TERRITORY BANKING ACCOUNT
Purpose
Treasury provides services to the Government including financial asset and liability management through the establishment of investment and borrowing policies and objectives, and the coordination and implementation of investment and borrowing activities.  This includes the effective management of capital market functions through the maximisation of returns on investments, within relevant risk tolerances; to achieve competitive borrowing rates commensurate with the Territory’s credit rating; and to develop effective financial risk management strategies.
Treasury, through the Territory Banking Account (TBA), recognises and manages the general government’s investment assets and debt liabilities.  Revenues on behalf of the Territory are transferred to the TBA and fortnightly appropriation disbursements are made to agencies from the TBA.
2011‑12 Priorities
Strategic and operational issues to be pursued in 2011-12 include:
•	managing the General Government Sector’s debt portfolio and associated risks;
•	managing, monitoring and reviewing, as necessary, the TBA investment portfolio in accordance with the established investment policies; and
•	implementation of any changes arising out of the Assembly Committee Review of ethical investments, as applicable to the TBA.
Estimated Employment Level
2009‑10
Actual 		2010-11
Budget	2010-11
Est. Outcome	2011-12
Budget	
-	Staffing (FTE)1	-	-	-	
Note:
1.	The officers responsible for undertaking the functions of the TBA are employees of Treasury Directorate.

Strategic Objectives and Indicators
Strategic Objective 1
Effective Management of Investment and Borrowing Activities
Strategic Indicator 1: Investment Returns Meeting or Exceeding Benchmark
The investment performance is measured against a standard market benchmark.  The conservative policy for general government investments is such that returns equal to or marginally in excess of the benchmark are expected.

Strategic Objective 2: Borrowing Portfolio in Line with Benchmark
General government borrowings are managed to minimise excess interest rate and market risk.  The strategy for managing the general government debt portfolio is to strike an appropriate balance between the risks associated with debt that has a floating (variable) interest rate and is therefore exposed to volatility in market interest rates and the costs associated with a fixed rate of interest.
The strategic indicator for the management of the debt portfolio is a target in the order of 30 per cent of the general government debt portfolio be exposed to floating (variable) interest rates.
Output Class
	Total Cost
	Payment for Expenses on Behalf of the Territory	
	2010-11
Est. Outcome
$’000	2011-12
Budget
$’000 	2010-11
Est. Outcome
$’000 	2011-12
Budget
$’000 	
EBT 1: 
Territory Banking Account	3,931,563	4,305,389	11,022	17,848	
Output EBT 1:  Territory Banking Account	3,931,563	4,305,389	11,022	17,848	
Description
This output includes the management of the investment and borrowing activities.
The key outputs to be delivered in 2011-12 include:
•	delivering an investment return on a net of fee basis at or above the cash rate or bank bill index, within acceptable risk tolerances;
•	monitoring and reviewing the performance of the Territory’s investment managers and investment service providers to achieve an investment return greater than benchmark;
•	cash management; and
•	achieving competitive borrowing rates commensurate with the ACT Government’s credit rating.
Accountability Indicators
	2010‑11
Targets	2010-11
Est. Outcome	2011-12
Targets	
1.1:  Territory Banking Account	
a.	Difference between the net investment earnings rate and the benchmark is to be > 01	> 0	1.30	> 0	
b.	Exposure of debt portfolio to floating interest rates2	< 30%	72%	< 30%	
Notes:
1.	The cash enhanced fund component of the investment portfolio has a large exposure to debt instruments.  Following a recovery in credit markets significant capital gains are now being recognised.  The benchmark index does not include securities with similar credit exposure.
2.	This indicator reflects the amount of floating rate debt in the portfolio which will determine the degree to which changes in interest rates will impact on budgeted interest costs.  The targeted floating versus fixed exposure ratio is considered to meet a general objective of stability in budgeted interest costs, but also provides some flexibility to strategically manage the debt portfolio in response to changes in economic conditions and other financial objectives.  Reducing the current floating interest rate exposure will be done in conjunction with the new general government borrowings proposed for 2011-12.

