Chapter 3
State and territory bottom lines and debt levels
3.1
This chapter aims to provide a comparative analysis of the fiscal
positions of each state and territory and their respective levels of debt and
revenue. Such analyses can be highly technical, and can appear confusing to the
uninitiated. This section aims to clarify the situation as far as possible and
serve as guidance when interpreting the information contained in the rest of
the chapter.[1]
Sectoral divisions of government
3.2
There are typically three main levels of government that are reported on
across jurisdictions.
3.3
The first is the General Government Sector (GGS). This typically
includes entities such as government departments. The shorthand way to consider
the GGS is that it is the sector over which the executive has direct control.
3.4
The second is the Public Non-Financial Corporations (PNFC)
sector.[2]
This includes trading businesses that are owned by government, and do not
perform specifically financial functions. This sector is separated because the
executive is usually the shareholder of the business, and conceptually the
decision making is at an arms length from the shareholder.
3.5
The third sector is the Public Financial Corporations (PFC). As
the name implies these entities perform purely financial functions, such as the
Reserve Bank or the various state Treasury corporations. Conceptually, this
sector is also operated at an arms length to government. Limited forecast data
is available in this sector.
3.6
Each of the sectors can be reported on under any of the
commonly-accepted accounting standards (Australian Accounting Standards Board
(AASB), International Accounting Standards Board (IASB),[3]
Government Financial Statistics (GFS)[4]),
and on either a cash or accrual basis. Inconsistency in standards applied
between states hinders easy analysis and comparison of fiscal positions.
What is the 'bottom line'?
3.7
There are three main bottom lines that are reported across levels of
government, depending on the standard used.[5]
All relate to the flow of financial transactions, as compared to balance sheet
measures which are stocks of resources.
3.8
Jurisdictional interpretation and the Australian Bureau of Statistics (ABS)
measurement of the balances can have different outcomes. This is important for
time series comparisons which include both historical statistics (drawn from
the ABS) and budget forecasts (made by a jurisdiction).
3.9
The first main result in the GFS standard is the net operating
balance (NOB). This bottom line measures the difference between accrual GFS
recurrent revenue and expenses, not accounting for any movement in the investment
position of government. This measures how much of the general revenue raised by
government is left within a financial year. It can indicate whether the
government is borrowing to fund operations or what aspects of spending are
impacting the economy at large.
3.10
The second main result is the fiscal balance (FB), which is sometimes
called GFS net lending or borrowing depending on whether the budget is in surplus
or deficit. The FB is measured as the NOB less the net acquisition of
non-financial assets. Non-financial assets include infrastructure such as
buildings, plant and equipment and inventories. As a net measure the lending
figure discounts the purchase of these assets by their sales and depreciation.
3.11
The third headline is the underlying cash balance (UCB). This
data is drawn from the cash flow statement (CFS) and is a 'dollars and cents'
equivalent to the accrual fiscal balance. It represents the net cash operating
balance plus net non‑financial investing balance less net acquisition of
assets under finance leases (and similar) less future fund earnings. For
example, the underlying cash balance excludes proceeds from the privatisation
of government business enterprises (GBEs).
3.12
There is no rule around which balance must be reported and jurisdictions
are free to report on which level they wish to. However, the recent moves to
harmonise the AASB/IASB and GFS concepts should bring some convergence to
bottom line reporting. Although most jurisdictions have already done so, all jurisdictions
are required to report in accordance with AASB standard 1049 before their
2009–10 budgets.
The Uniform Presentation Framework
3.13
The committee took evidence from Treasury officials on the Uniform Presentation
Framework (UPF), a fiscal reporting framework which the Australian Government
and all state and territory governments have agreed to adopt in their budget
papers or reporting.
