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INTRODUCTION

1 The main functions of government are the provision of non-market services, the regulation of economic and social conditions, and the redistribution of income between sections of the community. These activities are primarily financed by taxation and are carried out by entities in the general government sector. In addition to this core activity, governments can also own or control enterprises that sell goods or services to the public and which operate largely on a commercial (or market) basis (public non-financial corporations) or engage in financial intermediation (public financial corporations).

2 The term 'government finance statistics' refers to statistics that measure the financial activities of governments and reflect the impact of those activities on other sectors of the economy. The Australian system of Government Finance Statistics (GFS), which is used to derive the statistics presented here, is designed to provide statistical information on public sector entities in Australia classified in a uniform and systematic way.

3 GFS enable policy makers and users to analyse the financial operations and financial position of the public sector at either the level of a specific government, institutional sector or set of transactions. The system is based on international standards set out in the System of National Accounts 1993 (SNA93) and the International Monetary Fund's Government Finance Statistics Manual 2001.

4 Detailed information on the concepts, sources and methods used in compiling GFS can be found in Australian System of Government Finance Statistics: Concepts, Sources and Methods (Cat. no. 5514.0.55.001), which is available on the ABS website via the Statistical Concept Library.

SCOPE

5 The system of GFS provides details of revenues, expenses, cash flows and assets and liabilities of the Australian public sector and comprises units which are owned and/or controlled by the Commonwealth, state governments and local governments. These units are grouped as follows:

• General Government
• Public Non-financial Corporations
• Non-financial Public Sector
• Public Financial Corporations
• Total Public Sector

7 This institutional sector covers the departments of the Commonwealth Government, state governments and local government municipalities. It also includes agencies and government authorities under departmental administration which are engaged in the provision of public administration, defence, law enforcement, welfare, public education, and health. Also included are non-departmental bodies which independently perform the government functions of regulation (e.g. Nurses Registration Boards and the Maritime Safety Authority), provision of non-market services (e.g. the Australian Broadcasting Corporation), and redistribution of income (e.g. the Aboriginal and Torres Strait Islander Commission). Some of these bodies may be corporations, but they are still considered part of the general government sector if they perform general government functions. Universities are also considered part of the general government sector.

8 Unincorporated government enterprises which provide goods and services to their governments and to the public at prices that are not economically significant are also included in this sector. In addition, government quasi-corporations which sell their output exclusively to other government units, while not in open competition with other producers, are also classified as general government units.

Public Non-financial Corporations

9 The main function of Public Non-financial Corporations (PNFCs) is to provide goods and services which are predominantly market, non-regulatory and non-financial in nature, and financed through sales to consumers of these goods and services.

10 Enterprises in the PNFCs sector differ from those in the general government sector in that all or most of their production costs are recovered from consumers, rather than being financed from the general taxation revenue of government. Some enterprises, however, do receive subsidies to make up for shortfalls incurred as a result of government policy, for example, in the provision of 'community service obligations' at concessional rates.

11 PNFCs vary in their degree of 'commercialism', from those which are quite heavily reliant on parent governments for subsidies, such as rail and bus transport undertakings, to those which are net contributors to government revenue. Governments may exercise control over PNFCs by either owning more than 50% of the voting stock or otherwise controlling more than half the shareholders' voting power, or through legislation, decree or regulation which empowers the government to determine corporate policy or to appoint the directors. Examples of PNFCs are Telstra, Australia Post, state rail authorities, and local bus and transport operations.

Non-financial Public Sector

12 The Non-financial Public Sector is a subsector formed by the consolidation of the General Government and Public Non-financial Corporations sectors.

Public Financial Corporations

13 Public Financial Corporations (PFCs) are government-owned or controlled enterprises which engage in financial intermediation (i.e. trade in financial assets and liabilities), such as the Reserve Bank of Australia, government-owned banks and insurance offices and home lending schemes. The inclusion of PFCs in GFS makes GFS consistent in scope with the Australian accounting standard for whole of government reporting Australian Accounting Standard AAS31, Financial Reporting by Governments.

Total Public Sector

14 The Total Public Sector is the consolidated total of the General Government, Public Non-financial Corporations and Public Financial Corporations sectors.

