FINAL BUDGET OUTCOME
2001‑02

CIRCULATED BY
THE HONOURABLE PETER COSTELLO, M.P.
TREASURER OF THE COMMONWEALTH OF AUSTRALIA, AND
SENATOR THE HONOURABLE NICK MINCHIN
MINISTER FOR FINANCE AND ADMINISTRATION
FOR THE INFORMATION OF HONOURABLE MEMBERS

SEPTEMBER 2002

© Commonwealth of Australia 2002
ISBN 0 642 74172 7
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Foreword
The Final Budget Outcome 2001‑02 has been prepared in a manner consistent with the Charter of Budget Honesty Act 1998. The Charter requires that, inter alia, the Government provide a final budget outcome report no later than three months after the end of the financial year. Consistent with these requirements, this report encompasses Commonwealth general government fiscal outcomes for the 2001‑02 financial year; and is based on external reporting standards.
•	Part I provides the general government sector budget aggregates for 2001‑02 together with an analysis of the 2001‑02 final budget outcome. This includes summary analysis of revenue, expenses, net capital investment, the balance sheet (net debt and net worth) and cash flows.
•	Part II presents the Commonwealth financial statements for 2001‑02 in accordance with the Australian Bureau of Statistics (ABS) Government Finance Statistics (GFS) framework. This data covers the general government sector as well as the Commonwealth public corporations sector. 
•	Part III presents the 2001‑02 Commonwealth general government sector primary financial statements in accordance with AAS31 Financial Reporting by Governments.
•	Part IV provides details for 2001‑02 on federal financial relations, updated from that contained in the Federal Financial Relations 2002‑03, Budget Paper No. 3.
•	Appendix A contains details of budget concepts. Appendix B contains expenses data on a functional and sub‑functional basis. Historical budget and net debt data are presented in Appendix C.

Contents
Foreword	iii
Part I:  Commonwealth Budget Outcome	1
Overview		1
Revenue		2
Expenses		5
Net capital investment	7
Net debt and net worth	7
Cash flows		8
Attachment A:  External reporting standards	11
Part II:  Government Finance Statistics Statements	13
Loan Council Allocation	29
Part III:  AAS31 Financial Reporting by Governments Primary
Financial Statements	31
Statistics, concepts and notes to the financial statements	35
Part IV:  Federal Financial Relations	43
GST revenue provision	43
General revenue assistance	46
Local government general purpose assistance	48
Specific Purpose Payments	50
Appendix A:  External Reporting Standards and Budget Concepts	61
Appendix B:  Expenses by Function and Sub‑Function	73
Appendix C:  Historical Fiscal Data	77
Acronyms	87

List of tables
Part I:  Commonwealth Budget Outcome
Table 1:	Commonwealth general government sector budget aggregates	1
Table 2:	Commonwealth general government revenue (accrual basis)	4
Table 3:	Commonwealth general government expenses by function	6
Table 4:	Commonwealth general government net capital investment by function	7
Table 5:	Commonwealth general government net worth, net debt 
and net interest payments	8
Table 6:	Summary of Commonwealth general government cash flows	9
Part II:  Government Finance Statistics Statements
Table 7:	General government sector operating statement	14
Table 8:	General government sector balance sheet	15
Table 9:	General government sector cash flow statement	16
Table 10:	General government sector statement of other economic flows
	(reconciliation of net worth)	17
Table 11:	Supplementary table — Commonwealth general government revenue 
	(accrual basis)	18
Table 12:	Supplementary table — Commonwealth general government indirect tax (accrual basis)	19
Table 13:	Public non‑financial corporations sector operating statement	20
Table 14:	Public non‑financial corporations sector balance sheet	21
Table 15:	Public non‑financial corporations sector cash flow statement	22
Table 16:	Total non‑financial public sector operating statement	23
Table 17:	Total non‑financial public sector balance sheet	24
Table 18:	Total non‑financial public sector cash flow statement	25
Table 19:	Public financial corporations sector operating statement	26
Table 20:	Public financial corporations sector balance sheet	27
Table 21:	Public financial corporations sector cash flow statement	28
Table 22:	Commonwealth Loan Council Allocation for 2001‑02	29
Part III:  AAS31 Financial Reporting by Governments Primary Financial Statements
Table 23:	Statement of financial performance for the Commonwealth general government sector — AAS31	32
Table 24:	Statement of financial position for the Commonwealth general government sector — AAS31	33
Table 25:	Statement of cash flows for the Commonwealth general government
sector — AAS31	34
Note 1:	External reporting standards	35
Note 2:	Reconciliation of cash	36
Note 3:	Income tax — accrual AAS31	37
Note 4:	Indirect tax — accrual AAS31	37
Note 5:	Interest and dividends	38
Note 6:	Other sources of non‑taxation revenue	38
Note 7:	Employee expenses	39
Note 8:	Suppliers expenses	39
Note 9:	Depreciation and amortisation	39
Note 10:	Grants	40
Note 11:	Total non‑financial assets	40
Note 12:	Employee liabilities	41
Note 13:	Grants payable	41
Note 14:	Net asset movements	41
Note 15:	Taxes — cash AAS31	42
Part IV:  Federal Financial Relations
Table 26:	GST revenue provision to the States and Territories	45
Table 27:	Guaranteed Minimum Amount components, GST revenue provision and Budget Balancing Assistance to the States and Territories	47
Table 28:	National Competition Policy Payments	48
Table 29:	Financial Assistance Grants to local government, 2001-02	49
Table 30:	Specific Purpose Payments to the States, repayments of advances and interest payments	51
Table 31:	Specific Purpose Payments direct to Local Government Authorities	60

Appendix A:  External Reporting Standards and Budget Concepts
Table A1:	Selected differences between AAS31 and GFS reporting standards	68
Table A2:	Reconciliation of GFS and AAS31 revenue and expenses	69
Table A3:	Reconciliation of AAS31 net operating result and fiscal balance	70
Appendix B:  Expenses by Function and Sub‑Function
Table B1:	Commonwealth general government expenses by function and sub‑function	74
Appendix C:  Historical Fiscal Data
Table C1:	Commonwealth general government sector receipts, payments and surplus	78
Table C2:	Commonwealth general government sector taxation receipts, non‑taxation receipts and total receipts	79
Table C3:	Commonwealth receipts (cash basis)	80
Table C4:	Commonwealth general government sector net debt and net interest payments	81
Table C5:	Commonwealth general government sector revenue, expenses, net capital investment, fiscal balance and net worth	82
Table C6:	Commonwealth general government sector accrual taxation revenue, non‑taxation revenue and total revenue	83
Table C7:	Commonwealth revenue (accrual basis)	84
Table C8:	Commonwealth cash receipts, payments and cash surplus by institutional sector	85
Table C9:	Commonwealth accrual revenue, expenses and fiscal balance by institutional sector	86

Notes
(a)	The following definitions are used in this paper:
•	‘real’ means adjusted for the effect of inflation;
•	real growth in expenses is measured by the non‑farm Gross Domestic Product deflator; and
•	one billion is equal to one thousand million.
(b)	Figures in tables and generally in the text have been rounded. Discrepancies in tables between totals and sums of components are due to rounding:
•	estimates under $100,000 are rounded to the nearest thousand;
•	estimates $100,000 and over are generally rounded to the nearest tenth of a million;
•	estimates midway between rounding points are rounded up; and
•	the percentage changes in statistical tables are calculated using unrounded data.
(c)	For the budget balance, a negative sign indicates a deficit while no sign indicates a surplus. 
(d)	The following notations are used:
	NEC/nec	not elsewhere classified
	AEST	Australian Eastern Standard Time
	‑	nil
	..	not zero, but rounded to zero
	na	not applicable (unless otherwise specified)
	nfp	not for publication
	$m	$ million
	$b	$ billion

(e)	References to the ‘States’ or ‘each State’ include the Territories. The Australian Capital Territory and the Northern Territory are referred to as ‘the Territories’. The following abbreviations are used for the names of the States, where appropriate:
NSW	New South Wales
VIC/Vic	Victoria
QLD/Qld	Queensland
WA	Western Australia
SA	South Australia
TAS/Tas	Tasmania
ACT	Australian Capital Territory
NT	Northern Territory

Part I:  Commonwealth Budget Outcome
Overview
In 2001‑02 the Commonwealth general government sector recorded a small underlying cash deficit of $1.3 billion, or 0.2 per cent of GDP. This was $0.1 billion greater than estimated at the time the 2002‑03 Budget was brought down. The accrual fiscal deficit of $3.7 billion (0.5 per cent of GDP) was $0.7 billion larger than estimated at the 2002‑03 Budget.
Commonwealth net debt declined by a further $3.7 billion in 2001-02.  This represents the fifth consecutive year that Commonwealth net debt has been reduced.
Table 1:  Commonwealth general government sector budget aggregates(a)

(a)	All estimates are based on Government Finance Statistics (GFS) standards, but with goods and services tax revenue collected on behalf of the States and Territories netted off revenue and expenses.