3.14
Mr Derek Bazen, Analyst with the State Finance and Reporting Unit of
Treasury, made the point that the existence and use of the UPF by states for fiscal
reporting did not mean that states would not also publish budgetary information
in a non-uniform way, to suit their own purposes. In the committee's view, this
practice causes considerable confusion among those seeking to compare finances
between states. Mr Bazen said that:
In our monitoring of state finances we tend to rely on the
uniform presentation framework, particularly because of the ability to compare
what is happening between jurisdictions. But states do vary in terms of what
they feel the most important fiscal indicator for their jurisdiction is, and
this is why the headline measures that states report often seem a bit at odds
in terms of how they present their material.[6]
3.15
The most recent iteration of the UPF (April 2008)[7],
implemented nationally from this financial year, was developed to deliver
alignment with Australian Accounting Standard 1049, which itself aims to
standardise government reporting.[8]
The committee welcomes the introduction of the common standard, the absence of
which has made accurate financial analysis more difficult than it should be.[9]
3.16
However, the committee is concerned to note that the introduction of the
standard could be undermined by allowing departure from prescribed accounting
rules, as long as those departures are disclosed. Associate Professor Graeme
Wines submitted that:
In summary, AASB 1049 should result in greater uniformity in
government financial reports, but the potential advantages will not be achieved
if governments are allowed to depart from the prescribed rules. Accordingly,
the Commonwealth and all States should be subject to Charters of Budget Honesty
which require complete compliance with applicable accounting standards.[10]
3.17
The committee wholeheartedly agrees. Not only do consistent reporting
standards across jurisdictions make good common sense, they also reduce the
ability of governments to successfully pick, choose and publicise different
headline data year‑to-year to suit their political purposes. The
committee elaborates on this subject in chapter 8, in which it also makes a
recommendation (Recommendation 1) that each state adopt a charter of budget
honesty.
3.18
The utility of producing truly comparable financial records between
jurisdictions was widely acknowledged by witnesses giving relevant evidence. Mr Henry
Ergas called for the development of standards to be strictly complied with by
states:
I believe that there would be gains from having greater
consistency both between jurisdictions and over time. I wonder whether there
would not be scope for a consultative process, involving the Commonwealth and
the states, to reach agreement and try to monitor compliance with that
agreement with regard to reporting standards. That might well be a function
that could be allocated productively to the Productivity Commission, which has
considerable expertise also in this area from its review of state government
performance and which, I suspect, could quite readily come up with recommendations
as to what might be done in that area.[11]
3.19
The committee supports the intention behind Mr Ergas' suggestion. The
Productivity Commission may well have expertise to offer in the development of
state-based charters of budget honesty which are the subject of Recommendation
1 in chapter 8.
Fiscal positions
3.20
The committee asked the Parliamentary Library to collate the fiscal
positions of each state and territory. This section graphs state and territory
GGS and PNFC sector bottom lines from 1998–99 to the latest available forward
estimates (see Figure 3.1).[12]
Figure 3.1—State and territory fiscal bottom lines,
1998–99 to 2011–12
New South Wales – GGS and PNFC (in
$m)
General
Government Sector Public Non-Financial Corporations
Victoria – GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
Queensland – GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
South Australia – GGS and PNFC (in
$m)
General Government Sector
Public Non-Financial Corporations
Western Australia – GGS and PNFC
(in $m)
General Government Sector
Public Non-Financial Corporations
Tasmania – GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
Northern Territory – GGS and PNFC
(in $m)
General Government Sector
Public Non-Financial Corporations
Australian Capital Territory – GGS
and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
Commonwealth – GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
3.21
In aggregate, the states are expected to record net operating surpluses
in accrual terms for the GGS of about 0.3 per cent of GDP in 2007–08 and over
the forward estimate period 2008–09 to 2010–11. The fall in states' operating balances,
compared with 2005–06, largely reflects the impact of higher expenditures and
slower revenue growth.[13]
3.22
The aggregate state fiscal balance (as distinct from the net operating
balance) for the GGS is estimated to be in deficit by 0.5 per cent of GDP in 2007–08.
This arises from the recent increased funding of capital expenditure. The
deficit is expected to extend over the forward years. Western Australia is the only
state expected to have a fiscal surplus in 2007–08 and in the forward years,
reflecting its large operating surpluses, which are more than sufficient to
cover its general government capital expenditures.[14]
3.23
The committee, from its own resources has attempted to provide a table
that gives some broad understanding of what the above graphs may mean to a
layperson.