Changes to Appropriation
Changes to Appropriation - Territorial						
 	2010-11	2011-12	2012-13	2013-14	2014-15	
	Est. Out.	Budget	Estimate	Estimate	Estimate	
 	$'000	$'000	$'000	$'000	$'000	
						
2010-11 Budget	11,839	31,677	37,901	37,758	37,758	
						
Interest Rate Adjustment	444 	637 	636 	667 	862 	
Interest on Borrowings	(1,261)	(14,466)	(770)	10,875 	10,101 	
						
2011-12 Budget	11,022	17,848	37,767	49,300	48,721	

						
Changes to Appropriation - Territorial						
 	2010-11	2011-12	2012-13	2013-14	2014-15	
Capital Injections	Est. Out.	Budget	Estimate	Estimate	Estimate	
 	$'000	$'000	$'000	$'000	$'000	
						
2010-11 Budget	214	214	214	214	214	

2011-12 Budget	214	214	214	214	214	

Territory Banking Account
Statement of Income and Expenses on Behalf of the Territory
  2010-11			  2010-11	   2011-12		  2012-13	    2013-14	  2014-15		
    Budget			Est.Outcome	   Budget	     Var	  Estimate	    Estimate	  Estimate		
    $'000			    $'000	   $'000	      %	    $'000	     $'000	   $'000		
		Income								
		Revenue								
11,839		Payment for Expenses on behalf of Territory	11,022	17,848	62	37,767	49,300	48,721		
107,713		Interest	119,600	123,537	3	125,573	130,756	140,840		
123,526		Other Revenue	143,350	139,537	-3	119,907	110,625	105,303		
3,230,322		Transfer Revenue	3,340,337	3,594,485	8	3,570,090	3,791,581	4,002,874		
3,473,400		Total Revenue	3,614,309	3,875,407	7	3,853,337	4,082,262	4,297,738		
		Gains								
0		Total Gains	0	0	-	0	0	0		
3,473,400		Total Income	3,614,309	3,875,407	7	3,853,337	4,082,262	4,297,738		
		Expenses								
101,011		Borrowing Costs	109,614	122,991	12	143,395	157,625	159,878		
362		Other Expenses	3,226	814	-75	684	329	329		
3,886,261		Transfer Expenses	3,818,723	4,181,584	10	3,967,796	3,734,880	3,870,696		
3,987,634		Total Ordinary Expenses	3,931,563	4,305,389	10	4,111,875	3,892,834	4,030,903		
-514,234		Operating Result	-317,254	-429,982	36	-258,538	189,428	266,835		
-1		Inc/Dec in Asset Revaluation Reserve Surpluses	990	-3	-100	1	1,516	1		
-1		Total Other Comprehensive Income	990	-3	-100	1	1,516	1		
-514,235		Total Comprehensive Income	-316,264	-429,985	-36	-258,537	190,944	266,836		

Territory Banking Account
Statement of Assets and Liabilities on Behalf of the Territory
    Budget			Est.Outcome	    Planned		   Planned	   Planned	   Planned		
as at 30/6/11			as at 30/6/11	as at 30/6/12	   Var	as at 30/6/13	as at 30/6/14	as at 30/6/15		
   $'000			   $'000	     $'000	    %	    $'000	    $'000	    $'000		
		Current Assets								
5,000		Cash and Cash Equivalents	0	0	-	0	0	0		
360,708		Receivables	389,743	381,087	-2	412,362	496,294	548,728		
428,639		Investments	828,276	453,919	-45	484,170	637,611	902,986		
1,476		Other	3,180	3,180	-	3,180	3,180	3,180		
795,823		Total Current Assets	1,221,199	838,186	-31	899,712	1,137,085	1,454,894		
		Non Current Assets								
1,306,109		Receivables	1,181,908	1,404,068	19	1,394,251	1,432,735	1,419,478		
158,653		Investments	168,488	156,085	-7	152,739	149,119	145,528		
1,464,762		Total Non Current Assets	1,350,396	1,560,153	16	1,546,990	1,581,854	1,565,006		
2,260,585		TOTAL ASSETS	2,571,595	2,398,339	-7	2,446,702	2,718,939	3,019,900		
		Current Liabilities								
4,061		Payables	7,399	7,399	-	7,399	7,399	7,399		
580,897		Interest Bearing Liabilities	869,835	602,498	-31	617,285	660,193	706,077		
584,958		Total Current Liabilities	877,234	609,897	-30	624,684	667,592	713,476		
		Non Current Liabilities								
1,632,354		Interest Bearing Liabilities	1,307,794	1,819,362	39	2,108,407	2,145,229	2,130,384		
1,632		Other	1,515	1,515	-	1,515	0	0		
1,633,986		Total Non Current Liabilities	1,309,309	1,820,877	39	2,109,922	2,145,229	2,130,384		
2,218,944		TOTAL LIABILITIES	2,186,543	2,430,774	11	2,734,606	2,812,821	2,843,860		
41,641		NET ASSETS	385,052	-32,435	-108	-287,904	-93,882	176,040		
		REPRESENTED BY FUNDS EMPLOYED								
43,343		Accumulated Funds	386,639	-30,845	-108	-286,315	-93,809	176,112		
-1,702		Reserves	-1,587	-1,590	..	-1,589	-73	-72		
41,641		TOTAL FUNDS EMPLOYED	385,052	-32,435	-108	-287,904	-93,882	176,040		