In relation to revenue, total cash receipts were around $1.5 billion lower than expected at the 2002‑03 Budget. This was predominantly due to lower than expected income tax withholding receipts, indicating more subdued underlying wages growth than anticipated at Budget. Total accrual revenue was $0.8 billion below the 2002‑03 Budget estimates.
On the expenditure side, total cash payments were $1.4 billion lower than anticipated at the 2002‑03 Budget, partly reflecting some slippage of defence expenditure and lower than expected spending on various personal benefit payments (including lower unemployment benefit payments) and a number of health programmes.
In contrast to cash expenditure, accrual expenses were only $0.3 billion lower than expected at the 2002‑03 Budget. The smaller reduction was partly due to the recognition in accrual terms of the Commonwealth’s liabilities associated with measures to address disruption in the medical indemnity industry. The Prime Minister announced these measures following the Budget, in late May 2002. The associated liabilities, which are estimated to total up to $0.5 billion, will be funded by a future levy on medical practitioners.
Commonwealth general government sector net debt fell by $3.7 billion in 2001-02 to $35.6 billion (5.0 per cent of GDP). This reduction was $3.3 billion larger than anticipated at the 2002‑03 Budget, primarily because of the full receipt of cash proceeds from the sale of Sydney Airport Corporation Limited in 2001‑02 instead of 2002‑03.
Revenue
In underlying terms, total Commonwealth accrual revenue in 2001‑02 was around $8 billion (5 per cent) higher than for 2000‑01. This outcome compares with nominal GDP growth over the year of 6.5 per cent. 
However, the 2001‑02 total Commonwealth accrual revenue outcome of $162.4 billion was around $800 million below the 2002‑03 Budget estimate. There are several factors, which explain the lower than expected outcome for 2001‑02. 
•	Gross income tax withholding was $1,118 million (or 1.4 per cent) lower than expected at Budget. This appears to be more in line with the subdued increase in the Wage Cost Index for 2001‑02 than the National Accounts measure of compensation of employees, which showed relatively strong growth over the year.
•	Company tax revenue was $347 million (or 1.3 per cent) lower than estimated at Budget. 
•	Taxation refunds to individuals were $287 million higher than expected at Budget, reducing overall revenue by a corresponding amount.
•	Superannuation funds revenue was $109 million lower than expected, largely due to higher than expected refunds paid in May and June.
These lower than expected outcomes were partly offset by higher outcomes in other heads of revenue.
•	Gross other individuals revenue was $511 million above the Budget estimate. 
•	Customs duty was $210 million above the Budget estimate, reflecting higher than expected issuance of Automotive Competitiveness and Investment Scheme (ACIS) credits. 
•	Excise duty was $130 million higher than expected due to stronger than expected collections of excise from the sale of diesel, unleaded petrol, tobacco and crude oil. 

Table 2:  Commonwealth general government revenue (accrual basis)

(a)	Includes Medicare levy revenue of $4,970 million.
(b)	Includes Pay As You Go (Withholding) and other withholding. Other withholding includes amounts withheld for failure to quote a Tax File Number or an Australian Business Number, interest, dividends and royalty payments to non‑residents, and payments to aboriginal groups for the use of land for mineral exploration and mining.
(c)	Includes the wine equalisation tax, luxury car tax and the final wholesale sales tax liability.
(d)	Consistent with Government Finance Statistics (GFS) reporting standards, excludes fringe benefits tax collected from Commonwealth government agencies ($360 million in 2001‑02).
Expenses
Total accrual expenses were $166.5 billion in 2001‑02, a reduction of $274 million from the estimate provided in the 2002‑03 Budget. This reduction is largely the result of:
•	slippage of around $450 million in acquisitions of defence specialist military equipment;
•	lower personal benefit expenses of $422 million, partly reflecting lower than forecast final customer numbers across a number of programmes including Newstart Allowance and Parenting payments;
•	lower notional interest superannuation expenses largely due to lower than expected earnings rates for public non‑financial corporation superannuation schemes ($233 million); and
•	lower personal benefit expenses of $224 million in part due to lower than forecast Pharmaceutical Benefits Scheme (PBS) demand for the recently listed COX2 group of anti‑arthritis drugs (such as Celebrex) and the anti‑smoking drug Zyban, and the impact on the PBS of lower than anticipated uptake of the Commonwealth Seniors Health Card. Over 2001‑02 PBS expenses grew by around $400 million. 
These lower expenses were partly offset by:
•	an increase in the amount of general budget assistance paid to the States and Territories ($549 million) largely due to final GST collections being $532 million lower than expected at Budget. The lower GST outcome partly reflects higher than anticipated payments of cash refunds by the ATO in 2001‑02; and
•	a $501 million expense relating to the Commonwealth’s commitment to assume liability for all currently unfunded incurred but not yet reported liabilities (IBNRs) of Medical Defence Organisations (MDOs). This commitment was announced by the Government subsequent to the 2002‑03 Budget.

Table 3:  Commonwealth general government expenses by function 

Net capital investment
Net capital investment was $181 million higher than estimated at the 2002‑03 Budget, largely due to higher than budgeted Defence inventory purchases to maintain stock levels needed for increased capability for overseas deployments in 2001‑02 ($293 million).
This is partially offset by:
•	delays in the construction of a replacement nuclear reactor at Lucas Heights due to the requirement to carry out geological investigations ($64 million); and
•	delays in the construction of an immigration reception and processing centre on Christmas Island ($75 million).
Table 4: Commonwealth general government net capital investment by function

Net debt and net worth
The level of Commonwealth general government net debt fell to $35.6 billion at the end of 2001‑02. Since 1996‑97, $60.7 billion of net debt has been repaid. The fall in net debt in 2001‑02 was $3.3 billion greater than estimated at the 2002‑03 Budget, mainly reflecting the earlier than expected full receipt of proceeds from the sale of Sydney Airport Corporation Limited in late June 2002. Net debt fell to 5 per cent of GDP in 2001‑02 compared with a high of over 19 per cent in 1995‑96.
Commonwealth general government net worth fell from ‑$41.2 billion in 2000‑01 to ‑$47.0 billion in 2001‑02. This reduction was due mainly to a fall in the Telstra share price over the year to 30 June 2002, reducing the market value of the Commonwealth’s shareholding.
Net interest payments in 2001‑02 were higher than anticipated at the 2002‑03 Budget. This partly reflects higher than anticipated interest payments by the ATO on overpaid taxation and lower than expected earnings on Commonwealth investments. The greater than expected fall in net debt did not have a large impact on net interest payments as it occurred late in the financial year. 
Table 5:  Commonwealth general government net worth, net debt and net interest payments

(a)	Net debt equals the sum of deposits held, advances received, government securities, loans and other borrowings, minus the sum of cash and deposits, advances paid, and investments, loans and placements.
(b)	Commonwealth cash interest payments less cash interest receipts.

Cash flows
The 2001‑02 underlying cash balance was a deficit of $1.3 billion, $0.1 billion higher than estimated at the 2002‑03 Budget. This balance was the result of lower than anticipated cash receipts ($1.5 billion), which more than offset the lower than estimated cash payments ($1.4 billion).
Table 6:  Summary of Commonwealth general government cash flows(a)

(a)	Cash flows are derived from the accrual GFS framework excluding GST.
(b)	Equivalent to cash receipts from the sale of non‑financial assets in the GFS cash flow statement.
(c)	Equivalent to cash payments for purchases of new and second‑hand non‑financial assets in the GFS cash flow statement.
(d)	The acquisition of assets under finance leases reduces the underlying cash balance. The disposal of assets previously held under finance leases improves the underlying cash balance.
(e)	Under the cash budgeting framework, these cash flows were referred to as 'net advances'.

