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Appendix A: Financial statements

Date

The financial statements consist of an operating statement, including other economic flows, a balance sheet, and a cash flow statement for the Australian Government general government sector (GGS).

The Charter requires that the PEFO be based on external reporting standards and that departures from applicable external reporting standards be identified.

The external standards used for reporting purposes are:

  • the Australian Bureau of Statistics' (ABS) accrual Government Finance Statistics (GFS) publication, Australian System of Government Finance Statistics: Concepts, Sources and Methods, (cat. no. 5514.0), which in turn is based on the International Monetary Fund's (IMF) accrual GFS framework; and
  • the Australian Accounting Standards (AAS) issued by the Australian Accounting Standards Board (AASB), which includes International Financial Reporting Standards (IFRS) as adopted in Australia and the public sector specific standard AASB 1049 Whole of Government and General Government Sector Financial Reporting.

The financial statements have been prepared on the same basis as the budget papers. The statements reflect the Government's accounting policy that ABS GFS remains the basis of budget accounting policy, except where the Government applies the AAS because it provides a better conceptual basis for presenting information of relevance to users of public sector financial reports.

Fiscal reporting focuses on the GGS. The GGS provides public services that are mainly non‑market in nature and for the collective consumption of the community, or involve the transfer or redistribution of income. These services are largely financed through taxes and other compulsory levies, user charging and external funding. This sector comprises all government departments, offices and some other bodies. In preparing financial statements for the GGS, all material transactions and balances between entities within the GGS have been eliminated.

Authoritative guidance has not been issued under the AAS for the measurement of accrual revenue and expenses under the carbon pricing mechanism. An interpretation of the AAS for the carbon pricing mechanism is provided in this appendix. Current estimates measure revenue and expenses at the expected market price for carbon in the year in which emissions occur. The Department of Finance and Deregulation and the Department of the Treasury will continue to review this treatment in consultation with the ABS and the Australian National Audit Office (ANAO).

Departures from external reporting standards

The Charter requires that departures from applicable external reporting standards be identified. The financial statements depart from the external reporting standards as follows.

Departures from ABS GFS

ABS GFS requires that provisions for bad and doubtful debts be excluded from the balance sheet. This treatment has not been adopted in the financial statements because excluding such provisions would overstate the value of Australian Government assets in the balance sheet. The financial statements currently adopt AAS treatment for provisions for bad and doubtful debts.

ABS GFS treats coins on issue as a liability and no revenue is recognised. The ABS GFS treatment of circulating coins as a liability has not been adopted in the financial statements. Instead, the financial statements adopt AAS treatment for circulating coins (seigniorage). Under this treatment, seigniorage revenue is recognised upon the issue of coins and no liability is recorded.

ABS GFS records defence weapons platforms (DWP) as a non‑financial asset on a market value basis (fair value), rather than expensing at time of acquisition. The value used by ABS is consistent with the National Accounts statistical methodology, and represents an early adoption of changes to the System of National Accounts 2008. ABS GFS treatment of DWP is consistent with AAS, as non‑financial assets can be valued at fair value as long as they can be reliably measured, otherwise cost is permissible. DWP will be valued at cost in the financial statements, as they have in previous budgets, while the Australian Government ascertains if a relevant and reliable fair value can be sourced.

Under ABS GFS, concessional loans are recognised at their nominal value, that is, they are not discounted to fair (market) value as there is not considered to be a secondary market. This treatment has not been adopted for the financial statements. Consistent with AAS, loans issued at below market interest rates or with long repayment periods are recorded at fair value (by discounting them by market interest rates). The difference between the nominal value and the fair value of the loan is recorded as an expense which is written back over the life of the loan.

ABS GFS requires investments in unlisted public sector entities to be valued based on their net assets. Under AAS, investments in public sector entities can be valued at fair value as long as a fair value can be reliably measured, otherwise net assets is permissible. The AAS treatment has been adopted in the financial statements.

Movements in the provision for restoration, decommissioning and make‑good of assets have been included in the calculation of the fiscal balance capital adjustment because in many cases they involve legal obligations to expend resources. ABS GFS does not recognise adjustments for such provisions because they are considered a constructive obligation that may not materialise for many years.

