980s there has been greater emphasis on PNFC operating efficiency, profitability and market orientation and governments have re-evaluated the appropriateness of continued public ownership of many business enterprises.

PNFC privatisations over the last decade have occurred in two main sectors - electricity and gas (such as Victoria's and South Australia's electricity assets), and transport and communications (such as the partial sale of Telstra). Proceeds of asset sales have largely been used to reduce, or contain the growth of, government net debt, resulting in ongoing savings in public debt interest.

As shown in Chart 1 of this Statement, the PNFC sector has maintained a cash surplus position through much of the 1990s. Following a small cash deficit in 1998-99, the sector is projected to return to surplus in 1999-2000 and 2000-01.

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