Total Commonwealth cash receipts were $162.5 billion in 2001‑02, around $1.5 billion lower than estimated at the 2002‑03 Budget, compared with the accrual revenue outcome which was around $800 million lower than the Budget estimate. This divergence between the cash and accrual outcomes largely represents the difference between when accrual taxation revenue is recognised (such as by the issue of an assessment) and when it is paid. For example, accrual revenue from gross other individuals (mostly small business) was $511 million higher than anticipated at Budget, but only $75 million of this increase was paid in 2001‑02.
The shortfall in cash against Budget expectations reflects:
•	lower than expected collections of gross income tax withholding (ITW) ($1,307 million);
•	higher individuals refunds than estimated in the 2002‑03 Budget ($287 million);
•	lower than expected fringe benefits tax collections ($138 million); and
•	lower than expected collections from superannuation funds ($87 million), due to higher than anticipated refunds in the June quarter 2002.
These outcomes were partly offset by higher than expected collections from company tax ($130 million), excise duty ($116 million) and gross other individuals ($75 million).
Total Commonwealth cash payments were $163.9 billion in 2001‑02, $1.4 billion lower than estimated at the 2002‑03 Budget. This compares with lower than expected accrual expenses and net capital investment of $0.1 billion. While many of the differences in expenses from Budget were also reflected in similar cash differences, there were some major areas where the cash and accrual outcomes diverged. These largely explain why the shortfall in cash payments was greater than the corresponding accrual shortfall. They include:
•	recognition of a $501 million expense relating to the Commonwealth’s assumption of unfunded IBNR liabilities of Medical Defence Organisations (cash payments under the IBNR scheme are not expected to occur until 2002‑03);
•	the shortfall in cash payments by Defence relative to expectations at Budget was $250 million greater than the shortfall in expenses. This largely reflects timing issues between the recognition and payment of suppliers;
•	higher subsidy expenses reflecting higher than expected issuance of ACIS credits ($182 million). ACIS credits are used by exporters of Australian automotive products to pay customs duty and have no associated cash effects; and
•	lower than expected lump sum civilian superannuation cash payments for CSS and PSS members, reflecting changing composition of member benefits, including a reduced impact from public sector redundancies ($120 million).
The 2001‑02 headline cash balance was a surplus of $2.2 billion, $4.0 billion greater than estimated at the 2002‑03 Budget. The higher than anticipated outcome was primarily the result of the full proceeds from the sale of Sydney Airport Corporation Limited being received in 2001‑02 instead of 2002‑03.

Attachment A
External reporting standards
The Commonwealth Charter of Budget Honesty Act 1998 requires that the Final Budget Outcome be based on external reporting standards, and that departures from applicable external reporting standards be identified.
The major external standards used in the Final Budget Outcome are the Australian Bureau of Statistics (ABS) accrual Government Finance Statistics (GFS) framework and Australian accounting standards, including Australian Accounting Standard No. 31 Financial Reporting by Governments (AAS31).
The GFS framework requires that flows and stocks are valued at current market prices (or where these are not observable, a suitable proxy indicator). While this is the case for flows in the operating statement and the cash flow statement, not all assets and liabilities in the GFS balance sheet are currently valued at current market prices. This is principally because Australian accounting standards allow reporting entities to elect to value their assets at either cost or fair value (current market value). The accounting profession is considering general valuation issues relating to liabilities. In addition, the early years of accrual budgeting have focussed on preparing robust GFS operating and cash flow statements. Refinements to the GFS balance sheet valuations of assets and liabilities will be considered over time, in consultation with the ABS, as the new framework is bedded down.
The draft ABS GFS publication (Australian System of Government Finance Statistics: Concepts, Sources and Methods Cat. No. 5514.0) requires that provisions for bad and doubtful debts be excluded from the balance sheet. This treatment has not been adopted because excluding such provisions would overstate the value of Commonwealth assets in the balance sheet (and would therefore be inconsistent with the market valuation principle).
The Commonwealth revenue and expenses outcomes in Parts I and III and Appendices B and C do not include goods and services tax (GST) collections and equivalent payments to the States. Under the Intergovernmental Agreement on the Reform of Commonwealth‑State Financial Relations (the IGA), all GST receipts are appropriated to the States and Territories and thus are not available for expenditure by the Commonwealth. Because the Commonwealth collects GST as an agent for the States and Territories, GST receipts are not shown as Commonwealth revenue. GST cash receipts are provided in Note 15 of Part III.
In order to ensure the reporting of reliable budget estimates and outcomes, taxation revenue is recognised the earlier of when an assessment of a tax liability is made or cash payment is received by the Australian Tax Office or the Australian Customs Service. Accordingly, for most categories of taxation revenue, there is a short lag between when the revenue is recognised and the time at which the underlying income (or economic activity) giving rise to the tax liability occurs. Longer lags, of up to a year, occur for some elements of company and superannuation funds taxation.
Additional information on the external reporting standards and budget concepts is provided in Appendix A.

Part II:  Government Finance Statistics Statements
The financial tables presented in this Part are prepared in accordance with the Australian Bureau of Statistics (ABS) accrual Government Finance Statistics (GFS) framework.
The statistical tables that are presented below include an operating statement, balance sheet and cash flow statement for the Commonwealth general government, public non‑financial corporations (PNFC), total non‑financial public, and public financial corporations (PFC) sectors. The 2001‑02 Final Budget Outcome also includes a statement of other economic flows for the Commonwealth general government sector. This primarily outlines how ‘other economic flows’ (that is, those flows not accounted for in the GFS operating statement) impact on the net worth of the Commonwealth general government sector.
The Commonwealth, States and Territories have an agreed framework — the Accrual Uniform Presentation Framework (UPF) — for the presentation of government financial information on a basis consistent with the ABS Government Finance Statistics (GFS) publication. This Part presents Commonwealth data on an ABS GFS basis, as required by the UPF. An exception to this is the treatment of provisions for bad and doubtful debts. The draft ABS GFS publication (Australian System of Government Finance Statistics: Concepts, Sources and Methods Cat. No. 5514.0) requires that provisions for bad and doubtful debts be excluded from the balance sheet. This treatment has not been adopted because excluding such provisions would overstate the value of Commonwealth assets and net worth in the balance sheet (and would therefore be inconsistent with the market valuation principle).
The clear policy intent of the Intergovernmental Agreement on Commonwealth‑State Financial Arrangements is that GST is collected by the Commonwealth, as an agent for the States and Territories, and appropriated to the States. As such, it is not shown as Commonwealth revenue in Parts I and III and Appendices B and C. However, the tables in this Part are presented on an accrual UPF reporting basis, and show GST as taxation revenue in and payments to the States as grant expenses out.
Consistent with ABS practice, transactions between the Commonwealth general government and PNFC sectors are included in the tables produced for these sectors, but are removed from the total non‑financial public sector tables as they are transactions internal to that sector.
Transactions between the Commonwealth PFC sector and the general government and PNFC sectors are included in the relevant tables. These transactions include income transfers such as dividends paid to general government, net advances paid by general government to PFCs and taxes paid by PFCs.
Appendix A provides reconciliations between key GFS aggregates and their Australian Accounting Standard No. 31 (AAS31) counterparts.
Table 7:  General government sector operating statement

(a)	The fiscal balance and net operating balance outcomes in this table are $466 million greater than the fiscal balance and net operating balance outcomes elsewhere in the Final Budget Outcome. Appendix A provides an explanation.
(b)	The term ‘fiscal balance’ is not used by the ABS.

Table 8:  General government sector balance sheet

(a)	The net worth outcome in this table is $505 million greater than the net worth outcomes elsewhere in the Final Budget Outcome. Appendix A provides an explanation.
(b)	Net worth is calculated as total assets minus total liabilities.
(c)	Net financial worth equals total financial assets minus total liabilities.
(d)	Net debt equals the sum of deposits held, advances received, government securities, loans and other borrowings, minus the sum of cash and deposits, advances paid, and investments, loans and placements.

Table 9:  General government sector cash flow statement(a)

(a)	A positive number denotes a cash inflow, a negative sign denotes a cash outflow.
(b)	Includes GST cash receipts on a Commonwealth tax basis, which is $133 million less than GST cash receipts measured on a State tax basis (as shown in Part III, Note 15).
(c)	Where GST is accounted for as a Commonwealth revenue, GST flows between general government entities and the taxation authority are treated as transfers within the general government sector. Therefore, the general government as a whole does not receive any GST input credit receipts or make any GST payments to taxation authorities. 
(d)	Includes net cash flows from loans, advances and HECS of $1.1 billion, as shown in Table 6.
(e)	The acquisition of assets under finance leases reduces the surplus/deficit. The disposal of assets previously held under finance leases improves the surplus/deficit.

