APPENDIX E

GOVERNMENT FINANCE STATISTICS

GOVERNMENT FINANCE STATISTICS
This appendix contains details of the operations of the ACT on a Government Finance Statistics presentation basis, as required under the Accrual Uniform Presentation Framework.  The information relates to the 2005-06 estimated outcome and budget estimates for 2006-07 and the forward estimates.
Information on the components of these concepts and on the classification of entities is provided at Appendix A of this budget paper.
The GFS includes only those transactions over which a government exercises control under its legislative or policy framework.
GFS revenue differs from AAS revenue.  GFS revenue includes all (mutually agreed) transactions that increase net worth.  Revaluations, included in AAS revenue, are not considered mutually agreed transactions, so are excluded from GFS revenue.  Included in this revaluations category are asset write-offs.  Asset sales, which involve a transfer of a non‑financial for a financial asset, are also excluded.
GFS expenses differ from AAS expenses.  GFS expenses encompass all transactions that decrease net worth, including dividend and tax equivalent payments.
Classification changes
Since the 2005‑06 Mid Year Review there have been two significant classification changes.
Firstly, the Land Development Agency has been reclassified from the general government sector to the public non-financial corporations sector from 2005‑06.  This revised classification recognises that the LDA operates commercially to earn profits on its land development activities.  Consistent with this treatment, the LDA is now required to purchase land from the general government sector at market prices.  
This classification is consistent with the classification of similar land development agencies in state government jurisdictions.  The effect of the reclassification is to remove expenses incurred by the LDA from the general government sector.  It also means that dividends and tax equivalents paid by the LDA are now recognised as GFS revenues.  
However, land sales from the general government sector to the LDA are not classified as GFS revenues, but continue to be treated as asset sales.  
This change in the sectoral classification of the LDA has the effect of improving the general government sector net operating balance by around $90 million per annum relative to the estimates published in the 2005-06 Mid Year Review.
The second classification change involves the treatment of underlying interest and dividends earnings on the Territory’s superannuation investments held in unit structures.  
Previously, the ACT has treated these interest and dividends as other economic flows.  However, these flows are in fact economic transactions and should therefore be classified as GFS revenues.  
This classification change increases GFS revenues and improves the general government sector operating result by around $35 million per annum relative to the estimates published in the 2005‑06 Mid Year Review.
Finally, there has been a reclassification of some employee expenses to nominal superannuation expenses.  This change does not have a net effect on the general government sector net operating balance.  However, it does increase the estimated nominal superannuation expense by around $110 million in 2006‑07.
Comparison with state governments
As outlined in Chapter 1, caution should be exercised in comparing the estimates presented in this appendix with the GFS financial statements prepared by other jurisdictions.  This is because there is an important difference in the way the ACT accounts for superannuation investment returns in its UPF statements relative to state governments.
In particular, Australian Accounting Standard 119, Employee Benefits, allows the expected property income on superannuation plan assets (assets held by an autonomous superannuation fund) to be treated as an offset when calculating the superannuation expense to be recognised in the income statement.
This treatment is widely adopted by Australian governments in preparing their GFS statements.  It enures that the general government sector net operating balance implicitly incorporates the expected rate of return on assets held in superannuation funds to meet accumulated liabilities.  
However, the ACT Government is precluded from holding assets in the defined benefit schemes applying to its employees and former employees (the PSS and CSS schemes).  Instead, these assets are held in a separate statutory fund, the Superannuation Provision Account (SPA).  The SPA is classified as part of the general government sector.
Consequently, the ACT does not account for these assets in the same way as governments that have partially funded superannuation schemes.  While the ACT only records interest and dividend on its superannuation assets, state governments (which are able to invest assets in the actual superannuation schemes themselves) subtract the expected rate of return on their superannuation assets in the calculation of superannuation expenses.  
As a result of this different treatment, the ACT’s net operating balance in the UPF statements presented in this appendix appears weaker than the corresponding results for state governments.
If the ACT was to apply the treatment provided for in AAS119, the general government sector net operating balance would improve by $70 million to $90 million per annum.  
As discussed in Chapter 1, the ACT’s net operating balance must therefore be adjusted by this amount to provide a “like with like” comparison with state governments.
The ABS is currently reviewing the GFS accounting for superannuation by governments.  The ACT will further consider its treatment of superannuation assets in the UPF statements following the completion of the ABS review.

Loan Council Allocation
The ACT’s Loan Council Allocation (LCA) agreed to at the 2006 Loan Council meeting was $159 million, based on an accrual Government Finance Statistics deficit of $163 million.
The nomination established a tolerance limit for the Budget-time estimate of between $103 million and $215 million (+/- 2 per cent of total public sector receipts).
The Budget-time estimate has been revised to $191 million, which his within the LCA nomination tolerance limit.

Tolerance Limit
Nomination – 2 per cent of public sector receipts ($2.685 billion)  +/‑ $56 million.
Budget – 2 per cent of public sector receipts ($2.870 billion)  +/- $57 million.