ABS GFS treats the issuance and registration of Renewable Energy Certificates (RECs) under the Renewable Energy Target and Australian Carbon Credit Units (ACCUs) under the Carbon Farming Initiative as government financial transactions resulting in the recognition of assets, liabilities, tax revenue and expenses.

Under the interpretation of the AAS, the issuance and registration of such certificates is considered to be an administrative function and does not result in the recognition of an asset or liability and therefore no tax revenue or expense is recognised. The AAS treatment has been adopted in the financial statements.

Departures from AAS

AAS requires the advances paid to the International Development Association and Asian Development Fund to be recognised at fair value. Under ABS GFS these advances are recorded at nominal value. The ABS GFS treatment is adopted in the financial statements.

Under AAS, prepayments are classified as non‑financial assets. In accordance with ABS GFS, prepayments have been classified as financial assets in the financial statements. This treatment is consistent with the exclusion of prepayments from net acquisition of non‑financial assets in the calculation of the fiscal balance.

The interpretation of the AAS indicates that transactions under the carbon pricing mechanism are recognised in the financial statements where they are expected to result in a receipt or payment of cash by the government at the amount of the expected cash settlement. The issuance and surrender of free carbon units and ACCUs used in the settlement of emissions liabilities do not qualify for recognition by the government as assets, liabilities, revenues or expenses.

  • Revenues are recognised for the amount of cash received and receivable by the government for carbon units at the time when emissions occur, if able to be reliably measured.
  • Expenses are recognised on issue of a free carbon unit, based on the number of free permits that are expected to be cashed in by the permit holders under the buy‑back arrangements.
  • Receivables/payables are recognised at the amount of cash expected to be received/paid by the government.

Transactions under the carbon pricing mechanism are recognised under ABS GFS at their expected market value at the time of the transaction.

  • Revenues are recognised at the expected market value of carbon units at the ti
    me when emissions occur.
  • Expenses are recognised for ACCUs issued in the fixed price period and all free carbon units at the expected market value at the time of issue.
  • Receivables/payables are recognised at the carbon units' expected future market value for the reporting period.

In the fixed price period from 1 July 2012 to 30 June 2014, the price of carbon units that the government will pay under the buy‑back arrangements and sell to liable emitters to settle their obligations is set by the government. This set price, which is the prevailing fixed price, has been taken to be the market value for the relevant year. Materially, the ABS GFS treatment has been adopted in the financial statements.

AASB 1049 requires disaggregated information, by ABS GFS function, for expenses and total assets to be disclosed where they are reliably attributable. ABS GFS does not require total assets attributed to functions. In accordance with ABS GFS, disaggregated information for expenses and net acquisition of non‑financial assets was disclosed in the 2013‑14 Budget.

AASB 1049 requires AAS measurement of items to be disclosed on the face of the financial statements with reconciliation to the ABS GFS measurement of key fiscal aggregates, where different, in notes to the financial statements. Differences from the AAS measurement of items are outlined above and a reconciliation has not been included as they would effectively create different measures of the same aggregate.