Table 10:  General government sector statement of other economic flows (reconciliation of net worth)

(a)	This component of profit on the sale of assets impacts on net worth as an operating transaction (rather than an other economic flow) and is therefore added back to the net profit on sales of assets.
(b)	Revaluations and profit on sale of assets are derived from Australian Accounting Standards data. Revaluations reflect the difference between the GFS valuation of commercial entities at market value and the AAS valuation at historic cost.
(c)	Total grants to be paid over a multi-year health programme were previously recognised as an expense and liability in the year that the programme began. This treatment has been reversed and the grants will now be recognised as expenses in the year they are paid, leading to the removal of the previous liability, consistent with external reporting standards.
(d)	Defence weapons are treated as expenses rather than assets under the GFS framework, hence, changes in value do not contribute to net worth and are not included in other economic flows. This component represents the removal of defence weapons included in net writedowns, assets recognised for the first time and asset revaluations taken to reserves and other movements.
(e)	Includes net repurchase premia and other revaluations not recorded elsewhere.

Table 11:  Supplementary table — Commonwealth general government revenue (accrual basis)

(a)	Includes Medicare levy revenue of $4,970 million.
(b)	Previously reported as Pay As You Go (Withholding) and other withholding. Other withholding was previously reported under company and other income tax, and includes amounts withheld for failure to quote a Tax File Number or an Australia Business Number, interest, dividends and royalty payments to non-residents, and payments to aboriginal groups for the use of land for mineral exploration and mining.
(c)	Includes the wine equalisation tax, luxury car tax and the final wholesale sales tax liability.
(d)	Consistent with GFS reporting standards, excludes fringe benefits tax collected from Commonwealth government agencies ($360 million in 2001‑02).

Table 12:  Supplementary table — Commonwealth general government indirect tax (accrual basis)

(a)	Includes unleaded petrol and lead replacement petrol.
(b)	Includes aviation gasoline, aviation turbine fuel, fuel oil, heating oil and kerosene.
(c)	Customs duty includes duties imposed on imported petroleum products, tobacco, beer and spirits, which are analogous to excise duty on these items.
(d)	Includes the offsetting revenue effects of the WET rebate for cellar door and other sales.
(e)	WST was abolished on 1 July 2000; however, final liabilities, net of refunds, were recognised in 2001‑02.

Table 13:  Public non‑financial corporations sector operating statement

(a)	The term ‘fiscal balance’ is not used by the ABS.

Table 14:  Public non‑financial corporations sector balance sheet

(a)	Net worth is calculated as total assets minus total liabilities minus shares and other contributed capital.  The negative net worth recorded for the PNFC sector is caused by the different methodologies used to value these components. Assets and liabilities are valued according to entities’ accounting policies and may not reflect the market valuation. In contrast, in the case of listed companies the value of shares and other contributed capital reflects the total market capitalisation, which generally exceeds the entities’ book values. 
(b)	Net financial worth equals total financial assets minus total liabilities minus shares and other contributed capital.
(c)	Net debt equals the sum of deposits held, advances received, government securities, loans and other borrowings, minus the sum of cash and deposits, advances paid, and investments, loans and placements.

Table 15:  Public non‑financial corporations sector cash flow statement(a)

(a)	A positive sign denotes a cash inflow, a negative sign denotes a cash outflow.
(b)	The acquisition of assets under finance leases reduces the surplus/deficit. The disposal of assets previously held under finance leases improves the surplus/deficit.

Table 16:  Total non‑financial public sector operating statement

(a)	The fiscal balance and net operating balance outcomes for the total non‑financial public sector in this table are $466 million greater than the fiscal balance and net operating balance outcomes for this sector in Appendix C. Appendix A provides an explanation.
(b)	The term ‘fiscal balance’ is not used by the ABS.

Table 17:  Total non‑financial public sector balance sheet

(a)	Net worth is calculated as total assets minus total liabilities minus shares and other contributed capital.
(b)	The net worth outcome for the total non‑financial public sector in this table is $505 million greater than the net worth outcomes in Appendix C. Appendix A provides an explanation.
(c)	Net financial worth equals total financial assets minus total liabilities minus shares and other contributed capital.
(d)	Net debt equals the sum of deposits held, advances received, government securities, loans and other borrowings, minus the sum of cash and deposits, advances paid, and investments, loans and placements.

Table 18:  Total non‑financial public sector cash flow statement(a)

(a)	A positive sign denotes a cash inflow,  a negative sign denotes a cash outflow.
(b)	GST flows are excluded from these categories as they are intra‑sector transactions.
(c)	‘Distributions paid’ comprise Non‑Financial Public Sector (NFPS) dividends to external shareholders.
(d)	The acquisition of assets under finance leases reduces the surplus/deficit. The disposal of assets previously held under finance leases improves the surplus/deficit.
Table 19:  Public financial corporations sector operating statement

(a)	The term ‘fiscal balance’ is not used by the ABS.

Table 20:  Public financial corporations sector balance sheet

(a)	Net worth is calculated as total assets minus total liabilities minus shares and other contributed capital.
(b)	Net financial worth equals total financial assets minus total liabilities minus shares and other contributed capital.
(c)	Net debt equals the sum of deposits held, advances received and borrowing, minus the sum of cash and deposits, advances paid, and investments, loans and placements.

Table 21:  Public financial corporations sector cash flow statement(a)

(a)	A positive sign denotes a cash inflow, a negative sign denotes a cash outflow.
(b)	‘Distributions paid’ comprise PFC dividends to external shareholders.
(c)	The acquisition of assets under finance leases reduces the surplus/deficit. The disposal of assets previously held under finance leases improves the surplus/deficit.

Loan Council Allocation
Under Loan Council arrangements, every year the Commonwealth and each State and Territory nominate a Loan Council Allocation (LCA). A jurisdiction’s LCA incorporates:
•	the estimated non‑financial public sector cash deficit (made up from the general government and public non‑financial corporations sector deficits);
•	net cash flows from investments in financial assets for policy purposes; and
•	memorandum items. These transactions, though not formally borrowings, have many of the characteristics of borrowing.
LCA nominations are considered by the Loan Council, having regard to each jurisdiction’s fiscal position and reasonable infrastructure requirements, as well as the macroeconomic implications of the aggregate figure.
As set out in Table 22, the Commonwealth’s 2001‑02 LCA outcome is a $2.4 billion surplus, compared with the last published estimate in the 2001‑02 Mid-Year Economic and Fiscal Outlook of $3.8 billion and the 2001–02 Budget estimate of $7.8 billion. The LCA outcome exceeds the lower bound of the LCA Budget estimate by more than the 2 per cent tolerance limit. A tolerance limit of 2 per cent of non-financial public sector revenue applies between the LCA Budget update and the outcome. Tolerance limits recognise that LCAs are nominated at an early stage of the budget process and may change as a result of policy and parameter changes.
Table 22:  Commonwealth Loan Council Allocation for 2001‑02

(a)	Such transactions involve the transfer or exchange of a financial asset and are not included within the cash deficit. However, the cash flow from investments in financial assets for policy purposes has implications for a government’s call on financial markets.
(b)	For the Commonwealth, memorandum items comprise the change in net present value (NPV) of operating leases (with NPV greater than $5 million), university borrowings, overfunding of superannuation and an adjustment to exclude the net financing requirements of statutory marketing authorities and Telstra from the LCA.

