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Introduction

22.1 As discussed in Chapter 4, income flows may be divided into primary income and secondary income. Primary income comprises compensation of employees (see Chapter 19), gross operating surplus and gross mixed income (see Chapter 20), taxes less subsidies on production and imports (see Chapter 21), and property income. Secondary income flows relate entirely to current transfers of income from one institutional sector to another (other than those included in primary income) and include current taxes on income, wealth etc., social contributions and benefits, and miscellaneous current transfers.

22.2 As also discussed in Chapter 4, property income represents transfers of income resulting from the use of financial assets and tangible non-produced assets such as land and sub-soil assets. It includes interest, dividends (including withdrawals of equity from quasi corporations), imputed property income, rent on natural assets and reinvested earnings on direct foreign investment. Miscellaneous current transfers include non-life insurance premiums and claims, current transfers within general government (e.g. grants from one level of government to another), current transfers between the Commonwealth government and governments of other countries or international organisations (e.g. UN, OECD), current transfers from general government and public non-financial corporations to private non-profit institutions serving households, fines and penalties, and compensation paid (other than as an insurance claim) for injury, property damage or death.

22.3 This chapter discusses the sources and methods for compiling estimates for the various types of property income and the various categories of secondary income.


Property income

22.4 Property income is recorded net of intra-sector receipts and payments (i.e. property income flows within an institutional sector are not recorded because they cancel out on consolidation). While the household sector may be disaggregated into its business (unincorporated trading enterprises) and non-business subsectors, property income flows between these subsectors are considered intra-sector and are netted out. In relation to property income payments by the household sector a distinction is drawn between consumer debt interest paid by households and interest on loans for business purposes paid by their unincorporated trading enterprises. Due to data limitations, all property income receipts by the household sector are classified to households, with no receipts being attributed directly to unincorporated trading enterprises.

22.5 Banks and similar financial intermediaries largely finance their operations by charging higher interest rates on their loans than they pay out on deposits. In effect, the interest paid by borrowers can be regarded as comprising two components, a service charge and a 'pure' interest flow. Likewise, the interest paid to depositors can be viewed as a 'pure' interest flow from which a service charge has been deducted. These implicit service charges are entitled 'financial intermediation services indirectly measured' (FISIM). FISIM for a particular category of financial intermediaries is the sum of the imputed service charges for both borrowers and depositors. The service charge on borrowers is calculated as the level of loans outstanding multiplied by the difference between the average interest rate received on loans and a 'pure' interest rate. Similarly, the service charge on depositors is calculated as the level of deposits multiplied by the difference between the 'pure' interest rate and the average interest rate paid on deposits. The 'pure' or 'reference' rate of interest could be determined as being equal to a particular market rate of interest, such as the long term bond rate. However, for practical reasons, the ABS has decided to use the mid-point between the average interest rate on loans and the average interest rate on deposits as the 'pure' or 'reference' rate of interest for the FISIM calculations. The estimation of FISIM is undertaken at a broad level for particular categories of financial intermediaries. The interest flows recorded in the sector income accounts are after adjusting the actual interest flows by FISIM relating to both borrowers and depositors. Consequently, interest paid by banks (and similar financial intermediaries) and received by depositors is increased by the amount of FISIM payable by depositors, while interest received by banks (and similar financial intermediaries) and paid by borrowers is reduced by the amount of FISIM payable by borrowers in each institutional sector (e.g. households, general government, non-financial corporations).