3.24
The information contained in the state bottom lines graphs (Figure 3.1)
is both complex and relatively high level. It provides an overall picture of
the past and future financial performance of each jurisdiction. All of the
various economic and fiscal activities that occur in a state are reflected in
these bottom lines. As a result there is a limit to the extent to which such
data can be interpreted. Different financial arrangements (such as the types of
GBEs and relative economic circumstances) between states make interstate
comparisons difficult. However, it is possible to discern some basic overall
projected trends within a state.
3.25
For instance, a positive NOB demonstrates that state revenues are
meeting recurrent expenditure (in accrual terms). The gap between the NOB and
the FB is an indication of the level of capital investment (including
infrastructure investment). Adding state net debt (ND, defined in paragraph
3.27) position to this picture can provide information on whether state debt is
being used to fund capital investment. Table 3.1 analyses the NOB, FB and ND
positions of each state in the current budget year and the forward estimates
period to 2011–2012. The descriptors used in this table, such as 'modest',
'stable', 'large', and 'sharp' are relative to the preceding period.
Table 3.1—Analysis of State fiscal and debt data, 2008–09
to 2011–12
State
|
Measure
|
GGS
|
PNFC
|
NSW
|
NOB
|
-
modest positive and stable,
suggesting recurrent expenditure met by revenue
|
-
large positive and increasing,
suggesting increasing revenues or decreasing expenses
|
FB
|
-
modest negative and increasing,
suggesting small and declining capital investment
|
-
large negative and stable,
suggesting ongoing strong capital investment
|
ND
|
-
modest increase, suggesting debt
funded infrastructure
|
-
rising steadily, suggesting debt
funded infrastructure
|
VIC
|
NOB
|
-
modest positive and stable,
suggesting recurrent expenditure met by revenue
|
-
modest positive and stable,
suggesting recurrent expenditure met by revenue
|
FB
|
-
modest negative and declining,
suggesting small but increasing capital investment
|
-
large negative and increasing,
suggesting strong but declining capital investment
|
ND
|
-
rising steadily, suggesting debt
funded infrastructure
|
-
rising steadily, suggesting debt
funded infrastructure
|
QLD
|
NOB
|
-
modest positive with slight
decline, suggesting recurrent expenditure met by revenue
|
-
modest positive and steadily
increasing, suggesting recurrent expenditure met by revenue
|
FB
|
-
large negative and stable,
suggesting strong and steady capital investment
|
- large negative, increasing
rapidly, suggesting very strong but sharply declining capital investment
|
ND
|
-
small negative (net investment),
rising steadily, suggesting increasing use of debt funded infrastructure
|
-
rising strongly, suggesting
significant debt funded infrastructure
|
SA
|
NOB
|
-
modest positive with moderate
increase, suggesting improving operating balance
|
-
near zero and stable, suggesting
revenue matching recurrent expenditure
|
FB
|
-
large negative and stable,
suggesting ongoing strong capital investment
|
-
large negative and increasing,
suggesting strong but declining capital investment
|
ND
|
-
rising steadily, suggesting debt
funded infrastructure
|
-
stable rising slowly, suggesting
minor debt funded infrastructure
|
WA
|
NOB
|
-
large positive with strong
decline, suggesting diminishing surplus
|
-
minor negative (deficit)
increasing to modest positive, suggesting improving operating balance
|
FB
|
-
moving from strongly positive to
strongly negative, suggesting strong capital investment
|
-
large negative but increasing
rapidly, suggesting very strong but sharply declining capital investment
|
ND
|
-
minor negative (no net debt) and
stable, suggesting little or no debt funded infrastructure
|
-
slight increase, suggesting
little debt funded infrastructure
|
TAS
|
NOB
|
-
modest positive with steady
increase, suggesting improving operating balance
|
-
modest positive with steady increase,
suggesting improving operating balance
|
FB
|
-
minor positive increasing over
time, suggesting small and decreasing capital investment
|
-
minor negative and increasing,
suggesting moderate but declining capital investment
|
ND
|
-
small negative and decreasing,
suggesting no debt funded infrastructure
|
-
slight increase, suggesting
little debt funded infrastructure
|
NT
|
NOB
|
-
moderate positive with slight
increase, suggesting improving operating balance
|
-
modest positive and declining,
suggesting recurrent expenditure is being met by revenue
|
FB
|
-
modest negative and steadily
increasing, suggesting moderate but declining capital investment
|
-
moderate negative and steadily
increasing, suggesting strong but declining capital investment
|
ND
|
-
gradually decreasing, suggesting
modest reduction in debt funded infrastructure
|
-
rising steadily, suggesting
increasing levels of debt funded infrastructure
|
ACT
|
NOB
|
-
modest negative (deficit)
steadily declining, suggesting a weakening operating balance
|
-
modest positive and stable, suggesting
recurrent expenditure is being met by revenue
|
FB
|
-
modest negative increasing to a
modest positive, suggesting declining capital investment
|
-
modest positive increasing over
time, suggesting little capital investment
|
ND
|
-
small negative (net investment)
and decreasing, suggesting no debt funded infrastructure
|
-
modest positive rising
gradually, suggesting low levels of debt funded infrastructure
|
Debt levels
3.26
Conceptually, the balance sheet is the representation of the assets and
liabilities of government at a point in time. There are three key measures that
are drawn from the balance sheet, which are typically of interest in analysing
government.