Part III:  AAS31 Financial Reporting by
Governments Primary Financial Statements
This Part presents financial statements that have been prepared on an accrual basis in accordance with applicable Australian Accounting Standards, including Australian Accounting Standard No. 31 Financial Reporting by Governments (AAS31), except where departures from the standard are identified in Note 1.
This Part also provides month of June figures consistent with monthly financial statements.
A reconciliation between the Commonwealth’s general government AAS31 and Government Finance Statistics (GFS) revenue, expenses and operating result is provided in Appendix A.
Table 23:  Statement of financial performance for the Commonwealth 
general government sector — AAS31

Table 24:  Statement of financial position for the Commonwealth general 
government sector — AAS31

Table 25:  Statement of cash flows for the Commonwealth general government sector — AAS31

Statistics, concepts and notes to the financial statements
Note 1:  External reporting standards
The Charter of Budget Honesty Act 1998 requires that the Final Budget Outcome be based on external reporting standards and that departures from applicable external reporting standards be identified.
The financial statements included in the Final Budget Outcome have been prepared on an accrual basis in accordance with applicable Australian Accounting Standards, including Australian Accounting Standard No. 31 Financial Reporting by Governments (AAS31). AAS31 is the relevant accounting standard for financial reporting by governments.
AAS31 requires adoption of the full accrual basis of accounting. This means that assets, liabilities, revenues and expenses are recorded in financial statements when they have their economic impact on the government, rather than when the cash flow associated with these transactions occurs. Consistent with AAS31, a statement of financial performance, statement of financial position and a statement of cash flows have been prepared using results for 2001‑02.
The accounting policies in this section are generally consistent with the accounting policies in AAS31. While the scope for financial reporting recommended in AAS31 is the Whole of Government (that is, the Commonwealth public sector), in accordance with the Charter of Budget Honesty Act 1998, the presentation of financial outcomes covers the general government sector only.
In relation to taxation revenue, AAS31 suggests revenue be recognised at the time the income (or economic activity) giving rise to a tax liability occurs, where this can be measured reliably. At this stage, the Commonwealth does not consider its taxation revenues can be reliably measured on this basis for outcome reporting purposes. Taxation revenue in the Final Budget Outcome is therefore recognised at the time a taxpayer makes a self‑assessment or when the Australian Taxation Office (ATO) or the Australian Customs Service (ACS) raises a tax assessment.
In regard to GST revenue, AAS31 and other relevant accounting standards would suggest the gross amount of GST be included in the Commonwealth’s financial statements. However, the clear policy intent of the Intergovernmental Agreement on the Reform of Commonwealth‑State Financial Relations (the IGA) is that the GST is a State tax collected by the Commonwealth in an agency capacity. Therefore, accrued GST revenues and associated payments to the States and Territories are not recorded in the financial statements. 

Note 2:  Reconciliation of cash

Note 3:  Income tax — accrual AAS31

(a)	Consistent with the treatment at Budget, the family tax benefit and private health insurance rebates are recorded as expenses.
Note 4:  Indirect tax — accrual AAS31

Note 5:  Interest and dividends

Note 6:  Other sources of non‑taxation revenue

Note 7:  Employee expenses

(a)	Salaries and wages do not include superannuation.

Note 8:  Suppliers expenses

Note 9:  Depreciation and amortisation

Note 10:  Grants

Note 11:  Total non‑financial assets

Note 12:  Employee liabilities

Note 13:  Grants payable

Note 14:  Net asset movements

Note 15:  Taxes — cash AAS31

Part IV:  Federal Financial Relations
This Part provides information concerning goods and services tax (GST) revenue, general revenue assistance, general purpose assistance to local government and Specific Purpose Payments to the States and Territories (the States) in 2001‑02. This information supplements material provided in Federal Financial Relations 2002‑03, Budget Paper No. 3.
A principal component of The New Tax System, introduced on 1 July 2000, is the provision of all GST revenue to the States. This provides the States with access to a secure, broad‑based revenue source with which to fund essential community services, such as schools, hospitals and the police.
The implementation of The New Tax System has also enabled the States to abolish a range of narrow and inefficient State taxes. This includes Financial Institutions Duty and stamp duty on quoted marketable securities which were abolished from 1 July 2001.
The new system of Commonwealth‑State financial relations also provided for the introduction of a new First Home Owners Scheme.
In addition, the Commonwealth has made a commitment to provide assistance to the States in the transitional years to ensure that each individual State will be no worse off than it would have been had the reforms not been implemented. To meet this guarantee, the Commonwealth pays the States Budget Balancing Assistance (BBA) to cover any shortfall of GST revenue below the Guaranteed Minimum Amount (GMA), which is a calculation of the amount of funding each State would have had available to it under the previous system of financial relations. 
GST revenue provision
The A New Tax System (Commonwealth‑State Financial Arrangements) Act 1999 (the Act) provides that the States receive all GST revenue. The distribution of GST revenue among the States is based on horizontal fiscal equalisation principles which are discussed in detail in Federal Financial Relations 2002‑03, Budget Paper No. 3.
Under the Act, the Commissioner of Taxation is required to make a determination by 15 June each year of the estimated GST revenue collections for the year. In accordance with the Commissioner of Taxation’s determination of GST revenue on 11 June 2002, a total of $26,632 million in GST revenue was provided to the States in 2001‑02. This is broadly consistent with the estimate at Budget, and the final GST revenue outcome as reported in Appendix A and in Note 15 in Part III.
The final provision of GST revenue to the States in 2001‑02 is illustrated in Chart 1.
Chart 1:  GST revenue provision to the States and Territories

The calculation of the distribution of GST revenue to the States is shown in Table 26. The distribution differs marginally from estimates shown in Federal Financial Relations, 2002‑03, Budget Paper No. 3, reflecting final determinations made under the Act.
The 2001‑02 GST revenue was distributed, in accordance with the Act, using GST relativities recommended in the Commonwealth Grants Commission Report on State Revenue Sharing Relativities 2001 Update. 
Table 26 shows the per capita relativities applied to the States’ populations (as at 31 December each year) in order to arrive at a weighted population share for each State. A State’s share of GST revenue is equal to its weighted population share of the combined GST revenue and unquarantined Health Care Grants (HCGs), less the unquarantined HCGs it receives. 

Table 26:  GST revenue provision to the States and Territories

(a)	Per capita relativity factors are based on recommendations of the Commonwealth Grants Commission (CGC) and take account of a technical issue raised by Western Australia in respect of the data supplied for stamp duties paid on corporate reconstructions.
(b)	Total weighted population differs from the total population in column 1 as the per capita relativities are calculated by the CGC using population numbers for the period 1995‑96 to 1999‑2000 and are then rounded.

General revenue assistance 
In 2001‑02, general revenue assistance to the States comprised Budget Balancing Assistance (BBA), National Competition Policy Payments (NCPPs) and Special Revenue Assistance (SRA).
Budget Balancing Assistance
As previously noted, the Commonwealth has guaranteed that in each of the transitional years following the introduction of tax reform, each State’s budgetary position will be no worse off than had reforms not been implemented. This is given effect by the payment of transitional assistance in the form of BBA.
In 2001‑02, a total of $4,093.8 million of BBA was paid to the States. The calculation and distribution of BBA is shown in Table 27, and is broadly consistent with estimates at Budget.

Table 27:  Guaranteed Minimum Amount components, GST revenue provision and Budget Balancing Assistance to the States and Territories

National Competition Policy Payments
National Competition Policy Payments are distributed between the States on an equal per capita basis. Payment is subject to States achieving satisfactory progress in implementing specified reforms under the Agreement to Implement the National Competition Policy and Related Reforms. Details of NCPPs are shown in Table 28.  
Table 28:  National Competition Policy Payments

Special Revenue Assistance
In 2001‑02, in accordance with the recommendations of the Commonwealth Grants Commission, SRA of $14.2 million was paid to the Australian Capital Territory.
Local government general purpose assistance
Table 29 provides details of the Commonwealth payments to local government authorities in 2001‑02 for each of the six States and the Northern Territory, and an analogous payment made to the Australian Capital Territory.
In 2001‑02, local government general purpose assistance was increased on the basis of an annual escalation factor determined by the Treasurer. The payments made to the States and shown in Federal Financial Relations 2002‑03, Budget Paper No. 3 were based on an estimated escalation factor of 1.0353, estimated in June 2001, and take into account an underpayment of $7.2 million in 2000‑01.
On 27 June 2002 the Treasurer determined the final 2001‑02 escalation factor to be 1.0500 on the basis of the Australian Statistician’s determination of population and Treasury’s estimate of the ongoing CPI (which excludes the estimated impact of the tax reform measures in The New Tax System). The difference between the estimate and the final escalation factor for 2001‑02 has resulted in an underpayment of $19.5 million in 2001‑02 for which there will be an adjustment in 2002‑03, as provided for under the Local Government (Financial Assistance) Act 1995.

Table 29:  Financial Assistance Grants to local government, 2001‑02

(a)	Total Financial Assistance Grants are the cash payments that the State receives on behalf of local government.  It is equal to the estimated entitlement for a given year adjusted for an over or under payment from the previous year.