22.6 Property income flows also include imputed flows relating to life insurance, superannuation and non-life insurance operations. Three distinct categories of such flows are included in the sector income accounts. First, imputed interest from life insurance and superannuation funds to households is recorded covering the current income earned by statutory funds on behalf of policy holders. This income mainly comprises interest and dividend income earned by the funds, but it also includes net rental income earned on real property such as office buildings which are owned by the statutory funds (separately constituted long-service leave boards are also included with these funds). In effect, the net increase in policy-holders' equity in the funds (excluding capital gains and losses) is regarded as being transferred from the funds to households and is also recorded as an imputed flow in the sector financial accounts from households back to the funds (recorded as Net equity of households in reserves under the category Insurance technical reserves). Second, imputed interest from the general government sector to households is recorded on account of the unfunded superannuation schemes operated by the general government sector (see paragraphs 22.48 to 22.52 for more details on the treatment of these unfunded superannuation schemes). Third, premium supplements are recorded as an imputed property income flow from non-life insurance corporations to policy holders. As discussed in Chapter 20, premium supplements represent income earned on the technical reserves of non-life insurance corporations, which consists of unearned premiums (most premiums are paid for a full year in advance) and unpaid claims (which arise because of delays in finalising the payment of claims). Premium supplements do not include any income from the investment of insurance corporations' own funds.

22.7 The item Dividends payable to general government by public corporations (or quasi corporations) records that part of the income of public corporations which is paid to general government, whether described by the corporations (or quasi corporations) as dividends or transfers of profits. Income tax and other forms of taxation are excluded. The item includes (with a negative sign) income transfer payments made by general government to offset non-recurring losses of public corporations and quasi corporations.

22.8 Reinvested earnings on direct foreign investment payable to and receivable from non-residents are recorded as separate components of property income flows in the external income account and the sector income accounts for both non-financial corporations and financial corporations. The item Reinvested earnings represents the undistributed income of a direct investment enterprise which is attributable to its direct investor in another economy. In effect retained earnings are treated as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity of the enterprise, and then reinvested by them. Hence they are imputed transactions, with offsetting entries being recorded in property income flows in the external income account and the 'shares and other equity' items in the external financial account. This treatment is adopted because it is considered that direct investors, through their significant influence on the operations of the direct investment enterprise, are able to determine the level of distributed income and therefore the reinvested earnings of the direct investment enterprise.

22.9 Reinvested earnings on direct foreign investment are measured on the basis of the direct investors' equity share in the gross operating surplus, transfer income and other current income of the direct investment enterprise. Gross operating surplus represents income from the normal operations of the enterprise and does not include holding gains or losses. Earnings of direct investment enterprises are measured after deducting provision for corporate taxes and consumption of fixed capital.

Annual estimates

22.10 Estimates are derived by constructing matrices of the flows of property income between the various sectors and subsectors of the economy, including the external sector. The matrices represent a balanced system so that total payments of property income equal total receipts of property income. The interest and dividends matrices are by far the largest, and include each of the broad types of financial institutions as well as the non-financial sectors of the economy. The matrices relating to land rent and rent on other natural assets are compiled at the institutional sector level only.

22.11 Available data sources do not provide complete information on the origin or destination of property income flows. Data for individual matrix cells are completed where possible using direct information from either party to the transaction. Where such information is not available, cells are completed using indirect indicators or are derived as a balance. Totals are either estimated directly from source data or are derived by aggregation.

22.12 Interest and dividend flows are derived using a large number of data sources. These include ABS surveys of different types of financial corporations, information provided by the Reserve Bank of Australia, the Australian Prudential Regulatory Authority (APRA), ABS balance of payments, financial accounts and government finance statistics, Taxation Statistics produced by the Australian Taxation Office, the ABS Company Profits Survey, and State Auditors'-General reports. Estimates for the latest year are based on less complete data than those for earlier years.

22.13 Wherever possible actual interest flows are initially used to construct the interest matrix. However, because there is insufficient data on interest flows by instrument and counterparty, indirect estimation methods are used to complete the full matrix. Average interest rates are applied to sectoral balance sheet information to derive the detailed estimates of interest flows by instrument and counterparty. The interest flows relating to loans and deposits are adjusted to allow for FISIM. Interest flows from borrowers to financial intermediaries are reduced by FISIM, while interest flows from financial intermediaries to depositors are increased by FISIM. Adjustments are also made to put interest on debt securities onto an accrual basis for all sectors, except the external sector. This is achieved by replacing estimates of nominal interest flows for debt securities for a particular sector by an accrual estimate obtained by applying the current market rate of interest for debt securities to the average balance sheet level of debt securities for that sector. Accrued interest on debt securities for transactions with the external sector are obtained directly from the balance of payments and, consequently, do not require any adjustment before they are included in the interest matrix.

