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Statement 8: Trends in Public Sector Finances

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Net debt and net worth

Net debt

Concept

The concept of net debt is the same under cash and accrual-based financial reporting. Net debt comprises the stock of selected gross financial liabilities less financial assets. The stock of net debt is a common measure used to help judge the overall strength of a jurisdiction's fiscal position. High levels of net debt impose a call on future revenue flows to service that debt.

A limitation of the net debt measure is that it does not include accrued employee liabilities. In addition, net debt does not provide information on whether debt has been incurred to finance fixed asset accumulation or current expenditure. This additional information is important in gauging the strength of a government's fiscal position as well as the sustainability of policy.

Despite these limitations, net debt still provides useful information for examining the soundness of a government's fiscal position.

Data

In this section, net debt data prior to 1994-95 are sourced from the ABS 1998 Public Sector Financial Assets and Liabilities publication (ABS Cat. No. 5513.0), data from 1994-95 to 1997-98 are from the ABS 1999-2000 Government Financial Estimates publication (ABS Cat. No. 5501.0) and data for 1998-99 is from the ABS 2000-01 Government Financial Estimates. Net debt numbers for 1999-2000 are from jurisdictions final budget outcomes, data for 2000-01 onwards are derived from jurisdictions' 2000-01 mid year reports and 2001-02 budgets where available.

Trends

Chart 4 shows non-financial public sector net debt as a percentage of GDP, and the respective contributions of the general government and PNFC sectors, since the late 1980s. 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 2004-05 (general government data for 2001-02 to 2004-05 is provided in Table B4 in Appendix B).

Looking at Charts 1 and 4 together indicates the broad relationship between cash deficits and net debt levels. The financing of Commonwealth cash deficits resulted in a substantial increase in general government net debt as a share of GDP over the early 1990s. Chart 4 also shows the decline in PNFC sector net debt as a share of GDP since the late 1980s, reflecting lower levels of capital expenditure, improved efficiency and privatisations. This decline moderated the increase in non-financial public sector net debt as a share of GDP in the first half of the 1990s.

The subsequent improvement in non-financial public sector net debt mainly reflects lower net borrowing requirements for the Commonwealth and the application of privatisation proceeds to debt retirement at both the Commonwealth and State/local levels.

Chart 4: Consolidated government non-financial public sector
net debt by sector (as at end of financial year)

Chart 4: Consolidated government non-financial public sector net debt by sector (as at end of financial year)

General government net debt as a share of GDP is expected to decline further over the projection period. Consolidated non-financial public sector net debt is estimated to be 12 per cent of GDP in 2000-01, compared with the most recent peak of 34.7 per cent in 1994-95.

Chart 5 shows trends in net debt by sector and level of government. Most Commonwealth net debt is held by the general government sector whereas almost all State/local net debt is held in the PNFC sector.

As shown in Panel A of Chart 5, Commonwealth general government net debt as a share of GDP grew from low levels in the late 1980s to a peak of 18.9 per cent in 1995-96. Successive cash surpluses and asset sales (most notably the partial sale of Telstra) have reduced Commonwealth general government sector net debt to an expected 6.4 per cent of GDP in 2000-01.

Chart 5: Non-financial public sector net debt by level of government
and sector (outstanding stock as at end of financial year)

A: Commonwealth

Chart 5: Non-financial public sector net debt by level of government and sector (outstanding stock as at end of financial year)A: Commonwealth

B: State/local

Chart 5: Non-financial public sector net debt by level of government and sector (outstanding stock as at end of financial year) B: State/local

C: Consolidated non-financial public sector(a)

Chart 5: Non-financial public sector net debt by level of government and sector (outstanding stock as at end of financial year) C: Consolidated non-financial public sector (a)

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

In contrast, State/local general government net debt grew only modestly in the early 1990s, and has since declined from a peak of 10.3 per cent in 1992-93 to around 0.2 per cent in 2000-01, as shown in Panel B. This improvement within the State/local general government sector reflects both the impact of asset sales, and fiscal consolidation during the second half of the 1990s. However, some individual States continue to face substantial net debt burdens (see Budget Paper No. 3 - Federal Financial Relations for more information).

Net worth

Concept

The net worth measure provides a more comprehensive picture of a government's overall financial position than the net debt measure. Net worth incorporates a government's non-financial assets such as land and other fixed assets, as well as certain financial assets and liabilities not captured by the net debt measure, most notably accrued employee superannuation liabilities.

A limitation of the net debt measure is that the sale of physical assets decreases net debt, with proceeds from sales increasing financial assets. Net worth recognises that the increase in financial assets has been funded by a decrease in physical assets.

Data

As there are unresolved methodological issues involved in consolidating non-financial public sector data and with some jurisdictions yet to make the transition to accrual accounting this section presents consolidated general government net worth data through 2001-02. Table 4 shows general government net worth data by level of government.

Trends

The State/local general government sector has an estimated positive net worth of 55.4 per cent of GDP in 2001-02. The Commonwealth general government sector has historically recorded negative net worth. This difference primarily reflects the significant funding provided by the Commonwealth to the States for capital works, with the resultant assets recorded in the States' balance sheets.

Table 4: General government net worth by level of government (as at end of financial year)(a)

Table 4: General government net worth by level of government (as at end of financial year) (a)

(a) Data are sourced from the ABS 2000-01 Government Financial Estimates, State and Territory 1999-2000 budget outcomes, 2000-01 mid year updates and 2001-02 budgets where available, and Treasury estimates.

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

(e) Estimates.

(p) Projections.

na Data not available.

Net interest outlays

Concept

Net interest outlays is a cash measure that is defined as interest payments on gross debt less interest received on loans and advances, and is affected by the volume of net debt on issue and by interest rates.

Trends

Chart 6 shows the trend in general government net interest payments by level of government. Total general government net interest outlays peaked in 1995-96 at 2.2 per cent of GDP due to the increased level of Commonwealth general government net debt. Net interest outlays have since decreased to an expected 0.8 per cent in 2000-01 due to lower interest rates and reduced Commonwealth and State/local general government net debt.

The contribution of the PNFC sector to non-financial public sector net interest outlays has decreased significantly in recent years, as reduced capital outlays, improved PNFC performance and privatisations have reduced PNFC sector net debt as a share of GDP.

Chart 6: General government net interest outlays(a)

Chart 6: General government net interest outlays (a)

(a) Data are sourced from the ABS 1997-98 Government Finance Statistics, 2000-01 ABS Government Finance Estimates and Treasury estimates.

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

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