Specific Purpose Payments
Tables 30 and 31 provide information on Commonwealth Specific Purpose Payments (SPPs) to the States and local government together with details of repayments and interest on advances (loans) to the States. The majority of these advances were funded from borrowings made on behalf of the States.
The payments are classified as follows:
•	SPPs
•	current;
•	capital;
•	repayments of advances;
•	details of new advances made; and
•	interest on Commonwealth advances.
SPP information is presented on a functional basis and divided into those paid ‘to’ the States (by far the larger group by number) and those judged to be paid ‘through’ the States to other groups. Payments in the latter group are indicated within the table by (*) and separate totals for ‘to’ and ‘through’ are provided in the summary at the end of the table.

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 30:  Specific Purpose Payments to the States, repayments of advances and interest payments ($’000) (continued)

Table 31:  Specific Purpose Payments direct to Local Government Authorities ($’000)

Appendix A:  External Reporting Standards
and Budget Concepts
External reporting standards
The Commonwealth Charter of Budget Honesty Act 1998 requires that the Final Budget Outcome be based on external reporting standards. In accordance with the Charter, the major external standards used in the Final Budget Outcome are the Australian Bureau of Statistics (ABS) accrual Government Finance Statistics (GFS) framework and Australian Accounting Standards, including Australian Accounting Standard No. 31 Financial Reporting by Governments (AAS31). The Charter also requires that departures from applicable external reporting standards be identified.
The major fiscal aggregates (including the fiscal and underlying cash balances) are based on the accrual GFS framework. The next section provides a brief overview of the GFS framework, including the major fiscal aggregates, and the AAS reporting framework. Further information can be found in Budget Strategy and Outlook 2002-03, Statement 10: External Reporting Standards and Budget Concepts.
Accrual GFS framework
The GFS reporting framework is a specialised statistical system designed to support economic analysis of the public sector. It allows comprehensive assessments to be made of the economic impact of government and is consistent with international statistical standards (the System of National Accounts 1993 (SNA93) and the International Monetary Fund’s (IMF) Government Finance Statistics Manual 2001). Additional information on the Australian accrual GFS framework is available in the ABS publication Information Paper: Accruals‑based Government Finance Statistics, 2000 (Cat. No. 5517.0).
The GFS conceptual framework is divided into a number of separate statements. The GFS statements reported in the Final Budget Outcome are the operating statement, balance sheet, cash flow statement and a statement of other economic flows. Each of these statements is designed to draw out analytical aggregates or balances of particular economic significance. Taken together, these aggregates provide for a thorough understanding of the financial position of the public sector entities. A discussion of each of these statements follows.
GFS operating statement
The operating statement presents details of transactions in GFS revenues, GFS expenses and the net acquisition of non‑financial assets (net capital investment) for an accounting period.
GFS revenues are defined as transactions that increase net worth and GFS expenses as transactions that decrease net worth — general government net worth is the difference between the stock of assets and liabilities and is further defined in the balance sheet section below.
GFS revenues less GFS expenses gives the GFS net operating balance. Conceptually, the net operating balance measures government saving plus capital transfers.
The net acquisition of non‑financial assets (net capital investment) measures the change in the stock of non‑financial assets owned by the government due to transactions. As such, it measures the net effect of purchases, sales and consumption (for example, depreciation of fixed assets and use of inventory) of non‑financial assets during an accounting period.
Net acquisition of non‑financial assets equals gross fixed capital formation, less depreciation, plus changes (investment) in inventories, plus other transactions in non‑financial assets.
Fiscal balance
The fiscal balance (or GFS net lending/borrowing) is the net operating balance minus net capital investment.
The fiscal balance measures the Commonwealth’s investment‑saving balance. That is, it measures in accrual terms the gap between government savings plus net capital transfers and investment in non‑financial assets. As such, it approximates the contribution of the Commonwealth general government sector to the balance on the current account in the balance of payments.
Balance sheet
The balance sheet shows stocks of assets, liabilities and GFS net worth. Net debt is also reported in the balance sheet.
Net debt
Net debt is defined as the sum of selected financial liabilities (deposits held; advances received; government securities; loans; and other borrowing) minus the sum of selected financial assets (cash and deposits; advances paid; and investments, loans and placements). Net debt is a common measure of the strength of a government’s financial position. High levels of net debt impose a call on future revenue flows to service that debt.
Net worth
The net worth of the general government sector is defined as assets less liabilities. For the public financial corporations and public non‑financial corporations sectors, the formula becomes assets less liabilities less shares and other contributed capital. Net worth is an economic measure of wealth. It reflects the contribution of the Commonwealth to the wealth of Australia.
Cash flow statement
The cash flow statement identifies how cash is generated and applied in a single accounting period. The cash flow statement reflects a cash basis of recording (rather than an accrual basis) where the information has been derived indirectly from underlying accrual transactions and movements in balances. This, in effect, means that transactions are captured when cash is received or when cash payments are made. Cash transactions are specifically identified because cash management is considered an integral function of accrual budgeting.
Underlying cash balance
The underlying cash balance (GFS surplus/deficit) is the cash counterpart of the fiscal balance, reflecting the Commonwealth’s cash investment‑saving balance. The underlying cash balance measure is conceptually equivalent under the current accrual framework and the previous cash framework. For the general government sector, the underlying cash balance is calculated as shown below.
Net cash flows from operating activities
plus
Net cash flows from investments in non‑financial assets
less
Net acquisitions of assets acquired under finance leases and similar arrangements
equals
Underlying cash balance

Headline cash balance
The headline cash balance is calculated by adding ‘cash flows from investments in financial assets for policy purposes’ to the underlying cash balance. Cash flows from investments in financial assets for policy purposes include equity transactions and net advances. Examples of equity transactions include equity injections into controlled businesses and privatisations of government businesses. Net advances include net loans to the States, net loans to students under the Higher Education Contribution Scheme (HECS), and contributions to international organisations that increase the Commonwealth’s financial assets.
Statement of other economic flows (reconciliation of net worth)
The statement of other economic flows outlines changes in net worth driven by economic flows other than GFS revenues and GFS expenses.  GFS revenues, GFS expenses and other economic flows sum to the total change in net worth during a period.  The majority of other economic flows for the Commonwealth general government sector arise from price movements in its assets and liabilities.
Sectoral classifications
To assist in analysing the public sector, GFS data are presented by institutional sector. GFS distinguishes between the general government sector, the public non‑financial corporations sector and the public financial corporations sector, as shown in Figure A1.
Figure A1:  Institutional structure of the Public Sector

Budget reporting focuses on the general government sector. The general government sector 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, although user charging and external funding have increased in recent years. This sector comprises all government departments, offices and some other bodies.
Australian Accounting Standard No. 31 (AAS31) reporting framework
Australian Accounting Standard No. 31 Financial Reporting by Governments (AAS31) requires governments to prepare accrual‑based general purpose financial reports, including in relation to the assets they control and any liabilities incurred, their revenues and expenses, and cash flows. Reporting under this framework is intended to provide a consolidated overview of the financial performance and position of government, including in the area of financing and investing activities.
There are three main general purpose statements that must be prepared in accordance with the AAS31 framework. These are:
•	a statement of financial performance, which includes an operating result;
•	a statements of financial position, which shows net assets; and
•	a statement of cash flows, which includes net increase/decrease in cash held.
In addition to these general purpose statements, the standard requires notes to the financial statements to be prepared which report disaggregated information in relation to the financial performance and financial position of the government. The notes should also include other information seen as relevant to users. 
While AAS31 provides a general framework for accrual budgeting and financial reporting by governments, compliance with all other applicable accounting standards is required. Exceptions to this rule are explicitly stated in AAS31. 
A full set of AAS31 financial statements and accompanying notes prepared for the general government sector can be found in Part III. These statements are derived from audited financial statements with the exception of the Department of Defence, where an audit opinion is pending. 
Reconciliation of GFS and AAS31 aggregates
There is a general consistency of treatment of the elements of financial statements between GFS and accounting standards. Both frameworks are based on the concept of economic events that give rise to stocks and flows. As a result, the definitions of stocks are broadly similar under the two frameworks and relate to the control of economic benefits, while flows are defined with reference to changes in stocks.
The GFS and AAS31 definitions of the scope of the public sector agree in almost all cases, with AAS31 recommending the same segmentation of the public sector into general government, public non‑financial corporations and public financial corporations sectors.
Transactions are generally treated in a similar manner by GFS and accounting standards; however, where GFS is a framework designed to facilitate macro‑economic analysis, AAS31 is designed as a standard for general purpose financial reporting. The different objectives of the two systems lead to some variation in the treatment of certain items. This differing treatment relates predominantly to the definitions of revenues and expenses under the two frameworks.
In particular, revaluations of assets and liabilities are classified differently under the AAS31 and GFS standards. Major revaluations include:  writedowns of bad and doubtful debts (excluding those that are mutually agreed); changes in the valuation of superannuation liabilities; and gains and losses due to changes in foreign exchange rates and interest rates.
Under AAS31 reporting, valuation changes may affect revenues or expenses and therefore the operating result. However, under GFS reporting, revaluations are not considered to be transactions (that is, they are considered to be other economic flows) and accordingly do not form part of revenues or expenses. Therefore, most revaluations are not taken into account in the calculation of the GFS net operating balance or fiscal balance. However, revaluations still impact on GFS assets and liabilities, as can be seen in the statement of other economic flows.
Some of the major differences between the GFS and AAS31 treatments of transactions are outlined in Table A1. Further information on the differences between the two systems is provided in the ABS publication Information Paper: Accruals‑based Government Finance Statistics, 2000 (Cat. No. 5517.0).