LEVELS OF GOVERNMENT

15 The public sector comprises all organisations owned or controlled by any of the four levels of government within the Australian political system; the Commonwealth, state, local and multi-jurisdictional.

Commonwealth Government

16 The Commonwealth Government has exclusive responsibility under the Constitution for the administration of a wide range of functions including defence, foreign affairs and trade, and immigration. A distinctive feature of the Australian federal system is that the Commonwealth Government levies and collects all income tax, from individuals as well as from enterprises. It also collects a significant portion of other taxes, including taxes on the provision of goods and services. The Commonwealth distributes part of this revenue to other levels of government, principally the states.

State Governments

17 State and territory governments (referred to here as 'state' governments) perform the full range of government functions, other than those the Constitution deems the exclusive domain of the Commonwealth Government. The functions mainly administered by state governments include public order, health, education, administration, transport and maintenance of infrastructure. The revenue base of state governments is narrower than that of the Commonwealth Government and consists of taxes on property, on employers' payrolls, and on the provision and use of goods and services. This revenue base is supplemented by grants from the Commonwealth Government, which now includes an allocation of Goods and Services Tax (GST) revenue.

Local Governments

18 Local government authorities govern areas typically described as cities, towns, shires, boroughs, municipalities and district councils. Although the range of functions undertaken by local governments varies between the different jurisdictions, their powers and responsibilities are generally similar and cover such matters as:

• the construction and maintenance of roads, streets and bridges;
• water, sewerage and drainage systems;
• health and sanitary services;
• the regulation of building standards; and
• the administration of regulations relating to items such as slaughtering, weights and measures, and registration of dogs.

Multi-jurisdictional

20 The multi-jurisdictional sector contains units where jurisdiction is shared between two or more governments, or the classification of a unit to a jurisdiction is otherwise unclear. The main type of units currently falling into this category are the public universities.

CLASSIFICATIONS

21 The main GFS classifications are:

• Economic Type Framework
• Type of Asset Classification
• Government Purpose Classification
• Taxes Classification
• Source/Destination Classification

23 The Economic Type Framework resembles a set of financial statements, with sections for an operating statement, a cash flow statement and a balance sheet. In addition, there are sections to cater for the reconciliation of accounting net operating result measures with cash flows from operating activities and to capture items like assets acquired under finance leases, intra-unit transfers, and revaluations and other changes in the volume of assets.

Type of Asset Classification

24 This classification is used to identify whether expenditure on non-financial assets (net) was on produced assets (e.g. dwellings and transport equipment) or non-produced assets (e.g. land). In accordance with SNA93 requirements, this classification distinguishes between produced (tangible and intangible) and non-produced (tangible and intangible) assets.

Government Purpose Classification

25 This classification is used to group operating expenses and expenditure by purpose (education, health, etc.) with similar functions to facilitate the study of the broad function of public sector spending and the effectiveness of this spending in meeting government policy objectives.

Taxes Classification

26 This classification dissects this major form of government revenue according to type of tax collected.

Source/Destination Classification

27 This classification identifies the source or destination of selected flows and stocks between units within and outside the public sector. It is used in compiling consolidated statistics.

SOURCES AND METHODS

Data sources

28 The statistics shown in this publication are based on information provided in, or underlying, the published accounting statements and reports of governments and their authorities plus additional dissections of reported transactions and balances. The valuation of stocks and flows in source data are generally valued in accordance with requirements specified in accounting standards, which generally do not require universal or continual application of market values. However, for the most part, the divergences between the accounting values and market values are not materially significant. Exceptions occur for some interest flows and depreciation.

29 For the Commonwealth and state governments the primary data sources are:

• public accounts and budget management systems of State Treasuries and the Commonwealth Department of Finance and Administration;
• annual reports of departments and authorities;
• budget papers; and
• reports of the Auditors-General.

31 The GFS framework requires that stocks and flows be valued at current market prices. However, in compiling GFS estimates the ABS is dependent on the valuation methods used in the source data. In the 2003-04 Commonwealth Government budget released on 13 May 2003, the Commonwealth Government announced a change in the valuation basis of debt from a historic cost basis to the conceptually prefered market value basis, made possible by the introduction of the new debt valuation systems by the Australian Office of Financial Management. This change was introduced in the 2001-02 GFS publication and taken back to 1999-2000. As such, there is a break between 1998-99 and 1999-2000 for the affected balance sheet series, including net debt.

