Accrual accounting records income when it is earned, and records costs when they are incurred, regardless of when the related cash is received or paid. Under accrual accounting, government income is called ‘revenue’ and costs are generally called ‘expenses’. As an example, under accrual accounting, goods and services tax revenue is recorded in the financial year that the goods and services are purchased, even though the government may not receive the related tax amounts until the following financial year.
Cash accounting records income when cash is received, and records costs when cash is paid out, regardless of when those amounts are earned or incurred. For example, under cash accounting, goods and services tax receipts are recorded in the financial year they are received, even though those tax amounts may relate to goods and services purchased in the previous financial year. Under cash accounting, government income is called ‘receipts’ and costs are called ‘payments’.
Expense in the budget context refers to the cost of providing government services, excluding costs related to revaluations such as the write down of assets. Examples include spending on programs such as the Age pension or Medicare, funding provided to the states and territories for public hospitals, or the wages paid to Australian Government employees.
The fiscal balance is an accrual accounting measure of the budget balance equal to the government's revenue (for example from taxes) minus its expenses (from providing services such as Medicare and income support such as the Age pension), adjusted for government capital investments such as military equipment (known as 'net capital investment in non-financial assets') when they are acquired or sold.
The government’s ability to maintain its long-term fiscal policy arrangements indefinitely, without the need for major remedial policy action. A fiscally sustainable position is one which can be maintained while pursuing similar borrowing and repayment approaches over the long term, such as that taxation and spending can be expected to operate within reasonable and expected bounds.
In the budget papers, gross debt is the sum of interest-bearing liabilities, mainly consisting of Australian Government Securities on issue, based on their value when the securities were issued (their 'face value'). Gross debt does not include any of the government’s financial assets that partly offset that debt, or any smaller debts that are not Australian Government Securities.
Headline cash balance
The headline cash balance (HCB) is a cash measure of the budget balance equal to the government's receipts (for example from tax collections) minus payments for operations and investment activities (including certain investments in financial assets). If receipts are lower than payments, the headline cash balance is in deficit, meaning the government does not have sufficient cash to cover its activities and must borrow from financial markets.
Net debt is the sum of selected financial liabilities (deposits held, advances received, government securities, loans, and other borrowings) less the sum of selected financial assets (cash and deposits, advances paid, and investments, loans, and placements). It is a common measure of the strength of a government’s financial position. In the net debt calculation, Australian Government Securities are valued as the price they are currently trading at (their 'market value') rather than their value when the securities were issued (their 'face value').
worth Net financial worth measures the total financial assets (such as cash or shares in a company) held by a person or organisation at a fixed point in time, minus the value of any liabilities, such as outstanding debts. Net financial worth is a broader measure of the government's financial position than net debt, but it is narrower than net worth.
Net worth measures the government’s overall wealth, calculated as total assets (both financial and non-financial) less total liabilities. Net worth is the broadest measure of the government’s financial position.
Payments capture all outgoing cash transactions from the Australian Government to individuals, organisations, or other levels of government. In the budget context, payments are those that affect the underlying cash balance and comprise cash transactions for operating activities and the purchase of non-financial assets. Examples include an Age pension payment, a Medicare rebate for a doctor's visit, and the wages of a Centrelink employee.
Interest payments are the cash payments on the government’s debt liabilities which are recorded as a cost to government in the budget. Net interest payments are equal to interest payments minus the cash interest receipts earned by the government on investments in interest-bearing financial assets.
Primary cash balance
The primary cash balance adjusts the underlying cash balance to exclude interest payments on debt as well as interest receipts. As governments have little control over interest payments in the short term (interest payments are largely determined by the size of previous budget deficits), it can be useful to view this as a budget balance that is largely within the government’s control.
Receipts are the government's income, recorded at the time they are received as reported on a cash accounting basis. In the budget context, receipts are those that affect the underlying cash balance, so exclude the repayment of loans and other cash flows relating to the exchange of financial assets. Most government receipts are tax receipts, such as company tax, personal income tax, and goods and services tax. The government also receives non-tax receipts, such as interest earned on government loans and dividends from government investments.
Revenue is government income, recorded at the time it is earned and reported on an accrual accounting basis. Most government income is made up of tax revenue, such as company tax, personal income tax, and goods and services tax. The government also receives non‑tax revenue, such as interest earned on government loans and dividends from government investments.
Underlying cash balance
The underlying cash balance (UCB) is a cash measure of the budget balance equal to the difference between the government's receipts and its payments. It is one of several indicators known as ‘budget aggregates’ that measure the impact of the government's budget on the economy. When the government or the media say the budget is in surplus or deficit, they are generally referring to the underlying cash balance, or sometimes the net operating balance or fiscal balance. More specifically, the underlying cash balance is equal to the government's receipts (for example from tax collections) minus its payments from providing services (such as Medicare) and support (such as the Age pension). The types of receipts and payments used in the calculation include those from buying and selling non‑financial assets, such as buildings or equipment. The term 'underlying' is used because it excludes some cash transactions that are captured in the broader, but less commonly used, headline cash balance.