Territory Banking Account
Budgeted Statement of Cash Flows on Behalf of the Territory
  2010-11			  2010-11	   2011-12		  2012-13	    2013-14	  2014-15		
    Budget			Est.Outcome	   Budget	     Var	  Estimate	    Estimate	  Estimate		
    $'000			    $'000	   $'000	      %	    $'000	     $'000	   $'000		
		CASH FLOWS FROM OPERATING ACTIVITIES								
		Receipts								
11,839		Cash from Government for EBT	11,022	17,848	62	37,767	49,300	48,721		
99,489		Interest Received	124,900	117,215	-6	118,937	124,016	134,098		
123,917		Other Revenue	128,889	138,576	8	118,833	109,460	104,016		
3,232,817		Territory Receipts transferred from Agencies	3,370,017	3,547,341	5	3,555,167	3,725,574	3,969,115		
3,468,062		Operating Receipts	3,634,828	3,820,980	5	3,830,704	4,008,350	4,255,950		
		Payments								
92,889		Borrowing Costs	104,061	116,698	12	136,778	150,886	152,626		
32		Other	121	450	272	385	37	30		
53,812		Payments to PTE Agencies for Outputs	53,812	53,575	..	53,449	52,451	53,293		
2,314,013		Payments to GGS Agencies for Outputs	2,297,854	2,477,667	8	2,482,319	2,540,468	2,639,495		
513,985		Payments to Agencies for EBT	514,542	506,118	-2	579,815	626,640	671,754		
2,974,731		Operating Payments	2,970,390	3,154,508	6	3,252,746	3,370,482	3,517,198		
493,331		NET CASH INFLOW/ (OUTFLOW) FROM OPERATING ACTIVITIES	664,438	666,472	..	577,958	637,868	738,752		
		CASH FLOWS FROM INVESTING ACTIVITIES								
		Receipts								
621,293		Proceeds from Sale/Maturities of Investments	433,005	386,763	-11	0	0	1		
19,307		Repayment of Advance	19,018	87,836	362	18,088	19,783	21,298		
0		Other	5,450	1,739	-68	23,314	37,521	49,036		
2,473		Capital Distributions from Government Agencies	5,846	12,136	108	2,706	2,716	2,724		
643,073		Investing Receipts	463,319	488,474	5	44,108	60,020	73,059		
		Payments								
0		Purchase of Investments	0	0	-	26,909	149,819	261,785		
350,000		Advances Issued to Government Agencies	310,000	230,350	-26	0	50,000	0		
1,021,798		Capital Payments to Government Agencies	969,940	1,157,431	19	865,954	530,739	522,289		
295,485		Other Payments	28,821	209,099	626	13,518	0	8,640		
1,667,283		Investing Payments	1,308,761	1,596,880	22	906,381	730,558	792,714		
-1,024,210		NET CASH INFLOW/ (OUTFLOW) FROM INVESTING ACTIVITIES	-845,442	-1,108,406	-31	-862,273	-670,538	-719,655		