Consolidation

32 To compile statistics about the financial activities of a particular level of government, or any other grouping of public sector units, transactions and debtor/creditor relationships between units within the chosen grouping (sector or subsector) have to be matched and eliminated to avoid double counting. The process of matching and eliminating these items within the chosen group is known as consolidation.

33 Consolidation is particularly important at the State government level where a significant proportion of total expenses/payments are financed by Commonwealth government grants. Similarly, an appreciable part of the expenditure undertaken by State public non-financial corporations is financed by grants from State governments.

UNDERSTANDING THE STATEMENTS

34 The GFS conceptual framework is divided into a number of separate statements, each of which is designed to draw out analytical aggregates or balances of particular economic significance and which, taken together, provide for a thorough understanding of the financial positions of jurisdictions individually and collectively. These published statements are the Operating Statement, the Cash Flow Statement, and the Balance Sheet.

Operating Statement

35 The Operating Statement presents details of transactions in GFS revenues, GFS expenses and the net acquisition of non-financial assets for an accounting period. GFS revenues are broadly defined as transactions that increase net worth and GFS expenses as transactions that decrease net worth. Net acquisition of non-financial assets equals gross fixed capital formation, less depreciation, plus changes in inventories plus other transactions in non-financial assets. Two key GFS analytical balances in the operating statement are GFS Net Operating Balance (NOB) and GFS Net Lending(+)/Borrowing(-).

36 GFS NOB is the difference between GFS revenues and GFS expenses. It reflects the sustainability of government operations. GFS Net Lending(+)/Borrowing(-) is equal to NOB minus the total net acquisition of non-financial assets. A positive result reflects a net lending position while a negative result reflects a net borrowing position.

Cash Flow Statement

37 The Cash Flow Statement identifies how cash is generated and applied in a single accounting period. 'Cash' means cash on hand (notes and coins held and deposits held at call with a bank or other financial institution) and cash equivalents (highly liquid investments which are readily convertible to cash on hand at the investor's option and overdrafts considered integral to the cash management function).

38 The Cash Flow Statement reflects a cash basis of recording (the other statements are on an accrual accounting basis) where the information has been derived indirectly from underlying accrued 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 specially identified because they allow the compilation of the cash-based Surplus(+)/Deficit(-) measure and because the management of cash is often considered an integral function of accrual accounting.

39 The Surplus(+)/Deficit(-) is a broad indicator of a sector's cash flow requirements. When it is positive (i.e. in surplus), it reflects the extent to which cash is available to government to either increase its financial assets or decrease its liabilities (assuming that no revaluations and other changes occur). When it is negative (i.e. in deficit), it is a measure of the extent to which government requires cash, either by running down its financial assets or by drawing on the cash reserves of the domestic economy, or from overseas.

Balance Sheet

40 The Balance Sheet is the statement of an entity's financial position at a specific point in time. It shows the entity's stock of assets, liabilities and GFS Net Worth. GFS Net Worth is an economic measure of 'wealth' calculated as assets less liabilities for the general government sector and as assets less liabilities less shares and other contributed capital for the PNFCs and PFCs sectors.

41 The net debt measure, previously published in the now discontinued publication Public Sector Financial Assets and Liabilities, Australia (Cat. no. 5513.0), is included as a memorandum item in the balance sheet presentation together with net financial worth, which is the difference between total financial assets and total liabilities. In GFS balance sheets, shares and other contributed capital are treated as liabilities by convention.

INTERSTATE COMPARISONS

42 The statistics in this publication have been compiled using standard definitions, classifications and treatment of government financial transactions to facilitate comparisons between levels of government and between states within a level of government.

43 However, the statistics also reflect real differences between the administrative and accounting arrangements of the various governments and these differences need to be taken into account when making interstate comparisons. For example, only a state level of government exists in the Australian Capital Territory and a number of functions performed by it are undertaken by local government authorities in other jurisdictions.