Table A1: Australian Government general government sector operating statement
  Estimates   Projections  
  2013-14
$m
2014-15
$m
  2015-16
$m
2016-17
$m
Revenue          
Taxation revenue 358,928 376,488   410,733 441,306
Sales of goods and services 8,638 8,569   8,750 8,903
Interest income 3,965 3,994   4,389 4,848
Dividend income 2,293 2,428   2,646 2,737
Other 6,123 6,260   6,746 6,856
Total revenue 379,947 397,739   433,265 464,650
Expenses          
Gross operating expenses          
Wages and salaries(a) 19,537 19,499   20,086 21,092
Superannuation 4,095 4,120   4,229 4,211
Depreciation and amortisation 5,840 6,117   6,405 6,600
Supply of goods and services 76,428 78,073   81,762 84,565
Other operating expenses(a) 5,706 5,953   6,201 6,266
Total gross operating expenses 111,607 113,761   118,682 122,735
Superannuation interest expense 8,462 8,839   9,160 9,496
Interest expenses 14,174 15,161   16,009 16,128
Current transfers          
Current grants 118,999 125,436   130,658 139,494
Subsidy expenses 15,206 13,068   13,500 14,857
Personal benefits 122,731 129,215   134,370 143,849
Total current transfers 256,937 267,718   278,527 298,200
Capital transfers          
Mutually agreed write-downs 2,277 2,457   2,648 2,823
Other capital grants 8,029 8,047   5,885 5,154
Total capital transfers 10,306 10,505   8,533 7,977
Total expenses 401,485 415,985   430,911 454,536
Net operating balance -21,538 -18,245   2,354 10,114
Other economic flows - included in operating result          
Net write-downs of assets (including bad and doubtful debts) -7,565 -6,632   -7,607 -8,590
Assets recognised for the first time 560 587   613 640
Liabilities recognised for the first time 0 0   0 0
Actuarial revaluations 0 0   0 0
Net foreign exchange gains 132 106   65 11
Net swap interest received 0 0   0 0
Market valuation of debt 357 946   500 302
Other gains/(losses) 3,672 3,794   6,510 3,412
Total other economic flows - included in operating result -2,844 -1,198   81 -4,224
Operating result(b) -24,382 -19,444   2,435 5,890
Non-owner movements in equity          
Revaluation of equity investments -2,223 0   0 0
Actuarial revaluations -936 181   218 252
Other economic revaluations 568 258   91 1,124
Total other economic flows - included in equity -2,591 440   309 1,376
Comprehensive result - Total change in net worth -26,974 -19,004   2,744 7,267
Net operating balance -21,538 -18,245   2,354 10,114
Net acquisition of non-financial assets          
Purchases of non-financial assets 10,278 9,762   9,511 8,912
less Sales of non-financial assets 357 264   2,626 227
less Depreciation 5,840 6,117   6,405 6,600
plus Change in inventories 274 236   323 369
plus Other movements in non-financial assets -386 216   -297 -131
Total net acquisition of non-financial assets 3,970 3,833   507 2,322
Fiscal balance (Net lending/borrowing)(c) -25,508 -22,078   1,847 7,792

(a) Consistent with ABS GFS classification, other employee related expenses are reported under other operating expenses. Total employee expenses equal wages and salaries plus other operating expenses.

(b) Operating result under AAS.

(c) The term fiscal balance is not used by the ABS.

Table A2: Australian Government general government sector balance sheet
  Estimates   Projections  
  2013-14
$m
2014-15
$m
  2015-16
$m
2016-17
$m
Assets          
Financial assets          
Cash and deposits 2,776 2,657   2,591 2,874
Advances paid 40,698 46,621   52,936 61,188
Investments, loans and placements 112,292 115,086   120,611 132,970
Other receivables 44,866 45,186   50,652 57,232
Equity investments          
Investments in other public sector entities 24,769 31,407   37,115 42,171
Equity accounted investments 331 334   337 340
Investments - shares 35,105 37,932   40,888 44,348
Total financial assets 260,837 279,222   305,130 341,123
Non-financial assets          
Land 8,719 8,663   8,634 8,603
Buildings 25,160 25,731   25,920 26,232
Plant, equipment and infrastructure 55,914 58,483   60,848 62,115
Inventories 7,210 7,045   6,975 6,931
Intangibles 5,426 5,422   5,472 5,612
Investment property 182 182   182 182
Biological assets 37 37   37 37
Heritage and cultural assets 10,463 10,474   10,486 10,499
Assets held for sale 83 121   83 83
Other non-financial assets 409 624   327 197
Total non-financial assets 113,603 116,784   118,964 120,490
Total assets 374,440 396,006   424,094 461,613
Liabilities          
Interest bearing liabilities          
Deposits held 192 192   192 192
Government securities 325,513 362,888   381,781 401,224
Loans 12,581 12,001   11,786 11,672
Other borrowing 1,529 1,412   1,361 1,282
Total interest bearing liabilities 339,814 376,493   395,121 414,370
Provisi
ons and payables
         
Superannuation liability 149,786 155,143   160,562 166,077
Other employee liabilities 14,891 15,080   15,104 15,556
Suppliers payable 4,266 4,316   4,365 4,394
Personal benefits provisions and payable 13,879 14,142   14,392 14,848
Subsidies provisions and payable 3,614 3,632   4,266 5,279
Grants provisions and payable 15,592 13,105   11,640 12,275
Other provisions and payables 14,476 14,976   16,782 19,687
Total provisions and payables 216,503 220,394   227,111 238,115
Total liabilities 556,318 596,887   622,232 652,485
Net worth(a) -181,878 -200,882   -198,138 -190,872
Net financial worth(b) -295,480 -317,665   -317,102 -311,362
Net financial liabilities(c) 320,250 349,072   354,217 353,533
Net debt(d) 184,048 212,130   218,983 217,338

(a) Net worth is calculated as total assets minus total liabilities.