Territory Banking Account
Budgeted Statement of Cash Flows on Behalf of the Territory cont.
  2010-11			  2010-11	   2011-12		  2012-13	    2013-14	  2014-15		
    Budget			Est.Outcome	   Budget	     Var	  Estimate	    Estimate	  Estimate		
    $'000			    $'000	   $'000	      %	    $'000	     $'000	   $'000		
		CASH FLOWS FROM FINANCING ACTIVITIES								
		Receipts								
214		Capital Injection from Government	214	214	-	214	214	214		
531,219		Borrowings Received	281,445	442,274	57	284,655	33,010	0		
531,433		Financing Receipts	281,659	442,488	57	284,869	33,224	214		
		Payments								
554		Repayment of Borrowings	554	554	-	554	554	19,311		
554		Financing Payments	554	554	-	554	554	19,311		
530,879		NET CASH INFLOW/ (OUTFLOW) FROM FINANCING ACTIVITIES	281,105	441,934	57	284,315	32,670	-19,097		
0		NET INCREASE/ (DECREASE) IN CASH HELD	100,101	0	-100	0	0	0		
5,000		CASH AT BEGINNING OF REPORTING PERIOD	-100,101	0	100	0	0	0		
5,000		CASH AT THE END OF THE REPORTING PERIOD	0	0	-	0	0	0		

Territory Banking Account
Statement of Changes in Equity on Behalf of the Territory
    Budget			Est.Outcome	    Planned		   Planned	   Planned	   Planned		
as at 30/6/11			as at 30/6/11	as at 30/6/12	   Var	as at 30/6/13	as at 30/6/14	as at 30/6/15		
   $'000			   $'000	     $'000	    %	    $'000	    $'000	    $'000		
		Opening Equity								
554,742		Opening Accumulated Funds	697,685	386,639	-45	-30,845	-286,315	-93,809		
-1,701		Opening Other Reserve	-2,577	-1,587	38	-1,590	-1,589	-73		
553,041		Balance at the Start of the Reporting Period	695,108	385,052	-45	-32,435	-287,904	-93,882		
		Comprehensive Income								
-514,234		Operating Result for the Period	-317,254	-429,982	-36	-258,538	189,428	266,835		
-1		Increase/(Decrease) in Asset Revaluation Reserve Surpluses	990	-3	-100	1	1,516	1		
-514,235		Total Comprehensive Income	-316,264	-429,985	36	-258,537	190,944	266,836		
1		Movement in Asset Revaluation Reserves	-990	3	100	-1	-1,516	-1		
-1		Other Reserves	990	-3	-100	1	1,516	1		
0		Total Movement In Reserves	0	0	-	0	0	0		
		Transactions Involving Owners Affecting Accumulated Funds								
214		Capital Injections	214	214	-	214	214	214		
2,621		Capital Distributions	5,994	12,284	105	2,854	2,864	2,872		
2,835		Total Transactions Involving Owners Affecting Accumulated Funds	6,208	12,498	101	3,068	3,078	3,086		
		Closing Equity								
43,343		Closing Accumulated Funds	386,639	-30,845	-108	-286,315	-93,809	176,112		
-1,702		Closing Other Reserve	-1,587	-1,590	..	-1,589	-73	-72		
41,641		Balance at the End of the Reporting Period	385,052	-32,435	-108	-287,904	-93,882	176,040		