3.27
The first is net debt (ND). ND is strictly defined as:
- The sum of deposits held, advances received, government
securities issued, loans and other borrowings (liabilities); less
- The sum of cash and deposits, advances paid, investments, loans
made and placements (assets).
3.28
The size of the ND is a measure which illustrates the potential call on
recurrent resources from debt servicing, or conversely the potential revenue
which might be gained from net investments (negative ND). Importantly, ND
focuses on shorter-term liabilities, so liabilities such as superannuation are
not typically included. Unfunded superannuation is discussed in the following
chapter. A depiction of the 2008–09 and 2011–12 ND position of each state, for
both the GGS and PNFC sectors, is presented in Table 3.2. These data show
a general upward trend over time in ND levels across most jurisdictions, in
both the GGS and PNFC sectors. Figure 3.2 below shows in graph form the
relative debt position of each state.
Table 3.2—State and territory net debt positions, 2008–09
and 2011–12
|
GGS (in $ million)
|
PNFC (in $ million)
|
|
2008–09
|
2011–12
|
2008–09
|
2011–12
|
NSW
|
6,191
|
7,809
|
23,833
|
36,790
|
VIC
|
3,739
|
9,465
|
7,278
|
13,415
|
QLD
|
-21,928
|
-13,277
|
30,847
|
40,455
|
SA
|
610
|
1,983
|
2,167
|
3,246
|
WA
|
-2,747
|
-2,041
|
11,985
|
15,022
|
TAS
|
-1,123
|
-1,665
|
2,076
|
2,360
|
NT
|
1,045
|
848
|
533
|
828
|
ACT[15]
|
-3,235
|
-4,421
|
585
|
834
|
Source: Parliamentary
Library, September 2008
3.29
The next common measure is net financial worth (NFW). Like ND the NFW
measure includes the amount of financial assets less financial liabilities. The
difference is that NFW includes all financial assets and liabilities, such as
provisions (like superannuation), whereas ND usually uses only selected
financial assets and liabilities. It is therefore a wider measure than ND.
3.30
The final measure is the broadest measure on the balance sheet,
measuring the net worth (NW) of government. NW is basically total assets less total
liabilities (including superannuation provision), and is akin to the
'shareholders equity' concept in a corporation. Table 3.3 provides the
2008–09 and 2011–12 NW position of each state, for both the GGS and PNFC sectors.
Table 3.3—State and territory net worth positions, 2008–09
and 2011–12
|
GGS (in $ million)
|
PNFC (in $ million)
|
|
2008–09
|
2011–12
|
2008–09
|
2011–12
|
NSW
|
141,911
|
154,550
|
71,644
|
80,388
|
VIC
|
92,436
|
106,158
|
40,453
|
43,159
|
QLD
|
128,563
|
140,243
|
18,807
|
21,185
|
SA
|
22,425
|
25,427
|
16,116
|
17,910
|
WA
|
84,178
|
94,842
|
30,050
|
34,221
|
TAS
|
10,767
|
12,754
|
3,461
|
4,037
|
NT
|
2,946
|
3,671
|
974
|
985
|
ACT
|
13,514
|
15,211
|
5,402
|
6,244
|
Source:
Parliamentary Library, September 2008
3.31
These data show that in general the NW of all jurisdictions is trending
upwards over time in both the GGS and PNFC sectors.