(b) Net financial worth equals total financial assets minus total liabilities.

(c) Net financial liabilities equals total liabilities less financial assets other than investments in other public sector entities.

(d) Net debt equals the sum of deposits held, government securities, loans and other borrowing, minus the sum of cash and deposits, advances paid and investments, loans and placements.

Table A3: Australian Government general government sector cash flow statement(a)
  Estimates   Projections  
  2013-14
$m
2014-15
$m
  2015-16
$m
2016-17
$m
Cash receipts from operating activities          
Taxes received 348,110 367,506   398,661 428,111
Receipts from sales of goods and services 8,686 8,519   8,691 8,852
Interest receipts 3,744 3,646   4,075 4,262
Dividends and income tax equivalents 2,748 2,463   2,679 2,695
Other receipts 5,748 5,941   6,686 6,654
Total operating receipts 369,035 388,076   420,793 450,574
Cash payments for operating activities          
Payments for employees -26,729 -26,897   -28,029 -29,004
Payments for goods and services -76,903 -78,034   -81,877 -84,808
Grants and subsidies paid -142,112 -148,205   -149,742 -157,040
Interest paid -12,119 -13,173   -15,592 -14,262
Personal benefit payments -123,459 -129,264   -134,459 -143,544
Other payments -5,458 -5,791   -6,002 -5,793
Total operating payments -386,782 -401,363   -415,701 -434,450
Net cash flows from operating activities -17,746 -13,287   5,092 16,124
Cash flows from investments in non-financial assets          
Sales of non-financial assets 416 2,229   2,626 227
Purchases of non-financial assets -9,396 -9,961   -9,191 -8,760
Net cash flows from investments in non-financial assets -8,980 -7,732   -6,565 -8,532
Net cash flows from investments in financial assets for policy purposes -9,966 -12,575   -12,491 -13,541
Cash flows from investments in financial assets for liquidity purposes          
Increase in investments -1,742 -3,532   -5,650 -12,113
Net cash flows from investments in financial assets for liquidity purposes -1,742 -3,532   -5,650 -12,113
Cash receipts from financing activities          
Borrowing 40,650 39,419   22,059 21,521
Other financing 0 0   0 0
Total cash receipts from financing activities 40,650 39,419   22,059 21,521
Cash payments for financing activities          
Borrowing 0 0   0 0
Other financing -2,015 -2,413   -2,510 -3,176
Total cash payments for financing activities -2,015 -2,413   -2,510 -3,176
Net cash flows from financing activities 38,634 37,006   19,548 18,345
Net increase/(decrease) in cash held 199 -120   -65 283
Net cash flows from operating activities and investments in non-financial assets
(Surplus(+)/deficit(-))
-26,727 -21,019   -1,473 7,592
Finance leases and similar arrangements(b) -469 0   0 0
GFS cash surplus(+)/deficit(-) -27,195 -21,019   -1,473 7,592
less Net Future Fund earnings 2,946 2,962   3,189 3,393
Equals underlying cash balance(c) -30,142 -23,981   -4,662 4,199
plus Net cash flows from investments in financial assets for policy purposes -9,966 -12,575   -12,491 -13,541
plus Net Future Fund earnings 2,946 2,962   3,189 3,393
Equals headline cash balance -37,162 -33,593   -13,964 -5,949

(a) A positive number denotes a cash inflow; a negative number denotes a cash outflow.

(b) The acquisition of assets under finance leases decreases the underlying cash balance. The disposal of assets previously held under finance leases increases the underlying cash balance.

(c) The term underlying cash balance is not used by the ABS.