22.14 Estimates for reinvested earnings are obtained directly from balance of payments statistics. The quarterly Survey of International Investment provides data on reinvested earnings on direct foreign investment, both payable to non-residents and receivable from non-residents. A more detailed description of the sources and methods used to compile these estimates is provided in Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods (Cat. no. 5331.0).

22.15 Land rent is mainly paid by corporations and unincorporated enterprises, and received by general government, public corporations and persons. Major data sources used are the government administrative records used to compile government finance statistics and the ABS Agricultural Finance Survey. Land rent received by persons is derived as a balance. Separate estimates are made for rent on natural resource assets.

Quarterly estimates

22.16 Sufficient quarterly data are not currently available to enable a detailed matrix approach to be used for the compilation of quarterly estimates.

22.17 Quarterly estimates of property income received and paid by general government are derived from the Commonwealth Department of Finance and Administration Ledgers, State government monthly and quarterly statements of receipts and expenditure, and a quarterly survey of local government authorities. Property income received from and paid to non-residents is obtained from balance of payments statistics.

22.18 The principal data source used to compile quarterly estimates of household property income is the monthly Reserve Bank of Australia Bulletin. Indicator data are estimated by multiplying estimates of loans outstanding by appropriate interest rates. Available data for loans outstanding often relate to a broader borrowing sector than that for which the estimates are required. The use of these data requires the assumption that movements in available data for loans outstanding are representative of movements in the narrower sector for which estimates are being prepared. For interest paid on dwellings owned by persons, data relating to advances for housing are generally readily available, but for interest paid by unincorporated enterprises, source data generally relate to loans outstanding for a much broader sector of activity.

22.19 Quarterly estimates of net property income payable by the agricultural sector are interpolated between and extrapolated from the annual estimates using a linear trend model.


Current taxes on income, wealth etc.

22.20 There are two components to current taxes on income, wealth etc., namely income taxes and other current taxes on income, wealth etc. These taxes are part of secondary income receivable by the general government sector and are a component of secondary income payable by other sectors. Income tax consists of taxes on the income of households, corporations and non-residents, and taxes on wealth which are levied regularly (wealth taxes which are levied irregularly are classified as capital taxes and are recorded in the sector capital accounts). Income tax payable by both non-financial corporations and financial corporations is recorded on an accrual basis, with their income tax payable being directly related to the financial year in which the income that gave rise to the tax liability was earned. Income taxes payable by corporations include the resources rent tax and income tax on the earnings of superannuation funds. While it could be argued that income tax payable by the household sector should be recorded on a similar basis, no accrual adjustments are currently made to the estimates for income tax paid by households which are recorded in government finance statistics. This treatment was adopted on the basis that it is the actual payments by households which affect household spending decisions and disposable income in the current period. The Medicare levy is treated as an integral part of income tax payable by the household sector. Capital gains taxes payable by households or corporations are recorded in the period in which they become payable, irrespective of the periods over which the gains have been accrued. Capital gains taxes are included as part of income taxes in the sector income accounts. Income taxes payable by non-residents comprise withholding taxes levied on their Australian income (dividends, interest etc.). Inheritance and gift taxes are excluded because they are classified as capital transfers (see Chapter 23).