Notes to the Budget Statements
Many of the variations within the TBA budget statements are driven by agency activity during and between financial years.  This will be disclosed within the relevant explanations below.
Significant variations are as follows:
Statement of Income and Expenses on Behalf of the Territory
•	payment for expenses on behalf of the Territory:  represents the appropriation paid to meet the debt servicing expenses incurred on general government borrowings:
–	the actual debt servicing interest costs are directly influenced by prevailing market interest rates and the level of outstanding borrowings; and
–	variances reflect the difference between budgeted interest rates and actual interest rates and the timing and amount of new borrowing transactions.
•	interest:  represents investment interest returns received from banks and investment managers and interest paid by agencies for loans provided from the TBA:
–	the net increase of $11.887 million in the 2010‑11 estimated outcome from the original budget is due mainly to higher investment returns than originally anticipated and higher investment balances during the year; and
–	the net increase of $3.937 million in the 2011‑12 Budget from the 2010‑11 estimated outcome comprises a decrease in investment earnings due to a lower level of funds to be held on investment during the year ($16.982 million), and a net increase in loan interest mainly due to new ACTEW Corporation borrowings ($19.071 million).
•	other revenue:  represents market gains from investments and notional CSS and PSS employer superannuation contributions from agencies:
–	the net increase of $19.824 million in the 2010-11 estimated outcome from the original budget comprises capital gains from investments ($14.504 million) and higher than expected employer superannuation contributions ($5.320 million); and
–	the net decrease of $3.813 million in the 2011-12 Budget from the 2010-11 estimated outcome reflects a return to normal investment returns for the investment portfolio with no capital gains estimated, a reduction in agency employer superannuation contributions ($3.010 million) and the repayment of the balance of loan monies from the Default Insurance Fund provided in relation to the collapse of HIH Insurance in 2001 ($13.7 million).
•	transfer revenue:  represents the transfer from agencies of revenue received on behalf of the Territory and includes taxes, fees, fines and grants.  Variances are driven by agency activity.
•	borrowing costs:  represents interest payments made in respect of borrowings for the general government sector and ACTEW Corporation, and investment interest payments to agencies:
–	the net increase of $8.603 million in the 2010‑11 estimated outcome from the original budget mainly reflects higher payments of investment interest to agencies than originally anticipated due to higher investment returns on funds under investment ($17.160 million), partially offset by lower borrowing interest costs due to no requirement for new general government borrowings in 2010-11 and the timing of new ACTEW borrowings ($8.557 million); and
–	the net increase of $13.377 million in the 2011‑12 Budget from the 2010‑11 estimated outcome is mainly due to increased interest payments for borrowings undertaken on behalf of ACTEW Corporation and the general government ($25.134 million), partially offset by lower payments of investment interest to agencies due to lower balances of funds under investment and lower investment returns than those achieved in 2010-11 ($11.687 million).
•	other expenses:  represents investment and borrowing fees and unrealised investment capital losses:
–	the increase of $2.864 million in the 2010‑11 estimated outcome from the original budget is due to unrealised investment capital losses ($2.327 million) and investment management fees from higher balances of funds under investment ($0.537 million); and
–	the decrease of $2.412 million in the 2011‑12 Budget from the 2010‑11 estimated outcome reflects a return to normal investment returns for the investment portfolio with no capital losses estimated.
•	transfer expenses:  represents the transfer of appropriated funds to agencies for outputs, expenditure on behalf of the Territory and capital injections.  Variances are driven by agency activity.
Statement of Assets and Liabilities on Behalf of the Territory
•	cash and cash equivalents:  the decrease of $5 million in the 2010‑11 estimated outcome from the original budget reflects the amount of cash held at bank as opposed to being held under investment.
•	current and non current receivables:
–	the net decrease of $95.166 million in the 2010‑11 estimated outcome from the original budget is mainly due to a decrease in loans receivable from PTE’s ($127.479 million) due to a lower 2009-10 borrowing requirement for ACTEW Corporation ($250 million face value compared with the original budget of $330 million) and the LDA not requiring to draw on the $40.000 million loan facility available to it, partially offset by an increase in trade debtors receivable from agencies ($33.755 million); and 
–	the increase of $213.504 million in the 2011‑12 Budget from the 2010‑11 estimated outcome is mainly due to an increase in trade debtors receivable from agencies ($61.946 million), and an increase in loans receivable from ACTEW Corporation ($105.508 million) and Treasury in relation to financing provided in the form of repayable capital injections (Community Housing Canberra $20 million and University of Canberra $23.350 million).
•	current and non current investments:
–	the increase of $409.472 million in the 2010‑11 estimated outcome from the original budget is due to net higher than expected levels of investment, comprising of TBA ($107.386 million), the cash investments of the Superannuation Provision Account which are invested through the TBA ($216.293 million) and agencies ($85.793 million); and
–	the decrease of $386.760 million in the 2011‑12 Budget from the 2010‑11 estimated outcome predominantly reflects a reduction in the cash investments of the Superannuation Provision Account as they are reallocated to other asset classes and a reduction in the cash investments of the TBA to meet funding commitments.
•	payables:  represents accrued interest payable on borrowings at balance date.
•	current and non current interest bearing liabilities:  comprises agencies’ investment deposits with the TBA and external market borrowings.  The 2010‑11 estimated outcome comprises $1,419.096 million external borrowings and $758.533 million agency investments.  The 2011‑12 Budget comprises $1,870.687 million external borrowings and $551.173 million agency investments.
•	other non current liabilities:  represents the fair value of the interest rate swaps transacted to manage the interest rate and duration of the general government component of the borrowing portfolio.
Statement of Changes in Equity on behalf of the Territory 
Variances in the statement are explained in the notes above.