Cash flows

In 2005-06, an underlying cash surplus of $8.9 billion is expected, compared with the MYEFO estimate of $4.5 billion. The improvement in the underlying cash surplus is largely due to the same variations that affect the fiscal balance. From 2005‑06 onwards, the exclusion of Future Fund earnings lowers the underlying cash balance relative to the fiscal balance.

Box 1: Budget treatment of expected Future Fund earnings The Government has announced that it will establish a Future Fund to offset superannuation liabilities that would otherwise be a burden to future generations. The Government is reporting the underlying cash balance excluding Future Fund earnings from 2005‑06 onwards because the earnings will be reinvested to meet future superannuation payments and are therefore not available for current spending. However, Future Fund earnings are included in the fiscal balance because superannuation expenses relating to future cash payments are recorded in the fiscal balance estimates. The rate of return on the Future Fund investments will depend on the actual asset allocation across different asset classes. Once the enabling legislation has passed, the Future Fund Management Board will be responsible for investments in accordance with a broad investment mandate. In the absence of an investment mandate, the budget and forward estimates assume the initial investment of seed capital will earn a return equal to yields on other term deposits held by the Government. Expected Future Fund earnings are separately identified in the Australian Government cash flow statement in Statement 2, Appendix B and the historic tables in Statement 13.

Table 3 provides a summary of Australian Government general government sector cash flows.

Table 3: Summary of Australian Government general government sector cash flows^(a)

1. Cash flows are derived from the accrual GFS framework excluding GST.
2. Equivalent to cash receipts from the sale of non-financial assets in the GFS cash flow statement.
3. Equivalent to cash payments for purchases of new and second-hand non-financial assets in the GFS cash flow statement.
4. 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.
5. Excludes expected Future Fund earnings from 2005‑06 onwards. For further explanation refer to Statement 2 Box 1 and Statement 8.
6. Under the cash budgeting framework, these cash flows were referred to as net advances.

Table 4 provides a reconciliation of the variations in the underlying cash balance estimates.

Table 4: Reconciliation of Australian Government general government sector
underlying cash balance estimates

1. Excludes the public debt net interest effect of policy measures.
2. Excludes expected Future Fund earnings from 2005‑06 onwards. For further explanation refer to Statement 2 Box 1 and Statement 8.

While the 2005‑06 fiscal balance has increased by $3.9 billion since MYEFO, the underlying cash balance has increased by $4.5 billion. This difference between the change in the underlying cash balance and the fiscal balance largely reflects increased superannuation expenses and Australian Taxation Office administered expenses resulting from a change in accounting treatment which affect the fiscal balance but not the cash balance. These differences are partly offset by Future Fund earnings, which are included in the fiscal balance but excluded from the underlying cash balance.

Headline cash balance

A headline cash surplus of $7.9 billion is now forecast for 2005‑06 compared with a surplus of $3.0 billion at MYEFO. The increase in the headline cash surplus estimate since MYEFO largely reflects the increase in the underlying cash balance plus the inclusion of expected Future Fund earnings.

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