Peter Costello

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Fiscal Policy under accrual budgeting

NO.023

FISCAL POLICY UNDER ACCRUAL BUDGETING

The 1999-2000 Budget is the first budget by the Commonwealth on an accrual basis. The move to accrual budgeting is an important step in the Government’s programme to develop a business like reporting system for the public sector. Accrual budgeting will also allow the Government to budget for capital replacement.

Under the previous cash accounting, the underlying cash balance was the indicator of fiscal policy – whether the Commonwealth was adding to or drawing down savings in the economy. The operating result on an accrual basis will not show this, so the Government will report an additional "fiscal balance" which will net out capital adjustment and valuation.

The Government’s fiscal strategy – to achieve underlying budget balance on average over the economic cycle - is unchanged by the move to accrual budgeting. The fiscal balance, like the underlying cash balance, measures the Government’s contribution to net lending (the national investment–saving imbalance) and hence to the external current account balance. The Government’s medium-term fiscal strategy continues to be directed at raising public saving, and over time national saving, thereby enhancing Australia’s longer term growth prospects.

The underlying cash balance (the fiscal indicator used in previous budgets) will continue to be published to aid in the transition to an accrual budget.

In the 1999-2000 Budget, the underlying cash balance will, for the first time, include payments by the Commonwealth for Public Trading Enterprise (PTE) superannuation liabilities, in line with the new international standards introduced in the Australian National Accounts by the Australian Bureau of Statistics in December 1998.

These payments (which have been made for the last two decades) were previously treated as financing transactions and not included in the underlying cash balance. As a result of the new standards, they will be treated as "on budget" and treated as outlays. This will have the effect of reducing the underlying cash balance by around $1.3 billion per annum.

The Treasury information paper, Fiscal Policy Under Accrual Budgeting, being released today, explains the accrual indicator for fiscal policy – the fiscal balance – as well as the treatment of PTE superannuation liabilities.

CANBERRA
30 April 1999

30 Apr 1999

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