4.2 The state of the balance sheet
While the Budget position provides an important measure of the government’s financial position, the Commonwealth balance sheet supplies a more complete picture of the underlying strength of the Commonwealth’s position.
As at 30 June 2013, the Commonwealth Government’s general government balance sheet was made up of financial assets totalling $251 billion, including the Future Fund, equity investments in public sector entities, higher education loans and taxes receivable.
The Future Fund was established in 2006 to help government meet unfunded superannuation benefits for public servants. The value of its assets is currently $96.6 billion.
The value of the Commonwealth Government’s equity investments in public corporations is $25.1 billion. This includes its stake in major government-owned entities such as NBN Co, Medibank Private and Australia Post.
The amount owed to the Commonwealth Government under the Higher Education Loan Programme was $21.6 billion. Recent policy decisions to uncap funding for university places and ongoing demand for loans for postgraduate and vocational education and training courses are expected to drive continued strong growth in the next five to 10 years.
As at 30 June 2013, the Commonwealth Government’s balance sheet included non-financial assets totalling $110.1 billion. Over 60 per cent of these are held by the Department of Defence and related agencies, largely in the form of plant, equipment, infrastructure and buildings.
The government also has $10.5 billion in heritage and cultural assets. These include paintings and artefacts in the nation’s cultural institutions such as the National Gallery, National Library and National Archives.
The balance sheet also records Commonwealth liabilities totalling $563.5 billion as at 30 June 2013, including $285.7 billion of debt in the form of Commonwealth Government Securities, almost all of which is in the form of Treasury bonds and notes outstanding. In addition there is $193.3 billion in public sector superannuation liabilities.
As shown in Chart 4.4, a significant pressure on the balance sheet is unfunded superannuation liabilities for public servants and military personnel.
Source: Department of Finance.
The Commonwealth’s defined benefit superannuation schemes — which broadly pay a set benefit as a proportion of salary on retirement — are not funded over time through regular contributions from government. They represent a major pressure on future budgets.
The Commonwealth’s unfunded superannuation liability for defined benefit schemes is currently estimated at some $150 billion rising to over $350 billion by 2050.
The Commonwealth’s main defined benefit schemes included the Commonwealth Superannuation Scheme, the Parliamentary Contributory Superannuation Scheme and the Public Sector Superannuation Scheme. These schemes closed to new members in 1990, 2004 and 2005 respectively.
The Military Superannuation and Benefits Scheme remains open to new members and is projected to be the main driver of the Commonwealth’s superannuation liability growth from 2030.
|Higher education loans||19.4||21.6|
|Taxes receivable (net)||18.7||20.5|
|Accrued taxation revenue||10.7||10.9|
|Deposits (mostly held by the Reserve Bank of Australia)||28.7||32.5|
|Collective investment vehicles (Future Fund)||24.8||29.5|
|Share investments (Future Fund)||28.6||33.7|
|Investments in public corporations||21.1||25.1|
|Other interest-bearing securities||31.5||31.4|
|Buildings (excluding the land component)||23.3||23.5|
|Heritage and cultural assets||10.4||10.5|
|Specialist military equipment||40.3||40.3|
|Other plant and equipment||12.5||12.6|
|Provisions and payables|
|Other employee liabilities||14.5||14.8|
|Provision for outstanding benefits and claims||10.6||11.4|
|Net worth (total assets minus total liabilities)||-247.2||-202.7|
|Net financial worth (financial assets minus total liabilities)||-358.3||-312.7|
Source: Department of Finance.
Note: Superannuation liability difference between financial years largely reflects the different discount rate applicable in the relevant financial year
The Commonwealth Government has also taken on risks from the private sector in the form of guarantees and concessional loans. These include guaranteeing approximately $13.1 billion of aged care accommodation bonds in case of provider default, $3.3 billion of liabilities of the Export Finance and Insurance Corporation and nearly $700 billion of deposits as part of the Financial Claims Scheme.
The Financial Claims Scheme provides depositors of banks and other authorised deposit taking institutions such as building societies with timely access to their funds in the event of a financial institution failure. Similarly, the Commonwealth guaranteed large deposits and wholesale funding for banks during the global financial crisis, with $40.7 billion of funds still under guarantee.
The balance sheet also currently reflects the Commonwealth’s financing of the $10 billion Clean Energy Finance Corporation, including concessional loans and guarantees to renewable energy companies. The Government has proposed to abolish the Clean Energy Finance Corporation.
These guarantees are reported as contingent liabilities in the Budget papers. They are relevant to any assessment of the Commonwealth’s financial position because should they be called they would have a material impact on the fiscal position. The need to better account for government loans and guarantees is discussed in Section 5.2.
Other items of an ‘asset’ or ‘liability’ nature not recorded on the balance sheet include intangibles such as intellectual property, including copyrights, databases and digital images and government rights (including the right to levy taxes or issue permits).
The Commonwealth balance sheet has deteriorated significantly in recent years. The broadest measure of Australia’s balance sheet is net worth, equivalent to total assets minus total liabilities. The Commonwealth’s net worth currently stands at minus $202.7 billion.
Net financial worth, which is equivalent to financial assets minus liabilities, is usually considered a better measure of fiscal sustainability as it captures government’s ability to withstand adverse economic shocks by drawing on its stock of liquid assets. As at 30 June 2013 Australia’s net financial worth stood at minus $312.7 billion.
Net debt (which comprises interest bearing liabilities, including bonds on issue, less any liquid financial assets) is a less broad measure but nonetheless the most common metric used for international comparisons. As at 30 June 2013, Commonwealth Government general government sector net debt was $153 billion or just over 10 per cent of GDP.
As outlined in Chart 4.5 below, each of these three balance sheet metrics has deteriorated since 2007-08 due to the increase in debt arising from bond issues needed to fund government budget deficits as well as the growth in public sector superannuation liabilities. These increases in liabilities have been partially offset by increases in a number of assets including those held by the Future Fund and an increase in higher education loans.
Management of the items on the government’s balance sheet is decentralised to the responsible agencies, with limited oversight by the Department of Finance. The Auditor-General has a broad audit and assurance role.
Over time the overall quality of government asset and liability management has improved in many areas. For example, the creation of the Future Fund to mitigate the risk associated with the unfunded superannuation liability, and greater use by departments of asset management plans.
Nevertheless, the scale of government asset and liabilities is such that a high-level review of asset and liability management (including items not recorded on the balance sheet) would be timely.