22.21 The item Other current taxes on income, wealth etc. consists mainly of payments by households to obtain licences to own or use vehicles, boats or aircraft, and for licences to hunt, shoot or fish. Payments for all other kinds of licences, such as driving or pilot's licences, television or radio licences, firearms licences, and fees paid to government (payments for passports, airport fees, court fees etc.) are treated as purchases of services rendered by general government to households. Such payments are included in household final consumption expenditure and are deducted from total general government current expenditure when deriving estimates for government final consumption expenditure.

Annual estimates

22.22 The starting point for estimates of income tax payable by corporations is net tax assessed on companies from Taxation Statistics. As this source does not make sufficient distinction between institutional sectors, estimates for some financial corporations are based on income tax provisions recorded in the ABS surveys of the different types of financial institutions. For those public non-financial corporations and quasi corporations that are liable to pay income tax, income tax payable is estimated using data published in their annual reports. Income tax payable by private non-financial corporations is estimated as the residual after deducting the estimates of income tax payable by other sectors from estimates of total net tax assessed on companies. Adjustments are made for amendments to net tax assessed as a result of processing late taxation returns and audit activity by the Australian Taxation Office. Income tax payable by individuals, and by partnerships and trusts, is obtained from the Commonwealth Department of Finance and Administration Ledgers. Tax collections under the Prescribed Payments Scheme are allocated between households and corporations.

22.23 To estimate other current taxes on income, wealth etc. it is necessary to allocate between households and businesses the revenue collected for licences to own or use vehicles, boats or aircraft, and for licences to hunt, shoot or fish. Revenue for licences collected from households is included in current taxes on income, wealth etc, while licence revenue from businesses is included in taxes on production and imports.

22.24 Current taxes on income, wealth etc. receivable from non-residents are estimated from data relating to withholding taxes obtained from the Australian Taxation Office. Withholding taxes include those on dividends, interest, royalties and insurance income. Until 1995-96, current taxes on income, wealth etc. payable to non-residents were sourced from data relating to interest and dividend withholding taxes from the Survey of International Investment; they have been extrapolated since that year using movements in the relevant transactions.

Quarterly estimates

22.25 Quarterly estimates for all components of income taxes and other current taxes on income, wealth etc. are compiled using information from administrative sources such as the Commonwealth Department of Finance and Administration Quarterly Ledgers, and State government monthly and quarterly statements of receipts and expenditure.


Social contributions and social benefits

22.26 Social benefits are current transfers receivable by households to provide for needs that arise from certain events or circumstances such as sickness, unemployment, retirement, housing, education or family circumstances. There are two kinds of social benefits: social insurance benefits and social assistance benefits. The only relevant social insurance scheme in the Australian context relates to workers' compensation. Households make social contributions for workers' compensation and receive social benefits from it. Households are regarded as receiving workers' compensation premiums as part of the employer social contributions component of compensation of employees, making social contributions for workers' compensation and consequently receiving social benefits from workers' compensation. All of these flows related to workers' compensation are recorded in the household income account. The workers' compensation premiums which are included in employers' social contributions include direct workers' compensation premiums payable and the direct cost of workers' compensation to employers who are permitted to self-insure.

22.27 Social assistance benefits are paid by general government from general revenue and are not financed from social contributions. Social assistance benefits (in cash to residents) include old age pensions; family and child benefits; sickness and unemployment benefits; benefits to ex-service persons and their dependants; and government scholarships.

Annual estimates

22.28 Annual estimates of social contributions for workers' compensation and social benefits from workers' compensation are compiled using data supplied by APRA, periodic ABS Major Labour Cost Surveys and annual ABS Economic Activity Surveys. Social assistance benefits are obtained directly as a by-product of the ABS government finance system.

Quarterly estimates

22.29 Quarterly estimates of social contributions for workers' compensation and social benefits from workers' compensation are compiled by allocating annual estimates for the private and public sectors separately using wages and salaries as the indicator. Quarterly estimates of social assistance benefits are compiled using information from administrative sources such as the Commonwealth Department of Finance and Administration Quarterly Ledgers, and State government monthly and quarterly statements of receipts and expenditure.