44 Interstate comparisons of data may also be significantly affected by differences in the mix of operations undertaken by state governments and local governments. For example:

• water and sewerage undertakings in Victoria, Western Australia and South Australia are operated exclusively by State authorities, but are run by local governments in other jurisdictions; and
• government transport undertakings are operated exclusively by state authorities in all states except Queensland where bus transport is operated by the local government sector.

46 The Commonwealth and each state government have, since budget year 1992-93, presented information in their budget documents on the ABS GFS basis. The information presented in the budget documents of each jurisdiction is compiled with the advice and assistance of ABS officers and generally conforms with the standards applied by the ABS. Jurisdictions may present the information based on their interpretation of the GFS classifications, but must provide a reconciliation of this information with information reflecting the ABS decision on these issues. In 1999, the uniform presentation framework was revised from a cash to an accruals basis and the accrual uniform presentation framework was to be implemented beginning with most jurisdictions' Budgets for 2000-2001.

47 Variations between ABS statistics and those presented by the jurisdictions can exist because the ABS may:

• disagree with classification treatments applied by jurisdictions;
• employ a different consolidation methodology to those used in jurisdiction Treasuries;
• apply reconciliation adjustments when it consolidates data for all jurisdictions and compares annual data with quarterly data used in compiling ASNA; and
• include data from time to time which were not available when a jurisdiction's GFS presentations were published (e.g. major asset sales).

AAS31

49 AAS31 'Financial Reporting by Governments' has been adopted by most Australian governments in the preparation of their financial statements. Accounting reports prepared under AAS31 and statistical reports prepared on a GFS basis serve different purposes and are aimed at different sets of users. Thus, differences between GFS and AAS31 analytical measures (GFS net operating balance and AAS31 operating surplus/deficit for example) can be expected. Descriptions of GFS/AAS31 reconciliations are outlined in Section 6 of the ABS publication Information Paper: Accruals-based Government Finance Statistics (Cat. no. 5517.0).

Australian System of National Accounts (ASNA)

50 While GFS and ASNA share the same conceptual framework (SNA93), there are methodological differences between GFS and ASNA analytical measures (GFS and ASNA net worth and net lending/borrowing for example). The main differences in the net/lending borrowing measures relate to adjustments for market rates of interest, consumption of fixed capital and ownership transfer costs between the GFS and ASNA. Descriptions of GFS/ASNA reconciliations are outlined in Section 6 of the ABS publication Information Paper: Accruals-based Government Finance Statistics (Cat. no. 5517.0).

DATA AVAILABLE ON REQUEST

51 Accruals GFS estimates are available for the public non-financial corporation and public financial corporation sectors and can be accessed by subscribing to AusStats or on request.

52 Some GFS data are available back to 1961-62. Prior to 1998-99, however, GFS were compiled on a cash basis. Users should note that the move to an accrual basis of recording required a change in data sources and methodologies for some jurisdictions from 1998-99 onwards. Therefore, the surplus/deficit series from 1998-99 are not directly comparable to the 'deficit' series for earlier years previously published in historical GFS publications.

53 Generally, a charge is made for providing data available on request. Inquiries should be made to the officer whose name appears in the Inquiries section of the publication, or to the ABS National Information Service.

RELATED PUBLICATIONS

54 Users may refer to the following publications which contain related information:

• Australian National Accounts: Financial Accounts (Cat. no. 5232.0) - issued quarterly
• Australian National Accounts: National Income, Expenditure and Product (Cat. no. 5206.0) - issued quarterly
• Australian System of Government Finance Statistics: Concepts, Sources and Methods (Cat. no. 5514.0.55.001) - available in electronic form on the ABS Website via the Statistical Concepts Library
• Australian System of National Accounts (Cat. no. 5204.0) - issued annually
• Government Finance Statistics: Australia, Quarterly (Cat. no. 5519.0.55.001) - issued quarterly
• Government Financial Estimates (Cat. no. 5501.0.55.001) - issued annually
• Information Paper: Accruals-based Government Finance Statistics (Cat. no. 5517.0) - issued March 2000
• Information Paper: Developments in Government Finance Statistics (Cat. no. 5516.0) - issued February 1997
• Taxation Revenue, Australia (Cat. no. 5506.0) - issued annually