1301.0 - Year Book Australia, 2007

ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 24/01/2007

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Contents >> Government Finance >> Public sector

PUBLIC SECTOR

The public sector includes all organisations owned or controlled by any of the three levels of government within the Australian political system - Australian (Commonwealth), state (and territory), and local. The responsibilities of each level of government differ and each level has specific sources of revenue with which to fund its activities.

In the GFS, a fourth level of government is also identified - multi-jurisdictional. The multi-jurisdictional sector contains units where jurisdiction is shared between two or more governments, or where classification of a unit to a jurisdiction is otherwise unclear. The main type of units currently falling into the multi-jurisdictional category are the public universities.

The public sector can be divided into three institutional sectors, based on the characteristics of the organisations it comprises:

General government - the main function of general government entities is to provide non-market goods and services (e.g. roads, hospitals, libraries) primarily financed by taxes; to regulate and influence economic activity; to maintain law and order; and to redistribute income by means of transfer payments.
Public non-financial corporations (PNFCs) - the main function of 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.
Public financial corporations (PFCs) - PFCs are enterprises which engage in financial intermediation (i.e. trade in financial assets and liabilities), such as central borrowing authorities (the Reserve Bank of Australia), government banks and insurance offices, or home-lending schemes.

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

The Operating Statement presents details of transactions in GFS revenues, GFS expenses and the net acquisition of non-financial assets on an accrual basis for an accounting period. Two key GFS analytical balances in the Operating Statement are GFS Net Operating Balance (NOB) and GFS Net Lending(+)/Borrowing(-). GFS NOB is the difference between GFS revenues and GFS expenses and 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.

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 where the information has been derived indirectly from underlying accrued transactions and movements in balances. In effect, this 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.

The Surplus(+)/Deficit(-) is a broad indicator of 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. 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.

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'. For the general government sector it is calculated as assets less liabilities. For the PNFC and PFC sectors, GFS Net Worth is calculated as assets less liabilities less shares and other contributed capital.