Net non-life insurance premiums and non-life insurance claims

22.30 The premiums charged by non-life insurance corporations can be regarded as comprising two components: an implicit service charge, and a transfer payment to cover the risk of providing insurance cover. The non-life insurance service charge is defined as premiums earned plus premium supplements less expected claims. Premium supplements represent income earned on the technical reserves of non-life insurance corporations, which consist of unearned premiums (most premiums are paid for a full year in advance) and unpaid claims (which arise because of delays in finalising the payment of claims). Premium supplements do not include any income from the investment of insurance corporations' own funds. Expected claims are generally defined as a centred five year moving average of claims incurred. To estimate expected claims it is necessary to forecast claims incurred for year t+1 and year t+2. A moving average is used to avoid irregular movements in the non-life insurance service charge which would otherwise arise because of volatility in the annual data for claims incurred. While the use of expected claims rather than claims incurred each year may be viewed as a departure from the practical recommendations contained in SNA93, it is consistent with the conceptual discussion contained in SNA93.

22.31 Net non-life insurance premiums are defined as non-life insurance premiums less the non-life insurance service charge. This flow is regarded as a transfer payment from institutional sectors which use the services provided by non-life insurance corporations and is recorded as a use of income in the sector income accounts and a receipt of income for non-life insurance corporations in the financial corporations income account. Non-life insurance claims are the claims incurred in the current accounting period and are recorded in the sector income accounts as transfers from non-life insurance corporations to other institutional sectors.

22.32 Health insurance funds are treated as part of the non-life insurance sub-sector, and consequently net health insurance premiums and claims are included, respectively, as part of net non-life insurance premiums and non-life insurance claims. Workers' compensation schemes may be conducted either by specialist financial corporations whose only business is workers' compensation, or by non-life insurance corporations that provide non-life insurance for various classes of business. Although the operating surplus generated by workers' compensation business is included in the gross operating surplus for the financial corporations sector, workers' compensation premiums and claims are excluded from the transfer flows for net non-life insurance premiums and non-life insurance claims because they are shown separately as a component of social benefits and social contributions (see paragraph 22.26).

Annual estimates

22.33 Annual estimates for net premiums and claims for non-life insurance (excluding health insurance funds) are compiled using data published in the APRA publication Selected Statistics on the General Insurance Industry and from balance of payments statistics. Similarly, annual estimates for net non-life insurance premiums and non-life insurance claims for health insurance funds are compiled using data published in the Private Health Insurance Administration Council publication Operations of the Registered Health Benefits Organisations.

Quarterly estimates

22.34 Quarterly sectoral estimates of net non-life insurance premiums and non-life insurance claims are compiled by applying a linear trend formula to the annual estimates.


Miscellaneous current transfers

22.35 In addition to the current transfers discussed above there are a number of miscellaneous current transfers recorded in the ASNA. The following categories of transfers are identified and recorded separately: Current transfers to non-profit institutions serving households; Current transfers from the Commonwealth government to State and local government; and Current international cooperation. The remaining miscellaneous current transfers are recorded as Other current transfers in the sector income accounts.

22.36 Current transfers to non-profit institutions serving households are made principally to institutions such as hospitals, private schools, and religious and charitable organisations. They are treated in the national accounts as current transfers and not as government final consumption expenditure. Some current transfers are also made by public non-financial corporations (e.g. Totalisator Agency Boards), generally to organisations such as racing clubs and charities. Transfers from corporations to non-profit institutions serving households that cannot be regarded as payments for advertising or other services would also be included in this item.

22.37 Current transfers from the Commonwealth government to State and local government include the following:

• financial assistance grants to the States and Territories;

• grants to fund State and Territory health care services, education services, social security and welfare services, and similar specific grants for current purposes;

• special revenue assistance grants provided to certain States and Territories;

• financial assistance grants for local governments which are provided through the State and Northern Territory governments; and

• grants for current purposes made directly to local government bodies.