Table A3:  Selected differences between AAS31 and GFS reporting standards
Issue	AAS31 Treatment	GFS Treatment	
Asset writedowns	Treated as part of operating expenses.	Treated as revaluations (other economic flows), except for mutually agreed writedowns, and therefore removed from expenses.	
Gains and losses on assets	Treated as part of operating revenues/expenses.	Treated as revaluations (other economic flows) and therefore removed from revenues/expenses.	
Provisions for bad and doubtful debts	Treated as part of operating expenses and included in the balance sheet as an offset to assets.	Act of creating provisions is not considered an economic event and is therefore not considered an expense or included in the balance sheet. 
*	Commonwealth does not comply 	with this latter requirement
	(see Part II).	
Interest flows related to swaps and other financial derivatives	Treated as operating revenues and expenses.	Treated as financing transactions and so not included in revenues and expenses.	
Acquisition of defence weapons platforms 	Treated as capital expenditure. Defence weapons platforms appear as an asset on the balance sheet. Depreciation expense on assets is recorded in the operating statement.	Treated as an expense. Defence weapons platforms do not appear as an asset on the balance sheet and no depreciation is recorded in the operating statement.	
Commonwealth general government sector investments in public corporations	Investments in public corporations are valued at historic cost in the balance sheet.	Investments in public corporations are valued at current market value. For publicly listed corporations, the share price is used to calculate market value. For non‑listed corporations, the current value of net assets is used.	
Public debt net interest	Premiums and discounts on the repurchase of debt are included in public debt net interest expenses at the time of repurchase, regardless of whether the stock is cancelled at that time. Issue premiums and discounts are amortised over the life of the stock.	Repurchase premiums and discounts are treated as economic revaluations at the time the debt is repurchased (provided it is valued at historical cost). The GFS cash flow statement includes repurchase premiums or discounts in the year that the repurchased stock is cancelled or matures.	
Finance leases	Treats finance leases as if an asset were purchased from borrowings. That is, the lease payment is split into an interest component (which is shown as an operating expense) and a principal component.
The asset and the liability are recorded on the balance sheet.
This convention does not apply to the cash flow statement, which does not record the acquisition of the asset or the liability.	As per the accounting standard, except that the GFS cash flow statement includes the acquisition of the asset as a supplementary item for the calculation of the surplus/deficit (underlying cash balance).	
Table A2 reconciles GFS revenue and expenses with their AAS31 counterparts. 
Table A4:  Reconciliation of GFS and AAS31 revenue and expenses

Table A3 reconciles the accounting operating result to the GFS net operating balance and the fiscal balance (GFS net lending).
AAS31 revenues less expenses calculate the AAS31 net operating result. Similarly, GFS revenues less expenses calculate the GFS net operating balance.
Consequently, the reconciliation between the AAS31 operating result before extraordinary items and the GFS net operating balance relates directly to differences in the definitions of revenues and expenses, as shown in Table A2 above.
The second part of the reconciliation shows the adjustment for net capital investment required to derive the fiscal balance from the GFS net operating balance.
As discussed previously, fiscal balance is calculated as the net operating balance less net capital investment. This is a useful economic indicator as it represents the gap between government saving (less capital transfers) and investment, and so is included at the end of the GFS operating statement. In AAS31 there is no equivalent measure to the fiscal balance. That is, the AAS31 statement of financial performance stops at the operating result and includes no information on net capital investment. Under the accounting standards framework, the equivalent indicator to the fiscal balance would show whether profits (that is, the net operating result) are sufficient to fund net capital investment.
Table A5:  Reconciliation of AAS31 net operating result and fiscal balance

(a)	The fiscal balance in Part II is $466 million higher than the fiscal balance presented elsewhere in the Final Budget Outcome, as explained on page 71.

Accounting for GST and budget assistance to States
Under the Intergovernmental Agreement on the Reform of Commonwealth‑State Financial Relations (the IGA), all GST receipts are appropriated to the States and Territories and thus are not available for expenditure by the Commonwealth. As such, the GST is a State tax, with the Commonwealth acting as the States’ agent in the collection of the tax. Consequently, collections of GST from taxpayers and payments of the GST revenue to the States are not recorded as revenues and expenses of the Commonwealth in Part I.
Under the IGA, the Commonwealth has guaranteed that the budgetary position of each individual State and Territory will be no worse off than it would have been had the GST reforms not been implemented (referred to as the Guaranteed Minimum Amount (GMA)). Grants to the States to meet this no worse off funding benchmark are given the notional accounting title of ‘general budget assistance to the States’ (GBA) and are recorded as expenses of the Commonwealth. GBA comprises Budget Balancing Assistance (BBA) grants paid in accordance with the provisions of the IGA (based on mid-June estimates) and adjustments to account for any divergence between this amount and the amount required to meet the GMA (given actual GST cash collections).
General budget assistance to the States in 2001‑02 was $549 million greater than the 2002‑03 Budget estimate, reducing both the fiscal and underlying cash balances. This was predominantly due to actual cash GST collections falling below the Budget estimate.
In Part II the accounts are presented including GST as Commonwealth revenue.
The two different accounting approaches (applied in Part I and Part II respectively) result in different net impacts on the fiscal balance in 2001‑02. In Part I, the total net impact on the fiscal balance equals general budget assistance to the States. In Part II, the fiscal balance impact is the difference between GST revenue and the Guaranteed Minimum Amount (GMA) paid to the States in 2000‑01 (comprising BBA grants and GST grants made under the Commissioner of Taxation’s mid‑June determination of cash GST receipts). This results in the fiscal balance outcome shown in the Government Finance Statistics (GFS) general government operating statement in Part II being $466 million greater than the fiscal balance reported in Part I and elsewhere in the Final Budget Outcome. A reconciliation of GFS revenue and GFS expenses in Part I and Part II is presented in Table A2.
The two different accounting approaches also flow through to differences in GFS net worth, resulting in GFS net worth in Part II being $505 million greater than GFS net worth reported in Part I and elsewhere. This difference results from the inclusion of GST receivables and payables in the GFS balance sheet in Part II. 
The different accounting approaches have the same net impact on cash flows. Therefore the underlying cash balance is the same whether it is calculated using the State tax or Commonwealth tax approach.
Further information on accounting for GST and budget assistance to the States can be found on page 10 of the Final Budget Outcome 2000-01.

Appendix B:  Expenses by Function and Sub‑function
Table B1 sets out Commonwealth general government expenses by function and sub‑function for 2001‑02. This table has been prepared in accordance with the GFS accounting framework. 