3.32
The hierarchy of these data is important. NW measures a very broad
figure on the worth of the government as if it were to be liquidated, implying
how much the public owns through the government. The NFW excludes non-financial
measures, and issues associated with their valuation (for example, a more
valuable road, as measured on a balance sheet revaluation, doesn’t increase the
resources of government to pay debt). The ND measure goes further and excludes
some volatile financial measures such as superannuation (usually), which is
subject to actuarial revaluation, and provides some methods to assess the
operating cost impact of debt and the liquidity of government available to meet
financial liabilities. It should be noted that differences in net debt among
governments will partly reflect differences in the extent to which each
government has chosen to hold financial assets vis-à-vis non-financial assets.[16]
3.33
These three measures are represented in Figure 3.2, from 1998–99 to the
latest available forward estimates figures. Data to 2006–07 is drawn from ABS
GFS data, while data and projections thereafter to 2011–12 are drawn from the
Uniform Presentation Framework section of the relevant state/territory
budget paper.[17]
Figure 3.2—State and territory debt positions, 1998–99 to
2011–12
New South Wales
Key debt measures of the New South
Wales GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
Victoria
Key debt measures of the Victorian
GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
Queensland
Key debt measures of the Queensland
GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
South Australia
Key debt measures of the South
Australian GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
Western Australia
Key debt measures of the Western
Australian GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
Tasmania
Key debt measures of the Tasmanian
GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
Northern Territory
Key debt measures of the Northern
Territory GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
Australian Capital Territory
Key debt measures of the Australian
Capital Territory GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
![](/~/media/wopapub/senate/committee/sgfm_ctte/report/c03_33_gif.ashx)
![](/~/media/wopapub/senate/committee/sgfm_ctte/report/c03_34_gif.ashx)
Commonwealth
Key debt measures of the
Commonwealth GGS and PNFC (in $m)
General Government Sector
Public Non-Financial Corporations
3.34
The tabulated data on which these graphs are based forms Appendix 5 to
this report.
3.35
Figure 3.2 demonstrates that most states are forecasting an increase in GGS
ND in 2007–08 and in the forward years. Increased spending notwithstanding,
Queensland, Western Australia, Tasmania and the Australian Capital Territory
expect to have a ND position below zero (that is, a surplus) in 2007–08 and the
forward years.[18]
3.36
However, the level of ND for the state PNFC sector is perhaps more
relevant, because this sector owns nearly all of the stock of state public
debt. It was estimated to be 4.5 per cent of GDP in 2006–07, up from 4.2
per cent in 2005–06.[19]
Significantly, aggregate ND of the state total non-financial public sector
(which combines GGS and PNFC) is expected to be $37.148 billion (3.3 per
cent of GDP) in 2007–08. It is expected to increase to $86.265 billion (6.6 per
cent of GDP) in 2010–11.[20]
3.37
Table 3.4 below disaggregates state level net debt for the PNFC sector.
The forward figures are based on 2008–09 State Budget papers.
Table 3.4—Net debt of State and territory Public
Non-Financial Corporations, 2005–06 to 2010–11 (in $
million)
|
2005–06
|
2006–07
|
2007–08
|
2008–09
|
2009–10
|
2010–11
|
NSW
|
13,873
|
16,895
|
18,639
|
23,833
|
28,268
|
32,782
|
VIC
|
2,981
|
1,946
|
3,449
|
7,278
|
10,717
|
12,666
|
QLD
|
12,326
|
16,969
|
22,282
|
30,847
|
35,183
|
39,119
|
SA
|
1,905
|
2,013
|
1,948
|
2,167
|
2,651
|
3,172
|
WA
|
6,978
|
6,904
|
8,941
|
11,985
|
13,599
|
14,290
|
TAS
|
1,729
|
1,689
|
1,924
|
2,076
|
2,242
|
2,345
|
NT
|
449
|
338
|
396
|
533
|
640
|
757
|
ACT
|
373
|
378
|
395
|
585
|
781
|
815
|
Total
|
40,614
|
47,132
|
57,974
|
79,304
|
94,081
|
105,947
|
Source: Parliamentary
Library, September 2008.
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