Annual estimates

22.42 Estimates of current international cooperation are obtained from Commonwealth Department of Finance and Administration Ledgers. Estimates of miscellaneous current transfers between general government and the other institutional sectors are obtained as a by-product of the compilation of ABS government finance statistics. For Commonwealth and State general government, data are extracted from administrative sources such as Commonwealth and State Budget Papers and Auditors'-General Reports, Commonwealth Department of Finance and Administration Ledgers and supplementary departmental documents. A joint ABS/Commonwealth Grants Commission annual return, which is collected from each local government authority, provides the details required for local government. Estimates for all public non-financial corporations and quasi corporations are based on annual financial statements and Auditors'-General Reports.

22.43 Other current transfers to and from non-residents are obtained directly from balance of payments statistics. Commonwealth Budget Papers provide data on Commonwealth government veterans' and social security pensions paid to former Australian residents now living abroad. Other private sector transfers to non-residents are estimated using data from the Survey of Foreign Unrequited Transfers. The Department of Veterans' Affairs provides information about pensions paid to former New Zealand residents now living in Australia (part of other current transfers from non-residents). More detailed information on the sources and methods used to compile these estimates is included in Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods (Cat. no. 5331.0).

Quarterly estimates

22.44 Quarterly estimates of miscellaneous current transfers between general government and the other institutional sectors are compiled using information from administrative sources such as the Commonwealth Department of Finance and Administration Quarterly Ledger, and State government monthly and quarterly statements of receipts and expenditure. Current transfers to and from non-residents are obtained directly from balance of payments statistics.


Social transfers in kind

22.45 This is a new category of transfers that was introduced when SNA93 was implemented. It was introduced to facilitate the formation of two new concepts of final consumption expenditure, namely Actual individual consumption and Actual collective consumption (see Chapter 14 for definitions of these items). Social transfers in kind are recorded in two supplementary accounts, the general government adjusted disposable income account and the household adjusted disposable income account. In the ASNA social transfers in kind are individual goods and services provided to individual households by general government units. The goods and services may be produced by the government units or purchased by them. Also included are reimbursements made to individual households by general government units for purchases by the households under a scheme that authorises the purchase of approved goods and services (e.g. Medicare rebates for medical services).

22.46 In the ASNA private non-profit institutions serving households are combined with households in the households institutional sector. However, if (as recommended in the SNA93) NPISHs were classified to a separate institutional sector of their own, their entire final consumption expenditure would be treated as actual individual consumption and recorded as social transfers in kind to households.

Annual estimates

22.47 Estimates of social transfers in kind are obtained as a by-product of the compilation of ABS government finance statistics. For Commonwealth and State general government, data are extracted from administrative sources such as Commonwealth and State budget papers and Auditors'-General Reports, Commonwealth Department of Finance and Administration Ledgers and supplementary departmental documents. A joint ABS/Commonwealth Grants Commission annual return, which is collected from each local government authority, provides the details required for local government.


General government unfunded superannuation schemes

22.48 In Australia most governments operate, or used to operate, superannuation schemes for their employees that are unfunded or only partly funded. Some general government schemes have one component funded through direct employee contributions, and another (the employer's contributions) which is unfunded. Other general government schemes comprise only an unfunded employer component.

22.49 In conjunction with the implementation of SNA93, the treatment of unfunded superannuation schemes was changed in the ASNA. The actual payment of pensions to former employees, which had previously been included in both compensation of employees and government final consumption expenditure, was replaced by an imputed estimate for unfunded employer contributions to superannuation. The value of these imputed contributions was estimated as the amount which the employer would be required to pay into a separate superannuation fund if the scheme were to be operated as a fully funded scheme. The general government employer does not transfer the imputed contributions into a separate superannuation fund, but instead effectively borrows this amount and should therefore pay property income on the outstanding liability of the unfunded scheme. Consequently, a further imputation was introduced into the income accounts of general government and households for imputed interest on the accruing liability to pay unfunded superannuation.