Table B1:  Commonwealth general government expenses by function and sub‑function

Table B1:  Commonwealth general government expenses by function and sub‑function (continued)

Table B1:  Commonwealth general government expenses by function and sub‑function (continued)

Appendix C:  Historical Fiscal Data
This appendix provides historical data for Commonwealth fiscal aggregates.
Estimates up to, and including, 1998‑99 are on cash terms, while those for 1999‑2000 are cash proxies derived from an accrual framework. Due to methodological and data‑source changes associated with the move to an accrual accounting framework, time series data that encompass measures derived under both cash and accrual accounting should be used with caution. 
There are other structural breaks within the data set, prior to the shift to accrual reporting. Classification differences and revisions, as well as changes to the structure of the budget, can impact on comparisons over such an extended period. 
Following changes to the Australian National Accounts standards, the general government surplus measures in this appendix, from 1998‑99 onwards, incorporate payments by the Commonwealth general government sector in respect of accumulated PNFC superannuation liabilities. Figures for the years prior to 1998‑99 do not incorporate these payments.
Other factors that affect the comparability of data between years include:
•	classification differences in the data relating to the period prior to 1976‑77 (which means that earlier data may not be entirely consistent with data for 1976‑77 onwards);
•	adjustments in the coverage of agencies included in the accounts of the different sectors. These include the reclassification of Central Banking Authorities from the general government to the PFC sector in 1998‑99, and subsequent backcasting to account for this change;
•	transfers of taxing powers between the Commonwealth and the States;
•	other changes in financial arrangements between the Commonwealth and the State/local government sector; and
•	changes in arrangements for transfer payments, where tax concessions or rebates are replaced by payments through the social security system. This has the effect of increasing both cash revenues and outlays, as compared with earlier periods, but not changing cash balances. Changes in the opposite direction (tax expenditures replacing outlays) reduce both cash outlays and revenue.
While approximate adjustments can be made to identify trends in budget aggregates on a generally consistent basis, the further back the analysis is taken, the less manageable the task becomes.

Table C1:  Commonwealth general government sector receipts, payments and surplus(a)

(a)	There is a break in the series between 1998‑99 and 1999-2000. Data for the years up to and including 1998‑99 are consistent with the cash ABS Government Finance Statistics (GFS) reporting requirements. From 1999-2000 onwards, data are derived from an accrual ABS GFS reporting framework, with receipts proxied by receipts from operating activities and sales of non‑financial assets, and payments proxied by payments for operating activities, purchases of non‑financial assets and net acquisition of assets under finance leases. Due to associated methodological and data‑source changes, time series data that encompass measures derived under both cash and accrual accounting should be used with caution.
(b)	Following recent changes to the Australian National Accounts standards, the surplus measures in this table, from 1998‑99 onwards, incorporate payments by the general government sector in respect of accumulated public non‑financial corporations (PNFC) superannuation liabilities. These payments are not incorporated prior to 1998‑99.
na	Not applicable, due to a structural break in the series.	

Table C2:  Commonwealth general government sector taxation receipts, non‑taxation receipts and total receipts(a)

(a)	There is a break in the series between 1998‑99 and 1999‑2000. Data for the years up to and including 1998‑99 are consistent with the cash ABS GFS reporting requirements. From 1999‑2000 onwards, data are derived from an accrual ABS GFS reporting framework. From 1999‑2000, the category ‘Non‑taxation receipts’ includes many large items that were netted off payments in outcomes prior to this time, namely ‘receipts from sales of goods and services’, ‘receipts from sales of non‑financial assets’ and ‘other receipts’. From 2000‑01, the category ‘non‑taxation receipts’ also includes  ‘GST input credit receipts’. Due to associated methodological and data‑source changes, time series data that encompass measures derived under both cash and accrual accounting should be used with caution.
na	Not applicable, due to a structural break in the series.

Table C3:  Commonwealth receipts (cash basis)

(a)	Includes Medicare levy receipts ($4,745 million in 2000‑01 and $4,970 million in 2001‑02).
(b)	Previously reported as Pay As You Go (Withholding) and other withholding. Other withholding was previously reported under company and other income tax, and includes amounts withheld for failure to quote a Tax File Number or an Australian Business Number, interest, dividends and royalty payments to non‑residents, and payments to aboriginal groups for the use of land for mineral exploration and mining.
(c)	Includes the wine equalisation tax, luxury car tax and the final wholesale sales tax liability.
(d)	Consistent with GFS reporting standards, excludes fringe benefits tax collected from Commonwealth government agencies ($285 million in 2000‑01 and $360 million in 2001‑02). 

Table C4:  Commonwealth general government sector net debt and net interest payments(a)

(a)	Source:  ABS Cat. No. 5513.0, 5501.0, Commonwealth Final Budget Outcomes and Treasury estimates.
Table C5:  Commonwealth general government sector revenue, expenses, net capital investment, fiscal balance and net worth(a)

(a)	The fiscal balance is equal to revenue less expenses less net capital investment. Net worth is calculated as assets minus liabilities minus shares and other contributed capital.
(b)	There is a break in the net worth series between 1998‑99 and 1999‑2000. Data up to 1998‑99 are sourced from the Commonwealth’s Consolidated Financial Statements based on Australian accounting standards. Data beginning in 1999‑2000 are based on the GFS framework. For the general government sector, the major change across the break in the series is an improvement in net worth. This is primarily due to the move from valuing investments in public corporations at historic cost to current market value (which is calculated using the share price for listed corporations). This is partly offset by defence weapons platforms no longer being recorded as assets.

Table C6:  Commonwealth general government sector accrual taxation revenue, non‑taxation revenue and total revenue

na	Data not available.

Table C7:  Commonwealth revenue (accrual basis)

(a)	Includes Medicare levy revenue ($4,745 million in 2000‑01 and $4,970 million in 2001‑02).
(b)	Previously reported as Pay As You Go (Withholding) and other withholding. Other withholding was previously reported under company and other income tax, and includes amounts withheld for failure to quote a Tax File Number or an Australian Business Number, interest, dividends and royalty payments to non‑residents, and payments to aboriginal groups for the use of land for mineral exploration and mining.
(c)	Includes the wine equalisation tax, luxury car tax and the final wholesale sales tax liability.
(d)	Consistent with GFS reporting standards, excludes fringe benefits tax from Commonwealth government agencies ($285 million in 2000‑01 and $360 million in 2001‑02). 

Table C8:  Commonwealth cash receipts, payments and cash surplus by institutional sector ($m)(a)

(a)	There is a break in the series between 1998‑99 and 1999-2000. Data for the years up to and including 1998‑99 are consistent with the cash ABS GFS reporting requirements. From 1999-2000 onwards, data are derived from an accrual ABS GFS reporting framework, with receipts proxied by receipts from operating activities and sales of non‑financial assets, and payments proxied by payments for operating activities, purchases of non‑financial assets and net acquisition of assets under finance leases. Due to associated methodological and data‑source changes, time series data that encompass measures derived under both cash and accrual accounting should be used with caution.
(b)	Following recent changes to the Australian National Accounts standards, the surplus measures in this table, from 1998‑99 onwards, incorporate payments by the general government sector in respect of accumulated PNFC superannuation liabilities. These payments are not incorporated prior to 1998‑99.
na	Data not available.

Table C9:  Commonwealth accrual revenue, expenses and fiscal balance by institutional sector ($m)(a)

(a)	The fiscal balance is equal to revenue less expenses less net capital investment. Net capital investment is not shown in this table.
na	Data not available.

Acronyms
AAS31	Australian Accounting Standard No. 31	
ABC	Australian Broadcasting Corporation	
ABN	Australian Business Number	
ABS	Australian Bureau of Statistics	
ACS	Australian Customs Service 	
AEMP	Advanced English For Migrants Programme	
ANTA	Australian National Training Authority	
ATO	Australian Taxation Office 	
BBA	Budget Balancing Assistance	
CSHA	Commonwealth State Housing Authority	
CSS	Commonwealth Superannuation Scheme	
DFR	diesel fuel rebate	
EC	Exceptional circumstances	
FAGs	Financial Assistance Grants	
FarmBis	Farm Business Improvement Programme	
FBT	Fringe Benefits Tax	
GDP	Gross Domestic Product	
GFS	Government Finance Statistics	
GMA	Guaranteed Minimum Amount	
GST	goods and services tax	
HCGs	Health Care Grants	
IBNR	incurred but not yet reported liabilities	
IGA	Intergovernmental Agreement on the Reform of Commonwealth‑State Financial Relations	
LCA	Loan Council Allocation 	

Acronyms (continued)	
NCPPs	National Competition Policy Payments	
NFPS	non‑financial public sector	
NLP	National Landcare Programme	
NPV	net present value	
PFC	public financial corporations	
PNFC	public non‑financial corporations	
PRP	Photovoltaic Rebate Programme	
PSS	Public Sector Superannuation Scheme	
RRPs	Revenue Replacement Payments	
SPPs	Specific Purpose Payments	
SRA	Special Revenue Assistance	
TFN	Tax File Number	
UN	United Nations	
UPF	The Accrual Uniform Presentation Framework	
WET	wine equalisation tax	
WST	wholesale sales tax