22.50 For the purposes of deriving the imputed flows on account of general government unfunded superannuation, a notional superannuation 'fund' is created which is treated as a financial asset of the household sector and a liability of the general government sector. Consistent with the operation of funded schemes, imputations are derived for both the employers' contributions to the notional fund and property income on the notional use of the assets of the fund in each period by general government. Only the imputed employers' contributions are included in compensation of employees, government final consumption expenditure and GDP. However, both components impact on household and general government saving. This approach ensures that government final consumption expenditure and GDP are not affected by whether general government superannuation schemes are funded or unfunded. The outstanding liability in relation to unfunded superannuation schemes is recorded as a liability in the general government balance sheet and as an asset in the household balance sheet.

22.51 A brief description of the model which is used to calculate imputed employer contributions and imputed property income flows for periods up to 1997-98 is provided in Appendix A to this chapter. The major data sources used to compile these estimates are data on unfunded employee entitlements from the publication Government Financial Estimates, Australia (Cat. no. 5501.0) and implicit employer contribution rates provided by the Commonwealth Actuary. Both of these sources provide data which are derived from actuarial calculations. The model is applied to annual data. Quarterly estimates for the imputed employer contributions and imputed property income flows are derived using appropriate indicators.

22.52 With the introduction of accrual accounting in the Commonwealth and State general government sectors direct estimates of both the imputed employer contributions to unfunded superannuation and the imputed interest on the outstanding liability are now being compiled by the Commonwealth, State and Territory Treasuries. From 1998-99, these direct estimates are generally used, although some adjustments are required to the estimates for some States to ensure that the estimates for all jurisdictions are on as comparable a basis as possible.

A.1 The model was set up to estimate (i) accrued superannuation expense, and (ii) accrued interest on the nominal superannuation debt for the general government sector for all jurisdictions for periods up until 1997-98.

A.2 For each accounting period the following identity should hold (no allowance is made for valuation changes which could arise if different assumptions were used in the actuarial calculations from one period to another. In general the latest available assessment of the liabilities of the unfunded schemes is taken as the most reliable estimate):

	Liability at beginning of year
		plus Accrued employer expense plus Accrued interest on the liability minus Cash payments of benefits equals Liability at end of year

accrued expense + accrued interest - cash payments

=

net increase in superannuation liability.

	Liability at end of period	For 1997-98 unfunded employee entitlements were taken from the 1998-99 issue of Government Financial Estimates, Australia (Cat. no. 5501.0) (i.e. the outstanding balance reported by State and Commonwealth Treasuries). For the Commonwealth, an adjustment is made for claims on general government for unfunded liabilities relating to public non-financial corporations. For earlier periods, the liability at end of period is calculated by deducting the net increase in superannuation liability in the following period.
	Accrued employer expense	For the Commonwealth, a weighted average of implicit employer contribution rates for different schemes is calculated. These employer contribution rates are based on data from the Commonwealth Actuary for 1988, 1993 and 1996, with contribution rates for other years being estimated. For each year, this average contribution rate is applied to ABS estimates of public sector wages and salaries. For all other jurisdictions, accrued expense is calculated as a residual such that the sum of expenses plus interest minus payments equals the increase in liabilities for each year and also equals the relevant unfunded liability estimate for the latest period.
	Accrued interest on the liability	For each accounting period, the discounted Commonwealth long term bond rate was applied to the beginning of period liability. This discounted rate has been calculated by applying a discount factor to the bond rate each year so that the end point agrees with the unfunded employee entitlements data for the current period (i.e. for the Commonwealth, accrued interest is calculated as a residual). This discounted Commonwealth rate is then used in the calculation of accrued interest for all other jurisdictions.
	Cash payments of benefits	Cash pensions and lump sums paid in respect of unfunded employee superannuation available from government finance statistics.